ECD Broadband Stats: Canada Should Be A Remote Island

Another day, another study showing Canada sucks as far as telecommunications is concerned. Wait a minute… I used that same opening last week. Why is this becoming a habit? Maybe because it’s true?

The Organization for Economic Co-operation has released its latest broadband comparison numbers and – surprise, surprise – Canada continues to slide on the international stage in just about every measure. In the key ranking of fixed “penetration,” which is ultimately a measure of how many people in a country are willing and able to pay for a wired broadband connection, Canada continues its descent into mediocrity by placing 12th out of 31 countries (table 1d). Only three years ago, Canada was hanging on to the top 10, while a decade ago the country was sitting pretty atop the rankings. At this rate, it’ll only be a few years before we’re slumming it at the bottom with the Mexicans and the Turkish.

Things are worse on the wireless side. Despite all the bragging by wireless carriers about how they have some of the most advanced networks in the world, Canada sits near the bottom – at 22nd – in terms of wireless broadband subscribers (same table as above).

As Michael Geist noted the other day, things are also pretty woeful on the pricing side: Canada ranks 28th out of the 33 countries for which there is data.

Of particular note, given all the recent drama about usage-based billing, is table 5j, which shows the prevalence of bit caps – or monthly usage limits – across the developed world. The OECD studied available broadband plans and found unlimited service was impossible to get from major ISPs in only four countries: Canada, Australia, New Zealand and Iceland.

One of those things is not like the others… as in three of those four countries are fairly isolated islands far removed from other large land masses and are considerably more limited in their bandwidth options. The other country is right next door to the world’s biggest internet economy and is flush with bandwidth connectivity. Guess which is which?

Moreover, 21 of the OECD countries have no explicit bit caps. Translation: unlimited internet usage is common in every developed country that isn’t way out in the ocean. And Canada.

Are there flaws with the OECD statistics? You betcha. The United States, for example, is counted among those countries with unlimited usage despite the fact that Comcast, one of its larger ISPs, has had caps of 250 gigabytes for some time now. Perhaps OECD statisticians count 250 GB as pretty much unlimited? Who knows? The point is, even with a liberal margin of error, Canada doesn’t look too good.

If alien visitors from another galaxy were to judge Earth’s geography based solely on broadband stats, they would have to assume that Canada floats out in the middle of the ocean somewhere. Too bad it’s not as warm here as it is in Australia and New Zealand.

The Future May Be Friendly, But The Numbers Aren’t

The debate over wireless prices in Canada is raging hot and heavy, largely because Telus has decided to re-open that established, old can of worms again. Last week, the company engaged in a full-court press to try and convince the public and the media that things are just fine here and that no further government or regulatory intervention is needed, nor does Canada require the likes of U.S. carrier Verizon to come in and shake things up.

In making their arguments, Telus executives – including chief executive Darren Entwistle – served up some curious numbers, including a claim that the company has invested more than $100 billion in Canada since 2000. We’ll look at some of that data below, but first, there are really only two figures that matter in this whole debate. The image above shows where Canada rated in those two measures in the first quarter of 2013, according to the newest edition of the Bank of America Merrill Lynch Global Wireless Matrix.

Why do those two numbers matter? The first – average revenue per user (ARPU) – is the size of the typical customer’s bill at the end of the month. There’s some debate over how and why it’s so high, but obviously, it’s the highest in the world.

The second number is how much profit – or earnings before interest, taxes, depreciation and amortization (EBITDA) – Canadian carriers are pulling in after paying their expenses. EBITDA doesn’t account for how much a wireless carrier has spent on building its network, but it does factor in all the other costs associated with selling services over it.

The full charts on both these measures are at the bottom of this post, but as is clear, Canadian carriers are almost unmatched in how much profit they’re extracting from their businesses (only Italian and Portuguese carriers are getting more).

In his PR offensive, Entwistle has been saying that Canadian carriers are investing more in their networks than just about anyone else. That’s somewhat true. According to the just-released Organization for Economic Co-operation and Development’s 2013 Communications Outlook, Canada ranks well – fourth overall – in telecommunications investment per capita:

However, Entwistle is wildly overblowing just how much Telus itself is actually spending. He’s quoted in a post last week on the company’s public policy blog as saying:

When you consider that Canada’s wireless subscribers, spread out over our vast and challenging geography, pay about the same prices as people in much more densely populated countries and yet have access to more national LTE networks than people in any other country – it really is remarkable. TELUS alone has invested $100 billion in Canada since 2000 to make that a reality.

How he arrives at that $100 billion figure is a mystery. According to a slide from a Telus presentation at the 2012 Telecom Summit, the company’s total capital expenditure – the money it spends on building and maintaining networks – is a fraction of that:

Since 2005, Telus has spent about $15 billion on capex, or less than $2 billion a year, with roughly a third of that going to wireless. Either the company spent $85 billion between 2000 and 2005 (extremely unlikely), or Entwistle is including the cost of PR, government lobbying and advertising. Whether or not that should count as “investment” is up the individual observer to decide.

What the wireless companies aren’t talking about is why they’re investing. The current spending by Bell and Telus on fourth-generation Long-Term Evolution networks is a direct response to their bum investment decisions years ago on CMDA wireless technology, which ended up losing out to GSM, or the standard that Rogers went with.

They’re now catching up and leap-frogging to the next technology, which is of course logical. Carriers in other countries, meanwhile, now find themselves behind because they previously invested heavily (and correctly) in GSM. They too will inevitably soon crank up investment to catch up, perhaps leap-frogging to 5G, at which point Canadian carriers will look like laggards once again. It’s the circle of life, wireless style. Unlike what Entwistle wants people to believe, there’s nothing special about it.

The question then, is why is Telus in particular putting up such a fight? In editorial board meetings with several newspapers last week, the company’s CEO essentially pleaded with the government to “level the playing field” and not give new wireless entrants – aka Verizon – any special benefits in the upcoming spectrum auction. Bell and Rogers seem to have just as much to lose, but so far they’re being pretty quiet about the Verizon spectre.

