Shaw says patience, not regulation, required to see organic MVNO market

Shaw Communications Inc.’s Freedom, the country’s major fourth wireless player, says it is most susceptible to harm if the CRTC decides to mandate MVNO access to incumbent facilities, and that time and encouraging network investment are needed for the CRTC to see an organic wholesale market for MVNOs to emerge. In its submission to the CRTC’s review of the mobile wireless market, which will hold a hearing on the matter in January 2020, Calgary-based Shaw said the CRTC drew premature conclusions about the state of competition in the market when in February it released a preliminary view that MVNOs may actually facilitate more good than bad, including proposing a set duration for MVNO access to incumbent networks. Freedom is asking the regulator to reverse that view. Freedom says that because it’s the major fourth player, it will be most exposed to emerging MVNOs at a time when it’s still deploying its network-improving 700 MHz spectrum. The company also said it will be a while before it can deploy its recently-purchased 600 MHz spectrum -- considered important low-band frequencies for current and next-generation 5G networks -- because the transition from over-the-air broadcasting to mobile use of the band will take three years for some of their markets. But even currently, Freedom says it has caused enough of a stir in the market to give the CRTC pause on using another regulatory mechanism to drive competition. In 2017, it introduced its Big Gig plans, starting at $50 for 10 GB of data, which drove the market to respond in kind and caused a price war during the holiday season that impacted churn. “The fact that many MVNOs have not yet emerged organically in Canada is not a sign of market failure,” Shaw said in its submission. “Instead, it is a sign that sustainable facilities-based competition has not yet fully matured. “Freedom and the other new regional competitors need more time in a stable policy and regulatory environment to get the job done.” Taken together, Freedom says a wholesale market where MVNOs can get into agreements with facilities-based competitors will emerge on its own when there’s an alternative network that is comparable to the Big 3 -- BCE Inc., Rogers Communications Inc., and Telus Corp. Freedom was previously known as Wind Mobile before the western Canadian telecom purchased it in 2016 for $1.6 billion. It said in its submission that it has plowed significant costs into the business, so mandating MVNOs will “diminish the disciplining power of the new competitors, ultimately restoring the Big 3 to a joint dominance position that will then carry through to the 5G era.” The challenges facing Freedom, as outlined in its submission, are that it needs to create more distribution channels -- as it has in Loblaws stores -- and convince skeptical Canadians to try a new entrant. Even then, it said, Canadians are “bombarded with retention tactics by the Big 3” that target their new subscribers. Despite efforts to draw customers away from each other and Freedom’s eternal desire to undercut the offers of the Big 3, the four drove the overarching narrative that there are current, more stable ways of letting a competitive environment foster. They also used each other to push that narrative: Freedom pointed at how its competitors reacted to its holiday-related moves including the Big Gig and its 100 GB data offer on select plans, and its competitors pointed to Freedom’s growth in the market. In its interventions, Bell noted the market share of new subscribers of Freedom and Quebecor Inc.’s Videotron -- which also came out against mandated MVNOs in its French-language submission. In 2018, both players accounted for 28 per cent share compared to 29 per cent for Bell, 20 per cent for Rogers, and 21 per cent for Telus, the Montreal-based company said. The Canadian Wireless Telecommunications Association (CWTA) made a similar argument, saying in its submission that existing competitiveness has shown that Freedom and Videotron acquired 46 per cent and 38.3 per cent, respectively, of new wireless subscribers in the first quarter this year. It said there is “ongoing rivalrous behavior,” highlighted by aggressive marketing and price competition, but also on network quality and coverage. That said, the CWTA noted that “more time is required for the full benefits” to be realized of the government’s long-standing policy on facilities-based competition. Saskatchewan Telecommunications Holding Corp. (SaskTel) echoed the comments by Freedom calling for patience. The carrier is one of four in the province, which it said displays a competitive marketplace as it plays host to the Big 3. Mandating MVNOs, it said, will cause “direct financial damage” to it and other players “creating the most competitive marketplaces in Canada.” Pointing to the current environment of lowering prices -- like the regulator asking incumbents to pitch lower-priced data options, which Freedom preempted -- and expanding consumer choice -- Videotron recently launched low-cost Fizz and Bell launched Lucky Mobile -- the crown corp said market forces will carry the day for competition. It also pointed to the new wireless customers added by Videotron and Freedom. Videotron said in a recent quarterly conference call that Fizz was facing “very aggressive” competition from incumbents. The Competition Bureau noted in its submission that Saskatchewan was one jurisdiction with some of the lower prices in the country, alongside Manitoba and Quebec -- but other regions experience much higher prices. It made the same observation when it said Canadian wireless prices are higher relative to other countries and the carriers here earn higher profit margins. But it noted that the “international experience in wireless markets has been that the competitive process generally achieves favourable outcomes.” It also said that it is too early to tell whether mandated MVNO access is the best path forward, suggesting there could be less incentive to invest in a regulated MVNO environment. It said the CRTC should make a cost-benefit analysis of the model and alternatives. It also said it is “possible that facilities-based entrants, such as Freedom Mobile, could soon develop into entities that disrupt the wireless status quo in other areas of Canada, to the benefit of Canadians.” It put forward possible strategies, including conditional MVNO and roaming