The CMCR Project’s Wireless Report: Mobile Wireless in Canada: Recognizing the Problems and Approaching Solutions

For a copy of the full report click here. 

The Canadian Media Concentration Research Project is releasing the final iteration of this report on the state of mobile wireless markets in Canada. The first draft was presented at a panel on “The State of Competition in Canada’s Telecommunications Sector” at the International Institute of Communications (IIC)/Canadian Wireless Telecommunications Association (CWTA) conference on November 17 and 18th at the Ottawa Conference centre. We were delighted to offer our views and to debate the issue of whether mobile wireless markets in Canada are highly competitive or badly concentrated at the conference.

We argue in favour of the latter claim. This report offers a fairly comprehensive, long-term body of data that places trends in Canada in a comparative international context. It shows that Canada shares a similar condition with many, indeed, almost all countries that we have studied: high levels of concentration in mobile wireless markets. Canada is not unusual in this regard, and indeed no matter whether we look at things from the perspective of 19 countries, the 34 OECD countries, or 57 countries that account for four-fifths of the world’s population, the answer is pretty much the same in all cases: concentration levels in mobile wireless markets are “astonishingly high everywhere” (Noam, 2013).

The difference between Canada and elsewhere, however, is whether or not there is the resolve to do anything about this state of affairs. Until recently, the answer to that question has not been promising, although there are some bright spots on the horizon and it is possible that they will light the way yet.

For the time being, however, the stronger tendency amongst defenders of the status quo is to deny reality, even when incontrovertible evidence stares them in the face. This 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 all too much. Their members do not look kindly on those who might rock the tight oligopoly that has ruled the industry from the get-go.

When by any conventional standard of mainstream economics, mobile wireless markets are remarkably concentrated, trained economists look the other way. When new phenomenon are taking root in one country after another around the world – i.e. the spread of national wholesale wireless carriers in the British and European mobile wireless markets and many others as well — plus the fact that countries with four or more national Cellcos are in the firm majority — apologists for the industry either turn away or, worse, point to such entities as a dying breed.

The reality, as we show, is that, while highly concentrated, new ‘maverick brands’ like T-Mobile in the US, Hutchison 3G in the UK, Hot Mobile and Golan Telecom in Israel, and Iliad’s Free in France are taking hold in many countries. There is some humour in this as well, as T-Mobile’s advertisement clips on Youtube show quite brilliantly (see here and here, for instance).

“Maverick Brands” share many things in common, although Canadians might be forgiven for never having heard of such a thing:

  • all have faced incumbents bent on giving them a still birth;
  • all play the role of status quo disruptors, pushing down prices, driving massive growth in contract free wireless plans, unlocking phones, and doing their best to dig in for the long haul.
  • they have all relied on the state for a fundamental public resource that underpins the entire mobile wireless set-up: spectrum, an immensely valuable public resource that governments grant privileges to use in return for – at least in theory – providing public services at a fair return rather than just filling the coffers of the state treasury.
  • Inevitably, governments must choose between who will get access to this resource, and who will not. This is the unavoidable norm, and the Harper Government was in such a position with respect to the recently concluded 700 MHz spectrum auction.

Incumbents themselves have fought tooth-and-nail against new upstarts (TMUS, Wind, 3, Free, Hot Mobile, Freedom Pop, etc), and used every tool in their power to stare down democratically elected governments in bids to preserve their own domination of the spectrum. In Canada, 90% of spectrum actively in use is held by three companies, as of November 14th, 2013: Rogers (41%), Telus (25%) and Bell (24%). The rest is scattered amongst Sasktel, MTS and a handful of “new entrants”: Quebecor (Videotron), Wind, Mobilicity and Public (recently acquired by Telus).

The big three, not unusually, and much in the spirit of those who stand in a similar place in other countries around the world, go to great lengths to hold back the tide and defend their privileges. Last summer’s “wireless wars” expressed this reality, as Bell, Rogers, and Telus fought on all fronts against what they perceived as a double-barreled threat from Verizon and the government’s relatively newfound resolve to:

  • foster more competition in Canada’s mobile wireless market,
  • drive down domestic and international roaming charges,
  • and otherwise give Canadians access to world class wireless services .

This study underpins its analysis with a comprehensive, long-term and systematic body of data from the FCC, OECD, Ofcom, Wall Communications, CRTC, and many other sources as cited, all of which universally support the same conclusion: namely, that Canada’s mobile wireless market is a lackluster performer.

We show:

  • wireless markets in Canada, whether measured by revenue, spectrum held, spectrum in use or subscribers, whether at level of the country as a whole, specific provinces or Canada’s nine biggest cities –  Toronto, Montreal, Vancouver, Ottawa-Gatineau, Calgary, Edmonton, Quebec City, Winnipeg, Hamilton — are remarkably concentrated;
  • in terms of standings in international league tables, Canada’s wireless market, based on a composite score using price, penetration and speed, ranks 19th; the US ranks 10th;
  • in terms of penetration, or access and use, matters are worse: Canada ranks 25, while on price it ranks 28th, yet despite all this Canadians are Number 1 when it comes to how much time they spend on the internet, how many GBs of data they upload and download, smartphone data they send and receive, use of Wikipedia, log onto Facebook, and watch television;
  • Canada ranks very highly when it comes to capital investment in its wireline infrastructure, no matter how you measure it and when measured for one, five, ten or more years;
  • The same cannot be said of wireless despite the fact that Canada has fared well in the most recent year for which complete data is available (2012) because Bell, Rogers and Telus flipped the switch and began rolling out in a substantial way LTE/4G networks. Stretch the time horizon, however, and that standing collapses and Canada falls toward the bottom third of the pack – 23rd out of 34 OECD countries.

