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As regular followers know, I travel to Israel a couple times a year. My daughter has a mobile plan that has ridiculously low prices for a huge data bucket and calling to 56 countries; I have a couple add-on SIM cards that cost an additional $10 per month for me to use or share with friends and family when they are travelling to the region.

Obviously, consumers love paying low prices. As I have written before, we all want lower prices for everything, other than our own wages.

Israel’s mobile market is a relevant case study. At least one observer says Israel’s experience “is a tale of short-sighted regulatory decisions that destroyed the profitability of the cellular market and undermined the ability and motivation of the facilities-based service providers to invest in infrastructure”. Yossi Abadi heads the telecommunications and media practice for one of Israel’s largest law firms. He prepared evidence on “The Israeli MVNO Experience” for the CRTC’s “Review of mobile wireless services” (TNC 2019-57). In his evidence, he asserts that low mobile service prices have led to operators “struggling with massive financial pressures that impact their ability to invest in new infrastructure… Mobile broadband subscriptions per capita have declined from #4 in the OECD in 2010 to #29 in 2017. For cellular network speeds, Israel is ranked 64th with an average download speed of 23.63 Mbps while Canada is ranked 2nd with an average of 65.90 Mbps.”

Mr. Abadi’s evidence examines the market reforms introduced in Israel in 2009 that were designed to stimulate competition and reduce mobile prices, changes “mainly driven by short-term political considerations: to cause rapid reductions of prices by increasing the number of players.”

Between 2010 and 2018, revenues for Israel’s 3 incumbent carriers, fell 61% (from ₪18.9B to ₪7.3B). “As revenues sank, the three wireless incumbents were forced to slash spending and lay off workers. Total sector telecom employees fell from 49,700 in 2010 to 25,900 in 2017, a 48% decline.” Per capita capital spending fell more than 12% at a time when OECD average spending increased by 5%; Canada’s per capita investment increased by more than 21% over the same period.

According to the evidence, as a direct result of its policies, “Israel now lags behind other OECD countries in communications infrastructure.”

Israel rolled out fourth-generation mobile networks several years behind most OECD countries. Israeli 4G represented just 14% of total mobile subscriptions as of December 2017. By contrast, in Canada, 4G comprised 62% of mobile subscriptions as of December 2017. Population coverage in Israel of 4G is about 89%. This is surprisingly low for a country with a population density of 433 persons per square Km. In contrast, Canada has 4G coverage to 99.4% of the population, and a population density of just 4 persons per square Km (less than 1/100th of Israel’s).

In 2016, the director general of the Communications Ministry told reporters, “We have a problem with the implementation of the reform because the companies don’t have enough money to invest in infrastructure.” As a result, Mr. Abadi sees difficulty for Israel’s mobile industry to invest in 5G.

His evidence concludes that Israel’s experience “is a cautionary tale that any regulator should examine before introducing MVNOs in order to reduce retail mobile prices.”

Prices did fall, but so did the quality of the networks. The massive reductions to revenues caused major reductions in capital expenditures, network roll-out and expansion, market capitalizations of the participants and even the number of employees.

The short term consumer benefits from policies driving low mobile prices may lead to higher and broader economic costs in the long run.

Yossi Abadi will be speaking about Israel’s mobile experience on June 5 at The 2019 Canadian Telecom Summit. Have you registered yet?

When looking at telecom services, regulators should focus on whether the market is sustainably competitive. That seems to be the message arising from merger reviews in Europe.

After years of focus on the number of carriers, regulators are taking note of the impact of hypercompetitive markets on investment. UK service providers are unable to cover their cost of capital. As a result, operators are unable to fund network upgrades. Vodafone and Three UK intend to merge. The Competition and Markets Authority (CMA) in the UK is moving into the next phase of its review of the merger.

In announcing its next phase, CMA said “the deal, which combines 2 of the 4 mobile network operators in the UK, could lead to mobile customers facing higher prices and reduced quality.”

The CMA’s Phase 1 investigation found that Vodafone UK and Three UK provide important alternatives for mobile customers. Both have made significant investments in their networks in recent years – which includes the rollout of 5G. Three UK is also generally the cheapest of the four mobile network operators. The CMA is concerned that combining these two businesses will reduce rivalry between mobile operators to win new customers. Competitive pressure can help to keep prices low, as well as provide an important incentive for network operators to improve their services, including by investing in network quality.

Vodafone and Three UK replied, noting “The current market structure has resulted in the quality of mobile network services in the UK lagging significantly behind other European countries. Vodafone UK and Three UK are sub-scale, unable to cover their cost of capital, and constrained in their ability to invest and compete effectively against the two market leaders.”

In February, OpenSignal reported that the UK ranked 22nd for 5G availability and download speeds when comparing to 25 European countries. The UK has the slowest download speeds in the G7. By way of comparison, I recently wrote that Canada is consistently a leader in availability and speeds.

