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Lessons from Denmark’s telecom market

26 Mar
Even Danish vikings understood the benefits of cheap, accessible technology.

Even Danish vikings understood the benefits of cheap, accessible technology.

I spent a few days in Denmark last week doing research for my next book, Humans 3.0. One of the chapters will look at whether technological advance is making us happier as a whole, and with Denmark regularly ranking as the happiest country on the planet, I thought there might be some insights to be found. There definitely were and I’ll revisit this topic in future posts.

One of the contributing factors to Danes’ high satisfaction levels is surely the excellent state of their telecommunications services. Denmark has some of the fastest and cheapest wireline and wireless offerings in the world.

On the home broadband side, the country rates third overall in terms of overall value, according to Ookla’s Net Index. I almost wept tears of envy when doing speed tests at my friend’s house, where I was staying. I got even sadder when I learned that his ultra-fast, symmetrical download and uploads speeds (with unlimited usage) costs only about $15 a month. Similar service either doesn’t exist in Canada, or you have to break the bank to get it.

On the wireless side, with the debate currently stirred up again over whether Canada’s market is competitive, I thought it might be instructive to see how the Danes manage. In that vein, I ventured into a Telia store, pretending to be interested in buying an iPhone 5. Despite having only 6 million people, Denmark has four facilities-based wireless competitors: Telia, Telenor, 3 and TDC.

Here’s how buying the device works in Denmark. The first option is to buy the phone upfront. In the case of the iPhone 5, that costs 4,300 krone for the 16 gigabyte version, or about $760. That’s about $60 more than in Canada, which is a minor miracle given that just about everything is a lot more expensive in Denmark. The other option is to sign on to a payment plan, in which case you pay $9 up front, then divide up the balance over however many months you want, to a maximum of the contract term, or 24 months. At that minimum payment level, the phone costs about $30 a month.

After you choose how to pay for your phone, you pick a plan. Telia is currently pushing a $53 monthly plan that includes unlimited talk and text and a whopping 20 GB of data (caller ID, voice mail and all that stuff is free, as it is almost everywhere outside if North America). There’s a cheaper plan that offers the same, but with just 1 GB of data, for $31. A comparable plan from a Canadian incumbent is more than double, at $70.

Putting that together, an iPhone 5 with a decent plan from Telia costs a Dane a minimum of $62, or $1,497 over the course of their two-year deal. Canadian carriers are now selling the device at $99, so factoring that in, the total cost of the device with a comparable plan over the three-year contract here is $2,620. If that is averaged down to two years, it’s $1,746, or 15 per cent more.

The interesting thing about Denmark is that service contracts are limited to six months. You can buy your phone from a provider, then shop around for a better deal six months after. You still have to pay off your phone with the original provider, but the costs of the device and the service are kept strictly separate. The provider is also required to unlock the phone after those six months, free of charge.

This explains a number of things, illustrated in the comparison chart below: why average revenue per user and prices are much lower in Denmark, and why churn – a measure of how many customers defect to competing providers each month – is much higher (numbers are from the Bank of America Merrill Lynch Global Wireless Matrix). It also explains the big gulf in profitability between carriers in the two countries:

denmark-canada

Another interesting thing about Denmark is that it has four national service providers. The Wireless Matrix says Canada has five, which is a generous counting of regional players such as MTS and Videotron and big-city-only new entrants Wind and Mobilicity. Canadian industry supporters have long maintained that the country can’t handle more than the existing three incumbents, which is an interesting claim given that a tiny country like Denmark somehow manages with four. Judging from average revenue per user and profit margin numbers, the Danish market certainly looks more competitive than Canada’s.

How did Denmark get to such a consumer-friendly position? The makeup of the competitors seems to tell much of the story. TDC is a Danish company while Telia is Swedish, Telenor is Norwegian and 3 is owned by Hong Kong-based Hutchison Whampoa; three quarters of the players are foreign owned. Like most countries, Denmark had the good sense to allow foreign investors into its telecom market long ago, before any of them could become entrenched.

With Wind and Mobilicity struggling, Canada is a case of the opposite. The government here clearly waited too long to open the market, which allowed Bell, Telus and Rogers to dig in. The next year will likely determine whether Wind – which is now apparently up for sale – and Mobilicity live or die, which will tell us whether it is indeed too late to hope for new competition. If that does prove to be the case, policy makers will likely have to turn to strict regulation to keep already high prices from going even higher.

The competitive wireless situation also extends to wireline broadband, where subscribers generally have a choice of three providers (Telia, Telenor and TDC), which is likely why Denmark ranks so highly in broadband speeds, value and overall broadband penetration (third in the developed world).

Low prices and great services, combined with government initiatives to get people online – including seniors, kids and poorer people – have resulted in Denmark being one of the most wired (and wireless) countries, with the digital divide we see everywhere here in North America virtually non-existent. This is one country that doesn’t have to worry about how to prepare for the future economy because it’s already set. Canada, on the other hand, is comparatively lost in the wilderness (probably looking for trees to chop down).

Denmark is a welfare state with high taxes and very little in common with Canada. But it’s these sorts of things that makes one wonder whether we’ve got it all wrong over here.

