Wholesale wireless not the answer for Canada

10 Dec

Wholesale telecom services are a lot like selling the big guys’ hand-me-downs.

Ten per cent. That’s the best reason for why the Canadian government shouldn’t be – and probably isn’t – thinking of wholesale service as a solution to what ails the country’s wireless market.

On paper, the wholesale scheme seems to make sense: Big network owners are forced to provide airtime to any and all commercial interests at regulated terms and rates, which other companies then resell to consumers at whatever prices they see fit.

Here in Canada, the consumer advocates over at Open Media see this as a great answer to high wireless bills. Failing the arrival of a big foreign competitor, regulated wholesale access would inspire the likes of Toronto-based Ting – which is having some success in the United States – to spring up here, they argue. Such companies offer wireless users big savings compared to incumbent carriers.

True, but: 10 per cent. That’s the estimated market share of these wholesale carriers – known as Mobile Virtual Network Operators (MVNOs) – in the United States. Much has been written about how MVNOs are currently enjoying a Renaissance down south in the face of the big guys’ similarly high prices. They are indeed getting some traction of late, but there’s a whole lot of buts.

For one thing, there’s the nature of that 10 per cent. Of the 34 million MVNO connections in the United States, about 23 million come from TracFone, a unit of Mexico’s big wireless carrier America Movil. While TracFone certainly serves a purpose with its low rates, it’s essentially the cellphone company of a decade ago – it’s all about voice. Android and iPhone are virtual aliens to the company, with one of the few smartphones it does sell being this handsome ZTE Valet (I’m being sarcastic – it’s a horrible phone).

The few MVNOs that do offer data are operating on carriers’ older, slower and even near-obsolete networks, such as Sprint’s 3G and mobile WiMAX that Best Buy is using for its wireless business. Analysts seem to be unanimous in thinking that MVNOs getting good and proper access to modern 4G LTE networks is going to be a challenge, if not impossible.

“To establish an MVNO model for data is very difficult… I don’t think you’re going to see an unlimited data plan for an MVNO,” one analyst told Fierce Wireless. “Unless you have deep pockets, you won’t see a lot of data MVNOs because it’s a competitive issue right now,” said another.

In Canada, where around three-quarters of all cellphone users are smartphone users, that’s just not going to fly. A voice-oriented mobile provider is ultimately going to serve a very small, uber-budget-conscious market and is ultimately going to look a lot like Public Mobile. And oh yeah, that company just failed and got bought by Telus. Canadians don’t just want cheap voice – they’d also like the cool smartphones they’re accustomed to at reasonable prices. An MVNO isn’t going to be able to do that.

The data issue highlights one of the big problems MVNOs have in competing with big network owners in that they just aren’t equipped to offer higher-end services. In Eastern Europe, wholesale operators barely managed to squeak out four per cent market share and in Poland, 13 of them cobbled together less than one per cent after six years of operation. “This failure is attributed to the inability of MVNOs to compete with [network operators] in terms of pricing as well as service offering and quality, which translate into poor customer retention. Indeed a few MVNOs stopped activities altogether, such as wp mobi in Poland,” an InfoCom report found.

Virtual operators haven’t fared well in Canada. The biggest, Virgin, was half-owned by Bell from the start and eventually swallowed whole by the company. A few, such as Amp’d, flamed out while a handful – such as President’s Choice and 7-11 – are still hanging on. Like their U.S. counterparts, they’re either voice-oriented or have overall rates that aren’t much better than incumbents’.

Could regulation of both access and rates make MVNOs more feasible? Sure, but then that market would start to look a lot like another one – home broadband, where smaller internet providers get mandated access to the networks of Bell, Rogers and the other big guys.

Smaller ISPs have had this access for decades and, while they do provide a certain amount of competitive discipline to the big players, their market share is – you guessed it – about 10 per cent. That’s fewer than a million households compared to the 10 million serviced by incumbents, despite years of bickering in front of regulators over access terms, rates, wordings and so on.

There have been some positive effects of the scheme, to be sure. Without indie ISPs fighting against things like usage-based billing a few years ago, it’s a fair bet that Canadians wouldn’t have access to larger monthly caps like they currently do with companies such as Teksavvy and Distributel.

