Ask the Wrong Questions and . . . : the CRTC’s Review of Wireless Competition
In the middle of last week the CRTC began to solicit views on whether or not a national code for wireless services is necessary. The CRTC had received several applications, it said, suggesting that such a code might be needed.
Who might want such a code? The big wireless providers, Rogers, Bell and Telus, that’s who, and their lobby group, the Canadian Wireless Telecommunications Association.
Why? Because they’ve been facing mounting efforts at the provincial level to more strictly regulate their pricing and service packaging. Ontario, Manitoba and Quebec have been leading the way (see here). Rabble rousing Openmedia also has the wireless industry in its sights with its “stop the squeeze” campaign (also see the Open Media/CIPPIC study here). A standard code generated by the industry could help dampen the clamour.
In its notice, the CRTC wondered aloud about whether its reliance on competition to the maximum extent possible in wireless, and its decision way back in 1994 to not regulate the sector, might be misguided in light of stubbornly low levels of competition. Anybody who thinks the regulator should actually do something has to (a) show the circumstances have in fact changed and (b) that this change represents a turn for the worse. Only then will the CRTC intervene.
And if does intervene, what can we expect? Not real regulation, but rather a “national code for wireless services” designed by and mostly for the industry.
So, have things changed? Well, yes, of course: 2G, 3G, now 4G and LTE. Smart phones are increasingly making their ways into the palms of Canadians across the land. The internet of devices is highly wifi dependent, and mobile data and video use is growing fast. The industry has also grown from a $3.7 billion industry in 1996 to $18 billion in 2010.
However, one thing that has stayed constant is the fact that the wireless services have never been truly competitive and likely never will be. Nor, however, is it necessary that we expect them to be. But the CRTC said that it would need evidence to indicate that market forces are not working before it would act.
Let me introduce two such indicators: one, the empirical evidence on the state of competition and concentration in the wireless sector between 2000 and 2011 and, two, some indicators of price and quality drawn from relevant global standards.
1. Competition and Concentration: In 2000, the big three wireless providers — Bell, Rogers and Telus — accounted for just over 87% of the industry. Today, they account for just over 93%. The “big three” control more of the sector than ever, and besides that Rogers and Bell now straddle every other significant segment of the telecom-media-internet industries. What they do in any one of these areas affects the developments elsewhere, and broadband wireless services in particular.
The wireless industry was already highly concentrated in 1994 when the CRTC decided that the market was competitive enough to stop doing what it’s suppose to do: regulate. Competition did increase modestly during those early years, with two new rivals – Clearnet and Microcell — snatching away 12 percent of the market away from the incumbent telcos and Rogers by 2000. The two rivals were short-lived, taken over by Telus and Rogers in 2000 and 2004, respectively.
Competition peaked in 2000, then the sector became sharply more concentrated by 2004, before falling slightly and staying relatively flat ever since. Whether recent newcomers — Mobilicity, Wind Mobile, Public and Quebecor — will fare any better, it is still too early to tell. With only 2.7% of the market as of 2011, they are far off the mark set at the high-point of competition in 2000.
The graph below charts the trend between 2000 and 2010 using the Herfindhahl – Hirschman Index (HHI). Remember, the basic rule with the HHI is that scores under 1000 indicate reasonable competition, 1000-1,800 moderate levels of concentration and anything over that, high levels of concentration. They’ve been over 3000 for most of the decade.
HHI scores for the Wireless Sector, 2000 – 2010
Sources: CRTC’s Communications Monitoring Report for 2008 and 2010, and the Telecommunications Monitoring Report from from 2000 to 2007, Canadian Wireless Telecommunications Association’s Wireless Phone Subscribers in Canada.
While there’s room for interpretation, the bottom line is that the wireless sector is and always has been highly concentrated. It is less competitive now than it was in 2000, when ‘market forces’ peaked. The CRTC is right that after this length of time, and in the face of the immovable reality of high levels of concentration, yes, maybe it is time to temper the ‘maximum reliance on market forces’ mantra. A code may just be in order, although one might go even stronger and ask for proper regulation, i.e. for the CRTC to do its job versus playing overseer to an industry-developed code.
2. What about Prices and Quality?
In terms of prices, we can look at things charitably and not so charitably. First, we can look at the CRTC’s data for information on pricing for wireless services, but we’d look in vain. The best I can see is a combined price index for wired and wireless telephone service in comparison to the cost of cable and satellite services as well as Internet access services. The figure shows the trend below.
Source: CRTC (2011). Navigating Convergence, p. 65.
Seen from this angle, things look not too bad, at least between 2002 and 2007, when prices were falling below the level of the general consumer price index. The situation reversed after that, however, with the price of wireless services rising relative to the cpi since 2007. Prices have not risen as fast as in cable and satellite subscriptions, but they have not fallen to nearly the extent as they have for Internet access.
We can also look at this relative to seven other countries that can be meaningfully compared with Canada. As the following figure drawn from the UK regulator, Ofcom, shows, the amount that Canadians pay to their wireless provider each month is at the high end of the scale and always has been throughout the period covered. Also note that prices in every other country surveyed, except Australia, have been falling, while in Canada they’ve been on the rise.
Source: Ofcom (2011). International Communication Monitoring Report, p. 256.
We can also look to the OECD for some guidance. In terms of wireless broadband access per 100 people, Canada ranks 26th out of 34 countries. The following chart shows the comparison.
Source: OECD (2011). Broadband Portal.
Of course, there’s much more that could be said, but just from a cursory glance, all is not right in the wireless kingdom. Of course, many seem to think that opening up foreign investment is the way to go. As I’ve said before, I’m not so sure. Now is not exactly the high-tide of foreign investment in mobile services, at least in the Euro-American economies. And many of those same sources seem to have the US in mind when they hope that big foreign investors will come in to save us from the rapacious grip of Rogers, Bell and Telus. I’m afraid, however, as Susan Crawford, amongst others observe, the US is no better than here, and even more of a basket case on some measures.
The upshot of all this: wireless will likely never be competitive. The CRTC needs to regulate versus oversee an industry-developed code. Lastly, instead of auctioning off all the spectrum, Industry Canada should look to develop an open wireless model.