Oh give me a home, where the customers roam…

Here’s a sneak peak at what I’ve been working on with regard to roaming in Canada; a reader pointed out that  I not sufficiently distinguished between roaming and wholesale at several points, and so I’ve attempted to clarify where appropriate.

”Don’t have a cow, man!” – Bart Simpson

Today the CRTC announced that it will be examining a major competitive problem in  the Canadian wireless market – wholesale service and roaming rates. Three cheers for the CRTC, who are acting upon the concern that “some wireless companies may be making it unfairly difficult for Canadian providers that do not operate a national network to compete in the marketplace” (J.P. Blais).

As it stands, Industry Canada has already established a mandatory roaming and tower sharing framework. Currently, however, all facilities-based carriers are obliged to do is offer roaming and tower sharing on commercially negotiated terms. If this were a poker game, it would mean that the established carriers have got the big stack at the table, which explains why the only new entrants and MVNOs we’ve got now are hamstrung into offering inferior service. Frankly, Bell et al will not offer MVNOs or other competitors terms which would allow the latter to actually compete. Think mandated wholesale in wired broadband (CNOC debacle) is a minefield? At least there is a wholesale market in wired services. Imagine if TekSavvy didn’t have recourse to complain to the regulator about unfair treatment (It’s not just Teksavvy, it’s hundreds of independent Canadian businesses who would disappear overnight without TPIA and GAS/WHSAS). That’s what we’ve got in wireless. Most MVNOs and new entrants who’ve made a go at it have simply given up or been bought out.


Buy ’em out, boys!

The current “commercially negotiated agreements” approach has turned out to be less of a carrot for incumbent providers than a stick used to fend off competition from the margins. Right now, all we’ve got is a wild west which gives free reign for the Bell buffalo to buffalo Wind buffalo (Sorry, I may never get another opportunity to use that grammatically correct semantic monstrosity). This has got to change, and as of today, the sky’s looking less cloudy and gray.

The CRTC looks to be taking a page out of Ofcom’s book (page 22) by recognizing that in the absence of real competition, it must “mimic competitive pressure” with the goal of inducing an efficient, sustainable marketplace. That’s what regulated roaming agreements and wholesale are all about. By my estimation, such a market would comprise a mixture of facilities-based providers and competitive MVNOs, with the former competing amongst each other not just for retail but for wholesale revenue as well, while the latter will be empowered to effectively compete for retail customers.

Let me put my cards on the table. First, if the CRTC winds up regulating roaming rates, it would make sense to take it a step farther and institute a mandated wholesale regime. In other words: in wireless, roaming and wholesale go hand in hand; both issues “relate to network interconnection arrangements [and] regimes for access to networks. Second, such a combined system would bolster both the currently struggling fourth facilities-based carrier (Wind) and enable MVNOs to set up shop, experiment with new business models, and exert pricing pressure on the incumbents. We’re not talking about a zero-sum game between a fourth carrier (roaming) and MVNOs (wholesale), the two are complements which together represent the most efficient available means to “enable competition from new technologies” without favouring “either Canadian carriers or resellers” (If any of the language in this paragraph sounds familiar to you, it’s because I ripped it right out of the Governor in Council’s 2006 Policy Direction).

As it stands, Wind’s coverage map shows a big orange blob covering most of southern Canada’s populated areas – but upon closer examination, Wind’s home network is actually limited to a few urban areas. Outside those areas, Wind must negotiate with the incumbents for coverage, and while the terms of those agreements are shrouded in trade secrecy, the result for consumers who stray from their home area is that roaming services are prohibitively expensive in most places – calls cost 20¢ per minute, texts 15¢, and data $1 per MB ($1024/GB!). Without access to reasonable wholesale roaming terms, Wind can’t expand its customer base (and therefore its revenues), which it needs to invest in spectrum and related facilities – a bit of a catch 22. What it means to Canada is that we’ve got a major impediment to sustainable wireless competition – a problem that has spurred the CRTC to announce today that they’ll be investigating whether there are unjust anti-competitive practices at play (there are).

On top of that proceeding, the CRTC will be conducting a broader examination into the state of wireless competition, with more details to come in early 2014. This is sorely needed, as we all know, and it’s worth noting that this is a clear case of governance done right. The CRTC wasn’t exactly on solid ground in 2012 when it affirmed that our market was sufficiently competitive, and now they’re willing to examine how to deal with lingering problems. The approach of how to make good on this issue could take any number of forms, but it looks like roaming agreements will be occupying centre stage for the time being, with wholesale service on deck in the new year. Put simply, ensuring non-discriminatory roaming rates is necessary to make carriers like Wind viable – it’s the practical route to letting Wind out of the hamster wheel in which it’s currently trapped.

