Analysts, academics take sides on whether wireless regulations help or harm consumers

Industry Canada and CRTC efforts this year to create a more consumer-friendly wireless market have caused Canadians’ mobile phone bills to go up while reducing the amount of choice consumers have in the market, Scotiabank analyst Jeff Fan said. “The fact is that regulatory actions over the last six months have led to higher prices and less choice for Canadians,” Fan said Monday during a panel discussion at the International Institute of Communications’ annual conference in Ottawa. Industry Canada and the CRTC have rolled out this year a series of new or newly amended telecom policies that they said are designed to benefit consumers. Among those policies are the CRTC’s wireless code of conduct—which bans carriers from locking subscribers into three-year service contracts, among other regulations—and new rules that allow the federal industry minister to review and potentially block the transfer of wireless airwaves from one carrier to another. The Industry Department blocked in June incumbent carrier Telus Corp.’s $380-million bid to acquire struggling new entrant provider Mobilicity, citing department rules that prohibit incumbents from acquiring Mobilicity or its spectrum until at least February 2014. Last month, the department also blocked Telus’ second request to acquire Mobilicity, stating it will “not approve any spectrum transfer request that decreases competition in our wireless sector to the detriment of consumers.” Fan said the CRTC’s decision to ban three-year contracts has led to an increase in consumer prices as carriers try to “neutralize” the policy’s potential impact on their bottom line. He said wireless plans that include a 1GB monthly data allowance have gone up about 25 per cent since carriers stopped offering three-year contracts, while plans that offer 3GB of data have increased 19 per cent. Consumers, Fan said, also have less choice under the wireless code, since they can’t sign up for the three-year contracts that were previously the industry norm. The result, he added, was an 18 per cent drop in new smartphone sales last quarter. “Removing three-year contracts actually slowed smartphone purchases,” Fan said. “The introduction of two-year contracts and the removal of three-year contracts froze the Canadian market.” The CRTC, which declined to comment for this story, said in June that the wireless code’s prohibition on three-year contracts was designed to ensure consumers had more flexibility to change providers, and that the policy resulted from consumer outcry over the long-term nature of the earlier three-year deals. Industry Canada said its decision to block incumbents like Telus from acquiring the new entrant carriers is also designed to benefit consumers, by helping ensure they have at least four service providers to choose from in each region of the country. “Our government's policies to create more choice, lower prices and better service in the wireless market are delivering for Canadians. Our record shows this,” Jake Enwright, a spokesman for Industry Minister James Moore, said Monday in an emailed statement. "Since 2008, jobs in the industry have increased and average wireless prices have dropped by nearly 20 percent.” Canaccord Genuity analyst Dvai Ghose said during the panel discussion that it is a myth that Canadian consumers want more choice of service providers. He pointed to new entrant carrier Wind Mobile’s effort to launch services under a business model that charged lower monthly rates by requiring subscribers to pay the entire cost of their wireless devices upfront, while the incumbent carriers provided subsidies to help reduce that upfront cost. “The average Canadian liked the first part of that equation but didn’t like the second part,” Ghose said of the Wind model. “The ultimate manifestation of that … by 2010, Wind started subsidizing devices.” Peter Nowak, a former CBC technology reporter who now writes a syndicated technology blog, said during the same panel discussion that the government’s efforts to regulate the wireless industry were “sparked” by the perception that Canadian consumers pay more for their wireless services than subscribers in other countries. Nowak rejected the argument that Canadians pay more for those services because they use more mobile data than people in other countries, noting that wireless consumers in the U.K. use more mobile data than Canadians and also spend less, on average, on their monthly wireless bills. “Canadians are actually the fourth-heaviest users, but their bills are actually the highest,” Nowak said, citing Cisco Systems Inc. data released last year. Martin Masse, the senior writer and editor of the Montreal Economic Institute, said in a later panel discussion that Canada should consider deregulating its telecom industry. Masse, who served as a policy advisor to former industry minister Maxime Bernier, said the government started regulating telecommunications in the 1990s to help new entrant providers break into the market against established incumbents. “You had to, in effect, put road blocks in front of the incumbents so that they not be too competitive, too innovative, too efficient because that would prevent the emergence of new entrants,” Masse said. Masse said the theory was that the government would regulate the industry during a “transition” period as new entrants gained a foothold, and would then ease those regulations as competition grew. That transition period, he said, has now spanned over two decades. “The question is, how long should that transition period last?” he said. “The longer you have this kind of situation, the less dynamic your industry will be because you don’t have the incentives for everyone to invest.” The CRTC, which is tasked with regulating Canada’s telecom industry, released the wireless code this year after telecom providers asked the commission to develop national regulations for the industry to replace a patchwork of provincial laws. Carleton University communications professor Dwayne Winseck said at the conference that the government and CRTC’s regulation of the wireless industry is a response to consumer demands, and is unlikely to go away anytime soon. “We have states and we have markets and in a democratic society, states take direction from the people and they watch the markets and they also show due respect for markets,” Winseck said. “The state’s not going to disappear.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglij at akarad@thewirereport.ca

Analysts, academics take sides on whether wireless regulations help or harm consumers

News | November 18, 2013

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Analysts, academics take sides on whether wireless regulations help or harm consumers

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