Winning in Wireless: Securing Canada's Digital Advantage Through Competition in Wireless
Submitted by WIND Mobile 2010-07-14 08:26:31 EDT
Theme(s): Digital Infrastructure
July 13, 2010.
As an important digital tool for other industries and as a substantial contributor to Canada's economy in its own right, the wireless telecommunications industry could drive improved innovation and productivity in the Canadian economy. For this reason, it is important for regulators to be vigilant to ensure that competition in the sector takes root and thrives.
WIND submits that Canada's digital strategy should address measures needed to ensure that competition in the sector takes hold firmly and continues to generate the innovation needed to make Canada a world leader in wireless. We suggest the following concrete steps to ensure that this happens:
- Implement the recommendations contained within "Compete to Win" relating to liberalizing foreign ownership restrictions in the telecommunications sector and improving Canada's ability to attract and develop talent;
- Formulate a strategy to identify an additional 500 MHz of spectrum that might be redeployed to mobile broadband;
- Issue a spectrum release plan for new mobile spectrum;
- Treat PCS spectrum renewals consistently with Industry Canada's current market based approach;
- Protect Canadian consumers from abusive early termination fees;
- Investigate the impact of handset exclusivity practices on competition in the wireless industry; and
- Ensure that Government procurement processes are aligned with the objective of enhancing competition in the wireless industry.
1. Globalive Wireless Management Corporation ("WIND") welcomes the opportunity to present its views on the concrete steps that Canada ought to take to meet the goal of having a world-leading digital economy.
2. WIND is a proud and active participant in Canada's digital economy. WIND has been offering wireless telecommunications services to customers under the brand name "WIND Mobile" since December, 2009. It has licensed spectrum covering approximately 26 million Canadians and currently offers service on its own newly constructed 3G, GSM-based HSPA network in five markets — Toronto, Ottawa, Calgary, Edmonton and Vancouver. It plans to expand its coverage in those areas and to expand its business into other markets throughout 2010 and beyond.
3. The world is increasingly "going digital" and, as it does so, new challenges and opportunities will be created for Canadian businesses and consumers. For those reasons, WIND commends the federal government for its commitment to developing a digital strategy in consultation with all stakeholders.
4. Not only is the world "going digital", but increasingly the world economy is "going global". For this reason, WIND believes that an effective digital strategy must assume that global competition for scarce resources, including human and financial resources, will be vigorous. The digital strategies formulated by Australia, the United States, France and the United Kingdom describe those countries' roadmaps to competing for those resources and should be studied in considering how to position Canada's digital industries.
IMPROVE INNOVATION THROUGH SUSTAINED COMPETITION IN THE WIRELESS SECTOR
5. According to the Council of Canadian Academies, "competition is among the most potent incentives for innovation, both because of the benefits innovation can provide in terms of greater market success and the threats that can be averted if innovation can keep a firm running ahead of its competitors".1
6. Improving Canada's productivity through innovation must be a key objective of any digital strategy and will be critical to improving or at least maintaining Canada's position in the global economy. In its Final Report, "Compete to Win", the Competition Policy Review Panel stated that "Canada must improve its productivity by increasing competitive intensity… greater competitive intensity domestically will translate into more success in world markets."2
7. As an important digital tool for other industries and as a substantial and growing contributor to Canada's economy in its own right3, the wireless telecommunications industry could be a leading contributor to improved innovation and productivity in Canada. The industry must therefore be considered a critical element of Canada's digital economy strategy.
8. The Government of Canada wisely recognized the importance of introducing additional competition into the Canadian wireless market when it decided in 2007 to set aside AWS spectrum for licensing only to new entrants. At the time, the Minister of Industry stated "We are looking for greater competition in the market and further innovation in the industry… our goals are lower prices, better service and more choice for consumers and business…"4
9. Since the AWS auction concluded in the summer of 2008, three new entrants have entered the wireless marketplace and a number of others have announced plans to launch wireless service imminently. In addition, two of the three largest players, Bell and Telus, have jointly built and activated a new national HSPA network.
