Broad MVNO access too risky, Competition Bureau tells CRTC

GATINEAU, Que. — The CRTC’s two-week wireless policy review kicked off with a detailed questioning of one of the few parties to promote a middle-of-the-road solution for mandating MVNO access to incumbent infrastructure. Competition Bureau representatives told a panel of CRTC commissioners that mandating access by all mobile virtual network operators (MVNOs) would be too risky, but endorsed a temporary hybrid model, where mandated access to incumbent networks would be granted to those resellers that also made commitments to investing in network infrastructure. Deputy commissioner Anthony Durocher said mandating access by all MVNOs could be a “second-best” alternative to a more limited model, but that other jurisdictions have had “mixed results” with broad access. That means “we’re weighing a proven track record of facilities-based competition with more uncertain results if we look at the international scene.” There is also the potential of broad mandated MVNO access “impacting or undoing the progress that we’re increasingly seeing in Canada with facilities-based competition,” he said. When CRTC chairman Ian Scott asked whether that meant the status quo would be a better option than a broad MVNO model, Durocher answered that in “areas where there is no reasonable prospect of having a new regional facilities-based competitor, it may very well be that a broad MVNO, targeted to those areas, is appropriate.” Competition commissioner Matthew Boswell told the hearing earlier that a broad MVNO model would see more entrants to the market, but “whether or not they would, even in the aggregate, provide any kind of competitive pressure that we believe you’ll see from encouraging a facilities-focused model, I don’t think that would come to pass.” Throughout the morning session, officials from the Competition Bureau reasserted their findings from their November report: that regional facilities-based competitors like Shaw Communications Inc.’s Freedom Mobile and Quebecor Inc.’s Videotron forced the Big Three to drop their prices to compete and parts of the country with a strong fourth competitor had significantly lower prices. Scott pressed Tasneem Chipty -- the economist who put together the bureau’s report -- on a claim made by Charles River Associates in a submission from BCE Inc. that the lower prices in certain regions of the country were because of lower network quality in those areas, rather than the presence of a fourth competitor. “If the regionals have quality that’s below the national quality,” Chipty said, “I would expect that the nationals wouldn’t have to work so hard on their prices to keep their customers from switching to the regionals.” Chipty was referring to what has been an intensely competitive year in wireless pricing. “The presence of regionals creates price discipline on the national carriers, and at the same time, the presence of these regionals has not eroded the nationals’ incentives to invest in quality and infrastructure,” Chipty said. As for the methodology used by the Competition Bureau -- the subject of some back and forth in recent months -- Scott also asked the bureau to explain how it came to assess the relative market power of the big three carriers. The bureau’s report had found there was a discernible price reduction in areas where the fourth competitor could reach a 5.5 per cent market share, and even greater when the competitors rached a 20 per cent share. Scott asked if there was a level of market share at which the fourth competitors had created an appropriate level of competition. “When do we know? Is there a magic number?” Scott asked, adding he was interested if the Competition Bureau had determined a level of market penetration where market power by the big three would no longer be a problem. Chipty responded that her own analysis just looked at the pricing impact of the presence of a fourth competitor relative to areas that lacked a fourth competitor. “The gains to consumers in areas where there already is a very large incumbent regional are going to be lower than the gains to consumers in other areas. And so in balancing those risks, I think you may want to treat the areas with the large incumbent regionals differently,” Chipty said. In the afternoon, the CRTC heard from Shaw and Xplornet Communication Inc. Both companies were identified by the Competition Bureau as potentially likely to benefit from its MVNO proposal. Shaw representatives opened their appearance by urging the CRTC not to mandate MVNO access. Its Freedom Mobile has been expanding its wireless network and has credited itself with driving the big three to lower their wireless prices. In their opening statement, company executives told the CRTC that mandating MVNO’s would harm the progress it has made in increasing competition in the market. “MVNO resale regulation simply does not make sense. It will hurt Freedom -- the strongest, most credible champion for wireless affordability -- much more than it will disrupt the big three,” McAleese said. “Several years ago, Canadian regulators developed a strategic plan to create sustainable competition that would eventually be strong enough to challenge the big three. The strategy is working - in the past two years alone, Freedom’s presence has achieved more than a resale MVNO regime could ever hope to. Do not abandon it now.” Xplornet, however, said it was in generally in favour of the Competition Bureau’s proposal. The company, traditionally a wireline service provider in rural areas, is a new entrant in the Manitoba wireless market. Chief legal and regulatory officer C.J. Prudham said it would be “an appropriate intervention to stimulate competition.” “This service is designed to give regional providers a boost in expanding their networks. It hastens the speed at which regional providers are able to roll out their spectrum, while promoting facilities-based competition,” Prudham said. While the question of MVNOs is set to dominate the hearing, it’s not the only one the CRTC will consider over the next two weeks. Both Shaw and Xplornet, for instance, put forward arguments for requiring seamless roaming. Shaw representatives said without it, customers who leave the Freedom coverage area experienced dropped calls and lose service until they connect to the roaming partners’ network; this means they could be without service for as long as 10 minutes. “Your phone can see the tower, but the weak signal is not good enough to complete the call. And after that 10 minutes, then you can launch onto the roaming network,” said Brian O’Shaughnessy, senior vice-president of wireless and 5G technology. “So we have around every market that exists, where we have built service, we have these grey zone boundaries all the way around where you cannot make or receive calls.” With a “proper” handoff, the transfer from Freedom to another provider would be automatic, “and the customer wouldn’t even know the difference.” The issue results in millions of dropped calls a year, and is the biggest reason the company loses subscribers to other providers, amounting to about 25 per cent of churn, the CRTC panel heard. Shaw’s president of wireless, Paul McAleese, said Shaw had tried to negotiate a seamless roaming agreement, and that it was a “total non-starter.” He added: “this is a fantastic way to continue to subordinate Freedom’s class of service at no cost to the big three.” That concern was also brought up by Xplornet, whose chief technology officer Tim Dinesen called it an “electronic ring fence” around its network. He said that means Xplornet “can’t afford to start selling service in a new area until we have a significant degree of coverage. This challenges the business case for expanding our network to serve new areas.” Prudham said Xplornet was also unsuccessful in reaching such a deal, saying it was a “short conversation.” She said the company had the same experience in attempting to reach an MVNO agreement. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and Michael Lee-Murphy at mleemurphy@thewirereport.ca and editing by Adam Langenberg at alangenberg@thewirereport.ca

Broad MVNO access too risky, Competition Bureau tells CRTC

News | February 18, 2020

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Broad MVNO access too risky, Competition Bureau tells CRTC

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