By Greg O’Brien
GATINEAU – The federal government’s Competition Bureau was a rather prominent player during the now 16-months long CRTC process reviewing the regulations governing the wireless market in Canada.
UPDATE, Aug. 7: Please see the bottom of this story for an update from the Competition Bureau.
Last year the Bureau fought the carriers and the Commission for access to confidential data from Canadian wireless companies so it could do its own “objective economic analysis” of the market, telling the Commission in 2019 the “information that we are seeking is critical to our ability to make an evidence-based submission on the competition issues in this matter.”
The Bureau eventually was granted access to a good chunk of the data it demanded and hired Matrix Economics to produce the report which informed the Bureau’s submissions to the CRTC review – where it called for a modified mandated MVNO regime (where MVNO rights could only be granted to companies with existing telecom facilities) to be implemented in Canada.
Now however, according to Bell Canada that report, as well as the final submission filed July 15th by the Bureau, contain serious errors, meaning the Bureau made several critical mistakes in its analysis of the state of the Canadian wireless market. The Bureau’s economic report and resulting analysis are so off-base, says Bell Canada in a procedural request filed with the Commission on Tuesday, that the Matrix report must be stricken from the official record of the proceeding.
Backing up, in a July 27th letter to Commissioner of Competition Matthew Boswell, Bell chief regulatory officer Rob Malcolmson pointed out several errors, one of which is pretty blatant. The letter notes Bell and the Bureau were already discussing the mistakes in the days prior to the letter.
The Bureau quotes a revenue-to-capex ratio which quotes a higher ratio in Canada that therefore supports a conclusion on excessive Canadian carrier profitability and too much market power, says the Bell letter. Those ratios were, in fact, wrong.
“Through discussions with the Bureau team, we understand this was for three reasons. First, they rely on an outdated or otherwise inaccurate version of the data. Last week we provided the most recent data directly from (Bank of America Merrill Lynch) to the Bureau team,” reads the Bell letter to Boswell.
“Second, there was an unspecified calculation or reporting error made in expressing the ratio.
“Third, and most importantly, the Bureau calculated the ratio based on Capex figures that were converted to Canadian dollars but revenue figures that were expressed in the local currency. Given the exchange rates between the Canadian dollar and the British pound, Euro, and U.S. dollar, this had the impact of very significantly understating the ratio in all other G7 countries,” reads the Bell letter. (Pictured is the before and after chart in the letter to Boswell, which was also in the CRTC filing.)
“The Bureau’s corrected evidence will show that revenues in Canada are commensurate with the very high capital expenditures that are required to build world-leading networks in a country with Canada’s geography and population density.” – Bell Canada
“When corrected… the Bureau’s corrected evidence will show that revenues in Canada are commensurate with the very high capital expenditures that are required to build world-leading networks in a country with Canada’s geography and population density,” adds Bell’s letter to Boswell.
Bell also said the Bureau’s final submission was wrong when it came to how it described spectrum costs; how prices in all market segments actually fell when unlimited wireless plans were introduced last year, not just among those who picked unlimited plans; how changes in device prices actually had no material negative impact on wireless plan price reductions; and how there is no evidence backing the Bureau’s statement saying there are differences in prices between regions which is driven by the a strong regional carrier.
All these mistakes, says Malcolmson’s letter to Boswell, mean the evidence does not support the findings made by the Bureau which called for a modified mandated MVNO regime because the Big Three (Rogers, Bell and Telus) have too much market power.
“The Matrix Report is central to the Bureau’s submissions in the CRTC proceeding. In our respectful view, the Bureau has an obligation to correct its evidence and amend its conclusions to indicate that the corrected evidence does not support the claim that the Matrix Report represents an accurate description of Canadian wireless markets in 2020 (let alone in 2021 and beyond),” reads the letter to Boswell.
“Given this perspective, we are confident that the Bureau will file with the CRTC, serve on all parties, and reissues to the media in a new press release a revised version of its final comments that corrects not just the specific data errors identified above but also the conclusions reached based on the errors in data, in particular with respect to market power and the continued relevance of the Matrix Report.”
