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Four really is the magic number in wireless

25 Mar

monkeyThere 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):

wirelessprices

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:

bell-prices

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.

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9 Comments

Posted by on March 25, 2014 in bell, mobile, rogers, telus

 

9 responses to “Four really is the magic number in wireless

  1. Chris C.

    March 25, 2014 at 12:39 am

    It’s just one other proof that in the telecom racket, prices bear absolutely no correlation with actual production cost and it stresses, yet again, the criminal paper-printing nature of this so-called ‘industry’. In short: they are making up prices right out of their hats. What better racket is there, when you can legally charge one thousand or one million times your cost to your customers for what is essentially hot air?

     
    • yeoldfaithful

      March 25, 2014 at 12:41 am

      I meant “paper-money printing”, of course 😉

       
  2. Eric Rosenquist

    March 25, 2014 at 9:13 am

    I don’t think the number 4 is as significant as the fact that the additional competitor in those areas is a regional provider that tries harder to acquire and retain customers via lower prices. If MTS, SaskTel, or Videotron were Canada-wide providers would they be any different than the big 3?

    Back in the days before Rogers had a presence out west or Telus came east you might have said adding a 3rd competitor would make a big difference. Once they established themselves as a national brand they fell into lockstep with the incumbents. Now all three worry more about shareholders and ARPU than being disruptive.

     
  3. TronAnonTroll

    March 25, 2014 at 12:41 pm

    I believe 5 is really the magic number. Not 4.

    We all know Videotron is the 4th player in Quebec, but many don’t realize that Wind is also in Quebec in the Gatineau area.

    This is why Videotron came out with their unlimited. People were crossing the river in Gat to get unlimited. It surely wasn’t sue to competition from the likes of Bell, Rogers or Telus.

    Also With their sharing agreement, Videotron is now directly competing in Wind territory in the whole Ottawa Valley (Gatineau + Ottawa) where wind unlimited is popular.

    popuation, per wiki top 100 populated cities, of Gat is around 74th place in all of Canada
    population of Ottawa is 9th place in all of Canada
    Add the two together and that population is ~6th place in all of Canada.

    4 is not the magic number. 5 is.

    Wind is what is driving Videotron to capture a new market segment with new deals. Which in turn affects the likes of the big 3.

    5 is the driving force.

     
  4. Me

    March 25, 2014 at 4:46 pm

    The CRTC is to blame for this. Isn’t this considered Price Fixing?

     
  5. DXintel

    March 26, 2014 at 12:10 am

    Your forgetting aomething MTS and SaskTel are crown corporations meaning they are technically owned by the provical government. This is why they have 97 % population coverage as well it all about provided the Provence with coverage. Not like Tells only focusing on Winnipeg, Portage and Brandon (3 MB cities) or Rogers only covering Regina and Saskatoon with 3/4 G service while the rest is SK cities only have 2G. This is also why the people stick with MTS and SaskTel as if it were not for them it would just be a gaping hole.

     
    • Andrew Seipp

      March 28, 2014 at 9:56 pm

      MTS is privately run company but Sasktel remains a crown corporation. The reasons for spotty coverage in MB and SK is that Bell and Telus have a bilateral roaming agreement with Sasktel, allowing them to use Sasktel’s network. Conversely, Rogers and MTS have a similar agreement in place. But outside of the major cities all of the spectrum is owned by the incumbent carriers (MTS and SASKTEL) so they will never be able to build out a network in those markets.

      In essence, Bell/Telus are the Mobilicity of Manitoba, and Rogers is the Mobilicity of Saskatchewan. The prices match the service levels it seems.

       
  6. craigbamford

    March 28, 2014 at 5:03 pm

    Leaving aside Videotron, isn’t the real insight here that markets are better when private operators face off against solid public options?

    It puts that “superiority of the private sector” arguments to the test quite nicely. If the private operators are more efficient, then they’ll be able to compete and profit quite nicely. If they aren’t, then the whole thing was a farce, and they were likely exploiting natural or state-granted monopolies in the first place.

    (Which, let’s face it, is what’s going on.)

     
 
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