Friday, November 24, 2006

Wireless in Canada - It's Different Here

Just a quick post inspired by a 2 part series that ran in the Globe & Mail the past 2 days. Catherine McLean did a nice assessment of the state of wireless in Canada, and raised some valid questions as to why wireless penetration lags most other countries, as well as why we pay more up here. I've touched on these themes a number of times before, and it's just nice to see these ideas validated elsewhere.

Anyone who spends time with me at conferences in the U.S. knows that I only use my cell phone as a last resort. It's really hard for Americans to understand this, as it's very common to have long distance included in your plans, even for Canada. So, you don't think twice about making mobile calls to anywhere in the U.S. and often elsewhere. It's simply not the case for Canadians, unless you live on your cell phone and have a special plan that covers roaming and LD outside Canada. Simply put, I'm not a power user with my cell phone, and just don't use it enough to warrant having one of these high end plans.

Anyhow, back to the story in the Globe. The main thrust is to eaxplain that cell phone service is more expensive here, and there's a nice comparison of various plans, both in Canada and the U.S. Throughout the article, various points are raised to help explain why, namely:

- It's less competitive here. We only have 3 major carriers, and maybe 20 overall. Conversely, the article states that the U.S. has some 180 mobile offerings to choose from. Is it any wonder why prices are higher here? The majors - Bell Mobility, Rogers and Telus - make much healthier margins than their U.S. counterparts, and don't have a whole lot of pricing pressure from competitors.

- Our carriers can justify a higher pricing regime because the cost of building out their networks is more than the U.S. As the article says, they must cover a comparable geographic footprint to U.S. carriers, but with 1/10th of the customer base. There is some truth to that, at least in terms of building east to west. However, 90% of our population lives within 100 miles of the U.S. border, so it's not quite apples to apples. But still, it's a valid point.

- Our major wireless carriers are also our major wireline carriers - Bell and Telus. It's not quite like that in the U.S., but all these carriers face the same market realities. Wireline is declining, while wireless is a go-go business. So, both Telus and Bell rely heavily on the profits from wireless to offset their losses in wireline. In that light, it's a simple business decision to support higher pricing for wireless service.

- Wireless penetration is lower here. We're not as addicted to wireless - at least yet. There's a whole body of work devoted to explaining why wireless is less ubiquitous here, and I'm not going to address that now. The main point is that wireless still has lots of room to grow here - all the more reason for the majors to keep it a small club and to maintain high margins as long as possible. The article also notes that historically, our wireless carriers have been money losers, and it's pretty much taken until now for them to finally start making some profitable returns on the all infrastructure they've been building the last 20 years. So, following that logic, it's finally payday for them, and they deserve to recoup some of the investment.

- Another reason wireless isn't as prevalent here is the lack of LNP - local number portability. We haven't had nearly the amount of wireless substitution that's happening in the U.S. - largely for this reason. That's going to change early next year, and that's a key reason why all the mobile carriers are lining themselves up now for what looks to be an explosive year ahead for growth. I suspect you will see some price cutting next year once LNP comes into play, and the wireless operators will mount aggressive campaigns to wean people off their landlines once and for all - especially from operators who don't have a PSTN wireline business, like Videotron, Rogers, Shaw, Virgin Mobile or Amp'd.

- Foreign ownership restrictions make for a cozy three-way among Bell, Telus and Rogers. We do have other mobile carriers here, but they're pretty small or regional. If these restrictions were lifted or eased, that would open the door for U.S. operators or multinationals like BT or T Mobile. They could either acquire controlling interest in a domestic operator, or invest in one to build out their networks and acquire more spectrum. There are many possibilities here that could shake up the market big time, but I don't see this happening so soon.

I'm just touching on some of the big themes here, but there's certainly more to the story. The Globe pieces are both a good read, and as usual, the online versions are the most interesting because they have tons of reader comments submitted online.

So, once you've read this, hopefully you'll know where I'm coming from when I tell you I hardly use my cell phone when I travel.

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ipcom said...

Posted by: Andrew

Good post Jon; A good example to illustrate, I forgot my 'unlocked' Sony t-610, to which I have a Cingular SIM, so for 4 Days @ VON Boston, I was forced to use my Rogers Blackberry. Those 4 days with light usage (a few calls and text msg. a day) cost me 80$ in roaming/data and minute charges. That is basically what I pay a month for my Pearl from Rogers. The phrase "we've got you by the b@lls comes to mind.."

ipcom said...

Posted by: Jim MacKenzie

US travellers have the same problem in Canada, too, though. Their roaming rates are generally expensive here, too.

I have a US prepaid phone to use when I'm there. I forward my Canadian cell to my US (or I can leave a voicemail message telling callers to call my US number directly). There are providers you can keep running for $30 or so a year. If you're in the US even once a year, it can be worth it.