Lament for a Wireless Nation

Transcription

RESEARCH & TRENDS
A Cross-National Survey of Wireless Service Prices:
Canada, the United States and Europe
March 2007 – IGB Grant +1 514 849 3508 & Kevin Restivo +1 416 619 4926
HIGHLIGHTS
Ask a Canadian where the country stands compared to the rest of the world in the realm of
technology and you will hear that we are world leaders. When asked to cite in which fields
Canadians are examples for the world to follow, one might hear about Canada’s leadership in mining,
in finance, in forestry and paper products and, importantly, in communications. It is in naming this
latter area where a large number of Canadians may be disillusioned upon further analysis.
Just over one Canadian out of two owns a cell phone – about 58% of the population. In most other
developed countries, members of the G7, or countries that belong to the OECD, 90% of the
population is a more common benchmark. Turkey and Tunisia – two countries not at the forefront
of modernized economies – already have significantly higher wireless penetration than does Canada.
Gabon and Botswana – countries that Canadians would not perceive as being in the same league of
industrialized countries – are nipping at Canada’s heels in wireless penetration.
Why is Canadian wireless adoption so low? Why is it that Canadians – residents of a country that
is amongst the most advanced countries in the world in broadband access, as an example – are only
slightly more likely to own and use a wireless phone than the Gabonese?
© SeaBoard Group, 2007, ALL RIGHTS RESERVED
In 2005 SeaBoard released its first cross-national report on wireless services pricing. That paper
concluded that the reason Canada was poorly placed in wireless services adoption was due to high
prices. The cost to use a wireless phone in Canada was significantly higher than in other parts of the
world. Much has changed since that time – exchange rates have shifted, wireless penetration in
Canada has grown, and more attention has been paid to Canada’s information and communications
technology adoption. It is time to revisit the question.
SeaBoard has redone its 2005 study. We used similar methodologies – we compared three baskets
of services that we felt corresponded to three different types of user and usage pattern. We
compared prices in 10 cities, and from several providers in each city. We looked at prices in Canada,
the U.S. and in three European cities.
RESEARCH & TRENDS
Key findings:
• For the heavy mobile phone user, the penalty for being Canadian is a cell phone bill that is
1.5x higher than a comparable U.S. bill. The premium for being Canadian is only 16% when
compared to the average European heavy user.
• For the average user the Canadian cell phone bill is 33% higher than in the U.S. This is
down from the 60% difference we recorded in our last study.
• There is good news though. If you are only a light user of cell phone services, what we refer
to as a ‘survival user’, you pay 27% less per month than the average American. The news
for the light user isn’t all good – that same user would pay 42% less if he or she lived in
Stockholm.
• If you are a heavy cell phone user and are searching the continent for the best deal, consider
moving to Athens, Georgia – there you can sign up for an unlimited North American calling
plan for approximately US$95/month – about half the cost of a Canadian plan which doesn’t
include the benefit of unlimited long-distance calls.
Comparative Wireless Pricing; Canada, U.S. and Europe | Source: SeaBoard Group, 2007
Regional Pricing
(Adjusted for PPP, in US$)
US$
$180
$160
$140
$120
Canada
Europe
$100
U.S.
$80
$60
$40
$20
$0
Survival User
Prepaid User
Average User
High End User
RESEARCH & TRENDS
Recommendations:
Do we want to do something about the country’s position amongst nations? Or are we comfortable
with wireless penetration parity with Gabon? SeaBoard has some suggestions for government, and
for service providers, that could drive phone penetration higher in Canada and boost Canada’s
productivity:
To government:
• SeaBoard believes that more competition would drive higher adoption. A more
competitive market would be more dynamic, more vibrant and more innovative.
• To achieve the more competitive market, government should facilitate the entrance of,
new service providers, across the country. In the forthcoming 3G spectrum-auction
process we urge the Canadian government to reserve spectrum for a new entrant
or entrants.
• To ensure that the fledgling new competitors can survive the travails of their first years,
mandate tower-sharing and roaming. We believe that a fair economic rent could be found
through negotiation, but if no resolution can be achieved, the CRTC could be asked to
establish a balanced, yet compensatory rate. Tower-sharing will also spare communities
from forests of new cell towers.
To Canada’s carriers:
• Introduce some U.S. style big-bucket service plans. With higher plan usage ceilings
users will be less concerned about minimizing their use, and instead will explore the
maximization of the value. Usage will grow. Cell phones, already valuable tools, will
become still more valuable and central to users lives. Junk the penalties, as well as
overage and domestic roaming charges. Bell Mobility last week introduced cell phone plans
that allow users to make unlimited local calls to other Bell customers – a good start in
SeaBoard's opinion.
• Kill long distance. Why are we paying for long distance? A minute should be a minute.
Your long distance costs have fallen by factors of 100, yet your charges have grown. It’s
time to share the savings. Rogers took a step in the right direction last month when the
company said long distance calls from a Rogers Home Phone customers to a Rogers
Wireless or Fido phone are free.
• Institute referral programmes. Dangle carrots – offer extra minutes, or data features.
Reward customers for signing up their friends. Number portability can be the excuse.
Encourage your customers to join your marketing channel – the cost of acquisition will be
minimal. In other words, encourage (and reward) viral marketing efforts.
• Don't worry as much about the financial analysts. Canada's present providers are
perhaps driven too much by the expectations of financial analysts. We would counsel that
there are other yardsticks to success. A broader base of users can help drive growth and
profit as well. As we said 18 months ago, the financial analysts can be trained to overcome
their fascination with the average revenue per user (ARPU) metric. First, more Canadians
need cell phones in their hands.
These are highlights of a full report on the industry available to subscribers. For review
copies for accredited media or subscription information, please contact SeaBoard Group.
RESEARCH & TRENDS
TABLE OF CONTENTS
Executive
. . . . . . . . . . . .Summary
........................................................................................ 1
Introduction
.................................................................................................... 3
Methodology
.................................................................................................... 5
. . . . . . . . What
. . . . . . . .about
. . . . . . . the
. . . . .OECD?
........................................................................ 6
City
. . . . . Comparisons
............................................................................................... 7
. . . . . . . . Profile
. . . . . . .A:. .The
. . . . Survival
. . . . . . . . User
.......................................................................
Profile
B:
The
Average
User
....................................................................................................
9
. . . . . . . . Profile
. . . . . . .C:
. .The
. . . . High-End
. . . . . . . . . .User
.....................................................................
9
9
Findings
.................................................................................................... 9
Basket
. . . . . . . . Comparisons
. . . . . . . . . . . . . . . .by
. . . City
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Prepaid
. . . . . . . . . Users
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Comparison
. . . . . . . . . . . . . . .with
. . . . . 2005
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Landline
. . . . . . . . . . Rate
. . . . . . .Comparisons
. . . . . . . . . . . . . . . Updated
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
What's
. . . . . . . . . in
. . .that
. . . . . Bill?
......A
. . .Look
. . . . . .At
. . . Extra
. . . . . . . Fees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
. . . . . . . . Heavy
. . . . . . . User
. . . . . Bill
. . . .Breakdown
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The
. . . . . Competitive
. . . . . . . . . . . . . . Wireless
. . . . . . . . . . .Environment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Conclusions
. . . . . . . . . . . . . .&
. . . Recommendations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Useful
. . . . . . . . .Websites
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
For
. . . . Further
. . . . . . . . . .Reading
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
RESEARCH & TRENDS
A Cross-National Survey of Wireless Service Prices:
Canada, the United States and Europe
March 2007 – IGB Grant +1 514 849 3508 & Kevin Restivo +1 416 619 4926
EXECUTIVE SUMMARY
Canadian wireless adoption is a national disgrace. Only one Canadian in two has a wireless
phone. In Turkey the penetration of wireless phones is over 60%, in Tunisia it is 56% – about
the same as the Canadian penetration rate.1
Canada is far behind its OECD peers – in many cases wireless penetration has reached 90-100%
or the equivalent of one cellphone per person. In many countries penetration has far exceeded
this number.
In 1983, almost 24 years ago, the Canadian federal government issued its first mobile licenses, at
the same time as the United States. Today only 58% of Canadians use a cell phone. In
comparison, our neighbours in the United States have passed the 75% penetration mark – indeed
about 20 more Americans out of every hundred use mobile phones.2
EXHIBIT 1: Wireless Penetration Leaders (Top 20 countries + Canada and the U.S.)
Source: the Economist, Pocket World in Figures, 2007 Edition
Wireless Penetration
0
20
40
60
80
100
120
140
160
Luxembourg
Hong Kong
Sweden
Italy
Czech Republic
Cellphones per 100 population
Israel
Norway
United Kingdom
Slovenia
Taiwan
Lithuania
Iceland
Portugal
Austria
Estonia
Finland
Denmark
Ireland
Andora
Note: U.S. and Canadian
results have been added
to the top 20 results for
contrast
Macao
United States
Canada
1Moody’s Investor Services, 2007 Canadian Cable and Telecom Industry Outlook; January 2007.