10. The resulting competition (both actual and imminent) has already delivered some benefits to the Canadian consumer as well as substantial jobs and investment to the Canadian economy.5
11. WIND and other new entrants have given Canadian consumers new and attractive pricing models from which to choose, pricing models that should make wireless service available to some consumers who previously could not afford wireless voice or data plans. For example, WIND offers Canadian consumers flat rate voice, text and data plans with unlimited use features on a no-contract basis (in other words, without requiring the multiyear commitments often required by the incumbents).6 WIND offers its customers certain mobile bill payment features, to our knowledge a first for Canada.
12. The incumbents have started to offer more attractive prices and incentives to consumers. One of the incumbents has announced plans to launch a new, low cost brand and another is rumoured to be considering rebranding one of its existing flanker brands.7 They have done away with some system access fees, although at least one of them has introduced a new "regulatory recovery fee".8 In addition, the Big Three incumbents, through an exclusive partnership, have recently begun to market their own mobile payment application, Zoompass, suggesting that Canadians might finally have access to a mobile capability that has been in existence in other countries for years.9
13. Notwithstanding these early signs of hope, there is still substantial room for improvement. Canadian wireless carriers continue to disappoint Canadian consumers.10 According to recent report of the Senate Committee on Transportation and Communications, "Plan for a Digital Canada.ca", the incumbents "may provide more benefits for their shareholders than for the average Canadian consumer…"11 And, according to the most recent OECD report, Canada's wireless penetration sits at 67% compared to about 89% in the US and over 100% in most of Europe. Penetration in Canada ranks last in the OECD.12
14. In addition, the competitive environment is fragile and at risk. Although the Canadian wireless market includes several national, regional and local providers, the new entrants are effectively seeking to wrest market share from three very well-established incumbent players which together dominate the sector. Nationally, the three continue to control approximately 95% of the market.13 Although the Big Three enjoy comparable market share nationally14, many if not most provinces continue to effectively be dominated by one or two players. In Alberta, for example, based on 2008 data, Telus is dominant, enjoying a wireless subscriber market share of 53%, with Rogers placing a distant second at 27%.15
15. While increased competition in the sector should have the very welcome outcomes of innovation and reduced prices, some of the measures taken by the incumbents to respond to this new competition have already raised issues relating to abuse of dominant position or other competition law issues.16 As competition intensifies, there is a significant risk, in WIND's view, that some players in the sector will seek to exploit their dominance to attempt to stifle competition. In this environment, greater vigilance on the part of competition and telecommunications regulators, including Industry Canada, will be essential.
16. WIND submits that Canada's digital strategy should address measures needed to ensure that competition in the sector takes hold firmly and continues to generate the innovation needed to make Canada a world leader in wireless. We outline below our suggestions for concrete steps that we might take to ensure that this happens. These include the following, each of which are described in greater detail below:
- implement the recommendations contained within "Compete to Win" relating to liberalizing foreign ownership restrictions in the telecommunications sector and improving Canada's ability to attract and develop talent;
- formulate a strategy to identify an additional 500 MHz of spectrum that might be redeployed to mobile broadband;
- issue a spectrum release plan for new mobile spectrum;
- treat PCS spectrum renewals consistently with Industry Canada's current market based approach;
- protect Canadian consumers from abusive early termination fees;
- investigate the impact of handset exclusivity practices on competition in the wireless industry; and
- ensure that Government procurement processes are aligned with the objective of enhancing competition in the wireless industry.
IMPLEMENT COMPETE TO WIN COMPETITIVENESS AGENDA: CAPITAL AND TALENT
17. In 2007, the Ministers of Industry and Finance announced the creation of a panel, the Competition Policy Review Panel, to make recommendations for making Canada more competitive in the global marketplace. That Panel issued a consultation paper, solicited and reviewed submissions from and met with numerous stakeholders, studied international practices and laws and commissioned more than 20 research studies. It released its carefully considered recommendations in a final report, "Compete to Win", in June, 2008.17
18. The Report contained a number of recommendations that, if implemented, would benefit the Canadian economy generally and the telecommunications industry specifically. A number of those recommendations have been implemented by the federal government since the Report was issued, but some, including the Report's recommendations relating specifically to the telecommunications sector, have yet to be acted upon.
