CRTC regulatory regime cause of low wireless usage in Canada: C.D. Howe

The CRTC is to blame for Canada’s poor performance in the adoption of wireless, according to a new report from the C.D. Howe Institute. The commentary, Going Mobile – Slowly: How Wireline Telephone Regulation Slows Cellular Network Development, discusses not only why the country is trailing its Organisation for Economic Co-operation and Development (OECD) counterparts, but also proposes fixes that could give wireless adoption a big push forward. The most recent figures ranks Canada 26 out of the 30 OECD member nations in terms of adoption and 28 in per capita subscriptions. Wireless penetration in Canada has only recently surpassed the 50% mark. The think tank highlights the commission’s outdated regulatory policy as the major cause for Canada’s lagging wireless penetration. More specifically, the report notes that "long-standing cross-subsidies maintain artificially low wireline prices, reducing cellular’s relative competitiveness and incentives to invest in better quality, expanded cellular coverage." C.D. Howe believes that mobile wireless and wireline telephony should be considered competitive services – not complementary as it is currently regarded. The institute also suggests that part of the reason for Canada’s poor position is because wireline replacement or displacement by wireless is occurring at a less pronounced rate here. There aren’t any clear figures indicating what the wireless-only level is in Canada, but estimates put it below 5% of all households. There was a greater push for wireless substitution of wireline in Vancouver when Microcell Telecommunications Inc. (acquired by Rogers Wireless Inc. in November 2004) began marketing its CityFido home phone replacement initiative in October 2003. In the first three months after introducing the offer, 70,000 customers in the city signed up for the service. C.D. Howe also points to a study done by Decima Research Inc. for Bell Canada, which illustrated the changing wireless usage habits of Canadian consumers. The report, released in October 2003, noted that Canadians are to a greater degree using their cell phones in lieu of their landline. "Based on their estimates, on average, 80% of the time spent on cellular calls is for calls made or received when outside of the home and 20% from within the home," stated the Bell-Decima report summarizing the survey’s findings. "Thus, one can conclude that 20% of the time spent on personal cellular calls could be made and/or received from a wireline telephone in the home and therefore wireline usage is being substituted by cellular usage," reads the study (RoW, Oct. 21/03). A similar study done in 2004 by Bell and Decima revealed the continuing trend to greater cell phone substitution of traditional landline. The findings showed that about 26% of Canadians use a cell phone, at least some of the time, instead of the home phone (RoW, Dec. 15/04). C.D. Howe concludes that the CRTC has to consider wireless a clear substitute for wireline. "By failing to consider the wider competitive environment, the CRTC maintains extensive regulatory control over ILEC retail wireline services at a time when technological advances – either by cellular or VoIP – are undermining the case for regulation of retail prices and for universal retail wireline service obligations," reads the report released December 12. The institute suggests several other reasons why wireless penetration lags behind other OECD countries, but indicates one of the greatest factors is the impact of regulation on network investments. An in-depth analysis of several factors in 30 countries over a nine-year period reveals that cellular penetration depends on increases to product quality. "Quality depends on investments made by cellular network operators, and investments in turn depend on the regulatory environment. Lower prices for wireline service result in less use of cellular and thus diminished incentives to invest in improved cellular quality, including an expanded geographic cellular footprint," the report reads. The institute places a significant emphasis of its analysis on the CRTC’s policy of keeping local telephone prices artificially low, pointing to that as a major factor in low wireless adoption and usage. "If prices for local wireline were consistent with those in other countries, the price of cellular service would be closer to that of wireline service and cellular adoption and wireline call and line displacement would all increase," writes the think tank. The institute suggests, among other things, that government policymakers need to recognize that wireless and wireline do in fact compete in the same market – telephony services – and then they need to consider how wireless policy affects both wireless and landline service. "Foreign ownership restrictions and limited spectrum allocations will limit the number of cellular providers, thereby making cellular and wireline markets less competitive than they would be without these restrictions. "Without these changes in regulatory approach, Canadians may find themselves largely bypassed by a generation of cellular services that are at the cutting edge of telecommunications technology in every other OECD country," concludes the report.

CRTC regulatory regime cause of low wireless usage in Canada: C.D. Howe

News | 07/08/2002 4:00 am EDT

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