2International Telecommunication Union, 2005.
PAGE 1/35
RESEARCH & TRENDS
Why is Canada trailing the wireless leaders? Are the countries leading the wireless penetration
race very different places than Canada? Are Canadians different? Are we a nation of couch
potatoes with no need for anything but a landline and an office phone? Interesting questions –
we have no answer. We did ask ourselves, however, if we could determine a key variable that is
different – some notable differential that might suggest a rationale for Canada’s poor showing in
the wireless development index.
In 2005 SeaBoard posited that high prices could be the reason for the slow uptake of wireless
services in our seminal study Lessons for Canada: Wireless Pricing – A Cross National Survey.
Lessons for Canada reported that the average Canadian wireless user paid 60% more than an
average American user for equivalent service.
18 months have passed since the initial report and the debate continues. Certainly some key
conditions have changed; the Canadian dollar is stronger (although the purchasing power parity
equivalencies that we use to compare services have not shifted significantly) and wireless usage in
Canada has grown from 48% to 58%. We also thought it prudent to review the methodology
used in the study to determine if our approach was flawed. [Hint – our answer was ‘no’.]
Our objective remained the same in 2007 as it was in 2005. We wanted to compare U.S. and
Canadian wireless prices across a spectrum of usage, across a number of providers. We wanted
to determine whether Canadians still pay a premium for wireless services when compared to the
U.S. and to see what our relative position was in relation to Europe.
The results of our 2007 review varied somewhat from 2005 but the main themes of the first
study still hold true:
• Canadians who use a lot of wireless service, our ‘heavy users’, still pay more than
Americans with equivalent service. Indeed the price differential has decreased – our
2007 findings show that the differential is now 56%, down 14% compared to the
findings from our last report. This differential is due in large part to higher long
distance and international roaming fees.
• Light (a.k.a. survival) cell phone users, by contrast, those who purchase “bare bones”
cell phone plans with no features included experience a different dynamic. Canadian
light users pay 27% less than Americans in 2007 – whereas last year SeaBoard paid
roughly the same amount in each country for equivalent plans. Can we pat ourselves
on the back for a more socially-aware pricing policy? Can Canadians take pride in this
seemingly pro-active result? Well, no, the changes are external to Canada – the lot of
the Canadian that doesn’t use their cell phone much hasn’t changed. Rather, U.S.
service providers have introduced new low-end plans – these plans include more local
call minutes and add such frills as unlimited long distance calls and free roaming
(across the United States and Canada). The result is that U.S. service providers now
charge low-end users more for service with the offset that more features are included
in the higher price. Canadian prices, therefore, look (and are) more affordable. The
best deals for survival cell phone users are still offered by Euro service providers –
London and Stockholm offer the less talkative the best deals.
PAGE 2/35
Regional Pricing
(Adjusted for PPP, in US$)
.9
6
US$
.8
3
$1
62
$180
$1
42
$160
$140
04
.4
2
Canada
$120
1.
81
$1
Europe
$8
U.S.
4.
81
$2
4.
85
$2
$1
$20
1.
07
$3
$2
1.
20
9.
34
$40
9.
97
$60
$6
$6
3.
32
$80
1.
49
$100
$2
RESEARCH & TRENDS
EXHIBIT 2: Monthly Wireless Phone Costs, by Cell Phone User Profile | Source: SeaBoard Group, 2007
$0
Survival User
Prepaid User
Average User
High End User
INTRODUCTION
This paper compares and contrasts wireless phone plans and prices offered in 10 Canadian,
American and European cities. It provides a snapshot of pricing dynamics in the last quarter of
2006. It also gives a brief overview of SeaBoard’s last wireless pricing study3 published in July
2005 and contrasts the current results to the earlier findings. Finally, this paper suggests what
government and service providers could do to increase Canadian’s use of wireless phones.
Mobile telephony has become much more common over the past fifteen years. It is no longer a
curiosity, but is seen as an essential tool in many places. The numbers are revealing: At the
end of 1991 there were only 15 million mobile subscribers in the countries that make up the
OECD; 15 years later there are more than 600 million wireless users.
The wireless phone became the most world’s most common communications device in 2000:
According to the International Telecommunication Union (ITU), the worldwide number of
mobile subscribers surpassed of fixed telephone subscribers in March 2000.4
Certainly, mobile phone use has proven popular. In the developed world there are several
countries with more mobile phone subscribers than they have people. In the developing world
the rush is on – both India and China are reputed to be adding more than 6 million new cellular
users each month.
Canada, however, seems to be an exception. Canada lags most of the developed world in cellular
adoption. The pace of growth is not nearly as torrid. We think that the prices charged for
service could be part of the answer – and the gentle competitive environment could be another.
3Lessons For Canada: A Cross-National Survey of Wireless Pricing, SeaBoard Group, July 2005.
4Development of Third-Generation Mobile Services in the OECD, Dr. Atsushi Umino, October 2003.
PAGE 3/35
RESEARCH & TRENDS
In our 2005 cell phone pricing study we determined that for the average user Canadian cell
phone plans cost 60% more than similar plans in the United States.
Our findings this year? It is still a lot more expensive to use a cell phone in Canada than in the
United States or Europe for most users. There is a group who has an advantage in being
Canadian rather than American, those users who keep their handsets in their glove
compartments – the survival phone users. For those users, Canadian providers offer better deals
than we found in the U.S. (although there were European plans that were more attractive still).
In general though, Canadians still pay a significant premium for cell phone service although the
price gap with the U.S. has narrowed since July 2005.
Canadian heavy cell phones users pay 56% more than Americans with similar usage. That’s down
14% from the 70% differential discovered in 2005. The U.S. heavy user plans are not only less
expensive but almost always include free long-distance and roaming within the United States and
Canada. Canadian and European service providers did not offer comparable plans at the time of
our investigation.
Average users get a better deal – these Canadians pay only 33% more than Americans for
equivalent plans – we note that this represents a 27% drop compared to last year’s findings (the
Canadian plans are 27% more affordable then they were in 2005).
Most Canadians pay more for cell phone service than they would if they procured their service
from a non-Canadian carrier. Indeed some of the U.S. plans could be used in Canada as an
alternative to buying service from a Canadian supplier – you would roam on Canadian networks
but pay the lower U.S. price. A cumbersome arrangement, to be sure, but possible.
SeaBoard believes that relatively high Canadian wireless-phone service prices have
dampened demand. Canadians aren’t tech laggards as has been suggested in recent
discussions on the country’s state of wireless phone competition. Instead, Canadians are rational
economic beings. They hesitate to buy cell phones or to hit the “send” button on a cell phone
knowing full well that the cost at the end the month will be breathtaking.
The answer? We believe the answer lies in competition. Canada’s carriers need to sharpen
their pencils – we need to wrest control of pricing away from the ‘rational pricing’-focused
CFOs, and give it back to the marketing departments! Such a scenario is unlikely to happen in
Canada’s oligopolistic market though – the solution, therefore, is to encourage more
competition. The Canadian government has an opportunity to do so – the forthcoming spectrum
auction for advanced wireless 3G services is a chance for government to alter the dynamics of
the marketplace by encouraging new entrants to join the fray.
PAGE 4/35
RESEARCH & TRENDS
METHODOLOGY
SeaBoard’s approach to the cross-national examination of wireless pricing is customer-focused.
Our research metaphor was to put ourselves in the shoes of the customer, to look at pricing as
it is presented in the ‘bill’, not merely to look at the advertised rate. Our researchers navigated
their way through (sometimes) Byzantine calling and pricing plans to determine the end-user
cost. The customer invoice includes additional fees, charges, taxes and penalties that aren’t often
disclosed or discussed when comparing published plans.
To compare wireless prices in Canada with those in the United States, and Western Europe, we
used profiles of survival, pre-paid, average and heavy mobile phone users that were created for
our 2005 study.
The customer profiles reflect different combinations of service options and usage represent an
array of wireless consumption. The consumption pattern represented by each profile was used
by our research team as they shopped for service.
SeaBoard “bought” minutes allotted to the various user profiles in four Canadian cities, three
American cities and three European cities. As in 2005, we did not include handset or long-term
contract promotions. We did include domestic roaming minutes in the average and heavy user
profiles to better reflect the Canadian experience – a major difference from the 2005 study.
To make cross-national, cross-currency comparisons SeaBoard converted prices from local
currencies to a common U.S. dollar reference using purchasing power parity (PPP).5 Results
reported in the paper refer to currency adjustments using PPP unless otherwise stated.
Some readers of our 2005 study suggested to us that the weightings in our customer profiles
may have skewed our results. One issue that was identified was that our assumption of 500
minutes per month was too high for an average user. We revisited our assumptions, but believe
them to be valid. We noted, for example, in the context of usage, that the average postpaid user
on the Rogers network was 541 minutes in 3Q06, up from 508 in the 2nd quarter. Our 500
minute assumption seems not only reasonable, but well in line with market reality. Further
discussion on methodological matters can be found in the section entitled Key Assumptions.
