In two weeks time, I’ll be taking part in a panel discussion at the International Institute of Communications’ annual conference in Ottawa. The topic of conversation will be familiar to readers here as it will focus on “facts versus myths in Canada’s telecom sector,” which I’ve written about extensively in the past. The other panel participants will be financial analysts Jeff Fan and Dvai Ghose, respectively of Scotia Capital and Canaccord Genuity, and telecom consultant Gerry Wall of Wall Communications, with business journalist Deirdre McMurdy moderating.
Given the craziness of this past summer, one of the subjects that’s sure to come up for debate is wireless pricing in Canada. Some of the panel participants have argued that prices are not high in Canada and that the country’s world-leading average revenue per user can be explained away by the fact that Canadians simply use their phones more. Just as someone who drives their car a lot will inevitably end up with a bigger gasoline bill at the end of the month than someone who only does so sparingly, so too are big Canadian wireless bills the result of lots of blabbing, texting and surfing, or so the argument goes.
As I’ve written before, there is an element of truth to that notion, since Canadians do in fact use their phones a lot. But the rationalization only works up to a certain point, since people in several other peer countries use their own phones as much as Canadians or more, yet see lower bills at the end of the day. That’s a clear indicator of high prices.
It doesn’t take a PhD in economics to prove this – just a few minutes of web surfing. A few days ago, I checked out how much it costs to obtain and use two of the most popular smartphones going – the iPhone 5S and the Galaxy S4 – with some of the biggest carriers in English-speaking countries. I shopped for a common plan that provides unlimited talk and text and one gigabyte of data on a two-year contract. By the way, it’s worth noting that such comparisons are now easier to make since the Canadian Radio-television and Telecommunications Commission banned three-year contracts – prices may have gone up in Canada as a result, but it’s now possible to look at apples versus apples, no pun intended.
First up, here’s the iPhone (all figures in Canadian dollars):
As is clear, Canada isn’t the most expensive place to own a 5S – New Zealand is – but it’s up there. What’s most notable, though, are the discrepancies between New Zealand and North America and the other three. In the UK, the iPhone can be had for almost nothing up front and then, for about the same monthly fee, users get eight times the data. The situation is similar in Ireland, where users get unlimited data. Optus in Australia supplies fewer minutes – although realistically, 600 is more than enough for just about anyone – but is literally giving the iPhone away.
Apple’s device is a special case, however, and not always the best comparator of prices, even though it is the most popular smartphone with consumers. The company demands high margins, which means carriers inevitably have to charge more for it, hence the higher-than-expected prices in the chart above. A truer picture emerges when comparing less onerous, and slightly less new devices. Here’s the Galaxy S4, with the same terms as the iPhone:
AT&T in the United States is only slightly more expensive than Rogers in Canada, but the gulf between those two and the rest is rather noticeable when looking at what users pay for their devices up front. North American carriers are extracting a rather large up front fee while the other carriers are basically giving the S4 away – it’s almost $800 cheaper to own an S4 for two years in the United Kingdom than it is in Canada. That’s a lot of bangers and mash. It’s worth repeating that this is the reality that Guy Laurence, outgoing chief executive of Vodafone UK, is inheriting when he takes over as Rogers CEO in December.
The Canadian carrier isn’t the most expensive in the two charts above, but average them together and guess what – it sure is. Things inevitably look worse for Canada when more countries are added to the comparison, as just about every international study has found.
That’s not the end of the story, though. The real smoking gun on high prices lies in the usage-versus-ARPU figures. As is clear from the prevalence of unlimited talk and text plans popping up everywhere, carriers are now pricing mobile service almost solely based on monthly data allowances. Every single study performed over the past few years has noted that mobile data usage is growing quickly everywhere in the world, with most growth over the next few years in fact expected to happen outside of North America and Europe.
If heavier usage does indeed equal higher ARPU, as Canadian carriers and their supporters argue, that should mean that average revenue per user is going up for carriers everywhere, right? That would be the logical result – except it’s the exact opposite of what’s actually happening.
Here’s year-over-year ARPU growth by region (plus Canada highlighted), as of the first quarter of 2013, according to the Bank of America Merrill Lynch Global Wireless Matrix:
A few other facts to add to this mix: despite claims to the contrary, Canada isn’t all that special in terms of smartphone adoption. According to the Wireless Matrix, the country’s smartphone penetration as a percentage of the population was 37 per cent, which is slightly below the developed world average of 39 per cent. The percentage of revenue that Canadian carriers are gleaning from data is similar – 41.6 per cent, or a fraction higher than the developed world average of 41.4 per cent.
To put all of the above into the simplest terms possible: mobile usage is growing everywhere in the world, yet carrier revenue per user is only going up in North America and particularly in Canada. In other words, despite big growth in mobile data usage, it’s getting cheaper to use phones everywhere in the world except in Canada and the United States. Combined with the phone comparisons above and the data and smartphone adoption numbers, that’s pretty solid evidence that high prices – not just in Canada, but also in the United States – are indeed fact and not myth.