WordsByNowak

One of the CRTC’s edicts last week that was cheered by consumers was the requirement of television providers to give subscribers more choice and flexibility in their packages. The order, which the TV companies must comply with by April or risk incurring an inquiry by the regulator, seems to be a direct answer to the most common complaint from subscribers, which is that they are paying for a multitude of channels yet watching only a few of them.

It’s also one of those typical kindly grandfather moves by the CRTC, which always seems to know what’s best for all of its dimwitted grandchildren. With the growing availability of TV shows on the internet, a pick-and-pay system for traditional television subscription is also the best way to protect that particular business. If consumers can pick the channels they want and pay less for them, they’ll be less inclined to cancel their subscriptions outright, which is also good for providers, or so grandpa’s thinking goes.

On the surface of it, this sounds like good news for subscribers. Perhaps they will finally be able to pick only the channels they want, thereby cutting out all the useless noise (Speed channel, anyone?).

That’s great, but anyone who thinks this will result in big savings hasn’t been paying attention to how things work in Canada. The conventional logic would mean that less channels equals less monthly charges, right? Wrong.

According to the CRTC’s annual Communications Monitoring Report, the average TV subscriber currently shells out $59 a month. That actual amount varies across providers of course, with some being higher and some lower. A quick calculation from Rogers’ numbers, for example, shows that company’s monthly bill is closer to $68. TV providers are not likely to want to significantly cut into their bread and butter.

A look at Quebec, which has had a degree of this sort of pick-and-pay system for a little while now, is instructive. The cheapest option on cable provider Videotron, for example, is a basic service plus 10 channels of the subscriber’s choice for about $39. Bell used to offer a basic package plus 15 channels starting at $40, but a quick perusal of its website now turns up only a basic-plus-30-channel package for $49. Add in a bunch of extra fees, such as a receiver or PVR rental or Videotron’s $3 charge for high-definition signals, and the final bill edges closer to between $45 and $55.

That’s getting pretty close to the CRTC’s stated average monthly bill - and it’s for a significantly slimmed-down channel package. In other words, going with such an option is a good way to carry on one of Canada’s favourite traditions: getting less for more. And here’s the kicker: as Videotron states in its fine print, at least half the channels subscribers pick must be Canadian, thanks to CRTC regulations. Say hello to the Zeste channel, whatever the heck that is.

There’s no guarantee that these are the sorts of options TV providers will bring to the table in April as their best offer for the rest of Canada, but the Vegas odds are probably pretty good that they will. In that case, will it be enough to stop subscribers from cutting the cord? Or, more importantly, will it be enough to encourage new subscribers - especially kids who are already watching most of their shows online - to connect the cord in the first place? Not likely. It shouldn’t surprise anyone, then, when grandpa ambles up off his old rocker and ends up getting involved.

Rogers, Canada’s biggest cellphone carrier, made waves on Friday by taking its lobbying efforts for the next auction of wireless airwaves to the public. The company launched a website that urges Canadians to write to their MPs in support of a wide-open auction, rather than one that will set aside licenses for new cellphone companies.

The auction, expected to happen next year, will sell off the valuable 700-megahertz spectrum that was recently freed up when most Canadian markets converted to digital over-the-air television signals. Many are seeing this auction as the last, best chance for any new competitors to Canada’s big three - Rogers, Bell and Telus - to solidify a position. The previous auction, which had a set aside for new entrants, netted the likes of Wind Mobile, Mobilicity and Videotron, which boosted competition in major cities and supposedly brought prices down, all of which was the government’s intent in giving newcomers a break. In 2008, when the government announced the previous auction’s rules, it made no bones about the fact that wireless prices were too high and usage of mobile phones was too low.

With its new website, Rogers is purveying the message that an open auction without set-asides is the only way that Canadians in underserved rural and remote areas will get its super-fast Long-Term Evolution network. “I want to see Canadians from coast to coast and in cities, towns and rural areas have access to this technology,” says the posted form letter that visitors are asked to send.

I’ve touched on this before. As things stand right now, an open auction without a set-aside for new entrants would effectively amount to an auction with a 100% set-aside for the big carriers; they simply have every incentive to buy every last chunk of spectrum at hugely inflated prices if it means shutting new competitors out. And without that spectrum, new carriers are effectively dead in the water. Making sure the new carriers get some spectrum, most probably through a set-aside, is therefore a no-brainer.

The implied threat of rural customers not getting service is also a red herring. It’s perfectly natural for telecom companies to roll out service in more profitable urban centres first. It’s also perfectly natural that when growth in those places slows, carriers expand to so-called “green fields” where there are new customers. In a way, more competition in cities is good for rural areas because it creates a race to get there. The underserved nature of many of these communities can be considered another byproduct of the uncompetitive market Canada has had across the board. In that way, the government doing the reverse of what Rogers is asking might be the best way to actually achieve the company’s supposed goal.

