When Industry Canada announced it was planning to boost competition by setting aside certain spectrum for new competitors entering the wireless marketplace, the Conservative government promised Canadians they would see a new era of robust competition and lower prices as a result.

Today, it turns out the only competition around is watching which of the three largest wireless carriers snap up their newest competitors first.

Telus, Canada’s third largest wireless carrier, today announced it was acquiring Mobilicity for $380 million — almost exactly the amount of outstanding debt owed by the Data & Audio Visual Enterprises Holdings’ venture. That means Telus will pick up its competitor just by agreeing to pay its bills.

Mobilicity said it was burning through cash at an alarming rate and simply could not attract enough customers in its home service cities Toronto, Ottawa, Calgary, Edmonton and Vancouver, to become profitable. It also reportedly lacked financial resources to take part in a forthcoming spectrum auction that would have been critical to the company’s long-term survival.

Informal merger talks among the three largest independent carriers — Wind Mobile, Public Mobile, and Mobilicity — reportedly went nowhere.

“Mobilicity has been losing a significant amount of money every month,” Mobilicity’s chief restructuring officer, William Aziz, said today. “The financial strength of Telus will allow the business to be continued in a way that will benefit customers and employees. An acquisition by Telus is the best alternative for Mobilicity.”

But that may not be the best alternative for Canadians. Regulators are expected to scrutinize the merger and current rules do not allow Telus to acquire the spectrum Mobilicity holds until next year. But with few other expected buyers, regulators may have no choice but to allow the deal to go through.

If approved, Telus will pick up Mobilicity’s 250,000 customers and likely switch them to Koodo Mobile, its prepaid division.

Minister Paradis

Mobilicity customers could do worse. Koodo Mobile, given a “C” grade by Canadian consumers, was Canada’s highest rated wireless carrier. That disparity hints at how much Canadians loathe their current wireless options.

Bay Street investors were not surprised by the announced merger, believing competition has its limits in a marketplace dominated by three enormous telecom companies — Bell (BCE), Rogers, and Telus — all collectively holding more than a 90% share of the Canadian wireless market. Many expect the remaining independent providers to also jettison their businesses or combine them in a last stand.

Industry Minister Christian Paradis, the Conservative government’s point man on independent competition in the wireless market, was caught off guard by the apparent faltering of the new carriers.

Paradis said he remains committed to making sure Canadians have a fourth choice for wireless service in every regional market in the country. But his only assured success is in Québec, where Vidéotron — the provincial cable company — competes with the big three providers. That competition has worked in that province to hold pricing down. According to The Globe & Mail, the average monthly bill in Québec dropped to $50.36 a month in 2011 from its peak in 2009 and is on par with where it stood in 2007. In comparison, according to CBC News, the average monthly wireless bill across Canada was $77 in 2013, up from $68 in last year’s survey.

Paradis is now pondering new regulations that would prevent the three largest carriers from buying out the remaining two independent providers just for their spectrum assets.

The merger will need regulatory approval from The Competition Bureau, Industry Canada, and the Canadian Radio-television and Telecommunications Commission.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/BNN Telus in Talks to Buy Mobilicity 4-13.flv[/flv]

BNN reported back in April that Telus and Mobilicity were in acquisition talks. The news channel speaks with Maher Yaghi from Desjardins Securities about the implications the merger would have on the Canadian cell phone market and the prices consumers pay. (5 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/BNN Telus Acquiring Mobilicity 5-16-13.flv[/flv]

BNN this morning reported the ball is back in Ottawa’s hands as the government tries to decide how it can salvage its wireless competition agenda. (6 minutes)

Despite years of arguments that Bell Canada (BCE) could not sustain offering unlimited Internet access, the company suddenly managed an about-face Monday, announcing the launch of a $10 unlimited Internet add-on option for broadband customers who do not want to worry about their online usage.

Bell customers in Québec and Ontario who choose at least three Bell services (broadband, television, phone, satellite, or wireless service) can qualify for the add-on. Broadband-only customers and those with two qualifying Bell services can also buy unlimited access for an additional $30 a month.

Oosterman

“Canadians are the heaviest Internet users in the world and our time spent online is growing every day,” said Wade Oosterman, president of Bell Mobility and Residential Services. “Thanks to Bell’s massive network investments and the success of the new Fibe network, Bell is taking the lead in maximizing the online experience with affordable unlimited usage options.”

Another factor may be a forthcoming ruling regarding wholesale access to Bell’s network from Canada’s chief telecom regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), rumored to be beneficial to the growing number of independent providers that already offer unlimited access.

Canada’s largest cable and phone companies have imposed usage caps for at least five years, although a few in western Canada have not enforced them. Most providers offer allowances tied to Internet speeds, compelling customers to upgrade to avoid overlimit penalties if they exceed the limit.

