The Canadian government has been patting itself on the back for what they say in a recent press release is delivery on a promise to ‘reduce cell phone wireless plans by 25%’, three months ahead of its two-year target ending March 2022. To be fair, this headline is qualified in the text of the release which says that they only committed to “track and reduce the costs of mid-range wireless plans by 25% over two years”. But even this limited goal is misleading when the full facts are known.
The claim of success is based mainly on a measurement that is mechanistic and overly restrictive regarding what matters most to Canadians using cellphones today: mobile data. The Government’s measure does not take into account the fact that Canadians use, and expect, more mobile data each year at the same or reduced cost. Likewise, Canadian cellphone companies have for years increased data allowances for roughly the same price every year. In short, a true price cut, let alone one that would drop real prices per contract by 25%, would require a ‘data inflation’ factor. Without allowing for increasing data requirements, one can claim prices have ‘dropped’ if prices stay the same but data allowances rise. This is precisely what has happened, and the normal, expected data inflation dynamic is what the government is claiming as a success and a price drop. It is not a success and prices have not “dropped” in light of data usage growth.
The proof? “Average revenue per user” (ARPU), the industry’s own profitability metric, has remained relatively stable during the past 2 years of COVID-19, with one carrier even reporting an ARPU increase of slightly more than 1% last year. Other cell companies have been attributing 5-10% ARPU reductions to the pandemic cutting into roaming and overage revenues (people are staying home, so they don’t travel and get roaming charges, and many use their cellphones on home WiFi data) as well as the adoption of unlimited data plans. Prior to the pandemic, however, Canadian carriers had the highest ARPU for the least data used in the world in 2017, and probably also in 2019-20. Canadians are actually paying quite a lot for below-average data use.
But what the heck, let’s track the original goal set out in the 2019 mandate letter to the Minister of Innovation, Science and Industry (ISED): “…to reduce the average cost of cellular phone bills in Canada by 25 per cent.” Let’s ignore data inflation. Let’s look then at the remaining sleights of hand the government has used to claim they have achieved even this non-data inflation-adjusted reduction.
First, their pricing data tracks only the average cost of (and note these are all conditions, and if you don’t meet all of them, the data doesn’t go in the data set, thereby vastly decreasing the size of the data set): 1. post-paid; 2. bring your own device (BYOD); 3. unlimited talk and text 4G/LTE plans; 4. in the 2 to 6 GB range; 5. offered by certain ‘flanker brands’ of major wireless providers, namely, FIDO (Rogers), Koodo (TELUS), and Virgin (Bell). [Note, plans from alternative flankers Lucky Mobile (Bell); Chatr (Rogers); and Public Mobile (TELUS) are also generally not included in these flanker plans as they tend to be pre-paid services, operating at 3G speeds.]
Data limits are too low
Canadians’ data consumption is growing each year as networks gain capacity, making tracking 2GB – 6GB plans increasingly irrelevant. As ISED points out “in 2020, the average Canadian used 3.8 GB of mobile wireless data per month.” This is likely much higher in 2021 and 2022. But this 2020 average tells you very little about plan selection. More specific numbers show that in 2020 approximately two-thirds of mobile subscribers had wireless data plans that were 5GB or larger compared to 40% in 2018. If only a third of Canadian mobile users have data plans under 4GB, why are lower prices for small data plans touted as a victory, overall?
5G plans not included
The data tracked does not include 5G service despite its growing availability and demand for the increased speeds and reliable connections it offers. For example, TELUS recently announced that its “blazing fast and reliable 5G network” now reaches 70% of the Canadian population and connects 744 Canadian communities. The absence of this information means a major variable is missing from ISED’s calculations.
Only includes flanker brand plans
The dataset does not include the three premium or ‘flagship’ brands – Rogers, TELUS and Bell and the so-branded plans offered by them. While its often difficult to extract information about flanker brands from the big three, we know that in 2019 and 2020, without the help of their flanker brands, the Big 3 received ~65% of retail mobile revenues (see: CRTC Communications Market Reports, Open Data – Retail Mobile Sector). It is deeply troubling that the providers’ most profitable plans were not tracked.
The data also does not include Shaw’s Freedom Mobile or Shaw Mobile, which collectively had 1,821,514 subscribers in 2020.
You likely won’t get these plans anyway
These plans are offered only to those who “switch” or are new customers. Customers of the same provider (including flagship brands of the same company, as far as we can tell) do not qualify.
In PIAC’s view it is not clear from the government’s materials to what extent existing customers can gain access to the reduced-price plans tracked by ISED. For example, the flanker brands state that select plans (some called ‘starter plans’ or other unattractive names) are available only to new activations, suggesting that the cheaper plans are only accessible to customers who are willing to switch companies (and pay the activation fee, where applicable). ISED does not mention this. In effect, we have Potemkin pricing plans – probably largely maintained by the companies at the target prices to placate the government and give the impression that there are in-market plans with ‘falling’ prices.
And flanker brands are often heavily DIY-service based, meaning unless the customer can navigate the company’s self-serve website, they may have to pay for customer service. Other disadvantages of flanker brands include default to electronic billing, a paucity of unlimited plans, higher data and voice plan overage charges and reduced handset choice (if you are not doing ‘bring your own device’ (BYOD)).
