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Level wireless playing field? Not in Canada

23 Aug

Bubble-Level1Over the course of this summer’s wireless war, the Big Three have thrown just about everything at the wall to see what would stick with the government and the public – threats of job losses, anti-American xenophobia, “dishonest” and “misleading” statistics, fears of service slowdowns, security concerns and the exacerbation of the rural digital divide. None of it has had any palpable effect, so now they’re leaning heavily on the “level playing field” idea.

To back up their claims that the government is favouring and even enticing foreign players such as Verizon into Canada, Bell and Telus wheeled out a nonsense survey (links to PDF) the other day that apparently shows Canadians to be against such a thing.

The headline result of the survey, commissioned by the two carriers from Nanos Research, is that a clear majority (81 per cent) of respondents do not want any companies – foreign or Canadian – favoured in the upcoming spectrum auction. As it stands, new entrants – or companies that have less than 10 per cent of the market – will be allowed to bid on two prime blocks of airwaves, while the Big Three will be limited to one.

The incumbents are also complaining that they are not allowed to buy smaller carriers including Wind and Mobilicity while the likes of Verizon can, and that new entrants will be allowed to use their cell towers after the auction is concluded (they usually leave out the fact that they will be well compensated for this usage). Bell, in particular, has been vocal about the need for the government to close this trio of “loopholes” so that the Big Three can compete against foreign giants on a supposedly level playing field.

The Nanos survey is full of leading questions, with results that are foregone conclusions. For instance, here’s the question that got the 81-per-cent response:

As you may have heard, the Government of Canada will soon be auctioning access to a new type of airwaves for use by wireless companies. Under the current rules, it would be possible for a large foreign company to bid and win access to twice the amount of airwaves as most Canadian companies. Which would you think is in the best interest of consumers:

  • Allow Canadian-owned and foreign-owned companies to bid for and win airwaves without favouring either (81%)
  • Allow foreign-owned companies the advantage of bidding for and winning more than Canadian-owned companies (10%)
  • Unsure (9%)

Hmm, well, when you put it like that…

Of course, if that question were asked in just about any country, the results would probably be the same. The only thing it measures is reflexive nationalism, bereft of any relevant reality.

If there’s a valuable question in the whole survey, it’s this one: “Which of the following aspects of your wireless service is the most important to you,” to which the top answer – from 41 per cent of respondents – was “price.” Customer service was a distant second at only 15 per cent.

The Big Three maintain that their prices aren’t high, despite numerous studies saying the opposite. The Nanos survey actually confirms it – “price” is not the number one concern for people when they don’t think they’re being overcharged.

The natural follow-up to the question might have been something like, “Would you be in favour of giving a foreign company special advantages in a wireless auction if it meant that your bill would go down?” The answer would probably have been equally predictable (“Absolutely. Bring on the Yanks!”).

The reality is, the level-playing-field conceit is perhaps the most bogus talking point of this whole debate. There are at least 10 reasons why any new entrant – big or small, Canadian or foreign – won’t see any sort of level playing field against the Big Three for years to come, if ever. They are:

1. Spectrum quantity. Bell, Rogers and Telus have been accumulating spectrum – the all-important airwaves that make cellphones work – for decades. Like a Baskin Robbins, they have all flavours of spectrum: good spectrum, bad spectrum, high-frequency spectrum, low-frequency spectrum, big blocks of spectrum, little blocks of spectrum. You need spectrum? They’ve got spectrum. Existing newcomers such as Wind and Mobilicity, and any potential bidders in the upcoming auction, have or will have relative peanuts in comparison. This is important because the more spectrum a carrier has, the better – and broader – service it can provide. Foreign pockets can’t be deep enough to change this very basic fact.

2. Spectrum quality. Hand-in-hand with quantity is quality. The spectrum that Wind and Mobilicity have – known as Advanced Wireless Services operating in the 1700/2100 MHz bands – is fine for providing basic service, but it’s not exactly “beachfront property.” It doesn’t penetrate walls very well, meaning that if you’re in a basement, odds are good your service may cut out (I speak from experience). Generally speaking, the lower the frequency, the better the spectrum, which makes the upcoming 700 MHz auction a good one. Nevertheless, if Verizon or anyone else buys the two smaller Canadian carriers – or those two continue on independently – they will have major deficiencies not just in how much spectrum they have, but also the quality of it. This doesn’t just affect signal quality, but also the variety of compatible phones they can choose from.

