If ever there was reason for regulation of Canada’s wireless competitive landscape, this was captured in the Regulatory Blockbuster extravaganza at this year’s Canadian Telecom Summit. In a very transparent display of player interests, representatives from Canada’s incumbent wireless carriers, including Bell, Rogers and TELUS, squared off against panelists representing new market entrants and consumer rights in this day-two event panel on issues ranging from competitive practices and price gouging to ongoing investment (including foreign) in wireless infrastructure and the health and stability of Canadian wireless markets going forward. What emerged from the debate was a fairly clear statement of non-cooperation - and hence need for an objective, third-party hand at the wheel.
Electricity in the panel air was supercharged by announcements on the first and second days of the Summit signalling federal government determination to act on its consumer protection agenda. The new CRTC Wireless Code which allows consumers to cancel wireless contracts after two years without penalty, unlock their phones after 90 days and which caps extra data charges at $50 per month (and at $100 for roaming charges) to prevent ‘bill shock’, stimulated a good deal of discussion on day one, and a precedent setting ruling on Telus’ bid to acquire Mobilicity was delivered in rapid succession on the morning of day two. Essentially, Industry Canada blocked the $380-million deal, reinforcing government policy on the non-transfer of spectrum from new, small carriers to the large incumbents for at least five years after licence issue, and reaffirming its intent to support the operation of at least four wireless competitors in every region of Canada.
The stated intent behind the new Code and the Mobilicity ruling is to engender greater competition in Canadian wireless markets - the first through liberation of the consumer from provider lockin, and the second through the set aside of access to spectrum for new wireless players. Not surprisingly, these items quickly found their way onto the Regulatory panel agenda, and their announcement had a marked impact on the competitive posturing of panel participants.
From the left hand side of the ring, the panel opened with comments from John Lawford, executive director and general counsel for the Public Interest Advisory Council, a non profit that provides legal and research services on behalf of consumer interests, and those related to important public services in particular. Lawford launched into his presentation with "there’s no stopping us now," a clear reference to what his group perceives as overdue introduction of "consumer-based rules." According to Lawford, the PIAC is "ecstatic" over the Wireless Code’s removal of "abuses" through caps on data and roaming charges, though hoping for more clarity on billing, text messaging and transparency in wireless contract information. In his opinion, the Code may be viewed as a "bone fide compromise position" that consumers and providers can all live and work with; however, the CRTC and Industry Canada pronouncements offer confirmation that "consumers have a problem with this industry... that can quickly be parlayed into political action." Anticipating service provider neglect of this message, Lawford warned that if underlying price issues are not address, providers should expect continued "piecemeal federal legislation interfering in your industry or more habitual legislation as politicians look to reduce at your expense."
Next up, Edward Antercol, VP for regulatory affairs & carrier services for Globalive/Wind Mobile, pointed to current inequities in access to spectrum from the 700 megahertz band, which is critical to the build out of LTE services for high speed data and video transfer (more of which will be on auction in Canada later this year). Citing Industry Canada figures, Antercol noted that Bell, Telus and Rogers currently hold 85% of available spectrum. In response to the incumbants’ claim that they also have 90% of customers and hence require even more spectrum, Antercol quoted Seaforth data showing that U.S. carriers are able to service many more customers per megahertz of bandwidth than are their Canadian counterparts. According to Antercol, "the incumbents have a lot of spectrum and they’re not using it particularly efficiently. But spectrum is the lifeblood of the Canadian wireless carrier," and the new entrants should have their fair share.
A third voice from the left of the panel was provided by Chris Peirce, CCO, MTS Allstream, who addressed issues of concern for the Canadian business market, including the yawning productivity gap between Canada and the U.S., and Canadian business’ relatively low investment in ICT infrastructure (half that of the U.S.), the key driver of innovation. Peirce attributed much of Canada’s lag, which is only growing in the digital era, to the fact that "competition isn’t what it should be in business market for some important inputs so companies can’t take advantage of services needed to make them productive - namely, choice in telecommunications services." When there is choice, he argued, businesses can truly benefit from what IT can enable, such as cloud delivery of multiple services, as opposed to high cost, siloed services such as standalone voice. Canadian adoption of SIP technology, which supports the delivery of service suites, he added, is less than a fifth of that in the U.S. Peirce concluded his presentation with a call for the CRTC to look explicitly at proceedings for the business market, and to consider the central services framework as well as the need for investment in fibre to the premises, with the end goal of enabling more Canadian competitors to develop appropriate business services.
