THE STATE OF COMPETITION IN CANADA'S TELECOMMUNICATIONS INDUSTRY 2016 - By Martin Masse and Paul Beaudry
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RESEARCH PAPERS MAY 2016 THE STATE OF COMPETITION IN CANADA’S TELECOMMUNICATIONS INDUSTRY – 2016 By Martin Masse and Paul Beaudry
The Montreal Economic Institute is an independent, non-partisan,
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©2016 Montreal Economic Institute
ISBN 978-2-922687-65-1
Legal deposit: 2nd quarter 2016
Bibliothèque et Archives nationales du Québec
Library and Archives Canada
Printed in Canada
Martin Masse
Paul Beaudry
The State of Competition in
Canada’s Telecommunications
Industry – 2016
Montreal Economic Institute
•
May 2016TABLE OF CONTENTS HIGHLIGHTS ....................................................................................... 5 INTRODUCTION .................................................................................7 CHAPTER 1 - HOW DOES CANADA MEASURE UP? ..........................9 CHAPTER 2 - WINDS OF CHANGE IN CANADA’S WIRELESS SECTOR ............................................................................................21 CHAPTER 3 - SHOULD BROADBAND INTERNET BE REGULATED AND SUBSIDIZED AS AN ESSENTIAL SERVICE? .............................27 CHAPTER 4 - FACILITIES-BASED COMPETITION AS A SPUR TO INNOVATION .............................................................................35 CONCLUSION - THE EXPENSIVE PROMOTION OF ARTIFICIAL COMPETITION .................................................................................41 ABOUT THE AUTHORS ....................................................................45
The State of Competition in Canada’s Telecommunications Industry – 2016
HIGHLIGHTS
The 2015 edition of this report pointed out that Canad-
ians continue to be among the biggest consumers of
telecommunications services in the world, and argued
that the government and the CRTC should stop emulat-
ing the failed policies of Europe and revive Canada’s
historically less interventionist wireless regulation, which
has served consumers well. Here are some highlights
from this year’s edition.
Chapter 1: How Does Canada Measure Up?
• Penetration and usage rates for newer wireless tech-
nologies like tablets, smartphones and LTE connec-
tions in Canada are among the highest for industrial-
ized countries. ized spectrum acquisition to secure a windfall, and
Videotron, which might do the same when it de-
• In terms of the quality of services, Canadians benefit cides to divest itself of the spectrum licenses it
from some of the most advanced and efficient wire- holds outside of Quebec.
less and broadband Internet services in the world.
• By insisting on the benefits of a fourth wireless play-
• Once again this year, the prices Canadians pay for er, the previous federal government went against a
wireless services remain generally higher than in worldwide trend of consolidation in the wireless sec-
Europe but lower than in the United States or tor and embraced a static view of competition,
Japan. whereas a more dynamic concept of competition
shows that competitive discipline and rivalry are not
Chapter 2: WINDs of Change in Canada’s necessarily conditional on the presence of a multi-
Wireless Sector tude of players in the market.
• The highlight of 2015 was indisputably the pro- • Considering that hundreds of millions of dollars will
posed acquisition of WIND Mobile by Shaw be needed to upgrade WIND’s network to LTE, it is
Communications for $1.6 billion in December of to be expected that WIND’s prices will rise as a re-
2015, providing a well-established fourth player in sult of these significant investments and increasingly
Ontario, British Columbia, and Alberta. come to resemble those of the three large national
players going forward.
• As Canada now has a solidly established fourth
player from coast to coast, some have claimed the • As an example of the efficiency of markets, roaming
Shaw/WIND transaction is a vindication of the feder- rates have been declining—not primarily because of
al government’s interventionist spectrum policies. the Wireless Code, as the CRTC claims, but because
But insofar as this constitutes a victory, it has come consumers asked for it and carriers saw an oppor-
at a high cost. tunity to solve a major irritant and to attract new
customers.
• The government’s exclusionary auction rules, such
as spectrum set-asides or caps, as well as manda- Chapter 3: Should Broadband Internet Be
tory roaming and tower sharing rules, have pre-
Regulated and Subsidized as an Essential
vented efficient competition and hindered invest-
ment in the state-of-the-art wireless networks and Service?
services that consumers are demanding.
• Critics who note that access to high-speed Internet
• The biggest beneficiaries of the federal govern- is limited in some regions of Canada, or among less
ment’s interventionist rules during the past years advantaged socioeconomic groups, invariably con-
have been the shareholders of WIND and Public clude that government intervention will be necessary
Mobile, who arbitraged their government-subsid-
Montreal Economic Institute 5The State of Competition in Canada’s Telecommunications Industry – 2016
to close the gap, but what they consider a market Chapter 4: Facilities-Based Competition
failure is actually just the normal course of technol- as a Spur to Innovation
ogy adoption.
• Facilities-based competition between providers of
• Every technology goes through a series of phases
the same or similar services, each using its own net-
when it is adopted by one group after another, from
work, should be a key pillar of intelligent telecom-
innovators and early adopters to laggards, finally
munications policy because innovation thrives in
reaching a saturation level when essentially 100% of
environments characterized by facilities-based
the population is using it.
rivalry.
• The major difference today is that new information
• Despite the intense rivalry that exists between tel-
technologies reach a critical mass and become
cos and cable companies, the CRTC has maintained
widely accessible to all not in a matter of decades,
a 1990s-era wholesale access regime over the years,
but in a matter of years.
which forces telephone companies and cable com-
• According to the CRTC, 96% of Canadian house- panies to provide small Internet service providers
holds could access a download speed of 5 Mbps in (ISPs) with access to their networks at regulated
2014, with which an Internet user can do almost rates.
everything he or she wants on the Internet, includ-
• Last July, the CRTC expanded its mandatory whole-
ing watching relatively high quality videos—and
sale regime by requiring telcos to allow small ISPs
77% of households do subscribe to such a service,
to access their highest-speed fibre broadband servi-
up from 71% just one year earlier.
ces, also known as fibre-to-the-premises (FTTP) fa-
• In 2014, 93% of Canadians were also covered by the cilities, but there is no convincing case for mandat-
LTE wireless network, a 4G technology offering ing access to these networks, as incumbents do not
speeds higher than 5 Mbps. Given that more and have any inherent competitive advantage in de-
more Canadians now access the Internet using a ploying them.
smartphone or a tablet rather than a personal com-
• Technology research firm Gartner Inc. predicts that
puter, this is another indication of the availability of
6.4 billion connected things will be in use worldwide
high-speed Internet.
in 2016, up 30% from 2015, and that this number
• Broadband services with download speeds exceed- will reach 20.8 billion by 2020. Technology giant
ing 100 Mbps were already available to 71% of Cisco puts this figure even higher, at 50 billion.