On July 31st, the Bureau filed with the Commission corrected final comments (which was posted to the CRTC web site August 3). While it acknowledged the revenue-to-capex ratio mistake and filed corrected information, and noted some of the information it filed stating wireless prices are not falling as quickly in Canada as elsewhere in the world are wrong (they are falling at the same rate, but the Bureau made an error in using data gathered prior to the introduction of unlimited plans) and removed those sections of its final comments, it did not back down from any of its conclusions.
“Bell Canada has also raised other criticisms of the Bureau’s Final Comments that they submit warrant corrections. The Bureau has carefully considered these issues and disagrees with Bell Canada. The Bureau does not believe corrections are required. Should Bell Canada wish to raise these criticisms with the Commission, the Commissioner respectfully requests that the Bureau and all other parties to this proceeding be afforded the opportunity to (i) comment on each other’s Final Submissions,2 and (ii) reply to such critiques (as appropriate),” reads the Bureau’s final comments revision.
So, on Tuesday, unsatisfied with the Bureau’s editing, Bell has asked the Commission “to remedy significant prejudice to our procedural fairness rights and ensure that any evidence that could influence the Commission’s decision in this proceeding has been subject to sufficient scrutiny to have confidence in its accuracy. In particular, we are asking the Commission to strike the Matrix Report from the record.
“The errors made by the Bureau and its unwillingness to fully address them or to update its conclusions to reflect its corrected evidence raise grave and irremediable concerns regarding the reliability of the Matrix Report.” – Bell
“The errors made by the Bureau and its unwillingness to fully address them or to update its conclusions to reflect its corrected evidence raise grave and irremediable concerns regarding the reliability of the Matrix Report. No other party has access to the data or analysis on which the Matrix Report is based, and it therefore has not been subject to the type of scrutiny that uncovered the errors in the Bureau’s Final Comments,” continues the Bell request.
“It would be a significant breach of our procedural fairness rights to allow this unreliable evidence to remain on the record when it has not been subject to the type of review that it is now clear is necessary to ensure its accuracy.”
The Bell procedural request even adds a little I-told-you-so to the Commission, reminding it of why it (and others) opposed the Bureau’s data requests in the first place. “In our 27 March 2019 letter to the Commission, we identified the highly complex and high-risk nature of the data analysis the Bureau and its economic expert proposed to conduct as part of this proceeding, given the likely volume, gaps, errors, and inconsistencies in the data maintained and produced by various carriers,” it reads.
“We were specifically concerned that “all of these data issues will not be identifiable on the face of the output produced by the Bureau, which means there is a risk that an unreliable analysis will unduly influence the record before the Commission’” (its emphasis).
Bell’s Malcolmson wrote in the filing there needs to be no more consultation or comment periods in order to remove the Matrix report from the record, noting it has done so in the past (when it struck testimony from Netflix and Google from its Let’s Talk TV proceedings).
“Alternatively, the Commission could give all parties the opportunity to comment on whether the Matrix Report should be struck from the record. As this is a narrow procedural issue that does not require (indeed, would not permit) parties to address other issues or evidence, parties should not need more than a week to comment.
“The Bureau has requested that, if criticisms of its Final Comments are raised with the Commission, two new rounds of process be established in this proceeding despite the record having already closed. This is neither necessary nor appropriate.”
Once again, it’s up to the CRTC to respond.
UPDATE: And it has. The Commission has now given other parties until August 13 to respond to Bell’s demand to strike the Matrix report. The Bureau will then have until August 20, 2020 to respond.
In an email to Cartt.ca late Thursday, a Bureau spokesperson confirmed it will definitely respond to Bell – but also added: “The Bureau vigorously disagrees with Bell’s representations. The limited changes that the Bureau made to its final submission do not change the Bureau’s findings and recommendations, including those made by its independent expert, which are supported by ample evidence: Bell, Rogers and Telus charge higher prices and offer lower plan limits when competitive discipline from regional carriers is low; The most effective way to ensure sustainable long term competition is to disrupt this market power. That is the goal of the Bureau’s recommended facilities-focused Mobile Virtual Network Operator (MVNO) model.”
