With the imminent unveiling on Friday of Canada’s long-overdue digital strategy – titled Digital Canada 150 – it’s perhaps timely to take a look at how the federal government has fared in its most visible – and often volatile – technology-oriented policy: wireless. Since the declaration in 2007 by then-Industry Minister Jim Prentice that the Canadian wireless market suffered from too high prices and too little choice, the Conservatives have effectively waged war on the country’s three big incumbents, Bell, Rogers and Telus.
Its main weapon in this battle was spectrum, or the public airwaves that all wireless carriers need in order to operate. In 2008, the government held a spectrum auction that blocked off 40 per cent of these airwaves for new companies, which ultimately gave rise to the likes of Wind, Mobilicity and Public Mobile, as well as new wireless operations from cable companies Videotron and Eastlink. Six years later, the cable companies are doing well, but the other three are either dead or on their way to the grave.
Consumers apparently reaped the benefits over that time, with one government-funded study finding that prices had generally gone down nearly 20 per cent thanks to all the new competition. Even if subscribers didn’t sign up with any of the new carriers, the very presence of these companies in the market forced the Big Three to moderate or lower their prices. But, with competition now ebbing, the status quo – and inevitably continual price hikes – is re-establishing itself once again. Here’s how things look, according to the latest figures from the Bank of America Merrill Lynch Global Wireless Matrix, otherwise known as the industry’s bible:
In the third quarter of 2013, Canada was still the global leader in average revenue per user, or the size of the typical customer’s bill at the end of the month, at $58.43. That was about 11 per cent higher than the next country, the United States, with its $52.25 and a full third (33 per cent) more than the developed world average of $41.61.
Perhaps of more concern is the direction in which things are going. Only three countries – the United States, New Zealand and Canada – saw ARPU increases in that quarter, with every other country seeing decreases. Among developed countries, ARPU decreased an average of 3.2 per cent, yet in Canada it climbed slightly, by 0.4 per cent. With the recent price increases by the Big Three, it doesn’t take a rocket scientist to guess what the next round of results will show.
Things look equally good for Canadian wireless carriers on the profitability side:
Canadian carriers ranked near the top of the list with earnings before interest, taxes, depreciation and amortization of 47.7 per cent. Only Italian and Portuguese carriers wrung more profit out of their operations, which is really amazing when their respectively tiny ARPUs of $17.54 and $14.42 are considered.
Canada’s carriers are also performing well in terms of growing that profit margin, with a year-over-year increase of 186 basis points (which are percentages of percentage points).
The carriers have in the past made pains to stress that high ARPU doesn’t necessarily equal high prices and therefore inordinate profits; that it’s more a measure of voluntary usage by customers. If so, things get pretty interesting when comparing like with like. According to the Wireless Matrix, wireless users in most English-speaking countries are paying just about the same for voice minutes – about 7 or 8 cents per – with the exception of the U.S., where calls are so cheap they don’t even register a cost. Voice prices are becoming irrelevant in such comparisons anyhow, given that unlimited minutes are now becoming the norm around the world. Now, data is key.
According to Cisco’s Virtual Networking Index, Canadians, Americans, Brits and Australians are all close to each other in terms of mobile data usage, which can be explained by the simple fact that much of the internet is in English and therefore geared towards them.
So, given that data usage is similar across similar countries, ARPU should be also be similar, right? If only that were the case: Logic dictates only one possible conclusion: in Canada, high ARPU does indeed equal higher prices.
For further proof, we simply have to look back a few years to the pre-smartphone age. In the April, 2008 Global Wireless Matrix, things were much the same. Canada wasn’t actually the world leader in ARPU back then with its $60.83 – it was second to Ireland’s $62.97. Nevertheless, Canadian bills still far outstripped the rest of the world – they were about 14 per cent higher than the U.S. and 31 per cent higher than the developed world average.
At the time, the carriers’ explanation for the big bills was the same as it was now – big usage by customers, who indeed did account for a lot of minutes. But, then just as now, that rationale didn’t hold weight because Canada was one of the few countries to count (and charge for) customers’ incoming calls, which bloated the results in the carriers’ favour. Prior to the smartphone revolution and subsequent government and regulatory crackdowns, Canadian carriers made a good chunk of change on extraneous charges such as voice-mail and caller ID – free services in most countries – and the ever-popular and uniquely Canadian system access fee.
Those extra charges are mostly gone now thanks to additional competition and the likes of the CRTC’s Wireless Code, but they’ve been made up for with higher basic rates. The long, uninterrupted reign of Canadian carriers atop the ARPU throne attests to that. Their stock performances – BCE shares have gained 46 per cent since April 2007, Telus 33 per cent and Rogers 20 per cent, while the TSX Composite Index has increased a comparative 8 per cent – also reflects that to an extent.
So how has the government’s intervention in the market played out? Here’s a simple chart that pretty much summarizes it:
In comparison to the United States, the government’s efforts have done okay. ARPU has barely changed down south over the past six years while in Canada it has declined nearly 4 per cent. Profitability, meanwhile, has improved in the United States by nearly 7 per cent while in Canada it has only inched forward by a comparative 1.5 per cent. These numbers probably aren’t exact because they don’t compare the same quarters, but they do give a good general snapshot at how things have changed over time.
Compared to the rest of the world, however, the government’s efforts don’t look as good. Average monthly bills among developed nations have decreased nearly 6 per cent since 2007, or almost a third more than in Canada, although profitability has grown at a similar level to the U.S. So, Canada may be performing decently compared to its neighbour, but with similar problems – high prices and market concentration – happening down south, that’s not exactly a consoling thought.
When it comes right down to judging the government’s wireless efforts over the past six years, there’s the undeniable bottom line: Canadian bills were among the highest in the developed world then, and they still are now.
Last week, the government introduced its promised legislation on wholesale wireless roaming rates, or the fees that carriers charge each other for connecting their respective customers when they’re out of their own carrier’s coverage area. As telecom consultant Mark Goldberg has observed, the proposed changes to the Telecommunications Act appear to take a balanced approach that makes it cheaper for smaller carriers to connect to the networks of the Big Three, but not so cheap as to discourage them from building out their own networks. The government could have been more “aggressive” by demanding even lower roaming prices by the Big Three, but it chose not to go that route.
That pretty much sums up how things have played out over the past six years. As far as the consumer is concerned, the wireless situation has been slightly better in Canada than in the United States, but that’s not saying much. On a global level, developments in Canada have certainly been lacking in aggression and progressiveness.
Solving Canada’s wireless problem will indeed require aggressive or progressive policies – the splitting of carriers from their networks or the formation of a Crown wireless corporation are two ideas that are gaining currency with the public – but there’s no reason to believe the current government is even thinking about such options. Current Industry Minister James Moore doesn’t have any further apparent weapons to deploy in his government’s wireless “war,” which means that the lukewarm results of the past six years might be as good as it got for Canadians. And with the efforts that it did take now fizzling, things could actually get considerably worse.
It’s going to take more than just harsh words for wireless incumbents for Canada to truly blaze a new path forward as a digitally-focused economy. Will the government’s long-overdue digital strategy offer up more ineffectual platitudes or will it indeed contain aggressive and progressive plans? I’ll have a deep dive on it here next week.