Canadian households in 2014, and various providers
• This Internet of Things will bring about significant
have already started to deploy “gigabit” service
benefits for individuals and businesses alike, but it
(1,000 Mbps) in several areas of the country.
will also have a considerable impact on demand for
• The telecommunications industry is investing bil- bandwidth: According to Cisco, global mobile data
lions of dollars every year to develop these new traffic grew by a staggering 74% in 2015 alone, and
technologies and deploy the necessary infrastruc- will see an eightfold increase by 2020.
ture—not because of any comprehensive national
• In order to satisfy consumers’ insatiable appetite for
strategy devised by bureaucrats in Ottawa, but be-
bandwidth, network operators will need to invest
cause of competitive pressure.
billions of dollars in new infrastructure in the coming
years.
• Although the European regulator has now recog-
nized the negative impact of two decades of net-
work sharing regulations and an obsession with
price competition, which has led to a decline in mo-
bile revenues and underinvestment in network infra-
structure, the CRTC appears to have ignored this
lesson in its recent FTTP decision.
6 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
INTRODUCTION
For each of the past two years, The State of Competition Chapter 3 looks at the widespread access to broadband
in Canada’s Telecommunications Industry has assessed Internet that already exists in Canada, obviating the
how Canada measured up with other jurisdictions re- need for the CRTC to impose a plan on the industry to
garding the quality and pricing of its telecommunica- promote such access as an essential service.
tions services. The report has also evaluated how
competition was faring in key areas of the Canadian Finally, Chapter 4 argues that facilities-based competition
telecommunications market, and provided a critical as- should be a key pillar of intelligent telecommunications
sessment of Canada’s legislative and regulatory frame- policy, especially given that the burgeoning Internet of
work for this industry. Things will have a considerable impact on demand for
bandwidth in the coming years.
One of the primary motivations for the publication of
the first two editions of this report was that many
Canadians are, in our opinion, under the mistaken im-
pression that Canada’s telecommunications industry
compares poorly with that of other jurisdictions.
The report has attempted to dispel the notion that
Canadians pay uncompetitive prices for low quality ser-
vices. It has also argued that the federal government’s
and the CRTC’s interventions in the wireless and wireline
sectors aiming to increase the number of players through
indirect subsidies and mandated access were not likely
to have the intended effects and might jeopardize in-
vestments and innovation. Instead of these interventions,
the report has argued that the government should lib-
eralize its policies on spectrum transfer and the manda-
tory sharing of broadband networks, and recognize the
role of innovation in assessing the level of competition
that exists in a dynamic market.
“The report has attempted to dispel
the notion that Canadians pay
uncompetitive prices for low quality
services.”
This third edition continues to explore these themes.
Chapter 1 provides updated statistics regarding the per-
formance of the Canadian telecommunications industry
compared with other jurisdictions.
Chapter 2 describes the current state of Canada’s wire-
less market, with a focus on the acquisition of WIND
Mobile by Shaw Communications in December of 2015,
as well as a discussion of how and why roaming rates
have been declining.
Montreal Economic Institute 7The State of Competition in Canada’s Telecommunications Industry – 2016 8 Montreal Economic Institute
The State of Competition in Canada’s Telecommunications Industry – 2016
CHAPTER 1
How Does Canada Measure Up? As for the prices Canadians pay for wireless services,
they remain generally higher than in Europe, but lower
than in the United States or Japan. As we have explained
The criticism most often heard regarding the telecom- in previous editions, these low prices are not necessarily
munications industry in Canada, and especially wireless a positive sign for the European telecommunications in-
services, is that Canadians pay a lot more than people in dustry, however, which has experienced falling capital
other countries for lower quality services. It is this criti- expenditures and a lagging deployment of new technol-
cism that was used to justify the previous federal gov- ogies in recent years.
ernment’s numerous interventions over the past few
years aimed at promoting more competition in the wire-
less sector. But does this criticism stand up under
scrutiny?
It is difficult to form a perfectly clear and objective pic-
ture of the situation, not only because circumstances
(like geography and types of regulation) vary from one
country to the next, but also because of the use of dif-
ferent research methodologies. The available data, how-
ever, do not support such a conclusion.
The charts that follow come from the main organizations
that publish international rankings related to various as-
pects of the telecommunications industry.
“Canadians actually benefit from some
of the most advanced and efficient
wireless and broadband Internet
services in the world.”
As in the two previous editions of this report, the picture
that emerges from these data is first of all that Canad-
ians are among the biggest consumers of telecommuni-
cations services in the world. This does not constitute a
proof, but it is certainly an indication that they enjoy
competitive, quality services.
Another indication is that the penetration rates of the
latest wireless technologies are also among the highest
for industrialized countries. The proportion of mobile
users connected to the fastest, LTE network more than
doubled since last year’s report.
In terms of the quality of services, the data indicate that
Canadians actually benefit from some of the most ad-
vanced and efficient wireless and broadband Internet
services in the world.
Montreal Economic Institute 9The State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-1
Tablet usage
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Ja s
Ki and
Po n
Au and
Sw lia
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a
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ile
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ite ea a
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ia
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ng
st
h
ite
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d
So
e
Average traffic per user (MB/month)
Source: Cisco, VNI Mobile Forecast Highlights 2015 – 2020, 2015.