A big reason that Wind hasn’t gained more market share in its five years of operation is that its customers can’t affordably use their phones where Wind doesn’t have its own towers. Bell customers don’t pay a premium to roam out of Bell areas – because Bell and Telus have a network sharing agreement on fair terms. It is patently unreasonable for Telus to sell roaming capabilities to Bell (and vice versa) at a decent price, while at the same time charging outrageous fees to Wind.

The stumbling block is that right now the infrastructure owners can charge whatever they want for wholesale, whether it’s to MVNOs or smaller competitors whose customers need to be able to roam.

Bake 'em away, toys!

Bake ’em away, toys!

Incumbents, beholden to shareholders and in this case at odds with the public interest in efficient competition, would rather make wholesale so expensive or otherwise unattractive that no serious competitor can afford it – take it or leave it – than risk having to lower prices to compete, which in turn would jeopardize their own retail ARPU.

Reading Bell’s submission to the CRTC’s roaming interrogatory, it’s obvious that this is the position being taken down at incumbent headquarters. Bell’s lawyers essentially go on an eleven-page long tirade, railing against the government’s ‘meddlesome’ interference, which they go so far as to claim is “without legal foundation” (Page 2). Think about it, if you had a corner on the market, and were making nearly 50% profits (likely much more specifically on roaming charges), you wouldn’t want someone coming in and telling you to play fair either! But phone services aren’t widgets, and Canadians have a statutory right to affordable, reliable service; so the if the CRTC’s investigation into roaming was to touch on whether high rates are justified, it would be both legitimate and, if it’s found that the current arrangement is discriminatory, necessary to intervene.

Earlier this fall, Bibic et al came out swinging, but wound up ham-fistedly overplaying their hand (I fought the law…). The Bell lawyers claim that everything from towers to staplers need to be factored in to the cost of roaming (page 6-7). They make it seem as if there are an army of roller skate-wearing switchboard girls monitoring their networks to ensure that roaming goes off without a hitch (page 5-6). In fact, roaming is not nearly as complicated or expensive as it’s made out to be; it requires some lawyers to negotiate agreements, engineers to install and maintain switching equipment, and accountants to keep track, but little else. Bell already has all of these things – Mirko’s rhetorical and oratory acumen have practically rendered him a celebrity in telecom circles, bills are always mailed on time, and remember, Bell shares a network with its partner Telus.

Despite its best efforts, Bell’s arguments come off as superficial and unabashedly self-serving. “Refusal to interconnect” is an anti-competitive trope that’s over 100 years old – pre-emptive opposition to the threat of mandated roaming terms is just its current manifestation. If Bell can afford to let Telus customers roam onto its network for pennies, then why’s it forcing Wind to charge $1/MB? Put bluntly, if Bell wants to avoid Commission intervention into roaming rates, Mirko’s going to have to do better than telling the CRTC “you’re out of your element, Donny” and arguing that charging compensatory rates for roaming involves recovering the cost of gold-plated kitchen sinks.

Roaming and wholesale are closely connected to network technology – handsets in particular. So long as phones are unlocked and interoperable, they can switch between networks. More and more phones are coming with near-universal radio chipsets, and the CRTC has already made unlocking mandatory, albeit for a fee (around $50 as far as I know).

My guess as to the reason that Bell reacted so violently to the CRTC roaming interrogatory is that they know regulated roaming rates will be followed closely by regulated wholesale. They can’t be happy about having to face potentially serious threat to their ability to keep collecting sky-high economic rent, reflected by internationally unprecedented wireless ARPU.

If the government is serious about promoting competition, then we most definitely do need a strong fourth provider. This is the approach being taken in Britain, it’s the reason the American DoJ rejected the AT&T-Mobile merger, and it’s working for France with the fast rise of free.fr (For a comprehensive treatment of international regulatory approaches, see Winseck, 2013).

The current situation in Canada has seen the fourth national carrier flounder, and the wholesale market is non-existent. Mandated roaming/wholesale rates would contribute not only to Wind’s retail success (and thus a more competitive facilities-based market), but to the possibility of wholesale market expansion. 4 retailers does not a competitive market make – in a truly competitive market, firms must be numerous enough so that no single company or clique has the power to influence prices. The CRTC’s newly-minted approach is particularly attractive because presents the opportunity for a 2-for-1 bargain: it could be a practical way to promote the fourth carrier and remove barriers to entry for mom and pop MVNOs.

Today’s announcement is a major win for proponents of real competition in Canadian wireless. It’s just the beginning, however, and it looks like 2014 is shaping up to be a busy year.

More to come…

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