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Heavy usage not the cause of high wireless bills

18 Jun

dollarsIn debating whether or not Canada has high wireless prices, carriers have over the years jumped from one rationalization to another. Simply put, Canadian carriers reap the highest average revenue per user (ARPU) in the world, at $60.79, according to recent figures from the Bank of America Merrill Lynch Global Wireless Matrix.

In the past, carriers suggested the ownership of multiple SIM cards in other countries was distorting that figure to make Canada look higher than actual reality. In Europe, for example, it’s common for people to carry two or more SIMs in order to take advantage of different countries’ roaming rates.

There is some truth to that, although even when multiple SIMs are factored in, Canada still rules the roost. Austrian carriers, for example, post an ARPU of only $21.17 and a world-leading cellphone penetration rate of 175%. If every Austrian cellphone user is therefore considered to have 1.7 SIM cards, the total amount he or she pays per month is still only $35.98, or well below Canadian ARPU.

The latest rationalization is that rates aren’t high, Canadians simply use their phones more, which results in more revenue. Looking at the numbers, which can essentially be broken into voice and data, that claim also doesn’t wash. Let’s start with minutes. Here’s a handy chart from the Wireless Matrix – I’ve included a number of developing countries, and I’ll explain why shortly:

minutes

So yes indeed, according to those numbers, Canadians do appear to be big talkers. But hold on a second – there are a few caveats. For one thing, Canada, the United States and Singapore are the only countries in the world where carriers charge for both incoming and outgoing calls, which inevitably inflates the minutes of usage. Not surprisingly, all three countries are at the top of the usage list. The real leader can in fact be considered China, which uses the same calling-party-pays system that the rest of the world does.

It’s hard to guess at how many minutes Canadians would use if they didn’t have to also pay for incoming calls, but it’s incorrect to claim they’re voluntarily using more.

If the rate-per-minute is looked at, it’s clear Canada is actually toward the more expensive range of the developed-world spectrum. In the U.S., where cellphone owners use nearly triple the minutes of Canada, the rate-per-minute is just about nothing, which is why it doesn’t even register in the Wireless Matrix:

rpm

Turning to the data side, we have to look at some different numbers since the Global Wireless Matrix doesn’t track monthly usage. Cisco’s Virtual Networking Index does, although the downside there is that it only tracks 20 countries, half of which Bank of America Merrill Lynch considers to be emerging markets (that’s why I included them in the voice comparisons).

Here’s how much data mobile subscribers used per month in 2012, according to the VNI:

data

According to those numbers, Canadians are indeed using a lot of data, but they certainly aren’t world leaders – four countries use more. Data usage is arguably becoming more important than voice usage, and it makes up a higher percentage of carriers’ ARPU in at least three of those countries: Japan, the U.S. and UK (the Wireless Matrix’s information on Korea is incomplete). Yet all three of those countries have lower total ARPU than Canada, which proves one thing: they have cheaper data.

The most instructive comparisons naturally come from the most similar countries. Here’s a side-by-side look at the advanced countries that are also leaders in usage, particularly in data:

comparison

The most telling fact from this comparison is that the United States – the most comparable market to Canada’s – has higher data usage and much higher voice usage, yet ARPU is 16% lower.

Isn’t that because the country is so much bigger, so carriers can afford to charge less?

That rationalization might fly if it weren’t for the U.K. and especially Australia. The U.K. obviously has a bigger population than Canada, although nowhere near as big as the U.S., but data usage there is higher while ARPU – also know as the bills subscribers pay at the end of the day – is less than half of Canada’s.

Australia is closest to Canada in terms of both data and voice usage, yet customer bills there are lower by a third. And oh yeah, so is the population.

To summarize: Americans (in their big country) use their phones more than Canadians for both voice and data, yet their bills are 16% lower. Australians (in their small country) use their phones just about the same as Canadians, yet their bills are 32% lower.

Conclusion: Canada’s world-leading per-user-revenue is not supported by multiple SIM cards, smaller population or heavier usage, despite claims to the contrary. To paraphrase Sherlock Holmes, once the improbable has been eliminated, whatever remains must be the truth. In this case, it’s that Canadian wireless prices are indeed high.