Aside from that, the attempt by Rogers to rally the public to its cause - a process known as astroturfing, in that it’s effectively faking grassroots support - is a phenomenally bad idea that is likely to backfire spectacularly. Such efforts always do.

Most recently, AT&T got burned when it tried the same logic and tactics in drumming up support for its proposed takeover of T-Mobile. AT&T trumpeted the message that the merger was the only way to ensure a rollout of advanced wireless services to rural customers and convinced a number of special-interest groups, one way or another, to back it. The Gay and Lesbian Alliance Against Defamation, for one, recently sacked much of its leadership for doing so, then withdrew the support those individuals had promised.

In just one Canadian example, the Chamber of Commerce took heat in 2009 for supporting Bell and Telus in their effort to overturn a CRTC decision that would have given smaller internet providers access to higher speeds. Bell and Telus tried the usual tack, that axing smaller companies’ access was the only way to guarantee their own continued broadband investments, and enlisted their own special interest and lobby groups as support. Some groups that fell under the Chamber’s umbrella, such as the Canadian Federation of Independent Businesses, didn’t necessarily agree with its position and spoke out, doing much to invalidate the whole effort.

Such things can and will happen as lobbying over the next auction ratchets up, which really raises the question of how gullible the telecom companies think the public, the media and the government are. There’s no other explanation for why they keep trying with such doomed-to-fail tactics.

That said, there is still the essential substance of what Rogers is asking for. While a set-aside for new companies is a no-brainer if the status quo holds, there is no reason to believe it will. Before the auction happens, the government is also expected to finally take action on the festering foreign-ownership issue. The exact limits are overly complicated, but foreign companies are currently prevented from having a significant ownership stake in any Canadian telecommunications provider that actually has its own infrastructure and networks. It’s an archaic rule that most developed countries have long since liberalized.

With a majority government in power, it’s looking like the Conservatives are finally getting down to the business they started last year with a consultation on the matter. In that process, they put down four options: do nothing, raise ownership limits to 49%, lift all restrictions on companies with less than 10% market share with bigger companies coming later, or throw the doors open completely. The smart money is on option #3: the first is out and the second is unlikely because it’s effectively like the first, while the fourth could be problematic.

Lifting foreign ownership rules on all telecom companies would likely result in a flurry of mergers and takeovers, both within Canada and from without. My take on what might happen in such a situation is a bit dated, but some of it is still probable (especially Bell and Telus merging). Nevertheless, it’s very unlikely the government wants a string of high-profile, multibillion-dollar mergers to take place in the lead-up to an auction. With that auction a year or two at most away, that’s also probably not enough time for such deals to be enacted, reviewed and consummated.

So what would happen if restrictions were lifted on smaller or entirely new companies? It’s obviously hard to say definitely, but here too the fate of Canada’s wireless market likely lies with whether or not there’s going to be a set-aside for smaller carriers in the next auction.

If the government follows conventional wisdom and decides that - since foreign ownership restrictions are being lifted - the playing field should be equal, then the smart bet is on consolidation. With no set-aside, there will only be room in the auction for deep-pocketed players. Russia’s Vimpelcom, which currently financially backs Wind Mobile, is best situated for that possibility. It would likely take ownership of Wind and possibly try to buy the other two startups, Mobilicity and Public Mobile.

There is the possibility that a fifth large player, perhaps AT&T or Verizon, could get involved and bid on spectrum as a first step toward building its own network from scratch, or buy Mobilicity and/or Public Mobile to get its foot in the door. But, given that the United States - a country with 10 times the population of Canada - is having trouble supporting four national carriers, that’s a remote possibility at best.

Things would get very interesting if, however, the government lifted foreign ownership restrictions and promised a set aside for small and new carriers. While a wide-open auction might effectively declare that the Canadian market is all but settled between four players, an additional set-aside would still leave some wiggle room. There might still be consolidation among smaller players, but they wouldn’t necessarily have to merge. Wind could be bought by Vimpelcom while Mobilicity could sell to AT&T, for example, which would raise the odds of there being more than four carriers left standing after the auction.

Simply put, more players in any market means better prices and innovation will eventually result. It also means some of those players are going to lose money, or perhaps not make as much as they hoped. If a removal of foreign ownership restrictions is a given, the government must then decide on whether its plan to get more competition in wireless has been effective yet. If the answer is yes, an auction with no set-asides is the way to go. If the answer is no, then perhaps new competition must be further stimulated through another set-aside.

