Telus savages gov’t price directive, others more circumspect

Analysts have provided nuanced reactions to the government’s plan to lower wireless bills by 25 per cent, saying the decision is unlikely to have a major impact on the big three carriers’ bottom lines. In a research note released after Innovation Minister Navdeep Bains unveiled his plan to target mid-range plans of 2GB to 6GB offered by the three national incumbents, RBC Capital Markets analyst Drew McReynolds said the government’s wireless pricing objective lacked “an obvious degree of binding legal jurisdiction, specificity, enforceability and effective measurability” but expected the national incumbents to comply “at least directionally” with the policy. He said the volume of customers with plans in those 2GB to 6GB ranges could slow profitability, but telecoms’ ability to cut capital investment and adjust business pricing as well as prices for higher-end data plans, coupled with a consumer move towards higher data plans, were reasons the impact could be absorbed. Desjardins analyst Maher Yaghi also stated in a note the price reduction directive was negative, but said the companies had “many levers to pull” to reduce its impact, including proactively transitioning customers away from flanker brands, cutting staff and capital expenditure, or mounting a legal challenge against any unilateral government moves to impose the reduction. Bains told the Wire Report that the government would “look at additional competitive measures” if the big three failed to meet its price reduction targets. Conversely, Scotiabank telecommunications analyst Jeff Fan said it was positive the focus was put on the lower data buckets rather than unlimited data plans. “With unlimited data plans now in market and natural data usage growth, we believe carriers will be able to manage the risk through base management programs,” Fan said in a note. “We expect the pricing of the 2GB to 6GB plans will be able to fall naturally over the next two years as customers migrate and these plans become a smaller portion of the overall business.” Analysts generally said the lack of a spectrum cap meant the upcoming 3500 GHz auction would be “competitive”, but McReynolds said the 50 MHz set-aside was on the “high-end of expectations”, while Fan said they could mean carriers may not be able to acquire the amount of spectrum “desired for optimal networks.” Canaccord Genuity analyst Aravinda Galappatthige -- who said the directive was an “unprecedented step” that would be a net negative for wireless incumbents in the short to medium term -- argued in a briefing note that the government had made a CRTC decision to mandate MVNOs unlikely by “effectively pre-empting” any regulator decision to control prices. That was a view shared by McReynolds, who said that the “disruptive re-seller model,” commonly referred to as broad MVNO access, would “defy all industrial logic” and had a low likelihood of being implemented. But he said facilities-based MVNO access models proposed by the Competition Bureau and Cogeco Inc. should not be ruled out -- stating it would inevitably increase facilities-based competition but not be “game changing” as long as a balanced framework was implemented. Public Interest Advocacy Centre executive director John Lawford said there was a risk the government’s intervention could reduce the likelihood of the CRTC taking substantial action as part of its wireless services review, including mandating mobile virtual network operator access, but “only time would decide” what impact it would have. Lawford said in a phone interview it was a good thing for customers to have political pressure placed on the major providers to lower prices, but said the government was “setting itself up for obvious easy success” with a target that would not substantially lower prices because the cost of data consistently reduced in price. “They can do 25 per cent the way the government is promising to measure it standing on their head. It will happen organically, naturally,” Lawford said. “They don’t have to do anything to meet this target. It’s a joke really. If they want to reduce the cost of wireless service in Canada compared to the other countries it will take a lot more than that.” Telus Corp. said the government’s directive was “very disappointing” and promised to consider its investment spend “very carefully”, as BCE Inc. and Rogers Communications Inc. reacted in a much more muted manner. Telus claimed the government was trying to solve “a problem that numerous independent studies have repeatedly proven does not exist”, claiming its policy “jeopardises hundreds of thousands of skilled jobs in Canada, as well as the millions of jobs associated with our global supply chains.” In explaining why he was targeting the mid-range plans, Bains said it was because the Wall report -- released on Thursday -- showed they hadn’t seen the same significant pricing decline as those at the lower and higher end. However most of the report’s data was taken before May, before a summer’s worth of price reductions in the mid-range plans. “As evidenced by the Minister’s announcement today, this dynamic is in stark contrast to the deep, punitive bent towards our industry in Canada. This contrast is giving us reason to think very carefully about where our next investment dollars should go,” Telus said in its statement. Telus, which is in the least favourable position when it comes to current 3500 MHz spectrum holdings, was also scathing of the government’s decision to set aside 50 MHz of the spectrum in most licence areas for smaller and regional players ahead of the Dec. 15 auction, saying it was “clear” the government had not listened to the concerns of Telus and other stakeholders about how to best build the country’s 5G networks. BCE Inc. said in a statement that policies “discouraging investment”, including spectrum set asides and wireless pricing regulation “put jobs and innovation at risk”. “It’s the worst time to jeopardize our country’s wireless success as carriers look to ramp up investment for the global move to 5G wireless,” the company said in a statement. Rogers Communications Inc. said in a statement that it operated “in a highly competitive market that continues to deliver more affordability and value” and said the company always evolved its services to meet Canadians’ needs. Shaw Communications Inc. CEO Brad Shaw welcomed the spectrum set asides but said regional players could only invest billions of dollars in spectrum if there was a “predictable, stable and supportive” regulatory environment. -- With reporting by Adam Langenberg at alangenberg@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Telus savages gov’t price directive, others more circumspect

News | March 6, 2020

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