OTTAWA – Industry analysts and a journalist duked it out over wireless pricing and government policy in Canada during a session at the annual International Institute of Canada conference on Monday.
Jeff Fan, research analyst at Scotia Capital, presented some figures that countered many of the arguments which have been made by the federal government and others who say that competition in Canada’s wireless market is lacking. Fan noted that the elimination of three-year contracts as mandated by the CRTC earlier this year in its Wireless Code of Conduct has actually made things worse for consumers by leading to higher prices.
For average 1 GB data plan with unlimited talk and text, prices increased 9%, while similar 3GB data plans saw prices go up by 19%. “So (the Regulator’s) actions led to higher prices,” he said, adding that three-year plans allowed consumers to get into smartphone market at “a cheaper up front cost. That was taken away.”
The effective banning of three year contracts (payback on smartphones can be no longer than two years, which has had the same effect on the market as an outright ban on contracts of more than 24 months) has had a negative impact on other aspects of the Canadian wireless market, particularly as it relates to new smartphone subscriptions, Fan noted. While smartphone subscriptions grew 17%, 23% and 38%, respectively, over the past three third quarters, Q3 in 2013 actually saw a decline of 2.1%.
“So what the government did actually froze the market in the most recent quarter,” he said.
Dvai Ghose, managing director and head of research at Canaccord Genuity, used his presentation to also debunk some myths about the Canadian wireless industry. Data plans and wireless profitability among Canadian carriers are not among the highest in the world, he said, noting that data plans with Verizon and AT&T in the U.S. are more expensive than those in Canada. Equally, there are a number of international carriers such as Vodafone, Softbank and NTT that are more profitable than Canada’s big three wireless operators.
Canadian wireless carriers have also been criticized for an apparent lower level of investment in networks than some of their international counterparts. Ghose took aim at this as well, showing data that clearly demonstrates Canada’s Big Three wireless operators are in the middle of the pack when it comes to capital expenditures as a percentage of sales.
Ghose reserved some of his most stinging comments for the Conservative government’s approach to wireless policy. In fact, the Canaccord analyst argued the feds don’t have a wireless policy.
He pointed to the decision to deny Telus Corp.’s bid to purchase struggling new entrant Mobilicity even after the set aside exemption expires in February 2014. Yet Telus was allowed to buy Public Mobile, another new entrant. “All those investors who invested in Mobilicity under the view that the law says that in 2014 we have the option to sell the company have basically been told” the government can change its mind on a whim. “It’s very difficult to play the game if you change the rules,” he said.
Ghose went on to criticize the federal government’s actions on foreign ownership. After first overturning a CRTC decision determining that Wind Mobile didn’t meet the then foreign investment rules, the government then ruled that the original backer of Wind, Naguib Sawiris, was somehow a threat to national security and refused his proposed bid for Allstream, with no explanation.
“In 2009, the government bent the rules in order to accommodate Naguib Sawiris and then four years later he’s been deemed a security risk,” he said.
Peter Nowak, a journalist who has long argued that there is a lack of competition in the Canadian wireless sector, pointed out despite suggestions from the analysts that smartphone usage drives average revenue per user (ARPU) and not rates, he presented some figures to the contrary.
While Canadians rank fourth when it comes to data consumption on their smartphones, it’s prices are the highest, Nowak argued, adding that while consumers around the world are seeing their monthly bills go down, users in Canada and the U.S. aren’t. This, he said, is an indication that smartphone data use and ARPU aren’t connected.
Gerry Wall, president at Wall Communications, noted that it’s right to bring a healthy bit of skepticism when evaluating the competitiveness of Canada’s wireless market in comparison to others, as direct parallels are often impossible. But he said it’s important to remember that mandating four wireless carriers in every market is not a good policy, but rather a market outcome.
Besides, Wall said the pinnacle of competition in the Canadian wireless market happened about a decade ago. When Fido first came to market, they offered pricing and packages that were innovative and aggressive, he noted, describing that time as “the high water mark” for competition in Canada.
“I don’t see that today,” Wall said, adding that today the market is about bundles and wireless is only one component of a larger service package.
However, as Ghose pointed out, Microcell, Fido’s owner, “went bankrupt twice" before it was purchased.