The CRTC’s recent Communications Monitoring Report actually quantified the impact of the new cellphone carriers. So far, they’ve amounted to the average cellphone bill decreasing by a whopping 95 cents. That, and the fact that most Canadians still complain about overpaying, means the government’s path forward seems pretty clear.

If you’re interested in innovation and the competition that enables it, you’ve probably been following the saga that is AT&T’s proposed takeover of T-Mobile in the United States. If you haven’t been paying attention, you should because it’s a deal that - if it were to go through - would have big direct implications on technological advancement in the United States and indirect effects elsewhere, especially here in Canada.

To summarize, AT&T (the second-largest U.S. wireless provider, next to Verizon) earlier this year offered $39 billion to take over T-Mobile, the fourth-largest (Sprint is third). The deal would make AT&T the biggest U.S. cell company, with 130 million subscribers.

When the announcement was initially made in March, the only logical reaction - from a Canadian standpoint - was, duh, there’s no way it’ll ever be allowed to happen. After all, the Canadian government had just recently decided that three national wireless carriers was not enough to drive competition on innovation and pricing, so it went ahead and bent the law to get more players into the market. How would the United States, with a population 10 times the size of Canada’s, make do with only three national carriers? Anyone with half a brain could see that, despite AT&T’s rhetoric to the contrary, such a deal would be nothing but bad news for consumers.

A few weeks ago, the Department of Justice voiced that illogic when it sued to kill the deal on anti-trust grounds. “We feel the combination of AT&T and T-Mobile would result in tens of millions of consumers across the U.S. facing higher prices, fewer choices, and lower quality products for wireless services,” said deputy attorney general James Cole. Again, from the Canadian perspective, no duh.

Where the proposed deal goes from here is anyone’s guess, but if the DOJ has any weight - and it does - then the Vegas odds on it going through are looking pretty low.

Where things get interesting for Canadians is that T-Mobile uses the same frequency of airwaves, known as Advanced Wireless Spectrum, as most of the new carriers that have sprung up to compete against Bell, Rogers and Telus. Those new cellphone providers - Videotron, Mobilicity, Wind Mobile and Public Mobile - are all tiny, insignificant minnows to the giant global cellphone makers, so they must piggy-back on T-Mobile for devices. The U.S. provider, which has 34 million customers (more than the entire population of Canada) is almost like a big brother, with the new Canadian carriers getting its hand-me-downs.

AT&T has said it plans to repurpose T-Mobile’s AWS spectrum for fourth-generation (4G) long-term evolution (LTE) smartphones, which means customers of the smaller provider might have to switch to new phones. If the deal did go through, that could have a similar pull effect on the new Canadian carriers, who might then be forced to upgrade to LTE or risk having even fewer phones to offer customers than they do now. While the small guys aren’t disclosing their financials, it’s probably safe to say they don’t have a whole lot of money to spend on such costly technology upgrades.

Spectrum is an incredibly complicated and - let’s face it - boring topic. What this situation does highlight, though, is just how precarious the existence of Canada’s new wireless carriers is. Their fates are currently tied to one particular flavour of spectrum and, in essence, one particular U.S. carrier. If anything should happen to that carrier or its spectrum, they face the real possibility of ceasing to exist.

As such, it’s clear what the Canadian government must do in the next spectrum auction, expected next year. It once again needs to reserve a portion of licenses, known as a set-aside, for the newer companies in order to give them a chance at existing. Just as Bell, Rogers and Telus would have paid anything in the previous auction - if there were no set-aside - to keep new players out, so too will they break the bank in the next one to keep the newcomers on that single-spectrum precipice.

It may not be the pure market solution our government says it likes, but this is a situation of their own creation. As the cliche goes, they’ve made their bed so now they must lie in it.

The big telecom news over the weekend was that Stockwell Day, a former cabinet minister under Stephen Harper, has been named to the Telus board of directors. The move followed a similar one by Telus’s rival BCE, which recently appointed Jim Prentice, a former industry minister under Harper, to its board.

Not surprisingly, critics of the telecom industry and the government roundly condemned the move. Open Media said that “Big Telecom is cozying up to the government” because the companies are facing stronger-then-ever resistance from the public. Judging by the messages I got on Twitter, it’s clear that many people are disturbed if not sickened by the fact that formerly high-level politicians are now helping to run big telecom companies. Their fear, which is probably well-founded, is that Prentice and Day will use connections with their old government buddies to swing decisions and laws their way.

That’s nothing new. There are plenty of examples of this sort of revolving door between the industry and government. In recent years, Ontario PC party leader and Toronto mayoral candidate John Tory spent time in and out of Rogers while former Conservative New Brunswick premier Bernard Lord became the wireless industry’s head lobbyist.

