CRTC Takes Stuttering Steps Towards True Mobile Competition

The CRTC released its long anticipated vision for the future of wholesale wireless today. The decision is noteworthy for its recognition of the market concentration inherent in Canada's mobile markets. Historically, mobile services were forborne, meaning that the Commission held back several of its most potent regulatory tools. The mobile industry is highly concentrated and susceptible to risk of coordinated activities. As CIPPIC (on behalf of OpenMedia) demonstrated in its submission to the proceeding, this has led to high prices, some of the lowest mobile adoption rates in the developed world and minimal service innovation. The Commission recognized this, and reapplied its full regulatory powers to mobile wireless.

However, the CRTC adopted a disappointingly minimalist approach in doing so. It mandated cost-based roaming, a move that will improve the ability of existing new entrants into the mobile market such as WIND to compete more effectively. Historically, these new entrants were prevented from offering their customers compelling services because the moment a customer stepped outside the entrant's service area, they faced extreme roaming rates. The CRTC decision improves on this state of affairs, allowing new entrants to compete far more effectively as they take the time to build out their national networks. The CRTC did not, however, adopt other important measures such as mandating wholesale access in general and MVNO access in particular. Mandating wholesale access is necessary to facilitate a truly competitive landscape that is not bound by finite spectrum availability, and stimulates investment in radio access network equipment. Mandating MVNO access is necessary to facilitate market innovations such as international roaming and to expand highly underdeveloped Canadian niche markets such as pre-paid. While taking some important steps towards fixing Canada's mobile market, it is disappointing that the CRTC did not go further in spite of its recognition that the market is concentrated and in need of more competition.

The decision to reapply its full powers to wireless opens the door to additional future action. Given the growing importance of mobile connectivity, this is a critical step and builds on past piecemeal decisions which have made wireless providers subject to the CCTS (an independent complaints ombudsman), imposed netneutrality rules and adopted a comprehensive Wireless Consumer Protection Code. Moving forward, the Commission will be able to use its full set of powers when addressing ongoing issues in the mobile wireless industry and particularly when addressing endemic competition problems. These include high concentration amongst our top three providers, very high returns on investment [para 23] and world-leading revenues [para 10] by these providers, and a lack of service innovation with respect to price and network quality (even in their own advertisements, some incumbents are hard pressed to differentiate themselves from each other on this basis!). [para 31] As no national provider has adopted a 'disrupter' mantle, Canadian mobile services are largely characterized by uniformity and high prices. By reapplying its full suite of powers, the CRTC acknowledges this and will be well placed to take more aggressive steps to remedy the situation in the future.

In addition, the Commission's decision to regulate domestic roaming will improve new entrants' ability to compete. This is important, because it takes time for new entrants to build their networks after acquiring spectrum. In the meanwhile, they need to rely on other providers' networks to serve any customer that steps outside their coverage area. Perhaps unsurprisingly, incumbent providers have not been keen to empower their competitors by offering them reasonable roaming rates. Indeed, Rogers was recently rebuked by the CRTC for imposing discriminatingly high roaming rates on new entrants. [para 29] Industry Canada had partially addressed this problem by capping the amount service provider A can charge competitor B for data, voice and text used by B's customers on A's network. However, this cap is tied to provider A's retail rates, impeding provider B's ability to offer its customers competitive pricing and features such as nation-wide unlimited usage - a problem since new entrant retail rates can be as low as 50% of incumbent rates. [page 7] In place of this, the CRTC will now impose a cost based approach under which providers will only be able to recover their costs plus, perhaps, a minimal markup, for roaming (the next step will to determine a rate that is reflective of costs and investment, something that has proven challenging in the past). By adopting this cost-based approach, roaming rates will be tied to incumbents' actual costs not their inflated retail prices. New entrants will be able to provide competitive offers that don't stop at their narrow territorial coverage zones and allow them to compete on more equal footing with the few national incumbents. [para 40]

However, the decision failed to mandate wholesale MVNO access. MVNOs are essentially resellers of incumbent access networks. They tend to cater to niche markets otherwise ignored by traditional providers, and so are a source of innovation and expanded market penetration. They can address problems like steep international roaming by operating on networks across several jurisdictions. They can also address issues such as Canada's globally lagging mobile adoption rates by offering competitive pre-paid and otherwise flexible service offerings. [paras 41-43] Yet, given that MVNOs are often natural competitors to those whose networks they need to access in order to reach end customers, such access is unlikely to develop organically, without regulatory intervention. [paras 32, 44] In spite of these benefits, the CRTC refused to mandate MVNO access at reasonable rates, out of concern that this would undercut that ability of new entrants to develop and invest in their networks. However, this is unlikely to happen. MVNOs cater to niche markets and provide different offerings from those of regular network operators. Mandating MVNO access will lead to deeper and more varied mobile choices. [para 41]

Also left undone is the need to address the true bottleneck to competition in wireless - spectrum. Spectrum is the proverbial 'last mile' of wireless. It is a finite resource, held in vast amounts by incumbents and to lesser degrees by a fixed number of new entrants. Whereas other elements of the mobile/radio access network can be replicated by anyone, spectrum is limited and necessary in order to reach end customers. Spectrum can be shared, through techniques such as time slicing. Also, it is common for spectrum owners to leave spectrum blocks underdeveloped or even undeveloped in some regions such as rural areas. Mandating spectrum access would allow additional competitors to enter the market and invest in infrastructure leaving Canada with a more robust and developed wireless network. Mandated access could, for example, allow providers to invest in geographically unused rural spectrum. [para 45] It would also permit existing wireline providers to make forrays into wireless without the need to first amass rare spectrum holdings. It is true, as some have noted, that the mandated access model has not been wholly successful in the wireline context. However, the Canadian wireline market, while still leaving much to be desired in terms of speed and price, is more competitive (both domestically and internationally) than its wireless, so this would be a step in the right direction. It is a step the Commission did not wish to take at this time, however. Only time will tell whether the basic measures adopted by the CRTC today will be enough to reverse the shortfalls in Canada's wireless market. However, given the extent of these shortfalls, the issue will likely need to be revisited again.

CIPPIC/OpenMedia's Input on Wireless Wholesale, October 20, 2014 [PDF]