Canada’s iPhone pricing monopoly

You might remember this campaign over Rogers’ 3G service rates for the iPhone in Canada last July. some 60,000 people signed the petition and wrote emails to Rogers and to Industry Canada about the issue. I was one of those people.

Jim Prentice sent his response to me (presumably to many others, as well) in September 2008 (pasted in below). I’ve taken a while getting around to this, but I hope that my response elucidates well the problems with innovation in the wireless sector in Canada, and is also well-timed (proroguing and all). Just sent it off today:

Dear Tony Clement,

Thank you for your response (via Jim Prentice, then-Minister of Industry Canada).

I think your letter (pasted below) skirts the underlying problem here (and yes, I am well aware of the trend of deregulation of the wireless sector in Canada), which is of a 3G market in Canada that is very limited and hardly competitive.

A market in which one company (Rogers, which owns Fido/Microcell, the only other “provider”/MVNO that offers iPhones in Canada) holds a monopoly cannot logically have any “competitive market forces” operating upon it at all. Currently, Rogers/Fido is free to charge whatever it wants to customers wanting an iPhone with 3G wireless service, as there is simply no competition. If we are to promote a competitive environment in this sector, it is evident that we need to intervene to cause one to transpire. The status quo on 3G iPhone service in Canada is a monopoly.

Further, the wireless sector in Canada is more generally anticompetitive, and services apart from voice are prohibitively expensive compared to most other jurisdictions. According to a recent report by Merrill Lynch, Canada has some of the highest wireless data rates in the world, as well as the highest profit margins for the few companies that dominate it [ http://www.cbc.ca/technology/story/2008/09/04/tech-profit.html ]. Currently, 95% of the Canadian wireless market is held by a mere three companies. This is an egregious oligopoly. Even with the spectrum auction of 2008, analysts estimate the market share for all new entrants combined will only equal 25% by 2015 [ http://edmontonsun.com/Business/News/2008/09/18/6800626-sun.html ]. It is unreasonable to conclude that the wireless sector in Canada is a competitive one.

What tangible steps (apart from last year’s spectrum auction – which still allows for much control of the market by the owners of towers and other infrastructure, the incumbent oligopoly of Rogers, Bell, and Telus) is your government taking to ensure that new entrants will be able to offer competing iPhone 3G data plans, or can compete so as to foster an environment where wireless data becomes something people other than millionaires can afford in this country? Canada is rapidly getting left behind the ROTW in this regard. If there is to be a digital divide, on which side of it do you wish Canada to be?

Might I suggest an approach (consistent with the long history of liberal telecom policy and legal precedent in North America) that prohibits wireless providers from predetermining what equipment customers are permitted to use to connect to their networks (e.g., the Carterfone/AT&T precedent [ http://en.wikipedia.org/wiki/Carterfone ])? This would pre-empt many of the issues cited above, and would undoubtedly lead to widespread innovation in not only software for wireless devices, but wireless hardware as well. The time has passed for wireless carriers to be permitted to dictate the terms of handset innovation via their exclusive rights to license devices for use on their networks (and in the case of Bell and Telus, to lock them so they cannot be used on any other networks either).

Yours truly,
Jean Hébert.

On 9-Sep-08, at 11:39 AM, Correspondence@synergis.ic.gc.ca, Minister/Correspondance@synergis.ic.gc.ca, Ministre@synergis.ic.gc.ca wrote:

Thank you for your e-mail regarding rate plans proposed by Rogers for
iPhone services.
As Canada’s wireless market has been deregulated since the mid 1990s,
prices and contract terms are no longer subject to approval by the
Canadian Radio-television and Telecommunications Commission. This is
consistent with the government’s objective of a competitive wireless
sector that relies on market forces to the benefit of Canadian businesses
and consumers. The government is of the view that competitive market
forces are the best means of achieving better choice and lower prices for
telecommunications services. Deregulation of the wireless market leaves
wireless service providers to interpret market forces and determine
appropriate rates for wireless services, including roaming and mobile
data.

The government also took steps to increase competition in wireless markets
by setting aside a portion of the spectrum specifically for new entrants
to bid on in the auction of radio spectrum (airwaves) that was held from
May 27 to July 21, 2008. As well, new entrants that acquire spectrum will
have access to existing antenna towers and the ability to roam on existing
networks at market-based rates.

This new spectrum is suitable for advanced new wireless services, like
high-speed Internet and video, and faster access for services such as
those being offered using the iPhone. The introduction of new service
providers will help make Canada’s wireless market more dynamic,
competitive and innovative to meet the growing needs of Canadians. The
government’s objective is better choice and lower prices for Canadian
wireless users.

Once again, thank you for writing and please accept my best wishes.

Sincerely,

The Honourable Jim Prentice, P.C., Q.C., M.P.

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