There’s a good reason why Entwistle is specifically agitated – he knows the U.S. carrier better than most. The company, after all, used to own 20 per cent of his company. Odds are good that the Telus CEO still has Verizon executives on speed dial, and that he’s made calls to see how serious they are about Canada. If he’s making a very vocal show of opposing the whole thing and effectively begging for the government’s mercy, that’s a strong sign that Verizon is indeed very serious about coming north. One insider who is close to the negotiations between the carrier and its takeover targets – Wind Mobile and Mobilicity – told me the other day the likelihood of its entry is about 70 per cent.

If Verizon does indeed come to Canada and takes part in the January spectrum auction, it will have a big advantage over Bell, Rogers and Telus that will in fact re-align the industry. As per the rules, new entrants – which Verizon qualifies as – will be allowed to bid on two of four blocks of spectrum nation-wide. With no real competition for these blocks, the U.S. company will scoop them up, leaving the remaining two to be squabbled over by the incumbents. The problem is, there’s three of them.

The nature of Bell and Telus’s network-sharing agreement, the insider says, is that they must both deliver spectrum to it. Both companies therefore have strong incentives to acquire those two remaining blocks; if one or the other comes up short, the network-sharing agreement will be thrown out of whack, meaning one company could either get more control over the network or the other would have to regularly start paying big bucks to make up for its shortfall. And what of Rogers? The company isn’t exactly going to sit back and allow itself to be shut out.

So yes indeed, when Entwistle speaks of a “bloodbath,” he’s right – there’s going to be fierce competition in the auction between the Big Three, which means they’re going to have to spend a lot of money.

That ultimately brings us back to the big two numbers above. Verizon, if it does indeed enter Canada, is going to force both of them down. As the challenger, the company will offer better prices and deals, which is good for consumers. The Big Three, meanwhile, are going to be forced to spend more and to rake in less, which is bad for them.

One last thing – Entwistle, in the blog post, said that report after report finds that Canadian wireless pricing “is extremely competitive.” Unfortunately, that’s not even remotely true. Over the weekend, the Canadian Internet Policy and Public Interest Clinic looked at the effects on pricing of the new three-year contract ban in comparison with other countries and found that in all cases, consumers here are getting hosed:

Perhaps somewhat shockingly, U.K. customers pay less money to O2 ($1,946.04 CAD) for three years of service than Canadians would have to pay Bell or Rogers for the same phone and the same service for two years of service ($2,321.28 & $2,272.99, respectively), and pay less up front for the associated handset that comes with the plan.

Moreover, here’s where Canada ranks in pricing across a number of service examples in the OECD’s Communications Outlook. I’ve thrown in wired broadband, just for kicks:

It’s amazing that Canada rates near the bottom of every measure, isn’t it? Telus is fond of saying that “the future is friendly.” If that’s true, I’d hate to get on the future’s bad side.

(Here are those full ARPU and EBITDA numbers, from the Merrill Lynch Wireless Matrix, for anyone’s who interested:)

New Telus Plans: The Good, The Bad And The Ugly

Telus is the first of Canada’s big three wireless carriers to officially unveil new pricing that will reflect the upcoming CRTC ban on three-year phone contracts. There’s good news and bad news to be found among the new plans.

Let’s start with the bad news. As predicted, the repricing means some pretty stiff hikes for any new customers (existing subscribers can continue on existing plans). With the CRTC effectively limiting wireless contracts to two years starting Dec. 2, carriers are having to sharpen their pencils and figure out how to extract the same amount of revenue (or more) from customers over that shortened period.

Bell and Rogers are expected to release similar re-pricing over the coming days, but more on that in a minute.

The image below shows Telus’s new plan options, effective July 30:

The minimum on-contract plan, with unlimited nation-wide talk and text and 250 MB of data, will thus cost $70. That’s a huge premium to Telus’s current minimum plan, which goes for $45. It’s actually 55 per cent higher.

On the plus side, customers will get a lot more for that 55-per-cent premium: minutes go up to nation-wide unlimited, from 200 local, and there’s an extra 100 MB of data included. But still, the increase will push a lot of lower-spending would-be customers into the relative stratosphere, meaning that price-conscious people are probably now effectively going to be priced out of being Telus subscribers. They’ll have to look elsewhere – perhaps the company’s flanker brand Koodo, which has also revised its prices, or the likes of Wind or Mobilicity.

Things are a lot more expensive at the higher end too. Under the old plans, the most expensive combination offered 1,000 local minutes and 6 GB of data for $110. The same data allotment with the only available talk and text option will now run $155, with the most expensive plan – which provides 10 GB of data – going for $205.

So what about the good news? Well, since these increases are ultimately tied to the subsidies that Telus gives subscribers on their phones, the plans will be considerably cheaper for those who don’t need them. If, for example, you pay the full cost of your iPhone upfront and effectively BYOD (bring your own device), your monthly bill will be $20 less. That creates a good deal of clarity on exactly what kind of subsidies Canadians are actually getting: according to Telus’s pricing, over a two-year span the subsidy amounts to $480.

It’s worthwhile to note, however, that even if you are BYOD’ing, you’re still going to pay more: the new minimum plan will cost $50, or $5 more than the existing minimum plan. Sure, there’s the extra minutes and data, but this is a clear case of Telus taking the opportunity to raise prices – and therefore average revenue per user (ARPU) – across the board. It’s a pretty strong counter-point to those arguing that high ARPU doesn’t necessarily reflect high prices.

Also, the other shoe – as in what customers will be paying upfront for their phones – has yet to drop. The smart money is that those prices will also be going up, although a Telus spokesperson tells me “that customers do prefer the low upfront cost of a device, so with that in mind device pricing will only change moderately.” The guys at MobileSyrup estimate this will be in the realm of $20 to $30.