3. Towers and other infrastructure. Two months ago, Rogers felt the wrath of North Vancouver residents as they opposed the building of new cell towers proposed for their neighbourhood. It’s the sort of thing that happens any time anyone wants to put up a new one. Yes, it’s true the Big Three have weathered these battles and they perhaps have an ideological point when they say competitors should be forced to as well. But the reality, as the North Vancouver residents illustrate, is that nobody wants new towers anywhere. New entrants can start from scratch and fight these long, tedious and expensive fights, but in the meantime they can’t offer service or make revenue. One more advantage to the Big Three.

4. Coverage. Further to that, Bell, Rogers and Telus can offer something new entrants can’t and likely won’t be able to for some time: nation-wide coverage. They’ve had decades to build it up, so it’s madness to expect anyone – even a rich company such as Verizon – to have a solid coast-to-coast network lickity-split. This is why a Mobilicity customer in Toronto, for example, pays $1.50 per megabyte as soon as he or she goes a few kilometers north of the city; they’re paying roaming charges to one of the Big Three.

5. Cash flow. In 2013, the Big Three funneled about 13 per cent of their service revenues back into network expenditure, according to the Bank of America Merrill Lynch Global Wireless Matrix. That relatively small percentage is a luxury no newcomer that is busy building infrastructure is likely to see for some time. Yoigo, a newcomer to Spain’s wireless market, spent about 100 per cent of its revenue on capital expenditure in 2007, then almost 40 per cent again in 2008. That’s a lot of money that isn’t available for other things, such as acquisitions, customer retentions, advertising and so on, all of which is of course available to the incumbents.

6. Bundles. Remember how price is important to consumers? Well, they can apparently save some cash if they sign up for multiple services from the Big Three, which many do. There’s also the small comfort in getting only one bill a month, as opposed to three or four. Regardless, this isn’t an option immediately available to new wireless carriers, without further acquisitions being made. Bundles are also a double whammy in that a consumer changing wireless providers then inevitably sees the price of their other services go up, which acts a further disincentive against switching.

7. Media integration. With Bell and Rogers owning everything from magazines, TV channels and sports teams, there’s an awful lot of of bonus content they can throw at wireless subscribers. The recently launched Bell TV app, which gives the company’s customers special access to programming, is a case in point. Yet another untouchable feature for new entrants, big or small.

8. Contracts. Two-year deals recently became the norm thanks to new rules from the Canadian Radio-television and Telecommunications Commission, but the reality is there are still many subscribers hooked into the early days of three-year agreements. The Big Three often make it very enticing to renew those contracts close to their end dates or, as in the case of my poor, unwitting mother, they trick them into doing so or even reset them without the subscriber’s agreement. In the most recent report from the Commissioner for Complaints for Telecommunications Services, contract disputes made up more than a quarter of the issues dealt with. As the CCTS’s annual report puts it, “customers often complained that they were charged fees for the early termination of a contract to which they had not consented, or that their contract had been renewed without their authorization.” Canada is already a small market. Keeping a good portion of customers locked up, one way or another, makes it an even smaller one for new competitors.

9. Brand awareness. Further to the media and sports ownership, Bell, Rogers and Telus also have their names on everything. There is likely no Canadian that isn’t aware of these companies and it’s indeed hard to go through a day without being reminded of one or more thanks to their pervasive advertising and brand marketing. Some Canadians have indeed heard of Verizon, but very few had heard of Wind prior to its start-up and certainly no one knew anything about Mobilicity. Many people subscribe to the old maxim of how the devil you know is better than the one you don’t, which means that newcomers inevitably have to spend a small fortune just to get their names out among the din. See #5: Cash flow.

10. Lobbying. Here’s a funny joke for the next time you’re at a cocktail party. Q: How can you identify a politician? A: He’s the one with the trail of telco lobbyists following him. Between the three of them, Bell, Rogers and Telus racked up an amazing 73 communications with politicians and bureaucrats over the first six months of the year, according to the registry of lobbyists. That averages out to each of the Big Three meeting or communicating with someone of importance every single week. Add in their official lobby group, the Canadian Wireless Telecommunications Association, for an extra visit each month. Anyone who wants to compete with that kind of favour-currying is going to have to spend big bucks on lobbyists – and indeed Wind has, with a healthy 17 communications over the same time frame. Ask the company’s executives if they’d rather be spending those resources elsewhere, instead of preventing an overwhelming in Ottawa, and the answer is obvious. Sure, Verizon could afford the lobbyists, but it would take the company years to get the lay of the land and build relationships.