5We also compared results using a 3-year average exchange rate and using the Economist’s Big Mac index as a cross
check. The PPP results were broadly consistent with the other methods.
PAGE 5/13
RESEARCH & TRENDS
EXHIBIT 3: Cell Phone User Profiles | Source: SeaBoard Group
Plans
Survival User
Minutes Per Month
9am - 6pm
6pm-9pm
9pm-9am + Weekends
In country long distance
y
y
y
y
30 (19)
20 (13)
20 (13)
7 min
International long distance n
VM Log ins
Mobile to Mobile
To other networks
Total
Outgoing
Incoming
7 min
5 min
5 min
70 (45)
45
25
PrePaid
y
30 (19)
20 (13)
20 (13)
7 min
Average User
Power User
y
y
y
y
250 (162)
100 (65)
150 (98)
50 min
y
y
y
y
428 (278)
286 (186)
486 (316)
100 min
y
10 min
20 min
33 min
33 min
500 (325)
325
175
y
20 min
30 min
78 min
78 min
1200 (780)
780
420
7 min
5 min
5 min
70 (45)
45.5
24.5
Features
VoiceMail n
Caller ID n
y
y
y Enhanced VM if offered
y
Call Waiting n
Call Forward n
y
y
y
y
Other Features
If Available
Data
SMS n
MMS
Web Browsing
Mobile E-Mail
Ring Tones
IM
Video Messaging
n
n
n
n
n
n
y
n
n
n
y
n
n
CPM/20 messages
CPU/2 downloads
y
CPM/50 messages
y
y
y
y
y
y
CPM/20 messages
CPU/5 downloads
CPM/10 messages
What about the OECD?
The CWTA, Canada’s wireless industry association, has often cited OECD numbers in
a response to the SeaBoard assertion that Canadians are paying a premium to wireless
services prices elsewhere.
Indeed, the most recent OECD numbers differ materially from the numbers contained
in this report on wireless pricing, and they differ too from our more contemporaneous
2005 study. Why?
The primary difference between the SeaBoard methodology and the OECD
methodology is in the use of the ‘published price’ for a calling plan – for the OECD the
published price of a given plan is the end-point of their research. For SeaBoard it is
merely the beginning.
Take for example a relatively low usage plan, like the Rogers/Fido offer of 200 minutes
for C$20 a month. The OECD methodology would show the 200 minute plan and the
C$20 rate at its face value, they would then plug those values into their international
comparative model, translate the currency differences and establish the relative
position of Canadian wireless prices in an international context.
PAGE 6/35
RESEARCH & TRENDS
If only cross-national assessments of wireless prices were so simple. Most Canadians have felt
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CITY COMPARISONS
SeaBoard compared wireless prices from 10 cities in Canada, the United States and Western
Europe. We collected data from the major service providers and at least one smaller wireless
carrier in each geography to better understand the pricing environment. We compared wireline
with wireless phone prices in each region.
PAGE 7/35
RESEARCH & TRENDS
EXHIBIT 4: Cities and Service Providers | Sources: SeaBoard Group, 2007
Canada
Kelowna
Toronto
Saskatoon
Winnipeg
Bell, Rogers, Telus
Bell, Fido, Rogers, Telus, Virgin, Bell landline
Rogers, SaskTel
Rogers, MTS
U.S.
Athens, GA
Los Angeles
New York
Cingular, Metro PCS, Verizon
Cingular, Sprint Nextel, Verizon, Virgin, SBC landline
Cingular, Sprint Nextel, T-Mobile, Virgin,
Europe
Berlin
London
Stockholm
o2, T-Mobile, Vodafone, Deutsche Telekom landline
o2, Orange, T-Mobile, Virgin, Vodafone, BT landline
3, Telia, Telenor
User Profiles/Services Baskets
To determine the best prices for cell phone users in each city, we applied cell phone user
profiles – survival, pre-paid, average and heavy – to reflect different user consumption patterns.
Each service basket reflects a different selection of service elements and reflects different types
of users – from a low-usage no-feature customer to one who uses her phone a great deal and
uses multiple features. The profiles are meant to reflect different consumption patterns.
The user profiles were designed to try to standardize the different patterns of cell phone usage
between types of user, and users in various geographies. For example, Europeans make fewer
outgoing voice calls compared to North Americans, but send more SMS messages in situations
where Canadians might make a call. We added a text messaging component to the user profiles
and reduced the minutes for European service providers to account for incoming, mobile to
mobile and voice-mail retrieval calls, which are typically free for European customers but are
charged-for in North America.
U.S. cell phone users (as a group) are a global oddity – Americans, uniquely, use cell phones as
their primary instrument for long distance calling. Many U.S. wireless phone plans include
unlimited long distance calling – in the U.S. a minute is a minute, it doesn’t matter if you are
calling across the street, or across the country. American consumers have taken to this feature,
and anecdotally at least, many Americans make the majority of their long distance calls on their
wireless phones. Most U.S. plans also don’t distinguish between call origination points – there are
no domestic roaming charges. Canadian and European service providers, by contrast, charge
both for roaming and for long-distance calls.
PAGE 8/35
RESEARCH & TRENDS
Profile A – The Survival User
The “A” profile, more commonly known as the survival user, represents a person who uses her
wireless phone sparingly. The “A” profile person typically stuffs her cell phone in a glove
compartment or purse and ‘forgets’ about it till needed. The survival user, for the purposes of
SeaBoard’s study, does not subscribe to features or use data functions. Voice mail, caller ID and
other basic features are not included in this user profile if the user had to pay extra for the
services.6
Profile B – The Average User
The “B” profile, otherwise known as an average user, reflects the call usage patterns typical of a
‘normal consumer’. Our consumption pattern consists of 500 minutes of talking, and the
occasional data function (text messages and some ring tone purchases). Our average user basket
includes some long distance and international calls as well as selected features such as voice mail,
call waiting and call forwarding.
Profile C – The High-End User
Our power-user represents the person whose cell phone is an integral part of their life. The
heavy user uses more long distance and international minutes and other voice features than
average or survival users. Our heavy user profile includes data use, such as web access, text and
picture messages transmissions along with 1200 minutes of monthly voice usage. Our high-end
consumer could also be a business user, who uses his or her cell phone on the road for work
purposes, but we have not included other corporate features given our consumer-use focus.
FINDINGS
Have Canadian wireless phone prices dropped in the past 18 months since SeaBoard conducted
its 2005 study? Have prices gone up?
The answer is – it depends. Canadian heavy users now pay 56% more than they would if the
same user had bought a U.S. plan; 14% more than the same user in Europe. SeaBoard found
Canadian users paid approximately 70% for the same plan than he or she would in the United
States in 2005.7
American plans for heavy users are much cheaper than Canadian plans. The principal reason is
that U.S. service providers include more features in their top-end plans. These heavy user plans,
known as “big bucket” plans, usually contain 1000+ anytime minutes of airtime per month.
Indeed, some U.S. service providers, such as T-Mobile, offered plans with as much as 5000
anytime minutes – specifications that surpassed SeaBoard’s heavy user customer profile
requirements. T-Mobile also offers plans with as many as 2500 minutes monthly.
6But these features are included if they are bundled – typical of plans in the U.S.
7Lessons For Canada: A Cross-National Survey of Wireless Pricing, SeaBoard Group, July 2005.
PAGE 9/35
RESEARCH & TRENDS
To meet the heavy user profile user pattern requirements in Canada SeaBoard researchers had
to shop in the business services portfolio of some carriers – purchasing minutes within the
consumer service portfolio, a la carte, would have been more expensive. The research effort
required to ‘get the best deal’ was considerable. We don’t think that many consumers would
make the effort (or know that such an option exists).
The average Canadian user now get a somewhat better deal since our last wireless pricing study
was conducted. Average Canadian users “only” pay 33% more than the same type of user in the
United States. In 2005, by contrast, the average Canadian cell user paid 60% more in Canada
than an average U.S. user.
For the survival user, Canada is a better place to buy a cell phone plan: it’s about 27% less
expensive to buy minutes than that same user would pay in she were in the United States.
However, we note that Canadian survival users pay 42% more than they would in Stockholm. In
2005, survival users paid roughly the same amount in all geographies.
SeaBoard believes that the Canadian survival users price drop is a function of changes to U.S.
bundling rather than more generous Canadian providers. U.S. service providers have folded
more features into even the smallest plans and have increased prices accordingly. This has the
effect of making Canadian bare-bones plans look more attractive.
BASKET COMPARISONS BY CITY
Information on the rates and plans was gleaned from the service providers’ Web sites and
cross-checked with sales representatives by telephone. The data were collected in October and
November 2006.
