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Vodafone and the crazy Canadian premium

13 Sep
Incoming Rogers CEO Guy Laurence is really moving up in the world.

Incoming Rogers CEO Guy Laurence is really moving up in the world.

Sometimes, fate has a funny sense of humour, like on days when two bits of entirely unrelated news happen that perfectly complement each other. Thursday was just such a day, with Rogers naming a new chief executive officer and a new report from a pair of University of Calgary professors finding that everything is fine in Canadian wireless. The irony, which I’ll get to in a second, is just too rich.

First up, Rogers has officially named Vodafone UK CEO Guy Laurence to be its new top executive, starting in December. Laurence has been with the UK-based multinational carrier since 2000, doing stints in the Netherlands and in the home country. He’ll be replacing outgoing Rogers boss Nadir Mohamed, who has been in charge since the passing of Ted Rogers in 2008.

Secondly, there was the report from the Calgary professors that found Canadians are not paying too much for their wireless services, and that other claims saying the opposite are wrong. As per one of its conclusions:

There is not a competition problem in mobile wireless services in Canada. The government need not, and should not, intervene to promote competition on the basis that increased competition will lower prices; efforts to do so will likely be unsuccessful and inefficient.

The authors go further and suggest that critics who have pointed to Canada’s world-leading average revenue per user numbers are sorely mistaken:

Those who single out high ARPU as an indicator that something is wrong with prices — and therefore competition — are fundamentally misinformed about the meaning of ARPU and why it is high in Canada.

The authors say high usage by Canadians of both minutes and data is what’s causing that lofty ARPU, which is otherwise synonymous with the average bills that customers see at the end of the month.

I looked at their claims back in June and found they didn’t hold water. Wireless customers in several other countries use their phones just as much, if not more than Canadians, yet they see much lower bills a.k.a. ARPU. With usage levels relatively close among comparable countries yet ARPU considerably higher in one jurisdiction, namely Canada… well, that’s pretty clear evidence of higher prices here.

Which brings us to the irony. How do prices compare at Vodafone UK, where Laurence is the outgoing CEO, to Rogers, where he’s the incoming boss? Here’s a handy comparison chart of the two companies’ current offerings, gleaned from their respective websites on Thursday (British pounds have been converted to Canadian dollars). In the far-right-hand column, I’ve indicated how much higher prices are with the Canadian carrier. On the bottom row, I’ve included ARPU figures for 2012 for both companies, from the Bank of America Merrill Lynch Global Wireless Matrix.

vodafone-rogers

So, to summarize in case there’s anyone out there who can’t read simple charts: The exact same plan – unlimited talk and text with one gigabyte of data while on a two-year contract – costs a Vodafone UK customer $53 a month and a Rogers customer $75. In other words, a Rogers customer is paying 41 per cent more for the exact same thing.

Moving up in the data tiers, the two companies offers slightly different plans, but the main takeaway is this: a 4GB plan on Vodafone costs $70, compared to a less generous plan with 3GB on Rogers, which costs $105. Customers thus get more on Vodafone for 50 per cent less.

The more-for-less cavalcade continues when it comes to the device itself. A popular phone such as the Samsung Galaxy S4 is free with a two-year contract on Vodafone, but $179 on Rogers. The differences are as clear as day, not to mention somewhat astonishing. (For anyone who is wondering: purchasing power parity between the two countries is almost right on in this case.)

It all boils down to Rogers’ ARPU being an amazing 78-per-cent higher than Vodafone UK’s, which means two things. One: With CEO pay packages generally based on performance, Laurence looks like he’ll be upgrading his career big time. And two: The Canadian carrier’s plans cost a heck of a lot more than their almost identical counterparts in Britain, with a much higher bottom line resulting. It’ll be fun to see how the University of Calgary professors rationalize that one away.

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8 Comments

Posted by on September 13, 2013 in mobile, rogers

 

8 responses to “Vodafone and the crazy Canadian premium

  1. Marc Venot

    September 13, 2013 at 12:57 am

    Since this has at least three main stakeholders (telco, customer but also the state which sale the access to the airwave) it need to have in the equation the last one. Does (federal) Canada get a much larger pie than the UK?

     
  2. Hideo

    September 13, 2013 at 1:07 am

    The $75 Rogers plan is a “Smart Pick” plan. It is for smartphones, but now the highly desirable new ones. It will not work with a Galaxy S4. This plan includes a bonus 1GB of data to anyone who signs up before the end of September. You can get a 10% monthly discount if you sign up without a contract and use an unlocked phone. If you want to use a Galaxy S4, you’d need the $85 “Share Ready” plan. It comes with 1GB data. This plan also includes a bonus 1GB of data to anyone who signs up before the end of September. You can get a $20 monthly discount if you sign up without a contract and use an unlocked phone.

    The $105 Rogers Plan is “Share Everything”. It too offers bonus data (3GB), and is also available for $20 less per month to those with unlocked phones.

    I’d look further into the Vodafone offerings, but their site is down in preparation of iPhone 5c preorders.

     
    • Peter Nowak

      September 13, 2013 at 6:57 am

      I made a point of looking for the cheapest apples-to-apples plans possible and didn’t include any promotions. Vodafone plans are also about $20 cheaper if you bring your own phone.

       
      • Hideo

        September 13, 2013 at 3:40 pm

        But they’re not apples to apples. One of the Rogers plan you quote does not work with the Galaxy S4, a device you quoted the price of.

         
  3. Peter Nowak

    September 13, 2013 at 4:15 pm

    Hideo: you’re splitting hairs and I’m not sure why. I never said the S4 works with the plan I quoted. The 1GB S4 plan is actually $10 more on a two-year contract (or $85), which makes the Rogers premium even higher, thereby strengthening my point. I included the S4 simply as an illustrative example. What is your point?

     
  4. David Craig

    September 13, 2013 at 4:32 pm

    I’d like a review of global roaming plans for data too. My US colleagues have an unlimited international roaming plan with AT&T for $39.99/month. The best I can do with Rogers is 100MB for $225 over a 30 period. CANADIANS PAY TOO MUCH! End of story.

     
    • Jason

      September 13, 2013 at 6:09 pm

      Can you show me a link to this on AT&T’s website?

       
  5. Michael Elling (@Infostack)

    September 16, 2013 at 1:27 pm

    The authors would do well to discuss the history of all the monopoly barriers, the failure of the vertically integrated model and the inefficiencies at every layer and boundary point that led to the current over-costed and over-priced environment. Rogers’ low returns are a function of numerous technical and business model mistakes over 2 decades. The smartphone has saved all wireless carriers precisely because AT&T agreed to “horizontal” offloading to wifi.

    They do raise the need for price and bundling normalization across regimes which is good, but then do little real analysis based on these issues; nor do they even touch on understanding true marginal costs and accounting for differences inter-country. What’s needed is comparisons of EFFECTIVE YIELD per minute and per bit; ie actual revenue over actual consumption to do real analysis and develop proper policy prescriptives. The latter needs to include offload which none of the studies or surveys effectively do.

    Lastly, they fall in the same trap as most economists. Namely that 2-way information networks have to serve unlimited demand AT THE MARGIN. Average cost leading to average pricing is the fatal flaw to clearing supply and demand effectively; in fact it has always resulted in diseconomies of scale. At the same time most capex and opex in networks today can be considered variable given the rapid pace of change and technological obsolescence. So pricing must always be driven by marginal cost a priori via iterative supply demand clearing exercises and not rely on average pricing ex poste. This is exactly how Google arrived at $70/gig pricing in KC and how 802.11 scales so effectively.

     
 
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