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.