19. The Panel made specific recommendations, for example, relating to measures which might be taken to attract foreign capital by permitting greater foreign participation in the telecommunications sector.18 Those recommendations were consistent with those made by the Telecommunications Policy Review Panel in its final report, issued in 2006.19 That latter report was also the product of protracted consultation and study.
20. Last month, Industry Canada launched a public consultation on foreign investment restrictions in the telecommunications sector. We intend to make a more comprehensive submission on foreign ownership as a part of that consultation process and so will refrain from commenting further on the topic here. Suffice it to say here that WIND agrees with and endorses the recommendations contained in those reports relating to liberalization of foreign ownership and control restrictions in the telecommunications industries.
21. The Competition Policy Review Panel also made a number of recommendations relating to measures which might be taken to "to ensure that Canada is able to attract and retain top international talent."20 WIND agrees generally with those recommendations, but particularly supports the suggestion that "reforms to Canada's immigration system should place emphasis on immigration as an economic tool to meet our labour market needs, becoming more selective and responsive in addressing labour shortages across the skills spectrum".
SPECTRUM: THE BEACHFRONT PROPERTY OF THE 21ST CENTURY
22. The internet has gone wireless, both in Canada and worldwide. Data traffic on wireless networks in Canada is expected to explode over the coming years as wireless communications and the broadband internet converge and as Canadians begin using devices and applications that are more and more bandwidth intensive. As data traffic increases, available spectrum will become increasingly scarce. For this reason, WIND agrees that "[e]nsuring that radio spectrum is used efficiently and made available in a timely fashion is critical for growth and innovation in the wireless sector and for users in the economy as a whole."21
23. Given this rapid growth of mobile traffic, it is critical that the Canadian government consider immediately how it will ensure that sufficient spectrum is made available to meet the exploding demand.
24. The Federal Communications Commission (FCC) has done this. In its Broadband Plan22, it sets out an objective of identifying and deploying 500 MHz of additional spectrum for mobile broadband and it has since been working on a definitive plan to achieve this objective. It intends to complete this plan by October 1, 2010. President Obama has issued a Presidential Memorandum acknowledging the importance of additional spectrum to support the "wireless broadband revolution" and directing that all executive departments, agencies and offices "collaborate with the [FCC] to make available a total of 500 MHz of federal and non-federal spectrum over the next ten years suitable for both mobile and fixed wireless broadband use."23
25. Canada should follow suit and work cooperatively with the US government to ensure that Canada's plan is aligned with that of its neighbour to the south. This is critical to ensure that Canada is not left behind. In addition to mapping out strategies to proactively identify and redeploy underutilized spectrum, such a plan ought to set targets and address measures which might be taken to improve the transparency of spectrum use and to ensure that wireless operators are prevented from hoarding spectrum to inappropriately inhibit competition.
26. In addition, given the timelines necessary to plan for and hold new spectrum auctions and then to deploy spectrum, WIND recommends that in the coming months, Industry Canada issue a spectrum release plan for new mobile spectrum to enable mobile players to understand when and how new spectrum will become available.
27. Industry Canada has indicated that it intends to provide access to additional spectrum through repurposing the 2500 MHz band for mobile use, among other things, and by making available 700 MHz band as analog broadcast services complete their transition to digital technology.
28. WIND commends this plan as it believes that wireless services will require exponentially greater amounts of radio spectrum over the coming years. In addition, it believes that the deployment of new bands of spectrum has the potential to enhance competitiveness by permitting new players access to the wireless market.
29. The timely liberation of the 700 MHz band by broadcasters is in serious doubt given their resistance to make the investments necessary to move from analog to digital. The government and the CRTC should make every effort to ensure that Canada sticks to its target date of August, 2011 for broadcaster migration to digital to ensure that much needed spectrum is made available for mobile broadband services.
30. WIND has been unable to find publicly available information on the use by wireless players of the spectrum currently licensed to them. WIND is therefore is unable to comment on whether it is in the public interest that the identification and redeployment of underutilized spectrum and the repurposing of the 2500 MHz and 700 MHz bands ought to occur immediately. WIND's own business requirements are not such that it is immediately in need of spectrum beyond that already licensed to it.
