GATINEAU – Would you rather fight a horse-sized duck, or 100 duck-sized horses?
That was the unusual, if creative, way SaskTel chose to demonstrate how, if the CRTC is going to mandate third party wireless resellers, we can expect a much worse competitive market that causes serious damage to regional independent mobile wireless operators.
“Mandated MVNOs will harm 4th carriers more than the National Wireless Carriers. In any market, there is a portion of the customer base which is most likely to move to a new competitor, a portion which is quite unlikely to change, and a portion somewhere between these extremes. When new competitors arise, they are most likely to attract customers in the first portion,” reads the SaskTel submission.
“When even more competitors enter the market, customers who moved to the first competitors will still be most likely to try the new alternatives, and those customers who did not feel the need to leave established players will continue to remain in much greater proportions than those who have already left. This means that the 10% or 20% of customers most likely to move are the customers most likely to be shared amongst all new competitors. And this means that the entry of even more new competition – MVNOs in this case – is likely to cause the most market share loss and/or decreased growth rates to those above-mentioned 4th carriers who are just beginning to grow.
“Therefore, the result of the forced entry of multiple MVNOs in the market is likely to be a growth in the number of competitors, but a weakening of all of those competitors,” it continues.
“There is a well-known internet question comparing the effects of fighting one horse-sized duck versus 100 duck-sized horses. The forced entry of MVNOs will result in a plethora of competitors that resemble duck-sized horses and a weakening of the existing 4th carriers, who currently resemble horse-sized ducks. But, it is the smaller number of stronger competitors, the horse-sized ducks, that do, and will provide the most effective competition to the National Wireless Carriers.”
(Ed note: Former U.S. president Barack Obama would pick a horse-sized duck, too.)
Wednesday afternoon was the initial deadline for interventions to the CRTC’s review of mobile wireless services – a proceeding which seems to have boiled down to one major issue: The Commission’s preliminary viewpoint (pushed hard by the federal government) that it’s time to essentially abandon the policy of facilities-based competition and force the Big Three (Rogers, Bell and Telus) to make room on their networks for the presence of mobile virtual network operators (MVNOs, or third-party wireless resellers) who would pay a wholesale fee to rent wireless networks and sell service to Canadians.
Submissions from four of the regional competitors (we read through submissions from Shaw’s Freedom Mobile, Eastlink and Quebecor’s Vidéotron, as well as SaskTel) reveal companies which seem like they are fighting for their lives with this particular proceeding. Eastlink is “alarmed”, Shaw insists the CRTC’s preliminary viewpoint “must be reversed”, Quebecor says mandated MVNOs will cause the outright disappearance of the fourth regional players and SaskTel says many small horses will eventually trample the competitive gains earned by operators like them.
Each noted the multiple billions of dollars they have spent on spectrum, technology and building businesses from scratch, based on the fact they could rely on the long-held policy that the Regulator and government preferred facilities-based providers competing for Canadians’ telecom business.
Each explained how the next generation of wireless, 5G, is going to require massive new spending on infrastructure and how unfair it would be to allow MVNO interlopers to come in and ride on those new investments (as well as past investments these carriers are still working on earning a return) when they have no intention of building much of their own network.
“Ultimately, the financial viability of regional competitors will be jeopardized.” – Quebecor
Quebecor’s submission (in French) called a move to mandate MVNOs an “unfair, misguided and unnecessary measure.”
Allowing new MVNOs to grab a chunk of the market share from regional competitors will reduce those operators’ ability to invest in network upgrades and innovation and “ultimately, the financial viability of regional competitors will be jeopardized,” said Quebecor.
While the Commission and others may well be thinking a favour is being done for the regional wireless players by not forcing MVNOs onto their networks, that’s just not so, they say. Mandating MVNOs at all – and just on the national players networks – will just further cement the market power of the Big Three. “Resale-based MVNOs will target Freedom’s customers and market niches. This will redirect much-needed revenue, subscriber growth, scale and other resources away from strong, new facilities-based competitors, like Freedom, back to the Big 3 networks, re-entrenching their dominance,” reads the Shaw Communications submission.
“There is no denying the evidence of harm of MVNO resale regulation, and the significance of that harm, to Freedom and its investments.” – Shaw Communications
“Mandating MVNO will put resellers in a privileged position that guarantees a return and relieves them of the very significant financial burden and risks that Freedom has undertaken to build a competitive network in an extremely compressed timeframe. The MVNO resellers’ artificial advantages in the market will undermine Freedom’s ability to gain market share and scale, thereby jeopardizing our ability to continue investing, including in next-generation technologies. There is no denying the evidence of harm of MVNO resale regulation, and the significance of that harm, to Freedom and its investments,” the company adds, quoting research reports it submitted in support of its intervention.
Eastlink warns there is a very real threat mandated MVNOs would cause it (and others) to reconsider further investments in networks, potentially leaving Canadians behind in the race for the economic gains promised by the potential of 5G and the Internet of Things (IoT). “Any decision to mandate MVNO access… at minimum will certainly result in us reconsidering our decisions to invest in our own networks,” reads the company’s submission, which pointed to the recent consequences of forced resale of its wired networks to resellers.
“Eastlink has already experienced the impact of a regulated wholesale regime over high speed internet access service, whereby we have been subject to below-cost interim tariffed rates for over 2 years,” it continues. “That regime has caused Eastlink to suspend internet investments in certain small communities where consumers have only a dial up internet service. The population base is simply too small to support a business case for us to recover returns on investment where we lose revenues to resellers who do not pay us enough to cover the cost of the service, and only compete on price.”
Eastlink also addressed the Commission’s stated point of view that mandating MVNOs would be temporary, in the hopes that a company starting this way would eventually build its own facilities. The Halifax-based company again cited past wireline history to demonstrate this just will not happen.
“Any suggestion that a mandated MVNO access regime would be temporary is false. A decision to mandate it would, in our view, ultimately be a decision to permanently regulate MVNO access,” reads the submission.
“Eastlink submits that there is no situation we can foresee where a decision to mandate MVNO access would only be in place for a ‘limited amount of time and be subject to a phase out until market forces take hold’. Once a decision is made to create a mandatory MVNO regime, it will be a decision that is maintained in perpetuity.
“There will be no natural competitive market that arises if MVNO access in mandated. In fact… providers like Eastlink will have no incentives to make the investments we are today, thereby reducing access to competitive facilities resulting in the incumbent facilities being the only option on which consumers have to acquire their service, whether purchased through incumbents or their resellers.
“Such a scenario, may also minimize the incentive for incumbents to invest or innovate as they currently do in response to RFB (regional facilities-based) providers.”
We’ll have more on the filings later today and this week as we dig into the filings from the Big Three, independents who really want mandated MVNOs (like Cogeco, Ice Wireless, the CCSA and CNOC), and consumer groups.
