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There are a number of Canadian telecommunications industry observers who seem to have trouble with basic mathematics. One of the areas they frequently confuse is mixing up “ARPU” (average revenue per user) with “prices”.

A number of financial analysts produce regular reports that have typically shown that Canadian wireless carriers enjoy some of the world’s highest ARPU, to which the knee jerk reaction is that this is evidence of Canadian prices being among the highest in the world.

There are a number of problems with this. If subscribing to wireless services was a binary purchase decision (either I subscribe, or I don’t), then ARPU might be a reasonable proxy for price.

But we don’t just subscribe to mobile. We choose a data plan, we choose certain feature options (long distance, US calling, unlimited text and messaging, roaming packages) and we choose whether we want a device subsidy bundled in. It is that mix of features that we add that leads to our monthly bill rising, resulting in aggregate to the carriers’ ARPU. Canadians and Americans are among the world’s biggest users of mobile data, so the data ARPUs will naturally be higher.

Price may contribute toward ARPU, but if the price rises too high for an option, demand drops and the overall ARPU can fall. I spend more at a certain store each month, than I do at another, precisely because their prices are lower. The ARPU for the first store is higher, but ARPU in that case is be a very bad proxy for comparing relative prices at the stores.

That explains why ARPU should not be used as a proxy for comparing prices.

But there are also differences in the way carriers recognize revenues. In a recent investor note related to the Shaw-Freedom “$0 iPhone”, Jeff Fan at Scotiabank observed:

Shaw’s Freedom ARPU and subsidy accounting difference. Under Shaw’s accounting methodology, subsidies are not expensed initially (booked as receivables that are amortized against future revenue). This means EBITDA is higher and reported ARPU will be lower.

The major carriers have been reporting that there will be a transition to International Financial Reporting Standards (IFRS 15), resulting in a substantial change in reported service revenues. For example, from Rogers’ latest annual report, we read:

We anticipate this will most significantly affect our Wireless arrangements that bundle equipment and service together into monthly service fees, which will result in an increase to equipment revenue recognized at contract inception and a decrease to service revenue recognized over the course of the contracts.
…
The standard is effective for annual periods beginning on or after January 1, 2018.

Similar notes appear in the annual reports for Bell and TELUS. In the near future, we are about to see significant drops in the ARPU being reported by the major carriers, solely because of this accounting change.

To what extent have accounting differences contributed to the general misunderstanding of Canadian ARPU rankings in global comparisons?

Today marks the beginning of another school year. Across Canada, millions of kids are preparing to meet new teachers, telling stories about what this did this past summer.

Many are wearing new outfits and are carrying new backpacks filled with the supplies they bought at “back-to-school” sales over the past couple of weeks. Some basic school supplies haven’t changed for generations. Do kids still buy protractors and compasses along with their pencils, pens and loose-leaf paper?

Cutting and pasting weren’t always done digitally. Are we past the days of collecting old magazines to carefully cut out pictures and paste them into school projects? I wonder if kids in today’s elementary school generation know where the computer terms “cut” and “paste” come from.

Incidentally, Duo-Tang, the original manufacturer of the report cover of choice for generations, was bought out nearly 15 years ago. Sure, those Duo-Tangs were theoretically reusable, but who among us didn’t want to submit our projects with a brand new cover? Each of us had our own style for folding the tangs. Who folded the tangs together? Who split them? Anyone alternate the direction of the three sets of tangs? Kids: if you don’t know what I am talking about, ask your parents.

Most Canadian school-aged kids have a computer at home to connect with their friends and their teachers, using online tools to get their assignments and submit them for assessment and evaluation. What about students who still don’t have a computer at home, let alone a broadband connection? How are they able to keep up with their schoolmates? It isn’t enough for them to have access to computers in public libraries and in a room at school; kids do homework at home. How can we expect them to succeed in today’s digitally enhanced education system?

TELUS [Internet for Good] and Rogers [Connected for Success] have bold corporate initiatives to target certain households in their wireline operating territories with affordable broadband programs. But despite these great programs, there are hundreds of thousands of homes outside their areas. To date, no cable company or phone company has stepped up with a targeted affordable broadband product for residents of Saskatchewan, Manitoba, Quebec, Nova Scotia, or PEI. Government programs have typically subsidized the supply of broadband based on geography, without looking at stimulating demand with subsidies looking at financial means.

Another school year is underway. Another opportunity for a fresh look.

Watch out for kids as you drive to work. When you get to the office, whether it is government or private sector, see how you can help get connected computers into every household with school-aged kids.

This week, kids across Canada will say goodbye to teachers for their summer break from school. No more pencils, no more books…

For too many kids, pencils and books continue to be the basic tools for completing homework, which seems somewhat anachronistic in a country promoting a national innovation agenda. Too many Canadian households don’t have a computer, let a lone a broadband connection.

I know that the first “Back to School” promotions are still about a month away, but I continue to be troubled by the number of school kids who won’t have access to the digital tool set they need to do homework when they return to classrooms in the fall.

In BC and Alberta, TELUS offers its Internet for Good service; in Ontario, New Brunswick and Newfoundland & Labrador, Rogers offers Connect for Success. Both programs provide qualified disadvantaged households with access to broadband service for $10 per month and both service providers help get a low cost computer and training resources for the household. As Innovation, Science and Economic Development (ISED) Minister Bains acknowledged in his remarks at The Canadian Telecom Summit three weeks ago, TELUS and Rogers deserve recognition for launching these initiatives over the past couple years. These were private sector ventures, launched without government prodding, because management at the companies agreed it was the right thing to do.

