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A man uses his cellphone in downtown Toronto September 3, 2013. (Fernando Morales/The Globe and Mail)
A man uses his cellphone in downtown Toronto September 3, 2013. (Fernando Morales/The Globe and Mail)

Ottawa cracks down on wireless fees Add to ...

Canada’s smaller wireless companies gained a new weapon in their fight with the industry’s major players after the federal government imposed new rules that cap the network fees they must pay the Big Three telcos.

Industry Minister James Moore announced Wednesday that Ottawa plans to amend the Telecommunications Act to prevent wireless incumbents from charging rival carriers wholesale rates for domestic roaming that are higher than the retail rates those big companies charge their own customers for mobile voice, data and text services.

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Domestic roaming allows new players to offer those services in parts of Canada that fall outside their network home zones.

Such legislative changes are intended to foster a more competitive market because they lay the groundwork for remaining new-entrant carriers to introduce nationwide voice and data plans. The inability of smaller companies, such as Wind Mobile, to offer those types of plans has frustrated their ability to attract new customers.

That stumbling block is particularly problematic now that consumers are flocking to data-hungry smartphones and demanding more cost certainty for their wireless bills. In theory, if startups are better able to vie for customers, that should heighten competition and lower wireless prices for all Canadians.

“Our government’s policy has always been and will continue to be about more competition,” Industry Minister James Moore said in a telephone interview.

The government’s moves come after months of public feuding between it and the Big Three carriers on its wireless policies. Ottawa is currently running a $9-million advertising campaign touting its push for more competition.

The government contends that “Canadians pay some of the highest wireless rates in the developed world.” But critics say Ottawa’s efforts to stimulate sustainable competition have largely failed to loosen the top three wireless players’ dominance of the market.

Mr. Moore said earlier Wednesday that big carriers are charging startups roaming rates that “can be more than 10 times what they charge their own customers.” During the interview, however, he shrugged off criticism that Ottawa is making the changes “too little too late” to prop up struggling new entrants such as Wind and Mobilicity.

“We’re sending a signal that the status quo is not going to continue into the future – that there’s going to be parity in the way in which roaming rates are applied across the board,” Mr. Moore said. “We think that that’s better for competition.”

Simon Lockie, chief regulatory officer of Wind, said the legislative changes were a big step toward creating a level wireless playing field.

“This is a game-changer,” Mr. Lockie said. “With fair domestic roaming rates, Wind is well positioned to continue to compete vigorously and effectively with the Big Three as we build and grow.”

Glen Campbell, a telecom analyst with Merrill Lynch, predicted “dramatic wholesale rate cuts” by mid 2014. Specifically, he noted that caps would be roughly 2 cents per megabyte for data, “a massive reduction from current rates.”

Added Mr. Campbell: “We expect this will enable new entrants [Wind, in particular] to offer Canada-wide rates priced modestly below incumbent flanker brand rates, bringing incumbent [average revenue per user] growth to an end. With the government today announcing plans to legislate wholesale roaming rate caps, we believe these rate changes could be in place by mid-year.”

The Conservative government in its fall Throne Speech said it wanted to reduce domestic roaming costs, setting up a showdown with the big wireless companies, BCE Inc., Rogers Communications Inc. and Telus Corp. Separately, the Canadian Radio-television and Telecommunications Commission last week launched two proceedings to escalate its investigation into whether the Big Three are stifling competition by charging excessive roaming rates to smaller competitors.

Depending on what the CRTC finds, it could introduce new regulations to ensure robust competition in the wholesale roaming market – especially now that new-entrant carriers no longer face the same technological constraints when selecting domestic roaming partners.

The government’s legislative amendments to cap wholesale rates are meant to serve as an interim measure until the CRTC reaches a final decision on the issue.

“We look forward to seeing more details in the legislation,” said BCE spokesman Mark Langton. (BCE owns a 15-per-cent stake in The Globe and Mail.) Telus declined comment.

As for Rogers Communications: “We don’t have any details so can’t speculate on what this will mean for consumers or the industry,” said spokeswoman Patricia Trott. “Our customers don’t pay domestic roaming charges. Roaming agreements with domestic carriers are based on negotiated, mutually agreed upon rates. Government policy includes an arbitration process that all carriers are entitled to use, but these carriers have chosen not to go to arbitration. We await further details with interest.”

Analysts said Rogers had the most exposure to domestic roaming out of the incumbents. “However, we estimate domestic roaming represents less than 1 per cent of postpaid ARPU (domestic roaming is not meaningful for Bell or Telus) and thus any cap to domestic roaming rates should not be material for Rogers,” Drew McReynolds, an analyst with RBC Dominion Securities Inc., wrote in a research note to clients. ARPU stands for average revenue per user, a key industry metric that reflects the average consumer monthly bill.

VimpelCom Ltd. is Wind’s foreign financial backer. Wind has said it is mulling a bid for another struggling new entrant, Mobilicity, which is currently pursuing a sales process while under court protection from its creditors. Wind, meanwhile, has also registered to bid in January’s 700-megahertz spectrum auction to build a next-generation network that offers faster data speeds. Even so, questions continue to swirl about VimpelCom’s long-term commitment to investing in the Canadian market.

In its announcement Wednesday, Ottawa also said it would amend legislation to give Industry Canada and CRTC the ability to lay monetary penalties to “encourage compliance” with various rules including those for tower sharing. Those changes are also designed to stimulate more “information sharing” between the CRTC and the Competition Bureau.

Currently, CRTC and Industry Canada have limited powers to penalize companies that break the laws that govern the telecommunications sector. CRTC is able to impose fines for certain infractions, such as violating the do-not-call list. Industry Canada, meanwhile, has always had the power to take away a company’s wireless licences, but has never done so.

Even so, at least one consumer group noted that the government’s broader wireless plan is largely contingent on Wind and other new entrants passing on the savings from lower wholesale roaming rates to consumers.

“I do hope that Wind passes along any savings that they get,” said John Lawford, executive director of the Public Interest Advocacy Centre. “There is an assumption in this announcement that, of course, anyone who saves on their roaming deal will instantly pass it on to their roaming retail rates. So, I hope they do because then all those other competitive effects ... should happen.”

Domestic roaming is distinct from international roaming, which generally refers to the fees that consumers pay for using their smartphones in foreign countries such as the United States.

 
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