Put all of these reasons together and it’s no surprise that Bay Street analysts were so doubtful that Verizon – or anyone else, for that matter – would come to Canada. Who in their right mind would with so many cards stacked against them? Level playing field? Not in this country – not now, and likely not ever.

That said, perhaps Nanos should do another survey, this time with some rephrased questions. How’s this for starters:

As you may have heard, the Government of Canada will soon be auctioning access to a new type of airwaves for use by wireless companies. Under the current system, the big existing service providers already have copious amounts of top-quality spectrum (some of which was gifted to them) that runs across nation-wide infrastructure built over decades; a good portion of potential customers locked up in contracts and bundles; and a whole pile of cash to burn on advertising, affiliated businesses, sports arena naming rights and political lobbying. Which would you think is in the best interest of consumers:

  • Give every conceivable advantage to any company crazy enough to tackle this market?
  • Duh, wha?
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12 Comments

Posted by on August 23, 2013 in bell, government, rogers, telus, verizon

 

12 responses to “Level wireless playing field? Not in Canada

  1. Marc Venot

    August 23, 2013 at 1:03 am

    Maybe with the new spectrum it can be different (a troyan horse) but for now the rule of the 10% hasn’t worked so it’s not bad that the local telcos are demanding the plain field. This domain is not set in stone and a company with a different support (for example from XM/Sirius) or another approach can reshuffle it. At least I think it’s worth trying.

     
  2. Bill M

    August 23, 2013 at 10:24 am

    Do you consider Telus’s 4G LTE network “basic service”? Because it is built on the same spectrum that Wind and Mobilicity operate on, as you describe “1700/2100 MHz bands – is fine for providing basic service, but it’s not exactly “beachfront property.””

    http://about.telus.com/community/english/news_centre/news_releases/blog/2011/04/06/telus-to-deploy-4g-wireless-lte “TELUS’ LTE network will operate on the Advanced Wireless Services (AWS) spectrum that TELUS purchased for $882 million in Industry Canada’s auction process in 2008”

    Getting dizzy from all of the spin

     
    • Peter Nowak

      August 23, 2013 at 10:56 am

      I’m actually on Telus and when LTE doesn’t work or isn’t around, there’s lots to fall back on and my phone keeps going. Not so for those just on AWS.

       
  3. shadowspar

    August 23, 2013 at 11:12 am

    Possibly the funniest result: by their own poll, their customer satisfaction rating is 66%, and they’re trumpeting this as an impressive accomplishment. But 66% is horrible; the average across all industries in Canada is 93%:

    http://www.forbes.com/sites/ciocentral/2012/04/19/customer-satisfaction-by-the-numbers-an-industry-breakdown/

    Think about that number in context. If you were at a retail store watching people cash out, and one out of every three left angry or upset about the purchase they’d just made, you’d think that something was seriously wrong with the customer service at that store, and you’d be right.

     
  4. Tom

    August 23, 2013 at 12:51 pm

    The federal government should give the 700 MHz spectrum to the municipalities who could own and operate local wireless service providers with:

    – cell towers installed on city owned properties
    – free roaming on networks of other municipalities when in their coverage areas
    – simple, flat-rate, unlimited plans
    – free wi-fi hotspots

    More jobs, more tax revenue.

     
  5. SBC

    August 24, 2013 at 4:52 pm

    If Verizon is given special treatment, one of the Big 3 will be denied spectrum. I’d suggest it’s likely Bell or Telus. Then Bell and Telus will be forced to merge to compete. Bell and Telus are smart; they knew this day the government would intervene would come and they have already prepared. How is a Bell-Telus merger good for consumers, Peter, because that’s what you’re asking for?

     
  6. investorperspective

    August 27, 2013 at 12:37 pm

    Great article Peter. Too bad the press is eating up the big 3 spin and quoting the results of this poll as science.

    The fact that its ONLY Verizon and not Verizon, AT&T, Deutsche Telekom, Telefonica, Orange and others lining up to bid says that the playing field may still not be tilted enough to attract competition.

     
 
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