There was considerable confusion last week over the price hikes being instituted by Canada’s Big Three wireless carriers. Several news outlets jumped on the fact that Bell, Rogers and Telus were raising rates, perhaps too exuberantly in some cases where reports suggested that all three were moving in collusive tandem at the exact same time. Telus was quick to point out – as both wireless specialty site MobileSyrup and I mentioned in our respective posts – that its hikes had in fact taken place in January. Bell and Rogers were simply playing catch-up.
Daniel Bader at MobileSyrup had an excellent follow-up the other day explaining the exact nature of the increases, as well as some background on the recent wireless spectrum auction and the future of Videotron. In a nutshell, Telus kicked off the whole smorgasbord in January by raising its basic rates and lowering some of its data fees. The end result was that many plans maintained the same price, although higher fees are now likely for households with multiple phones. Bell and Rogers followed suit and, by matching Telus’s plans, pushed through big increases in some cases.
A few important points may have been lost amid the specifics of which plans went up and which didn’t. First and foremost is the resumption of the status quo, where the Big Three are once again moving prices in virtual tandem. With the threat of start-ups Wind and Mobilicity now subsided, regular virtually synchronized rate hikes are now back for the foreseeable future. Actual collusion is irrelevant and unnecessary when real competition has been neutralized.
The end result is rates that are identical to one another. The proof is in the pudding, or more specifically, the image below, which compares some data-sharing plans across the Big Three (My apologies for the image quality, but the small type is irrelevant – the information that matters is the prices and the data amounts, which are the same regardless of carrier):
Is there anything wrong with identical rates? Not necessarily. Wireless service is similar to many other markets in Canada, like gas, for example; when one gas station raises prices, the other ones across the street follow in lockstep. Of course, any one of those stations could differentiate themselves from competitors and probably gain customers by doing the opposite, but then who wants a price war when there’s plenty of cheddar to go around? It’s not collusion – it’s just the Canadian way of doing business.
But matching prices are only the half of it. The other really interesting point is how prices differ in different parts of the country. Things are much better for consumers in Quebec, Manitoba and Saskatchewan, where Videotron, MTS and SaskTel are the respective fourth carriers. Check out the difference between Bell’s rates, for example, in Ontario and Manitoba:
This is strong proof that the federal government’s long-held desire for four carriers is the correct course of action when it comes to consumers. The very presence of a fourth carrier in those three provinces is enough to force both Bell and Rogers to offer rates that are 40- to 50-per-cent lower than those in other, less competitive parts of the country (kudos to Telus, however, for uniformly overcharging regardless of the province – no wonder the company has better average revenue per user than its two rivals… but hey, its executives and flaks keep insisting that high ARPU doesn’t equal high prices). (UPDATE MAR. 31: Scratch that, Telus prices now match the others in Manitoba and Saskatchewan.)
As industry observer Ben Klass notes on his blog, it might be cheaper in the long run for people living in Ontario, Alberta or B.C. to fly to the prairies and sign up for service than it would be to do so in their respective home provinces.
The dramatically lower rates likely fall short of qualifying as predatory pricing, which is the illegal practice of undercutting competitors by sustaining short-term losses in favour of the long-term elimination of those competitors, but they’re problematic nevertheless. If carriers can afford to charge such low rates in Quebec, Manitoba and Saskatchewan without incurring losses, the natural question that arises is: why can’t they do so in the other provinces?
That sounds like a good question for the Competition Bureau, the Canadian Radio-television and Telecommunications Commission and the government to ask.