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Why do Canada’s wireless critics want to turn back time?


TELUS is making the future friendlier for wireless consumers

When a top Bay Street equity analyst recently identified ten common myths about the state of the Canadian wireless industry and countered them with current data, reaching the conclusion that our home-grown industry is serving Canadians very well when compared to the U.S., the industry’s critics dogmatically set out to prove him wrong with numbers of their own. Unfortunately, they once again relied on outdated and inaccurate data to support their oft-repeated claims. Fortunately, policy-makers and regulators know that, because they demand real economic analysis based on current data.

The only question now is why the industry’s critics refuse to use current data and recognize how much has changed in the past five years. Think about the wireless phone you had five years ago, and the experience of browsing the web on it. Would you go back to using it, or do you prefer the one you have today? The critics often use data from four or five years ago despite the availability of newer reports and data – as if they think you’re still using your old phone, and that nothing has changed in the market.

The fact is a lot has changed in the last few years, and a lot of that change has been led by TELUS.

The claim that Canada’s wireless market is uncompetitive is, frankly, not just woefully misleading, it is an insult to TELUS’ team members, who work hard every day to earn Canadians’ business by adapting how we do things to their evolving demands. We’re proud of our record of building one of the best wireless networks in the world, and we’re proud of the fact that independent statistics show that we have some of the most satisfied customers in the industry. We object to self-interested attempts to portray Canada’s wireless market in a bad light by employing out-of-date statistics, inapt comparisons, and cheap shots.

In the attached paper (hyperlinked version here), I challenge the claims that Canada’s wireless market is “woefully uncompetitive” (as Professor Michael Geist puts it) and that Canadians “pay some of the highest prices in the world for some of the worst services” (as OpenMedia puts it). The most recent international statistics available show that prices for the kind of wireless services that Canadians actually use are below the OECD (Organization for Economic Cooperation and Development) average, in spite of the enormous area served by wireless services in Canada, our high standard of living, and the fact that Canadians use their wireless devices more than just about anybody else in the world. Canada also has some of the best networks in the world, in spite of the enormous cost of building and constantly upgrading them.

Let me be clear, TELUS does not deny that many Canadians have had bad experiences with their wireless carrier, including us, in the past. There’s no denying that the “horror stories” that OpenMedia solicited from Canadians are real (although many were from several years ago). Instead of hiding from those sentiments, we’ve faced them head-on and significantly changed the way we do business and, judging by the number of new customers we have attracted recently and the fact that fewer customers leave TELUS than our competitors, our customers know it. Yet our industry’s critics refuse to recognize that, and instead prefer to dogmatically rely on out-of-date statistics that do not fairly or accurately describe our company, our industry, or our country, in spite of our constructive attempts to encourage them to use current data.

In fact, many of the things that OpenMedia’s report says annoy consumers – three-year contracts, high early termination fees, and bill shock from international data roaming – have already been changed by TELUS and will change uniformly across the industry once the CRTC wireless code of conduct comes into force. Many of the irritants that OpenMedia points to as evidence that our wireless market is ‘broken’ are either no longer prevalent in the market or will soon disappear entirely.

In the twelve sections in the attached paper, I respond to each of Professor Geist’s ten points in detail and add necessary context regarding the international rankings and how they portray Canada.

In addition to frequently refusing to use the most recent data available, wireless industry critics almost uniformly fail or refuse to recognize three major methodological considerations:

  1. Canadians use communications services, including the Internet, Internet video, wireless services and smartphones more than just about anybody in the world.
  2. Consumer wireless expenditures have to be measured on a “per-subscriber” rather than “per-subscription” basis to give a complete picture of Canadian wireless prices. Subscribers in many countries pay for multiple subscriptions, while North Americans typically do not.
  3. Consumer wireless expenditures also have to be considered in the context of overall household expenditures and per capita incomes. Low prices in one country, even as a matter of purchasing power parity (PPP), do not necessarily mean that consumers there pay less for wireless services than Canadians do.

These three themes come up frequently in this paper because they underlie so many of the misunderstandings and misstatements about the Canadian wireless industry that its critics so often repeat (and that in turn get reported as news).

Even when those who seek to portray our industry in a negative light do report current (or close to current) figures, they often neglect to report the trends in the data, which give a more meaningful picture of what’s happening. Those trends – such as the estimated 49.5% year-over-year growth in smartphone adoption among customers of the top three Canadian carriers in 2012 (compared to just 28.2% among the top four American carriers) and the projected 44.5% growth in data as a percentage of service revenues in Canada (compared to just 24.5% in the U.S.) – disprove a variety of common allegations, including the one about Canada’s wireless market being uncompetitive.

If you don’t have time to read all of the attached paper (hyperlinked version here), here are the highlights:

Background: International wireless comparisons

  • The OECD’s biennial rankings of its member countries on a range of communications industry metrics have not historically represented Canada fairly due to methodology, but they are improving.
  • OpenMedia refuses to use the most current OECD data available, and instead relies on data from the 2009 OECD report, which were gathered in August 2008!
  • Looking at the post-paid service baskets in the 2011 OECD rankings that come closest to the average Canadian usage, the Canadian wireless prices reported (which are from only one brand, and not TELUS) are below the OECD average. We come out as the fifth-least expensive country in the high-use basket, for example.
  • While low-usage plans in Europe may be priced lower than in North America, European consumers often pay for two or more plans, such that per-subscription data do not tell the whole story. For that, you have to look at per-subscriber data.

