The Wireless Code vs the CWTA’s bafflegab: is there a winner?

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Bernard Lord, CEO of the Canadian Wireless Telecommunications Association

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“Canadians would be willing to pay more for cellular services, study says.”

If you read that headline in the Globe and Mail on Monday, did you jump to the same conclusion I did? That the CWTA commissioned a consumer survey in which they asked about price points for wireless services? And found somehow that Canadians would pay more… than they’re already paying?

It turns out you had a good reason for your cognitive dissonance. No Canadians actually said to an interviewer, yes, I’d like to pay more. That’s because there was no consumer survey, and any suggested personal agency or willingness to pay was a lobbyist’s plant, based on a piece of economic theory about consumer surplus that bears no relation whatsoever to how any person I know feels about their cellphone bill. What the Globe meant, but didn’t know so, is depicted in the graphic below. The difference in the price that consumers would be willing to pay, if they had to, and the amount they pay now, is the consumer surplus – aka I wish I could pay Bell Mobility even more.

economic-surpluses

Well, sure, I’d be willing to pay a great deal more for my electricity service, as well as for clean drinking water, not to mention sewage and garbage disposal. But I don’t have to, because these services are all controlled as utilities – which is where wireline broadband and eventually wireless service are headed. We conclude, therefore, that expressed as the definite integral of the demand function with respect to price, this is all bullshit. (Nordicity’s justification for this methodology is in their report, pp.19-21. The report doesn’t say who at Nordicity or the CWTA had the genius idea of selling this piece of arcane econometrics as the Globe’s “let’s pay more!” headline.)

The CWTA industry study did get featured at the annual Telecom Summit and was obviously intended to act as a counter-weight to the carrier-unfriendly buzz around the CRTC’s new Wireless Code, released Monday. But you have to wonder how a reporter like Rita Trichur, and the Globe editor who concocted her headline, walked into the trap Bernard Lord had waiting for them.  

steveanderson_1Trichur winds up her story with Lord’s favorite talking points, under the banner “Quick facts about the Canadian wireless industry.” But good reporting needs more than a quote or two from the CWTA’s usual foes – in this case, Openmedia.ca’s Steve Anderson. It also needs context for so-called “quick facts.”

Take multiplier effects, a big favorite of industries that want to publicize numbers more flattering than ARPU or gross margins. The CWTA would like us to know that, counting multiplier effects, the wireless industry provided an overall economic benefit of $50.2-billion in 2011. A distinguished economist I worked with years ago warned our group to assume that multiplier effects, especially when presented as part of a PR campaign, are highly unreliable. As he put it, if you were to take all the multiplier effects claimed in individual sectors of the economy you’d end up inflating actual GDP several times over.

The Globe also dutifully reprints an equally meaningless figure about CAPEX: “Carriers spent $2.6-billion on capital investments in 2011.” So what? Why is that number here? Well, it’s in Lord’s talking points for the same reason as his numbers about how many text messages Canadians send every day. We send a bazillion! Isn’t that exciting! The desired reaction is to be wowed by the scale of the industry, while overlooking the hot mess lurking in comparative figures from other jurisdictions.

openmedia-cell-gouging

Steve Anderson got a measly 60-word sound bite in the Globe piece, without a single one of his quick facts. But if you want an earful on the carriers from Steve and the Openmedia gang, check out the study they conducted this spring, which weirdly did not turn up results like – Canadians want to pay Rogers more!

If you’re unconvinced even after reading the Openmedia material, Pete Nowak was busy a few weeks back (March 18 post) compiling some good data on just how misleading the Canadian industry has been on issues like smartphone penetration. Pete reveals some other facts you can be sure Lord and the CWTA don’t want you to lay your hands on – like our carriers have the highest ARPU of any in the world, as reported in the Bank of America Merrill Lynch Global Wireless report.

1910Ford-T“My good man, you can have any color you like, as long as it’s black.”

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Three-year contracts and the myth of free will

No cancellation fees after 2 years. You can cancel your contract after 2 years with no cancellation fees – even if you have agreed to a longer term (CRTC – Benefits of the Wireless Code).

Back in January, Lord was out stumping to prevent a consumer outcry from turning ugly – in the form of a wireless code that might actually cost the incumbents a slice of their margins or market power. Of all the things he said in the runup to Monday’s release, one of the boldest has got to be this comment made during an interview with Cartt.ca’s Greg O’Brien:

“What I find odd is when I hear people say, ‘We need to eliminate this.’ Well, we’d be eliminating the most popular choice that Canadians individually select. It’s the one that Canadians pick. They can pick a two-year contract. They can pick a one-year contract. They can pick no contract at all. In fact, the way some of the companies are structuring their offers now, yes, you still have a three-year agreement, but with most of them, you can get out any time you want” (my emphasis).

Not to sound too much like an unregenerate Marxist selling false consciousness, but you simply can’t suggest in reference to a market of this kind that we’re all going around like so many kids in a candy store.

carttTo begin with, you can’t choose an option you’re not aware of, don’t understand or can’t afford. Real choice in a market is a lot like informed consent. If a patient whose physician wants to order genetic testing does not inform her of all the possible bad consequences – like learning she has an incurable, late-onset genetic disease – then giving her “consent” to the testing is meaningless. That’s why they invented informed consent.

