Competition Bureau invokes Sugar Wireless as a model to follow
GATINEAU – “Generally, the Bureau does not favour price controls. However, the presence of market power in this industry; the natural experiment offered by Sugar Mobile’s attempted entry into the wireless services industry; and the fact that similar LCDO Plans have arisen without government intervention in some foreign jurisdictions informs the Bureau’s view that LCDO Plans can increase economic welfare and consumer choice in Canada’s wireless industry.”
So says the Competition Bureau of Canada’s submission to the CRTC about the low-cost data only wireless plans submitted to the Commission in April by Rogers, Bell and Telus.
As readers may recall, a multifaceted wireless decision from the Commission back in March (which included decreases in wholesale wireless rates, a “no” to Wi-Fi first models, and an early review of the wholesale wireless framework that will again reconsider MVNO rules in 2019) contained a directive telling Rogers, Bell and Telus to come up new, data-only wireless plans.
According to the CRTC, those plans could not be tied to customer income; must be made available on the latest, greatest network (4G, not 3G), must be nationwide, and be available on post- and pre-paid plans. Low-cost data only plans, said the Regulator, are required to fill a hole in the market which it and many others say is a serious problem, especially for low income Canadians. (We dubbed it “skinny wireless” after the CRTC’s $25/month skinny basic TV, which was mandated in 2015).
As we reported in April, Bell and Telus proposed plans offering 500MB of data for $30/month, while Rogers submitted a one with 400MB for $25.
Reactions to those three offers were due into the Commission last week and the Competition Bureau was not the only underwhelmed organization. Actually, after reading the Ice Wireless submission, we need a much stronger word, as the company dubbed the plans a “joke” which are “of no value to Canadians.”
The company compared the value of the skinny wireless plans with the new mandated wholesale wireless tariffs which had been approved in the decision we mention above (rates which were essentially carriers’ costs, plus 40%, reads the Ice submission), and found what the Big Three have proposed are six times more expensive than they should be.
“While it is reasonable to expect that there will be additional costs for marketing, distribution and support that are not incurred in wholesale, it is not reasonable to expect this to drive the cost up by a factor of 6. By comparison Ice Wireless offers data-only plans in its home network area, which is located in the three Northern Territories, by far the highest cost area in Canada, at $9/mo. for 200MB, or $19/mo. for 1GB, which is between one third and two thirds less than what the national wireless carriers propose for southern Canadians,” reads the Ice submission.
According to Ice, this points to how the Big Three have simply priced these to maintain unjustifiably high margins averaging 43.4%, according to the most recent CRTC Communications Monitoring Report, while smaller carriers get by with 10.8% margins. Ice also pointed to far lower cost packages offering much more data from Australia’s Telstra, as proof wireless carriers serving a smaller population spread over a large geography should be able to offer customers lower prices than what Rogers, Bell and Telus have proposed.
“The only justification for their high prices is the enrichment of their shareholders at the expense of the captive Canadian consumer market.” – Ice Wireless
“In other words, despite the vociferous protestations from the national wireless carriers that the cost of providing wireless services in Canada is abnormally high due to its large geography and low population density, the national wireless carriers have abnormally high margins and correspondingly low investment leading to the inevitable conclusion that the only justification for their high prices is the enrichment of their shareholders at the expense of the captive Canadian consumer market.”
The Public Interest Advocacy Centre apparently spit their morning joe all over their computer screens when they saw the Big Three’s LCDO submissions. The consumer group’s filing says more regulatory intervention is likely going to be required, such as mandating new rules for mobile virtual network operator access and enabling Wi-Fi first options. (Those will actually be heard again during the 2019 proceeding.)
As for the skinny wireless plans at issue here, “(v)irtually no justification was provided for these proposed rates beyond references to the price of coffee and the amount of low-data activities which could be conducted using that allowance,” reads the PIAC submission.
The CRTC must concern itself with access and affordability of wireless services to Canadians and define what is a just and reasonable balance between that and a reasonable payback for network owner-operators, explains PIAC. “These considerations, and not the price of coffee or overpriced on-market plans, should guide the Commission’s decision to mandate lower cost data-only plans and its exercise of discretion with regard to prescribing the characteristics of those plans.
“While mandated mobile virtual network operator access may ultimately be necessary to lower retail wireless costs across the board, cost-based data-only plans have the potential to act as a positional offer challenging incumbent market power and allowing new innovative service providers to enter Canada’s wireless market,” says the PIAC filing.
When it came to two other large regional wireless providers, Vidéotron and Shaw, neither had much specific to say about the Big Three’s plans (regional providers SaskTel and Eastlink filed no intervention). While Shaw offered no opinion on the skinny wireless plans themselves, it did remind the Commission there remain many hurdles to build its Freedom Mobile into a stronger alternative to Rogers, Bell and Telus.
“(W)e continue to face fundamental barriers to sustainable competition in the wireless industry, including dramatic imbalances between our spectrum holdings and those of the incumbents, and challenges accessing towers and sites for our radio antennae on reasonable terms and conditions. The decades of incumbency advantages enjoyed by the Big 3 have created a vastly unequal playing field in the wireless market, making the road to sustainable facilities-based competition a very difficult and uncertain one,” reads the Shaw submission.
