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Debunking yet another set of wireless myths

11 Apr

telus-goatsA little while ago, I promised I’d respond in greater depth to some comments made by Craig McTaggart, Telus’s head of broadband policy, in his 42-page paper that delightfully borrows Cher’s “Turn Back Time” title. That document was itself a rebuttal to some of the observations previously made by me, University of Ottawa professor Michael Geist and consumer advocates Open Media. My own musings were in response to a report from Scotia Capital that sought to dispel some myths about Canada’s wireless market. It’s a long chain of rebuttals, but here we are.

It’s taken a while to get through all 42 pages, so I won’t punish anyone with a similarly long response. I only hope that if McTaggart does choose to continue the debate that he keeps it short and punchy too. I’ve distilled my responses to his points down to 10, at least as far as they’re relevant to anything I’ve written.

1. High ARPU does not equal high prices. Both Geist and I initially responded to McTaggart’s claims that Canadian carriers’ world-topping average revenue per user does not necessarily mean that subscribers here pay high prices. I think we both did a good job at countering that; claims to the contrary suggest that ARPU is high because Canadians use their phones more than people in other countries, but that’s not true. Brits use more data while Americans use more minutes, yet ARPU is significantly lower in both countries. And if for some reason ARPU really doesn’t equal high prices, it definitely does equal high bills, which is really the only measure that matters to consumers at the end of the day. There’s no two ways about it: Canadians have the highest wireless bills in the world.

2. Growth projections. McTaggart repeatedly criticizes Geist and Open Media for using outdated data – I’m grateful he doesn’t level the the charge at me – but at the same, he also repeatedly uses data that hasn’t happened yet, especially when it comes to talking about Canada’s wireless penetration. Both McTaggart and Scotia Capital flagged Canada’s high smartphone growth as somehow being important. The number is indeed high – at 49.5%, the rate at which Canadian carriers added smartphone customers was the highest among developed nations in the third quarter of 2012. But so what? It’s a figure that doesn’t matter for a number of reasons.

For one, any statistician will tell you that when a country experiences a higher-than-usual growth rate in any measure, it’s usually because it is playing catch-up to peers. Secondly, any such rate might be a temporary occurrence – if I were to guess as to why smartphone growth was so high in Canada during that time period, it could have indeed been an effect of new carriers making the market somewhat more competitive, but I’m not really sure.

Thirdly, there’s no reason to believe such a growth rate will again be duplicated or continue. If Canada is indeed playing catch-up, it’s likely to eventually moderate down to the sort of growth levels being seen in other countries. Smartphone penetration leader Sweden, for example, is seeing only about 29% growth.

Even in the unlikely event that Canada continues its big smartphone growth, it still isn’t likely to result in anything impressive, simply because the country has been so far behind in cellphone adoption overall. If all the developed countries in the Merrill Lynch Bank of America Global Wireless Matrix were to continue their growth rates from the third quarter of 2012 through to a full year later – performance that is more unlikely the more impressive it was – here’s what smartphone penetration might look like close to the end of this year:

smartphone penetration 2013

So, even if Canada continues its high smartphone penetration growth from 37% in late 2012 to 55% in late 2013, it would go from middle of the pack to… middle of the pack. Why was that world-leading growth rate important again? That’s why talking about numbers that haven’t happened yet seems almost as useful as discussing five-year-old figures.

3. Low churn means happy customers. McTaggart took issue with my assertion that high churn rates – the number of customers who defect to other service providers each month – correlated with countries that had stronger rules governing contract lengths, and that this further correlated with lower ARPU in those countries. The numbers do in fact bear this out on the high end: the countries with the five highest churn rates – Belgium, Denmark, Greece, Spain and Italy – all fall in the lower half of ARPU as well. The correlation is a little weaker at the low end, yet a number of countries with low churn do indeed have high ARPU, including Japan, Switzerland, the U.S. and Canada.

Telus reasons that if prices were indeed as high as they supposedly are in Canada, wouldn’t customers defect more – especially after the carrier has made it easier for them to leave in recent years by simplifying the remaining payments on their devices and lowering their unlocking fees?

That might be true, but the question then becomes: where are those customers going to go? Suppose a customer signs on to a three-year contract with Telus and gets a cheap smartphone in return. Yet, after a few months, he finds he hates the service, decides to pay off the device and take his business elsewhere. Because of network technology differences, he can’t go to a new entrant such as Wind or Mobilicity without buying a new phone because his existing device – the one he just paid handsomely for – won’t work there. His choices are thus Bell, Rogers or the various flanker brands of the big three. Yet, any plan with a reasonable amount of minutes and data usage costs roughly the same regardless of carrier. I’m hard pressed to find a plan with any sort of decent usage from the big three and their various offshoots that doesn’t fall between $60 and $70, which coincidentally is right where their ARPU sits.