In regard to tablet usage, Canadians use on average 3,231 megabytes per
month. Canada is ranked 6th among the countries where data was available.
10 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-2
Smartphone usage
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Au nd
Sw an
n
Po a
Ca d
Un Ru a
ia
es
N ing y
Ze m
Fr ia
ce
M in
o
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a
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In
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Ch
ew d
Ko
Br
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al
Ja
e
St
st
h
d
In
d
So
ite
Un
Average mobile traffic per user (MB/month)
Source: Cisco, VNI Mobile Forecast Highlights 2015 – 2020, 2015.
In terms of smartphone usage, Canadians use on average a little more than
1,600 megabytes per month. Such a level of consumption means Canada
ranks 5th among Cisco’s sampled countries.
Montreal Economic Institute 11The State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-3
Smartphone market penetration
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Au orea
Ki nd
Un an a
a
Fr s
ce
Sw an
en
Z ain
Po m
Ge and
y
ly
a
Ru le
Ar ssia
a
M il
do o
a
a
an
e
In xic
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in
in
si
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az
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an
at
Ch
ra
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ed
a
ne
In
ew Sp
Ch
nt
Br
rm
ite eal
Ja
l
e
K
St
ng
st
ge
h
C
ut
d
So
d
N
Un
Smartphone market penetration by percent of mobile subscribers
Source: Cisco, VNI Mobile Forecast Highlights 2015 – 2020, 2015.
In terms of smartphone market penetration, Canada ranks 3rd, with a total of
81% of its mobile subscribers using smartphones.
12 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-4
LTE connections as a ratio of total connections
70%
60%
50%
40%
30%
20%
10%
0%
Ja a
d
Ca n
Un w a
d en
Un Au tes
Ki lia
m
Ze ce
a
rm n
Po y
nd
ly
Br e
Ru il
M ia
ge o
In ina
a
a
re
an
il
Ar xic
d
in
si
di
an
az
pa
Ge ai
Ita
ss
do
ew ran
Ch
na
a
ite d
la
Ko
ne
In
Ch
Sp
nt
a
ite str
al
e
e
St
ng
do
F
h
S
ut
So
d
N
Share of LTE connections
Source: Cisco, VNI Mobile Forecast Highlights 2015 – 2020, 2015.
Canada ranks 3rd among the 21 selected countries in terms of the proportion
of mobile users connected to the fastest network, with 54% of total connec-
tions being LTE (Long Term Evolution, or 4G) connections.
Montreal Economic Institute 13The State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-5
LTE download speed – Cisco
30
25
20
15
10
5
0
a
Au om
Ze da
ut nd
Ki an
d lia
Ge tes
Sw ny
en
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Po in
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In ra
Ch
a
ite tra
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ed
So ala
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In
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nt
a
rm
N Can
a
ng
St
B
Fr
J
Un s
h
Ar
ew
d
ite
Un
Average download speed (Mbps)
Source: Cisco, VNI Mobile Forecast Highlights 2015 – 2020, 2015.
According to the data compiled by Cisco, in terms of average download
speed on LTE wireless networks, Canada ranks 1st among the 21 countries
included in the sample.
14 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-6
LTE download speed, OECD countries – OpenSignal
35
30
25
20
15
10
5
0
ng d
nm a
N Aus ark
So Is ry
h el
rl lia
Au ds
Sp ia
N ain
y
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Sw Gr um
er e
ov d
Fr kia
ce
Fi ly
Cz d K ove d
h gd a
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Es nd
rm ia
Po any
rt d
ed l
Ja en
ite Ch n
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M tes
o
Sw uga
De ore
Hu alan
Ca wa
itz ec
ic
Be nad
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Sl lan
ite Sl lan
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pa
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r
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a
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an
an
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la
st
ex
a
r
a
i
e
et tr
or
K
St
n
Ze
w
Ne
Un
Un
Average download speed (Mbps)
Source: OpenSignal, The state of LTE, February 2016.
According to the data compiled by OpenSignal, Canada ranks 11th among
31 OECD countries in terms of average download speed on LTE wireless
networks.
Montreal Economic Institute 15The State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-7
Broadband download speed
100
Average Peak Speed
90
Average Speed
80
70
60
50
40
30
20
10
0
e a
Fr and
pu rk
N den
et Jap y
Sw erl n
er s
Fi and
ec De and
Un Be plic
ite d ium
ng s
Ca om
rm a
Ire ny
n d
ov y
Au kia
rt a
Sp l
Is in
Ne Po el
Ze d
st e
lia
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Ch y
M ile
o
a
Sw ore
e
a
Sl gar
itz nd
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Au anc
ic
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Po stri
Hu lan
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a
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ug
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rk
w
a
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ex
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a
d Sta
d
al
a
l
nl
Un ite lg
or
K
h
ut
h
So
N
Cz
Average download speed (Mbps)
Source: Akamai, Akamai’s state of the internet: Q4 2015 report, Vol. 8, No. 4, March 2016, p. 55.
In terms of average broadband download speed (that is, download speed for
Internet users with a wireline or cable connection), the Akamai report for the
fourth quarter of 2015 ranks Canada 13th among the 29 OECD countries for
which data were available. As for average peak speed, Canada is in 14th place.
16 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-8
Share of broadband connections above 10 Mbps
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
rl a
Fr nd
e k
Ja ds
Sw Nor n
er y
lg d
De ium
n
ec d S nd
ite Re tes
ng ic
Ca om
ng a
rm y
rt y
Sp l
Ire in
Is d
Au el
Po ria
Ne Slo nd
Ze ia
st e
lia
ly
Tu ile
M key
o
a
he ore
itz wa
Ge ar
Po an
Sw ar
Au nc
ic
Hu ad
Be lan
n
Un F de
pa
Ita
Ki pl
w vak
a
ug
ra
a
an
Ch
ra
Cz ite inla
la
la
st
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nm
Un h ta
d
al
r
a
d pu
n
N th K
u
So
et
Percentage of IP addresses with an average download speed above 10 Mbps
Source: Akamai, Akamai’s state of the internet: Q4 2015 report, Vol. 8, No. 4, March 2016, p. 55.