1. Average revenue per user (ARPU) is high in North America because North Americans use their wireless devices more

  • Canadians (like Americans) are among the most data-intensive users of the Internet and smartphones in the world.
  • High ARPU is not evidence of high prices, but rather high usage, which is typical of any consumer product or service.
  • In any event, the OECD data show that as a proportion of both average household budgets and average per capita income, Canadians spend less on communications services than the residents of most OECD countries.

2. Canadian wireless prices are about average compared to peer countries, in spite of higher costs

  • Canadian wireless prices are about the same and, in some cases, lower than those in the U.S., the country that it makes the most sense to compare Canada to.
  • The 20% of Canada’s land area that is served by wireless service would rank as the 200th least densely populated country in the world.
  • Canadian carriers in the aggregate serve only 12 subscribers per square kilometre, compared to 37 in the U.S. and 453 in the Netherlands, for example.
  • Despite having the lowest subscription-to-square-kilometre ratio, Canada still maintains below average consumer wireless costs as a percentage of household expenditures and per capita income.

3. TELUS does not charge carrier 911 fees

  • Professor Geist falsely claims that “the incumbents all charge their subscribers 75 cents per month for enhanced 9-1-1 services.” TELUS doesn’t.

4. TELUS has been able to slash international roaming charges since going HSPA

  • TELUS’ very competitive international roaming rates, which were made possible by our move to a HSPA-based network in 2009 and our proactive negotiations with hundreds of international wireless carriers, are much lower than those surveyed in another 2011 OECD report, rendering it immediately outdated. We reduced our rates by up to 60% after the data for that report were collected.
  • TELUS offers an extensive suite of usage notifications and “bill shock” protections.

5. TELUS does not charge a System Access Fee or Government Regulatory Recovery Fee

  • The fact that only one carrier in the market charges a fee that no other carrier charges tells us nothing about the competitiveness of the Canadian wireless market.

6. Canada has among the highest rates of smartphone adoption in the world and growing fast

  • Comscore and ScotiaCapital data demonstrate that Canada has among the highest rates of smartphone adoption in the world and growing very fast.
  • TELUS’ smartphone penetration rate among post-paid subscribers was 66% at the end of 2012.
  • High smartphone penetration is both a result of Canada’s superior networks and also a driver of data usage over those networks.

7. TELUS’ unlocking policy is competitive

  • The practice of network locking prevails around the world and across the Canadian market, from established carriers to new entrants.
  • TELUS’ competitive unlocking policy meets the needs of customers who want to be able to use a local SIM card when visiting another country for an extended period.
  • Customers can unlock their phone for $35 as long as the device has been on the TELUS network for a minimum of 90 days.

8. Canadian wireless networks are among the best in the world, and don’t let anyone tell you otherwise

  • While not all wireless subscribers are using them yet, Canada’s LTE networks are among the world’s very best.
  • North American average wireless network speeds are already high in comparison to other regions and are projected to reach 14 Mbps by 2017. LTE users can enjoy higher average speeds than that today.

9. Canada’s world-class wireless networks support our world-class smartphone penetration

  • While Canada has historically had lower wireless penetration than similar countries, this is due to our superior and ubiquitous wireline networks and the fact that commercial cellphone service started six years later in Canada vs. the U.S.
  • Unlike consumers in Europe, Canadian consumers generally only need one wireless subscription as opposed to two or more (mainly to arbitrage roaming rates in nearby countries), which underscores the importance of distinguishing per-subscription costs from per-subscriber costs.
  • Canadians are adopting smartphones at the highest rate in North America or Europe – with the penetration rate among the population increasing by almost 50% year-over-year – thanks to competition, not in spite of a lack of it.

10. TELUS is more spectrally efficient than Bell and Rogers

  • TELUS serves roughly the same number of customers as our major competitors with significantly less spectrum. We have no choice but to use what spectrum we have as efficiently as possible to serve our customers.

Canada’s wireless market is less concentrated than even the OECD average

  • The aggregate market share of the top three carriers in Canada is 90.1%, which is below the OECD average of 93.3%.
  • Eighteen countries have more concentrated wireless markets than Canada based on the aggregate market share of the top three carriers, and 22 countries have more concentrated markets based on that of the top four carriers.

At TELUS, we know we’re not perfect, but we’re getting better. We may be #3 in number of subscribers, but we’re working hard to be #1. We are proud to have earned industry-leading churn rates (in fact, we recently reported our lowest churn rate in six years) and among the highest independent customer satisfaction ratings in the industry (according to JD Power, as explained here).

When the telecom industry’s independent complaints resolution service, the Commissioner for Complaints for Telecommunications Services (or CCTS) released its 2011-2012 Annual Report, it showed that CCTS received 13 per cent fewer complaints about TELUS last year compared to the year before, and in a year when complaints about our industry as a whole went up 35 per cent. We were glad to see such great progress, but we know there’s more to do if we want to bring those complaints even lower.

You can see why we object so strongly to characterizations of the Canadian wireless market as uncompetitive and homogeneous. We work hard every day to earn the trust of our customers in an intensely competitive marketplace where consumers have many choices.

We are happy to have an open, constructive discussion about Canada’s wireless industry, but we think it’s fair to insist that the discussion be based on current data and rigorous economic analysis. If you think I’ve gotten something wrong, please say so. We started the TELUS Blog to have this kind of frank discussion, and as long as you respect our House Rules, we won’t delete your comments or call you names, like OpenMedia recently did to us.

If you are currently with one of our competitors and aren’t satisfied, please consider giving TELUS or Koodo a chance to show you what our customers already know – that we’re different from the other guys, and getting better all the time. You can learn more about how we put what matters to you at the heart of everything we do here.