There is a reason why EBITDA margins are necessarily higher among facilities-based telecom competitors. By definition, EBITDA measures the earnings before consideration of interest, depreciation, and amortization. Each of these are costly factors for companies with large investments in infrastructure. If the EBITDA margins are not sufficiently strong, network operators will be unable to maintain investment.

Last October, I wrote about a CRTC arbitration on MVNO access, where the Commission determination explicitly said “This decision helps to promote access to affordable telecommunications services for Canadians and to foster sustainable competition and continued investment.” At the time, I asked “To what extent does it provide clues for the way the CRTC will approach revisions to the wireline wholesale framework?” I wrote about sustainable competition two years ago, showing how the CRTC and Competition Bureau seemed to be at odds in their approaches.

A singular focus on driving lower prices fails to appropriately consider balancing competing policy objectives. In Canada, telecom policy seeks a balance between quality, coverage and price. I’d submit that the number of competitors should be a less important factor for policy makers. The more important consideration should be fostering a sustainably competitive market to deliver overall consumer benefits.

Every grocery shopper has experienced shrinkflation. Headline prices for asparagus, previously quoted by the pound, are now often listed for 325g bundles – you end up with 25% less for the money. Boxes of cookies and snacks are smaller; cereal boxes shrank. Prices for items may appear to hold constant, but the packaging is smaller. The headline price disguises the fact you are getting less.

Last month, I wrote “Statscan says cellphone prices are plunging – and they are”. In that post, I used a purely hypothetical apartment metaphor to describe how Canadians might choose to lower their monthly bill for a similar size apartment, or pay the same amount and get a bigger place with better quality. That might be the case if the cost of accommodations happened to be falling. If only!

But, despite these inflationary times, Canadian telecom – especially Canadian mobile wireless service – is actually delivering more value for less money.

A recent post by the Canadian Telecommunications Association talks about this effect in terms of grocery shrinkflation.

In a world of shrinkflation, Canada’s telecom sector stands apart.

• Lower prices – more data

  While prices for most things have increased, prices for both home internet and wireless services are declining. According to Statistics Canada, overall consumer price inflation has risen by 18.5% over the last five years, but prices for cellular services have decreased by an average of over 47% and prices for internet access services have decreased by an average of nearly 8% during the same period.

  For example, according to the Government of Canada’s annual telecom price study, in 2019 the average price of a wireless plan that offered 1GB of data (and 1200 call minutes and 300 texts) was approximately $65 per month (or approximately $75 in today’s dollars). Today, for $65, a consumer can get a plan that offers 75GB of 5G data and unlimited talk and text Canada-wide, with no overage fees. This amounts to a 98.6% decline in price per GB (without factoring in additional savings attributable to unlimited talk and text and zero overage charges). Smaller data plans are also available, like 30GB wireless plans for $34 and $50 for 60GB, which offer more data at lower prices than what was available just a few years ago.

• Faster Speeds

  If you check the label on your favourite packaged good you may find that one or more ingredients have been switched for a cheaper and lower quality ingredient. The opposite is the case in telecom. Though prices are declining, the quality of service has steadily increased. For example, the average mobile data download speeds in Canada have increased by 90% over 5 years¹ and fixed broadband download speeds by nearly 400%². With faster speeds, Canadians can stream movies, play games online, and join video conferences while on the go.

• More coverage.

  While other industries are shrinking the size of their products, Canada’s telecom providers are steadily expanding the coverage of their wireless and fixed networks, with the vast majority of Canadians now having access to mobile wireless and high-speed internet services. And with investments being made in new innovations like cellular-to-satellite communications, Canadians will soon be able to connect from even the most remote parts of Canada.

…
While other industries are shrinking their products, the telecom sector is giving more, not less. By investing billions each year, it is providing Canadians with more data, faster speeds, and wider coverage, all at lower prices.

I shamelessly stole the shrinkflation metaphor last week when I was quoted by Canadian Press talking about the latest Statistics Canada consumer price index report. In February, the cellular price index was down more than 25% compared to a year ago.

Price declines in the national inflation report could indicate that consumers are getting more bang for their buck through new offers, such as bigger data packages, international roaming perks, or voice-to-text voicemail services.

“They’re either getting more for the same price or they’re paying less for the same thing,” said Goldberg, who likened it to “the opposite of shrinkflation.”

“If you go into a grocery store and the box of cereal on the shelf is $3.99, but last month it was a 500-gram box and this month it’s a 400-gram box … you’d say prices went up 25 per cent. In this case, it’s the opposite.”

For years, Canadian telecom policy has recognized the value of investment in telecommunications infrastrucutre. In approving the merger of Orange and MasMovil, I noticed that Spain has recently adopted a similar view, with Digital Transformation Minister José Luis Escrivá saying “the competitiveness of a country partly depends upon its digital infrastructure and its connectivity.”

Here, we phrase it simply. “Canada’s future depends on connectivity”.

Can light touch regulation benefit consumers? In today’s competitive telecom world, a new paper answers that question, “yes”.

In my 2024 agenda post, I noted how CRTC’s determinations on mandated wholesale access can actually lead to reduced competition by negatively impacting the business case for certain marginal investments. That will lead to reduced coverage for enhanced broadband and advanced wireless services.