Service Basket “A” – Survival Users
We found the best rates for survival users in Stockholm, Sweden: Monthly survival cell phone
service costs an average of US$9.08/month. Telia and Telenor8 compete aggressively for the
occasional, price-sensitive user. Both companies offer post-paid plans for as little as
US$7.65/month – this extremely low price brought down the average cost of survival plans in
Stockholm.
Service providers in Berlin offer the second-best rates for survival users, an average plan price of
US$15.56.
The best deal in Canada for a survival user can be found in Kelowna, B.C., where the average
monthly cost for a survival user was US$29.83. Toronto, with an average cost of US$31.39 per
user, was the most expensive Canadian city for the survival cell phone user. The difference, it
should be noted, between survival user prices in Kelowna and Toronto isn't even enough to pay
for a cup of Starbucks coffee.
8Telenor bought Vodafone’s Swedish network in November 2005.
PAGE 10/35
RESEARCH & TRENDS
With an average cost of US$45.44, New York City was the most expensive place for survival
users. This is due in part to higher priced basic plans and but also exacerbated by various taxes
slapped on the city’s cell phone bills by various levels of government.
While U.S. service providers sell survival service for a premium when compared to the European
or Canadian service providers, most basic plans offered in the U.S. that we selected exceeded
the requirements of the survival user profile. The plans offered in the U.S. often included 200 or
more minutes (we looked for 70) and offered ancillary services that we weren’t looking for –
unlimited U.S. long distance calls and sometimes to they included Canada as well!
EXHIBIT 5: Survival User Prices, by City | Source: SeaBoard Group, 2007
Survival User Pricing
(in US$ & adjusted for PPP)
Winnipeg
$26.71
Saskatoon
$29.42
Toronto
$31.39
Kelowna
$29.83
New York
$45.44
Los Angeles
$37.97
Athens, GA
$36.91
Stockholm
$7.29
$38.97
London
Berlin
$15.56
$0
$10
$20
$30
$40
$50
US$
Service Basket “B” – Average Users
We priced available plans to find the optimal price for a user of 500 minutes per month, 250 of
which would be daytime minutes, 100 would be ‘shoulder minutes’ between 6 and 9pm and 150
minutes on nights and weekends. For European plans we have assumed 35% of the basket’s total
minutes would be comprised of incoming, mobile to mobile and voicemail retrieval calls. We also
included 20 text messages and two ring tone downloads in the basket.
The least expensive city for a wireless phone user was Stockholm, Sweden, where service
providers sell service for an average US$27.15 (this low average is due in large part to low-cost
plans offered by 3 and Telia). That’s less than half the cost an average cell phone user incurs in
Athens, GA – the next closest city in the survey. Service providers sell monthly service in Athens
for an average US$56.68 a month.
PAGE 11/35
RESEARCH & TRENDS
The Athens GA average price was brought downward by service pricing from one particularly
aggressive carrier, MetroPCS. MetroPCS offers low-cost plans in select U.S. regions, such as
south Florida, the San Francisco Bay area, Detroit and Georgia. Smaller U.S. service providers,
such as MetroPCS, generally appear to offer average users the most attractive prices. They do
this by folding-in more add-on features, long distance and anytime minutes into their plans than
do their larger national counterparts, or service providers in Canada or Europe.
The most expensive city for an average cell phone user was London, England. The monthly cost
for an average London user was US$95.83 (more than three times the cost of the same services
in Stockholm).
Overall, Canadian average users pay an average of US$18.73 a month more than Americans for
the same number of minutes and features. At a monthly average cost of US$92.87, Toronto is
the most expensive Canadian city for average cell phone users. The least expensive Canadian city
included in the survey was Winnipeg, where cell phone service costs an average of US$70.03.
EXHIBIT 6: Average User Pricing, 2006 | Source: SeaBoard Group, 2007
Average User Pricing
Winnipeg
$70.03
Saskatoon
$76.37
Toronto
$92.87
Kelowna
$78.51
New York
$66.26
Los Angeles
$60.94
Athens, GA
$56.68
Stockholm
$27.15
London
$95.83
Berlin
$66.97
$0
$20
$40
$60
$80
$100
$120
US$
Canadian service providers charge roughly the same amount as U.S. service providers (e.g. $50
for a 500 minute) for a cell phone plan but Canadian service providers charge more for features
such as voice mail and call waiting.
Costs would have soared even higher in Canada when choosing an Average plan had SeaBoard
researchers not “bought” minutes using student and business plans (from Bell and Rogers,
respectively) to achieve the profile’s minutes-requirements. These ‘special’ plans offered the best
price/usage fit for our average user profile but we don’t believe that most cell phone shoppers
would be as persistent as our researchers in their quest for savings.
PAGE 12/35
RESEARCH & TRENDS
Service Basket “C” – High-End User
The high-end user profile includes 1200 minutes, or about 20 hours of talk time per month. Of
that total, 428 minutes are in peak hours with the remaining minutes in both shoulder hours,
nights and weekends. Our high-end profile includes 100 minutes of in-country long distance calls
as well as 20 minutes of international long distance calls. Our researchers added many other
features such as enhanced voicemail (if it was available). We included 50 text messages, 20
multi-media messages and 10 video messages (if that service was offered by the service
provider).
As we found in 2005, SeaBoard discovered the U.S. service providers offer high-end users for
the lowest rates. The lowest average price in the three U.S. cities examined was in Athens, GA,
where high-end users paid an average price of US$87.82/month for our service bundle.
The average price was brought down considerably in Athens because of MetroPCS’ aggressive
offering in the city. MetroPCS still only operates in services in a handful of U.S. regions, such as
south Florida, Georgia, Detroit and the San Francisco Bay area, but offers very competitive rates
in those markets. It is an example of a second-tier U.S. cell phone service provider that does not
offer nationwide coverage, yet is aggressive in the markets where it offers service. MetroPCS and
service providers of the same ilk have created a competitive intensity that we think benefits
Canadians too.
The high per-minute cost of individual calls means it’s expensive to be heavy cell phone user in
Europe. In Europe, as in Canada, long distance pricing has a considerable impact on the total
costs; we found no Euro-equivalents to discounted U.S. continental unlimited calling plans.
U.S. service providers offer well featured, big-bucket plan plans as a norm. Smaller service
providers in Europe, such as 3 in Sweden, have copied the U.S. service provider model, offering,
for example, the 3Business 1000 – an add-on of additional minutes which includes long distance
and data charges for a flat fee. By contrast, our researchers had to buy additional minutes in
Canada to achieve the goals set out in our profiles.
PAGE 13/35
RESEARCH & TRENDS
EXHIBIT 7: High End User Pricing – Average of Markets | Source: SeaBoard Group, 2007
High End User Pricing
Winnipeg
$131.08
Saskatoon
$164.30
Toronto
$174.93
Kelowna
$157.78
New York
$115.24
Los Angeles
$110.03
Athens, GA
$87.82
Stockholm
$95.73
London
$201.04
Berlin
$131.73
$0
$50
$100
$150
$200
$250
US$
High long-distance prices and lower overage limits contribute to the price gap between Canadian
high-end users and the same type of users in the United States and Europe. In a number of
instances we did not accept the ‘obvious’ minute-bucket bundle that met our profile target, but,
instead, purchased additional minutes where doing so saved money for our frugal customer
(there were occasions when the Canadian minute-buckets were not the best deal for example).
PREPAID USERS
Our researchers also compared prepaid services in the various cities. Pre-paid services are
offered by most service providers – most providers position prepaid offerings as an entry-level
option to help ease customers into the wireless communications world. We approached the
prepaid service as we assumed a customer would: Would prepaid provide our profiled user an
economical plan given their average minutes of use? The pre-paid profile SeaBoard developed
was most comparable to the survival user profile.
Europeans prepaid users fare better than North Americans given that incoming minutes are
charged to the caller, and not to the receiver. Many frugal Euro-consumers keep outgoing calls
to a minimum – people are encouraged to call them!
PAGE 14/35
RESEARCH & TRENDS
EXHIBIT 8: Prepaid Survival User – Average per market | Source: SeaBoard Group, 2007
Prepaid Survival User
Winnipeg
$19.15
Saskatoon
$27.03
Toronto
$18.90
Kelowna
$19.18
New York
$21.77
Los Angeles
$20.20
Athens, GA
$32.46
Stockholm
$14.68
London
$18.26
Berlin
$11.62
$0
$5
$10
$15
$20
$25
$30
$35
US$
While U.S. service providers offered the best plans for heavy cell phone users, the offerings in
the U.S. for pre-paid survival users are closer to parity with offerings in Europe and Canada.
The average monthly cost of prepaid services in New York and Los Angeles was slightly higher
than prepaid offerings in Winnipeg and Toronto but cheaper than prepaid services in Saskatoon.
At US$11.62, Berlin is by far the least expensive city to buy pre-paid service. The most expensive
pre-paid service can be found in Athens, GA, where MetroPCS (which provided the best rate for
high-end users) offered the most expensive service for prepaid survival users.
