Lament for a Wireless Nation
Transcription
Lament for a Wireless Nation
RESEARCH & TRENDS Lament for a Wireless Nation 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED $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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED • 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED Conclusions . . . . . . . . . . . . . .& . . . Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Useful . . . . . . . . .Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 For . . . . Further . . . . . . . . . .Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 RESEARCH & TRENDS Lament for a Wireless Nation 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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’.] © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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? © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 the exhilaration of the wireless bill-opening experience – where your $20 wireless plan results in If only cross-national assessments of wireless prices were so simple. Most Canadians feltorthe wireless bill-opening experience – where your $20 a billhave of $40 so, exhilaration even before of anythe usage penalties are applied. wireless plan results in a bill of $40 or so, even before any usage penalties are applied. Canadian bills are unique. The ‘plan’ rate is merely the beginning of the accounting creativity in Canadian bills are unique. The ‘plan’ rate is merely the beginning of the accounting this creativity country. On top country. of the plan which including OECD researchers, in this Onrate top– of the many, plan rate – which many, including believe OECD to be all-inclusive – Canadians for –voice mail, for features, formail, detailed billing (in researchers, believe toare be charged all-inclusive Canadians are other charged for voice for other features, billing (in some and, in an international first, roaming for system some cases), for and,detailed in an international first,cases), for system access. Add domestic charges, access. Add domestic roaming charges, domestic long distance charges and any domestic long distance charges and any cross-border or international charges, and it is easy to cross-border or international charges, and it is easy to see how a humble $20/month see how a humble $20/month weigh in at $40, $50 or $60 per month. “plan”, can weigh in at $40,“plan”, $50 orcan $60 per month. SeaBoard usedused as itsas‘what are we whatwhat are we metaphor’ whatwhat a customer SeaBoard its ‘what are testing, we testing, are measuring we measuring metaphor’ a would see when she opened her bill – we developed a usage profile that tried to capture customer would see when she opened her bill – we developed a usage profile that triedactual tonuance, captureand actual nuance, and world’ then we pricedThe thisOECD, ‘real world’ activity. The that usage then usage we priced this ‘real activity. by contrast, assumed OECD, by contrast, assumed that the plan would be inclusive and that cross-nationally the plan would be inclusive and that cross-nationally the results would be broadly equivalent. As the results would be broadly equivalent. As we have seen, the OECD results can be we have seen, the OECD results can be misleading. misleading. Yet, Most most Canadians Canadians still lineline in their households (though an increasing still have have aalandline landlineororVoIP VoIP in their households (though an number are turning to are wireless while only halfwhile of Canadians a cell phone. increasing number turningonly) to wireless only) only half ofhave Canadians have a Why cell the phone. Why the notably slow progress on the wireless front in Canada? initial slow notably slow progress on the wireless front in Canada? The initial slow The progress of mobile progress of mobile telephony in Canada can be understood – lack of awareness, poor telephony in Canada can be understood – lack of awareness, poor handsets and network handsets and network coverage, and immature business models made it difficult to coverage, andCanadians immature to business models it difficult to –convince Canadians to subscribe convince subscribe to a made cell phone service as was the case elsewhere in to a cellthe phone service – as was the case thecurrent world. state So nothing helpful there to explain world. So nothing helpful thereelsewhere to explaininthe of affairs. the current state of affairs. Now Canadians have access to vast array of handsets that do everything from place calls to deliver e-mails to handsets while the wireless divisions Nowvoice Canadians have accesswireless to vast array of handsets that do everything from place voice of calls to Canada’s largest service providers have reliable networks that span the country – if not deliver wireless e-mails to handsets while the wireless divisions of Canada’s largest service the latest technology. providers have reliable networks that span the country - if not the latest technology. So why is Canada’s penetration rate so far behind its peers? We’ll get to the reasons So why penetration far behind peers?study. We’ll get to the reasons why – but whyis– Canada’s but first the findings ofrate ourso latest wirelessitspricing first the findings of our latest wireless pricing study. