Review of Mobile Wireless Services

 

Opening commentary by Darren Entwistle, President and CEO, TELUS

Thursday February 20, 2020 Gatineau, QC

Good morning Mr. Chair, Vice-Chair, and Commissioners.

Today, I would like to explore what market failure we are trying to solve in these proceedings.

In my remarks, I will confirm, based on facts, and evidentiary documentation, that the wireless industry in Canada is robustly competitive and effective in meeting quality and affordability goals; and I will highlight the success we have seen with facilities-based competition.

Firstly, Canada is a global leader in wireless network performance.

According to the February 2020 Mobile Network Experience Report from U.K.- based Opensignal, Canada has the second fastest wireless network in the world, behind only South Korea.

This is a country that is 1/100th the size of Canada and has already deployed widely 5G technology. It is also worth noting that TELUS’ download speed of 75 Mbps distinctly surpasses South Korea’s national average download speed of 58.7 Mbps.

Year-in and year-out, our continued podium finishes in wireless network excellence go mostly unnoticed in our industry, but this is where the greatest value is for our economy and society.

In its December 2019 Speedtest Global Index, U.S.-based Ookla confirmed that networks in Canada, including those in rural communities, are nearly twice as fast as the networks in the U.S. In fact, if rural Canada were a country, it would rank 12th in download speeds, outranking the U.S. at 30th.

In its 2019 report titled, The state of rural Canada’s Mobile Network Experience, Opensignal found that rural Canada offers faster network speeds than every urban market in America.

Our globally recognised wireless infrastructure, and 5G pre-positioning, are underpinned by our fibre network, which is also world-leading in respect of its deployment.

In 2019, TELUS’ fibre subscriptions increased by 36 percentage points, exceeding the OECD average of 13 percentage points by nearly threefold; and at the end of 2019, 50 per cent of our total fixed broadband subscriptions were on fibre, approximately twice the 26 per cent average of OECD countries.

It is worth highlighting the sobering comparison in terms of fibre leadership in Australia versus here in Canada. Notably, in their government-run programme, Australia spent $5,100 AU dollars per premise to provide citizens with heterogeneous high-speed service, causing a significant liability for government and taxpayers alike.

In stark contrast, TELUS has expended circa $2,300 CN dollars per premise to provide Canadians with ubiquitous urban and rural high-speed capabilities, with no liability to the government and no cost to taxpayers.

Secondly, investments per subscriber in Canada are consistently amongst the highest, globally.

As Dr. Crandall will attest, Canada has some of the highest levels of investment per wireless subscriber, worldwide, with Canada investing twice the European average per subscriber.

Additionally, Canadian carriers consistently pay extremely high spectrum costs:

  • In fact, our average spend is $340 per Canadian, as compared to $200 in the U.S., $140 in Germany, and $30 per person in Japan.

  • Furthermore, in their 2020 study titled, Key Cost Drivers of Wireless Service in Canada, Christensen and Associates reported that Canadian spectrum prices are 424 per cent higher than its benchmark countries, and 65 per cent higher than the U.S.

  • Indeed, if spectrum costs were as low in Canada as those paid by European carriers, Canadian mobile rates could be 12 per cent lower, as Dr. Crandall will exemplify in his remarks.

  • By way of example, in the AWS, 700 MHz, and 600 MHz auctions that occurred between 2008 and 2019, Canada’s wireless carriers paid more than two times what was paid in the U.S. for the same open spectrum.

  • It is frustrating for our investors that this spectrum was acquired in the belief of the continuity of facilities-based competition, yet here we are, a short time later, with this under review.

Since 2000, TELUS has invested almost $200 billion across Canada.

And it does not stop there – we are poised to inject another $40 billion into our country over the next three years, subject to the appropriate investment climate.

On top of all this, TELUS has remitted more than $43 billion in total tax and spectrum payments to our federal, provincial, and municipal governments.

Our industry balance sheets are not only building Canada’s digital economy and society, but our tax remittances are also funding our roads and bridges, public education, healthcare, cultural pursuits, and national defence. In an age of increased awareness of tax morality, this compares favourably with many of our much larger global peers.

Thirdly, Canadians have access to a wide range of rate plans and providers.

Each province is home to at least four wireless carriers, which, as Dr. Crandall will attest and as confirmed by the HHI, which measures market concentration, is the high end of normal for most developed countries.

When combined with Canada’s numerous flanker brands, there are a dozen or more brands operating in many markets – well above the norm... That’s not bad for a country with a population density 1/9 of the U.S. and 1/30 of Europe.

