Convergence in Canada: Why it is NOT Good for Us, the Consumers

The Canadian telecommunications market is dominated by massive cross-media owning companies such as Rogers, Telus, Bell and Videotron, and I believe they are responsible for the outrageous high prices Canadians have to pay for their services and is shown in global statistics with the highest average revenue per user (ARPU) measured by smartphones per capita, with companies making $60.79 per user (Geist, 2013, Canadian Players Enjoy… para. 1).

arpu

As you can see from this graph (Nowak, 2013), Canadian telecommunications companies make significantly more then most countries, and makes 76% more revenue per month than all of Europe ($27.02).

penetration

source: (Nowak, 2013)

With Canada at 78% mobile penetration, only four other countries are lower in this category: Bangladesh, India, Pakistan and Nigeria.  This means that we are among the lowest amount of people that use smartphones divided by our population.  Now I wonder why this might be…

In 2000, the top 3 wireless providers – Bell, Rogers and Telus – accounted for 87% of the industry and today now account for just over 93%, that is massive.  The only company out of these big three that does not have a major hand in the other telecommunications sectors is Telus, where Bell and Rogers now have major market share in every other telecom-media-internet industries (Winseck, 2012).

Between 2000 and 2010 using the  Herfindhahl – Hirschman Index (HHI) we can map out just how concentrated the market is.  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 (Winseck, 2012), clearly indicating how highly concentrated the industry is.

The Canadian Radio and Telecommunications Commission should be given more power in regulating the industry being backed by the Federal government to monitor and enforce the regulations set up by the CRTC.  Dominant incumbent players use price (usage billing) and bandwidth caps, for example and among other tactics, to protect their legacy television businesses (i.e. CTV, Global, CityTV, TVA etc.), while hobbling rivals (Netflix) and limiting people’s choice as a result (Winseck, 2012).

For Example:

Bell versus Teksavvy’s prices and GB caps for Internet packages.

bell

teksavvy internet

The major differences between the two are, with TekSavvy’s $39.99 plan, you get a 300GB cap on Internet streaming, while at Bell what you pay around $5 more for an Internet package plan, you are only getting a 75GB cap.

For many of you who do not know our Telecommunications Act (as I was unaware of until this year) the Act’s objectives provide: (Section 7a-i)

  • (a) to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich, and strengthen the social and economic fabric of Canada and its regions;
  • (b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions in Canada;
  • (c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;
  • (d) to promote the ownership and control of Canadian carriers by Canadians;
  • (e) to promote the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside of Canada;
  • (f) to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective;
  • (g) to stimulate research and development in Canada in the field of telecommunications and to encourage innovation in the provision of telecommunications services;
  • (h) to respond to the economic and social requirements of users of telecommunications services; and
  • (i) to contribute to the protection and privacy of persons
  • source: Hamilton, 2009, p. 17

Despite the Act that was finalized in 1993, the CRTC is not given enough resources to keep up with the advancements in technology and their effects on the industry.  Thus, this has led to the industry leaders guiding and telling the regulators what they should do.  Even when the CRTC gives regulatory decisions, it is usually overruled by the Federal government in favour of the big companies lobbying for a certain decision.

The industry is highly uncompetitive allowing market giants to keep their pockets overflowing with money and not allow any choice for consumers, paying the most for cell phone plans, data and internet and locking us in with three year contracts.  The Commissioner of  The Competition Bureau  submitted a consultation on the upcoming Wireless Code of Conduct that may actually help consumers with these ridiculous prices and unfair treatment by mobile companies.  The first issue they talked about was the restrictive long-term contracts and the switching costs tied to them.  In general the Competition Bureau believes that the long-term contracts and termination fees can:

  • Counteract efforts by new or recently established service providers to attract customers.
  • Reduce the incentive for established service providers to discount their prices and innovate.  If only a small portion of wireless consumers have the ability to switch service providers at a given point in time, then a strategy of lowering prices, innovating or otherwise bringing competitive forces into the market may be less profitable or appealing.
  • Raise rivals’ costs. Entrants may need to attract a significant number of customers in order to achieve a scale and scope of production necessary to compete with incumbent service providers. (Competition Bureau, 2013, Section 2)

The competition Bureau also notes that Canada is the one of the only countries left still using three year contracts, in the US it is normally two years and in Europe three year contracts are prohibited and supports changes to limiting contract durations.

