Canadian telecom’s big cell-out

The Canadian government’s pledge in the 2010 budget to allow foreign investment into the telecommunications industry, which includes cell phone companies, may lessen the sting of Canadians’ massive wireless bills. 

It’s hard to talk dollars and cents when it’s unclear where investments will come from and when, but many people familiar with the business sector hope that the cell phone climate in Canada will become more comfortable for consumers. 

Iman Azman was shocked when she received her first cell phone bill in Canada. Despite high service fees, she says she'll continue to support Canadian companies.

Iman Azman is one of these consumers. This first-year university student from Malaysia is on her iPhone in downtown Ottawa making a local call to a friend.

She hangs up and giggles, explaining that her friend is making fun of the “Canadian accent” Azman has picked up in the few months she’s lived here.

Azman says she’s surprised so many pieces of Canada have crept into her life – such as a new love of hockey. However, she says she didn’t welcome her massive Canadian cell phone bill. The iPhone, constantly at her side, causes her bill-paying parents in Kuala Lumpur a lot of headaches, she says.

“I’m kind of annoyed,” she says. “I immediately converted the currency in my head and I just couldn’t believe it.”

In Malaysia, her cell phone bill rarely came to more than $10 CAD each month, she says, but here she’s shelling out upwards of $70 monthly for the same service.

Ian Lee, director of Carleton University’s MBA program, says he isn’t surprised.

“We have some of the highest cell phone rates in the world,” says Lee. “It’s not an accident. It’s because we have a highly protected market that allows companies to charge higher prices than they would in a competitive market.”

Lower bills, better service?

At the University of Ottawa, business professor Tyler Chamberlin studies telecommunications. He says he supports opening up the market.

“The hope,” Chamberlin says, “is that when you have a competitive marketplace the individual companies are going to have the incentive to modernize their equipment and to bring on new features that that can sell to customers rapidly, whereas if you have a pretty stable marketplace then they’re less motivated to make investments in new products.”

In a more liberalized environment, new customers would be drawn into the industry thanks to lower prices, Chamberlin says, which would further drive down the cost of services.

There is no “magic number” for how many companies can comfortably operate under new legislation, nor is there an indicator of how low prices will go, Lee says. Those things are up to the market, he says, but this doesn’t mean the cell phone industry will be a free-for-all.

We have some of the highest cell phone rates in the world...It's not an accident."

The government should get rid of protectionism but keep regulating the business to ensure fairness for all businesses and their consumers, Lee says, likening the scene to a hockey game.

“The government is the referee of the telecommunications hockey game,” he says. “The rules of the game should be regulated, but how each company plays the game – how aggressively, whether they cut their prices, increase their prices – should be up to the company.”

Deciding what’s fair

Lee says the current service providers in Canada won’t like drops in their profits.

Telus, however, said in a March 11 statement it “has never been opposed to the liberalization of foreign ownership restrictions as they relate to telecom carriers and broadcast distribution undertakings as long as it’s done in a fair and symmetrical way.”

There is no existing definition of what is “fair and symmetrical.” A 2008 federal competition panel recommended tackling deregulation in phases, but Don Mercer, president of the Consumers Council of Canada, says any transition period would disadvantage new companies.

“Let’s go cold turkey,” he says in regards to suggestions that the market should be opened up all at once. “It would be better if there’s sufficient notice that deregulation is going to take place and then it takes place.” 

Service fees from Rogers, Bell, and Telus may decline when foreign cell phone service providers set up shop in Canada.

Whatever happens, he says the council will be advocating that both cell phone users and service providers have access to the markets and information they need. He says cell phones are now an essential product, so putting huge price tags on them is unfair to those who don’t stand a chance at affording them.

“People need to be able to make choices with full knowledge about what they’re getting,” he says. “We don’t want consumers to get tricked. Whenever you get new players in the market you always have to be concerned about how they’re entering the market.”

Supporting Canadian business

Azman says the prospect of lower cell phone bills may not lure her to a new provider.

“I feel Canadians take pride in their companies,” she says, “and I think I would consider continuing to support Canadian companies even if my plan was more expensive than a foreign plan.”

Chamberlin says Azman’s opinion won’t be widespread, noting the success of Wal-Mart in Canada as an example of customers choosing lower prices over sustaining Canadian business.

“People vote with their feet. When there’s an opportunity to decrease costs, people will take it,” Chamberlin says, blaming the hard-to-brand nature of cell phone services for this trend.

“Whether I’m talking on the Rogers network or the Bell network doesn’t really change anything about the experience,” he says. “The services and products are virtually the same. The new competitors are going to be the same, so it’s somewhat hard to establish customer loyalty in an industry where products are difficult to differentiate from one another.”

It’s this problem, Chamberlin says, that may lead companies to explore offering a wider variety of plans ranging from bare minimum to deluxe services. All of this, he says, will take time to sort out.

“It’s complicated, and I’m really concerned,” he says. "There is a long way to go in terms of improving this industry for the benefit of the individual consumer.”

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