Amongst Canadian cities the market for pre-paid cell phone services was most competitive in
Toronto. Not coincidentally, Toronto (and Vancouver) also have the greatest number of
competitors for pre-paid customers. At $18.92, Fido offered the cheapest option for our
pre-paid user in Toronto. Virgin Mobile, which began operations in Canada two years ago, had
the second-least expensive offering at $19.84/ month. Bell Mobility, which offered the least
expensive pre-paid service last year, would’ve been the least expensive pre-paid service in
Toronto again this year had that company not introduced a new $3.95 system access fee for
pre-paid users in October. Due to the change, Bell Mobility now ranks third behind Fido and
Virgin though the difference in average monthly pre-paid costs wouldn’t even buy the user a cup
of Toronto latte.
PAGE 15/35
RESEARCH & TRENDS
EXHIBIT 9: The Toronto Prepaid Market | Source: SeaBoard Group, 2007
The Toronto Prepaid Market
C$
$25
$23.52
$23.75
$20
$19.95
$19.84
$18.92
$15
$10
$5
$0
Bell
Fido
Rogers
Telus
Virgin
As shown in Exhibit 10 below, pre-paid offerings were consistently more attractive than plans
offered for post-paid survival phone users. Stockholm, however, is an exception. The price gap
between prepaid and postpaid service, is most apparent in the larger centres. For example,
post-paid services in New York City cost on average US$45.44/ month while survival level
pre-paid service cost US$21.77 a month – less than half the cost of post-paid service in that city.
EXHIBIT 10: Prepaid and PostPaid Survival Users | Source: SeaBoard Group, 2007
Comparing Survival Postpaid and Prepaid Offerings
$19.15
Winnipeg
$27.03
$29.42
Saskatoon
Toronto
$18.90
Kelowna
$19.18
$31.39
$29.83
$21.77
New York
$26.71
$45.44
$20.20
Los Angeles
$37.97
$32.46
Athens, GA
Stockholm
$7.29
$36.91
$14.68
$18.26
London
$38.97
$11.62
Berlin
$15.56
$0
$10
$20
$30
$40
$50
US$
Survival User
PrePaid User
PAGE 16/35
RESEARCH & TRENDS
COMPARISON WITH 2005
Canadian prices for survival and average users dipped slightly this year, compared to 2005. The
comparisons are shown in Exhibit 11. Canadian high-end users, however, pay an average of
C$201.26 monthly compared to C$169.25 last year, which is a 19% rise in monthly costs. The
most significant contributor to this increase was the inclusion of domestic wireless roaming fees
in the power-user profile: these charges that are common in Canada are unknown in the U.S.
EXHIBIT 11: Canadian Wireless Costs by User, 2006 vs. 2005 | Source: SeaBoard Group, 2007
Canadian Wireless Costs by User, 2006 vs. 2005
$169.25
High End
$201.26
$99.56
Average
$97.68
2005
2006
$24.45
PrePaid
$26.40
$38.84
Survival User
$36.18
$0
$50
$100
$150
$200
$250
C$
Prices for average users in Canada dropped this year to about $80 from $90 in 2005 as shown in
Exhibit 12. The gap between Canadian and U.S. average users costs has narrowed because U.S.
prices have increased. U.S. plans cost more, but also include more features. Costs for an average
user in the U.S. increased to US$61.49 from US$56.52 in 2005, an increase of 8.8%.
In Europe, prices for average users fell 16.6%. European service providers may be reacting to
sabre rattling from Brussels. The service providers may have been worried the telecom
regulators would focus their regulatory attentions on the industry if relatively high roaming
prices were not addressed.
PAGE 17/35
RESEARCH & TRENDS
EXHIBIT 12: Comparison of Average Wireless Service Basket Prices by Region – 2006 vs. 2005
Source: SeaBoard Group, 2007
Average Wireless Service Basket Prices – 2006 vs. 2005
US$
$100
$90
$80
$70
$60
2006
$50
2005
$40
$30
$20
$10
$0
Canada
Europe
U.S.
Average user prices in Europe dipped over the past two years, as mentioned above, we presume
the reason to be due to the European Union’s threats to impose caps on mobile roaming tariffs.
Average user prices jumped in the United States because the major service providers increased
fees for plans while Canadian prices dropped as shown in Exhibit 13.
EXHIBIT 13: Comparison of Average Wireless Prices by City – 2006 vs. 2005 | Source: SeaBoard Group, 2007
Average Wireless User Prices – 2006 vs. 2005
Winnipeg
$98.15
$83.26
$86.80
$92.87
Saskatoon
Toronto
Kelowna
$79.26
$87.23
$59.77
$66.26
$59.93
$61.52
New York
$89.33
$71.84
Los Angeles
2005
2006
$49.85
$56.68
Athens, GA
Stockholm
$45.50
$27.15
$92.22
$95.83
London
Berlin
$90.14
$66.97
$0
$20
$40
$60
$80
$100
$120
US$
PAGE 18/35
RESEARCH & TRENDS
Though prices for the average Canadian user dropped last year, Canadian cities were still far
more expensive places to have cell phone service when compared to U.S. and European cities as
shown in Exhibit 13. Toronto, where average users pay US$92.87 a month, overtook Saskatoon
this year as the most expensive Canada city in which to be an average user.
The most expensive city in the U.S. to have cell phone service was New York City and the most
expensive city in the SeaBoard survey to have cell phone service was London. Not surprisingly,
the least expensive cities were Stockholm (US$27.15 per month) followed by Athens, GA
(US$49.85).
LANDLINE RATE COMPARISONS UPDATED
SeaBoard researchers also looked at wireline prices to ascertain if lower wireless penetration
was driven by relatively high landline rates.
We used the wireless user profiles as a guide in comparing wireless to wireline prices. Our
conclusion? Interestingly, the traditional home phone wasn’t always the cheapest option.
The average user in Los Angeles paid more for a wireline connection with some features, such as
voice mail, than he would for a wireless phone that met the average usage profile.
Heavy users in Sweden are also better off with a cell phone than a landline. Power users in
Stockholm would pay higher prices for a landline at similar levels of usage. The key driver of wireline
rates in Sweden are high per-minute local wireline call rates charged by Swedish carrier Telia.
In London, wireless prices are nearly on par with wireline prices for survival users, which is
probably a sign wireline prices have dropped given increased competition from
access-independent VOIP providers and cable telephony players in recent years.
EXHIBIT 14: Wireless and Wireline Rates Compared – Survival User | Source: SeaBoard Group, 2007
Wireless to Wireline Rates – Survival User
US$
$45
$40
$35
$30
$25
Wireless
Wireline
$20
$15
$10
$5
$0
Berlin
London
Stockholm
Los Angeles
Toronto
PAGE 19/35
RESEARCH & TRENDS
High wireline prices have driven consumers into the open arms of European wireless phone
service providers in past. With wireless penetration exceeding 100% in some European
countries, service providers overseas may now see some users that swapped out wireline
connections for wireless phones, defect back to wireline services or subscribe to new hybrid
wireline-wireless initiatives such as BT’s Fusion initiative.
In North America, the story is the same as it was 18 months ago. The home phone is less
expensive everywhere but Los Angeles, for average users.
EXHIBIT 15: Wireless and Wireline Rates Compared – Average User | Source: SeaBoard Group, 2007
Wireless toWireline Rates – Average User
US$
$120
$100
$80
Wireless
Wireline
$60
$40
$20
$0
Berlin
London
Stockholm
Los Angeles
Toronto
EXHIBIT 16: Wireless and Wireline Rates Compared – Heavy User | Source: SeaBoard Group, 2007
Wireless to Wireline Rates – Heavy User
US$
$250
$200
$150
Wireless
Wireline
$100
$50
$0
Berlin
London
Stockholm
Los Angeles
Toronto
PAGE 20/35
RESEARCH & TRENDS
WHAT’S IN THAT BILL? A LOOK AT EXTRA FEES
Our analysis until now has focused on the final price charged by the cellular supplier. This section
focuses on the taxes, fees and surcharges levied by wireless service providers – on their own
behalf, or on behalf of governments.
The differences between Canadian and American cellular bills are most evident when monthly bill
line-items are contrasted. For example, “plan” costs in Canada are 39% of the average user’s
monthly spend – this compares to 65% in the U.S. The cell phone plan represents only a fraction
of the final Canadian tally – that explains why your $40 plan seems to cost around $90; surprise!
Noticeably absent from the average American user’s monthly cell phone bill are domestic long
distance calls. In Canada, by contrast, the average user pays 14% of her bill in domestic long
distance calls. Average cellular users in both countries pay, on average, similar percentages of
their bill for international calls (6% in Canada and 7% in the U.S.).