31. When it announced its intention to set aside spectrum for new entrants as part of the 2008 AWS auction, Industry Canada indicated that it was satisfied that "market conditions are such that establishing measures for the auction for AWS spectrum licenses to sustain and enhance competition is warranted."24 WIND submits that despite recent developments in the sector, the use of spectrum caps and set asides in future auctions are necessary to ensure that the economic benefits derived from the use of spectrum are maximized and to prevent spectrum warehousing. We understand that the rules for upcoming auctions are likely to be subject to further consultation and look forward to participating fully in such consultations.
32. Finally, WIND understands that a number of wireless operators and the Canadian Wireless Telecommunications Association have, as part of a separate consultation and as part of this consultation, made submissions relating to appropriate approaches to PCS spectrum license renewals.
33. WIND submits that in renewing the licenses for this spectrum, Industry Canada ought to operate in a manner consistent with its general market based approach to spectrum management. In other words, in setting the license fees for these renewals, Industry Canada ought not to set license fees on a cost recovery basis or by granting the "spectrum fee holiday" sought by at least one carrier, but instead, ought to set the renewal terms for these licenses with a view to ensuring consistency in approach across all spectrum bands. WIND agrees in general that given the substantial infrastructure investments typically made by carriers to exploit spectrum, there should be a high expectation of renewal of all spectrum licenses.
PROTECT CANADIAN CONSUMERS FROM ABUSIVE EARLY TERMINATION FEES
34. A number of wireless carriers in Canada enter into long term (2 or 3 year) agreements with their customers and require those customers to pay early termination fees ("ETFs") if the customer chooses to terminate the agreement before the end of its term. In these agreements, the provision of services is typically bundled with the purchase of handsets. The cost of the handsets may be subsidized and recovered by the carrier over the life of the contract.
35. This practice is not unique to Canada. In the US, a number of carriers conduct their businesses similarly. The practice has attracted regulatory and legal scrutiny. The FCC launched public hearings into the practice in June, 2008. More recently, in January, 2010, the FCC wrote to several carriers requesting information on their practices relating to ETFs. In its letters to the carriers, the FCC expressed the concern that ETFs "were substantial (and in some cases are increasing) and have an important impact on consumers' ability to switch carriers."25 In addition, several carriers have been subjected to class action law suits relating to the ETFs they have imposed on customers.26
36. Canadian consumers are no less deserving of regulatory protection from abusive and anti-competitive ETFs than their American counterparts. During the course of launching its business, WIND heard from a number of consumers who were unhappy with their existing wireless carriers and wanted to switch, but had been surprised to learn that their existing carriers would charge what they considered to be exorbitant ETFs if they switched.
37. WIND submits that carriers should be permitted to impose only ETFs that are: (i) reasonably related to the benefit offered to the customer through subsidies on the cost of the equipment provided; (ii) prorated over the life of the contract; (iii) not applicable after a contract is renewed or extended (when the economic benefit given to the customer ought to have been recouped by the carrier); (iv) applicable only after a reasonable cooling off period; and (v) communicated clearly and transparently to the customer at the start of the contract. ETFs that do not meet these parameters contribute to the profitability of the carriers at the expense of consumers and inhibit competition in the sector. They enable the incumbents to retain customers by using the stick of the high cost of leaving rather than the carrot of improved customer service and pricing incentives.
38. In Canada, the Province of Quebec has demonstrated leadership by introducing consumer protection legislation that contains some provisions relating to ETFs. Other Provinces may be considering implementing similar legislation.
39. While WIND supports these initiatives, it believes that ETFs raise important consumer and competition issues which should not be left exclusively to the Provinces. It would appear based on recent comments by one of its senior executives that at least one carrier will not take similar measures outside of Quebec to those it will take within Quebec to comply with the legislation.27 This suggests that a patchwork of provincial legislation will not be effective in protecting all Canadians from abusive practices within the sector that could harm competition.
40. For this reason, WIND submits that the federal government ought to consider introducing to federal legislation provisions similar to those in the Quebec legislation and direct the CRTC to follow suit with the FCC and examine the impact of early termination fees on competitiveness in the wireless sector. In conducting such a review, the CRTC ought to consider whether the Code of Conduct enacted by the CWTA has been effective in ensuring that the carriers imposing ETFs do so in a manner that is transparent and fair and reasonable to the consumer.