How close do those bills end up? Here’s the Global Wireless Matrix’s ARPU estimates for the full year, 2013:

big3-arpu

So, moving from Telus to Bell would lower said individual’s bill by a whopping $2.02, while switching to Rogers would actually raise it by 26 cents. Between the three, the difference in bill is less than 4%. In comparison, here is the ARPU differential (in Euros) between the three biggest carriers in Belgium, which has the highest churn among developed countries:

arpu-belgium

The difference between the cheapest and most expensive is more than 10 euros, or 36%. When faced with that kind of potential savings, it’s no wonder Belgians switch carriers so frequently. And it helps that they’re not trapped by three-year contracts.

That’s actually an issue where you do have to feel a bit for the carriers – it must be tough to differentiate their offerings, especially without rocking the pricing boat too much. Yet, higher churn in other countries indicates that carriers there are somehow managing to convince customers to switch. That’s likely a result of compatible networks that don’t require a new device and better differentiated (read: lower) prices.

Whatever the case, low churn in Canada absolutely cannot be taken as a sign of customers being satisfied with their carriers, as the carriers themselves would like policy makers to think. It’s more a sign of customers either feeling locked in, or feeling that the hassle of switching to another carrier for a deal that won’t be significantly any better just isn’t worth it.

4. Canadians spend comparatively little on communications. McTaggart takes his turn dredging up some relatively ancient numbers here by referring to a 2009 CRTC report comparing how much people in various countries spend on communications services. According to those numbers, overall spending is comparatively low in Canada.

Since we are talking about wireless, let’s keep the conversation limited to that area – and let’s use Merrill Lynch’s more accurate numbers. According to the Wireless Matrix, Canadians spend about 1.1% of their gross domestic product on mobile services, which again rates middle of the pack as the left-hand column of the chart below shows. However, as the right-hand column illustrates, that doesn’t correspond all that closely with Canada’s overall high GDP, which is fifth highest among compared countries. In other words, if we’re one of the richest countries and our wireless aren’t all that high, shouldn’t our expenditure be even smaller than 1.1%?

wireless-gdp

5. Big geography means higher costs. McTaggart repeats the go-to excuse whenever anyone suggests that Canada has high wireless prices: carriers here have a lot of ground to cover, which makes it more expensive to build and maintain networks. He even supplies some nice charts depicting subscribers and revenue per square kilometer, both of which show Canada to be on the low end.

That’s all fine and dandy, but if it was really that expensive to build and maintain those networks, Canadian carriers wouldn’t be sitting near the top of the profit list. As it is, they had the fifth-highest margins in the developed world and were third in growth as of the third quarter of 2012. Seeing as costs are deducted from revenue to arrive at profit, all of that geography simply isn’t factoring into the bottom line.

Australia, for one, has a similarly sparse population and large geography, yet carriers there saw a profit margin nearly 15% lower than their Canadian counterparts.

6. Roaming prices have come down. Maybe, but they’re still ridiculously high. On my recent trip to Europe, I was caught in an emergency where I simply had to turn on data roaming to check my email and GPS. I ended up using 8.43 MB in a matter of minutes, which cost me $42. It’s an anecdotal example, but does it feel right to pay that much for so little?

7. Regional incumbent responsible for slow speeds. McTaggart references a recent blog post of mine on Akamai’s latest State of the Internet report, which found that wireless speeds in Canada were slow. When I asked David Belson, the report’s editor, about this, he confirmed that it was an incumbent operator and not a new entrant that had returned the slow speeds in tests.

McTaggart somehow jumps to the conclusion that Belson was referring to a regional incumbent – say SaskTel or MTS – but that’s not the sense I got from his response at all. My understanding is that he was referring to Bell, Rogers or Telus.

Nevertheless, more information is needed on this front. Canada’s poor performance in Akamai’s tests is indeed surprising, so we’ll see how further data bears this out.

8. Multiple subscriptions bump up ARPU. McTaggart also draws water from another familiar well in suggesting that subscribers in countries with high wireless penetration actually have it worse than Canadians. Countries such as Finland, with 175% penetration, or Austria with 161%, have it tough because it means customers there are carrying around multiple SIM cards to take advantage of different roaming rates in different countries.

He paints this as weird or undesirable, yet given that Canada is the only developed country that hasn’t surpassed 100% penetration, it seems like we’re the weird ones.