Canadian average users lead the world in paying for surcharges. Canadians spend 9% of their
monthly cell phone costs on unique levies such as the ‘system access fee’. The average American
cell user, by contrast, spends 2% of his or her cell phone costs on similar surcharges (but not,
curiously, system access fees, a uniquely Canadian line item). Surprisingly, Americans and
Canadians spend roughly the same amount on cell phone taxes each month. The average
American bill is comprised of 13% taxes each month and in Canada 12%9 is spent each month
on taxes. New Yorkers, who find 25.2% of their monthly costs are due to taxes, on average, are
hit the hardest.
EXHIBIT 17: The U.S. Wireless Bill – Average User segmented | Source: SeaBoard Group, 2007
U.S. Wireless Bill Breakdown, Average User
Additional
Calling Costs
2%
Taxes
13%
Surcharges
2%
Data Charges
10%
Feature Charges
1%
Plans
65%
Long Distance
7%
9While GST + PST on most given monthly cell phone bills add up to 14% of the bill, when factored in reverse they are
less. For example, a $100 invoice would attract taxes of $14 in Canada – but the proportion that taxes represent of the
$115 total would only be 13%.
PAGE 21/35
RESEARCH & TRENDS
EXHIBIT 18: The U.S. Wireless Bill – Average User segmented | Source: SeaBoard Group, 2007
Canadian Wireless Bill Breakdown, Average User
Taxes
12%
Surcharges
9%
Plans
39%
Data Charges
7%
Feature Charges
8%
Additional Calling
Costs
5%
International LD
6%
National LD
14%
Heavy User Bill Breakdown
The disparities between Canadian and American charges are most evident when the bills of
heavy cell phone users are compared.
For the Canadian heavy user, 18% of monthly cell phone expenditures are spent on long distance
charges, including 12% on national long distance charges. In contrast, Americans spend a mere
4% monthly for international long-distance calls. National long-distance calls for survival, average
and heavy users are typically included in an American cell phone plan.
The price gap between heavy cell phone users is perhaps more evident this year given that
SeaBoard researchers assumed this year that heavy users roamed on their cell phone for 5% of
their allotted monthly minutes: There are no domestic roaming fees in the United States.
Surcharges for heavy users (4%) in Canada were also noticeably higher than those levied by
American service providers (1%). However, taxes are lower for the heavy Canadian cell phone
user (11%)10 as a percentage of the monthly spend than the same user in the United States (13%)
largely because of high government-imposed charges in expensive states such as New York and
California.
PAGE 22/35
RESEARCH & TRENDS
EXHIBITS 19&20: Canadian vs. U.S. Heavy User Bill Breakdowns | Source: SeaBoard Group, 2007
U.S. Wireless Bill Breakdown, Heavy User
Taxes
13%
Surcharges
1%
Data Charges
20%
Plans
58%
Feature Charges
1%
Additional Calling
Costs
3%
International LD
4%
National LD
0%
Canadian Wireless Bill Breakdown, Heavy User
Taxes
11%
Surcharges
4%
Plans
37%
Data Charges
17%
Feature Charges
8%
Additional
Calling Costs
5%
National LD
12%
International LD
6%
10While GST + PST on most given monthly cell phone bills add up to 14% of the bill, when factored in reverse they are
less. For example, a $100 invoice would attract taxes of $14 in Canada – but the proportion that taxes represent of the
$115 total would only be 13%.
PAGE 23/35
RESEARCH & TRENDS
The Americans Were Ahead of Us
The usual explanation of why Canada lags the industrialized world is that the ‘rest of
the world’ started their ‘wireless’ journey ahead of Canada. The refrain continues that
once Canadians have enjoyed the same period of time to embrace wireless, we shall.
What are SeaBoard’s thoughts on this ‘head start’ defense? We concur with some of it.
We disagree that the explanation is complete and we think that it would be a mistake
to read too much into it.
We do agree that U.S. operators launched cellular services before Canadian licensees –
but not in a significant manner. Some U.S. cellular licensees were awarded frequencies
at the end of 1983 – the same time as national cellular licenses were awarded in
Canada to Cantel and the incumbent phone companies. However, many other U.S.
licences were awarded later, through the course of 1984.
While those who received licenses in the USA were allowed to launch service when
ready, in Canada, in order to avoid a “head start” advantage for the phone companies,
commercial launch of cellular services was not allowed before July of 2005. This also
allowed for a more extensive network build prior to launch – meaning more
consumers would have access to the service once available. As we will discuss below,
Canadian operators, together with the Canadian licensing authority, believed it more
important for each region to be ‘live’ at a similar time, in national concert, than to be
‘first’. The U.S. carriers, by contrast, turned-up service as their construction
programme unfolded.
We note that Canada wasn’t new to the idea of wireless telephony when the first
cellular licenses were handed out in 1983. Wireless telephones had existed for over a
decade – extensive wireless networks covered much of Canada. The difference
between the pre-existing wireless telephone networks and the cellular networks that
succeeded them were:
• Frequency
The new cellular frequencies awarded in 1983 were in the mid-range of the
UHF band; 800-900 Mhz, the first generation of mobile telephony used
frequencies in the 100 Mhz band;
• Coverage
The lower frequencies of these pre-cellular networks allowed for very wide
coverage areas – a 120 km + usable radius was not uncommon;
• Call Set-up protocols
Call Set-up was manual – an operator was contacted (once the channel was
established to be clear) and a call connected; and
• Cost
The cost of these early networks was expensive.
By the time cellular licenses were awarded in 1983, Canada’s telephone companies
already had a sizable base of mobile phone users – and, of course there were a large
number of other mobile radio uses and UHF and VHF radios were a large part of the
mobile communications picture as well.
PAGE 24/35
RESEARCH & TRENDS
Canada awarded cellular licenses to Cantel (later Rogers Cantel, now Rogers
Wireless), and to the mobility arms of each of Canada’s incumbent telephone
companies. The licenses were awarded in December 1983 – essentially
contemporaneous with the U.S. cellular license awards – but Canadian companies, at
the urging of the Canadian government, elected to launch the service roughly 18
months later, after national facilities were established. The U.S. licensees, by contrast,
constructed facilities and launched service when each was ready. The U.S. deployments
were thus turned-up for commercial service in advance of Canadian service availability.
Cellular service was pricy when it was first deployed. In 1985, when cell service in
Canada was launched, cell phones were ‘trunk mounted’ and car battery powered –
and they cost upwards of C$5,000 each. Yet despite these high hurdles, and relatively
high usage costs ($0.65 per minute was a typical charge for a daytime minute) there
were 2.6-million cellular subscribers in Canada by the end of 1995.
Canadian cell phone penetration in 1995 was close to the UK at 9% vs. 10%. Other
penetration rates are given below in Exhibit 21.
EXHIBIT 21: Cellular Penetration 1995; Select Countries
Source: Bunting Warburg, Wireless in Canada, 30 May 1996
Country
%
Norway
23
Sweden
22
Australia
18
U.S.
13
U.K.
10
Canada
9
EXHIBIT 22: Cellular Penetration 1995; Select Countries
Source: Bunting Warburg, Wireless in Canada, 30 May 1996
14
% penetration of mobile service
That the U.S. was ahead of Canada, even then, wasn’t news in Canada. What excited
the financial analysts at the time, however, was that Canada was on-track to pass
the U.S. penetration rates by about the time of the PCS launch in 1996; a
decade after cellular service was commercially launched in Canada. The
following exhibit is taken from analysis by Bunting Warburg in 1996:
12
10
8
Canada
6
U.S.
4
2
0
1
2
3
4
5
6
7
8
9
10
11
12
Years after inception of service
PAGE 25/35
RESEARCH & TRENDS
Note the faster uptake in Canada. Note the trend in uptake. Bunting Warburg’s
analysis was also encouraged that Canada’s wireless subscriber rates were bound to be
similar to the Scandinavian countries – given that “only two years ago (Norway and
Sweden’s) penetration rates were both at 9%, similar to Canada’s penetration rates
today (1996).
So near, then – so far, now.
What were the principal ingredients in the Scandinavian success? Bunting Warburg was
unequivocal, “Low pricing has helped.” The firm pointed out that not only were local
wireless minutes affordable, but “long distance calls are cheaper on the cellular
network than on the telephone wireline network.” Not in Canada, they aren’t. Unless
people take advantage of the new Rogers innovation, which allows the company's home
phone customers to make free long distance calls to Rogers Wireless or Fido
subscribers. More’s the pity.11
What excited financial analysts at the time was that Canada’s dynamic growth was
driven by lower cellular prices in Canada than were charged in the U.S. Given that
momentum Canada was forecast to pass U.S. penetration rates and challenge world
leaders in cell phone adoption and usage.
Alas, rational pricing is Canada’s current mantra. What is the legacy of ‘rational pricing’?
Wider provider margins for the most part and poorer customers. The country suffers
too. Canada’s present position in global mobile communications provision is dead last
amongst the developed nations. We can take heart from our position ahead of Gabon,
perhaps but it wasn’t always thus. Only a decade ago at least one financial analyst
thought that Canada had a shot at parity with Scandinavia – no longer.
