THE DISCUSSIONS ABOUT the Canadian wireless industry and the merits (or perils) of new competition from Mobile Virtual Network Operators can leave your head spinning. The number of price comparisons and examples, local or international, can be so disorienting you start confusing up from down, the high-end of the market from people on a budget and Bay St. from Parkdale.
This Financial Post opinion piece, for example, calls affordability an ‘alleged’ problem. While it was focused on poking holes in the numbers provided by Timothy Denton in an earlier article, it fails to discuss the issue of wireless affordability because the author doesn’t believe it exists.
Both sides arguing about their numbers (and using the same online image for added confusion) is one thing. Ignoring the fact people have different connectivity needs is another. The focus on market averages and business economics is, in and of 
itself, an indicator that such unfairness/discrimination exists in the first place.
This assessment (speaking for the wireless industry? In lieu of?) is made knowing Canada sits in 43rd place for the cost of wireless postpaid service adjusted to income, (The Economist and Facebook study). Canadian wireless ARPU was highest in the world in that same study, so it shouldn’t be a shock that 9.1% of annual income is being spent on telecommunications by the lowest-income Canadians.
Nothing to see here, apparently, only the entire income group that we know is struggling with connectivity. The entire group of people that have different needs. Is it too small, unprofitable, marginal to mention the actual subjects of the discussion who are not at the top? According to demographic projections by Statistics Canada, the proportion of seniors is expected to increase rapidly until 2031, when all the baby boomers will have reached 65. Seniors could represent between 23% and 25% of the total population in 2036.
More gigs? Phone upgrades? What about offering a wireless service that fits the needs?
YEARS OF FOCUS ON the premium market with an endless cycle of phone upgrades resulted in fundamental misalignment between current wireless brand offerings and reality – not everyone wants or can afford a top tier plan or high-end smartphone. The reported number of people on newly introduced top-tier ‘unlimited’ plans is 15 to 20% and even if we add up all the regional providers’ market shares we won’t cross 50% anytime soon.
What about everyone else? The last reported average mobile usage, before the launch of national unlimited services, was 2.2GB/month. A stark difference when compared to the large buckets being offered now at significant cost.
A large number of seniors, youth, newcomers, visitors and people on a budget are being pushed into service options that are not optimal for their needs. Lower-tier plans have high (and increasing) overages, do not have good cost-control tools, often artificially limit the speed, and puts the user at the back of the line when they contact the call centres. We’re told time and again that Canada excels at building wireless networks, but we continue to fail at delivering service and many Canadians are underserved.
What does last week’s Scotiabank analysis really say about the industry?
Despite arguing against independent MVNOs (no surprise for a business that is interested in financing infrastructure – deployed with utility or not) and potentially misstating when the regulation will happen, for all the things I disagree with last week’s Scotiabank analysis, it did ultimately validate that smart MVNOs could offer nationally available affordable service.
Here is what I understood (consider it an alternative ending to the same report):
1. Videotron is moving twice as fast when compared to the other brand from the class of 2008, Freedom (formerly Wind, now owned by Shaw). It has been half as successful in gaining market share in the regions it has network. Videotron is being aided by their network sharing agreement with Rogers, and a tight regional focus on Quebec.
2. eSIM is going to dominate. By 2021 four generations of Apple and Google phones (and multiple wearables and even Windows 10) will support eSIM. Our guesstimation (based on the adoption of previous technologies) is two-thirds of activations will be done over the air (not needing a store).
3. A low-cost/high-tech approach is preferred by a large segment of Canadians, as evidenced by Videotron’s digital brand fizz.ca.
4. Phone financing and subsidy changes are recognized as the only legitimate competition, ignoring people choosing to upgrade less frequently and looking for BYOD plans.
5. The perceived impact to infrastructure investment seems to be based entirely on the big telco retail business. They already self-optimize with network sharing or roaming agreements, so yes, they own infrastructure. However, they only (and just barely) compete against each other with plans and pricing. Case and point – coverage in the Toronto subway system.
If you ignore the averages (plus your own needs or agenda) there are clear signs many Canadians are underserved. There are also indications in the market that smaller, focused brands can be successful when they seek to solve this problem.
Fear-mongering about large global companies taking over the market with loss-leader plans, which was in the Scotia report, ignores two things; the alternatives to going big (ie. tiny telecoms) and that infrastructure companies will earn wholesale dollars from MVNOs. Wholesale works, it’s just a different model for the infrastructure players who have disappointed many Canadians for decades by ignoring their needs.
It might be inconvenient for the big telecom bottom line, but only if they don’t evolve.
Here are Fizz’s current every day no-promo plans, just a national LTE network with rollover data. It’s proving to be a popular option for consumers with moderate usage, and one of the ways to profitably serve less-valuable segments – people who struggle with affordability but need, or would benefit from, a national network. Building products on top of good network infrastructure unlocks service innovation and pricing differentiation.
Both are benefits for the underserved.
If international examples and comparisons seem too far away, the simplicity of the value proposition of Videotron’s Fizz is difficult to argue with. It’s almost certain that this ‘Made In Quebec’ wireless provider would be popular among young people anywhere in Canada, or visitors to the country using eSIM.
In a competitive environment Fizz would be joined by several brand alternatives with differentiated business models or experiences, perhaps focused on privacy, BYOD, or optimizing spending. These options could emerge as fast as mid-2020 (not 2022) if the currently available, albeit expensive, intra-carrier max rates (set out below) are made available to MVNOs immediately after the CRTC’s wireless policy public hearing.
The average wholesale cost of unlimited talk and text (Average: 500 minutes, 500 texts) in Canada is less than $5/month. The wholesale data rate of $13-14/GB is already “in the wild” and is a safe bet to regulators offering a balance between network investments and the fast outcome of forming of the wholesale market.
The pictured wholesale rates will certainly improve over time, as more spectrum-efficient and fully rolled out 4G/LTE costs will be factored into the “cost-plus” equation, closing the gap between Canada and the three-times less expensive wholesale rates available from large Mobile Network Operators in countries like U.S. and U.K.
Choice and differentiation are what I would call a competitive market, and that’s not something you can find looking through convenient averages.
Continuing to rely on selling more connectivity at higher price points is unsustainable. Many people simply don’t need it, and tuning the market to force them up the value ladder (including 5G) is a volatile situation.
It’s also missing the very real opportunity we have to use infrastructure to connect everyone in a way that works for all.
Algis Akstinas is a founder and CEO of dotmobile a new company focused on bringing affordable and awesome wireless service to underserved Canadians with moderate, transient or changing needs – seniors, youth, newcomers, small businesses, and anyone on a budget.
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