Moreover, if you factor in that greater-than-100-per-cent uptake into ARPU in those countries, here’s what you get:

arpu-penetration

That chart is exactly what it looks like. Even with multiple SIMs factored in, it still costs more to own just one phone in Canada than it does to own several in other countries. With ARPU in Portugal just $15.75, you can actually own four phones there for just about the same cost as a single device in Canada.

Of course carrying multiple SIM cards isn’t exactly ideal, but it’s better than having only one that costs you an arm and a leg. The multiple SIM argument also doesn’t apply to several non-European countries, notably the U.S. Surely few Americans are carrying around Canadian SIM cards to take advantage of our local rates when roaming.

9. High prices are keeping smartphone penetration down. McTaggart wrote, “The fact that Canadians are adopting smartphones at higher rates than in the U.S. or Europe contradicts Mr. Nowak’s claim that high prices are keeping smartphone penetration down.” I don’t think I said that. I have said that high prices historically have kept overall wireless penetration down. The accelerating growth of smartphone adoption does seem to suggest that prices have finally come down to the point where such devices are now finally within reach of most people. Like I said above, the high growth rate is also not likely a sign that Canadians are somehow special, but more likely that we’re late to the game.

There’s little doubt that the wireless market has become more competitive in the past few years. But it’s hard to attribute that to anything other than the arrival of new entrants and their aggressive pricing. Would smartphone adoption be motoring along if they hadn’t come along? It’s hard to say, but given how behind Canada was before they did, there’s no reason to expect that the situation would have been the same.

10. Boiling blood. In his conclusion, McTaggart wrote that a Halifax Chronicle Herald editorial made “our blood boil” by saying that Canadians have “the highest average wireless bills and among the highest roaming charges in the world, more competition can’t arrive soon enough.” I can’t comment on the roaming rates – they certainly feel high, but I haven’t seen any data comparing against others one way or the other – but the proof of the highest bills is irrefutable. That’s what ARPU is, and it bears repeating – it’s the size of the customer’s bill, and at the end of the day it’s the biggest in the world in Canada. Telus’s blood doesn’t boil when its executives brag about that fact to analysts on conference calls, but customers certainly do get irate when they get their bills every month.

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15 Comments

Posted by on April 11, 2013 in telecommunications, telus

 

15 responses to “Debunking yet another set of wireless myths

  1. Frank Campbell

    April 11, 2013 at 10:02 am

    A very good rebuttal, Peter, but i wonder if your points and intended outcome is not lost on the fact that they are not listening for any other reason than to find the slightest crack in order to insert biased useless stats to keep the public and political forces confused. When I read what makes his ‘blood boil’, then I see the path your writings should take in order to accomplish your endgame.

     
  2. Bent Over As Far As I Can

    April 11, 2013 at 10:19 am

    Where do I start? As a Rogers customer in far west Ottawa let me tell you about why I personally feel — correction — KNOW that I’m being gouged.

    When I got my iPhone 4 in 2010 my service was pretty decent. I got 3-4 bars of 3G and could use my iPhone in tether mode to easily continue working when my Rogers cable Internet connection failed. I could leave my phone connected to the computer to charge and sync. No more.

    Now I’m lucky to get 1 bar of Edge — near a window. Just three metres away from the window I get No Signal. I can walk around my entire neighbourhood for 20 minutes and never establish a data connection. If I leave my phone near the computer, because it’s on Edge, it chirps maddeningly through the computer speakers. I have to move the phone away from the computer. With the almost non-existent service and the chirping, I can no longer tether.

    I’ve had many people in my home, also on Rogers, whose phones also have weak to non-existent service. Different models, different brands.

    Last September I was so frustrated by the situation that I called Rogers tech support. A nice woman called back and left a voice message saying [emphasis mine], “… our technicians have previously investigated that area and confirm that it is a KNOWN weak area for coverage and the ONE tower has high voice and data usage so congestion might happen which can also affect the coverage. They are trying to expand coverage in the area by getting a NEW TOWER built. We don’t have any timeframe when this will be done because it’s still in the planning stages.”

    The City of Ottawa was forecasting high population growth in my area for years and the buildup was starting. Three years ago. So why is it that Rogers to this day hasn’t addressed the problem?

    Not trusting Rogers, due to past dealings with them, I called the City of Ottawa last September. They said that Rogers had not applied for any new cell tower in my area for two years prior to my call. Rogers lied to me.