Bell’s decision to offer an add-on may force Canadian cable operators, particularly Rogers, to follow suit.

(Thanks to Stop the Cap! reader Alex for the heads up.)

Think your wireless service contract ties you down?

More than 500 Canadians filed comments about their wireless service with the Canadian Radio-television and Telecommunications Commission as the telecom regulator wrestles with a proposed code of conduct for Canada’s wireless industry and the contracts they hand customers. Why? Because of language like this from a typical contract with Rogers Communications:

Device Savings Recovery Fee (applicable to term commitment customers only for any new term entered into on or after January 22, 2012): A Device Savings Recovery Fee (DSRF) applies if you have been granted an Economic Inducement (as defined below) upon entering your new term, and if, for any reason, your wireless service or your new term is terminated prior to the end of the term of your Service Agreement (Service Agreement Term). The DSRF is the amount of the economic inducement (which may take the form of a discount, rebate or other benefit granted on the price of your Equipment), as stated in your Service Agreement (Economic Inducement), less the amount obtained by multiplying such Economic Inducement by a fraction representing the number of months elapsed in your Service Agreement Term as compared to the total number of months of your Service Agreement Term (plus applicable taxes). In other words, DSRF = Economic Inducement [Economic Inducement × (# months elapsed in your Service Agreement Term ÷ Total # months in your Service Agreement Term)] + applicable taxes. An Additional Device Savings Recovery Fee (ADSRF) also applies if, for any reason, your wireless data service, or your data plans commitment term (Data Term), is terminated prior to the end of your Data Term. An Additional Device Savings Recovery Fee (ADSRF) also applies if, for any reason, your wireless data service, or your data plans commitment term (Data Term), is terminated prior to the end of your Data Term. The ADSRF is the additional Economic Inducement you received for subscribing to your wireless data service, less the amount obtained by multiplying such Economic Inducement by a fraction representing the number of months elapsed in your Data Term as compared to the total number of months of your Data Term (plus applicable taxes), and applies in addition to the DSRF for termination of your Service Agreement. If you subscribe to a plan combining both voice and data services, both the DSRF and the ADSRF apply, up to the total Economic Inducement.

Despite contract confusion being an issue in the eyes of the CRTC, the overwhelming majority of comments focused on something else that irks Canadians above all else: being held hostage by the industry’s traditional 36-month wireless contract, one year longer than consumers in the United States find common.

“Get rid of the 36 months contract,” wrote one Canadian, noting contract creep is all the rage. “It first started with 12 months, then 24 months, now the standard is 36 months, which is ridiculous!”

Most of the comments came from customers of the chief three providers: Bell, Rogers, and Telus. All three received scorn from customers for uncompetitive, expensive service.

The state of competition in Canada:

Roger offers new plans:
– $55 1000min local, unlimited text, 200MB
– $65 unlimited local/text, 1GB
– $75 unlimited local/text, 2GB
– $95 unlimited canada/text, 5GB

Then Bell offers their new competitive plans:
– $55 1000 min local, unlimited text, 200MB
– $65 unlimited local/text, 1GB
– $75 unlimited local/text, 2GB
– $95 unlimited canada/text, 5GB

Then Telus offers their competitive plans:
– $70 unlimited local/text, 1GB
– $80 unlimited local/text, 3GB
– $100 unlimited canada/text, 5GB

Where is the competition? These plans are all the same.

Also unfamiliar to Americans, the automatically-renewing contract that snags Canadians that forget to cancel with a brand new service commitment complete with a cancellation penalty. Perhaps the most consumer-friendly provinces in Canada are Quebec and Manitoba, which ban certain kinds of termination fees and auto-renewing contracts. Canadians want these bans extended nationwide. The European Union already bans 36 month contracts and made 24 months the maximum. One former resident of the United Kingdom noted the EU also compels providers to offer 12 month contracts for those who want them.

The CRTC may not provide much relief if it remains convinced the marketplace remains competitive.

The agency points out under the Telecommunications Act, the CRTC will only intervene in a market if there is insufficient competition to protect the interests of users.  In the 1990s the CRTC decided to allow market forces to guide the growth of the mobile wireless industry.

The CRTC seems to have already made up its mind on this issue when it announced its proceeding:

In the decision issued on 11 October 2012, the CRTC found that there was competition sufficient to protect the interests of consumers and it did not need to regulate rates.  Although many consumers indicated concerns about wireless rates and the competitiveness of the wireless market, a number of market indicators demonstrate that consumers have a choice of competitive service providers and a range of rates and payment options for mobile wireless services. According to the CRTC’s 2012 Communications Monitoring Report, new entrants in the mobile wireless market continue to increase their market share and coverage. Companies continue to invest in new infrastructure to bring new innovative services to more Canadians. Moreover, the average cost per month for mobile wireless services has remained relatively stable.

