Op-eds

Canadian telecoms’ value for money is actually among the highest in the world

For many years now, Canadian politicians have been treating telecommunication companies like pinatas to score political points. But the federal government’s brazen election promise to force companies to lower their prices could actually set Canadians back in terms of the services they receive. Not only have prices already been trending downward, but the quality of our telecommunications infrastructure is world-class.

It seems like every few weeks or so a new international benchmark study shows that data is more expensive in Canada than elsewhere. But most of these rankings do not compare apples to apples. A recent study integrating all the benefits offered, not just price, suggests Canadians actually enjoy some of the best value for money in the industrialized world. So when considering the seductive appeal of paying less thanks to a government mandate, they should also consider what they might lose along the way.

To begin with, data is not a simple commodity. Customers often subscribe to plans with various options in terms of duration, speed, flexibility and so on. Operators in Canada are especially creative in this regard — so much so that according to the study mentioned above Canadians enjoy the highest diversity of value offerings in the world. If customers were solely interested in the lowest unit price they could find, plans offering the cheapest price per gigabyte would have the largest market share. Yet they generally don’t, because on top of other plan attributes, the relative ability of mobile operators to serve customers comes into play.

Depending on the operator, data service gets delivered with variable speed, latency, and consistency. Many customers are willing to pay a premium for better service quality, meaning they choose not to pay less for lower quality service, which is understandable in our digital world. According to the leading independent global standard in the industry, Canada’s data download speed is now second best in the world, just behind South Korea’s. A Canadian gigabyte is thus substantively better than most in this regard.

Providing consistent high-quality service comes at a cost for operators. This cost is driven by several factors, and international price comparisons are meaningless if they ignore the geographic, demographic, market and regulatory environment in which telecom companies operate.

The Canadian context is notoriously challenging: we are the second largest country in the world geographically and we have the fifth lowest population density and fifth most extreme temperatures. All of these natural factors raise our operators’ costs in deploying, operating and maintaining their networks per subscriber acquired. Serving subscribers in Iqaluit is much costlier than serving them in New Delhi. Australia is sometimes presented as a better benchmark, but its service quality still lags far behind ours.

Adding to natural challenges are man-made regulatory and market requirements. Safety rules for workers and the general public that apply to network installation and maintenance differ significantly from one country to another, as do labour costs. Operators have to factor labour and regulatory compliance costs into their business models. Legal and market constraints faced by operators in Canada are much more stringent than those of many of their counterparts in poorer countries, to which they are often — unfairly — compared.

In order to properly compare the value for money that subscribers receive in different countries, operator prices must be adjusted to identical business constraints and similar value delivered to customers. A researcher performing such adjustments for the year 2019 found that Canada’s value for money was actually among the highest in the world.

What keeps it that way? Competition — the most effective form of which is “facilities-based competition,” that is, competition between providers that own their own networks, as opposed to resellers and companies that lease networks and don’t have any incentive to invest. This competition keeps driving down the price of mobile services — by at least 35 per cent since 2016, including up to 32 per cent for mobile internet.

A mandatory, arbitrary reduction of prices is unjustified given current value for money and already falling prices. It is also particularly poor timing, as Canadian operators must invest in 5G technology to maintain their edge under the looming threat of new and powerful entrants. We don’t need government to force lower prices or better value. Competition — actual and potential — is already doing the job.

Gaël Campan is Senior Economist at the MEI. The views reflected in this op-ed are his own.

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