Paying retail for wholesale access isn’t good enough, say carriers

GATINEAU, Que. — Legislation introduced earlier this year that caps wholesale wireless roaming rates to what host carriers charge their own retail customers doesn't create the conditions necessary for smaller operators to compete, representatives from Wind Mobile and Mobilicity told the CRTC on Monday. It was the first day of a weeklong hearing looking into Canada's wholesale wireless market. Representatives from Wind and Mobilicity told the hearing that their entry into the market in 2009, after buying set-aside spectrum in the 2008 AWS auction, was hindered by expensive roaming rates. Legislation that came into effect in June capped these rates at a formula based on the incumbent’s retail costs, yet spokespeople for the two smaller carriers said those caps don’t go far enough. “Because the legislated caps represent the retail revenues of carriers on a per-use basis, it follows then that the recipients of these caps will never be able to effectively compete with these carriers,” said Anthony Booth, president of Mobilicity. “After all, how can we compete when the lowest we are able to charge is already the retail revenue that our competitor pockets?” Simon Lockie, Wind’s chief regulatory officer, said he believes the capped rates are far higher than what the incumbent companies — Rogers Communications Inc., BCE Inc., and Telus Corp. — charge U.S. carriers for the same roaming. “Wholesale roaming rates at a level equivalent to the big three’s average retail rates for voice, data and text services are far higher than what is just and reasonable and certainly above the level that will support vigorous and effective competition in the interests of consumers,” he said. Dvai Ghose, telecom analyst with Canaccord Genuity, said in a research note Monday that many observers think it is a "foregone conclusion" that the result of this CRTC hearing will be "cheap roaming" domestically for non-incumbents. He said it's believed the CRTC will set domestic roaming rates at half a cent per megabyte on data, which compares to the 3.7-cent average limit that resulted from federal legislation. Both Booth and Lockie said when their services launched, they were limited by their technology choice to only roaming on Rogers’ network. In July, the CRTC found that Rogers committed “unjust discrimination” in its domestic roaming agreements. Lockie said new entrant carriers still have limited choice, between Rogers on one hand and the combined network of Bell and Telus, which have a comprehensive and secretive network-sharing agreement, on the other. “When we’re talking about wholesale services, you really are talking about a duopoly,” he said. “There are only two national networks, and that’s what’s most relevant for us as a wholesale services customer.” Lockie said his company needs cheaper domestic roaming in order to maintain its business model while it spends the money to build out a national wireless network. “This would permit Wind and other new entrants that are otherwise innovating in technological or process terms to acquire scale and develop our own expanded network footprints,” he said. “In fact, it is probably a precondition to such investment.” Patrick Hughes, an economist with Canada’s Competition Bureau, told the hearing his office would like to see the CRTC pursue regulation that promotes the development of another national facilities-based competitor. “The best solution here it to increase competition so that a fourth player can get its own towers and be immunized from rivals’ raising costs strategies,” he said. Hughes said incumbent carriers have “market power” in the wholesale wireless market to maintain prices at a higher level that in a truly competitive market. “The incumbents may have the ability and incentive to profitably raise the rates they charge new entrants for wireless services,” Hughes said. “When they are prohibited from doing so … they may degrade the quality of their offerings. In other words, incumbents may have an economic incentive to raise their rivals’ costs.” Under repeated questioning as to whether the Competition Bureau has observed such actions by the incumbents, Hughes said that the bureau had no specific examples, but that the incumbents have the “market power” and the incentive to act in an anti-competitive way. He did note that the bureau believes wireless penetration rates in Canada are lower than they otherwise would be with a competitive market. The addition of a fourth national carrier, Hughes said, would make the market more competitive and be a better solution than simply regulating wholesale rates. “It’s a structural solution instead of a behavioural one,” he said. Representatives from Cogeco Cable Inc. told the hearing that it wants to offer service as a mobile virtual network operator (MVNO) and so it needs wholesale access to the towers of the incumbent carriers at wholesale rates. Although such an agreement could be negotiated piece by piece with Rogers, Telus and Bell, Cogeco said the regulator should intervene to enforce an industry-wide standard tariff. “We’ve tried to negotiate arrangements with the large ,” said Cogeco chief technology officer Philippe Jette. “Every time, we receive a refusal and they have no interest and no obligation to negotiate, so we’re wasting our time every time, all the time.” Incumbent carriers claim wholesale access through a tariff is a subsidy, Jette said, but “nothing could be further from the truth.” He said any tariff should take into account the retail rates charged by the large carriers, ensuring they would not be offering access at a loss. Without such a tariff, he added, MVNO service would be nearly impossible to offer. “We don’t believe in a negotiated service; the evidence is that hasn’t worked,” said Cogeco vice-president of regulatory affairs Nathalie Dorval. “That’s why we’re asking for a tariff to be established.” Jette went to great lengths to differentiate Cogeco’s MVNO proposal from simple resale of the services of the larger players. In its model for a Cogeco wireless service, he said, the company will “provision almost every single component of a retail mobile wireless service,” including connections between towers and the backhaul network for interconnection, billing and customer care, and retail channels such as storefronts. As a full MVNO with its own network infrastructure, Jette said, Cogeco would have the ability to offer new products and services, and therefore increase competition in the Canadian wireless market. The Montreal Economic Institute issued a report Monday that called into question the need for more regulation in order to foster more competition in Canada's wireless market. The research group said in a press release that, despite the public perception of high prices in Canada' mobile market, rates are lower here than in other countries including the United States, Japan and Australia. It noted how a recent report from the Organization of Economic Cooperation and Development (OECD) ranked Canada about average in terms of wireless pricing, and among the better markets for quality of service. The same organization was critical of the government's approach to the wireless industry in another report released in May. — With reporting by Peter Henderson phenderson@thewirereport.ca and reporting and editing by Derek Abma at dabma@thewirereport.ca

Paying retail for wholesale access isn’t good enough, say carriers

News | 09/29/2014 9:40 pm EDT

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