    Yet, even though Rogers admits the coverage in my area is bad, they will not lower my bill and will not let me out of the contract. They have let service deteriorate until it’s almost unusable in my neighbourhood. So yeah, it’s easy to make windfall profits when you lock people into contracts so that they can’t use their existing services, can’t go to Bell (who has a tower I can see from my home), and don’t invest in infrastructure.

    So I call bullish*t when the telecartels complain about the large geographic area they need to serve. They’re not adequately investing in the capital city of Canada!

    Because I’m in far west Ottawa and travel even further west, I cannot use companies like Wind as I’m outside their core, which means I’m always roaming. So no, there is NO choice for me but the big three.

    I could tell you other horror stories about Rogers, but I haven’t got time to write a novel. When my contract is up in July, for the first time since the early ’90′s, I’m looking at going without a cell phone or switching to a prepaid.

    Let me close by quoting to all the telecartel CEOs what a wise man once said regarding customers’ view of companies, “You are what you are perceived to be. It does not matter what you think of yourself, only what your customers think of you.” The majority of Canadians perceive that they are paying high prices for poor service. The majority of those people are right.

    P.S. There is a sign hung in the boardrooms of Bell, Rogers, and Telus that says, “If our customers don’t hate us, we’re leaving money on the table.”

     
  3. Tom

    April 11, 2013 at 10:56 am

    Their point about “3. Low churn means happy customers. ” really makes me laugh.

    First, there are no companies in Canada more disliked (and often hated) then the big 3. By a mile.

    They keep customers, not by addressing the sources of that hatred, but via sly maneuvers like the pseudo 3 year contract. They rather admit that your phone is paid off after 2 or 2.5 years by offering you a new phone and contract during the last 6 months or a year, though they force you to stay for the full 3 years.

    This means that at the end of your contract, when your phone seems ancient compared to your friends, you must swallow your hate and stay with your carrier to get a new phone. (or keep waiting, which consumers are not very good at).

    Surely there are no other countries that engage in such slimy manipulation? Surely this is anti-competive?

     
  4. Tom

    April 11, 2013 at 10:59 am

    Regarding ’5. Big geography means higher costs.’

    I’ve never understood this point. If you look at a cellular coverage map you can see that coverage follows population, not goegraphy. Same as in any other country. The large unpopulated, and minimally populated areas of Canada simply don’t have cellular coverage.

    And, as you wrote, the cost of building the network is taken into account in ARPU anyway.

     
  5. Serge

    April 11, 2013 at 11:20 am

    Regarding 8, can you explain your chart? I don’t understand what it is trying to show. The legend says ARPU times Penetration. Do you mean that you multiplied each country’s ARPU figures by its overall penetration (e.g. by 1.75 for Finland, or 1.61 for Austria)?

     
    • Peter Nowak

      April 11, 2013 at 12:18 pm

      Correct. So if you take Australia’s 133.9% penetration and multiply it by its ARPU of $46.03, you come to $61.63. Canada, being the only country with sub-100% penetration, doesn’t take any multiplier.

       
  6. Brian

    April 11, 2013 at 3:57 pm

    VoIP, I would say is a very bad word in Canada to the big ’3′ Monopoly ! If people knew if they could get high-speed access in there homes. To be able to use VoIP, home-phone-services over there internet. They would be saving $900.00 dollars a year, The new 4G Lite I say will be set up when it comes around. Will not support VoIP, as the same as wireless xplornet in the country. The big boys which is most of the providers today in Canada. Them so called robbers don’t want the people to know anything. They sure did not give the people anything back when taking away ‘ free-to-air-TV ‘. Now that they have so much money, they want as much of the 700 Spectrum airwaves for as cheap as possible. The Canadian that fought off all the takers against us, is being mocked in todays Canada. Who is going to say ( enough is enough ), we want our rights as the people of this land. We don’t need the crap to continue, we are better then them blind asses that are running the show.

     
  7. Peter

    April 11, 2013 at 5:07 pm

    Living in (near) Bogota Colombia and just got a Pay A You Go unlimited Data plan for $25 000 COP (divide by apprx. 1800 for USD) per month. Stated average speed @ 2.5G – not 4g not even 3g really – but damn cheap!! 1 minute cost 250 COP (I won’t do the math there!) but I could get 300 minutes plus unlimited data PAYG for $55 000 COP per month………. Canada is getting ripped off. Period.