MobileSyrup is also reporting that Bell will in fact be the first of the big carriers to actually enact new pricing, starting July 17. According to leaked documents, phone prices will also be going up and Bell will be offering three kinds of plans: voice, voice and data lite, and voice and data plus:

The basic Voice plans will be available in $30, $40 and $50/month offerings and give customers a various number of text and minutes from 200 to 1,000 minutes per month. The Voice and Data Lite plans range in price from $45 to $60/month and gives unlimited texts, 200 and unlimited calling, plus upward of 1GB data. The cost of the Voice and Data Plus are “for customers who use large amounts of data” and will be available from $60/month to $100/month, plus basically give unlimited calling, texts and 5GB of shareable data.

One reason to doubt the leak is that, if true, Bell’s plans might actually be heading downward. The company’s existing $60 plan, for example, gives subscribers 1,000 minutes and only 500 MB of data. The new $60, as per the leak, would bump that up to unlimited voice and 1 GB, which currently costs $70. Here are some of the old plans:

If the leak is accurate, there is the possibility that Bell is going in a different direction and will charge significantly higher upfront prices on phones rather than raising rates. But that seems unlike Canadian carriers, who tend to move like wildebeests: in the exact same direction. Telus is obviously going with one-size-fits-all pricing on voice and text, while Bell may be preserving choices. It doesn’t look like customers would get as much value with Bell – the new $60 plan, for example, would offer 1 GB of data and unlimited local calling as opposed to nation-wide – but they will have more options, which could ultimately be cheaper than Telus.

Rogers has been quiet so far on its plans, although a spokesperson told me the company will soon be announcing new offers as well.

The real good news is, now that the distorting influence of three-year contracts is on the way out, apples-to-apples price comparisons can be made and Canadian prices can in fact be judged against those in other countries more easily. MobileSyrup’s Dan Bader did just such a comparison with Telus and AT&T in the U.S., to find that the Canadian carrier is generally cheaper, except on the high end:

Of course, that brings us back to the bad news – or perhaps the ugly news, as it were – which is that the U.S. wireless market is not exactly one to aspire to. More to the point, as the latest Communications Outlook from the Organization for Economic Co-operation and Development reports, Canadian prices rank poorly by just about every measure.

As University of Ottawa professor Michael Geist puts it in his take of the report, “Canada ranks among the ten most expensive countries within the OECD in virtually every category and among the three most expensive countries for several standard data only plans.”

Telus had its own take on the findings, trotting out some rationalizations – including geography, population density, multiple device/SIM card ownership in other countries, and supposedly high Canadian usage – that I’ve spent a good deal of digital ink poking holes in (here and here and here). In between taking potentially defamatory shots at Geist and his alleged “vested interest,” Telus’s senior vice-president of government and regulatory affairs Ted Woodhead points out that despite all that, “Canada really SHOULD be the most expensive country for wireless service in the OECD, but we’re not. That’s a great success story we should be celebrating.”

All of this ought to give new Industry Minister James Moore, who is thankfully replacing the invisible Christian Paradis in that role, some good food for thought during a key time in Canadian wireless. The next few months will likely see the industry transformed, if U.S. carrier Verizon does indeed enter the country as a hungry challenger. The good news is, if that does come to pass, some of these higher prices being announced may just be a temporary thing.

Heavy Usage Not The Cause Of High Wireless Bills

In debating whether or not Canada has high wireless prices, carriers have over the years jumped from one rationalization to another. Simply put, Canadian carriers reap the highest average revenue per user (ARPU) in the world, at $60.79, according to recent figures from the Bank of America Merrill Lynch Global Wireless Matrix.

In the past, carriers suggested the ownership of multiple SIM cards in other countries was distorting that figure to make Canada look higher than actual reality. In Europe, for example, it’s common for people to carry two or more SIMs in order to take advantage of different countries’ roaming rates.

There is some truth to that, although even when multiple SIMs are factored in, Canada still rules the roost. Austrian carriers, for example, post an ARPU of only $21.17 and a world-leading cellphone penetration rate of 175%. If every Austrian cellphone user is therefore considered to have 1.7 SIM cards, the total amount he or she pays per month is still only $35.98, or well below Canadian ARPU.

The latest rationalization is that rates aren’t high, Canadians simply use their phones more, which results in more revenue. Looking at the numbers, which can essentially be broken into voice and data, that claim also doesn’t wash. Let’s start with minutes. Here’s a handy chart from the Wireless Matrix – I’ve included a number of developing countries, and I’ll explain why shortly:

So yes indeed, according to those numbers, Canadians do appear to be big talkers. But hold on a second – there are a few caveats. For one thing, Canada, the United States and Singapore are the only countries in the world where carriers charge for both incoming and outgoing calls, which inevitably inflates the minutes of usage. Not surprisingly, all three countries are at the top of the usage list. The real leader can in fact be considered China, which uses the same calling-party-pays system that the rest of the world does.

It’s hard to guess at how many minutes Canadians would use if they didn’t have to also pay for incoming calls, but it’s incorrect to claim they’re voluntarily using more.

If the rate-per-minute is looked at, it’s clear Canada is actually toward the more expensive range of the developed-world spectrum. In the U.S., where cellphone owners use nearly triple the minutes of Canada, the rate-per-minute is just about nothing, which is why it doesn’t even register in the Wireless Matrix:

Turning to the data side, we have to look at some different numbers since the Global Wireless Matrix doesn’t track monthly usage. Cisco’s Virtual Networking Index does, although the downside there is that it only tracks 20 countries, half of which Bank of America Merrill Lynch considers to be emerging markets (that’s why I included them in the voice comparisons).

Here’s how much data mobile subscribers used per month in 2012, according to the VNI:

According to those numbers, Canadians are indeed using a lot of data, but they certainly aren’t world leaders – four countries use more. Data usage is arguably becoming more important than voice usage, and it makes up a higher percentage of carriers’ ARPU in at least three of those countries: Japan, the U.S. and UK (the Wireless Matrix’s information on Korea is incomplete). Yet all three of those countries have lower total ARPU than Canada, which proves one thing: they have cheaper data.

