By Denis Carmel
- The First Law of Economists: For every economist, there exists an equal and opposite economist; The Second Law of Economists: They’re both wrong…
- An economist is someone who doesn’t know what he’s talking about — and make you feel it’s your fault…
AS WE NOTED EARLIER, ’tis the season of the Price Comparison Reports. We had mentioned the CRTC Telecommunications Monitoring Report (which was released Thursday), the OECD Digital Economy Outlook Data (not quite yet) and the price comparison report commissioned by Innovation, Science and Economic Development – which is now produced by Wall Communications using the former creator Nordicity’s methodology (officially coming soon, but already leaked to the Liberal government’s preferred publisher, The Globe and Mail).
The Wall/Nordicity Report is considered by many (especially in the telecom and wireless business in Canada) to be flawed, its methodology wrong and therefore its conclusions skewed. So, this year, Telus decided to do something about it – by commissioning new research on what it sees as flawed research while also undertaking a different look at the wireless market in Canada.
“Telus commissioned the report because we had concerns with the fundamental methodology of the Nordicity and Wall reports. We felt that all stakeholders – the Canadian public, government, and industry – would benefit from a study that provided a more fact-based examination of wireless pricing,” said Ted Woodhead, SVP government and regulatory affairs at Telus.
Being published today (Cartt.ca got an early look), it criticizes the Nordicity/Wall Report severely and comes to conclusions that vastly differ from the report upon which ISED bases much of its thinking on the Canadian wireless industry.
This report is authored by Dr. Christian Dippon, from NERA Economic Consulting Inc. and is entitled An Accurate Price Comparison of Communications Services in Canada and Select Foreign Jurisdiction, emphasis on “accurate.”
The first page of the NERA report sets the table in a non-equivocal manner.
“Since 2008, Innovation, Science and Economic Development (ISED) and the Canadian Radio-television and Telecommunications Commission (CRTC) has retained Wall Communications Inc. (Wall) or NGL Nordicity Group Ltd. (Nordicity) to conduct a price comparison of communication services in Canada and select foreign jurisdictions. Wall and Nordicity use nearly identical study methodologies, and every year both consultancies claim that Canadian prices are among the highest in the industrialized world.”
NERA’s purpose “is first to examine the accuracy, or lack thereof, of the Wall/Nordicity Study and second to conduct an economically sound price comparison for the same countries” examined.
Its conclusion is also quite direct: “Considering the significant shortcomings of the Wall/Nordicity Study, this report introduces a proper price comparison of communications services in Canada and ISED’s select foreign jurisdictions. This proper analysis reveals that:
- Canadian providers do not charge high prices relative to the benchmark countries.
- Approximately 80 percent of the Canadian mobile wireless telephony, mobile broadband Internet, and fixed broadband Internet plans studied have prices below international benchmarks, which means that Canadian consumers are paying relatively lower prices given the specific market.”
In a briefing note about the Nordicity report last year, provided last year to the Minister of ISED, and obtained by Cartt.ca the senior assistant deputy minister of strategy and innovation policy sector, Lisa Setlakwe, offers as a communications objective is “to highlight that the Government will be taking action to address areas of price increases,” and as a key message: “Canadians said that they find the cost of cell phone services too high, and government is listening.”
That clearly indicates that ISED and the federal government takes the Wall/Nordicity reports quite seriously.
There are two main segments in the NERA Report: Criticism of Nordicity/Wall and the Canadian market’s price analysis.
Criticism of the ISED report
AS THE NERA REPORT STATES: “This analysis reveals that the Wall/Nordicity Study contains multiple defects and thus is not acceptable for assessing price levels in Canada or anywhere else for that matter. Specifically, the Study lacks a stated objective that is critical to any proper economic analysis; suffers from a severely flawed methodology; and contains factual and mathematical errors. Consistent with this conclusion, the 2016 edition of the (Nordicity) Study warned readers not to reach conclusions about market performance, noting that the prices cited for Canada, the United States, or international jurisdictions were not statistically representative of the individual countries as a whole.”
