Why Your Cell Phone Plan Is So Expensive

Why is your cell phone plan expensive?

Canadians are getting ripped off with their cell phone plans.  Canada has some of the highest cell phone rates and lowest overall usage in the world.  Consumers are feeling the pinch.  As much as the issue of telecom regulation is about consumer protection it is really a question of whether Canada is ready to become a global leader in the 21st century.

The realities of low technology prices and globalization are here to stay; however, Canada’s regulatory agencies have yet to catch up.  The Gatineau-based Canadian Radio-television and Telecommunications Commission (CRTC) was created by the federal government before cell phones and the internet existed beyond research labs and monopolies dominated the Canadian economy.

The Cell Phone Plan Gouge

In 2008 Canada ranked 20th most expensive out of 30 countries for “low use” basket cell phone plan rates (360 minutes of voice calls, 396 text messages and eight video messages per year).  As well, for “medium-use” Canada ranked 28th out of 30, and for “high-use” Canada ranked 19th in a study conducted by the Organization for Economic Co-operation and Development (OECD).

Among 11 studied developed countries Canada had, by far, the highest total cell phone plan rates in 2010.  Average Canadian cell phone plan rates for talk, text and data were $67.50– $24.00 of which was made up of data alone.  Many can attest to spending much more monthly for more data or a few more services like “Value Packs.”  Unlimited data (if it even exists for consumers) came in at a whopping $72.00.  The United States average for unlimited data was $29.00.

As well, in 2007 Canada was last among the OECD member in terms of wireless penetration—defined as the number of devices per 100 persons.  There were only 62 wireless subscribers per 100 people in Canada, far below the OECD Average of almost 100 per 100 persons.

The “Big Three” telecom companies: BCE Inc’s Bell Canada, Rogers Communications and Telus Corporation control 95% of the cell phone market and are raking in huge profits in a $40bn industry. These Canadian telecom companies have among the highest profit margins in the world and extract the most out of any customers in the developed world.

Canada had a slight improvement in the 2011 Telecommunications Outlook published by the OECD and remains very competitive in voice-only rates.  However, in an age of smartphones having data prices that uncompetitive is a blotch on Canada’s globalist credibility.

Leading Telecom Companies in Canada

The Problem

The OECD singled out Canada as having the “most severe” telecom restrictions in the developed world—the Canadian market remains closed to foreign competition and new ideas.  Canadian legislation dates back nearly 20 years and purports to regulate an industry that is innovating daily.  The Telecommunications Act prohibits foreign ownership of more than 20% of a telecom provider’s voting shares while the Telecommunication Common Carrier Ownership and Control Regulations prevent foreign control of more than a 1/3 share of a company which owns a state in a telecom provider.

Canada currently remains one of two countries to apply foreign investment restrictions on all telecom providers, Korea is the other.  Even Mexico allows 49% foreign ownership of some telecom companies.

The Future of Our Cell Phone Plans

Loosening the Telecommunications Industry was recommended by government panels during previous Liberal and Conservative governments. The Throne Speech of 2010 promised more liberalization of foreign investment law in Canada; however, little more than a public consultation has been completed.

The government has also engaged in a pitched battle with the CRTC and the Federal Court in attempting to allow more competition in the industry.  In 2009 the Federal Court objected to the use of executive authority in allowing Wind Mobile to operate in Canada—they held that a change to investment law would best be enacted by Parliament and not by the use of executive discretion.   However, in June 2011 the Federal Court of Appeal overturned the judge’s decision saying that the Harper Government was justified in overturning the CRTC’s decision against Wind Mobile’s parent company (funded by Egypt’s Orascom Telecom).

With the departure of CRTC Chairman Konrad von Finckenstein in January 2012 Canadian consumers should hopefully get a break. Von Finckenstein was very resistant to relaxing foreign ownership rules and also engaged in a public spat with Industry Minister Tony Clement over usage-based internet billing.  The government came down on the side of consumers and Minister Clement even expressed his desire for a review of the CTRC’s decision on Twitter!

Competition should increase now that Canada has a stable government in place.  Cheaper cell phone plans are a popular issue and are a good political motivator.  Most telecom companies are on side as well.  Options for the government include removing foreign investment restrictions in telecom all together, limiting restrictions to companies with 10% of market share and over or increasing the upper limit of foreign ownership in all companies.

Why is your cell phone plan expensive?

Canada’s Chance for Better Cell Phone Plans

It appears the moment has arrived for Canada to truly embrace the new connected, globalized world of the 21st century.  Unfortunately, efforts for change so far have been stonewalled by political realities and 1970s institutions formulated in the world of national policies and hostility to outsiders.  The stars are finally aligning for more competition in the telecom sector and this can only be good news for consumers.  Businesses too will be helped by cost savings.  Better infrastructure and cell phone plans will allow tech entrepreneurs to flourish as well.  Canada is on the verge of a surge in liquidity, competition and consumer choice in the telecom industry and not a moment too soon.