For the fourth quarter of 2015, Akamai estimates that nearly 50% of IP
addresses in Canada had an average broadband download speed above
10 Mbps. With this percentage, Canada ranks 13th among the 29 OECD
countries for which such data were available.
Montreal Economic Institute 17The State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-9
International mobile wireless prices
$140
$120
$100
$80
$60
$40
$20
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3
$0
Italy France United Kingdom Australia Germany Canada United States Japan
Level 1 (low-volume usage) Level 3 (high-volume usage) Level 5 (very high-volume usage)
Level 2 (average usage) Level 4 (very high-volume usage)
Source: Wall Communications, Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions: 2015 Update, Prepared for the
CRTC and Industry Canada, Table A3.2, March 30, 2015. The indicated values are expressed in Canadian dollars, adjusted for purchasing power parity.
Wall Communications has assembled different baskets of mobile wireless ser-
vices in order to compare Canadian monthly rates with those of seven other
countries. These baskets were built on a usage basis, ranging from low to very
high-volume usage.
In terms of prices, Canada ranks 8th for low-volume usage, and 6th for each of
the remaining levels.
18 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
Figure 1-10
International prices for bundled services
$250
$200
$150
$100
$50
1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3
$0
France United Kingdom Italy Germany Australia Canada Japan United States
Bundle 1: Wireline, broadband Internet and mobile wireless services
Bundle 2: Wireline, broadband Internet and basic digital TV services
Bundle 3: Wireline, broadband Internet, mobile wireless services and digital TV services
Source: Wall Communications, Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions: 2015 Update, Prepared for the
CRTC and Industry Canada, Table A3.5, March 30, 2015.
Wall Communications has assembled different bundles of services in order to
compare Canadian monthly rates with those of other countries. Canada ranks
6th out of 8 countries for the bundle that includes all four services, ahead of
Japan and the United States.
Montreal Economic Institute 19The State of Competition in Canada’s Telecommunications Industry – 2016 20 Montreal Economic Institute
The State of Competition in Canada’s Telecommunications Industry – 2016
CHAPTER 2
WINDs of Change in Canada’s Shaw had previously contemplated entering the wireless
Wireless Sector market. In 2008, it acquired AWS spectrum, but subse-
quently decided not to launch a service, eventually sell-
ing its licenses to Rogers in the summer of 2015. As part
The year 2015 was an eventful one for Canada’s wireless of that transaction (and to conform with the federal gov-
sector. The highlight was indisputably the acquisition of ernment’s stated policy of not allowing any spectrum
WIND Mobile by Shaw Communications. WIND was one transaction that would result in increased spectrum con-
of the three mobile telephony start-ups that emerged centration), Rogers then handed over to WIND, at no
after the 2008 AWS spectrum auction, and the only one cost, most of the licenses it had acquired from Shaw.4
that had been relatively successful. When Shaw an- However, later in the year, Shaw did an about-face and
nounced its acquisition of WIND for $1.6 billion in decided it wanted to enter the wireless market after all.
December of 2015, WIND had 940,000 subscribers By acquiring spectrum-rich WIND, Shaw also acquired
across Ontario, British Columbia, and Alberta.1 the very spectrum licenses it had owned before the
Rogers transaction.
WIND’s ascension as a potentially viable fourth player in
these provinces had not been seamless. It had acquired Now that WIND is owned by a major telecommunica-
AWS spectrum in 2008, but had been forced to remain tions carrier with significant resources, its short-term fi-
on the sidelines during the 2014 700 MHz auction be- nancial future is undoubtedly sound. WIND has secured
cause its European financial backer, VimpelCom, had the necessary financing to build an LTE network, which it
written off its investment in the company. In September intends to deploy in its operating territory by 2017.
2014, however, the tides changed when VimpelCom Shaw’s recent sale of its media division to Corus under-
sold its majority stake in the company to a consortium scores the company’s focus on connectivity over content
made up of WIND’s founder, Tony Lacavera, and West for the coming years.
Face Capital, a Canadian private equity firm.2
The Shaw/WIND Transaction: A Victory for
the Federal Government?
“With Shaw’s acquisition of WIND,
Canada now has a solidly established With Shaw’s acquisition of WIND, Canada now has a sol-
idly established fourth player from coast to coast5 (see
fourth player from coast to coast.”
Figure 2-1). Some have claimed the Shaw/WIND trans-
action is a vindication of the federal government’s inter-
ventionist spectrum policies.6
WIND’s new owners were able to secure the critical
funding the company needed to acquire additional Indeed, as we have discussed in past editions of this
spectrum in the March 2015 AWS-3 auction. It almost Research Paper,7 since 2008, Ottawa has intervened re-
tripled its spectrum holdings by securing licenses that peatedly in the wireless market in the hope of fostering
had been set aside for new entrants in Ontario, British the emergence of a fourth national wireless player, or at
Columbia, and Alberta at the low reserve price of the very least, the emergence of a new provider in each
$56.4 million.3 of Canada’s regional markets.
4. Of the 18 AWS spectrum licenses it acquired, Rogers only kept two, which
covered Alberta and British Columbia. The others were transferred to Wind for $1
apiece. In doing so, Rogers was exercising an option it had pursuant to a broader
1. Shaw Communications Inc., “Shaw Communications Inc. to acquire WIND transaction with Shaw in 2013. It had been unable to exercise the option until
Mobile Corp.,” Press release, December 16, 2015. then due to the federal government’s unwillingness to approve the spectrum
2. Pete Evans, “Tony Lacavera and West Face buy Wind Mobile from transfer. See Christine Dobby, “Rogers-Mobilicity deal shakes up spectrum
VimpelCom,” CBC News, September 16, 2014. landscape, rewards Wind,” The Globe and Mail, June 24, 2015.
