Rogers buys Shaw, dotmobile gets MVNO licence. Is Canada’s regulator in for a rough ride?

It’s rare to see any market movement in Canada but in the last two months there have been two very significant announcements. At the start of the year dotmobile was awarded a full MVNO licence, after first proposing the idea back in 2019, and this month Rogers Communications announced it’s to acquire Shaw Communications for $26billion.

As extraordinary as it might sound, dotmobile’s MVNO is a first of its kind in Canada. As an outsider I really welcome the move by the regulator. It’s a glimmer of hope that the market, dominated by the Big 3 (Telus, Rogers and Bell), might open up to healthier competition.

How so? Countries like Brazil, Mexico, Georgia, Nigeria and Saudi Arabia have all recently granted MVNO licences. They join the more established markets of the UK, Europe and USA in recognising that it’s a way to diversify and build competition.

Canada however, has always been on the back foot in comparison. CRTC – the Canadian regulator – has long battled and acceded to opposition from the Big 3 who hold significant market power. It’s not even opinion – a recent report to the CRTC by the Canadian Competition Commission has questioned this power in retail and wholesale pricing. If the deal between Rogers and Shaw goes through, things swing even more in their favour.

Will CRTC block it? It remains to be seen but certainly there’s plenty of evidence to build a case as to why it could and should be blocked. The main concerns relate to price, competition, and rural coverage.

How bad is it? At the moment, Canada ranks 209^th out of 228 countries on cost per GB. The average price is USD 12.55/GB making it the most expensive G8 country, compared to USA ranked 188 with USD 8/GB and Italy ranked 4 with USD 0.43/GB*. Bringing prices down isn’t just about the Big 3’s willingness to, it’s also related to Canada’s landscape which makes it hard to deliver services into remote areas and truly cover the 38 million residents.

Yet, Nigeria, a country similar in size but with a population six times bigger, has managed it. There data is USD 1.39 / GB and ARPU is 13 times smaller than Canada’s – in Nigeria it’s under USD4 and in Canada it’s USD55. Even accounting for economies of scale, Canadians are probably getting a raw deal. And they know it too, that’s why NPS for telecoms customers in Canada is -75, I’ve worked in telecoms a long time and never heard of such a poor rating!

Is there any hope for consumers? Perhaps. Though not MVNOs, smaller localised mobile network operators such as Videotron, Freedom Mobile and Sasktel have found a way to operate competitively with far less economy of scale. The Competition Commission says that these “wireless disruptors” offer prices that are 35-40% prices than the MNOs.

What’s the hesitation then? PWC recently issued a report ‘Understanding the likely impacts of MVNOs in Canada’, which suggested the Canadian GDP would shrink by $10 billion (Canadian Dollars) in five years, reducing tax income by $2.5bn if MVNOs were introduced. That’s a lot of money for the regulator to stake. It also makes you question why, if MVNOs can do so much economic damage, so many governments and economies embrace them.

There is another point of view though. If people have more money in their pocket from paying less for their mobile, then it could create more disposable income. That’s more money being spent on other things and stabilising the economy. It’s a win-win for consumers, lower prices and more perceived wealth. Isn’t that something regulators should promote?

Could innovation spring from this? Yes. In my experience of working at MVNOs and MNOs, competition sparks innovation at the network level. Put your mind to it and you can be more effective and efficient if you use the network differently. You can also create different services and win customers on the strength of selling price plans people really want.

I’ve also seen competition lead to better rural coverage because you have to extend your reach to win more connections. It breeds product and service innovation that would not otherwise have happened.

That’s an important factor. At the moment 16% of all Canadian, and 63% of rural Canadian households don’t have access to a standard 50-Mbps internet connection. In Yukon, Northwest Territories and Nunavut there is no reliable access to that type of internet speed. We wouldn’t stand for that in the UK. In fact the UK government and all the major operators are currently collaborating and investing in rural coverage initiatives.

But what about the deal with Rogers and Shaw? In Europe, it would trigger regulatory intervention that’s for sure – the disallowed deal between Three and O2 in the UK a case in point. And when O2 and Three merged in Ireland, the regulator and competition authorities only approved the merger if two new full MVNO licences (where the host network has less technical influence the operations of the MVNO) were issued.

What’s likely to happen then? Well it’s a real test for the regulator. There will be renewed calls for similar intervention in Canada. Innovation in products and services, rural coverage, more competitive pricing, it all stacks up.

I’d therefore say that to ensure these outcomes for the Canadian consumer, and given the Competition Commission’s opinions on the existing market power of the Big 3, it’s time for the CRTC to look to other markets and consider similar or potentially more aggressive remedial action.

What’s the consequence if it doesn’t? I fear failure to do anything will erode trust in the process, and trust that the consumers’ rights are promoted and protected. And if that’s at the heart of a regulator’s remit then I’d say it’s a brave step to take but one that’s necessary, as I just don’t think the market, nor consumers, could tolerate it.

If you’d like advice on how this could affect your plans, or want to know more about the regulatory processes around the world then give me a call.

Source: Data pricing comes from Global Mobile data comparison 2020 https://www.cable.co.uk/mobiles/worldwide-data-pricing/

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James Gray

Managing Director at Graystone Strategy

James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.