Not only do we still have these restricting three year contracts, the big wireless companies charge their subscribers 75 cents per month for enhanced 9-1-1 services.  But WindMobile told the CRTC during the consumer wireless hearings, the actual cost for this E-911 service is closer to ten cents.  WindMobile pays for this service for its subscribers, so if incumbent players are charging 75 cents when its really only 10 cents… Incumbents are making 65 cents profit per user per month and they roughly have about 25 million subscribers in total. This equates $180 million in annual revenue after costs are covered (Geist, 2013).

On top of this, Canadians pay the most for roaming charges.  A 2011 OECD study found that Canadians pay the most in the world with an average of $24.61, the OECD average was $9.48.  Furthermore, Bell tried to argue that to have mandatory unlocked phones, this would not allow us to get phones as fast as other countries or not at all.  This was quickly dismissed by JF Mezei of Vaxination Informatique in his submission to the CRTC where Hong Kong (which requires unlocked handsets) was apart of the original list for the iPhone5 launch date (Sept. 21) and Italy and Finland (which also require unlocked handsets) got them a week later (Sept. 28) as other western European countries.  Bell and Rogers charge a $75 unlocking fee ridiculous for even Telus as theirs costs only $35, adding onto the additional costs and locking consumers into high roaming fees.

In addition to all of these hidden fees, Canadian mobile data speeds are far slower than many peer countries, even when Canadian wireless providers are bolstering their new LTE networks.  In this CRTC 2012 Communications Monitoring Report, it shows that we us to have the fastest speeds compared to any of these countries, but now are badly trailing behind other  with a 64% drop in speeds. I am not sure why this is, but this needs to be looked into. 

This clustered column chart depicts, by country, the average measured mobile broadband speeds (in Mbps) in Q3 2010 and Q3 2011, and the % change in speed. Canada 3.2, 1.2, -64%; United States 1.1, 1.6 51%; United Kingdom 3.1, 4.0, 27%; France 2.0, 2.4, 18%; Germany 2.9, 5.0, 75%; Italy 2.9, 3.4, 18%; and  Australia 1.5, 1.6, 1%.

There is some hope for us Canadians though, a great site for issues relevant to the telecommunications industry and a way to democratically fight back is Openmedia.ca.  Here, they provide information on all things digital, from cellphones and Internet, to copyright and intellectual property, and how International, National, Regional bodies can affect the way we live.  For example, OpenMedia, in an ongoing petition called Demand Choice, it seeks to stop the Rogers takeover of Shaw’s public assets that they obtained at a premium and that were set aside for independent providers.  OpenMedia provides an excellent way to actually participate by having pre-written messaging being sent to The Industry Minister  Christian Paradis’ email (in this case) by just typing in your first and last name, email, and Postal Code.  The Demand Choice petition currently has 33,122 people (and counting) who have sent an email to the Industry Minister.

Furthermore, a more recent and popular campaign is the StopTheTrap campaign which has 131, 037 people who have signed.  Right now, a group of 600 industry lobbyist ‘advisers’ and un-elected government trade representatives are scheming behind closed doors to craft an international agreement called the Trans-Pacific Partnership (TPP).  The trap pertains to intellectual property and would include:

  • Criminalize some of your everyday use of the Internet;
  • Force service providers to collect and hand over your private data without privacy safeguards;
  • give media conglomerates more power to fine you for Internet use, remove online content – including entire websites – and even;
  • create a parallel legal system of international tribunals that will undermine national sovereignty and allow conglomerates to sue countries for laws that infringe on their profits

So what are you waiting for! Go to OpenMedia.ca, DemandChoice.ca and StopTheTrap.net and advocate for a more fair and competitive market!

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