The most instructive comparisons naturally come from the most similar countries. Here’s a side-by-side look at the advanced countries that are also leaders in usage, particularly in data:

The most telling fact from this comparison is that the United States – the most comparable market to Canada’s – has higher data usage and much higher voice usage, yet ARPU is 16% lower.

Isn’t that because the country is so much bigger, so carriers can afford to charge less?

That rationalization might fly if it weren’t for the U.K. and especially Australia. The U.K. obviously has a bigger population than Canada, although nowhere near as big as the U.S., but data usage there is higher while ARPU – also know as the bills subscribers pay at the end of the day – is less than half of Canada’s.

Australia is closest to Canada in terms of both data and voice usage, yet customer bills there are lower by a third. And oh yeah, so is the population.

To summarize: Americans (in their big country) use their phones more than Canadians for both voice and data, yet their bills are 16% lower. Australians (in their small country) use their phones just about the same as Canadians, yet their bills are 32% lower.

Conclusion: Canada’s world-leading per-user-revenue is not supported by multiple SIM cards, smaller population or heavier usage, despite claims to the contrary. To paraphrase Sherlock Holmes, once the improbable has been eliminated, whatever remains must be the truth. In this case, it’s that Canadian wireless prices are indeed high.

Wireless Carriers Are Begging For It With Rate Hikes

In case you haven’t heard, all three of Canada’s major wireless carriers are raising the rates on their plans, all coincidentally by $5. It’s hard to figure out which department to file this one under: it could go under “Are You &$%$# Kidding Me?” or “Oligopoly 101,” but it most likely qualifies for “Digging Our Own Graves.”

Telus, which recently announced it was quitting the Canadian Wireless Telecommunications Association lobby group, was the first to strike, with leaks in January basically informing the other two of what the acceptable fee increases would be. Bell and Rogers of course followed Canada’s “uncarrier” (chortle) and now all three are moving in unison.

This marks the second major fee increase since the summer, when the Big Three all simultaneously brought in hikes to coincide with the elimination of three-year contracts.

Why is this happening? It’s very simple, really: the new entrants are dead, and so is competition. Public Mobile has been bought by Telus, Mobilicity is under creditor protection and Wind is being left to wither on the vine by its Russian owner Vimpelcom (neither of those last two companies bought all-important new spectrum in the recently concluded auction).

The one potential challenger that did buy spectrum in that auction, Quebecor, isn’t just being coy about whether it will actually use it, the company is also now in a state of flux since its chief executive Pierre Karl Peladeau just declared himself a separatist.

Things haven’t looked this dark for the Canadian wireless consumer since both Clearnet and Fido were taken out by the Big Three more than a decade ago. The government’s claims of lowering wireless prices over the past few years, if they were ever true, now look laughable. Any gains made since 2008 have been erased in a matter of months.

For consumers and industry observers, this is exasperating to say the least. For the government, it must be infuriating. At a time when they should be walking on eggshells, the carriers are instead thumbing their noses at Ottawa.

Dumb, dumb, dumb. When you ask to get nailed, sooner or later the hammer comes down.

Debunking The Wireless Myth Busters, Redux

Last week, I made an effort to investigate some of the findings of a recent Scotia Capital report, which itself sought to dispel some of the alleged myths pervading the Canadian wireless market. Some of my conclusions were based on slightly older numbers, taken from a 2011 version of the Bank of America Merrill Lynch Global Wireless Matrix. Since stats such as revenue and profits don’t change that quickly over the course of a year, I felt it was okay to use those numbers.

I’ve since acquired more recent data, as of the third quarter of 2012, which paint a much more accurate and up-to-date picture. BofA’s Global Wireless Matrix is something of a bible for the wireless industry, packed with thorough statistics on virtually every carrier in 50 developed and developing countries. The regular report is the most accurate measure and comparison of wireless carriers around the world, which is probably why the Canadian industry and its allies don’t want the public to see it. The report details just how well they’re doing and does much to prove that Canadians are indeed paying high prices.

The whole document is too bulky to post, but here’s a PDF of the key comparison chart. I’ve also pared the data down into some easier-to-digest charts to compare specific key metrics. Let’s start with penetration:

It’s no secret Canada has always been behind in overall cellphone penetration. The Matrix confirms that Canada is dead last among 21 developed countries, at 78 per cent. Only four countries in the entire Matrix have worse penetration: Bangladesh, India, Pakistan and Nigeria.

However, the story that has been propagated by carriers and a few other studies, such as comScore, is that Canada is among the world leaders in smartphone adoption. That’s clearly not the case according to the BofA numbers, with Canada’s 37 per cent penetration actually ranking below the developed world’s average of 38.9 per cent.

What those other numbers (and boasts) likely measure is the percentage of cellphone users who are actually smartphone users. Carriers here might be doing well in converting the first into the second, but the fact is, overall there just aren’t that many Canadians using smartphones as there are in other countries.

One of the myths (#7) the Scotia Capital report aimed to disprove was that Canada wasn’t really behind in wireless services. The report instead claimed Canada was ahead of the U.S. in smartphone penetration and had outpaced its growth over the past two years. The growth claim is correct, according to BofA’s numbers, but the U.S. was slightly ahead at 39 per cent penetration, proving Scotia Capital incorrect.

Why is Canada lagging in both overall and smartphone penetration? High prices have been identified and accepted by the government as the main problem. Here’s how carriers stack up in terms of revenue numbers:

The story here is clear. Canadian carriers lead the world in terms of monthly average revenue per user, at $60.79. That’s 16 per cent higher than the United States ($51.61), 32 per cent higher than the developed world average ($43.79) and 76 per cent higher than Europe ($27.02). Moreover, as the graph on the right shows, Canada is only one of four countries seeing ARPU growing. Cellphone bills almost everywhere else are going down, which is probably what they should be doing given that wireless serviceis a technological product, and technology is subject to Moore’s Law.

