Roaming Cap raises questions

On June 19, omnibus budget bill C-31 received Royal Assent, amending (among many other things) the Telecommunications Act to include provisions capping the wholesale roaming rates carriers charge each other at no greater than last years’ retail rates. You may remember that reducing roaming rates was pegged as a government priority in last fall’s throne speech – doing so is intended to ensure smaller wireless carriers (Wind, Videotron, Eastlink, for example) can make competitive service offerings while they build out their networks. Lower prices, more choice, better service, and all that.

From a general business point of view, the quid pro quo of any wholesale service is that the provider gets guaranteed revenue and in exchange the buyer gets a volume discount. But in Canada’s self-regulated wireless market, incumbent carriers currently view wholesale as a zero-sum game, where any gains that might accrue from added wholesale revenue are outweighed by concomitant increases to competitive pressure in more lucrative downstream retail business. It’s therefore not really surprising that the incumbents been naturally reluctant to offer reasonable terms to potential competitors, but the fact is that such reluctance remains at odds with the broader social goal of ensuring the market becomes competitive.

So, from this point of view the roaming cap is a victory for common sense, because what’s the point of a wholesale price that’s greater than the retail price? Telecom consultant Mark Goldberg notes that the legislated cap “appears to be a balanced approach,” although he also draws attention to the fact that it is a temporary one, designed to be replaced by a long term solution.

Enter the CRTC: it looks like it has been given a mandate to examine roaming, not just from the perspective of individual business interests but with a view to ensuring effective competition in the broader public interest. While the parliamentary measure is intended to provide immediate relief, the regulator is currently engaged in a public proceeding to determine a sustainable approach, namely whether and on what terms roaming, tower sharing, and other wholesale services ought to be deemed “essential” – a necessary input to doing business in the wireless market.

As part of this process, and using information pried from the wireless carriers’ accounting books, last week the CRTC released figures on the industry-average roaming cap implemented by Bill C-31. These figures are interesting for a number of reasons.

For one, carriers have been scrambling to sign agreements ahead of any new regulations, to show that they are good corporate citizens who play nice (when the ref is watching), because they aren’t interested in the uncertainty associated with a process that could produce more stringent rules. The figures released last week provide an objective benchmark against which the reasonableness of wholesale roaming rates can be measured by parties on both sides of the negotiating table. Simon Lockie is already on record telling the Senate Standing Committee on Transport and Communications that Wind Mobile has secured more favourable roaming rates than were previously available, although the rates are still several times larger than what they pay for international roaming. With Eastlink announcing a new mystery roaming partner and Bell obtaining new coverage in Manitoba from Rogers, it appears that the threat of regulation alone is already having a positive impact on the wholesale environment.

From the consumer’s point of view, the figures are interesting for another reason. As Goldberg points out, the legislated roaming cap is “lengthy, but it results in setting a ceiling on wholesale rates through a simple arithmetic determination of carriers’ average retail rates” (my emphasis). While the calculations may be simple, the devil is in the details, so it’s worth taking a closer look at what these numbers mean.

The CRTC’s “industry-wide average roaming cap calculated for each of voice, text and data services based on aggregated revenues and demand” is as follows:

Service Average Roaming Cap
Voice $0.081 per minute
Text $0.011 per message
Data $0.037 per megabyte

These industry average figures were based on 2013 info collected from Bell, MTS, Rogers, SaskTel, TELUS, and TbayTel, or in other words, about 95% of the industry (by subscriber share, slightly more by revenue).

They reveal not just the maximum rates carriers will be paying each other going forward, but also what Canadians have been paying, on average, for their wireless services at a level of granularity not readily available until now.

One thing that I find striking is that the average retail rate for data in 2013 – $0.037 per MB, works out to about $38 per gigabyte. How does that compare to what you’re paying?

Of course in a post where I quote Mr. Goldberg I have to draw attention to the caveat that just like ARPU, these figures do not necessarily correlate directly with prices. Prepaid customers (of whom there are comparatively few), for instance, are paying probably closer to 25 cents a minute, while customers on month-to-month plans with unlimited minutes would pay a flat rate regardless of usage. Long distance calling, where there is an extra charge, is lumped together with evening and weekend calling which typically doesn’t generate revenue. Similarly, data overages and roaming fees are probably in there too alongside less expensive in-plan data use.

A brief survey of any one of the national carriers’ websites shows that the figure looks a little high. Rogers has told me that “the majority of our customers use between 1GB and 2GB of data per month.” Their bottom three “share everything plans” list data at the rate of $20 for 500MB, $25 for 1GB, and $30 for 2GB, with data overage fees pegged at $15/GB. One has to wonder whether there is some creative accounting going on; we know that overall plan prices have gone up, but maybe the rates charged specifically for data have gone down since last year?

Other questions remain regarding the method used to calculate the cap. For instance, does the high price for data reflect the hidden cost of “subsidized” devices? The carriers’ practice of “giving” you a phone for a reduced price “as a gift” in exchange for signing a contract means they inflate their service rates in order to recover the value of the handset. Does this mean wholesale customers will be charged rates that reflect retail pricing designed to recover the cost of handsets?

Additionally, I suspect that the CRTC used actual traffic generated, not total data included in customers’ plans, to make the calculation but it’s not clear due to the amount of ### on the record of the wholesale proceeding. So for example, would a customer who pays $25 for 1GB but only uses 500MB count as having paid $25 for 500MB, or for 1GB?

I’ll be sure to ask these and other questions in my next submission to the CRTC’s proceeding on wireless wholesale competition. If you have any other ideas about what I should be focussing on, feel free to drop me a line. I’m working on it right now.

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