Conventional wisdom has it that Telus and Bell are arming up for the next wireless spectrum auction, which will hopefully happen next year. Given how badly they were spanked in the last one, where it was ironically Prentice who set the rules that gave newcomers big advantages and thereby leading to the launches of Wind, Mobilicity, Videotron and Public Mobile, they probably don’t want a repeat. Getting government types on board, they hope, will net them better terms for the upcoming auction.

And what a lobby-fest that last auction was. Not only did Wind lobby like crazy to get the right to start up - of all the telecom companies, only Bell met with government officials and bureaucrats more frequently in 2009 - there is also the high probability that the new carriers wouldn’t exist were it not for their political glad-handing. Liberal opposition critic Scott Brison at the time pointed his finger at the Harper government’s ties to Quebecor, owner of Videotron, and more specifically at Luc Lavoie, chief spokesperson for both the company and former prime minister Brian Mulroney. Would the government have cut new entrants a big break if it weren’t for lobbying from Quebecor and/or Lavoie? It’s one of those things that makes you go, “hmmm?”

I had a front-row seat to the whole thing as a reporter and what I found most ironic was that everything that Brison said in opposition to the spectrum auction sounded like it was coming directly from Bell, Rogers and Telus. Like a Russian babushka doll, it was lobbying inside of lobbying inside of lobbying.

The lesson here is that it’s silly to decry the Prentice and Day appointments because it’s not their fault, or the companies’ fault, it’s the system’s. Lobbying is so pervasive and deeply integrated into it that it’s hard to imagine where one would start in trying to clean it all up. It’s questionable whether anyone should even try because in some ways, it wouldn’t be fair. Politicians can’t be expected to never again hold jobs after they leave office, can they?

The rules preventing influence-peddling could be tweaked a hundred different ways, but none of it would likely make a difference. After all, politicians are like cockroaches - they’ll always find a way to insinuate themselves into places you don’t want them. Why else does anyone get into politics, if not to line their pockets in the grandest way possible?

Wind seemed to learn quickly that the best way to deal with this situation is to simply fight fire with fire. If you’re going to play the game, you have to hire the right players. That means Wind, Mobilicity or even Open Media better start thinking about driving a truck full of cash up to Tony Clement’s door, because if they don’t, somebody else will.

Cellphone users hate contracts, right? Yes, they do, but there’s one thing they hate even more: shelling out big bucks for phones. As someone who just plopped nearly $600 on a new smartphone, I can attest to that.

That’s why the rumblings are starting about Canada’s new cellphone carriers, particularly Wind Mobile, ditching their anti-contract stance. The Financial Post had a story the other day about Wind moving toward offering those hated contracts, much like the big three (Bell, Rogers and Telus) do. According to a Canaccord Genuity analyst who met with Wind management, the carrier will begin offering contracts starting with the back-to-school season.

Wind chairman Anthony Lacavera said the analyst had misunderstood what the company was planning, but the article didn’t elaborate much on what he actually meant. Lacavera later cleared it up when he explained to me that Wind wasn’t going to introduce contracts, but rather it was looking to expand its “tab” feature, which allows customers to pay off their phones over time.

Currently, the WindTab lets customers put up to $150 of their new phone on a sort of layaway plan. Each month, Wind takes the equivalent of 10% of the customer’s bill off the amount they owe on the phone. So, if the bill is $40, the customers owes $4 less on the phone. The higher the bill, the faster the phone gets paid off. If the customer wants to switch carriers or get a new phone, they have to pay off whatever is left.

Lacavera told me the company is looking to raise the amount that customers can put on their tabs, with $250 being his preference. That would put some of the higher-end smartphones, which generally sell in the $500 range, within the comfortable expenditure reach of the average consumer.

I wrote about this tab idea, started by the likes of Telus’s Koodo and Bell’s Virgin, a while back. While it may seem like a decent half-measure between a contract and buying a phone outright, it’s actually not very different from a contract. Paying off a $150 tab at $4 or $5 at a time means the customer will be free and clear in about three years, which is just as bad as any Big 3 agreement. Extending the tab to $250 would make it worse - at $5 a month, that shiny new smartphone would be paid off in four years.

In the end, the customer pays for the phone one way or another, either up front or over time. Is a tab therefore better than a contract? It’s really six of one, half dozen of the other, pardon the cliche.

With Wind and fellow new carriers Mobilicity and Public Mobile offering considerably better monthly service plans than the Big 3, it’s time for them to indeed give up their anti-contract stance and call a spade a spade. As long as they keep the deal terms reasonable, like one and two years rather than the world-leading three years of the Big 3, and as long as they maintain the option to buy up front for those who want it, there’s no shame in offering contracts.

Compared to spending hundreds of dollars on a phone up front, they really are the lesser of two evils.