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Carleton Study Challenges Claims of Big Wireless Players and Promotes Need for Maverick Brands

Cross posted from Carleton University homepage.

Well, this is a bit of a cheat, but Steven Reid at Carleton University did such a great job conveying the central message of a new report that we put out at the Canadian Media Concentration Research Project that I thought I’d just crib the whole thing and re-post it here. Thanks Steve.

Steven’s wordsmithing follows:

Carleton University’s Canadian Media Concentration Research project, directed by Dwayne Winseck of the School of Journalism and Communication, has released a report entitled Mobile Wireless in Canada: Recognizing the Problems and Approaching Solutions. The study outlines the state of wireless competition and concentration in Canada in relation to 57 countries worldwide, covering a period of three decades.

“The deep divide between the wireless industry and the government that has erupted over the latter’s attempt to reduce domestic and international roaming charges and foster more competition is the focus of the study,” said Winseck. “The study challenges the industry’s claim that there is no competition problem in Canada and emphasizes the importance of maverick brands that extend the market to those at the lower end of the income scale – women and others who are otherwise neglected by the well-established wireless players.”

The report supports the assertion that mobile wireless markets in Canada are not competitive. It offers a comprehensive, long-term body of evidence that places trends in Canada in an international context. The study shows that Canada shares a similar condition with almost all countries that were studied: high levels of concentration in mobile wireless markets.

The difference between the wireless situation in Canada and elsewhere is the lack of resolve to do anything about this state of affairs said Winseck. The study concludes that Canada’s situation is not promising, although there are some bright spots on the horizon.

“For the time being, the tendency is to deny reality, even when incontrovertible evidence stares observers in the face,” said Winseck. “This, however, is symptomatic of a bigger problem, namely that in Canada the circles involved in discussing wireless issues are exceedingly small and they like to hear the sound of one another’s voices. Their members do not look kindly on those who might rock the tight oligopoly that has ruled the industry from the get-go.”

The study highlights the importance of emerging maverick brands like T-Mobile in the U.S., Hutchison 3G in the U.K., Hot Mobile and Golan Telecom in Isreal, and Iliad and Free in France.

Maverick brands have many things in common:

  • All have faced aggressive incumbents and they tend to disrupt the status quo, pushing down prices, driving massive growth in contract-free wireless plans and unlocking phones.
  • They have relied on the state for a fundamental public resource that underpins the entire mobile wireless setup: spectrum.

Incumbents have fought against new wireless companies, challenging governments in an attempt to preserve their domination of the spectrum. In Canada, three companies currently hold 90 per cent of the spectrum: Rogers (41 per cent), Telus (25 per cent) and Bell (24 per cent).

The study shows that compared to the countries included in the study:

  • Wireless markets in Canada, regardless of how they are measured, are remarkably concentrated;
  • Canadians are first in terms of time the spent on the Internet, GBs of data uploaded and downloaded, smartphone data sent and received etc.;
  • Canada is highly ranked when it comes to capital investment in its wireline infrastructure, but lags in wireless investment.

“Whether or not people get the media, wireless and Internet capabilities they need to live, love and thrive in the 21st century depends on making the right choices now,” said Winseck. “Those choices are staring Canadians in the face. How we act, and how our government moves ahead, will set the baseline for how mobile wireless media in this country will evolve for the next two decades – the length of the licences being awarded in the upcoming 700 MHz spectrum auction – and probably for a lot longer than that.”

An executive summary of this study can be found at: http://www.cmcrp.org/2013/11/18/executive-summary-the-cmcr-projects-wireless-report-mobile-wireless-in-canada-recognizing-the-problems-and-approaching-solutions/

The full report can be viewed at: http://www.cmcrp.org/wp-content/uploads/2013/11/Mobile-Wireless-in-Canada2.pdf

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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.

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