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7 Comments

Posted by on June 18, 2013 in telecommunications

 

7 responses to “Heavy usage not the cause of high wireless bills

  1. Marc Venot

    June 18, 2013 at 12:58 am

    The EU will forbid roaming charge into its border (and probably its Maastrich zone) July next year. The same agreement between the USA and Canada is overdue.

     
  2. Chris C.

    June 18, 2013 at 3:22 am

    Oustanding analysis, Pete 😀

     
  3. A(nother) Yes Man (@elquintron)

    June 18, 2013 at 11:47 am

    Outstanding piece Peter, I’m glad you’re covering these issues. I’m also wondering how long It’s going to take for a telco apologist to complain about how you’re beating up on our defenseless, patriotic, helpful and affordable carriers. 😉

     
  4. Infostack

    June 18, 2013 at 1:32 pm

    What a shame that Canada was the land where 400 minutes for $40 was introduced in 1996. Microcell started the 3rd wave of digitization, with pricing that was 80-90% below incumbent and perceived rates. They did this because they calculated the all-in marginal cost of a wireless minute was ~2 cents.

    Unfortunately, they didn’t expand on this plan in the way I recommended. They could have pre-sold 900 minutes for $55 for a perceived cost ~6 cents. But the key was zone based pricing that led to an effective yield of 8-9 cents. http://bit.ly/ztlC8C

    Instead of zone based plans carriers began to give away nights and weekends free, then one-rate everywhere, and finally all you can eat plans (AYCE) in the US. The effective yield bottomed around 4 cents in 2004. These ayce plans destroyed 3G rural buildouts during the 2000s.

    Yes, all of this started 17 year ago! And it began in Canada!

     
  5. Patrick Owens

    June 18, 2013 at 1:50 pm

    Mr. Nowak, at the risk of seeming obtuse, could you please clarify a couple of issues? I just want to understand your information.

    Your first point regarding minutes is the observation that Canada, the US and Singapore charge for incoming and outgoing minutes, while other countries do not. Are you saying that the table is providing billed minutes of use rather than actual minutes? What about the other high minutes country, i.e., China? Is this measure for one calendar month, or some other period? Are the other tables all based on the same definition of minutes?

     
    • Peter Nowak

      June 18, 2013 at 4:48 pm

      Good questions Patrick. Here’s Merrill Lynch’s explanation from a slightly older Wireless Matrix, which I believe still applies to the latest figures cited above:

      “The Minutes of Use per month per average user is calculated by dividing total minutes of use on the operator’s network by the average subscriber base during the quarter. It is measured in minutes and usually excludes traffic related to Mobile Data services. We include both incoming and outgoing minutes in our MOU figures. We use reported minutes for most [calling-party-pays] carriers as billed minutes are equal to reported minutes. For carriers that disclose only outgoing traffic (e.g. Australia, New Zealand), we have adjusted reported data where possible to make data more comparable.

      “We also note that MOU figures are potentially somewhat overstated in countries that do not employ the calling party pays system (Canada, Singapore, US) relative to other countries who do as a result of the double counting of on-net mobile-to-mobile minutes. The double counting occurs because the same minute is billed to both the caller and the receiver. For some markets in Europe, for example, we estimate that on-net mobile-to-mobile traffic can constitute approximately one-third of MOU— thereby suggesting that MOUs in non-CPP countries may be overstated by about that amount. We think the 20% adjustment for non-CPP markets is conservative (i.e. on the high side). In the U.S., for example, we estimate that close to half of total voice minutes are on mobile; hence, the mobile-to-mobile portion of the traffic would be much lower (e.g. 10%).”

       
      • Infostack

        June 18, 2013 at 5:00 pm

        This distinction confuses 2 issues. One is absolute cost and second is perceived value. With pricing that reflects marginal cost, or on-net pricing that is less than off-net pricing, usage becomes significantly higher. That’s the value and hence the numbers shouldn’t be adjusted.

         
 
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