TORONTO – The fact that ARPU is trending downwards and churn is rising among the big three wireless providers shows that facilities-based competition brought by the likes of Videotron, Freedom and Eastlink is working – and mandated MVNOs would be a bad move for Canada.
So says a report published this week by Scotiabank’s telecom analyst Jeff Fan.
“Quebecor has been a wireless facilities-based competitor in Quebec for a decade. Is that not sustainable enough? We estimate the company has now captured approximately 19% market share in the province, and, with its new Fizz brand, the momentum has actually accelerated. We estimate Freedom’s market share of covered population at just under 10%, and we see share gains continuing, driven by network quality improvement and supported by network and spectrum investment,” reads Fan’s research.
Rogers, Bell and Telus this year have shown average revenue per user (ARPU) is shrinking (it looks to drop by 1.6% in the fourth quarter of 2019 and a further 2.5% by Q2 2020 among those three companies, predicts Fan) and postpaid churn (the net number of customers leaving for a competitor), is on the way up. (See charts below for illustration. Click to enlarge.)
Fan credits Freedom’s Big Gig plan as a catalyst for the shifts in the marketplace, as well as Videotron’s pricing in Quebec and its launch of discount brand Fizz. As we’ve reported, the big three have all responded with new offers, led first by Rogers Infinite unlimited plans and equipment installment plans, which have effectively repriced wireless in Canada – to somewhat messy results for Rogers especially, at the moment.
“We believe these trends have been indirectly driven by competition from Shaw and Quebecor,” writes Fan. “As we noted above, we do not foresee either slowing down until they have achieved their market share objectives, which we believe is in the 20%-30% range of covered (population). At their current market share… and our estimate of the pace of share gains, we believe Quebecor still has another five years before it reaches 25% share and Shaw has 10 years of market share gains ahead before it reaches 20% share.”
"Such a move would undermine a decade of their investment in spectrum licenses and network build-out." – Jeff Fan, Scotiabank
However, should the CRTC decide to mandate access to incumbent networks for new independent mobile virtual network operators through its ongoing review of wireless policy (which will culminate in a public hearing in February), it is likely such a move would mostly harm Quebecor, Freedom and Eastlink, slow investment in networks and new 5G infrastructure, and open the door to unexpected, disruptive, tech companies, he believes.
“Global companies with strong technology brands such as Google, Amazon, and Apple could easily set up wireless MVNO loss leaders to help them bolster their ad sales, e-commerce sales, or Apple device sales, respectively (and those companies do want in). This would not be too far removed from Amazon and Apple leveraging content in their loss-generating video streaming services. With emerging technology enhancements such as eSIMs (embedded SIM cards, built onto chips inside phones), establishing an MVNO service is not a technical challenge, especially for large global tech companies,” writes Fan.
Such large companies operating wireless MVNOs as loss leaders in Canada would surely cause price decreases, but would also immediately see a retraction in investment by network owners facing a serious reduction in their return on investment. “Over the medium to long term, their next generation network investments will likely decline and network quality will ultimately suffer,” says the report.
With MVNOs claiming market share – and likely riding on/paying for the use of networks owned by one of the national carriers – the newer facilities based operators would be hard hit. “Smaller facilities-based wireless operators like Freedom, Videotron and Eastlink (yes, the same companies that have created the competition over the past decade) are more likely to be affected by MVNOs than the incumbents because MVNOs are more likely to offer services on the incumbents’ relatively higher quality networks. We believe this will take away Shaw and Quebecor’s subscriber growth because MVNOs will likely be better substitutes for consumers. Such a move would undermine a decade of their investment in spectrum licenses and network build-out,” reads Fan’s report.
That said, at least one former regulator believes MVNOs simply must be mandated, and will be, by the Commission. Speaking last week at the Canadian ISP Summit in Toronto, former CRTC chair Konrad von Finckenstein told delegates “I think there’s no question MVNOs will get access.”
He went on to add the notion that facilities-based is the best way to go for telecom competition in Canada is an outdated concept. Software-based facilities “is just as good as facilities-based,” added von Finckenstein. Facilities-based competition “is an archaic concept that dates from the railroads… and it’s now the mantra – and of course the big telcos forever say this is the key our telecommunications system must be based on.
“No, it’s not. We are living in the internet age… So, I hope this hearing will see a sea change in the approach to it – and we have to face a new technological reality and abandon this,” he continued. “Of course, as a consequence, you let MVNOs in.”
Fan notes he will be paying closest attention to the Competition Bureau when final written submissions for the wireless policy review hearing are filed Friday, November 22. The Bureau’s submission, based on extensive econometric analyses of confidential data procured for the Bureau from the carriers by the CRTC “will carry significant weight in the process, and, for us, its findings and recommendations will likely establish the early odds on the CRTC proceeding’s outcome,” writes Fan.
Plus, even if the Commission decides MVNOs must be mandated (and a decision from the hearing isn’t expected until late 2020 at the earliest), we still won’t see them in the market for a while as there would likely then be another public proceeding to figure out how MVNO tariffs would be set.
