Says unfettered MVNOs would jeopardize regional players
GATINEAU – Friday was the deadline for the second phase of the comments in the CRTC’s Review of mobile wireless services and all eyes were on the Competition Bureau’s submission, which had the additional advantage of having access to the material filed in confidence, which we had reported on earlier this year.
The Bureau’s report determines there is not enough competition in the marketplace, and it even suggests a policy for the Commission to consider. (Does it suffer from “Commission Envy”?)
“Bell, Telus and Rogers (the Big 3) possess market power at both the retail and wholesale level in most regions in Canada. The Canadian wireless market is highly concentrated in the hands of three players who enjoy high levels of profitability compared to both their international and domestic peers,” reads the Bureau’s submission.
However, “wireless prices are significantly lower in areas of Canada where strong regional carriers compete with established national players. We recommend the CRTC introduce a policy that allows regional competitors to expand into new markets to ensure that all Canadians can benefit from lower prices, greater choice and more innovation in wireless services,” said Matthew Boswell, Commissioner of Competition in the press release which went along with its 88-page submission, backed also with a 104-page economic analysis from Matrix Economics, of where a lot of the good bits (loaded with numbers) are redacted.
The Bureau’s analysis was centred on that Matrix Study, a report it commissioned to analyze the confidential data it campaigned for access to in this proceeding. The competitive effects analysis in the Matrix Study identify where the Big 3 possess market power. Those conclusions apply regardless of the product market being examined as the same competitive conditions exist regardless of product segmentation.
Also, the Bureau concluded the Big Three show earnings which are above-normal returns against international benchmarks and the companies do not appear to have a higher capital intensity than their international peers. “The wireless 
carriers continue to maintain high levels of profitability relative to both their international and domestic peers, despite maintaining lower capital intensity,” reads the Bureau’s report.
It also notes, however, that the more recent regional entrants such as Freedom, Videotron and Eastlink, have disciplined the prices of the Big Three, especially recently.
The impact results in lower prices, higher plan limits, Lower per GB prices, greater data usage, The Big 3 consumers use more data and no effect on network quality, says the Bureau. However, it’s not good enough. The Canadian wireless market is still not competitive enough and more must be done.
The Bureau also went on a bit of a tirade about co-ordination amongst big companies, saying that it exists all over the world, and they show us how it works. Fascinating read, but its relevance to this proceeding is questionable.
The Bureau’s report then assesses remedies. It scanned the variety of experiences across the world when it comes to mandating MVNOs, from Israel to Ireland, Peru to Spain. “To conclude, evidence on MVNO policies’ ability to stimulate competition is mixed and dependent on the specific competitive conditions of each market,” reads the Bureau report.
The Bureau also do attacked the argument of the Big Three that mandated MVNO would reduce investment in networks saying they have not found any conclusive evidence of it in other jurisdictions. “Through its research, the Bureau did not find conclusive evidence from other jurisdictions of reduced investment incentives resulting from mandated MVNO access,” it reads. “In a number of jurisdictions where mandated MVNO access was effective in driving down prices, the Bureau did not find evidence that a significant decrease in investment had occurred.”
“A facilities-focused MVNO policy does inherently mean fewer entrants will be eligible to enter the market; however, given the importance of economies of scale in wireless network operation, this may be a logical outcome.” – Competition Bureau
So, it concluded a tailored form of MVNO is the answer for Canada.
“There are two key institutional design choices from a competition perspective: [1] the criteria for access to MVNO wholesale; and [2] the approach to rate setting,” it offers.
Access
The Bureau proposes a temporary [five years] facilities-focused approach where MVNO entrants are required to have a sufficient quantity and mix of spectrum in an area, but have not yet built out, are likely to have the operational capability to build out in 5 years. They would be required to invest in facilities to be able to fly on their own after 5 years. The Bureau proposes monetary penalties if they fail to do so.
Plus, it says companies wishing to take advantage of this facilities-focused MVNO must already be operating wireless facilities somewhere in Canada. So, Videotron, to use it as an example, could expand its footprint well beyond Quebec, if it wanted, as long as it promised to build a network to wherever it went as an MVNO within five years.
(Ed note: This could make the definition of “facilities”, something ISED Minister Navdeep Bains is open to reconsidering, very important.)
“The Bureau recommends that the CRTC limit access only to those who are likely to be able to build a network within a 5 year period and transition the customers they won as an MVNO to their own network,” reads the Bureau’s submission. “To determine access, the Bureau suggests that the criteria outlined in the Bureau’s remedy guidelines may be an appropriate reference point. Specifically, a potential MVNO should have the ‘managerial, operational, and financial capability’ to compete effectively in the relevant market(s) following the mandated MVNO access period.
“The most likely entrants to be able to prove that they have the ‘operational capability’ to build out in 5 years are those who are already operating wireless networks in Canada. A facilities-focused MVNO policy does inherently mean fewer entrants will be eligible to enter the market; however, given the importance of economies of scale in wireless network operation, this may be a logical outcome.
"(I)nternational experience suggests that it is likely MVNOs will target a similar customer base to that of the wireless disruptors who are particularly vulnerable given their lower margins and higher capital intensity. Were it to be the case that wireless disruptors were still not showing promise, it might be justifiable to pursue a broader MVNO policy; however, in the Bureau’s view at this time the risks associated with such a policy are too high for it to be warranted."
Rate setting
The Bureau explores different forms of rate setting. Cost plus and retail minus are both dismissed, due to the complexity of those approaches and potential price gaming by incumbents. It concluded that the CRTC should adopt a policy where the parties would negotiate amongst themselves and come to the CRTC who would go into a dispute resolution mechanism maybe even final option arbitration.
The Bureau also suggested better tower and site sharing, that wholesale roaming rates are likely too high, seamless handoffs when customers roaming from one network to another, should also be mandated and devices should be decoupled from wireless service – even going as far as saying customers who still have a device balance to pay off should be able to switch service to another carriers – while still paying what they owe to their former supplier.
The Commission added a reply phase so that parties can respond to the Bureau’s studies. January 13 is the deadline and it is to be restricted to the contents of the Commissioner’s economic studies, including any appendices and supporting documents.
The public hearing will get under way February 18, 2020.
We read through more than a dozen other submissions submitted Friday and will have a fulsome report on what else they had to say later this week.