CTIA, the US wireless industry association recently released a report that looked at a paper by Georgetown University professor John Mayo: “The Evolution of Consumer Welfare in the Mobile Wireless Service Industry” [pdf, 517 KB]. As CTIA notes, the paper “offers a systematic assessment of the evolution of competition in the wireless industry and how it drives consumer welfare, concluding that the decades of light-touch regulation of mobile broadband provided the framework for substantial gains to consumers.”

… virtually every dimension of economic performance within the wireless telecommunications sector reveals that the light-touch regulatory approach that has governed the industry for decades has created a business-government framework that has generated nothing short of massive gains to consumer welfare in the United States.
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[The light touch] policy framework has not only produced consumer welfare benefits for today’s customers, but has also resulted in a robust feedback loop in which firms, in competitive efforts to retain existing customers and attract new customers, are driven to constantly invest in next-generation network technologies that produce a steady stream of new innovations. These innovations, in turn, create new consumer welfare benefits for tomorrow’s wireless customers.

The FCC in the US is considering the application of more heavy-handed regulation for its wireline and wireless telecommunications services industries under its Notice of Proposed Rulemaking for reclassifying broadband internet service [pdf, 2.2MB].

In Canada, there seems to be a never ending regulatory process to establish a broadband regulatory framework. Further, the government has sent mixed messages with Policy Directions, and Ministerial letters to the CRTC, challenging regulatory independence. As I wrote last week, the Standing Committee on Industry and Technology plans to “undertake a study on the modernization of the regulatory framework and the convergence of wired and wireless products to ensure that future decisions are informed by robust data and recommendations for the benefit of all consumers in terms of accessibility and affordability”.

What will this mean for the climate for investment in telecommunications infrastructure?

In May of 2021, I wrote about a report that demonstrated that Canadian consumers put a value on quality, and will migrate between service providers based on their mobile network experience.

Consumer welfare isn’t just about price. Will we consider how light touch regulation can bring longer term, more holistic benefits to consumers?

In a post I wrote last October, I asked if we sometimes lose sight of the target. That post referred to a post called “Regulators Regulate”.

Both are worth a fresh look. Should the test for effective regulation be creating an environment that enables and encourages improved consumer welfare?

A report from PwC Canada takes a new look at the state of telecom affordability in Canada.

According to “Understanding the affordability of wireless and wireline services in Canada” [26-page pdf, 7.7MB] focuses on assessing three elements of Canadian telecommunications affordability:

1. Canadian economics statistics, including telecommunications expenditure, inflation, and changing incomes.
2. The assessment of wireless and wireline affordability in Canada, including assessing the changing prices of wireless and wireline services over time relative to increases in data consumption and changing patterns of data usage.
3. The affordability of wireless and wireline services for Canadians against consumption and income metrics relative to global jurisdictions.

What did PwC find?

• Canadians have been impacted by inflation, with inflation in 2021 and 2022 surpassing the rate of income growth. Prior to 2021, incomes were growing faster than inflation for every quintile except the highest.
• Between 2017 and 2021, cellular services was the second largest CPI drop among the only 13 deflationary goods and services in the CPI bucket, falling at a CAGR of 8.1%. Driven by the decrease in cellular service CPI, communications was also a deflationary service, with communications CPI falling by 16% from 2017 to 2022.
• Affordability increased for all quintiles when assessing the cost of entry-level wireless and wireline plans against adjusted disposable incomes. Notably, for the lowest income quintile, the affordability of entry-level wireline plans improved by 11% between 2017 and 2021, while wireless affordability improved by 39%.
• The price per gigabyte of wireless and wireline data fell by over a 19% CAGR in Canada from 2017 to 2021. This is attributed to increases in data consumption significantly outpacing changes in prices, with data consumption growing at CAGRs of 24% for wireless and 28% for wireline. Among selected international peers, Canada has the second-lowest cost per gigabyte of wireline data.
• The affordability of wireless and wireline services in Canada is on par with peer countries. As the CPI of Canadian communications has dropped, it has brought the price of services in line with international peers as a percentage of income, indicating relative affordability.
• Together, the Canadian market and international analyses demonstrate that facilities-based competition in Canada is able to maintain a healthy telecommunications industry while delivering on network coverage, quality, and affordability

Earlier this year, I wrote, “Affordability is a complex and multifaceted concept that varies depending on the context and the goods or services being considered.”

The report looks at telecom affordability across various income quintiles, but it did not explicitly include a discussion of targeted affordable services such as the industry-led Connecting Families initiative. It is worth noting that Rogers recently introduced its Connected for Success 5G Wireless Program, promised as a benefit of the Shaw acquisition, and it has rolled out its broadband Connected for Success to the former Shaw footprint. TELUS offers Mobility for Good, among other targeted services, as I have described.

The PwC report lays out a fact-based narrative on telecom affordability in Canada, and paints a very different picture from the conventional wisdom.