3. The government had decided to set aside 60% of the available AWS-3 5. A few days before the publication of this Research Paper, BCE announced the
spectrum (30 out of 50 MHz) for new entrants. Wind was able to secure all of the acquisition of MTS, which could reduce the number of providers from four to
set-aside spectrum because no one else bid for it. Mobilicity, which would have three in Manitoba if this transaction obtains the approval of the regulatory
competed against Wind for those licenses, had to bow out of the auction at the authorities.
last minute due to a lack of financing. Videotron did not acquire any licenses in 6. “Yes, four wireless carriers are better than three,” The Globe and Mail,
these markets (except for Eastern Ontario) because auction rules only allowed December 17, 2015.
new entrants that had started to deploy a network in these areas to bid on the 7. See Chapter 2 in Martin Masse and Paul Beaudry, The State of Competition in
set-aside spectrum. Canada’s Telecommunications Industry, 2014 and 2015 editions.
Montreal Economic Institute 21The State of Competition in Canada’s Telecommunications Industry – 2016
Figure 2-1
Established providers by province or region
Telus, Rogers,
Bell, WIND (Shaw)
Telus, Rogers,
Bell, WIND (Shaw) Telus, Rogers,
Bell, MTS Telus, Rogers,
Telus, Rogers, Bell, Vidéotron
Bell, SaskTel Telus, Rogers, Telus, Rogers,
Bell, WIND (Shaw) Bell, Eastlink
Note: A few days before the publication of this Research Paper, BCE announced the acquisition of MTS, which could reduce the number of providers from four to three
in Manitoba if this transaction obtains the approval of the regulatory authorities.
Claims of a policy victory, however, should be viewed Public Mobile), and to some regional players acquiring
with skepticism. If the presence of a fourth wireless com- subsidized spectrum licenses in their home markets
petitor in every Canadian province constitutes a victory (Videotron in Quebec, Eastlink in Atlantic Canada, and
for the federal government, it came at a high cost. Shaw in Western Canada). These regional players did
not require a subsidy to enter the wireless market. They
Prior to the 2008 AWS spectrum auction, Carleton already offered cable, Internet, and wireline services,
University economist Donald McFetridge warned: and had an incentive to bundle wireless services with
their legacy offerings.
There are good reasons to believe that a fourth car-
rier induced by access to required inputs on con-
cessionary terms to enter the market would not
“If the presence of a fourth wireless
likely increase competition substantially. Indeed, it
could well make competition less intense, hurting competitor in every Canadian province
rather than benefiting consumers. There is an ad- constitutes a victory for the federal
verse selection issue here. Firms lining up for sub- government, it came at a high cost.”
sidies are typically not the best competitors or
potential competitors in the market.8
The new entrants, however, did not have a strong busi-
This accurately describes what happened. The spectrum ness case. Although WIND ended up faring relatively
set-aside in the 2008 AWS auction led to the emergence well, the two other new entrants, Public Mobile and
of three pure-play new entrants (WIND, Mobilicity, and Mobilicity, did not. Public Mobile was acquired by
TELUS for nearly five times the purchase price of its
8. Donald G. McFetridge, Competition in the Canadian Mobile Wireless spectrum licenses, essentially arbitraging its government-
Telecommunications Industry, Department of Economics, Carleton University, subsidized spectrum acquisition to secure a windfall. As
May 24, 2007, p. 30.
22 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
for Mobilicity, which had been under creditor protection dered investment in the state-of-the-art wireless networks
since the government rejected its acquisition by TELUS and services that consumers are demanding. If anything,
in 2013, it was acquired by Rogers in July 2015. government interventions aimed at propping up new
competitors have allowed those competitors to arbi-
Videotron, a Quebec-based provider offering cable, trage their government-subsidized spectrum to secure
Internet, wireless, and wireline services in its home terri- windfalls, and have led to lost revenues for the govern-
tory, had been thought of as a potential national player ment at the expense of taxpayers. Such measures essen-
starting in 2014, after its acquisition of 700 MHz licenses tially constitute public subsidies that are either wasted
in Ontario, Alberta, and British Columbia. In 2015, on established regional players that would have had the
Videotron acquired more licenses in the same provinces means to bid for the full value of the spectrum, or lost to
in the second spectrum auction held that year, this time new entrants that consistently fail.
for 2500 MHz frequencies,9 once again fuelling specula-
tion that it was mulling over the development of a na- The biggest beneficiaries of the federal government’s
tional wireless network. However, it announced in Septem- interventionist rules during the past years have been the
ber that it would not develop a national wireless net- shareholders of WIND and Public Mobile, who arbi-
work “from scratch.” At the time, its vice president stat- traged their government-subsidized spectrum acquisi-
ed that it was considering partnering with another player tion to secure a windfall, and Videotron, which might do
such as WIND, or selling off the 700 MHz and 2500 MHz the same when it decides to divest itself of the spectrum
airwaves it had purchased in those provinces.10 licenses it holds outside of Quebec. In the case of
Shaw’s acquisition of WIND, the $1.6-billion price tag
was almost six times what the consortium paid in
“Government interventions aimed at September 2014 when it bought the company from
propping up new competitors have VimpelCom.11
allowed those competitors to arbitrage In the end, the federal government’s fourth-player policy
their government-subsidized spectrum will have benefitted the shareholders of these compan-
to secure windfalls, and have led to lost ies a lot more than they will have benefitted Canadian
revenues for the government at the consumers. It will also have delayed the use—or the
more efficient use—of spectrum frequencies that were
expense of taxpayers.”
wasted on failed companies or that were simply unused
by the spectrum license holders. As of today, Videotron’s
out-of-province spectrum licenses remain unused, and
Although Videotron has been able to acquire cheap
will likely only be used once Videotron sells them to an-
spectrum outside of its home territory thanks to favour-
other carrier. Inefficient usage of spectrum has been one
able auction rules, the economics of expansion into
of the unintended consequences of a policy that was
other regions of Canada have never been convincing.
flawed from the start.