The Scotia Capital report claimed this high ARPU was the result of more people using smartphones in Canada, not high prices, but as the first chart above shows, that’s not true. The chart below confirms it. At 38 per cent, Canada is in the middle of the pack in terms of how much of customers’ bills are coming from data and below the developed world average of 42 per cent.

The above chart also shows that Canada is on the low side of churn, or how many customers defect to other carriers, which is indubitably the result of three-year contracts. The countries with the highest churn rates are typically those with the strictest contract and phone locking regulations (Belgium used to ban bundling phone sales with monthly service). They’re also the ones that typically come in low on ARPU comparisons, which indicates a strong correlation between high monthly prices and low churn. In other words, when customers are able to switch providers easily, prices and ARPU tend to be lower.

Lastly, we come to profit:

With a margin of 45.9 per cent, Canadian carriers come in at the high end of the most profitable list. They’re seven per cent more profitable than their American and European counterparts and five per cent more than the developed world.

Even more interesting is the fact that Canadian carriers had the third-highest year-over-year growth in margins (Spain is comparatively crushing it). Combined with ARPU growth, it’s clear that business is good in Canada. Incumbent carriers may have experienced a temporary hiccup thanks to new entrants such as Wind and Mobilicity, but things are obviously getting back to normal.

One of the myths the Scotia Capital report tried to quash (#4) was that the new entrants have had no effect on the market. While they definitely did have an effect, the numbers suggest they’ve done all they’re going to do. The report’s conclusion that regulators should “declare victory on the policies they adopted five years ago” when the new entrants were spurred into the market through special rules is therefore not correct.

It’s hard if not impossible to look at these key metrics and come to any conclusion other than Canadian wireless carriers are some of the most profitable around based on unmatched monthly revenues, which are coming directly out of consumers’ pockets.

Metered Internet A Colossal Failure

The final word on usage-based internet billing in Canada came down yesterday and it’s pretty much as everyone expected: so long unlimited internet, it was good knowing you.

The issue, in brief, if you’re not familiar with it: small internet providers lease the networks of big companies such as Bell and Telus to sell their own internet plans. But while the big companies like to set modest usage caps and charge extra for more, the smaller guys have been selling big buckets, if not unlimited. Bell asked our regulator, the CRTC, to allow it to implement those same caps on its smaller wholesale customers and, after much ado, the company got what it wanted. The small guys are therefore going to see their ability to offer unlimited usage buckets severely curtailed.

The CRTC did throw the small ISPs a bone yesterday – it gave them a 15% discount on whatever the big guys want to charge them for usage. By most accounts, that might be enough to keep some of the smaller ISPs in business, but it doesn’t give them much room to differentiate their services or make any actual money.

Interestingly, there was an op/ed in The Globe and Mail yesterday from David Beers, editor of The Tyee website. The headline pretty much said it: “A metered internet is a regulatory failure.”

I’d go a step further and suggest that by allowing this to happen, the CRTC has actually failed to do its job as enforcer of the Telecommunications Act and it has failed to follow the government’s 2006 policy direction.

The policy direction was an unusual set of marching orders that had never been made before because the government and the regulator were supposed to operate within arm’s length of one another. It happened because the industry minister at the time, Maxime Bernier, was a hard-core market purist and he wanted to de-fang the CRTC as much as possible.

Bernier, who I got to know through regular on- and off-the-record chats back in the day, believed there wasn’t a competitive problem that can’t be solved by simply having a free and open market. For the most part I agreed with him except – as I keep belaboring – we don’t have openness in telecommunications services because we have foreign ownership restrictions that act as a major barrier to market entry. Bernier knew that and wanted to change it, but he was shuffled off into a different job before he could make such a move (and then there was that whole disgrace with the biker girlfriend scandal, but that’s neither here nor there).

In any event, the government has stuck with Bernier’s policy direction for more than four years now and the CRTC has referenced it in pretty much every decision it has made since. Indeed, yesterday’s ruling concludes with a statement that usage-based billing is indeed consistent with that policy direction. I beg to differ.

The double failure is very simple, as it comes from the first points in both the policy direction and the Telecommunications Act. The government’s marching orders state the CRTC must “rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives.”

In the first instance, by allowing Bell and Co. to dictate the business models of smaller competitors, the regulator is in effect interfering with market forces.

Furthermore, the Act’s first objective is “to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions.” Its third objective is “to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications.”

The Telecom Act is a long and convoluted piece of legalese, but if we break it down to that first all-important objective, the question inevitably arises: Exactly how is cutting down or limiting Canadians’ internet usage safeguarding, enriching and strengthening the social and economic fabric of Canada?

We can argue ideologically till we’re blue in the face about how to achieve all the other goals of the Telecom Act and the policy direction – i.e. that allowing all comers to access incumbent networks cheaply is the best way, or that shutting the small guys down so the big guys have investment certainty is the best way, etc. – but that just muddies the waters. The first goal is a good one and the most important since it pretty much covers everything else.

In that vein the one point I think everyone, except perhaps the network owners, can agree on is that using the internet more, not less, is the best way to achieve the Act’s most important goal: the strengthening of the social and economic fabric of Canada. Ladies and gentlemen of the court, I therefore submit to you the CRTC’s first objective and policy direction failure.

What about the Act’s third objective? As the wise guys like to say: fuggedaboutit.

According to the Organization for Economic Co-operation and Development, Canada is only one of three member countries (out of 30) where unlimited internet service is practically impossible to find (see table 4G on the OECD’s broadband portal – it’s worth noting the numbers are from 2009, which means Canada is likely to look even worse now that we’ve got usage-based billing). Australia and New Zealand are the other two, and don’t even get me started on those countries. Having lived in New Zealand and covered this issue there, we should actually consider ourselves lucky here in Canada. As for Australia, it’s no surprise the government – at war with Telstra, its own version of Bell Canada – is spending billions on building its own internet access network.

The point is, unlimited or practically unlimited internet is commonplace in almost every other developed nation. Canada doesn’t sound too internationally competitive in that light, now does it? That, my friends, is the CRTC’s second epic failure.

