Canada's Rising Prices, the 700Mhz Auction, and Why is Videotron Waiting


What is going on with Canada's wireless carrier industry – those awful three-year contracts are now history (thank the heavens), but prices and plans seem to be revamped on a monthly basis (not in the subscriber's favor)…the spectrum auction is over so when can the subscribers expect to benefit from the increased spectrum…and is the government handling the situation properly.


This across the board price increases has caused quite a stir among the subscribers but has brought little reaction from the government – CBC was bold enough to come out and suggest that all the carriers colluded on the price changes.  But it was done in steps – TELUS raised theirs in January, Rogers in February and Bell in March – that made it look less like collusion and more like a 'happy' coincidence.  The prices were jumbled around, increasing voice and text while at the same time increased data prices by either lowering the amount of data allowed or simply doing away with some plans and forcing the subscriber into a higher priced data package.  Multiple users sharing a single pool of data will be hurt the most.


What also makes it harder to do a fair comparison is that the carriers are charging different prices based on what province the service is for and how much competition there is in that particular province.  For instance, the cost of Rogers' plans in Manitoba or Quebec varies from greatly from the ones offered up in Ontario, British Columbia or Alberta due to the presence of MTS, SaskTel and Videotron and the competition they provide.


The spectrum auction raised over $5 billion for the government and that is wonderful for them, but how did the carriers really fare?  With the government's combinatorial clock format, the auction seemed to favor the incumbents and left companies like SaskTel and MTS complaining they did not have the opportunity to purchase spectrum – even in their own provinces.  It was no surprise that the biggest kept getting bigger as Rogers, though paying about three times what TELUS paid, who paid twice what Bell paid, came out the big winner.

Rogers got great spectrum that aligns itself with AT&T while Bell and TELUS aligns more with Verizon…although this no longer carries the advantage it once had since Verizon is moving away from CDMA in favor of VoLTE (Voice over LTE).  Rogers only purchased paired spectrum that is far more desirable than the unpaired blocks that both TELUS and Bell purchased.  None of the big three are hurting for spectrum, but overall Rogers is the clear winner in this auction.



Canadian Industry Minister spokesperson, James Moore could not be happier at the end on the spectrum auction when Quebecor Inc's Videotron, a regional cable and wireless company, expanded its services outside its home base in Quebec.  Quebecor paid $233 million for spectrum in Ontario, Alberta, British Columbia, as well as its home base in Quebec.  With these four provinces sporting the majority of the Canadian population, Moore was happy to have four competitors in each region.

Moore's happiness may be premature, however, as under the auction rules the companies have ten years to deploy 700Mhz towers, as well as a requirement to cover 20-50-percent of the population.  Because of the high population density in those regions, it may mean that Videotron will only be required to deploy 6-7 new towers per region – not a huge investment or expansion.  Certainly the big three will not have to worry about Quebecor being any real threat to them or a very big help for the subscribers in competitive pricing.  Our sources were told by Videotron that their purchase of spectrum was more an investment in the future than for immediate expansion.

So what is to become of the wireless situation in Canada as prices for data and plans increase – some say to help pay the government for the spectrum auction as the payment is due thirty days after the announcement of buyers.  There were no outside players, such as Verizon from the U.S. and it is a small sacrifice for the incumbents allowing Videotron to purchase spectrum in densely populated areas, especially if the company does not take advantage of deploying their newly acquired spectrum.


What's Next

Wireless profits dipped for all carriers except TELUS this past quarter and as the smartphone saturation continues to grow – Rogers claims that 75-percent of their postpaid subscribers are already using smartphones…up 6-percent from a year ago – meaning the vast majority of revenue and profit growth must come from increased data usage or charges.  The voice and messaging profitability are shrinking and has to be made up on the data end so I would not count on data prices dropping anytime soon.