Digital Strategy Is Government’s Phantom Menace

“Me’sa so happy to get 5-megabit broadband!”

The year was 1999 and nerds around the world were abuzz for something they had been waiting a seeming eternity for: a new Star Wars movie. Anticipation and expectations couldn’t have been higher going into George Lucas’ long-promised return to the pop culture phenomenon he had set in motion with the Original Trilogy back in 1977. But then, The Phantom Menace happened. And things got even worse with the next one, Attack of the Clones. Lucas redeemed himself somewhat with his third prequel, Revenge of the Sith – I know this because I just rewatched them – but in the end, there was no denying it. The new Star Wars movies were terrible.

And so it is with the equally long-awaited digital strategy from the Canadian government, titled Digital Canada 150. Believe it or not, there are actually a number of similarities between the movies and this bit of government policy. Nerds like me have been waiting for it forever and it has indeed been in the works for a long time. But most crucially, it’s also abjectly terrible.

Divided into five “pillars” – connecting Canadians, protecting Canadians, economic opportunities, digital government and Canadian content – there’s almost no actual “strategy” in the short, 25-page document, which is perhaps why that word isn’t actually in its title despite it being presented as such. Rather, Digital Canada 150 is more a collection of bullet-point reminders of the government’s recent efforts across a number of technologically-related subjects, such as its development of an app commemorating the War of 1812 and the lowering of corporate taxes. And oh yes, there are lots of pretty pictures and useful factoids, like the one that predicts internet usage is going to increase over the next few years. Good thing that’s in there.

There are a few hints of things to come, like a promise to “work with the Canadian Radio-television and Telecommunications Commission (CRTC) to develop a plan to unbundle television channels and ensure cable and satellite providers offer Canadian consumers the option to pick and choose the combination of television channels they want,” and the introduction of “new anti-money laundering and anti-terrorist financing regulations for virtual currencies,” which is obviously aimed at the likes of Bitcoin. But otherwise, there are few concrete goals set out and no evidence that any of these isolated efforts are in any way connected to the larger idea of accelerating digital usage or growth by Canadians.

One of the few actual targets is to bring internet access of at least 5 megabits per second to 98 per cent of the population by 2019, but this is a bad plan for several reasons. Firstly, the CRTC already had such a goal in place, except it was supposed to be achieved by 2015, meaning that the government is delaying it another four years. But perhaps more importantly, it’s far less ambitious than what other countries are doing. As University of Ottawa internet law professor Michael Geist points out, Canada’s goal is well behind the likes of Australia, Germany and Sweden in both speed and target dates. Many countries are aiming for speeds of 100 megabits or more. Indeed, the only country that appears to be as unambitious as Canada with its broadband plan is the United States.

Inevitably, the issue of size arises in such discussions. Canada is, after all, one of the biggest countries in the world in terms of land mass, yet it has a relatively small population. That makes it harder and more expensive to roll out services here than in, say, a tiny country like Denmark, right? This is the rationalization that has been used for Canada’s high wireless prices and it has indeed been trotted out for wired home connections too. It’s also one the government has apparently accepted to rationalize its efforts.

Except that it’s nonsense. Canada is, in fact, one of the most urbanized countries in the world, ranking 37th overall with more than 80 per cent of the population bunched up together in cities. The chart below shows urbanization rates among developed countries, according to the United Nations’ population division:

And here’s a chart that strips out all the tiny OECD countries with fewer than 10 million people:

Given the relatively high concentration of the Canadian population, it should actually be easier or more efficient to roll out advanced telecommunications services here than in Germany, the United Kingdom, Norway, Austria or Switzerland, yet all of those countries outstrip Canada in terms of broadband goals and wireless performance in general.

In that vein, Canada’s broadband goal is amazingly lame – it’s the veritable Jar Jar Binks of the entire digital strategy. The government should be shooting for those 100-megabit-plus speeds that others are going for, yet instead it’s settling for what’s barely considered broadband in places such as Pakistan.

As a whole, there is one other way in which the Digital Canada 150 is similar to Star Wars. George Lucas at least had the good sense to sell Star Wars to Disney and allow someone else to have a crack at producing something that fans might be able to appreciate. With the thoroughly lacklustre digital strategy taking four years and three different industry ministers to produce, it’s looking increasingly clear that this is not the government to take Canada forward into a digital future. Observers interested in such matters can’t be faulted for hoping that someone else takes up this task.

Debunking yet another set of wireless myths

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Make No Mistake: Canada Is A Digital Backwater

So, Canadians spend more time online than anyone else, huh? That’s what the latest report from analysis firm ComScore says.

Now, before anyone misinterprets the results and proclaims Canadians to be digerati – and Canada to be an online leader – there are many other facts to consider that suggest the contrary.