Includes hidden costs and barriers to access
The narrow data selection is further squeezed by the focus on only “bring your own device” plans. Switching during a prior contract where the customer has not yet fully paid out their smartphone, just to do BYOD for this flanker deal, can dissuade many customers from switching if the payout costs to their first, contracted carrier would be high (that is, more than a very few months remain on their initial contract, if it included a ‘subsidized’ smartphone). This further reduces the number of customers likely to use these flanker plans.
Another issue is that companies are able to charge for data overages on these plans. The frequency and quantity of these overage charges are not tracked, meaning ISED has not captured what Canadians with these plans are actually paying. Data overage charges on flanker brands are typically very high.
StatsCan data is misleadingly called in aid
The ISED media release also trumpets: “Wireless prices in general have declined across the board. The Statistics Canada cellular services price index showed a 26.9% decline from February 2020 to December 2021. The government has also observed decreases generally in the range of 22 to 26% for plans 10 GB and larger, which builds on past reductions of 31% for 10 GB plans in 2019.”
Here are some methodological problems with the StatsCan consumer price index (in relation to wireless):
1. StatsCan dropped the cost of handsets from its costing methodology in 2018. As noted above, most customers also buy handsets on installment plans and don’t BYOD. So, the true baseline cost of the wireless market (most consumers ‘finance’ a smartphone with their carrier) is not measured. We note handset prices have been rising to very high levels in recent years and consumers pay these off, usually monthly, over a 2 year period as per the CRTC Wireless Code.
2. The only measure of ‘price changes’ therefore is the change in service prices. But StatsCan compares “consumer profiles” of static data and texting and voice minutes allowances due to the many, rapidly changing offers and the possibility for individually-tailored contracts meaning StatsCan does not account for expected data use growth or, as we label it, “data inflation.” This creates a false impression of ‘falling prices’ – true only if a consumer does not follow normal consumption trends and does not use or demand more data each year or at least at the end of each contract.
What’s the result after two years?
Canadians are still paying some of the highest rates for cellphone service in the world (see: Rewheel’s “Is Canada the most expensive wireless market in the world?” from April 2021).
What’s likely to happen after the Government’s “price drop” measuring period ends in April 2022? Expect even these limited lower-price flanker plans to disappear from carriers’ offerings. Prices on flagship brands likely will remain high and likely will be heavily marketed with smartphones as part of a payment plan. Lately, these plans have been offered with an optional requirement to return the phone after 2 years in order for the customer to pay a reduced amortization of the phone cost. As a result, if this option is taken, unless the customer pays out a final balloon payment to buy the phone outright at the end of the contract, the customer more likely will trade it in and undertake a new financed smartphone with the same carrier, not take a purchased smartphone to market seeking BYOD rates.
What really needs to be done?
To paraphrase Lenin, “What is to be done [about high cellphone prices in Canada]?” The pat answer is “competition”; more specifically, what other commenters have suggested, is competition delivered by:
1. a forced sale of Shaw’s mobile assets to another wireless carrier as a condition of approval of the Rogers-Shaw deal by the Competition Bureau. But it is hard to anticipate which present competitor in Canada could undertake a nationwide rollout of service as a 4th wireless player; and, doing so as a “pure play” wireless operator would be even more challenging, from a market and regulatory standpoint, and extremely expensive and risky; or
2. entry of mobile virtual network operators (MVNO) into the Canadian market. In simple terms, MVNOs are alternative service providers that buy access to other companies’ network infrastructure and offer services via network software and over other carriers’ spectrum, instead of building physical networks or purchasing spectrum themselves. Unfortunately, last year the CRTC issued a decision that claimed to create an ‘MVNO access regime’ that was nothing of the kind – it effectively excluded non-facilities-based competitors and required carriers who did own some facilities to purchase spectrum, at least eventually. We told the government that this decision is irreconcilable with the aim of reducing wireless pricing in our submission supporting Data On Tap Inc.’s petition to cabinet to reverse this ‘MVNO’ aspect of the CRTC decision.
Neither of these options may happen at all; even if one or both do, based on historical events in the wireless market, Canadian competition law and wireless regulation in Canada, neither is likely to succeed.
Rewheel has recently suggested:
“In order to be effective, remedies must include as a minimum the upfront creation of a new maverick mobile network operator. The creation of a new operator can be realized through the divestment of spectrum and mobile network assets to a domestic or foreign owned interested party, passive site collocation obligations and a time-limited national roaming obligation at competitive data rates. The Canadian Radiotelevision and Telecommunications Commission (CRTC) [actually, ISED manages spectrum, not CRTC] could complement the structural remedy by setting aside 5G spectrum for the new entrant and alleviate the short-term competition concerns by mandating MVNO wholesale access obligations at competitive data rates”.
Maybe, but as noted above, a fourth, independent, quasi-nationwide mobile operator might assist, but would face major regulatory and market challenges and past efforts have failed in Canada.
That said, PIAC agrees with Rewheel’s assessment that “Effective competition in the Canadian wireless market can only be achieved by a set of very significant (bold) structural remedies.”
So, how about thinking more radically? Nationalization of the wireless carriers by the federal government? Structural separation of the backbone operations of the wireless carriers from any retail operations, including their own retail wireless carriers, to which they must sell equally and fairly along with all retail wireless providers? Price regulation of all retail wireless services?
Anything short of these remedies, it seems, will only produce these political shell games.