Videotron does not sell television, Internet, and home
phone service outside of Quebec, and would therefore
Is Having Four Wireless Players a
not be able to bundle its cell phone service with any
other products. This would make it harder for it to ef- Competitive Nirvana?
fectively compete against solidly established companies.
By insisting on the benefits that a fourth wireless player
As noted in past editions of this Research Paper, exclu- could bring to the wireless market, the federal govern-
sionary auction rules, such as spectrum set-asides or ment embraced a static view of competition, which fo-
caps, as well as mandatory roaming and tower sharing cuses solely on the number of players in the industry at
rules, have prevented efficient competition and hin- a given time. This view, however, minimizes other com-
petitive pressures that can exist in dynamic markets such
as the telecommunications market.
9. The 2500 MHz frequency can be used to provide mobile phone and data
services, as well as high-speed Internet in rural communities. The auction A more dynamic concept of competition shows that com-
framework, released in January 2014, imposed a spectrum aggregation limit (or
cap) of 40 MHz in each service area of the 2500 MHz band, except in Northern petitive discipline and rivalry are not necessarily condi-
Canada, where there is no such limit. The government had stated that the use of tional on the presence of a multitude of players in the
caps would apply equally to each provider this time (unlike the caps used in the
700 MHz auction which only applied to large providers) and would ensure that at
market; they can also be generated by the anticipation
least four carriers will be able to use the 2500 MHz frequency band.
10. “Vidéotron won’t build national wireless network ‘from scratch’,” CBC News,
September 17, 2015. 11. Pete Evans, op. cit., footnote 2.
Montreal Economic Institute 23The State of Competition in Canada’s Telecommunications Industry – 2016
Table 2-1
Number of national wireless providers in developed countries
Australia 3 Japan 3
Austria 3 Netherlands 3
Belgium 3 New Zealand 3
Canada 3 (4)* Norway 3
Denmark 4 Portugal 3
Finland 3 Spain 4
France 4 Sweden 4
Germany 3 Switzerland 3
Greece 3 United Kingdom 4 3?
Ireland 3 United States 4*
Italy 4 3?
Source: Glen Campbell, Global Wireless Matrix 4Q13 - 2014: The Year Ahead, Bank of America Merrill Lynch, January 8, 2014, p. 2. Modified by the authors to take into
account the latest developments.
*Both Canada and the U.S. also have a number of regional networks, Canada having a fourth in every region of the country as shown in Figure 2-1. The United Kingdom
and Italy will potentially follow the trend of reducing to three carriers, as both countries’ antitrust regulators are currently reviewing transactions that would reduce the
number of wireless players in each country from four to three. In France, another attempted merger, which would have reduced the number of wireless providers from
four to three, was abandoned in April 2016.
of new services in the future.12 Such a dynamic vision and Ireland. The United Kingdom and Italy will poten-
emphasizes that competition should be viewed as a pro- tially follow that trend, as both countries’ antitrust regu-
cess rather than a fixed state of affairs. Less importance lators are currently reviewing transactions that would
should be placed on market allocation and the number reduce the number of wireless players in each country
of players in a given market, and more on innovation from four to three.14 As shown in Table 2-1, a majority of
and potential competition.13 developed countries have only three national wireless
providers.
“Inefficient usage of spectrum has been Now that Canada has a fourth player from coast to
one of the unintended consequences of coast, what is to be expected? Are significant price re-
ductions around the corner? This is unlikely. When asked
a policy that was flawed from the start.” about pricing in the midst of the WIND acquisition,
Shaw CEO Brad Shaw stated that pricing would be
From an empirical perspective, it is noteworthy that the “somewhat discounted, but probably closer to the in-
previous federal government’s objective of having four cumbents as we go forward.”15 This statement is not
national wireless players went against a worldwide trend particularly surprising. As Financial Post journalist
of consolidation in the wireless sector. In recent years, Christina Pellegrini recently explained, “[T]he technol-
the number of national wireless players has gone from ogy Wind operates today is outdated and is known to
five or four to three in Australia, Austria, Japan, Germany,
14. See Daniel Thomas, “Hutchison makes new concessions on O2-Three
12. Neil Quigley, “Dynamic Competition in Telecommunications,” Commentary merger,” Financial Times, February 14, 2016; Foo Yun Chee, “Italian regulator
No. 194, C.D. Howe Institute, 2004. wants to handle Hutchison, Vimpelcom deal,” Reuters, February 26, 2016.
13. J. Gregory Sidak and David J. Teece, “Dynamic Competition in Antitrust 15. Christine Dobby, “Shaw to buy Wind Mobile for $1.6-billion,” The Globe and
Law,” Journal of Competition Law & Economics, Vol. 5, No. 4, 2009, p. 619. Mail, December 16, 2015.
24 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
result in dropped calls, poor service inside buildings and liver what consumers want. Rather, it means that over
spotty service outside them, too. As a result, Wind char- time, they will tend to do so in a sustainable manner
ges customers less per month than the incumbents.”16 thanks to competitive forces, not government
regulation.
Considering that hundreds of millions of dollars will be
needed to upgrade WIND’s network to LTE, it is to be International roaming fees are a case in point. Over the
expected that WIND’s prices will rise as a result of these past several years, one of the chief criticisms levelled at
significant investments and increasingly come to resem- Canadian wireless carriers has focused on international
ble those of the three large national players going roaming fees. Some consumers have had to learn about
forward. high roaming fees the hard way: by unexpectedly being
hit with exorbitant phone bills after travelling abroad.