The CRTC concluded that competition in the mobile wireless market continues to be sufficient to protect the interests of users with respect to rates and choice of competitive service provider.

That makes it more likely than not the agency will limit itself to ordering wireless carriers to better explain their wireless policies, not force them to change them.

The only relief potentially available outside of canceling service is considering one of several new competitors which offer relaxed terms and better prices to attract customers. So far, only 4% of Canadians have switched to WIND, Mobilicity, Vidéotron, or Public Mobile. Some may be trapped in current contracts with larger companies or are discouraged having to buy new equipment to switch providers. Most providers in Canada, like in the United States, lock phones so they cannot be easily used on another company’s network.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CRTC Cell Phone Contracts 12-12.flv[/flv]

The CRTC used this video to invite consumers to share comments about confusing wireless service contracts. Instead, criticism of tricky term contracts that auto-renew and last three years arrived in buckets. (2 minutes)

As much as 90 percent of your monthly broadband bill represents pure gross profit for your phone or cable provider, according to the Wall Street Journal:

Cable executives and analysts say that about 90% of the money cable operators charge for broadband goes straight to gross profits, since there are minimal operational costs for providing Internet service.

Canadian Radio-television and Telecommunications Commission

Most of the expenses incurred by cable operators that today dominate the broadband market came from cable system upgrades that began in the early 1990s to accommodate the introduction of digital cable television and other services like digital cable radio, expanded pay-per-view and on-demand features, home security, telephone service, and the launch of cable broadband.

Most of those upgrades were paid off years ago, and the costs of bandwidth and network upgrades to handle increased data demands are proving to be both incidental and declining.

What has not declined is the price consumers pay for service.

Among Canada, the USA, Japan, the United Kingdom, France and Australia, Americans pay the highest prices and are seeing the largest rate increases for Internet access, especially after 2011, according to the Canadian Radio-television and Telecommunications Commission which tracks global broadband pricing.

Canadian Radio-television and Telecommunications Commission

Share and share alike is a concept unfamiliar to Rogers Communications, at least in the eyes of the independent Internet Service Providers who have wholesale bandwidth agreements with eastern Canada’s largest cable operator that are supposed to guarantee speed parity.

The Canadian Network Operators Consortium (CNOC) last week announced it filed a complaint with the Canadian Radio-television and Telecommunications Commission (CRTC) accusing Rogers of withholding speed increases from independent ISPs.

In 2006, the CRTC made it clear that cable companies must treat its wholesale customers fairly:

The Commission determines that should a cable carrier introduce a speed upgrade to one of its retail internet service offerings with no corresponding price change, it is to issue at the same time, revised [third-party ISP access] tariff pages that match these retail service speed changes with no corresponding price change.

According to CNOC, Rogers wants independent ISPs to pay higher prices for the faster speeds it is providing its own customers for no additional charge.

That leaves providers like TekSavvy at a competitive disadvantage, according to the provider.

Peter Nowak explains Rogers is attempting to hurry independent ISPs to move to “aggregated points of interconnection,” part of the foundation of the CRTC’s earlier decision on usage-based billing. Independent ISPs were given two years to complete the transition and Rogers wants that change to move at faster pace:

Rogers wants indie ISPs to move onto the aggregated method, something it says the CRTC essentially ordered at the conclusion of the big usage-based billing fiasco a year ago. Here’s what a spokesperson told me:

We are not denying TPIAs access to our new speeds provided they have moved to a single point of connection, called an aggregated point of interconnection (POI). As part of the usage based billing rulings in November of last year, TPIAs were given two years to move from a disaggregated POI to an aggregated POI. The sooner this happens, the sooner we can provide those speeds to these third party ISPs.  Rogers will continue to provide access at existing speeds on the old network architecture until November 15, 2013.

The dispute, as usual, boils down to whether or not Rogers’ move can be considered anti-competitive. The small ISPs argue that it is, since Rogers’ own retail customers are getting the benefit of higher speeds without higher prices, yet the indie companies – and their own subscribers by extension – are being expected to pay more.

If it’s uneconomical for the indies to sell the faster speeds, they won’t, in which case the big network owners like Rogers will hold a distinct advantage since internet access is sold largely on speeds. Since they’ll simply perish if they can’t keep pace, the indie ISPs will ultimately have no choice but to accept the higher prices being pushed on them – and that effectively neutralizes the entire point of their existence, which is to provide a competitive check to the big guys.

CNOC has asked the CRTC to make an expedited ruling on the controversy as soon as possible to mitigate competitive damage.