Capping wholesale roaming rates at retail level not enough: study

While the federal government’s current plan for limiting wholesale roaming rates charged within the wireless industry is a “step in the right direction,” a new study from the SeaBoard Group said the move does not go far enough. The technology research group said in a paper released Monday that proposed measures in the federal government’s budget implementation bill that would cap what carriers charge competitors for roaming services to a price that reflects what their own retail customers pay “is not a very useful approach, as it will overstate the marketplace realities and result in roaming rates that are much higher than they should be. “But, as an interim step, it is a step in the right direction and does mitigate some of the more egregious pricing that has constrained the growth of alternates to incumbent wireless service offerings,” the report added. The government’s budget bill, C-31, was tabled in March and contains formulas to cap wholesale roaming rates to average retail revenue, on a per-use basis, that carriers make on voice, text and data services. It was in line with an announcement Industry Canada made in December on upcoming legislation that would act as an interim measure until the CRTC completes its review of wholesale roaming rates. At the time of the December announcement, Industry Minister James Moore said carriers were charging competitors for roaming access more than 10 times to what their own customers pay for service, in some cases. The SeaBoard report said “the rates charged by incumbents to new entrants can be many times more than even the rates that Minister Moore suggests.” It said there are several costs that go into supporting carriers’ retail operations that are absent in their wholesale offerings, and the absence of these should be factored into the mandated wholesale rates. Some the costs that aren’t incurred by providing wholesale services, the report said, include advertising and promotion, customer support, operation of retail outlets, inventory and device subsidies, collection expenses, and retail-related legal and regulatory costs. “It follows, therefore, that the wholesale price would be significantly lower than the retail price, while still offering a return to shareholders of the host network infrastructure,” the report said. Iain Grant, an analyst with the SeaBoard Group, said in a phone interview on Monday that there is plenty of room for the carriers to charge wholesale rates that are lower than retail while still making a profit. “Given that your wholesale customers are buying in bulk, they don’t need a lot of customer care and hand-holding, they don’t need a store to go into, etc., your profitability from a wholesale customer is actually quite good,” he said. “Most of your cost structure, as a service provider, is not engaged with the wholesale customer.” Grant acknowledged that if service providers are limited in making money from wholesale roaming, they could look elsewhere to boost revenue, which could result in higher costs for consumers. There is evidence to suggest carriers reacted to the CRTC’s wireless code, which limited contract terms to two years from three, by raising prices. “Yes, if we block this avenue of them collecting economic rent, they’ll be very creative and find a new one,” Grant said. He added, however, that carriers might be reluctant to react in ways that draw more attention from the government and possibly further regulatory action. All three incumbent wireless carriers, BCE Inc., Rogers Communications Inc. and Telus Corp., were asked for reaction to the SeaBoard report. None provided comment in time for publication. Telus spokeswoman Jacinthe Beaulieu said in an email the company would not comment because it does not currently provide roaming services to new entrants. The SeaBoard paper added that any rates established by the CRTC as a consequence of its review should be reassessed annually as a result of the long-term trend of declining rates, on a per usage basis, for all mobile services, particularly data. The CRTC will issue a decision related to its review on wholesale roaming rates within a few months, according to speaking notes of Chris Seidl, the commission’s executive director of telecommunications, for a presentation he made to the Senate’s transport and communications committee on May 7. A second, broader review on how competitive the market is for wholesale wireless services is also underway. The deadline for initial comments in that proceeding is Thursday, and a public hearing has been scheduled for Sept. 29. John Lawford, executive director of the Public Interest Advocacy Centre (PIAC), told the House of Commons industry committee on Monday that the wireless rate formula in the budget bill is an “acceptable approach in the interim,” though he added it’s not the preferable approach. Lawford said he hopes such “quick, targeted amendments made in the absence of the regulator’s full review of issues not become a frequent practice as it may eventually undermine the authority of the CRTC.” PIAC lawyer Geoffrey White added that the CRTC is “the expert regulator” and familiar with this type of rate-setting process, and that he expects the commission to “arrive at the right outcome.” Lawford said the practical effect of this provision of the bill will be that “immediately, there will be an adjustment of rates for roaming,” though it is unclear whether it will be enough for a new entrant or regional player to consider launching new cross-Canada wireless plans. OpenMedia executive director Steve Anderson told committee that the “provisions to cap roaming rates in Bill C-31 is a welcome interim step.” “While the measures in this bill do not directly regulate retail service rates, they should begin to level the playing field between incumbents and new entrants, and thereby have a modest downstream effect of lowering prices for Canadians,” Anderson said. “These measures should also increase the chance that independent cellphone providers will survive and remain available to Canadian wireless customers.” Anderson said that a cost-based rate system, as the CRTC has ensured for wireline telecom services, should be implemented to have a “true level playing field.” He said he expects the CRTC will establish a cost-based system as part of its review of roaming agreements. — With reporting by Derek Abma at dabma@thewirereport.ca and Anja Karadeglija at akarad@thewirereport.ca and editing by Peter Henderson at phenderson@thewirereport.ca

Capping wholesale roaming rates at retail level not enough: study

News | May 12, 2014

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Capping wholesale roaming rates at retail level not enough: study

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