A final thought from Bunting Warburg on the rosy state of the Canadian wireless
market:
“These growth drivers are self-reinforcing, that is airtime price reductions will
stimulate penetration, which will help to reduce handset and infrastructure
costs, which will further stimulate demand, enabling further airtime price
reductions and so on.”
Somewhere along the line Canada appears to have moved away from the vision.
11Although wireless long distance rates are less than wireline long distance in the United States (at least wireline long
distance that is supplied by the wireline providers; VoIP providers, by contrast, price long distance similarly to wireless
carriers – part of the nationwide calling plan.
PAGE 26/35
RESEARCH & TRENDS
THE COMPETITIVE WIRELESS ENVIRONMENT
Canada has had cellular phone services since the launch of Cantel and the various telephone
company “mobility” arms in 1985. 24 years ago.
Over that time Canadians have been provided wireless services of increasing quality and
increasing ubiquity. The pioneer companies, Bell Canada, Telus Corp. and Rogers
Communications, have served Canadians well – over 95% of Canadians have access to
competitive cellular networks. Cell service is available in all but some of Canada’s major roads –
the highways of the Northwest Territories remain a hole in the fabric, but we digress.
There have been tough times – memories of the lean years we are sure still haunt CFOs. Times
now though aren't tough at all. Wireless is doing well. Now may be time to inject competitive
fervor back into the market. In 2007, Canadians are paying some of the highest prices for cell
phone service in the world.
Not coincidentally, Canadian adoption of wireless services in Canada is second last in the OECD
and behind several developing nations. By 2005, the United States, – the country’s main trading
partner, was fast approaching the 75% penetration mark while Canada lingered around the 56%
mark.12
Why does it matter? As pointed out by the Telecom Policy Review Panel in its final report,
released in March:
“Canada’s mobile wireless industry lags behind its major trading partners on a
number of key measures. This finding reinforces the Panel’s belief that because
of the growing importance of this segment, Canada should develop a more
efficient and vibrant wireless industry. ”13
Are big changes possible given the current dynamics of Canada’s wireless market? Probably
not. Bell, Telus and Rogers are entrenched providers that count on the wireless divisions of
the companies for the lion’s share of each of their profits. The publicly-traded parent
companies are being asked to meet ever-increasing expectations each quarter by investors and
equity analysts. The most closely watched metric of all is the average revenue per user. To
meet ARPU expectations, the Canadian service providers charge long distance and roaming
rates that are higher than most other Western countries and have unilaterally slapped levies
on consumers [the network access fee is the best example].
12International Telecommunications Union, 2005 wireless penetration figures & company reports..
13From the Telecom Policy Review Panel Final Report [pages 1-19 - 1-21], March 2006.
PAGE 27/35
RESEARCH & TRENDS
In SeaBoard’s opinion, the small number of providers and the aforementioned factors have led to
lower competition as well as lower innovation, uptake and usage of cell phones in Canada.
Is competition the answer? Economic theory suggests there are two ways to shift pricing – a
regulatory decree or a competitive market. Of the two choices we prefer the competitive
market.
What evidence is there that competition drives innovation? What evidence do we have that
pricing can stimulate the market? Exhibit 23 illustrates the effect that increased competition can
have on one market at least, Canada’s.
EXHIBIT 23: Competition Stimulates Growth | Source: Company Reports, SeaBoard Group
Growth in Canadian Wireless Penetration – 1985 to 2005
7
60
6
Subs/100
Growth y-o-y
Rogers buys Fido
5
40
Impact of Fido
and Clearnet
4
30
Microcell
restructuring
20
3
2
10
Duopoly Era
% Penetration Gain; y-o-y
Increase in subscribers/100 Canadians
Telus buys Clearnet
50
1
anticipating PCS
0
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0
Exhibit 23 shows how Canada's greatest penetration gains came at periods of time when there
were more than three national wireless players offering service. Soon after the advent of
Microcell and Clearnet in the mid-1990's, kicked off a period of unprecedented wireless growth
in Canada. Not coincidentally, slower wireless growth comes after a period of consolidation,
which saw Microcell and Clearnet snapped up by Rogers and Telus, respectively. There are other
factors to consider. A slower economy and the law of large numbers make it difficult, if not
impossible, for the country's wireless providers to grow at mid-1990's rates. Given Canada's
growing penetration gap, one wonders why innovative cell phone plans, such as the former
Microcell Telecommunications’ CityFido unlimited usage plan, are viewed with disdain – even as
a threat. The mantra of “rational pricing” wins out over “big bucket” or customized cell phone
plans – even if a smaller addressable market is the result.
PAGE 28/35
RESEARCH & TRENDS
More should be done to stimulate demand and bring wireless services to the half of the country
that doesn’t own a cell phone.
Otherwise, Canada is in danger of falling further behind its peers in the OECD, and shortly parity
with Gabon may be beyond our grasp..
CONCLUSIONS & RECOMMENDATIONS
Canada is dead last in the 30-country OECD measurement of wireless penetration. Oddly
enough, Canada’s wireless prices lead the world – there may well be a correlation.
What can be done to restore Canada to its leadership position? We think that the answer lies in
increased competition. The market lacks competitive intensity. With Clearnet and Microcell
long since absorbed into Telus and Rogers, respectively, innovation has waned and prices have
risen. Where has the CityFido plan gone? Where is the focus on wireline migration?
How can competition be increased? We have three major providers in the Canadian market yet
the rallying cry in the industry is to strive for ‘rational pricing’ – a theoretical state of affairs
where service providers don’t get tempted to give services away in order to expand the market
of their share therein. Other country’s service providers must envy the comfortable pews
occupied by Canadian wireless licensees. Not for them the fray, the dust and blood of battle.
Orderly returns are the sole objective.
What of Darwin?
Struggle improves us. The fittest survive, the breed improves. Struggle improves companies too.
Struggling companies pay more attention to their customers, and they try to tempt customers to
buy more services through innovation and through pricing. We need more of one, innovation,
and less of the other!
How to stimulate more competition? This is a role that government can play. This is where
Canada’s federal government should step into the wireless fray, license a new entrant or entrants
to offer services in the Canadian market.
The case for a new wireless entrant (or entrants) in Canada is simple. A larger number of
competitors translates into a more competitive market, a more vibrant marketplace and a more
dynamic industry.
PAGE 29/35
RESEARCH & TRENDS
In the European Union – where penetration rates are among the highest in the world – there are
now at least 79 2G network operators together with 214 service providers, up from 166 in
2004. Penetration levels tend to be highest in countries with a greater number of service
providers.14 By September 2005, there were roughly 15-million subscribers to so-called 3G
services in the European Union, with most in Italy and the United Kingdom; 58 operators now
offer commercial services, including internet access and content services, such as news and
sports highlights.
Despite high roaming rates, European consumers “saw significant reductions in prices for
national calls in the majority of European member states, in particular for low and average users
in Belgium, Luxembourg, the Netherlands, Poland, Portugal, Finland and Sweden” with the
introduction of new service providers into the fray over the past five years.15
Industry Canada’s forthcoming radio spectrum auctions present the country with an ideal
opportunity – a chance to broaden Canadian wireless competition beyond the oligopoly. It’s also
a chance to drive the country’s wireless adoption to ‘developed country’ levels; a chance to drive
innovation and creativity as well as an opportunity to kick-start the country’s productivity.
The auction process will need to be managed – the best bidder in the eyes of public policy will
not necessarily be the bidder with the deepest wallet, or the most anxious demeanor. We
envisage the need for a separate spectral allocation for new entrants; a block of the spectrum
that would be earmarked as available to bidders other than present holders of wireless licenses
in a given geographic markets.
Do we need another national carrier? Or could regional licenses have the same effect? Our
look at the U.S. market indicates that the most intense competition, and the most salutatory
effects on pricing and innovation, are often generated by regional competitors. Alltel and
MetroPCS, as examples, have driven pricing and competitive intensity in their target markets.
We would suggest to government that it should not be concerned if interest in licenses that are
set-aside appear to be regional rather than national in scope.
To set aside a significant proportion of the spectrum for companies that do not already have
licenses – in particular markets – is a good step. It is not in the public interest to focus only on
the size of the purse – the broader public interest may be better served by giving Canadians
more choice in service provider.
Do we need overt invitations to foreign investors? SeaBoard doesn't think that changes to
Canada's foreign investment rules are in the cards over the short term. But existing law does
permit foreign investment – up to 49% through foreign or domestic holding companies –
Vodafone, T-Mobile, Verizon or Orange for example, could each join with Canadian firms to
build new competitive forces as prospective Canadian partners for the non-Canadian enterprise.
This is true whether we are talking of Toronto Hydro or regional cable interests or national
business services players.
14European Electronic Communications Regulation and Markets 2005 (11th Report), Commission of the European
Communities, February 2006. P. 7.
15Ibid.