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8 Comments

Posted by on March 26, 2013 in denmark, iphone, mobile, telecommunications

 

8 responses to “Lessons from Denmark’s telecom market

  1. trixxiii

    March 26, 2013 at 12:16 am

    eeek I love my WIND phone and have talk, text, voicemail and internet for $45/month. Its so unfair that rogers bell and whoever have the monopoly and charge exhorbitant prices continually and lie about bandwidth etc etc – to dupe the customers grrrrr dont take my wind away LOL

     
  2. Jonathan Blaine (@jonathanblaine)

    March 26, 2013 at 1:09 am

    It is an apples and oranges argument comparing Canada to Denmark due to the issues you point out, but also due to the fact the Denmark is an extremely small country with much higher population density that makes it much cheaper to maintain and build out new tech. That makes capital costs much less to serve the bulk of the population. Without roaming-free coverage along the major highways, the new Canadian players will never be able to compete beyond being metro players (similar to “Cricket” or “MetroPCS” in the US). 20 cents per minute roaming gets very expensive very quickly (even my US T-Mobile prepaid phone has US nationwide coverage almost everywhere for 10 cents per minute). The only option is for all the new “little guys” to combine into a 4th player (such as America’s T-Mobile) in most markets. As in the US, being only a metro-market player has built-in marketing barriers.

    Building real competition is just too capital-intensive for small companies, especially considering the fact that there is no federal agency (such as the US FTC) in Canada, nor anti-collusion (anti-trust) laws, like there are in the US, to slap down the big boys when they try to drive the little guys out of business, as has been occurring in Canada for many years. The other problem is that the vast majority of Canadian mobile customers are tied into draconian 3 year contracts, so that brings with it extremely long sales cycles; retention for the Big Guys is built-in, more than in Europe, and even in the US with their maximum 2 year contracts.

    The new entrants even opted to hand over much of their destinies to 3rd party resellers rather than open their own company stores that are more controllable from an operations perspective, as I learned when I worked for Verizon Wireless a decade ago; perhaps less financial risk and overhead via the reseller route, but also potentially much less reward. Historically, “authorized resellers” for any wireless service only want to sell, not serve; many customers know this and stay away (the exception are phones bought from big box retail partners like Best Buy and even Wal-mart where there is more perceived trust).

    It is also true that strong federal policies and deep-pocketed external (i.e. foreign) ownership are needed in smaller population markets, which includes Canada, to ensure expansion of competition. Russia, for example, is quickly consolidating into a “Big 3” just as the US has done over recent years, while European countries like Romania have become increasingly fragmented. In some countries, new entrants make inroads by simplifying offers or bundling products with related industry providers (such as wireless from one company and satellite TV from another). However, in Canada with a few companies owning broadband, wireless and the skies, there is absolutely no chance of anything like that occurring here unless the mega-companies are broken up into pieces.

    The biggest problem in Canada is the government effectively allowing price-fixing among the Big Three, and then not effectively hindering the “triopoly” when it launches a “brand” simply to drive a new entrant out of business (i.e. Chatr).

     
  3. Mike

    March 26, 2013 at 4:00 pm

    I agree with Jonathan that you can’t compare Canada to Denmark. Denmark is only slightly larger than the Toronto GTA so that might be a more appropriate comparison.

    In Toronto you have the big 3 plus the 3 new guys all duking it out for marketshare. Mobilicity has an unlimited voice and text plan for $25 plus another $20 for 20 GB of data. Total cost with Mobilicity: $45. Total cost with Telia: $53. The big problem with Mobilicity is that you have to stay on their tiny network to enjoy those prices but I would assume that you have to stay on Telia’s similarly tiny Danish network to enjoy their prices as well. Going off-net (e.g. roaming) is always more expensive than staying on your home network.

    It’s interesting to hear that Telia adds $30 a month to your bill if you choose to pay off your handset in installments. In Canada, the big carriers don’t add $30 to your bill each month for you to pay, they just reduce the unpaid balance of the handset subsidy by an equivalent amount (depending on how many months in the term). I’m sure you are still paying off your handset subsidy to the big 3 as part of the monthly service plan. I suspect the Danes aren’t spending any less on their cell phones than Torontonians, in fact, Torontonians are likely getting a cheaper deal through one of the new discount service providers.

     
    • Peter Nowak

      March 26, 2013 at 4:28 pm

      Actually, it’s right there in black and white: an iPhone is 15% more expensive in Canada after all is said and done. You don’t happen to be a Telus employee, do you? That’s where your IP address is coming from.

       
  4. Mike

    March 26, 2013 at 5:55 pm

    I’m sure that would be very convenient for you to dismiss my comments as “biased rhetoric” from one of Canada’s evil wireless carriers since my perspective on the industry doesn’t fully align with your platform. But sorry to disappoint you, I am just a lowly commercial insurance broker by profession. However in the interest of full disclosure, my family does own a small interest in a store that sells smartphones and accessories and I do have an iPhone and an iPad through Telus.

    I don’t want to waste my time or yours so if your blog is intended as a recreational platform for industry bashers rather than open debate, just say the word and I’ll delete your url from my favorites.

     
    • Peter Nowak

      March 26, 2013 at 6:44 pm

      I’m not the one getting hostile, I just asked a simple question. And I think the point of this post was not to bash anyone or even to necessarily make like-to-like comparisons, but rather to wonder whether we’ve got the right priorities.

       
  5. Vishal Malik

    March 26, 2013 at 10:14 pm

    Peter, who owns the last mile infrastructure for wireline in Denmark? For example, It it publicly owned, or do they have three different connections for three different competitors in every house?

     
 
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