Is the Canadian Wireless Pricing Competetive

ECONOMIC NOTE

Is the Canadian Wireless Sector Competitive?

Nearly two decades after having decided that it was not necessary to regulate the wireless telephone sector, the Canadian Radio-television and Telecommunications Commission (CRTC) decided this past April to revisit its decision and hold public consultations on the matter. It should soon announce whether or not it believes that formal regulation is required to ensure that the sector remains competitive.1 Wireless telephony now includes data transmission and has become a competitive factor for businesses in an environment in which communications technologies are developing rapidly.

Some observers of the Canadian wireless sector, basing themselves on certain Canadian and international studies,2 maintain that the sector is not competitive enough and that more regulation is required to force providers to lower prices, increase download speeds and improve service quality. These critics also believe that Canadian consumers are at a disadvantage compared with consumers in other developed countries and that Canada is constantly losing ground in terms of innovation, penetration rates and investment in infrastructure. At a time the CRTC is asking itself whether it should regulate the wireless sector, it is appropriate to look at the state of this industry in Canada. Much higher prices than elsewhere? The studies carried out by the OECD are among those most often cited to lend support to the idea that the prices of wireless telephony in Canada are much higher than elsewhere. However, Canada does not look that bad in the most recent biannual report on the communications industry, published by the OECD in June 2011. In four out of six usage scenarios, in fact, prices are lower in

by Yves Rabeau

Canada than in the United States, although they remain higher than the OECD average. Furthermore, in the usage case including the most calls and text messages, Canada ranks as the fifth least expensive of 34

References: 1. 2. CRTC, “CRTC seeks views on the state of competition in the Canadian wireless sector,” news release, April 4, 2012. See especially: the biannual reports of the OECD (OECD Communications Outlook); Berkman Center for Internet and Society at Harvard University, Next Generation Connectivity: A review of broadband Internet transitions and policy from around the world, October 2009; Bank of America Merrill Lynch, Global Wireless Matrix 3Q11: Look beyond the macro storm, September 2011; SeaBoard Group, Long Term Evolutionary Challenge: Limiting Wireless Carrier Gluttony, February 2012. OECD, OECD Communications Outlook 2011, 2011, pp. 285-290, tables 7.9 to 7.14. These figures are from another OECD report published a few days earlier: OECD, International Mobile Data Roaming, May 2011. See also Terence Corcoran’s analysis, “Canada’s data roaming fees look pretty cheap,” Financial Post, June 9, 2011. Wall Communications, Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions, April 2012. 4G Americas, Global 3G and 4G Deployment Status HSPA / HSPA+ / LTE, August 2012. “Data guzzlers: How the world will use the Internet in 2015,” The Economist, June 1, 2011. Cisco, Visual Networking Index Forecast Highlights, http://www.cisco.com/ web/solutions/sp/vni/vni_forecast_highlights/index.html#~Country. OECD, Fixed and wireless broadband subscriptions per 100 inhabitants, OECD Broadband Portal, December 2011. comScore, Canada Digital Future in Focus, 2012, p. 39. Lawrence Surtees and Steve Yang, Canadian Telecommunications Capex Budgets, IDC, August 2011, p. 50. Rita Trichur and Iain Marlow, “Canada’s newly competitive cellphone market at risk,” The Globe and Mail, February 11, 2012. John Morrissy, “Consumer savings at risk as new wireless players struggle,” Vancouver Sun, April 11, 2012. Rita Trichur and Iain Marlow, op. cit., endnote 12. John Morrissy, op. cit., endnote 13. In various articles, economists have emphasized the possible market distortions caused by the setting aside of spectrum for small players at auctions. See for example: Robert W. Crandall and Allan T. Ingraham, “The Adverse Economic Effects of Spectrum Set-Asides,” Canadian Journal of Law & Technology, Vol. 6 (2007), pp. 131-140. Rita Trichur, “Telecom firms under pressure to keep up with smartphone obsession,” The Globe and Mail, December 30, 2011. Advertising on mobile devices is growing rapidly in Canada. The value of this advertising, which was just $1.1 million in 2006, had risen to $52.1 million in 2010 and reached an estimated $82 million in 2011. Note also that online advertising in general now exceeds newspaper advertising. IAB Canada, Canadian Online Advertising Revenue Survey, 2010 Actual + 2011 Estimated, p. 4. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Canadians have every reason to want to maintain the approach put in place nearly two decades ago, namely refraining from imposing specific regulation on this important sector of our economy. Furthermore, the media, historical partners of telecommunications companies, will want to increase their presence on mobile devices, which will put pressure on the demand for bandwidth and applications as well as an increase in the amount of advertising seen on these devices. Insofar as consumers are ready to accept the presence of advertising,18 this source of revenue can lead to rate plan fee reductions, making the technology even more affordable. The wireless market in Canada is in full expansion and functioning well. Canadians therefore have every reason to want to maintain the approach put in place nearly two decades ago, namely refraining from imposing specific regulation on this important sector of our economy. 17. 18. 1010, Sherbrooke Street W., Suite 930 Montreal (Quebec) H3A 2R7, Canada Telephone: [phone] Fax: [phone] Website: www.iedm.org The Montreal Economic Institute is an independent, non-partisan, notfor-profit research and educational organization. Through its publications, media appearances and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms. It does not accept any government funding. The opinions expressed in this study do not necessarily represent those of the Montreal Economic Institute or of the members of its board of directors. The publication of this study in no way implies that the Montreal Economic Institute or the members of its board of directors are in favour of or oppose the passage of any bill. Reproduction is authorized for non-commercial educational purposes provided the source is mentioned. Montreal Economic Institute © 2012 Illustration: Benoit Lafond Graphic design: Mireille Dufour 4