There are many ways to interpret the Telecom Act and the policy direction, but the above two things are clear as mud: we’re being prodded into using the internet less, which is out of whack with what’s going on in other countries.

There are tens of thousands of Canadians who are fed up with this situation and their numbers are only going to grow as 2011 continues. Sooner or later, the government is going to have to sit up and take notice that the market, such as it is, is failing those Canadians badly.

Yes Martha, Wireless Prices Are Indeed High

“By gum Watson, high Canadian ARPU really doesn’t reflect usage!”

So many wireless studies, so many different conclusions? It’s no wonder people are confused. The cynic might think they’re all being done on purpose.

In the space of a week, there have been two separate reports suggesting that wireless prices aren’t so bad in Canada. The first came last week in the form of a study from Ottawa-based telecom consultancy Wall Communications, on behalf of Industry Canada and the Canadian Radio-television and Telecommunications Commission, whose headline finding was that cellphone prices had decreased (links to PDF) over the past year to the point where Canada finds itself “middle of the pack” among compared countries. The second was in the form of a Globe and Mail article by two University of Calgary professors, Jeffrey Church and Andrew Wilkins, arguing again that prices in Canada are low and that services are great.

Let’s start with the Wall study. The report grouped wireless subscribers into three categories based on monthly usage – low, medium and heavy users – and found that prices have declined for them by 11%, 13% and 5%, respectively, over the past year. New wireless companies, including Wind, Mobilicity and Public Mobile, offer prices that are lower by 19%, 14% and 39% across those respective baskets. In Wall’s view, medium users tend to compare well against other countries charted in the study, while low and heavy users are still coming in on the expensive side.

The study also looked at mobile data prices specifically, which found that Canadian prices fall on the high side of compared countries, and are highest of all once above five gigabytes a month.

Some of this runs counter to a report back in May from J.D. Power, which found that Canadians were paying about 13 per cent more for wireless service than they did a year previous. I spoke to Gerry Wall, principal of Wall Communications, about the discrepancy and he was at a loss to explain it, other than to say that different methodologies will turn up different results. It’s hard to say what methods J.D. Power used, but Wall’s findings do seem to closer reflect what has actually been happening, at least in big cities. While many may gripe that prices in Canada are still high, they’re at least somewhat better than they used to be.

The problem with the Wall report lies in interpreting it as comprehensive, because it isn’t. When the study says that Canada is “middle of the pack” in terms of pricing, that actually refers to only a very limited group of six compared countries: the United States, the United Kingdom, Japan, Australia and France. Three of those countries – Canada, Japan and the United States – are like the John Olerud, Paul Molitor and Roberto Alomar of wireless, in that they’re first, second and third in total monthly revenue gleaned per subscriber (points to anyone who recognizes the reference).

The U.K., France and Australia are more middle of the pack by that measure, according to the Bank of America Merrill Lynch Global Wireless Matrix, or the wireless industry’s bible. When additional countries are included in comparison – the Wireless Matrix compares 50, including 19 developed nations – Canada’s standing isn’t so middle-of-the-pack. Wall says he wishes he could include more countries in his comparison, but he simply isn’t given the budget to do so.

One of the other apparent issues with the report is which service providers are compared in those six countries. On the wireless side, the new Canadian entrants are included, yet down in the United States, only AT&T, Verizon and Sprint are counted. I asked Wall why this was – why weren’t smaller U.S. carriers such as T-Mobile and MetroPCS not compared? They generally offer better prices than their bigger rivals, so I wondered whether including them might might make the U.S. look a shade better.

He explained that the small Canadian players were included because his clients – the government and CRTC – want to see how they’re doing. But the results are weighted to market share, meaning that the likes of Wind and Mobilicity don’t actually affect the overall price results. “As a matter of aggregating them into the Canadian price index, the market share is so small that they’re really not material,” he said. That doesn’t mean they haven’t had a real effect on pricing – surely their very presence has forced the big incumbents to lower their prices somewhat.

Wall added that the same rationalization was used for U.S. carriers, as well as for comparisons on the wired broadband side. While big international internet providers such as BT, Telstra and Orange were compared, the likes of Tesco (the U.K. supermarket chain that sells dirt-cheap broadband), Free (France) and iiNet (Australia) were not. Most surprisingly, ISPs in Kansas City, Missouri were studied, but not Google Fiber, which is selling ultra-fast access relatively cheaply in that city. “When we do an index of prices, we want to do something that captures the price to the majority of people who live in that area,” Wall says.

(In case anyone was wondering, the study found that Canadian broadband prices compare favourably at lower levels, but are higher at faster speeds than all countries except the United States. Broadband prices have also come down 1%, 6%, 4% and 12% across the four service/speed tiers, although instinctively, I can’t see how that might true. While wireless prices have certainly edged downward, internet access has only gone upward.)

Getting back to the mobile comparisons, I’m not sure Wall’s explanation of the weighted averages makes sense, at least as far as the United States is concerned. While AT&T, Verizon and Sprint certainly do put significant weight on price indices with their respective 100 million customers (about 50 million in Sprint’s case), the smaller players can’t be discounted. T-Mobile has about 35 million subscribers while MetroPCS has about 9 million. Including them would likely move the U.S. needle downward somewhat.

Regardless of that, prices in Canada do indeed seem to have marginally improved over the United States. A basic plan from AT&T with 450 minutes and 300 megabytes of data costs about $60, while a comparable one in Canada from Telus (with much fewer minutes, but unlimited evenings and weekends) runs about $55. Which brings us to the Globe and Mail story.

Church and Wilkins again argue that prices are not necessarily the same thing as average revenue per user (ARPU), which is a measure that Canada leads the world in. They say that high ARPU is the result of high smartphone usage in Canada; with more people voluntarily using more expensive data plans, the ARPU that Canadian carriers are posting is naturally going to be higher.

