High Prices for Wireless Services in Canada? Not Really and So What!
This content was originally published in the Globe and Mail as "Want lower cellphone prices? Expect lousy quality" on July 8. This version adds supporting figures and tables.
Everybody seems certain that Canadians pay too much for cellular services. The “Wireless Code of Conduct”, the blocking of Telus’ acquisition of Mobilicity, and new restrictions on the transfer of spectrum, are all recent shots across the bow of the big three wireless providers by the Canadian Radio-television and Telecommunications Commission (CRTC) and the government that believe that Canadians are somehow being gouged. That, however, is a misunderstanding of the facts—one that invites bad policy and threatens the world class services Canadians enjoy.
The perception that Canadian prices are high relative to other jurisdictions has been seized upon by the government as an invitation to intervene and deliver lower prices for Canadians. But the perception is false and the invitation illogical. It assumes the only reason Canadians pay more for cellular services is because we have a lack of competition. This ignores the more obvious reasons for differences in prices, namely, that costs and demand in Canada are very different than in other countries. Our vast geography and low population density sets us apart on the cost side. Canadians’ demand for wireless services differs from other countries. Two obvious differentiating characteristics that are often ignored are that we have high quality, low priced telephone service and a revealed dislike for pay as you go services (we have the second fewest number of such subscribers per capita). Both of these go a long way to understanding why the number of cellphones per capita in Canada is less than in other countries, alternative grounds often used in the claim that government intervention is required.
Those who allege that Canada is one of the highest price jurisdictions for wireless services typically do not compare actual prices—because our prices are not in fact outliers. For all of the enthusiasm the potential for Verizon’s entry has generated, their unlimited talk and text plan with a GB of data is priced 40% higher than similar plans here. Instead what is highlighted is that average revenue per user (ARPU) in Canada is among the highest in the world. ARPU is not a price, but a measure of consumer expenditure that depends on both price and quantity of both voice and data services. Canada’s high ARPU is attributable to substantially higher usage of smartphones and data. Among the western developed economies we have the highest smartphone share of mobile users and are second, after the United States, in terms of monthly data usage. A high ARPU in Canada is a positive sign, reflecting higher levels of economic activity and consumer usage.
The best illustration of why confusing price and ARPU creates a misleading perspective is Quebec. Quebecers spend less on average for mobile services than do Albertans. According to the most recent data available from the CRTC, the ARPU in Quebec was $50.36 a month. In Alberta it was $74.96 a month. Does this mean the market there is more competitive, regulation works better, or prices are lower? No, instead the explanation is that the adoption of smartphones in Quebec is 40% less than in Alberta.
It is unfortunate that the government and regulators have determined that arbitrarily lowering wireless prices is an important policy objective. It is true that lower prices would benefit some Canadian subscribers in the short term. But without an analysis of the relationship between prices and costs, including the high capital costs of establishing networks and spectrum, the danger is that revenues will not be sufficient to support the investment levels to maintain and advance the quality of our wireless networks. To build world-class wireless networks, and ensure supply of the latest devices, considerable investment is required. Canada’s wireless industry compares very well internationally in terms of capital expenditures, both in terms of investment per subscriber and as a percentage of revenues. Canada was the first country in North America to offer an HSPA+ network, the first country in the world to have three national wireless carriers offering HSPA+ service, and has been in the vanguard in rolling out LTE networks. Our love of smartphones and high rates of data usage are a direct result of the roll out of high speed networks.
Be careful what you wish for. The consequences may be very different than what is intended: low prices, but networks that do not adequately support future generations of mobile devices and services. Governments should worry about prices when they do not reflect the cost of service, not because they think they can win votes by redistributing wealth from shareholders to consumers.
 See Figures 1 and 2.
 See Figures 3 and 4. Unlike for the total number of subscribers per capita (Figure 3), the number of Canadians on a monthly plan per capita is not an outlier (Figure 4).
 See Table 1.
 See Table 2.
 See Figure 5.
 See Figure 6 for smartphone penetration as a share of mobile penetration. See Figure 7 for smartphone data usage per capita and Figure 8 for smartphone data usage per subscriber.
 See Figure 9.
 See Figure 10.
 See Figures 11 and 12.