Ken Engelhart, SVP, regulatory & chief privacy officer for Rogers led the charge from the incumbent camp with the observation that "more competition is always good," but that the facts don’t support the notion that "services are not very good in Canada." Engelhart premised his view of service quality on a comparison of the cost of a Rogers iPhone voice, text and data bundle with similar Verizon and AT&T packages - more expensive or equivalent price offerings from U.S. carriers that are able to draw on more heavily populated regions to distribute costs. The new entrants to the Canadian market, he intoned, "have obviously had an effect on the market, but more of their effect has been at the lower end with pocket text, cell based offerings." Improvements at the high end - the iPhone world - he ascribed to competition between Bell, TELUS and Rogers. These have also have been responsible, he added, for an impressive broadband penetration rate, which currently sit at 80% of Canadian households, a testament to the superiority of Canada’s private sector approach to wireless competition. "We don’t need a digital strategy," Englehart concluded, "Australia needs a digital strategy!"
According to Ted Woodhead, SVP, federal government & regulatory affairs at TELUS, consumer benefits are achieved through "scale, investment and innovation," which TELUS has amply demonstrated in capital investment for initiatives such as the build out of fibre to the node, upgrade of 2.5 million households to DSL, or the creation of an optical IP-based TV service alternative to cable TV for viewers in western Canada. These kinds of investments are "highly speculative, but are key to Canada’s future" Woodhead argued, and require a favourable regulatory environment: "if people make rules that retard investment, or make it riskier to invest, that is a significant regulatory or public policy issue for this country."
Bell also lauded incumbent performance in Canadian wireless markets. According to Mirko Bibic, Bell EVP and chief legal & regulatory officer, Canada’s "world leading wireless industry" is based on high levels of investment needed to service a large geography with sparse population (Canada leads in CAPEX per subscriber on a global basis), and he questioned whether "we really want to put this level of investment at risk." Despite geographical and population challenges, high investment costs and high spectrum fees, he claimed, Canada offers pricing that "is better than in the U.S."
While these positions may seem irreconcilable - the incumbents’ comfort with the status quo and the new entrants’ demand for change - they constituted only the polite introductory remarks. The real fireworks were reserved for the Q&A discussions which followed. In this portion of the contest, new entrants were accused by the encumbants of "pure arbitrage" - adding no innovation but merely taking advantage of the differential between wholesale and retail pricing, while the incumbents were challenged on pricing claims, and on the fees they charge for radio tower real estate. This last issue has proved an especial sore point since the ability to provide continuous signals - and LTE services - is contingent on access to existing towers as licenses to build new ones are rarely granted by municipalities due to aesthetic or perceived health concerns. Though sharing of tower assets that are owned largely by the encumbents is mandated, as Antercol noted, competitor radios are typically placed low on the towers for fees that are higher than the cost of building an entire new structure. While Antercol enthusiastically welcomed an audience member’s proposal that tower assets be sold to third-parties and placed in a free market environment, this suggestion was met with stony silence by the encumbents.
So is this all "sound and fury, signifying nothing" or should intransigence be cause for concern? As CRTC Chair Jean-Pierre Blais noted in his Summit address, all is not well in wireless markets. In preparing the new Wireless Code, the CRTC considered 8,000 complaints about wireless services, which accounted for 60% of all complaints submitted to the Commissioner of Complaints for Telecommunications Blais called on communications providers to include a social calculation in their ROI reckoning since a "convergence of public and private interests is good for the bottom line." This will only happen, however, in a more dynamic marketplace, where co-petition replaces intransigence and investment serves as a source of innovation rather than complacency.