I debunked that particular notion last month by using voice minutes from the Wireless Matrix and data usage figures from Cisco’s Virtual Networking Index. Church and Wilkins used the same numbers, but slightly differently in the case of data, to arrive at entirely different conclusions.

The Australian results are a good example. I got my numbers directly from Cisco, which stated that the typical Australian mobile data connection used 652 MB per month, which was almost exactly the same as the 656 MB used by Canadians in the same time frame. Australian voice usage was also close to Canada’s, yet ARPU was lower there by a third, indicating that prices are indeed lower in Australia.

Church and Wilkins, however, used Cisco’s online VNI, which lists very different results – sometimes dramatically so. In the case of Australia, the average mobile connection generated only 367 MB of traffic in 2012. Canada is similarly off, with each user posting only 536 MB of total traffic per month, as are many countries.

I asked Cisco for an explanation and it’s actually pretty simple. The numbers they gave me included data usage across all mobile devices, not just smartphones, which are naturally higher. “The average number of devices per user is higher in Australia, so users will spread their mobile usage among multiple devices, bringing down the per device usage average while maintaining a high per user average,” a spokesperson says. Those multiple devices can include smartphones, tablets, mobile sticks for laptops, but they all ultimately add up to the same thing: ARPU for wireless carriers.

Multiple devices complicate comparisons, but not terribly. Here’s a chart I put together back in April that factors the effect of multiple devices into ARPU. For those keeping score at home, I multiplied penetration levels – the percentage of a country’s population that has a mobile device, which in every case but Canada’s is above 100 per cent – by that country’s ARPU. Australia is actually the top dog here, but Canada still comes in at a comfortable second. Note that the United States – with its higher data usage and much higher voice usage – is still decently below Canada:

The conclusion here, as it was in my previous post on this subject, is that high usage does not explain high ARPU. As I said back in June, the Sherlock Holmes-ian answer is that when all other possibilities have been eliminated, the probable remains: Canada simply has high wireless prices.

Beyond that, I don’t actually disagree with the headline on the Globe article, which suggests that high prices are part and parcel of quality networks. The article argues that Canadian carriers have been among world leaders in spending on fourth-generation HSPA+ and LTE networks and thus have the quality to show for it. I can’t see why that’s not true, but I do have a problem with the premise as to why such spending has happened. It hasn’t been because of fierce competition, as the industry likes to profess, but rather because of technological reasons and some bad investment decisions that went with them.

It was only a few short years ago when Bell and Telus were getting pummeled by Rogers, thanks to that company’s chosen technology. Rogers, like most of the carriers in the world, went with GSM network technology while Bell and Telus opted for CDMA instead. Without getting technical, GSM won, and Apple put the exclamation point on the battle in 2007 in the form of the iPhone. Unable to offer the latest and greatest devices, including that quintessential and hotly desired device, Bell and Telus moved quickly to upgrade to the next greatest and latest 4G technology. Rogers followed suit. The same is happening in the United States, with Sprint and Verizon – both former CDMA users – both spending heavily on LTE.

Network investment in both Canada and the United States does not reflect the competitiveness of either market, but rather phone makers’ decisions on technologies. Carriers are simply being pulled along for the ride.

One thing I may indeed have been wrong about in the past is how high prices were mainly the result of the lack of foreign competition in Canada, which wasn’t legally allowed until last year. The poor technological choices made by a number of carriers can’t be discounted as a factor. The industry is now waving the billions they’re having to spend to correct those mistakes in the faces of consumers and government, with prices – be they as they are – the necessary rationalization.

Netflix And Canada’s ‘Third-World’ Internet

I don’t know about you, but every time I exceed my monthly internet limit and get a hefty bill, I feel like my human rights are being violated.

Such was the suggestion from Netflix chief content officer Ted Sarandos at the Merrill Lynch Media, Communications & Entertainment conference in Los Angeles on Wednesday. As reported by Gigaom, Sarandos was talking about Canadian internet providers and the low monthly usage limits they give customers. Here’s how he responded when asked if Netflix’s mediocre content offering in Canada was limiting the company’s growth here:

Viewing hours are almost… are very similar [in Canada] to the US. The problem in Canada is not content, the problem in Canada, which is one of our strongest markets, is they have almost third world access to the internet. Not because it’s constrained for any reason except for money. They have very low datacaps with all the broadband providers in Canada and they charge an enormous amount if you go over your broadband cap. It made us be much more innovative about compression and delivery technology so we are less broadband consumptive in Canada… It’s almost a human rights violation what they charge for internet access in Canada.

The comments took me aback when I first read them. I’m usually the first in line to point out Canada’s broadband shortcomings, but Sarandos seemed to be taking it over the top. Human rights violations? Come on. Perhaps Netflix executives should do some time in Guantanamo or try out some water boarding before they throw such accusations around.

Is expensive internet a bad thing? Absolutely. Is it a human rights violation? Not really.

And yes, Netflix’s Canadian offerings are quite crappy. Amazingly, that hasn’t stopped the service from growing quickly here. At least 10 per cent of Canadians are subscribing while one analyst believes that number to be closer to 17 per cent.

Hyperbole aside, I wondered if there was anything to Sarandos’ comments, particularly in regards to “third-world” internet access. I figured I’d check the numbers again.

One good source is the Ookla Net Index, which compiles billions of test results to rank countries in five categories: download and upload speeds, quality, value and promise, or how close customers get to the speeds they’re promised. How does Canada do?

Downloads: Canada ranks below the averages for the EU, OECD and G8 and slightly above APEC. With an average speed of 13.78 megabits per second, Canada isn’t too much better than “third-world” countries such as Kazakhstan (10.95 Mbps – very nice!) and Rwanda (8.59). A few “first-world” countries rank lower than Canada, including Austria, France, Australia, Spain, New Zealand, Ireland, Israel and those poor, poor Italians (only 5.45 Mbps!).

