Everybody seems certain that Canadians pay too much for cellular services. The Wireless Code of Conduct, the blocking of Telus’s acquisition of Mobilicity and new restrictions on the transfer of spectrum are recent shots across the bow of the big three wireless providers by the Canadian Radio-television and Telecommunications Commission and the government. But the belief that Canadians are being gouged is a misunderstanding of the facts – one that invites bad policy and threatens the world-class services Canadians enjoy.
The perception that Canadian prices are high relative to other jurisdictions has been seized upon by the government as an invitation to intervene and deliver lower prices. But the perception is false and the invitation is illogical. It assumes that the only reason Canadians pay more for cellular services is because we lack competition.
This ignores the more obvious reasons for differences in prices: namely that costs and demand are very different in Canada than elsewhere. Our vast geography and low population density sets us apart on the cost side. On the demand side, two obvious differentiating characteristics, often ignored, are that we have high-quality, low-priced telephone service and a revealed dislike for pay-as-you-go services. These factors go a long way toward understanding why the number of cellphones per capita in Canada is fewer than in other countries, grounds often used in the claim that government intervention is required.
Those who say Canada is one of the highest-priced jurisdictions for wireless services typically do not compare actual prices – because our prices are not, in fact, outliers. For all the enthusiasm Verizon’s potential entry has generated, its unlimited talk and text plan with a gigabyte of data is priced 40 per cent higher than similar plans here. Instead of prices, what is typically highlighted is that Canada’s average revenue per user is among the highest in the world. ARPU is not a price but a measure of consumer expenditure that depends on both price and quantity of both voice and data services. Canada’s high ARPU is attributable to substantially higher usage of smartphones and data. Among the Western developed economies, Canada has the highest smartphone share of mobile users, and it’s second, after the United States, in monthly data usage. A high ARPU in Canada is a positive sign, reflecting higher levels of economic activity and consumer usage.
The best illustration confusing price and ARPU is Quebec. Quebeckers spend less on average for mobile services than Albertans do. In the most recent data available from the CRTC, Quebec’s ARPU was $50.36 a month. In Alberta, it was $74.96. Does this show that Quebec’s market is more competitive, better regulated or lower priced? No. It shows that adoption of smartphones is 40 per cent less in Quebec than in Alberta.
It’s unfortunate that government and regulators have determined that arbitrarily lowering wireless prices is an important policy objective. It is true that lower prices would benefit some Canadian subscribers in the short term. But without an analysis of the relationship between prices and costs, including the high capital costs of establishing networks and spectrum, the danger is that revenues won’t be sufficient to support the investment levels necessary to maintain and advance the quality of our wireless networks.
To build world-class networks and ensure supply of the latest devices, considerable investment is required. Canada’s wireless industry compares very well internationally in terms of capital expenditures, both in terms of investment per subscriber and as a percentage of revenues. Canada was the first country in North America to offer an HSPA+ network and the first country in the world to have three national wireless carriers offering HSPA+ service, and it’s been in the vanguard in rolling out LTE networks. Our love of smartphones and high rates of data usage are a direct result of the roll-out of high-speed networks.
Be careful what you wish for. The consequences may be very different than what is intended: We’ll get low prices, but we’ll also get networks that don’t adequately support future generations of mobile devices and services. Governments should worry about prices when they don’t reflect the cost of service, not because they think they can win votes by redistributing wealth from shareholders to consumers.
Jeffrey Church is a professor of economics and Andrew Wilkins is a research associate at the University of Calgary’s School of Public Policy. Dr. Church has been retained to provide expert evidence by Bell, Rogers, the Competition Bureau and Toronto Hydro on telecommunications and broadcasting matters.