“Wall/Nordicity ignores this important fact and instead compares the prices of plans that most closely meet a set of artificial demand levels, irrespective of whether the plans are the same or even similar.” – NERA report
Dippon’s report continues, “in competitive markets, retail plans differ across providers, cities, and countries depending on the providers’ underlying cost structures, pricing strategies, and demand conditions. Thus, it is rare for two plans to be identical. Wall/Nordicity ignores this important fact and instead compares the prices of plans that most closely meet a set of artificial demand levels, irrespective of whether the plans are the same or even similar. In doing so, the Study compares the prices of often drastically different services.”
He ends stating: “Without an objective, it is not surprising that the Wall/Nordicity Study does not compare prices in a meaningful way and lacks any type of conclusion. The unspecified nature of the Study has led to widespread confusion, causing parties to misinterpret the comparisons and to make unsubstantiated and incorrect claims that the Study demonstrates a lack of competition, the unaffordability of communications services, and excessively high retail prices in Canada. The Wall/Nordicity Study does not and cannot support these conclusions because it does not test any of these hypotheses—or any hypothesis at all.”
The NERA Report criticizes the lack of transparencies of the Wall/Nordicity report, too. Their databases are not available contrary to their own research.
“Like NERA, Telus stands behind the data provided in the report. Regardless of who paid for the report, the data and conclusions contained in the report speak for themselves and are clearly objective,” said Woodhead. “To this end, Telus supports NERA’s decision to make the data available to anyone who wants to use it. This is in contrast to the data sets produced by the Wall/Nordicity report, which are not made publicly available.”
NERA price analysis conclusions
Following ISED requirements for the Wall/Nordicity study, the NERA report shows that following their methodology: “mobile wireless telephony, mobile broadband and internet fixed broadband internet prices in Canada are lower than international benchmarks.”
It says “Approximately 80 percent of the Canadian mobile wireless telephony, mobile broadband Internet, and fixed broadband Internet plans studied have prices below international benchmarks, which means that Canadian consumers are paying relatively lower prices given the specific market offerings, networks, and country conditions.”
“Canadian prices are below international benchmarks and Canadian consumers face favourable prices given the specific market offerings, networks, and country conditions.” – NERA
Further, “considering the evidence presented… one can reject the hypothesis that Canadian communications providers charge excessively high prices relative to a set of benchmark countries. Canadian prices are below international benchmarks and Canadian consumers face favourable prices given the specific market offerings, networks, and country conditions.
“Therefore, the recommendation is that ISED adopt the methodology presented herein because it not only adheres to the economic literature but is also consistent with the approach used by the FCC. The Wall/Nordicity methodology is deeply flawed, and the results produced by this methodology provide Canadian regulators with an incorrect impression of the Canadian communications market. This leads to unnecessary and even harmful policy and regulatory decisions that could harm the public interest.”
Dippon concludes: “These are strong signs that the communications markets under study are competitive and hence do not require regulatory intervention.”
Cartt.ca’s conclusion
The Canadian government has long relied on intuition instead of facts. For example, in his recent book, Right Here, Right Now, former Prime Minister Stephen Harper, himself an economist, said the following (page 95): “Due in part to past governments decisions, Canada has had a small number of incumbents with enormous market power. Consumers had few options and new entrants faced large barriers to entry. Canada has been home to some of the highest wireless prices in the world, something that disproportionally affects working people and ultimately harms the competitiveness of Canadian businesses.” To validate his point, he refers to a CBC story on the oft-disputed OECD report.
In the next page of that book however, he states: “We must make judgements on deregulation based on evidence rather than ideology.”
“We hope that the government uses this as an opportunity to see that a new, more fact-based way of looking at this issue is possible.” – Ted Woodhead, Telus
We agree with the latter part but we also understand ISED’s Request for Proposal to undertake this annual study required a maximum price of less than $50,000. Although Telus declined to say how much its NERA study cost, we assume it is higher than that.
We don’t have the expertise to determine which one is right, and it would be difficult to take the NERA study at its face value considering its sponsor.
However, we do agree that in order to have the necessary data to provide evidence on decisions worth billions of dollars and tens of thousands of jobs in the long run, the federal government should consider spending appropriate amounts of money on price studies or mandate Statistic Canada to perform such a task.
Finally, Woodhead concluded: “We hope that the government uses this as an opportunity to see that a new, more fact-based way of looking at this issue is possible, and that they will support a change to the existing methodology in future reports on the cost of wireless services in Canada.”
Both the ISED report and the NERA report will be made fully public, soon.