The Calgary-based company also said in its filing that it believes mandating such LCDO plans will actually harm Freedom because the low-cost area is the market space in which the company already operates and has enjoyed success – and also the CRTC doesn’t have the jurisdiction to rate-regulate like this anyway.
“To be clear, the use of section 24 (of the Telecommunications Act) to ensure the continued availability of the lower cost data-only plans proposed by the incumbents would be tantamount to rate regulation, even if the required service is at the rate proposed by a carrier,” reads the Shaw submission. “Any requirement to offer a service at a certain rate constitutes rate regulation, and the Commission does not have the jurisdiction in this proceeding to engage in rate regulation.”
“The imposition of LCDO Plans will bring at least some of those consumers back into the marketplace, thereby increasing Canada’s wireless penetration rate and reducing deadweight loss in the Canadian economy.” – Competition Bureau
Vidéotron’s submission, written in French of course, made no reference to what it thought of the Commission’s jurisdiction but it did support Rogers, Bell and Telus in saying it believes no price ceilings or minimum data capacity thresholds need be mandated by the CRTC.
Sorry, said the Competition Bureau to that idea, but no. The Canadian wireless market is not competitive enough and while it normally wants markets to decide its own proper pricing organically, that has so far failed in wireless and so it supports the LCDOs as temporary, needed, measures – complete with mandated price ceilings and data thresholds. The market power of the Big Three and their retail pricing “forces some consumers, who would purchase a product or service at a competitive price, to forego such purchase because prices, as a result of market power, are simply too high. These consumers no longer participate in the marketplace, and these foregone purchases create what economists refer to as deadweight loss.”
Ice Wireless’s Sugar Mobile (a market participant whose business model was essentially shut down by the Commission) was held up as a beacon of innovation in the Competition Bureau throughout its submission, which also highlighted the various plans available in the U.S., U.K. and Germany which are either cheaper, more generous with its data offerings, or both.
“(T)he Bureau believes that economic welfare could be increased if the CRTC chooses to impose LCDO Plans. Such an action would address the gap in the marketplace that was left when Sugar Mobile exited, and would work to restore the best choice for at least some portion of Canadian wireless consumers. In respect of those consumers who stopped consuming mobile data services because of Sugar Mobile’s exit, the imposition of LCDO Plans will bring at least some of those consumers back into the marketplace, thereby increasing Canada’s wireless penetration rate and reducing deadweight loss in the Canadian economy.”
SOME CONSUMERS WERE NOT shy about their opinions on these plans and the Big Three wireless carriers. While advocacy group OpenMedia managed to spur over 8,000 click/comments from its web site, there were more than 600 Canadians who went to the CRTC web site on their own in order to register their anger (we didn’t look at all the submissions of course, but we didn’t find any Big Three backers in the few dozen we did read.)
Here’s a sampling.
Francois Pelletier, Sudbury, Ont.: “Frankly these data plans are insulting to the General Public. When Telus can offer a 6gb plan with unlimited talk and texting for $50 a month, how can 400 megabytes of data for $30 be considered a deal by any stretch of the imagination?”
Lindsay Waterman, Victoria, B.C.: “I think it's pretty obvious to everyone that 0.5 gb for 30 dollars is an absurd offer that no one would use. Let's not give this any more time than we need to and just shut it down already? How about 5 GB for $30? That's right: they're an order of magnitude away from being even reasonable. Good work telecoms. Way to live up to our expectations.”
Shawn King, Regina, Sask.: “I LOVE the idea of a data only mobile plan. I would absolutely utilize this! However, as of right now the cost is way too high for next to no data. My current "voice plan" is $50 a month and my data is $25 a month. For that $25 I get 15GB of data. For $25 at Rogers, you get enough data to watch a single YouTube video and like a Facebook status. That's about it. For now, I'll stick to my voice a day data plan. Despite almost never using the talk time on my phone. At least I have enough data to get me through the month without constantly relying on free Wi-Fi. I am currently on SaskTel.”
Abhinav Rai, Victoria, B.C.: “The low cost, data only plans are still very expensive for what you get. This is a world of being connected, a mere 300 – 500MB of data, mostly aimed at middle class families is still not affordable. The plans need to reflect reality. The wireless providers know it, and are maximizing their profits.”
Jeremy Brown, Longueil, Que.: “The offered plans by the 3 telco providers are highly inadequate to meet the needs of Canadians in today's connected environment. They offer orders of magnitude less data for many times more the price. For example, Fido offers a 3GB/15$ plan to existing customers for tablet data, i.e. 5$/GB. There is no reason that these proposed data-only plans should cost up to 60$/GB, a rate 12x higher for data. These companies can afford to keep prices high without losing many subscribers due to high barriers of entry for foreign competitors. Canada needs to follow the example set out by many other countries by allowing more foreign ownership of telecom companies. This model has proven many times over that it can offer competitive and affordable mobile plans while remaining very profitable.”
The Big Three now have until June 28th to respond to all of this.
