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No, wireless bills aren’t actually going down

08 May

cell-phone-billSo wireless bills are going down? Wha? How’s that possible?

Canadians are paying an average of $76 per month if on a two-year contract or $81 if on a three-year agreement which, according to a new report from J.D. Power, means “on average, monthly bills for wireless service have dropped by $7 for customers in Canada, helping to improve overall satisfaction.” Much of this is thanks to the CRTC’s Wireless Code of Conduct that took effect in December, which capped roaming fees and eliminated three-year contracts, the report says.

The results seem to disagree with what has actually been going on. Firstly, the big carriers all raised their fees last summer ahead of the Wireless Code’s arrival, then hiked them again starting in January, and now they’re starting to raise them again by chipping away at the discount customers get for supplying their own devices. Even Bay Street analysts agree that regular price increases are resuming now that the competitive threat of new entrants such as Wind and Mobilicity has subsided.

So what gives, J.D. Power?

“It’s a reported monthly spend,” said Adrian Chung, the report’s author, in an interview. “It certainly isn’t the ARPU (average revenue per user) number that the carriers will indicate in their financials.”

He went on to explain that the decrease is more reflective of what the 12,000-plus polled consumers think is happening with their bills, rather than what’s actually happening to them.

“There is a little bit of a disconnect between our reported number, again cited by consumers, versus the true financial numbers that are reported by the carriers themselves,” he said. “It’s not ARPU and not meant to match it, but at the end of the day our service is measuring customer perception. We’re seeing a lot of positivity around cost of service. It’s a general indication that customers feel they’re spending less.”

Indeed, both Bell and Telus have just reported ARPU increases for the first quarter of 2014, while Rogers saw a small decline. According to recent numbers from the Bank of America Merrill Lynch Global Wireless Matrix, average ARPU across Canadian carriers saw a slight increase of 0.4% year-over-over. North America is the only region in the world where wireless bills are on the rise, according to the Matrix.

So what’s going on in the mind of the average wireless consumer, or at least in the minds of those polled by J.D. Power? There are probably a few psychological things happening that are helping with this perception of lower bills, Chung said. Having the umbrella protection of the Wireless Code is one, while the general high quality of Canadian networks is another. Some companies, notably SaskTel and Telus, are also putting a lot of effort into improving customer service.

Overall, J.D. Power’s findings need to be taken with a grain of salt. Not only do the results not match up with actual bills, they also don’t necessarily agree with each other. Last year’s report found the average bill had increased by $9 to $77. That’s a big and therefore unrealistic increase-to-decrease from year to year, and so too is the final average amount – if this year’s average bills are $76 (on two-year contracts) or $81 (on three-years), it’s not clear where the supposed $7 decline is coming from.

It’s also worth nothing that last year’s report disagreed significantly with other similar studies, such as a Wall Communications report – frequently trumpeted by the government ever since – that saw wireless prices had decreased by 18 per cent.

There are also some inconsistencies in what this means for carriers. In the press release accompanying this year’s report, Chung said:

“While the Wireless Code appears to have benefited wireless customers with a reduction in monthly fees, it may put increased financial strain on carriers over time,” said Adrian Chung, account director at J.D. Power. “Carriers will need to look for other products and services to make up the losses and generate new revenue streams. Tablets with data packages are starting to take hold, and the average additional spend is $34 dollars per month among those with a connected tablet on their plan, compared to those without one. This is a great opportunity for carriers to leverage.” – See more at: http://www.jdpower.com/press-releases/2014-canadian-wireless-total-ownership-experience-study#sthash.7ZqCuTcV.7jaDfKNa.dpuf

While the Wireless Code appears to have benefited customers with a reduction in monthly fees, it may put increased financial strain on carriers over time… Carriers will need to look for other products and services to make up the losses and generate new revenue streams.

I thought this contradicted the perceived-but-not-actual decline in bills, so I asked Chung about it further. Here’s that conversation:

Q: You’re saying this has to do with customer perceptions on their bill, but in the release here we have a statement about how this may put increased financial strain on the carriers. I’m just curious how, if this price decrease is largely in the minds of the customers and doesn’t translate into the ARPU as you said, why are you saying this might translate into a financial strain on them?

A: It’s on the surface of monthly bills being lower, you expect carriers are getting less specifically on wireless services. What’s not said there is potentially the offset, we kind of alluded to it, that there’s a lot of offset around data packages and additional services that can offset the fact that just on the surface they may be spending less on a month-by-month basis.

Q: I’m a little confused. Are the bills actually lower or are they just perceived to be lower? I think you said they’re just perceived to be lower, right?

A: You’re correct. That perception carrying forward…

Q: Means the carriers have an opportunity to increase?

A: Yes, certainly. This opens the door, it puts the carriers in a better light or more positive light than they have in the past. Whether it’s right or wrong or whether it’s forced by the code or otherwise, they’re able to now, there’s really an opportunity to secure both loyalty and advocacy from existing customers and really reap the financial benefits of that even if the perception right now is that people are spending a little less.

So, to summarize: for whatever reason, wireless customers think their bills are going down when they’re actually not, but this perception should clear the runway for carriers to further increase bills. Or, at least that’s the situation according to J.D. Power.

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2 Comments

Posted by on May 8, 2014 in mobile, telecommunications

 

2 responses to “No, wireless bills aren’t actually going down

  1. Infostack

    May 11, 2014 at 4:43 pm

    Wireless 20/20 has an analysis that shows TCO for a wireless network over 5 years is 13% capex and 87% opex. A disproportionate share of capex is contained in opex in the form of site rentals and backhaul. This leads one to believe that carriers not only have a structural problem with marketing and acquisition costs, but one with the network as well. And this is with significant amount of user-designated offload. What this says is that wireless is just an extension of wireline and that more fiber has to reach farther to the edge and bandwidth prices have to come down by a factor.

     
 
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