In 2011, the OECD released a report that found Canadians face some of the highest wireless roaming fees in the world. Some tried to downplay the findings – the National Post’s Terence Corcoran claimed that the roaming fees actually looked pretty cheap, while Rogers pointed to several packages that it said “would rank us among the lowest cost of countries surveyed.” Yet as regulators in other countries began aggressively targeting high roaming fees – EU costs have dropped 91 percent over the past six years given regulatory initiatives – Canadian companies apparently began to fear that similar regulations could make their way here. Indeed, according to Rogers, it was necessary to get “roaming in line” or face the prospect of regulation.
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How Telus Once Supported a Spectrum Set-Aside To Create Competition and Attract Strong Players
Telus is currently engaged in a full-court lobbying press aimed at killing the government’s plans for a spectrum set-aside for new entrants in the forthcoming spectrum auction with Telus CEO Darren Entwistle warning ominously of a “bloodbath” should the government move ahead with its strategy. Entwistle notes that the company has invested more than $100 billion in the Canada and that the industry as a whole has invested $420 billion. Yet only a fraction of those figures are actually linked to wireless investment in the way that most would conceive of it. A Telus spokesperson said yesterday that spending on technology and infrastructure was actually $30 billion, leaving $70 billion for operational expenses, such as paying salaries, office supplies, and rent. Last year the CWTA said the entire Canadian wireless industry has invested $25 billion on spectrum and wireless infrastructure. That is a far cry from Entwistle’s $420 billion figure, which is apparently based on such a broad notion of investment that my lunch at Subways and coffee at the Second Cup is also an investment. More on the Telus numbers in a must-read post from Peter Nowak.
Nowak on the Not-So-Friendly Numbers at Telus
Peter Nowak debunks many of the recent claims from Telus on capital investment and pricing in the Canadian market, concluding that Canadian carriers rank first in the world in average revenue per user, third in profit margin, and some of the highest consumer prices in the world.
Telus Attacks: The Battle To Keep Verizon Out of Canada
Telecom giant Telus has had an eventful week as it moves from claiming that Canada “really should be the most expensive country for wireless service in the OECD” to increasing its prices in the shift toward two-year contracts to now declaring war on the government’s commitment to injecting greater competition into the Canadian marketplace. While the comments that something less than the highest prices in the developed world are a “great success story we should be celebrating” generated considerable media attention (here, here and here), the bigger long-term issue is the full-court lobbying press to stop the entrance of new competition.
Yesterday, Telus CEO Darren Entwistle was campaigning at the Globe and Mail and National Post, warning of a “bloodbath” if the government sticks with its commitment to allow for a set-aside of spectrum for new entrants such as Verizon. Telus is concerned that a set-aside would allow Verizon to purchase two of the four available blocks, leaving the big three to fight it out over the remaining two blocks. Telus emphasized its prior investments in arguing for a “level playing field” in the auction.
Yet to borrow Telus’ phrase – “scratch the surface of their arguments and get to the facts” – and it becomes clear the fight is not about level playing fields since new entrants have been at a huge disadvantage for years in Canada. Indeed, even with a spectrum set-aside, there would not be a level playing field as companies such as Telus would have big advantages that include restrictions on foreign ownership for broadcast distribution (thereby blocking Verizon from offering similar bundled services), millions of subscribers locked into long term contracts, far more spectrum than Verizon would own, and its shared network with Bell that has saved both companies millions of dollars.
Competition Not Contracts: The Real Reason Canadian Wireless Prices Are on the Rise
This week, Telus and Bell announced new wireless pricing plans based on two-year contracts (Rogers has said their plans will be released shortly). Those plans – particularly those from Telus which seems to be taking its suggestion that Canada should be the most expensive wireless country seriously – feature higher prices, which some claim are the product of the shift from three-year contracts to what is effectively a two-year maximum under the new CRTC wireless code. The narrative behind these cost increases is that consumers are amortizing the cost of their device over a shorter period of time and therefore can expect higher monthly fees. This argument is perfect for the carriers as they get to blame the CRTC (and by extension, the Competition Bureau, consumer groups and consumers themselves) with an “I told you so” for the increased prices. Yet the higher costs are not strictly a function of shorter contracts, but rather a product of Canada’s uncompetitive marketplace.
Many other countries have two-year contracts with cheaper rates and bigger device subsidies. This is because consumer price is not primarily a function of contract length or device cost, but rather marketplace competition. For example, Spain’s wireless pricing has been dropping in recent months as their four major carriers find consumers more aggressively shopping for better prices or cancelling their wireless services altogether. In response, all four Spanish carriers are dropping prices to stop the churn and attract new customers. For example, BGR reports that Yoigo (owned by Telstra) has offered free iPhone 5’s on two-year contracts for as little as 25 euros (C$34) per month (the article emphasizes how competition through innovative pricing has led to profit declines at incumbent carriers). The decline in price is illustrative of why it is competition, not “regulatory costs” or device subsidies, that are the key factor to consider.
[Update 7/27: A commentator below helpfully points out an inaccuracy in the BGR article since the Yoigo price was for phone only and not service. A fuller comparison of the Spanish offer is as follows: Yoigo for 24 months of 25 euro phone + 25 euro service (unlimited voice + 1 GB data) is C$1636.24. Add another 12 months of service for C$409.56. Total three year cost is $2047.80. Bell’s current offer on an iPhone 5 with the same voice and data for three years is $179.95 for the phone, $35 for the activation, and $70 per month of the service for 36 months. Total three year cost (not including taxes) is $2734.95.]
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