The Big Three push CRTC to focus on 5G future, changes to 2-year contract term

The Big Three carriers are urging the CRTC to protect facilities-based wireless service providers, while touting that mandating mobile virtual network operators (MVNO) in Canada will affect the future of 5G network technology and infrastructure.

Rogers, Bell, and Telus filed their interventions to the Canadian Radio-television and Telecommunications Commission (CRTC) on the state of Canada’s mobile wireless market on May 15th.

The commission launched the review in February intending to determine whether regulatory measures are needed when 5G is deployed in the Canadian market. It was launched shortly after Innovation, Science and Economic Development Minister Navdeep Bains announced his proposed policy directive that would require the CRTC to consider “competition, affordability, consumer interest and innovation,” when making decisions.

The hearing for the review will begin in January 2020.

Mandating MVNOs will derail 5G infrastructure deployment

Rogers said in its submission that by focusing on MVNOs, the commission is deflecting from what is more critical — 5G deployment and infrastructure.

To date, Toronto-based carrier Rogers said “Canada’s facilities-based wireless carriers invested nearly $70 billion CAD” in infrastructure between 1987 and April 2019. To deliver 5G, Rogers estimates carriers will make additional investments of about $26 billion between 2020 and 2026.

“This will only happen if they have a regulatory framework providing the correct incentives to encourage these investments,” Rogers said.

MVNOs have been under scrutiny since 2016. The CRTC decided in 2017 to not mandate MVNOs, which Innovation, Science, and Economic Development Minister Navdeep Bains requested to be reexamined.

MVNOs sell mobile phone service by wholesale purchasing the use of another company’s existing infrastructure, then reselling service at generally lower rates. They are not a market force in Canada for wireless services because the CRTC does not compel carriers to sell network use to providers that don’t build their own infrastructure. The case is not the same in the United States.

That said, MVNOs are not mandated in the U.S., Rogers said.

“This will only happen if they have a regulatory framework providing the correct incentives to encourage these investments” – Rogers

Bell also noted in its intervention that infrastructure costs would put carriers at a loss of about $489 million in annual investments.

It added that the current carriers have invested significantly already to offer customers good speeds, coverage, and “quality and service,” and with “forced resale” of MVNOs this “eliminates that advantage.”

The Montreal-based carrier also said that by mandating MVNOs will “turn Canada into a 5G laggard, costing billions of dollars in consumer surplus and economic opportunity that would otherwise be gained from the rapid deployment of the latest wireless technologies.”

The carrier said that the CRTC should rather focus on 5G infrastructure “rather than resigning itself to managing scarcity.”

On that same note, Vancouver-based carrier Telus said instead of looking at bringing in rules to guide MVNOs, it should “establish policies that support investment in, and construction of, competing 5G networks.”

Telus argues that MVNOs will not be a part of that 5G network.

Stephen Schmidt, Telus’ vice-president of telecom policy and its chief regulatory legal counsel, said in a phone interview that the carriers are putting a lot of effort into “building the [5G] railroad,” and diverting attention to MVNOs derails those efforts.

“MVNOs won’t build the railways, they won’t upgrade them, or invest in them, so from a practical view it’s a distraction,” he said, adding the commission, should really be looking to other countries that are paving the way for 5G like South Korea.

MVNOs will ‘risk’ government’s four-competitor strategy

Bell said MVNOs threaten “to undermine competition from increasingly effective new entrants whose continued investments is most valuable to regulatory distortions of the market.”

It added that by “abandoning the policy of facilities-based competition” the CRTC would be putting the government’s four-competitor strategy “at risk.”

“In other words, there is a highly competitive dynamic with four effective competitors including ascendant entrant carriers’ – Bell

After the 2008 AWS spectrum auction, the government ruled that every province must have four carriers. This was back when Wind (now Shaw-owned Freedom Mobile), MTS (now Bell MTS), and other carriers were introduced to the market.

Bell noted that with Freedom and Quebecor’s Vidéotron combined, the carriers account for about 28 percent market share, while Bell holds 29 percent, Rogers 20 percent, and Telus 21 percent.

“In other words, there is a highly competitive dynamic with four effective competitors including ascendant entrant carriers,” Bell said.

Do not recycle ‘Europe’s failed policies,’ carriers say

All three carriers urged the CRTC to look at similar instances when Europe tried to regulate MVNOs, which resulted in failure and monetary loss.

In 2016, the European Commission introduced the European Electronic Communications Code which would essentially create incentives for telecom carriers in Europe to invest in new infrastructure.

The carriers argued that there was no evidence that MVNOs have reduced prices for consumers nor have had a positive impact.

“This is a niche phenomenon like a vegetarian pasta restaurant for cats, it’s niche, it’ll never be 80 percent. It’s a small part of the market in most countries” – Schmidt

According to a 2017 Irish Times article, MVNOs only accounted for six percent of the market, which isn’t significant competition for Vodafone, Three and Meteor.

Schmidt said that MVNOs are a niche that they hardly can make up a high percentage of the market.

“Broadly speaking, MVNOs are comparable to what you see in other OECD countries. This is a niche phenomenon like a vegetarian pasta restaurant for cats, it’s niche, it’ll never be 80 percent. It’s a small part of the market in most countries,” he said.

Increase contracts from two to maybe three or four years: Bell

Bell argues that with rising costs of flagship phones, an area of retail regulations it hopes the CRTC will look into changing is rules around the number of years it will take to amortize costs should increase.

The carrier says most flagship phones are now costing more than $1,000 if not close to $1,400.

The iPhone XS and XS Max are $1,379 CAD and $1,519 respectively, the Galaxy S10 and S10+ are $1,259 and $1,419 respectively, and the Huawei P30 Pro is priced at $1,100.

“In a competitive market, to meet consumer demand for affordable access to these devices carriers have introduced pricing plans that reduce the upfront cost of such devices to as low as $0,” Bell said.

However, according to the Wireless Code, Bell argues that it is unable to give customers the option of “amortizing the cost with a plan of longer than two years.”

“…$1,400 is close to the price of a Samsung phone, and we are allowed to amortize that over no more than 24 months, that’s $58 per month [added to a plan] — that’s so much money…” – Schmidt

Bell adds that carriers need to add $30 at least more to a consumer’s monthly bill.

Bell also suggests that carriers should be able to offer three or four-year contracts to give customers the ability to amortize the cost of their phone.

In 2013, the CRTC decided that it wouldn’t necessarily eliminate three-year contracts, but that carriers need to allow consumers to be able to cancel their contract after two years without any penalty.

Schmidt agreed with Bell and said if Telus is expected to sell high-end phones it needs a way to amortize the phone over a longer period to give fair plan costs to customers.

“One thousand percent. $1,400 is close to the price of a Samsung phone, and we are allowed to amortize that over no more than 24 months, that’s $58 per month [added to a plan] — that’s so much money. The devices are getting more and more money,” he said.

“The government wants to lower prices, [but] it holds one of the major leverages on that which is device amortization.”

MobileSyrup has reached out to Rogers for comment and will update this article with more information.

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