Proposed roaming caps won’t hurt incumbents: experts

The government’s move to limit wholesale domestic roaming rates will have little impact on major wireless providers’ bottom lines, experts say, while not all agree on how much the move will help new entrants. “The direct impact is fairly low, but it does, obviously, from a competitive standpoint, have an impact because now have to share their networks for less money,” Troy Crandall, telecom analyst with MacDougall, MacDougall & MacTier, said in a phone interview. The federal government said in a release Wednesday that it will introduce an amendment to the Telecommunications Act in “the coming weeks” to cap roaming fees carriers charge competitors to the same rates they charge their own customers for voice, data and text services. "The roaming rates that Canada's largest wireless companies are charging other domestic providers can be more than 10 times what they charge their own customers,” Industry Minister James Moore said in the release. “For too long, Canadian consumers in the wireless sector have been the victims of these high roaming costs.” Crandall noted that carriers don’t generally disclose how much revenue they get from domestic roaming services, though he estimated it’s less than five per cent of wireless network revenue for the major carriers, on average, with a heavier proportion for Rogers Communications Inc. Drew McReynolds, a telecom analyst with RBC Dominion Securities, agreed in a research note that Rogers is more involved in providing domestic roaming services than Telus Corp. and BCE Inc., though he estimated Rogers’ take from this is less than one per cent of its postpaid average revenue per user. He said that “any cap to domestic roaming rates should not be material for Rogers” and “we believe these new rules and regulations are manageable for the wireless incumbents.” Dvai Ghose, an analyst with Canaccord Genuity, agreed that this move means little for the big carriers’ financial health. He estimated Rogers gets about $50 million in annual revenue from domestic roaming services, out of around $7 billion overall from its wireless operations, while that number is even lower for Bell and Telus. “I think it makes no difference whatsoever,” Ghose said in an interview. “What they’re amending is so small that I don’t think it’s so significant.” In terms of helping new-entrant carriers compete, Ghose said: “I think all of the new entrants are dead, so apart from Videotron (owned by Quebecor Inc.) and Eastlink (owned by Bragg Communications Inc.), I think it makes no difference whatsoever.” Of the three newly launched companies coming out of the 2008 auction for AWS spectrum, Mobilicity has filed for bankruptcy protection, Public Mobile Inc. has been bought by Telus and Wind Mobile majority owner VimpelCom Ltd. has said it wants a “clean exit” from the Canadian market. Stephan Meyer, director of technology at Nordicity, said wholesale roaming caps would help smaller carriers preserve their cash. “If this in fact leads to a lower domestic roaming rate for new entrants, this will allow them to manage their costs and help their cash flow situation into next year,” he said in a phone interview. “Ultimately it should help them serve customers more efficiently and economically.” He added it would give them “a better idea of what their cost structure might be going forward.” Crandall said new entrants might find the roaming caps “helpful in that, in theory, it should reduce their rates.” Simon Lockie, chief regulatory officer with Wind Mobile, said the proposed roaming caps are good for new-entrant carriers and consumers. “Wind Mobile applauds the federal government’s clearly stated commitment to create a level playing field in the Canadian wireless sector,” he said in an emailed statement. “Today’s announcement will help ensure more competition and more choices for Canadians.” John Lawford, executive director for the Public Interest Advocacy Centre, called for savings from these proposed changes to be passed on to consumers rather than horded by carriers needing the roaming access. “The point of it is to reduce roaming rates at the retail rate for customers. … It shouldn’t be treated like a bonus windfall fund ,” he said in a phone interview. The announcement from Industry Canada Wednesday said the move is in accordance with the commitment made in its October throne speech to reduce domestic roaming rates for Canadians. The government also said Wednesday it would amend the Telecommunications Act and the Radiocommunications Act to give Industry Canada and the CRTC the authority to impose fines on companies that do not comply with the recently-implemented wireless code, or with rules relating to spectrum deployment, rural services or providing roaming access. The announcement comes nearly a week after the CRTC said it would investigate the wholesale roaming rates incumbent carriers charge smaller competitors. Industry Canada said Wednesday that any changes to the Telecommunications Act regarding roaming would stay in place at least until the CRTC reaches a conclusion. CRTC spokeswoman Céline Legault said Wednesday that the new Industry Canada proposals do not change the commission’s plans to look into “possible undue preference regarding roaming wholesale rates, terms and conditions” or “our plans to launch a proceeding in early 2014 to further examine the state of the mobile wireless services market, the sustainability of competition in the Canadian wireless market and what regulatory measures may be required if the CRTC were to find the market is not sufficiently competitive.” On the proposal to grant the CRTC the ability to fine companies for infractions, Legault said: “Providing the CRTC with enhanced enforcement powers will permit us to further protect the interests of Canadians by promoting compliance with our regulations.” Meyer said it’s likely that carriers will challenge the government’s latest proposal on roaming fees in court, given that it might affect multi-year contracts already in place. “It would be a logical step that the incumbents would likely take objection, saying, ‘We negotiated in good faith and this is therefore unconstitutional to our own rights as a business,’ ” he said. In response to a request for comment, Bell spokeswoman Jacqueline Michelis said in an email: “We look forward to seeing more detail in the legislation.” Rogers spokeswoman Patricia Trott said in an emailed statement that the company can’t “speculate on what this will mean for consumers or the industry.” She said that Rogers’ 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,” Trott added. Telus declined to comment. Crandall said the government might be hindering its own goal to increase competition in the wireless sector by providing another example to international firms, such as Verizon Communications Inc., of its willingness to “micromanage” the sector. “It’s one more thing that basically shows more government involvement in the space, which I think has hurt the space from the point of view of international investors considering coming into Canada,” Crandall said. He added: “If the rules are constantly changing, it makes it extremely difficult to predict future cash flows or profit, and if you can’t reasonably make predictions, than you just don’t make the investment.” Crandall added that it gives new entrants more incentive to “piggyback” on bigger carriers’ networks rather than build their own networks. “If (the government) wants broader, deeper networks in Canada, this isn’t the way to do it,” he said. — With reporting by Derek Abma at dabma@thewirereport.ca and Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Proposed roaming caps won’t hurt incumbents: experts

News | December 18, 2013

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Proposed roaming caps won’t hurt incumbents: experts

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