In the wireless market, I’m not free to pick something I would like better if it isn’t on offer and I’m not in a position to ask for it. I might not even know to ask. But the most disingenuous part of Lord’s consumer-choice mythologizing lies in the hard sell the carriers have always put behind the long-term contract.

Everything the industry has done over the years has been designed to lock in customers forever and squeeze them for every last penny of ARPU: special discounts on signing; financial penalties for leaving; discounts for bundling; locked handsets; airtight control of handset functions, branding and software (including crippled software about which my carrier often lied); non-portable numbers; incompatible technologies; exorbitant roaming fees; and so on. Wanting customers to pay off their handset subsidies – a subject the CWTA likes to get on the agenda – was never the sole or even most important goal.

Geist: the CWTA blew it

In a post on Wednesday, Michael Geist presents a strongly worded argument to the effect that the CWTA and the incumbents have now lost their battles with the regulator, the Harper government and the public interest:

“… [T]he government has now adopted a consumer-focused, populist approach premised on the view that a public fight with the telecom companies is a political winner. Moreover, the government may have shifted, but the incumbent providers clearly have not, failing to adapt to the new policy terrain.”

Michael concludes from this that the debate “is no longer about whether the Canadian market is competitive. It is now about how to fix an uncompetitive market.”

I wish I shared Michael’s optimism. First, the government’s surprisingly pro-consumer decisions – such as killing the Telus acquisition of Mobilicity – are surprising because they’re based on pure opportunism and are at odds with Harper’s fundamental political beliefs. Think back to the equally surprising stance taken by Harper and then-Minister Clement on Bell and the UBB fiasco in 2011. That managed to turn back the tide at the CRTC when the agency was about to make some very foolhardy decisions about wireline broadband. But broadband in Canada is still a 90% incumbent market, way too expensive, and way behind other countries in terms of speed and technology innovations like fiber… with no fixes I see even on the distant horizon.

On a closely related point, Michael was before Parliament last week “to raise ongoing concerns with Canada’s digital economy strategy failure” – not the first time he has sounded this warning. A government that has failed year in and year out to deliver on its promises of a digital strategy seems unlikely to provide good stewardship of one of the biggest and most important components of a digital strategy – the wireless industry.

I say this not only because Harper and Paradis keep failing where most of our partners in the OECD have succeeded. I say it also because a digital strategy must be deeply rooted in concern for the welfare of individual citizens, especially as we come more and more to depend on the Internet in every facet of our lives. Unfortunately, as we saw in the government’s early attempts at a strategy for the digital economy, citizen and consumer interests lie completely outside Harper’s political orbit.

Auction-2

Moreover, we have a crisis that continues to build, both here and in the US, over how best to allocate spectrum resources. One problem lies in the sheer complexity of the forthcoming auction and the pressures the incumbents will put on the government to make the auction rules as favorable to them as possible. A second problem is the new entrants are in a deep financial crisis and, regardless of the final auction rules, they may not be positioned to acquire the spectrum they need to compete effectively.

Third and most important, Canada is one of the few countries in which spectrum management is not handled by an arm’s length regulator like the CRTC. Crucial decisions about spectrum are still subject to the whim of government, i.e. to the political office of the minister of industry. That arrangement doesn’t bode well for transparent, consistent policymaking undertaken to promote the public interest, including measures to achieve sustainable competition in wireless.

Yes, the CWTA’s propaganda machine is now suffering a serious case of the Emperor’s New Clothes. The irony is that I’m unconvinced the industry’s failed bafflegab – along with the policy shifts taken by Harper – portend a bright new future for Canadian wireless subscribers. The foes of policy reform in this country are many and varied. Take the example of full liberalization of foreign ownship, which many observers see as a crucial pre-condition for fixing Canada’s resolutely uncompetitive wireless market.

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bannerBut our cultural community, with its undying devotion to continuing protectionism in perpetuity, has long been convinced that if foreigners are allowed to buy and control “communications” firms, especially those with broadcast holdings, the deluge will follow promptly. ACTRA is one lobby that has always been adamant about not alllowing foreign devils to control the Canadian soul. In one online statement, with the dramatic headline shown above, ACTRA says that “owning and controlling our own communications systems is an essential and long-standing principle of Canadian public policy; it is even more critical in the increasingly digital world.”

ACTRA is so convinced of this position it doesn’t even bother to mount an argument or offer evidence on its Web page as to why we should sympathize with its viewpoint. The closest it gets is to claim that if “we have no ownership, or no voice, we will not only lose control of our culture, but of a huge piece of our economy.” 

That kind of chopped logic typifies all that’s wrong with the debate about serious communications policy reform in this country. Thus, while the Wireless Code is a great step forward, it’s not enough to make me optimistic that this government will follow through on all the other measures – some highly contentious – that are needed to achieve sustainable competition in the wireless market.

D.E.