CRTC's MVNO proposal would weaken regional wireless networks, says Competition Bureau

GATINEAU, QUE. -- A proposal from Canada's telecom regulator runs the risk of making it harder for the country's regional carriers to compete with the three national carriers, possibly resulting in higher overall wireless prices for consumers, the Competition Bureau said Tuesday.

At the opening of nine days of public hearings into mobile virtual network operators, the bureau said Freedom Mobile, Videotron, Eastlink and other regional carriers may not grow big enough to keep a lid on pricing at Rogers, Bell and Telus if a new type of rival is given a CRTC mandate.

The Canadian Radio-Television and Telecommunications Commission is proposing to make it easier for mobile virtual network operators, also known as MVNOs, to rent network capacity from Canada's three national carriers.

Historically, successive Canadian governments and the CRTC have favoured facilities-based network operators, including the Big Three and the regional carriers, because they build the country's telecom infrastructure. In contrast, mobile virtual network operators primarily rent their network capacity wholesale and resell the service to retail customers.

Last year, the CRTC departed from its usual approach and proposed that MVNOs should get mandatory access to the Big Three networks -- which operate under their own names as well as flanker brands such as Fido, Virgin and Koodo.

However, a Competition Bureau panel told CRTC commissioners on Tuesday a policy that encourages the broad adoption of MVNOs could actually set back efforts to have at least four facilities-based competitors per market.

"Facilities-based competition from wireless disruptors is creating a marketplace where Canadians can enjoy the benefits of competition, including lower prices and more choice," Matthew Boswell, Canada's competition commissioner.

"The evidence we analyzed painted an encouraging picture of the significant progress made since the CRTC's last wireless review five years ago."

"Five years ago, Videotron had around 10 per cent of Quebec's subscribers and Freedom, formerly Wind Mobile, was approaching 800,000 subscribers. Since then, both of those numbers have nearly doubled.

"Further, the evidence demonstrates that the Big Three are clearly responding to competition from facilities-based disruptors."

A later presentation by Shaw Communications and its Freedom Mobile wireless unit said the CRTC's preliminary support for mandated MVNO access, announced shortly before a critical spectrum auction last year, came as a "shock."

"It called into question many of our assumptions, and caused changes to our auction plans, including pulling back on ambitions to expand into new markets," said Trevor English, Shaw's chief financial and corporate development officer.

He said Shaw has yet to make a return on about $4 billion invested in wireless since 2016, when it bought formerly independent Wind Mobile and rebranded it as Freedom Mobile.

"We are growing our subscribers and revenue, but we continue to invest more money than we make," English said.

He said that Shaw needs an environment that encourages long-term commitments rather than "regulatory U-turns."

The president of Shaw's wireless division, Paul McAleese, said Freedom's introduction of the Big Gig pricing plan -- 10 gigabytes of data for $50 and no overage fees -- brought down Big Three prices and changed their strategies.

"The Big Gig plans would not have been possible if Freedom did not have its own network," McAleese said.

"MVNO resellers could never replicate this level of innovation and differentiation, given their dependence on the Big 3's networks."

Shaw's position was supported by research done for the Competition Bureau by Boston-based consultant Tasneem Chipty of Matrix Economics, who also spoke Tuesday,

Canadians spend an average of 10 per cent less per gigabyte of data in areas where regional carriers have 5.5 per cent of the market. The benefit rose to a 65 per cent saving when disruptors had 20 per cent of a market, she said.

Competition Commissioner Boswell said these advances are at risk if the CRTC requires the Big Three to give broad access to virtual network operators that target the same type of price-conscious consumers that chose Freedom.

"Dr. Chipty calculated that just for Freedom, if their forecasted growth were to slow by 25 per cent, it could amount to a savings loss of around $234 million annually due to unrealized price reductions for consumers," Boswell said.

"For these reasons, to adopt a broad MVNO policy at this stage is a risky bet, when the evidence demonstrates that the entry and expansion of wireless disruptors will continue to pay off for Canadians."

As an alternative, the Competition Bureau is using a time-limited MVNO model in very specific situations -- including when a regional disruptor such as Freedom wants to enter a new market before building its own infrastructure.

The bureau also supported Freedom's call for "mandated seamless handoff" that would reduce the number of calls that are dropped as a customer moves out of its network area and into an area covered by a Big Three carrier.

Brian O'Shaughnessy, Shaw's senior vice-president for wireless and 5G technology, said that the lack of seamless handoff creates a "grey zone" around every market where calls are cut off and new calls can't be made or received.

"If we had proper intersystem handoff . . . you'd get to the edge of the service, the signal would start to drop, the call would hand off automatically to the other network and . . . the customer wouldn't even know the difference," he said.

This report by The Canadian Press was first published Feb. 18, 2020.