That being said, regardless of what one may think of the
federal government’s wireless policies since 2008, Can- Lately, however, this situation has evolved substantially.
ada now has well-established fourth players across the Carriers have started offering more attractive plans to
country. The new federal government should seize this their customers, allowing them to use their phones
opportunity to remove the proverbial training wheels on internationally without being afraid of racking up huge
new entrants and revert back to the traditional, pre-2008 phone bills.
practice of holding open (i.e., non-preferential) spec-
trum auctions. For instance, in late 2014, Rogers introduced a mobile
roaming plan called “Roam Like Home” that allows its
top-tier subscribers to pay a daily fee of either $5 (in the
“The previous federal government’s U.S.) or $10 (elsewhere) to use their phones as they do
at home in over 100 destinations.17 Rogers credits the
objective of having four national introduction of its new roaming plan for the substantial
wireless players went against a reduction of roaming-related complaints from its cus-
worldwide trend of consolidation in the tomers to the Commissioner for Complaints for
wireless sector.” Telecommunications Services.18
This trend has since become generalized. In July 2015,
Canadian wireless carriers will need to make significant TELUS launched a similar package called “Easy Roam”
investments in the coming years to stay ahead of the for U.S. travel that costs $7 a day for access to the voice
technological curve. Returning to a regime of light- minutes, text messages and data allotment included in a
handed regulation would help create an environment customer’s existing rate plan. The company claims to
conducive to innovation and investment. Canada’s new have reduced its pay-per-use rates by up to 80% since
wireless entrants are no longer small, poorly-capitalized 2011.
companies that need to be protected by the CRTC and
Bell has taken a somewhat different approach by offer-
Industry Canada. Rather, they are large, well-capitalized
ing its customers passes and bundles based on destina-
regional players that can compete with the incumbents
tion, length of time away and use, which range from an
on equal footing in a regulatory environment that
additional charge of $20 to $95 for 30 days.19
should rely on market forces to the maximum extent
feasible. SaskTel, Saskatchewan’s incumbent carrier, also recently
announced it would reduce its U.S. and international
Markets Aren’t Perfect… But They Work! roaming rates. Under the new rates, data and voice in
The Case of International Roaming the United States will cost 7¢ per MB and 7¢ per minute
respectively. For other countries, rates for wireless data
One of the recurring themes of this report is that relying usage now range between $1 and $15 per MB depending
on markets unencumbered by heavy-handed regulations
is the best way to ensure that Canadians get world-class
telecommunication services. To be clear, however, be-
lieving in the superiority of market-based solutions does
not imply that free markets are “perfect” and always de- 17. Rogers Website, Shop, Wireless, Travel.
18. According to the company, complaints “are on track to decrease by 90% this
year, from the 2012-13 results.” Rogers, “Rogers reduces complaints by 65 per
cent in CCTS mid-year report,” Press release, March 30, 2016.
16. Christina Pellegrini, “Shaw Communications Inc to acquire Wind Mobile 19. Christina Pellegrini, “Rogers Communications Inc wins fans, sales with
Corp in $1.6-billion deal,” Financial Post, December 16, 2015. aggressive roaming push,” Financial Post, October 13, 2015.
Montreal Economic Institute 25The State of Competition in Canada’s Telecommunications Industry – 2016
on which zone one is roaming in.20 SaskTel also launched
more attractively-priced roaming plans for heavier
usage.
Barbara Motzney, the CTRC’s Chief Consumer Officer,
noted that complaints about roaming charges went
down 27% from 2013 to 2014.21 She credits the CRTC’s
Wireless Code for helping consumers be more informed
about their phone plans. The Wireless Code, among
other things, required carriers to notify customers when
they are roaming and what the associated costs are. It
also imposed caps on roaming charges and data over-
age charges to avoid unpleasant surprises.
The CRTC should be commended for sensitizing con-
sumers to the importance of understanding the terms
and conditions of their contracts and imposing on carri-
ers the duty to communicate with their customers in a
clear and easy-to-understand manner. The significant re-
duction of international roaming rates, however, is not
primarily attributable to the Wireless Code.
“The new federal government should
seize this opportunity to remove the
proverbial training wheels on new
entrants and revert back to the
traditional practice of holding open
spectrum auctions.”
Roaming rates have been declining for a simple reason:
because consumers asked for it and carriers saw an op-
portunity to solve a major irritant and to attract new cus-
tomers. As soon as one company started to offer more
attractive roaming plans to its customers, others had no
choice but to follow suit, or else they would lose market
share. Market mechanisms, and competition in particu-
lar, rather than regulatory fiat, are primarily responsible
for these positive developments.
20. “SaskTel cuts international roaming rates,” CARTT.ca, November 25, 2015.
21. Henry Stancu, “Roaming fees, travel: How to avoid phone bill shock after
your trip,” Toronto Star, March 12, 2015.
26 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
CHAPTER 3
Should Broadband Internet Be It is however an obvious fact of social and economic de-
Regulated and Subsidized as an velopment that new technologies are not suddenly
adopted universally in every socioeconomic group as
Essential Service? soon as they become available. Moreover, in a vast and
geographically disparate country like Canada, there is
In April 2016, the Canadian Radio-television and Tele- little likelihood that any new physical infrastructure will
communications Commission held hearings to review its be deployed in all populated areas simultaneously.
definition of “basic telecommunications services.”22 The
One of the classic studies of the phenomenon of tech-
main issue being debated was whether or not broad-
nology diffusion was conducted by sociologist and com-
band Internet services should be included in this defin-
munication scholar Everett Rogers, who popularized his
ition and considered an essential service for all Canad-
theory in his 1962 book Diffusion of Innovations. He
ians. If the answer is yes, what should be the minimum
showed that every technology goes through a series of
download speed available to everyone, and the target
phases when it is adopted by one group after another,
speeds to be attained in the future? And what should
from innovators and early adopters to laggards, finally
the CRTC and the federal government do, in terms of
reaching a saturation level when essentially 100% of the
regulation and funding, to ensure that all Canadians
population is using it (see Figure 3-1).
have access to these speeds?
Underlying this debate is the perpetual question that we
have addressed in every edition of this Research Paper: “Every technology goes through a
Is the telecom industry sufficiently competitive, innova- series of phases when it is adopted by
tive, and dynamic to ensure that the necessary invest- one group after another, from
ments will be made, and services will eventually be de-
innovators and early adopters to
veloped, to offer high-speed services to all Canadians at
reasonable prices? Or is the fact that not all Canadians laggards, finally reaching a saturation
have access to the exact same level of service another level when essentially 100% of the
instance of “market failure” that has to be righted by population is using it.”
government intervention?