INVESTIGATE THE IMPACT OF HANDSET EXCLUSIVITY PRACTICES ON COMPETITION
41. Handsets are a critical component of any wireless carrier's competitive offer and many wireless carriers in Canada and elsewhere seek to distinguish themselves from their competitors by entering into commercial arrangements with handset manufacturers that give the carrier exclusive rights to certain handsets for a period of time within a particular territory.
42. These arrangements and their impact on the availability of handset models and consumer pricing have been the subject of an FCC inquiry and a Congressional hearing in the US. In announcing that the FCC was examining the topic, FCC Acting Chair Michael J. Copps said "In the fast changing wireless handset market, too, we must ensure that consumers are able to reap the benefits that a robust and innovative marketplace can bestow… I agree that we should open a proceeding to closely examine wireless handset arrangements… [to determine] whether some of these arrangements adversely restrict consumer choice or harm the development of innovative devices."28
43. While handset model exclusivity is a common practice in North America and elsewhere in the world, WIND has learned of at least one exclusivity arrangement in Canada that may be unusual and broader in scope than those its executives have seen elsewhere in the world.29 As WIND prepared to launch service in late 2009, it was advised by a handset manufacturer with which it had contracted that the manufacturer was not able to honour its contractual obligations to WIND because it had signed an exclusive deal with one of the incumbent wireless providers. Under that arrangement, WIND was advised that the carrier was given exclusive access to all of the supplier's GSM phones that were compatible with AWS spectrum in Canada.
44. Canadian regulators should be no less concerned with the impact of exclusive handset arrangements on consumer choice and pricing than their American counterparts. WIND submits that the Government ought to direct the CRTC to investigate the impact of handset exclusivity practices on competition within the wireless industry and to refer to the Competition Bureau any evidence that there has been a breach of the Competition Act. The objective of such an investigation would be to ensure that these types of arrangements do not result in Canadian consumers being deprived of a full range of handset choices on attractive terms.
ENSURE THAT GOVERNMENT PROCUREMENT PROCESSES ARE ALIGNED WITH GOVERNMENT POLICY OBJECTIVES
45. WIND agrees that "Governments can promote private sector innovation by being a smart and demanding purchaser and a model user of advanced technologies and services."30 Government can support a future growth sector for Canada by becoming an important first customer of unproven technologies and companies.
46. Similarly, the Government of Canada could be an important customer to new entrants in the wireless sector. WIND submits that the Government ought to ensure that the procurement practices of the federal government and its agencies are aligned with its stated objective of enhancing competition in the wireless sector. This could be done by ensuring that procurement instruments issued by the federal government and its agencies, such as requests for proposals, do not make it impossible for new entrants to compete on a level playing field with incumbents, unless there are significant operational reasons to do so. Examples of procurement requirements that can disadvantage new entrants unnecessarily include requirements that respondents demonstrate "incumbent attributes" such as market size and scale, cross sector capabilities and specified numbers of years of experience in the sector.
47. In its consultation paper, Industry Canada correctly pointed out that "telecommunications service provision is still subject to strong economies of scope and scale and the large up front costs can act as barriers to entry. The costs of upgrading equipment, digging trenches, and erecting poles can be immense, especially in a country as geographically challenging as Canada."31 While this is true, a sometimes overlooked barrier to entry in the retail wireless sector is distribution. Establishing the retail store presence needed to effectively and competitively market handsets and wireless service across Canada is expensive and challenging. The federal government, through its agencies' offices and customer care facilities, could play a part in helping new entrants to overcome this barrier to entry.
48. Canada's wireless industry is a significant contributor to the digital economy and can drive cross sector innovation in Canada. If Canada's wireless sector has historically lagged the developed world in terms of price and innovation, then the increased competition recently introduced to the sector should go a long way to improve its performance. But for increased competition in the sector to deliver on the promise of improved innovation, productivity and customer experience, regulators and government will need to be vigilant to ensure that competition is able to take root firmly.
49. WIND has outlined above some concrete suggestions the federal government might take to ensure that this is the case and we look forward to offering the vigorous competition that Canadians deserve and that will lead to Canada's digital economy winning through wireless.
