UK wireless versus Canada
One of the first things I did when I arrived in the UK about two weeks ago was get myself some cellphone service. I friend of mine there lent me a SIM card from provider 3, which I popped into an unlocked Motorola Milestone smartphone I have. As soon as it was active, I got the following text message from 3:
“Get even more value with your next top-up. Top-up 10 pounds & convert it to All in One 10 for 100 mins, 3000 texts & 500 MB internet.”
I actually ended up paying 15 pounds, or about $25 Canadian, for 500 megabytes of data usage and pretty much all the voice minutes and text messages I needed for my short time there. I ended up coming back home with lots of minutes, messages and data to spare.
Now, here’s my typical monthly bill breakdown from Fido here in Canada (owned by Rogers):
- iPhone Plan 60.00
- Credit: Monthly credit $10 -10.00
- Credit: Monthly credit of $10 -10.00
- Credit: Monthly credit of $5 -5.00
- 200 anytime minutes 10.00
- Call Display w/Name Display 7.00
- Minute Tracker 0.00
- 250 Weekday Minutes 0.00
- iPhone Data Access 500 MB 0.00
- Fido/Rogers Hotspot Access 0.00
- Unlimited Evenings/Weekends 0.00
- Unl. text messages 0.00
- Visual Voicemail 0.00
- Total before taxes: $52.00
For those who don’t have the requisite PhD to read phone bills, what all of this means is that I have roughly the same service from Fido for more than double what it costs in the UK. Moreover, you’ll notice all those ridiculous credits totaling $25, which are the result of me haggling for months. Without them, my bill would be triple its UK equivalent.
Not surprisingly, this manifests itself in the bottom lines of the wireless carriers. For the record, Canadian cellphone companies pull in an average of around $55 (US) per user per month, compared to about $32 (US) for UK carriers. This contributes to big-time profits for Canadian cellphone carriers - the highest in the developed world. Canadian cellphone carriers actually make about double the profit per capita of their UK counterparts (all these numbers come from the Bank of America Merrill Lynch Wireless Matrix, considered the bible of the industry).
I always found it really funny when our local oligopoly - Bell, Rogers and Telus - tried to convince people (and government ministers especially) that their rates weren’t high. All it takes is a short trip outside of Canada to realize just how badly they lie.
So why do Canadian wireless carriers gouge their customers so outrageously? It’s simple - it’s because they’re Canadian wireless carriers. In the UK, the major cellphone providers are Vodafone (British-owned), T-Mobile (German-owned), O2 (Spanish-owned) and 3 (Hong Kong-owned). Obviously, there’s a common denominator there - three of the four are foreign-owned.
The Canadian government is currently mulling whether or not to liberalize our restrictive foreign ownership restrictions, which pretty much make impossible the sort of competitive situation the UK currently enjoys. Anybody with half a brain knows it’s well past time to drop these restrictions since telecommunications is a global business, and when you keep it from being so, you get the ridiculous prices we have here in Canada.
What difference would allowing foreign cellphone companies into Canada make? Well, for one thing, it’s worth noting that all four of the UK’s big providers are primarily cellphone companies while the big three in Canada all also sell home phone service. Canadian companies have had no incentive to get people to ditch their home phones and go cellphone-only. Despite that fact, it’s still happening - although it would be doing so at a much quicker rate had Canada historically had some wireless-only companies pushing for it.
A number of wireless-only companies have started up in the past year, beginning with Wind, but these are small firms that have had to claw together the money, skirt the rules and lobby our government hard in order to compete with the big boys. It doesn’t take a math degree to figure out that these small, poorly funded providers aren’t going to be able to stick it out against Bell, Rogers and Telus in the long run.
If the foreign-ownership rules aren’t dropped, our new providers will inevitably go belly up. And we’ll continue paying double to triple what other developed nations do.
There is always one thing people also forget to count when they compare. It is, in Europe, the price of calling a cell-phone from a landline. And it is high. It has gone down when regulators actually worked as regulators and forced the cellphone carriers to lower it (never seen that in Canada, have we?), but there is still a huge difference. If you don’t believe it, ask the tariff to your long distance carrier, as it also applies when calling from abroad. While here I pay 0.04$/min to call France, if I call a cell-phone in France, it is 0.29$/min. And this is marginally the same for every other country but USA.