Canadian carriers offer plans with endless data, device financing, and pre-owned device options – across premium, value, and discount brands – making wireless ownership accessible to all Canadians.

Dr. Crandall can also confirm that wireless markets cannot sustain a large number of carriers, given the investment required and the pace and risk of technology change; coupled with the need for economies of scale, and scope.

In fact, the de-regulation and wireless consolidation we are seeing globally is in direct contrast to Canada’s current trajectory.

5G-Story-Inline-MWC-01

Lastly, wireless pricing in Canada is amongst the most competitive in the world.

Canada’s prices are below international benchmarks, according to the 2018 NERA Pricing Study.

Furthermore, in its August and December reports, the CRTC confirmed that wireless prices, as well as the cost per gigabyte, decreased by up to 35 per cent and 28 per cent, respectively, between 2016 and 2018.

It is also important to note that TELUS is not only meeting, but exceeding, the government’s affordability goals, as confirmed by Deloitte.

Notably, the government website states that to achieve the 25 per cent rate plan reduction goals, wireless service for a Canadian family of four should be circa $2,929 per year.

There are numerous plans across our TELUS, Koodo, and Public brands that exceed these True North affordability targets and represent, on average, more than $400 in annual savings over the projected costs.

In addition, the January to July 2019 StatsCan Index Value highlighted a decrease of nearly 8 per cent for cellular services, versus an increase of up to 15 per cent in the average cost of food, shelter, and transportation in the same timeframe.

Similarly, an audited, quality 2020 study by PwC found:

  • The average Canadian family spends circa 1.6 per cent of their household income on wireless services, as compared to the U.S. at 2.6 per cent, and Australia at 2.1 per cent;

  • Household expenditures across a wide range of products and services – including home phones, postage, photography, audio/video and printed reading material – have been displaced by wireless… increasing the disposable income of Canadians; and

  • Whilst data consumption is increasing by 26 per cent annually, 90 per cent of this growth can be attributed to entertainment and social networking. In essence, Canadian carriers are being asked to subsidise access to Netflix, YouTube, social media, and the like.

It is incredible that Canada’s communications companies have realised significant achievements despite the numerous challenges we face, including operating in one of the highest cost jurisdictions, globally, to deploy technology and infrastructure.

This is due to a number of factors that reinforce the dis-economies of scale within our borders, inclusive of:

  • Our vast geography, rugged topography, and challenging climate;

  • Our low population density;

  • Our excessively high spectrum costs; and

  • Our higher labour rates and tax system.

We are also impacted by the U.S. exchange rate.

With Nortel gone and BlackBerry shifting away from smartphones, we now operate in a network equipment and device oligopoly, with the preponderance of our network components and devices purchased in U.S. dollars.

In fact, we are dependent on just two major device providers that set rigid prices for our industry.

[PAUSE]

Given the backdrop of these achievements – against the inherent challenges – why then, is government intervention, in the form of mandated MVNOs, needed in the wireless industry?

Do we have a network quality issue in Canada?

  • No. Endless independent studies have proven that Canada is a global leader in network performance and deployment.

  • Indeed, the world-leading investment we are making in technology and infrastructure is enabling the diversity, innovation, and competitiveness of our private sector.

  • It is supporting economic growth and job creation for our nation, and as well, helping us answer society’s most pressing social challenges in health, education, and the environment, whilst improving economic equality in our digital world.

  • Indeed, our technology leadership, and the investments that underpin it, drive our country’s innovation agenda and the resulting economic and social outcomes.

This begs the question: do we have an investment problem in Canada?

  • No. The level of investment per subscriber in Canada is amongst the highest on earth, as substantiated by third party reports.

  • Notably, our collective investment in 5G technology will offer a $40 billion annual uplift to our country’s GDP within six years.

  • And it will enable another 250,000 permanent jobs in Canada.

  • These benefits are contingent on a $26 billion investment by the telecommunications sector – an investment that will be diluted and deferred, should mandated MVNOs come to fruition.

Do we have a service issue in Canada?

  • No. There is healthy competition in our country, with a wide range of rate plans and service providers.

  • In fact, TELUS’ consistently world-leading postpaid churn rate of less than one per cent demonstrates that a significant number of customers are choosing to stay with TELUS, despite the numerous other options available to them.

So then, do we have a wireless affordability issue in Canada?

  • No. As confirmed by successive third party studies, wireless pricing in Canada is amongst the most competitive in the world, with our country’s unlimited plans ranking best in the G7 based on speed, latency, access, and price.

Clearly, competition is alive and well in Canada.