But in the grand scheme of things, it’s worth asking whether the whole wholesale regime has really accomplished anything. As Ookla’s recently updated Net Index so strongly highlighted, Canadian broadband is still slow and expensive by world standards. The best that can be said about indie ISPs in light of such continued results is that they’ve possibly kept a bad situation from becoming really bad. That’s not exactly shooting for the stars.

Part of the problem is the broadband market’s similarity to MVNOs. It’s only recently, after much arguing at the CRTC, that indie ISPs got access to faster fibre speeds, which network owners have in the meantime been selling for years. It’s great that these companies were able to price their services for less than incumbents, but that advantage was largely negated by the bigger companies’ ability to sell better and faster products. After all, who’s going to want a 5-megabit connection when for a few dollars more they can get 50?

These disputes are never-ending on the regulatory level, but on the consumer front they have a very clear psychological effect: the smaller guys are effectively selling the big guys’ hand-me-downs, which is how the network owners want it. It’s how they tolerate it.

This phenomenon may actually be detrimental because it allows those network owners to suggest that consumers have lots of choice. In reality, it’s meaningless competition because the services aren’t on par by any stretch of the imagination and likely never will be, which is why they’ll always be stuck at 10 per cent.

If the government is going to consider regulated wholesale wireless access, it would have to ensure that it doesn’t just enable hand-me-down services. Realistically, though, that hasn’t happened elsewhere so there’s no reason to expect it would in this situation.


Posted by on December 10, 2013 in mobile


9 responses to “Wholesale wireless not the answer for Canada

  1. jvanl

    December 10, 2013 at 12:23 am

    Let’s stop pretending Canada can get by without structural separation, so that we can move past our unwelcome legacy of facilities-based competition.

    It’s the only way a country with our geography and population will keep pace with the world.

    • Peter Nowak

      December 10, 2013 at 10:36 am

      I wish my blog had a “like” button. ; )

  2. enoss1

    December 11, 2013 at 4:21 pm

    Hi Peter. This post gave me an excuse to make some points I have been wanting to make. My response is here:

  3. Jean-François Mezei

    December 11, 2013 at 5:12 pm

    The current “Policy Direction” which is a “bible” to the government directs the government/CRTC to use the least intrusive means that are necessary to achieve the goals of competitive market.

    Yes, structural separation is the better answer. And would allow the Bell/Telus network to stop pretending they are 2 networks and be more effdicient as a single wholesale network.

    But this is a more heavy handed government interference that would go against the Policy Direction, unless we can show that structural separation is the least intrusive means to achieve a competitive market. And in many ways, because the network provider does not have a conflict of interest with its own retail arm, it requires less regulation in the long term. However, as a “monopoly” (or near monopoly), it does need regulatory oversight for its rates. So perhaps the amount of regulatory work isn’t all that different.

    But there are some perverse situations to deal with. In Québec, Vidéotron may have “new entrant” legal status, but it is a well established incumbent. Telus which is not viewed as “new entrant” is in fact the new entrant in Québec, as ts presence here dates from about the same time it purchased Clearnet and then small regional telcos in central québec.

    Ontario, AB and BC are the clearer cases where the market is clearly differentiated between incumbents Robelus and new entrant Wind.

    And if you structurally seperate only national networks, watch how quickly Telus stops serving New Brunswick and Bell stops serving Newfoundland. Both would lose “national network” status and be spared functional separation (and Bell customers would “roam” on Telus in NFLD, while telus would roam on Bell in NB).

    • Peter Nowak

      December 11, 2013 at 6:35 pm

      Yup, definitely not a simple process.

      • jvanl

        December 11, 2013 at 7:11 pm

        A solid strategy will be essential, which starts with asking and answering the right questions.

        (Wish we could trust senior governments to do this, but no)

        Focus on the WHY first, then the WHAT and the HOW.

        What are the projected economic, social and environmental benefits of robust and comprehensive ‘digital enablement’ in Canada?

        What technical, policy and capacity building solutions would enable us to realize these benefits most efficaciously?

        (structural separation drops out of this instantly)

        How do we enable all Canadian enterprises, residents and visitors to put today’s and tomorrow’s digital tools and services to the best and fullest use and to participate, prosper and lead in today’s and tomorrow’s economies and societies, from local to global scales?

        There may be better questions to pose.

        Suggestions encouraged.

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