But what about Saskatchewan? Manitoba? Quebec? Nova Scotia? PEI? Hundreds of thousands of households in those five provinces have physical access to broadband available, but aren’t able to get online. Indeed, according to the CRTC, these provinces have the lowest rates of broadband adoption in Canada.

Try to imagine how a kid can do homework today without a connected computer at home. I have said it too many times: Affordable broadband isn’t just a rural issue. How can we continue to ignore the households in our urban centres while the CRTC effectively duplicates ISED funding programs for rural broadband expansion? Where is the leadership?

Before the summer is out, will at least one service provider in each province take on the challenge – the responsibility – of helping to bring connected computers into the home of every school kid?

In an interview with the Financial Post, Commission Chair JP Blais had hinted his next big ruling — a decision on basic Internet service — will be his most disruptive yet. Earlier today, the CRTC issued Telecom Regulatory Policy CRTC 2016-496 “Modern telecommunications services – The path forward for Canada’s digital economy” [TRP 2016-496] and it is difficult to see the level of disruption.

The financial markets expressed relief with the decision, Barclays calling it ‘benign’ and Scotiabank saying ‘logic actually prevailed… the absence of retail price regulation renders this decision a “non-event” from the capital market’s perspective.’ From a consumer perspective, describing broadband as a basic service without imposing an obligation to serve creates a high likelihood that the basic service objective will not be much more than a score card bound to disappoint. The Regulatory Policy describes the former obligation as “The obligation to serve requires the incumbent local exchange carriers (ILECs) to provide telephone service to (i) existing customers, (ii) new customers requesting service where the ILECs have facilities, and (iii) new customers requesting service beyond the limits of the ILECs’ facilities.” [paragraph 3, TRP 2016-496]

Later, at paragraph 180, the obligation to serve is credited by the CRTC as having led to successful fulfillment of the voice basic service objective:

As stated earlier, there is currently near-ubiquitous access in Canada to the level of service set out in the basic service objective. As a result, the intended goal of the basic service objective has been achieved.

But, rather than impose an obligation to serve on this aggressive broadband objective, the obligation is largely being eliminated. The obligation is being replaced by financial incentive programs, an industry-funded $750M pot, starting at some undefined point in the future. This is nothing new. More than 10 years ago, the Report of the Telecom Policy Review Panel recommended “that affordable and reliable broadband services should be available in all regions of Canada by 2010.” An entire chapter of the report was dedicated to “Connectivity: Completing the Job.” Chapter 8 recalls “In 2000, the federal government set a policy goal of ensuring that broadband networks and services would be available to businesses and residents in every Canadian community.”

Recommendation 8-1
As a key part of its national ICT strategy, the federal government should

1. ensure that Canada remains a global leader in the deployment of broadband networks, and
2. immediately commence a program to ensure that affordable and reliable broadband services are available in all regions of Canada, including urban, rural and remote areas, by 2010 at the latest.

That recommendation was made more than 10 years ago. There have been hundreds of millions of dollars spent since then by successive federal and provincial programs. The CRTC got into the rural broadband subsidy business once before when it set up its Deferral Account.

A week after ISED Minister Bains announced a $500 million broadband program (“Connect to Innovate”), today’s CRTC decision sets up yet another funding program. These are taking place ten years after the report of the Telecom Policy Review Panel, 16 years after the government first set its policy goal.

The most disruptive ruling yet? Kindly excuse my cynicism. What is disruptive here?

In the hours before the policy was released, I prepared a series of Tweets on what I might consider to be disruptive regulation. They are reproduced below for your consideration over the holidays. Perhaps we’ll see more innovation in the New Year.

Canadians have decided to hand the reins of power over to Justin Trudeau, the first time Canada has had a prime minister who is so intimately familiar with the official residence at 24 Sussex Drive, having lived there as a child.

We already knew that there would be a new Minister of Industry as a result of yesterday’s election – James Moore decided not to seek re-election. It was less certain that the new cabinet would be formed by a Liberal Prime Minister – Prime Minister Trudeau 2.0 – and it wasn’t until the initial results emerged from Atlantic Canada that we were sure that Canada voted so emphatically for a change.

We will learn in the coming weeks who will fill the seat to lead Industry Canada – the department responsible for the development of policy for telecommunications and information technology and services – and as a result, most digital economy issues.

As Scotiabank indicated in a note to investors late last week: “While the Liberal Party does want to see greater competition and lower prices, we believe its approach would be very different from that of a Conservative majority.” The research note said that anything but a Conservative majority was expected to lead to “fewer regulatory disruptions than in the last few years”, since

The Conservative government under Prime Minister Stephen Harper and Industry Minister James Moore had a pro-consumer, populist approach to the telecom sector and appeared to put less emphasis on the impact of their policy decisions on jobs and network investment.
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A Liberal majority could be a fresh and positive change for the incumbents.

The last Parliament was characterized by a lack of balance, a failure to appropriately give consideration for long term structural impact of populist policy, in part because the partisanship of Parliamentary Committees gave little (if any) consideration to Opposition amendments to bills. That is assuming the legislation even reached Committee, thanks to tactics such as burying legislative changes within Budget Implementation bills and other omnibus bills.

Canadians voted for change and the message was loud and clear. Hopefully, the Liberal strategists who will shape the operation of the PMO – the Prime Minister’s Office – have been listening, learning to develop a more cooperative and humble approach to the institutions of Parliament.

Over the past few months, I have indicated what I would like to see on Canada’s digital agenda.

There is now an opportunity to build on the post-election optimism, as Prime Minister Trudeau forms his government.

Thank you to all the candidates from every political stripe across this land who put forward their names and worked so hard over the past few months.

Congratulations to the new Parliament. And congratulations to Prime Minister Trudeau. Welcome back to 24 Sussex.