1 Council of Canadian Academies, Innovation and Business Strategy: Why Canada Falls Short, Report of the Expert Panel on Business Innovation, June 2009, page 13.
2 Competition Policy Review Panel Final Report, "Compete to Win", June 2008.
3 The Benefit of the Wireless Telecommunications Industry to the Canadian Economy. Ovum, April 2010.
4 Industry Canada News Release, November 28, 2007, Government Opts for More Competition in the Wireless Sector .
5 The 2008 AWS auction alone generated $4.25 billion in proceeds. Since the auction, most of the licensed new entrants have proceeded to build businesses and networks. For example, since its entry into the market, WIND Mobile has hired about 800 employees and invested substantial sums over and above its spectrum license fees in building its network, establishing a retail presence in the cities in which it operates and opening two call centers.
6 See WIND Mobile’s commercial plans at www.windmobile.ca.
7 With respect to Rogers' plans to launch chatr, see The Globe and Mail, "Rogers Launches New Unlimited Talk and Text Brand, June 30, 2010. . Rumours that Bell is looking at rebranding the Solo brand have been reported in the July 12, 2010 issue of Mobile Syrup.
8 Peter Nowak, CBC News, See "Rogers axes system access fee but adds new charge", September 22, 2009.
9 Christine Persaud, marketnews, "Bell, Rogers & Telus Launch Zoompass Mobile Payment Service", June 15, 2009.
11 Senate Committee on Transport and Communications, "Plan for a Digital Canada.ca", June, 2010, Executive Summary, page 3.
12 Netsize Guide 2010 (Informa Telecoms and Media).
13 Based on "CRTC Communications Monitoring Report 2009", page 235, it has been only very recently that new entrants have entered the market and so although this data is somewhat out of date, it stands to reason that there will have been little impact to date on the market share of the incumbents.
14 According to the Report of the Standing Committee on Industry, Science and Technology dated June 2010, "the wireless market in Canada would appear to be a stable oligopoly since operating margins for the three major players are similar, and not much disparity exists in their respective market shares." (Page 22).
16 According to the Globe and Mail, July 9, 2010, Mobilicity may file a complaint with the Competition Bureau if Rogers launches its previously announced discount brand, chatr.
17 Competition Policy Review Panel, "Compete to Win", Final Report, June 2008.
18 Ibid, Recommendation number 11.
19 Telecommunications Policy Review Panel, Final Report 2006.
20 Compete to Win, Recommendations 30, 31 and 32.
21 Industry Canada, Improving Canada's Digital Advantage: Strategies for Sustainable Prosperity Consultation Paper on a Digital Economy Strategy for Canada, page 18.
22 FCC National Broadband Plan — Connecting America, Recommendation 5.8.
24 Industry Canada, Policy Framework for the Auction for Spectrum Licenses for Advanced Wireless Services and other Spectrum in the 2GHz Range, November 2007.
25 For example, see letter dated January 26, 2010 to Kathleen Grillo, Senior Vice President, Federal Regulatory Affairs, Verizon from the FCC. FCC Probes Google, AT&T, Sprint, T-Mobile, And Verizon On Early Termination Fees.
26 Verizon, Sprint and AT&T have all reportedly been forced to pay fines following class action law suits.
27 Remarks of John Boynton, Executive Vice President and Chief Marketing Officer, Rogers Communications in answer to a question at the Canadian Telecom Summit, June 9, 2010.
28 Remarks of FCC Acting Chair Michael J. Copps at Pike and Fischer's Broadband Policy Summit, June 18, 2009. .
29 For example, that the nature of the exclusivity contemplated by the arrangement described might be unusual is supported by the FCC's 14th Annual Report and Analysis of Competitive Market Conditions with Respect to Mobile Wireless" adopted May 20, 2010: "EHA's apply to particular handset models". See Federal Communications Commission.
30 Industry Canada, Improving Canada's Digital Advantage: Strategies for Sustainable Prosperity, Consultation on a Digital Economy Strategy for Canada.
31 Industry Canada, "Improving Canada's Digital Economy, Strategies for Sustainable Prosperity", Consultation Paper on a Digital Economy Strategy for Canada, page 16.
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