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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? © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 $50 US$ © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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$70.03. EXHIBIT 6: Average User Pricing, 2006 | Source: SeaBoard Group, 2007 Average User Pricing (in US$ & adjusted for PPP) 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 $120 © SeaBoard Group, 2007, ALL RIGHTS RESERVED US$ 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$87.82/month for our service bundle. The average price was brought down considerably in Athens because of MetroPCS’ aggressive offering in the city. MetroPCS still only operates in services in a handful of U.S. regions, such as south Florida, Georgia, Detroit and the San Francisco Bay area, but offers very competitive rates in those markets. It is an example of a second-tier U.S. cell phone service provider that does not offer nationwide coverage, yet is aggressive in the markets where it offers service. MetroPCS and service providers of the same ilk have created a competitive intensity that we think benefits Canadians too. The high per-minute cost of individual calls means it’s expensive to be heavy cell phone user in Europe. In Europe, as in Canada, long distance pricing has a considerable impact on the total costs; we found no Euro-equivalents to discounted U.S. continental unlimited calling plans. © SeaBoard Group, 2007, ALL RIGHTS RESERVED U.S. service providers offer well featured, big-bucket plan plans as a norm. Smaller service providers in Europe, such as 3 in Sweden, have copied the U.S. service provider model, offering, for example, the 3Business 1000 – an add-on of additional minutes which includes long distance and data charges for a flat fee. By contrast, our researchers had to buy additional minutes in Canada to achieve the goals set out in our profiles. PAGE 13/35 RESEARCH & TRENDS EXHIBIT 7: High End User Pricing – Average of Markets | Source: SeaBoard Group, 2007 High End User Pricing (in US$ & adjusted for PPP) 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). © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 (in US$ & adjusted for PPP) 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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$21.77 a month – less than half the cost of post-paid service in that city. EXHIBIT 10: Prepaid and PostPaid Survival Users | Source: SeaBoard Group, 2007 Comparing Survival Postpaid and Prepaid Offerings (in US$ & adjusted for PPP) $19.15 Winnipeg $27.03 $29.42 Saskatoon Toronto $18.90 Kelowna $19.18 $31.39 $29.83 $21.77 New York © SeaBoard Group, 2007, ALL RIGHTS RESERVED $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 $250 © SeaBoard Group, 2007, ALL RIGHTS RESERVED C$ 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$56.52 in 2005, an increase of 8.8%. In Europe, prices for average users fell 16.6%. European service providers may be reacting to sabre rattling from Brussels. The service providers may have been worried the telecom regulators would focus their regulatory attentions on the industry if relatively high roaming prices were not addressed. PAGE 17/35 RESEARCH & TRENDS EXHIBIT 12: Comparison of Average Wireless Service Basket Prices by Region – 2006 vs. 2005 Source: SeaBoard Group, 2007 Average Wireless Service Basket Prices – 2006 vs. 2005 (in US$ & adjusted for PPP) US$ $100 $90 $80 $70 $60 2006 $50 2005 $40 $30 $20 $10 $0 Canada Europe U.S. Average user prices in Europe dipped over the past two years, as mentioned above, we presume the reason to be due to the European Union’s threats to impose caps on mobile roaming tariffs. Average user prices jumped in the United States because the major service providers increased fees for plans while Canadian prices dropped as shown in Exhibit 13. EXHIBIT 13: Comparison of Average Wireless Prices by City – 2006 vs. 2005 | Source: SeaBoard Group, 2007 Average Wireless User Prices – 2006 vs. 2005 (in US$ & adjusted for PPP) 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED $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$49.85). LANDLINE RATE COMPARISONS UPDATED SeaBoard researchers also looked at wireline prices to ascertain if lower wireless penetration was driven by relatively high landline rates. We used the wireless user profiles as a guide in comparing wireless to wireline prices. Our conclusion? Interestingly, the traditional home phone wasn’t always the cheapest option. The average user in Los Angeles paid more for a wireline connection with some features, such as voice mail, than he would for a wireless phone that met the average usage profile. Heavy users in Sweden are also better off with a cell phone than a landline. Power users in Stockholm would pay higher prices for a landline at similar levels of usage. The key driver of wireline rates in Sweden are high per-minute local wireline call rates charged by Swedish carrier Telia. In London, wireless prices are nearly on par with wireline prices for survival users, which is probably a sign wireline prices have dropped given increased competition from access-independent VOIP providers and cable telephony players in recent years. EXHIBIT 14: Wireless and Wireline Rates Compared – Survival User | Source: SeaBoard Group, 2007 Wireless to Wireline Rates – Survival User © SeaBoard Group, 2007, ALL RIGHTS RESERVED US$ $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 $0 Berlin London Stockholm Los Angeles Toronto EXHIBIT 16: Wireless and Wireline Rates Compared – Heavy User | Source: SeaBoard Group, 2007 Wireless to Wireline Rates – Heavy User © SeaBoard Group, 2007, ALL RIGHTS RESERVED US$ $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% © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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% © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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.” © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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? © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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. © SeaBoard Group, 2007, ALL RIGHTS RESERVED • 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 © SeaBoard Group, 2007, ALL RIGHTS RESERVED 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, 2007, ALL RIGHTS RESERVED 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