OECD analyst says fourth competitor would lower mobile pricing

The presence of a fourth competing wireless carrier in each region of the country would reduce Canada’s mobile prices, which are above the Organization for Economic Co-operation and Development (OECD) average in all but one of five categories measured, OECD telecom analyst Agustín Díaz-Pínes said. “In many countries, we’ve seen competition and prices going up and down depending on how many competitors you have,” Díaz-Pínes said in a telephone interview from Paris on Friday. “Our view is that you have significantly more competition with four—or five, as in some countries—than with three,” he said. An economist who works for the OECD's science, technology and industry directorate, Díaz-Pínes co-authored the OECD’s latest Communications Outlook report, released Thursday, which found that Canada’s mobile subscribers spent an average of $59 US per month on their mobile services in 2011, the fourth-highest average among 34 OECD countries. The report said that wireless service prices in Canada in August 2012 ranked in the top-third of OECD countries for three out of five service “baskets” the organization looked at, and were above the OECD average in all but the most expensive basket. Díaz-Pínes said Canadians, like Americans, are “high-consumption” mobile users, and typically pay more for smaller service packages in comparison to other countries. “If you don’t want to use your mobile phone too much, it looks expensive,” he said of Canada. “For plans with more calls and more text and more capacity, it looks better and better … The more you call, the cheaper it gets when compared to other countries.” According to the report, which covered 34 OECD countries, Canadians paid the tenth-highest rates in the lowest usage basket, which was priced at an average of $23 US per month, adjusted for purchasing power parity across OECD countries, and which included 30 calls and 100 MB of data services. The average price of that basket for all 34 countries, the report said, was $19.74 US. Canadian prices were eleventh of the 34 countries for two mid-range baskets, with Canadians paying $39 US for packages that included 100 calls and 500 MB of data, versus an OECD average of $33.63 US, and about $60 US for a package with 300 calls and 1 GB of data, which had an OECD average of $54.58. Canadian prices fared a bit better for two higher volume baskets, ranking fourteenth-highest at around $75 for a basket with 900 calls and 2 GB of data, and thirteenth-highest at about $52 for a basket with 100 calls and 2 GB of data, the report said. The OECD averages for those two baskets were $90.70 and $44.17, respectively, it said. Brent Johnson, vice-president of mobility solutions for Telus Corp., said in an interview that the OECD data shows that Canadian mobile providers have adapted their pricing to high-consumption Canadian mobile users. “Because Canadians are such heavy users, this market has evolved to provide the value where the market is,” he said. “That just sort of intuitively makes sense that where the competition resides and where consumers’ needs are, are where people are fighting the hardest and where pricing is the sharpest.” Díaz-Pínes said he believes Canada’s prices are above the OECD average in most cases due largely to the presence of not more than three national players—Telus, BCE Inc. and Rogers Communications Inc.—each of which reported revenues that place them among the top 30 telcos in the world, according to the OECD report. He said the Conservative government’s policy objective of ensuring the presence of four carriers in each region of the country should lower mobile prices. France's prices fell after new entrant Free Mobile (owned by Iliad S.A.) entered the market earlier this year as an “aggressive” fourth competitor to incumbents Orange (owned by France Télécom S.A.), SFR (owned by Vivendi S.A.) and Bouygues S.A. “We saw prices going down dramatically in France, for example, so this point about three to four is important,” he said. Díaz-Pínes said he believes the price of Canada’s mobile services is one of the reasons why Canada had the lowest mobile penetration rate of any OECD country, with 79.4 mobile subscriptions per 100 inhabitants, though Canadians have more purchasing power than people in many other OECD states. “You wonder why take-up is higher everywhere else and not there, especially if Canadians can afford it in general,” he said. “Pricing influences penetration rates.” Another factor, Díaz-Pínes said, is the popular practice in some European countries where consumers subscribe to more than one mobile service, often on low-end prepaid packages, for better service rates when travelling or placing long distance phone calls. Johnson said he believed this, as opposed to pricing, is a more likely cause of Canada’s below-average penetration rates, pointing to the U.S. market—which has higher prices and higher penetration rates than Canada, according to the OECD report—as an indicator. Díaz-Pínes said decisions by the federal government and the CRTC could help increase competition in Canada’s wireless industry, including the government’s decision last year to remove restrictions on foreign investment for telecom providers with less than 10 per cent national market share, and the CRTC’s decision to effectively reduce carriers’ three-year contracts to two years. He said the government should go a step further and remove all restrictions on foreign ownership in Canada’s telecom sector. “There’s some restrictions on foreign countries operating in Canada, and you might have to promote more competition in the market,” he said. “Those restrictions should be lifted in general,” Díaz-Pínes said, pointing to reports that American carrier Verizon Communications Inc. may be looking to enter the Canadian market by acquiring new entrant players Wind Mobile (owned by Globalive Wireless Management Co.) or Dave Wireless Inc. (operating as Mobilicity). “They should be able to buy a big one too,” he said of Verizon. Industry Minister Christian Paradis has discussed the possibility of the government reducing those restrictions, and said the Industry Department would launch a public consultation before doing so. In June 2012, he said, a consultation was “not in the cards” at that point in time. Industry Canada spokesman Michel Cimpaye did not address questions about whether the department will consult on the issue. “Our Government removed foreign investment restrictions for telecom companies that hold less than a 10 percent share of the total Canadian telecommunications market, which will provide telecom companies with a smaller market share more opportunities to access capital, strengthening their ability to grow and compete,” Cimpaye said in an emailed statement Friday. He said that the department is pleased that the OECD analyst supported the government’s four-carrier policy. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca.

OECD analyst says fourth competitor would lower mobile pricing

News | July 12, 2013

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OECD analyst says fourth competitor would lower mobile pricing

News | July 12, 2013

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