Other findings emerge in the report too numerous to outline here. However, one thing that stands out is that those governments that stare reality in the face and act accordingly must stiffen their spine against the backlash that they will inevitably meet when they encounter some of the biggest, and most profitable, companies in the country. That is the lesson learned by governments and regulators everywhere, particularly as this study shows, in the UK, the US, Israel, France, with many others noted only in passing but widely recognized in the literature.

Whether or not people get the media, wireless and internet capabilities they need to live, love and thrive in the 21st century depends on the right choices being made. Those choices now stare Canadians in the face. How we act, and the government moves ahead, will set the baseline for how mobile wireless media in this country will evolve for at least the next two decades – the length of the licenses awarded in the recent 700 MHz spectrum auction – and probably for a lot longer than that!

As with the earlier drafts of this report, we would be delighted to hear constructive comments and criticism that can help us improve our understanding of the issues at hand and any future work we do on this topic. This final draft involved further cleaning up editorial matters, adding a few missing references and clarifying key concepts used, notably the idea of national wholesale carriers. The complete data sets behind the charts, figures, tables and rankings have also been posted and linked to the CMCR project website under the “Wireless Report” tab. We have also added two appendixes that describe the primary data sources used and methods employed to arrive at our rankings across measures of penetration, speed, price and capital investment. Our best efforts have been made to ensure the accuracy of the data and the correctness of our interpretations. If, however, you find something you believe to be in error, please let us know and we will look into it, make sure that things are set aright when need be, and thank you.

The Canadian Media Concentration Research project is directed by Professor Dwayne Winseck, School of Journalism and Communication, Carleton University.  It is funded by the Social Sciences and Humanities Research Council and has the mission of developing a comprehensive, systematic and long-term analysis of the media, internet and telecom industries in Canada.

Professor Winseck can be reached at either dwayne_winseck@carleton.ca or 613 520-2600 x.7525.

Contents

Introduction

The Wireless Wars and the Damnation of International Comparative Studies: or the OECD as the Canadian Cellco Industry’s Jilted Lover

Wireless Concentration in Canada: The Real World

Wireless Markets are Highly Concentrated Almost Everywhere

The State of Wireless Markets in Canada

What’s a Regulator to Do? Telecoms Regulatory Toolkit for the 21st Century

Tool #1, Importance of Cultivating Competitive Markets and 4or More Cellcos

The Fourth Player as Holy Grail (or Why a Strong “Maverick Brand” is a Good Thing)

The UK: Promoting Four National Wireless Wholesale Companies

The US: The Department of Justice and the Aborted AT&T T-Mobile Merger

The 4+ Competitive National Cellcos Model Around the World:  France and Israel

Need for Clear Policy and Regulators with a Spine: Expanding the Regulatory Remit from the Edges-In

So, What’s the Problem Anyway?

Penetration, Prices, ARPU and Profits

Conclusion and Where to Go from Here?

Figures 

Figure 1: The Increasingly Network and Mobile-Centric Media Universe, 2012

Figure 2: Household Access to Information and Communication Technologies by Income Quintile, 2012

Figure 3: Summary of Spectrum Holdings by Wireless Service Provider

Figure 4: Share of Spectrum in Active Use (Antenna) in Canada’s Largest 9 Cities, 2012

Figure 5: Average Revenue Per User (per Annum): Canada vs. OECD, G7& and Select Countries, 1998-2012 (OECD Data)

Figure 6: Average Revenue Per User (per month): Canada vs. OECD, G7& and Select Countries, 2001-2012 (BAML Data)

Figure 7: Operating Profits, Rogers, BCE and Telus vs. Canadian Industry Average, 1990-2012

Figure 8: Bell, Rogers, Telus & Canada EBITDA vs OECD + G7

Maps

Map 1: Church & Wilkins 19 Country Survey of Wireless Concentration, 2012

Map 2: 34 OECD Country Survey of Wireless Concentration Levels, 2012

Map 3: 57 OECD + Bank of America/Merrill Lynch 57 Country Survey of State of wireless Concentration Levls, 2012.

Map 4: Wireless Service Area Map

Tables

Table 1: Media + Broadband Use and Rankings in Select OECD Countries, 2012

Table 2: Market Share based on Subscribers, by Province, 2012

Table 3:  Composite Wireless Ranking: Penetration, Speed, Price, 2011-2012

Table 4: Composite Wireline Ranking: Penetration, Speed, Price, 2011-2012

Table 5: Composite Wireless + Wireline Ranking, for Penetration, Speed, Price (33 Countries), 2011-2012

Table 6: Composite Ranking of Capital Investment in Wireline Infrastructure, 1997-2012

Table 7: Composite Ranking of Capital Investment in Wireless Infrastructure, 1997-2012