Uploads: This is a particularly bad spot for Canada, which ranks below the averages of the EU, OECD, G8 and APEC. The Canadian average of 2.23 Mbps (which is similar in Germany and Ireland) puts the country on par with Tanzania, Chile and Nigeria. If the third-world charge can stick anywhere, it’s in uploads. Here’s a fun chart to look at.

Quality: In the ping test, which generally measures the distance between users and the internet provider’s central server, Canada ranks 35th out of 54 listed countries, which again places the country below the averages of the EU, OECD, G8 and APEC. Canadian quality is close to Bulgaria and South Africa.

Value: In cost per megabit per second, Canada again ranks below the averages of the EU, OECD and G8, although better than APEC. First-world countries that are more expensive include Ireland, Italy, France, Australia and New Zealand.

Promise: Lo, a bright spot! In actually delivering the speeds they promise to customers, Canadian ISPs do better than the averages of the EU, OECD, G8 and APEC. Isn’t it astonishing, then, that this is the one aspect of internet service in Canada that the CRTC has chosen to investigate?

So, to recap, Canada ranks below most of the developed world in download and upload speeds, prices and quality. In most cases it’s not third-world service, but judging by Ookla’s numbers, it’s fair to say that many third-world countries are within shooting distance.

What about that key measure that really gets Netflix’s goat: data caps? Ookla doesn’t measure those, but the OECD does. According to the Paris-based think tank’s latest figures (see table 5i), there are only five countries in the 34-member organization where the majority of internet plans have caps: Australia, Iceland, New Zealand, Canada and Turkey. The first four are especially egregious, with more than 85 per cent of available plans featuring explicit usage caps. Twenty-three members either have no explicit data caps or the number of available plans that do number in the single-digit percentages.

Believe it or not, that result is actually an improvement from the last time I looked at these particular OECD numbers. At that time, the percentage of Canadian plans without data caps was zero. Since then, the OECD has likely started to count the small ISPs who do indeed offer unlimited downloading. Even still, if Martians were to judge Canada’s land mass judging by these data cap figures, they could be forgiven for mistaking the country for an island, like Australia, Iceland and New Zealand. Who knows what’s up with the Turks?

There’s little doubt it: Canada is out of step with the rest of the developed world in terms of data caps (it is worth nothing, however, that the situation is much better in Western Canada, where caps are considerably higher than in central and eastern Canada). Put that together with the other numbers from Ookla and you begin to get a feel for where Netflix’s Sarandos was coming from. His hyperbole was certainly over the top, but in the end it’s this sort of public international shaming that might finally spur some action from government and regulators.

At the very least, it might provoke some more ISP-sponsored reports that try to disprove what all the other data show. At least our consultants and lobbyists will never lack for work.

The World’s Worst Throttler (Officially): Rogers

Hot on the heels of the news that Bell Canada is cutting some of its internet throttling with wholesale customers comes some really – and I mean really – interesting data on throttling worldwide. Ladies and gentlemen, presenting the world’s absolute worst throttler (since 2008): Rogers.

According to researchers who used M-Labs, a project launched by Google in 2009 that allows internet users to keep tabs on how their service providers are slowing connections, Canada’s biggest cable internet provider has been the worst at slowing down applications, primarily peer-to-peer services such as BitTorrent, using deep-packet inspection technology.

M-Labs gives users tools to test their connections and, according to its methodology:

The column on the far right shows the percentage of times Glasnost tests indicated that the ISP was manipulating BitTorrent using DPI. The number of valid tests is important because the more valid tests done, the more reliable the results in the last column. E.g., ISPs for whom we have only 11-30 tests per quarter (only 1-2 tests per week) will be highly variable and thus less reliable than ISPs for whom we have >450 tests per quarter.

The only ISP that repeatedly showed up in the 90%-plus category with more than 450 tests: Rogers. Also bad was UPC Ireland, but it fell short in total comparisons to its Canadian cousin.

How did other ISPs compare? Well, Comcast – the company that elicited sanctions from the FCC for its throttling – only ever slowed about 49% of its connections, back in the second quarter of 2008. Bell, the Canadian ISP that has taken the most flak for slowing down connections, ironically didn’t fare all that badly compared to its main rival.

Here are the most recent results for Canadian ISPs and the percentage of connections they throttled in the first quarter of 2010:

  • Shaw: 14%
  • Bell: 16%
  • Rogers: 78%
  • Telus: 6%
  • Videotron: 3%
  • Bell Aliant: 6%
  • Cogeco: 46%
  • Sasktel: 5%
  • MTS: 6%

The first three ISPs on that list had more than 450 samples, while Telus had between 151 and 450. The rest had between 31 and 150.

Here are the worst worldwide in the most recent quarter, with the sample size following:

  • UPC Poland: 87%, 91-150
  • KT Corp (South Korea): 84%, 31-60
  • GTS Novera (Czech): 80%, 11-30
  • Rogers: 78%, 450+

As the methodology states, the larger the sample size, the more accurate the result, so Rogers looks particularly poor on that list.

Given this information, is it any wonder gamers are fuming at Rogers for its throttling, which isn’t just affecting peer-to-peer traffic but also perfectly legal applications such as World of Warcraft? Isn’t it about time the CRTC – which laughably touts the world’s best net neutrality rules – got off its keester and did something?

UPDATE: Milton Mueller, the principal investigator behind the findings, wrote a paper looking at some of the results in more detail. Check out “Deep Packet Inspection and Bandwidth Management,” which compares throttling in the United States and Canada. Some interesting takeaways include the facts that Rogers and Cogeco both started throttling on the same day, July 1, 2008 (how’s that for coincidence?) and throttling by U.S. ISPs is about 11% overall, compared to 33% in Canada.

UPDATE: Some people were wondering how ISPs who say they don’t throttle, such as Telus and Videotron, showed up in the tests. According to the explanatory notes of the study, the tests seemed to generate false positives of around 10% prior to August 2009 and 4-5% after that, which pretty much matches or erases the results for the ISPs in question. If anything, the results prove those companies aren’t throttling. With that said, the error margin still doesn’t do much to improve the positions of the top throttlers.