This has IMHO a significant impact.
I think you hit the nail on the head when you say “the big three in Canada all also sell home phone service.” And it goes beyond that, they’re vertically integrated along the whole life of a phone call! And they provide TV, Internet, & business services too! They can slice their pie a thousand different ways.
But a question worth asking is if the Canuck telcos are making so much profit why doesn’t one of them lower their prices and take-in most of the subscribers? Probably because a) they don’t want to f’up their roaming agreements; b) they don’t have the infrastructure to handle the load; c) with the prevalence of three-year contracts the other telcos would have time to react and the effect would be negligible; and d) IF CANUCKS ARE WILLING TO PAY THIS MUCH FOR SERVICE WHY CHARGE LESS?!
A few things to keep in mind;
1. Canadian Carriers pay significantly more in spectrum license fees to the government, in order to offer their services, than in any other country. In fact some countries governments subsidize their telecom industry.
2. Our networks are the fastest and generally the best in the world which doesn’t come cheap, considering all the infrastructure involved.
3. Speaking of infrastructure… have you noticed that Canada is huge?? try building a network across a country this big.. and still have excellent reception.
4. Lastly, ARPU is a terrible way to determine if Canadian rates are higher than other countries… we use more services than they do.. so of course we will spend more! If you want to compare you should look at something a little more scientific… like the OECD baskets which actually try to compare apples to apples across countries.
I don’t think this is valid reasoning. If you say PROFITS, then it must mean what’s left after licensing fees are paid. It means that despite the higher licensing fees, they still make significantly more.
And I don’t believe a thing about we having one of the best networks in the world. This is ridiculous. Too many places have no reception at all.
“Our networks are the fastest and generally the best in the world”
This hasn’t been true for years.
“Dolly”: In covering the sector for a number of years, I’ve heard from the cellphone carriers all of the rationales you outlined. Indeed, given that ordinary Canadians are not in the habit of defending their cellphone provider, I’m drawing the conclusion that you in fact work for one of them. In future, please grow a pair, don’t astroturf my blog, and use your real name.
As for the substance of your comments, Ambrose actually hits it squarely right. If all the issues you suggest were valid - higher spectrum fees, more infrastructure to build, etc. - for why prices are higher here then they would affect profitability, wouldn’t they? But they don’t - and to be clear again, Canadian cellphone providers get to keep (or dole out to shareholders) 47% of what they pull in, versus 23% in the UK and an average of 38% across the developed world, according to Merrill Lynch.
Is that because our carriers are well-run businesses? No, it’s because they’re protected businesses.
Dolly, we are looking at the profit margin, not the sticker price. Large profits mean we are paying more and getting less, regardless of government levies and spectrum licensing.
The big problem with Canadian telcos is we have privatized what were once socialized utilities, but since there is no competition due to extreme protectionism, we have not reaped the benefits of an open market. We were better off with the government-managed Bell because at least then the profits were recycled into our economy, rather than shunted away to board executives’ tax havens.
And as to your comment about us having the best and fastest networks, that has not been true for for at least a decade. Can’t get any decent internet speeds from the big three, the lucky few with 21st century connectivity are located in small private ethernet co-ops in downtown Toronto and Montreal, and perhaps other metropolises. Ottawa, our so-called “Silicon Valley West”, has some of the most oversold and overpriced bandwidth in North America. Even our high-tech companies host their servers at 151 Front st or abroad, for cost, performance and reliability reasons. If if weren’t for that facility, we’d literally have no data infrastructure worth mentioning.
Cell towers are bunched along a tiny corridor along southern Ontario and Quebec, and of course everyone’s favorite redheaded stepchild Alberta has full coverage, but Northern Ontario and Quebec, Saskatchewan, Manitoba and even B.C. have near zero coverage from the big three, relying on small telcos and co-ops instead.
So why are we paying more for inferior service ? Even the greedy USians are improving faster than we are.
Our networks are shite, our carriers play the numbers game with marketing, and from the consumers’ perspective that’s all they appear to be doing.
“If some countries have too much history, we have too much geography,”
- William Lyon Mackenzie King
Our population density is probably the lowest in any wireless statistics.
We do have great service. Look at a coverage map of Alberta. We could cover the entire deer population with cell phone service. You don’t see the reception problems with Apple’s new phone in Canada like you do in the U.S.