PAGE 30/35
RESEARCH & TRENDS
Spectrum set-asides are only part of the answer to Canada’s wireless embarrassment – there
needs to a mandate to the existing carriers such that they will share cell towers and enter into
roaming agreements.16 The existing carriers did not pay for their initial spectral allocation either.
Let's not be too focused on “cash for bandwidth” for the new entrants we envision here. There
are other ways of contributing to the public good.
No Free Lunch
We are not proposing, however, that the government insist on opening private assets to
competitive access without compensation. Not at all. We believe that the new wireless aspirants
should pay a fair economic rent for the services they benefit from where used from tower
access, backhaul services and roaming. Our concern, however, is that negotiations might be
protracted should government not play an active role in encouraging agreement – in that regard
it might be wise to suggest to the parties that agreement should be entered into within a
proscribed time, otherwise the CRTC will be empowered to set interconnection rates and
terms, and the Commission would be encouraged to issue its rules within, say, 60 days of
application by either party. That should encourage the parties to come to their own
arrangements in an expeditious fashion.
Wireless services in Canada? Not So Much
Lament for a Wireless Nation? Certainly Canada’s wireless development is not a matter of
national pride. Being the rump of the wireless world should not be our national dream.
We have the tools to fix the problem. What’s needed is more creativity from the existing
players, along with the licensing of new entrants interested in building their businesses through
market stimulation, through innovation, through creativity will strengthen the country and
improve the lives of Canadians. Our wireless story need not be a lament – the Canadian
government merely needs to move forward and make the change. The rationale to do so is
certainly there.
16The roaming provisions we envisage are similar to those mandated when PCS services were launched a decade ago –
Microcell customers were given the option of roaming on the Bell analogue network; Clearnet customers roamed on
the Rogers network.
PAGE 31/35
RESEARCH & TRENDS
Recommendations:
To government:
• Reserve spectrum for a new wireless entrant or entrants. By allowing
a free-for-all spectrum auction, Industry Canada is advocating the status quo. If the
next spectrum release, expected to be for advanced wireless (3G) services, is made
available to the highest bidder, Canada’s largest wireless service providers will almost
certainly win. Bell Canada, Telus and Rogers have the deepest pockets and will almost
certainly outbid a startup for available spectrum. Reserved spectrum gives a new
entrant or entrants a chance to get off the ground. Free and/or reserved spectrum
for a new wireless service entrant – perhaps Toronto Hydro Telecom led by
president David Dobbin – could give a startup the chance to compete against the cell
phone giants from the outset (along with other conditions mentioned below.) The
addition of a regional player or players with national wireless ambitions or
an international wireless provider – in a partnership situation or on its own
should foreign ownership restrictions be alleviated – would help improve the state
of competition in Canada's wireless industry. The scenario described above assumes
Canada’s foreign ownership restrictions on telecommunications companies aren’t
lifted before spectrum is made available and foreigners aren’t interested in available
Canadian spectrum. Foreign ownership rules prevent current entrants from taking a
majority stake in a Canadian telecom venture so government should make room for
a homegrown alternative. Reserved spectrum isn't a stretch for government. In past,
spectrum has been awarded in past to the incumbents without an auction process,
which means there's a history of government support for new entrants into
wireless industry.
• Mandated cell phone tower sharing and roaming. To provide nationwide
service, a new national entrant(s) will need to enter into roaming agreements (and
co-operate) with Bell, Rogers and Telus. Government intervention on this front is
necessary because the Big Three probably won’t want to help a fledgling wireless
company get off the ground. Furthermore, a nation-wide cell phone network build
out isn’t an economically viable proposition for an established telecom services
provider – let alone a start up. By allowing new entrants to share towers used by the
existing providers, and roam onto the networks they have had over 20 years to build
in a closed environment, new providers will have something closer to a level playing
field when pitted in fierce competition against the incumbents. The federal
government recently endorsed the concept of fair wholesale network access
(especially business services) for competitors of ILECs. Why should access to
incumbents’ wireless networks be any different? New entrants will need wireless
network airtime sold at affordable rates if a new service provider or providers are to
survive over the long term.
PAGE 32/35
RESEARCH & TRENDS
To service providers:
• Introduce targeted plans to demographic groups to attract new
subscribers. Seniors, for example, use cell phones less than other demographic
groups do. Some already enjoy the security mobile phones offer, but many others
are wary of long-term contracts and the technology. The baby boomers are getting
older and will need phones and plans that match their technological prowess (or lack
thereof) and fixed incomes. Service providers should create pre-paid plans for older
potential “survival” users to expand the addressable market. Who knows? A
grey-haired beaver may even help Bell sell more cell phones to seniors!
• Introduce more U.S.-style big bucket cell phone service plans. Want
Canadians to take a greater interest in cell phones or make more calls? Stop penalizing
them for making long distance calls! It’s bad enough out-of-province calls usually cost
Canadians 30 cents a minute but why should calls to a suburb of a big city like Oakville
outside of Toronto be charged at the same rate? Now that the wireless industry is
(highly) profitable – after years of losses – Canada’s service providers can surely
introduce plans that allow users to make unlimited numbers of local and long distance
phone calls as well as roam freely in North America. By creating higher ceilings on
plans, service providers will make the cell phone a greater part of the users life and
attract new subscribers. Increased phone usage could help the carrier stimulate
demand for high-margin data services, such as wireless e-mail.
• Implement referral programs. Make customers an extension of a sales force –
incent them to sell! Give heavy users, who are often times business people with
extensive personal and business social networks, incentives to sell. Dangle carrots,
such as extra minutes or data features – maybe even a discount off a monthly cell
phone plan – for bringing in a new customer. With number portability set for a March
launch date, Canada’s cell phone users need more reasons to stay with their service
provider. A three-year contract isn’t a retention tool. Treat your best customers
like gold and perhaps they’ll recommend your service to a friend and/or a
business associate.
• Don’t worry as much about the financial analysts. Canada’s present providers
are perhaps driven too much by the expectations of financial analysts. We would
counsel that there are other yardsticks to success. A broader base of users can help
drive growth and profit as well. As we said 18 months ago, the financial analysts can
be trained to overcome their fascination with the average revenue per user (ARPU)
metric. However, more Canadians need cell phones in their hands.
PAGE 33/35
RESEARCH & TRENDS
FOR FURTHER READING
Looking Back Looking Forward 2007: The Year Ahead, SeaBoard Group, January 2007.
Brace Yourself! 2006; Year in Preview, SeaBoard Group, December 2005.
Arming the Contenders: Invigorating Cable’s Voice Challenge, SeaBoard Group, September 2005.
Top of the First – The VoIP Battle Begins, August 2005.
Lessons For Canada: Wireless Pricing – A Cross-National Survey: U.S. Canada, and Europe,
SeaBoard Group, July 2005
USEFUL WEBSITES
CARRIER WEB SITES
Canada
• Bell Canada/Bell Mobility
http://www.bell.ca/shop
• Fido
http://www.fido.ca
• Manitoba Telecom Services Inc.
http://www.mts.ca
• Rogers Wireless
http://www.shoprogers.com
• SaskTel
http://www.sasktelmobility.com
• Telus Mobility
http://www.telusmobility.com
• Videotron
http://www.videotron.com
Germany
• O2 Germany
http://www.o2online.de/o2i
• T-Mobile
http://www.t-mobile.de
Sweden
• Telia
http://www.telia.se
• Telenor
http://www.telenor.com
United States
• Cingular
http://www.cingular.com
• Metro PCS
http://www.metropcs.com
• Sprint PCS
http://www.sprintpcs.com
• T-Mobile U.S.A.
http://www.t-mobile.com
• Vodafone
http://www.vodafone.com/home
• Virgin Mobile (U.S.)
http://www.virginmobileusa.com
United Kingdom
• British Telecom
http://www.bt.com
• O2 U.K.
http://www.o2.co.uk
• Orange
http://www.orange.co.uk
• T-Mobile
http://www.t-mobile.co.uk
• Virgin Mobile
http://www.virginmobile.com
• Vodafone
http://www.vodafone.co.uk
GENERAL REFERENCE
• Oanda
http://www.oanda.com/convert/classic
• Organisation for Economic Co-operation and Development
http://www.oecd.org/std/ppp
• Economist Big Mac Index
http://www.economist.com/markets/bigmac/index.cfm
PAGE 34/35
RESEARCH & TRENDS
SeaBoard Group
SeaBoard is an independent marketing and technology research company with offices in Toronto
and Montreal. This white paper was prepared for SeaBoard clients and other interested parties
as part of SeaBoard’s continued research on market trends and technologies.
SeaBoard would be pleased to arrange for briefings on any of the subjects covered in this white
paper. For further information on briefing sessions, subscription to SeaBoard services, or to
obtain additional copies of this or other white papers, please visit the SeaBoard web site at
http://www.seaboardgroup.com, or contact us at mailto:[email protected]
PAGE 35/35

Lament for a Wireless Nation

Transcription

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