     
  8. Bob Computeers

    April 11, 2013 at 11:39 pm

    @ Peter Novak
    Thanks once again for taking the time to show how badly we are being treated. Just one small point about smartphone adoption that may or may not have a bearing. Canada was very very late in the uptake of GSM wheras most other countries were light years ahead and IMHO probably adopted as many as 4 years ahead of Canada. maybe a factor in support of your “catch up” theory.
    I know that when I first came to Canada I could not use my unlocked devices as I was told at the time that they were “too advanced”

     
  9. CharlieF

    April 11, 2013 at 11:42 pm

    SENDING texts used to be $0.10 and FREE to receive.
    Now it’s $0.30 to send, and then $0.30 to receive.
    Double dipping, price gouging, rip off.

    Local calls go to a tower, then via land cables, then to another tower. What’s the difference between doing in the same town and another town past? There’s a ‘LD’ charge for that?
    Double dipping, price gouging, rip off.

    I have one of those grandfathered UNLIMITED mobile browsing addon (the non-data version). It costs $7/month, no tethering, 2.5G speeds. I can go on ANY website, use google maps, stream youtube, etc. Yet, their current data plans are like $5/500mb or $5/100mb. I basically pay more for less.
    Double dipping, price gouging, rip off.

     
  10. Katie Gajdacs

    April 12, 2013 at 10:39 am

    I am in Toronto and with Mobilicity. Even though in my office near the computer I have bad connection, but 45.00 dollars a month including tax, all free North American calls unlimited calls while I am in Toronto, and data beats a crap out of the big 3. I have always bought my phone, so I would never sign with any of those companies. It is so much cheaper to buy your phone and go with the cheapest carrier. I am with Mobilicity for about 4 years, never regretted it. I cancelled Bell at home, so 45 dollars bell bill, 170 dollars Rogers bill for me and my husband with 100 minute Canadian calls, went down to 80 dollars for the both of us unlimited calls.

     
  11. Bent Over As Far As I Can

    April 12, 2013 at 10:47 am

    If you compare the coverage maps of Mobilicity and Wind Mobile against the big three there’s no contest. Even though I live in Ottawa, neither of those services covers my area except in roaming.

    However, Rogers claims to cover my area and my service is almost unusable in my neighbourhood. Sure, they can put up a tower, provision it for 5 people instead of the 30,000 in the area and claim they provide service. That’s the Rogers way.

     
  12. Amanda

    April 12, 2013 at 2:24 pm

    I’ve never tried bell or Telus but I was a customer of Rogers for several years and they are stupidly expensive. Most of the time for me they couldn’t even justify the the added expense on my monthly bill. I had the most basic plan that was supposed to cost 35 bucks a month and I didn’t ever have a bill under 100 bucks. Whenever I called they couldn’t explain the charges cause we barely ever used the darn thing. I got nailed with long distance charges when calling my husband at work (And he works 15 minutes up the road). We had to call several times and complain to get it fixed.

    And once he went on a road to his brother’s wedding. He took the cell phone and drove from Barrie Ontario to Texas. He turned his phone off after he crossed the boarder and kept it off almost the entire time. He called me every night for the first 3 days to let me know he was alright (Each calling not even lasting 5 minutes) and on schedule and than would turn it back off. He texted me twice from texas and that was it. We got nailed with a 700 bill than month and 500 bucks on the next bill. Both were for roaming fees.

    And when we finally cancelled our plan and bought out our contract we set up a payment plan with rogers and paid off a bit every month. Took us 4 months to pay it off and 2 months after it was fully paid I got a call from a collection agency claiming I never paid Rogers. Luckily I had all my payment information saved and on record from my bank so I basically told them I had the information to prove I paid and they can go screw themselves.

    And Rogers full out lies to customers just to keep them. My mother and father in law live in an area where they get no service. Every year they call and complain and every year Rogers tells them they are going to be putting up a tower in the area next year. Its been about 5-7 years now and still no tower and when you bring that up to someone than the person you spoke to the year before had their information wrong.

    Having no cell phone can be a bit of an inconvenience but I find that keeping that extra 100 bucks in my pocket is worth it.

     
  13. Brian.

    April 13, 2013 at 1:16 am

    Very nice answers, plainly put all the truth by far. I send my M.L.A. a link to your writing here. Love reading all the truth that everyone faces. I say that the 3 robbers will not put up towers because then maybe the little providers will be able to supply the needs of the people. When did the people become the trash of a business giving services to all?
    Years ago you went into a store where the owner looked after all your needs. They were supplying a service for the people, not to fill there pockets with your hard earned money. There needs to be big changes for all. Why pick on the people with wireless needs, these things don’t happen to people with cable internet.

     
  14. Zoe

    April 19, 2013 at 8:33 pm

    great put up, very informative. I’m wondering why the opposite experts of this sector do not realize this. You must proceed your writing. I’m sure, you have
    a huge readers’ base already!

     
 
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