access -- contingent on meeting milestones including network build out requirements -- and improved roaming. The report was viewed by Desjardins analyst Maher Yaghi as a “slight positive for both wireless incumbents and new entrants,” as it didn’t take a strong position on mandated MVNOs and it “seems to be leaning more toward continuing with the current facility-based approach.” Cogeco Inc. made an alternative suggestion called the hybrid mobile network operator, where mandatory access to radio access facilities would be conditional on the renting company, which would already have telecommunications facilities, continuing to invest in its facilities. The Big 3 also said there is an unstable regulatory current surrounding the federal government’s push for more competitive options, including the consideration of MVNOs. In February, Innovation Minister Navdeep Bains proposed a shift in an over-decade-old policy direction for the CRTC to focus on affordability and consumer interests instead of market forces. The CRTC followed that two days later with a reversal of a previous position that held mandating MVNOs was not something the CRTC would consider. Bains had already sent a CRTC decision that didn’t mandate MVNOs back to the regulator, and this publication reported that the minister considered sending back a second CRTC decision, with a similar conclusion, on the matter. The major incumbents raised the issue of spending, suggesting as they previously have that forcing the incumbents to open their networks for rent to MVNOs will reduce the incentives to invest in those same networks and harm Canada’s emergence as a 5G leader. The Big 3 used data from global markets, such as in Europe, to show that MVNOs are not the answer. “There is no evidence that MVNOs will reduce prices for consumers or that they will have a positive impact on investment or innovation in the market,” Rogers said in its submission. As some others have done, Rogers attached a commissioned study that suggests MVNOs operating in other jurisdictions tend to “focus their efforts on more profitable segments of the market, such as business users, and have been shown to have no statistically significant impact on lowering prices.” Telus also said MVNOs focus on “niche segments” of the market, which are hard to find in a “saturated marketplace like Canada’s. The Vancouver-based telecom said MVNOs don’t provide meaningful benefits to consumers because they have “unsustainable businesses cases” that focus on that niche market, “already well-served in a marketplace with high penetration.” In addition, the Vancouver-based telecom said service-based, rather than facilities-based, competition in the European example has let to “lower quality networks, lower levels of investment, and lower levels of innovation.” Ice Wireless owns Sugar Mobile, the MVNO that was denied roaming access when the CRTC first ruled that Rogers didn’t have to provide it mandatory access. It said in its submission that mandated MVNOs will not limit investments in networks and that it should mandate full MVNOs that are allowed to resell the wholesale access. The regulation should be done with no set time-frame for deregulation, it said. But Bragg Communications Inc.’s Eastlink said that temporarily access is a moot point anyway because “once a decision is made to create a mandatory MVNO regime, it will be a decision that is maintained in perpetuity.” It said the CRTC should recognize that a mandated access regime will last at least 20 years. “There will be no natural competitive market that arises if MVNO access is mandated,” Eastlink said, adding it has had a tough time recovering costs when it had to grant internet access to resellers in small population areas. It shared Freedom’s point that mandating that access would mean there would be no resistance to the Big 3 left as it would diminish their incentive to invest. The Canadian Network Operators Consortium, an organization representing smaller telecoms, said mandatory access by MVNOs to the incumbents’ networks should be regulated, noting the current mobile environment has failed to show adequate competition. CNOC added that a limit on the amount of time MVNOs can access incumbent networks should not be used, but instead the regulator should resort to a “properly calibrated forbearance framework” to determine when access should cease. The Canadian Association of Wireless Internet Service Providers (Canwisp) largely agreed, suggesting a time frame should be replaced with a determination that a sustained competitive marketplace for mobile services is in place. TekSavvy Solutions Inc., which is currently constructing its own fibre-to-the-home facilities, said a regulated MVNO model should be mandated to include a “maximum degree of control possible,” meaning allowing the new entrant to resell the services to enable a further mobile virtual network enabler (MVNE) model. These new MVNOs should also be able to get supporting services through agreements with incumbent carriers and third parties, the Chatham-based company said. Via TekSavvy Xplornet Communications Inc. said it could not provide extensive commentary on the issue, citing uncertainty about what model the Commission is contemplating. However, it offered the CRTC to consider “seamless” roaming to alleviate a disadvantage that it says regional carriers experience compared to the scale of the larger players. Meanwhile, the Canada chapter of the Internet Society of Canada argued that MVNOs should be a permanent fixture of the Canadian landscape and that they should, therefore, be mandated because they are the “only means” for price and service competition to sprout in Canada. However, it stipulated that access should be limited to incumbent carriers that “exercise market power.” Advocacy groups Canadian Internet Policy and Public Interest Clinic and OpenMedia said in a joint submission that the current market is not “sufficiently competitive” to achieve the telecom policy objectives. The groups recommend mandated MVNO access, across current and emerging technology, at rates that would allow for cost-recovery, as well as mandated access to spectrum on a cost-recovery basis. That way, they say, easier access to the market is facilitated. — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Shaw says patience, not regulation, required to see organic MVNO market

News | May 17, 2019

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