Canadian mobile service prices nearly identical to those in the U.S., study finds

Canadian wireless operators can no longer claim lower prices than those of their American counterparts, says a new report on telephone service pricing, and the low cost of wireline service here may even be slowing wireless-only adoption rates. According to Communications Pricing for Consumers: A Cross-National Survey, prepared by SeaBoard Group, consumers in both countries now pay nearly identical prices on average for mobile wireless services when Canadian dollars are converted to the American greenback. The report runs counter to the widespread perception that Canadians enjoy the lowest wireless rates in the world. The price advantage Canadian consumers once enjoyed over their American neighbours has eroded away due to a couple of factors, explains Brian Sharwood, the report's co-author. Prices for wireless services in Canada began to edge upward a little more than a year ago when operators started to implement more rational pricing strategies. Three of the four national operators moved to per-minute billing on post-paid airtime packages and have recently or will soon move the evening time start clock from 6 p.m. back to 7 p.m. or 8 p.m., depending on the particular carrier (RoW, May 13/03). "We had a clock advantage, which is one of the reasons it was a little cheaper here. It was money thrown down the drain by the cell phone companies who finally caught up with it," Sharwood tells Report on Wireless. This more rational pricing from Canadian operators, combined with downward spiraling prices in the U.S. due to intense competition among national operators, has resulted in similar pricing, Sharwood says. "There's still seven providers (in the U.S.) and they're still fighting for subscribers and in some cases losing them, and they're suffering negative growth in a growth industry." Sharwood admits that the report does bring into question the widely held belief that Canadians have some of the lowest wireless services prices. "I think the myth of Canada having lower prices on wireless services came from our wireline where we really do have lower prices. I think it sort of got passed on from one to the other," he says. Actually, it was a report by SeaBoard Group before being re-spun out from The Yankee Group Canada that proclaimed the low price advantage (RoW, June 21/99). Its 1999 study, Competitive Wireless Pricing Around the World, indicated that Canada already had the most affordable wireless service in the world relative to workers' incomes. Rates were the sixth lowest among the 27 countries studied. At the time, Report on Wireless reported: "In the period from Q496-Q199, prices in Canada fell dramatically, coincident with the introduction of competitors in the market place. At 60 minutes of use (MOU), the price fell by 41%, by 35% at 100, 37% at 250, and 38% at 500 MOU. On a weighted basis, the average price per minute is US$0.17. An average rate plan for 100 minutes per month costs Canadians 0.98% of monthly salary. "Rates have also fallen drastically south of the border in the same period, but the lowest rates are reserved for the heaviest users with all-inclusive plans. The U.S. ranked ninth for affordability. Overall, wireless rates in North America have fallen by nearly 40% since 1996. The concomitant rise in penetration rates is no accident, contend Yankee analysts. The number of people using wireless services is directly related to affordability, according to the report." The "most affordable rates" claim has been taken as gospel since, and has been frequently cited in Industry Canada and CRTC proceedings by carriers concerned about over-regulation. When Sharwood, an American, moved to Canada, he believed that wireless prices were actually more expensive than those south of the border. He cites features such as nationwide long distance being either included in certain plans or at least available for a small monthly fee from U.S. operators. This isn't the case in Canada, he says. "In Canada, it is pretty hard or pricey to get a nationwide long distance plan, or you can get a nationwide long distance plan, but you don't get evenings and weekends," he explains. While the study focuses primarily on three wireline pricing plans for various cities in North America and other international locales, it does compare airtime packages from two Canadian national wireless operators with those of national U.S. carriers. The Canadian carriers are Bell Mobility and Rogers Wireless Inc. The American operators are Sprint PCS, T-Mobile and AT&T Wireless. To measure bang for buck, the SeaBoard group put all values in U.S. dollars. In plain dollar amounts, wireless service prices are almost identical in Canada and the United States in the $40-$45 range, Sharwood notes. "But because we have something called the system access fee in Canada … we add the $7 and that accounts for the exchange rate difference to bring it to par (with U.S. prices)," he states. Canada's wireless operators charge consumers who subscribe to post-paid airtime packages $6.95 per month to make up for charges they incur as part of the national plan to subsidize local telephone service in high-cost serving areas, commonly referred to as the contribution regime. The CRTC's Decision 2000-745 of November 2000 ushered in the new regime, which came into effect Jan. 1, 2001. While wireless services are nearly identically priced in Canada and the U.S., Canadian consumers enjoy a substantial cost advantage when it comes to wireline services. The report notes that this price difference on the wireline side could have ramifications in the wireless communications segment. "Amongst the implication of this finding (equivalent prices for wireless services) is the probability that the long-foretold customer migration from the wireline and mobile combination to wireless-only connection may well happen more rapidly south of the border where the economic incentives are more profound," the report concludes on page 15. Sharwood explains that the dollar value of combined wireless/wireline plans in the U.S. is far greater than that in Canada and that makes it easier for U.S. consumers to decide to get rid of the wireline component. Because Canadians pay less for a combined wireless/wireline service they are less likely to see the benefit of dropping their landlines, he says.

Canadian mobile service prices nearly identical to those in the U.S., study finds

News | 05/27/2003 4:00 am EDT

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