Remember when Prime Minister Stephen Harper promised to lower your cellphone bill? And then when he boasted about doing just that?
The government’s own report on the matter, released quietly in June, shows prices are actually on the rise. Three of the four service tiers measured by Ottawa-based consultancy Wall Communications saw price increases over the past year, with only heavy users seeing a decline.
“The Conservative government’s plan to increase cellphone affordability has been half-measured and ineffective,” says Steve Anderson, director of Vancouver-based consumer advocacy Open Media.
“Despite years of assurances that prices would come down, the government’s own report confirmed that prices have once again gone up . . . leaving Canadians paying some of the highest prices in the industrialized world.”
Lowering bills has been one of the Conservatives’ key goals since 2008, when they set aside a big chunk of wireless spectrum licences — the industry’s lifeblood — for auction to new players.
At the time, Canadians indeed paid some of the highest prices for talking and texting in the world. A 2007 study by the Organization for Economic Co-operation and Development found Canada had the fifth-highest rates of its 30 members. Canada’s big three carriers — Bell, Rogers and Telus — were raking it in as a result.
Average revenue per subscriber (ARPU), or the size of the typical customer’s monthly bill, was second-highest in the world at about $61 (U.S.), behind only Ireland, according to the Bank of America Merrill Lynch Global Wireless Matrix. Operating profit margins were the highest in the developed world, at 46 per cent, well above the average of 33 per cent.
The 2008 auction netted several new carriers to compete against the oligopoly. Wind and Mobilicity launched in Ontario, Alberta and British Columbia, as did cable providers Eastlink and Videotron in the Maritimes and Quebec, respectively. Public Mobile also began operations in Toronto and Montreal.
Mobilicity and Public Mobile have since fallen by the wayside, with Rogers and Telus acquiring the respective companies and their spectrum holdings. On the plus side for consumers, the cable companies and Wind have emerged as the stable fourth carriers the Conservatives were hoping for, in a few provinces at least.
Still, Wind has fallen short of its initial goal of 1.3 million subscribers within its first three years of operation. The company has had funding problems and operates a slower and patchier network than its rivals. At last count, the company had 800,000 subscribers, with a new goal of one million by the end of this year. Bell, Rogers and Telus have around 8 million to 9 million each in comparison.
Wind isn’t yet a threat to the Big Three in its footprint, a likely reason for why prices are once again on the rise. Whether the company ever will be is an open question.
The Conservatives also helped the Canadian Radio-telecommunications and Television Commission usher in the Wireless Code, a set of rules that effectively killed three-year contracts and limits roaming charges. The CRTC also capped wireless wholesale rates, or the fees that carriers pay to connect to each others’ networks, earlier this year.
All of it has led to Harper adopting and sticking to the proverbial “Mission Accomplished” message.
“Our Conservative government is taking action to reduce your cellphone bill – and we wanted to make sure you have heard about it,” said a post on the Prime Minister’s Facebook page in June, 2013.
“More competition means lower prices and more choices for you and your family. Our government’s strong actions have reduced the average cost of wireless services for Canadians by 18 per cent since 2008.”
Prices did indeed come down prior to the recent rise, but the Conservatives probably didn’t have anything to do with it. Prices — and therefore bills — have headed downward in virtually every country in the world as more people jumped from landlines to cellphones, and as the industry shifted to charging for gigabytes of data rather than voice minutes.
As in any business, carriers found they could make more money with a large volume of customers paying lower rates than through a relatively smaller number of them paying sky-high premiums.
Despite that, Canada’s situation hasn’t improved. Canadians are still saddled with the highest bills in the world, at an average of $46.58 — Europeans average $20.59 in comparison — and carriers are still pulling in the second-highest margins among developed economies at 46 per cent, according to Bank of America Merrill Lynch. Canada also still has the lowest cellphone adoption rate in the developed world as a result.
The big carriers have defended their high returns by citing Canadians’ high usage of voice minutes and data as an explanation for their lofty ARPU, and Canada’s large land area as a reason for the low adoption rate.
Here’s where the parties stand on cellphone rates:
A spokesperson said the party has been critical of the Conservatives’ wireless plans and will be rolling out more details at a later date.
John McCallum, a Liberal candidate running in the riding of Markham-Thornhill, says his party agrees with the fourth-player strategy the Conservatives have taken, but he thinks it could be implemented better.
Representatives did not return requests for comments on what additional steps could be taken to lower cellphone bills.
“Barriers to access such as excessive termination fees, restrictive contracts and price-gouging are not helpful to Canadians and it should be a priority that the government correct these problems within the industry,” a spokesperson said in an email.
What is to be done?
Absent political action, what can bring cellphone prices down? Here are a few possibilities:
Supporters of the fourth national carrier idea point to Saskatchewan and Manitoba as proof that added competition brings down prices. In Ontario, for example, Bell charges $125 for a plan with unlimited nation-wide calling and text and 10 gigabytes of data. In Saskatchewan, where the Big Three also have SaskTel to contend with, the same plan costs $65. In Manitoba, where MTS is a player, the plan is $70. Prices in other provinces may come down naturally as Eastlink, Videotron and Wind strengthen their networks, or even if the disparate provincial players combine into a single, more powerful entity. But that could take years.
Wind is the last new cellphone company left standing in Ontario, Alberta and British Columbia, but it has been plagued by funding and ownership problems since its inception. The company was finally sold and recapitalized last year by a consortium of financial investors, including Toronto’s West Face Capital and California-based hedge fund Tennenbaum Capital Partners, but not before missing out on a key auction of 700 Mhz wireless spectrum. The company hasn’t exerted the same fourth-player pricing pressure on the Big Three as SaskTel and MTS because its network is not yet fast or strong enough to pose a threat. With more wireless spectrum, which could come via deals or future auctions, that could change.
Quebec’s leading media and communications firm Quebecor spent hundreds of millions of dollars in wireless spectrum auctions in 2014 and 2015 for licenses outside its home province, and last year even launched a website —AffordableWireless.ca — that teased plans to expand nationally. Company vice-president Jean-François Pruneau poured cold water on that idea last month with the announcement that Quebecor will not build a national network, and will instead look to partnerships or a sale of the licences. A deal with Wind or other provincial players would strengthen those companies’ positions, although selling to the Big Three — which would need the government’s blessing — would do the opposite.
When the CRTC announced in May that it was capping wireless wholesale rates, it also rejected the idea of forcing open carriers’ networks to third parties. A similar framework has been in place for years in wired broadband and has allowed smaller internet providers such as Teksavvy and Distributel to offer cheaper alternative services to big companies. A group of those same small ISPs, under the collective banner of the Canadian Network Operators Consortium, are now petitioning the CRTC to change its mind. They argue that allowing “virtual” operators, of which there could be many, would be the best way to lower cellphone prices. The Big Three and Wind are dead set against the idea.
Open the doors
There was some noise in 2013 about Verizon coming into Canada, but it never came to pass. It’s still an outside possibility that the U.S. cellphone giant, or some other international player for that matter, could show an interest in expanding, perhaps by purchasing Quebecor’s spectrum or through uniting the various regional providers. Also possible is the government and CRTC move towards forcing the structural separation of carriers from their networks, effectively creating separate wholesale businesses. Consumer advocates are pushing for such a scenario, but it has yet to be seriously considered by policy makers.