Regardless of the fact that ComScore looks at only 11 countries (a limited sample that makes it hard to declare anyone as “best in the world”), it’s important to understand why Canadians do spend so much time online. The simple explanation is: they were there before most other people.

When the world was moving from dial-up to broadband more than a decade ago, both Canada and the United States were in the lucky position of having both cable and phone providers competing to sign up customers. Since internet access represented a new gold mine for these companies, the competition was fierce, prices were low and the services kept getting better.

Cable infrastructure didn’t (and doesn’t) exist in much of the rest of the world, so governments and regulators had to figure out how to convince, cajole or force their phone companies to provide good broadband and reasonable prices. Some are still trying to do that.

So, while most of the rest of the planet was stuck in the kilobit dark ages, North Americans surfed around on their super high-speed (at the time) two- and three-megabit connections. But things changed over the next decade.

With all the easy-to-reach customers – known as “low-hanging fruit” – signed up, that early competition tailed off as large internet providers moved from the acquisition phase to monetization, which is fancy business speak for milking people. The ISPs had to recoup all that money spent building networks and advertising services, so prices started to creep upward. (Remember when you could get the fastest speeds for $25? Ah, the halcyon days of broadband…)

In some countries, ISPs haven’t yet got to this stage – sometimes because regulators haven’t let them – and customer acquisition is still the name of the game. That’s why ridiculously cheap broadband can be had in places such as the United Kingdom.

The larger effect over the decade was that Canada and the United States leveled off while other countries caught up and surpassed them. Both countries used to top OECD measures of broadband-connected citizens, but they’ve been sliding steadily to the point where Canada is clinging to the top 10, while the U.S. – the country that ironically invented the internet – is mired in the middle of the pack.

This early adoption thus hooked North Americans on the internet early. And hooked is the right word – as anyone who has ever used it can obviously attest to, once you’re online you never go back, which explains why Canadians and Americans are such rabid users of everything from YouTube to Facebook to Twitter. North Americans are the veritable crack addicts of the internet world – they’ll use it no matter how much it costs them.

That’s about all online Canadians have in common with Americans, who are true digerati and internet leaders. Besides their similarly high usage, Americans have also created virtually every large internet business, from Google to Amazon to eBay to Netflix, which raises the question: where are the Canadian equivalents?

Many have tried to answer that conundrum and there are several theories. Some small businesses – the lifeblood of Canada – have in fact argued that the high cost of telecommunications services have been a barrier to online expansion., for example, told regulators a few years ago that it was cheaper to distribute movies on DVDs through the mail than it was to do so electronically.

There’s also the suggestion that Canadians’ are naturally more conservative and risk averse, which keeps their businesses from becoming digital leaders. As Google Canada’s country director Chris O’Neill said a few years ago, business usage of the internet is out of whack with that of individuals: “I’d like to see retailers think more in (new) ways, rather than fearing and trying to avoid the experiences and the behaviours that consumers aren’t just experimenting with, (but) are becoming mainstream.”

Heading back to the consumption side again, there’s also the familiar song that Canadians hear whenever a hot new gadget or internet service debuts – “It’s available everywhere… but not in Canada!” In situations that involve digital content, such as with Hulu or the superior selections available through iTunes and Netflix south of the border, it’s usually a case of tangled licensing rights. And who’s in the middle of those? You guessed it – Canadian broadcasters, who are now also the country’s big ISPs.

What else is there? Oh yes… there is the dearth of venture capital, an inability to convert innovation into commercialization, repeated examples of companies selling out too soon (cough Kobo cough) and the fact that Canada is the only G8 country besides Russia that does not yet have some sort of digital economy strategy (Russians spent this past weekend protesting electoral corruption – what’s Canada’s excuse?)

No less than the highest authority in the land, before he actually was so, said it best a few years ago: “Those societies that have a better understanding of the digital economy will prosper very quickly and those that don’t will not. We’ve had a failure of imagination there,” said David Johnston while he was still president of the University of Waterloo. Today, he serves as the Queen’s representative and, as the Governor General, is technically the boss of Canada.

And while we’re on the topic of the government, how about the international shame Prime Minister Stephen Harper has brought the country by muzzling scientists? As an editorial in Nature, one of the world’s leading scientific journals, put it:

Policy directives and e-mails obtained from the government through freedom of information reveal a confused and Byzantine approach to the press, prioritizing message control and showing little understanding of the importance of the free flow of scientific knowledge.

Are Canadians smart and innovative? Absolutely – and the examples are too numerous to list, although the country’s world-beating video-game industry is a notable one. Are they also heavy users of the internet? By all measures, that also seems to be the case.

But when all of the above is taken together, it seems clear that Canada is institutionally a technological backwater. In other words, who really cares how many YouTube videos Canadians watch or how much time they spend on Facebook?

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.

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.

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.