Mobile adoption study off-base: wireless outfit

A recent analyst report calls Canada’s mobile phone adoption rate “a national disgrace,” but a wireless industry organization says the conclusions are based on selective information and flawed methodology.

SeaBoard Group maintains its report, Lament for a Wireless Nation, paints a more accurate picture of the consumer cell phone experience than Organization for Economic Co-operation and Development numbers that rely solely on published rate data.

The report says, depending on the type of user, Canadians may be paying as much as 56 per cent more for mobility than their U.S. counterparts.

“The way they’ve pulled it together biases the results in favour of the U.S. prices,” says Peter Barnes, president and CEO of the Canadian Wireless Telecommunications Association.

Two specifics Barnes cites: the weighting of the cities involved in the study, and the “baskets” of services SeaBoard prepared for analysis. The study simulates cell phone bills by creating user profiles for light, average and heavy cell phone user behaviour, then pricing out the cost for those services in various cities in the Canada, the U.S. and Europe. One of the cities in the U.S. study, Barnes points out, was Athens, Ga., with a population of about 100,000 according to a 2000 census.

“I’m sure it’s a great town, but as you can expect, it’s pretty small,” Barnes says. “It’s got a very limited calling area, and the rate that they’ve chosen only applies within Athens. As soon as you’re outside of Athens…the rate gets quite steep.” Those bargain prices are given the same weight as substantially higher New York City rates, Barnes says. “That tends to skew the numbers quite considerably,” he says.

And the number of minutes in the baskets doesn’t reflect realistic behaviour, he adds. The profile for “light” or “survival” users — those who use a cell phone only when it’s necessary — calls for 70 minutes a month. “In Germany, the average user is at 85 minutes. [SeaBoard Group] is calling the average 500.…When you start picking those kinds of averages and factoring them in, it tends to skew the results,” he says.

Barnes says OECD studies are “much more credible….They’ve got a methodology they’ve been using for some time. All pricing studies have imperfections because you’ve got to make a choice at one time as to what you’re picking and what you include and what you don’t include.

“All that being said, the OECD one has been around for a bit longer, it’s been tested for a bit longer. It may be more weighted toward Europe than North America,” he says. In the OECD studies, Canada consistently places well in terms of wireless affordability.

But SeaBoard analyst and report co-author Kevin Restivo says what OECD studies see as an end point is where SeaBoard’s study begins. The company simulated the experience of opening the cell phone bill by assembling three baskets of phone-use patterns, then calculating the tab with the published figures. Those numbers tell a different story than OECD’s, says Restivo.

Of the three groups, only survival users pay less than their U.S. counterparts, and they get fewer features with their plans. “Average” users pay about a third more, while “power” users pay 56 per cent more for the same services as users in the U.S., according to the study.

Barnes cites an average revenue per user (ARPU) figure of $52.23, about on par with The U.S., as reported by Merrill Lynch. Restivo points to recent ARPU numbers released by Rogers and Telus of about $56 and $59, respectively (Bell Mobility reported ARPU numbers less than $50). “We have the highest ARPU and the lowest penetration rates,” Restivo says. “That’s not a coincidence.”

Canadian cell phone adoption is 58 per cent, well out of the Top 20 worldwide. The U.S. recently passed the 75 per cent mark, and many European countries have penetration rates in excess of 90 per cent. The SeaBoard report calls Canada’s adoption rate “a national disgrace.”

Barnes says European rates are inflated because users often have a cell phone for each country they travel in to avoid roaming charges. Portugal, for example, posts an adoption rate near 100 per cent. De-duplicate the list, though, and the number is more like 65 per cent, he says. Expensive per-call wireline pricing also makes wireless a more attractive option for Europeans, he says.

The difference between U.S. and Canadian adoption rates can largely be explained by the fact that the U.S. had an 18-month head-start in the introduction of cell phone service, according to Barnes. Not so, says Restivo: Both countries began issuing licences at the same time. In the U.S., systems were rolled out as they were ready regionally. Canada held off going live until 1985, but with a truly national network, unlike the U.S.’s regional patchwork.

The carriers’ tunnel vision focus on ARPU is stifling growth in the market, according to Restivo. “Stop with the ARPU fixation,” he says. More phones in more hands means more service sales means more revenue. The carriers should be offering bigger buckets of free minutes and eliminating long-distance charges, among other things, to increase cell phone adoption. “The ARPU will come,” he says.

A new national player would shake up competition, Restivo says, but Barnes insists the market in Canada is competitive enough. “My reaction to those kinds of suggestions from somebody who doesn’t have to run the business, who doesn’t have to answer to shareholders, or customers for that matter, is that we have a competitive market in Canada,” Barnes says.

“If one provider decides they want to go after a group of customers, and they do, they will add something into the package, or throw in a new handset, or reduce prices, or give them a deal on calling on weekends or long distance. And the other carriers can follow, or not, or decide to throw in something else.”

There’s a role for government, too, according to SeaBoard. The report recommends the government encourage more competition, and cites the upcoming 3G spectrum auction as a possible starting point. Reserve spectrum for new entrants and mandate tower-sharing and roaming, the report suggests.

Guy Mitchell, director of spectrum and radio policy with Industry Canada’s Telecommunications Policy Branch, says he can’t make detailed comments on the recommendations while the consultation process is still underway. “We’re kind of expecting that these reports be submitted supporting one view or the other,” Mitchell says. “The degree of competition is a much-debated issue.

One the one hand, we have new entrants that are of the view that there are barriers to market entry. On the other hand, you’ve got the incumbent operators that are of the view that there is sufficient competition and there’s no need to manage the market.”

The consultation does ask if the lack of mandated roaming is a barrier to entry. The tower-sharing issue is under a separate consultation process because it affects a lot of radio systems, not just AWS, Mitchell says.

Barnes says the majority of CWTA’s 200-odd members would prefer an “unfettered” auction rather than one that tilts the balance in favour of new entrants. There’s a minority that disagrees. “If you’re looking for maximizing the benefit to the Canadian customer and the Canadian taxpayer of a public good, the spectrum, I think when you have a successful competitive market, I don’t see the need to tweak the rules to help out a particular new entrant — particularly if that new entrant is well-heeled.”

The “well-heeled” new entrant in this instance is Videotron, owned by Quebecor Inc. CEO Pierre Peladeau “seemed to be signaling (in a speech last month) that he was looking for some form of assistance,” Barnes said.

Restivo doesn’t see reserved spectrum as “help from the government.” It does prevent incumbents from forcing spectrum costs through the roof, handcuffing new entrants. If “they’ve blown their brains out on spectrum,” they’re at a competitive disadvantage, he says.