How Technologies Are Adopted Every technology since the late 19th century has gone
through the same process of adoption, after first having
This debate has a familiar ring to it. Almost every new been an expensive gadget for rich, urban, tech-savvy
revolution in telecommunications over the past quarter consumers. The major difference today is that new infor-
century has brought the same anguished commentaries mation technologies reach a critical mass and become
about how Canada was falling behind other advanced widely accessible to all not in a matter of decades, but
countries in terms of deployment, or how certain seg- in a matter of years. For example, while it took almost
ments of the population were being left behind in terms half a century before a quarter of the American popula-
of access. tion was using electricity after it had been made com-
mercially available in 1873, and more than three decades
This was the case when dial-up Internet connections
for telephones and radio, it took only 13 years and 7
started becoming common in the 1990s. It was again
years for mobile phones and the Internet to reach the
the case when cellphones, and later smartphones and
same proportion of the population (see Figure 3-2).
tablets, became mass products. It was the case when
2G, 3G, and 4G wireless technologies were successively This adds some perspective to the debate over broad-
deployed. And today, worries focus on access to high- band Internet becoming a basic service guaranteed to
speed Internet, rightly considered a prerequisite for full all. Critics who note that access to high-speed Internet
participation in the country’s economic, social, and cul- is limited in some regions of Canada, or among less ad-
tural life. vantaged socioeconomic groups, invariably conclude
22. CRTC, Telecom Notice of Consultation 2015-134, April 9, 2015.
Montreal Economic Institute 27The State of Competition in Canada’s Telecommunications Industry – 2016
Figure 3-1
The diffusion of innovations
100
Market share (%)
75
50
25
0
Innovators Early Early Late Laggards
2.5% Adopters Majority Majority 16%
13.5% 34% 34%
Note: With successive groups of consumers adopting the new technology (shown in black), its market share (grey) will eventually reach the saturation level.
Source: This is a combination of Figures 7-1 and 7-2 in Everett M. Rogers, Diffusion of Innovations, Third Edition, The Free Press, 1983, pp. 242-247.
that government intervention will be necessary to close Akamai also estimated that nearly 50% of IP addresses
the gap.23 But what they consider a market failure is ac- had an average broadband download speed above 10
tually just the normal course of technology adoption. Mbps, placing Canada 13th according to this metric as
well.24 In other words, Canada has one of the best-per-
Broadband Availability in Canada forming Internet infrastructures when compared to the
most developed countries in the world.
Is Canada a laggard when it comes to the quality of its
Internet infrastructure, as some critics have been claim-
ing for years? That is certainly not what international “The major difference today is that new
comparisons show. information technologies reach a critical
In terms of average broadband download speed, a sur-
mass and become widely accessible to
vey carried out by the firm Akamai ranked Canada 13th all not in a matter of decades, but in a
among the 29 OECD countries for which data were matter of years.”
available in late 2015, and 14th for average peak speed.
Although the CRTC considers download speeds upwards
23. An editorial in La Presse is typical of this perspective: “In many places, often of 1.5 Mbps to be broadband, it established a target of
very close to cities, individuals and businesses do not have access to Internet 5 Mbps in 2011 as a more appropriate norm that all Can-
service that is worthy of the name, due to a lack of provider interest. By all
accounts, the logic of the market is not enough. Telecommunication is a federal adians should have access to. With a service offering
responsibility. Ottawa must no longer ask if, but rather how it can finance the
upgrading of service in all regions where this is possible.” Ariane Krol, “L’internet,
c’est pas du luxe,” La Presse, April 10, 2016. 24. See Figures 1-7 and 1-8 in Chapter 1 of this paper.
28 Montreal Economic InstituteThe State of Competition in Canada’s Telecommunications Industry – 2016
Figure 3-2
Technology adoption is speeding up
50
Electricity (46)
1873 Number of years until a technology is used
by one-quarter of the American population
40
Telephone (35)
1876
Radio (31)
1897 30
Television (26)
1926
20
PC (16)
1975 Mobile phone (13)
1983
The web (7) 10
1991
0
1870 80 90 1900 10 20 30 40 50 60 70 80 90 2000 10 14
First commercially available year
Source: Singularity.com, in K.N.C., G.S. and P.K, “Happy birthday world wide web,” The Economist, March 12, 2014.
speeds of 5 Mbps, an Internet user can do almost every- tween 1,000 and 29,999 residents) population centres.
thing he or she wants on the Internet, including watch- Only some rural areas still lack universal broadband ac-
ing relatively high quality videos. Faster speeds may be cess, with 75% of households being covered, along with
necessary for some specialized applications or entertain- an additional 11% if wireless mobile services are includ-
ment such as watching very high-resolution movies or ed (see Figure 3-3).
gaming, but they are certainly not a prerequisite for full
participation in Canada’s economic, social, and cultural
life. “Critics who note that access to high-
speed Internet is limited in some regions
What is the availability of these broadband services?
of Canada, or among less advantaged
According to the CRTC, 96% of Canadian households
could access a download speed of 5 Mbps in 2014. Of socioeconomic groups, invariably
these, the vast majority (94%) can access it using land- conclude that government intervention
line facilities (DSL, fibre, and cable modem) or fixed- will be necessary to close the gap.”
wireless facilities. Another 1.5% can get access via
satellite facilities.25
Given this availability, it is no surprise that the propor-
In terms of geographical distribution, residential broad- tion of households subscribing to a 5 Mbps download
band Internet with speeds of at least 5 Mbps is access- or higher broadband Internet service has been fast in-
ible to 100% of Canadians living in large and medium-sized creasing in recent years, reaching 77% in 2014, up from
population centres, and 99% of those living in small (be- 71% just one year earlier (see Figure 3-4). That propor-
tion was undoubtedly higher in 2015, and will keep on
25. CRTC, Communications Monitoring Report 2015, October 2015, p. 187. climbing this year.
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