Cogeco Fights For Real Change In Canada

J.P. Moczulski/CP
J.P. Moczulski/CP

I have been waiting to hear from Cogeco Cable about mobile for a couple of days. They had been promising that on Thursday, they would let us know their plan for the future of mobile. That’s a tall order.

It seems that they want to get into the MVNO game. An MVNO is a Mobile Virtual Network Operator. In essence, Cogeco would like to rent the infrastructure of the three nation-wide incumbents (Bell, Rogers, and Telus) at wholesale pricing. They would launch their own wireless carrier and essentially resell the carrier network that they are wholesaling.

Technically, there is nothing preventing them from going down this road already. However, Cogeco would like to see the CRTC, via regulations, make things like pricing and availability etc. of the incumbents’ networks mandatory, reasonable, and standardized. If they can convince the CRTC to do that, then they are interested in becoming Canada’s 4th major nation-wide player in the mobile arena.

This sounds potentially tricky. In Canada, we already have this level of regulation in place for carriers who own the cables buried in the ground. As a result, there are many, many players in the home and business spaces that are offering telephone and Internet services on Bell, Rogers and Telus’ networks. These third parties are paying wholesale pricing and reselling the Internet and data wired services. Personally, I have my own Internet services from a company called TekSavvy Solutions Inc., who run exactly this kind of business. They pay wholesale prices to Bell and Rogers and offer retail Internet and telephone services to end users.

On the one hand, this makes some good sense, even for Bell and Rogers and Telus. They get a wholesale business out of it. They discount their pricing, but in return they get volume sales. Those volume sales are done with zero advertising dollars coming from the big three. Perhaps more importantly, all of the support calls from users are handled by the third party provider. Which means the cost of delivering the service for the big three is reduced both in terms of marketing and ongoing support. Throw in the volume of sales that are generated by the third party carriers and it’s a real win.

So why the need for regulation then? The reality is that there is an inequity in this game. The third party resellers need the network owners (Bell, Rogers, Telus) more than the network owners need the third party resellers. This kind of inequity leads to exploitative pricing from the network owners to the wholesale customers. If the CRTC truly wants actual competitors, then they need to remove the inequity. This is handled by regulating the availability and the pricing of the networks.

It seems like a no-brainer that regulation would simply catch up with the market and provide for the wireless industry what they’ve already provided for the wired industry. However, there is a significant difference that the CRTC must consider.

In the wired market, it’s safe to say that there really is no chance for additional competition without the creation a fair and regulated wholesale market. It is completely infeasible for a company to dig up untold miles of road and bury cable underground in order to become a competitor. The pricing quickly moves into the hundreds of billions of dollars nation-wide just to get into the game. The timelines stretch into the decades just to get all of the cable laid. It simply isn’t realistic. To foster competition, a wholesale market was needed. In order for one to flourish, the aforementioned inequity needed to be removed by regulation.

The cost of entry to the wireless market is significantly different. While still high, the hard and long labour of digging up roads and burying cable simply isn’t there. It’s reasonable to foresee a competitor with enough financial backing entering the market and causing competitive disruption as a first-party player.

It seems the CRTC has been of this opinion too. They have tried to foster competition by giving spectrum to smaller players, hoping that they would become major first-party players. Those smaller players have not been doing well. It seems Cogeco hopes to convince the CRTC that it’s time to do for wireless competition what was done for wired competition.

The benefits of such regulation seems hard to overstate. The obvious wins would be more consumer choice. This would take the form of aggressive pricing from newcomers. It would also introduce real diversity in terms of offerings and packages into a market where each carrier offers only a mild variation on the others. Think more data and pay-per-use. Think long distance pricing vanishing nation-wide. Think overage pricing being reasonable. And finally, think pricing for voicemail, call display, call forwarding, etc. disappearing, much like it has done with the VOIP providers.

For Cogeco specifically, they’ve got a great way of leveraging the mobile space for their Cogeco Data Services business that provides wired private lines and internet services to enterprise customers. Not only will they be able to provide a one-stop-shop for data and corporate mobile needs, but they’ll be able offer wireless LTE backup to their existing corporate data customers. In a market where disaster recovery and redundancy are the buzzwords of the day, being able to provide mobile backup to their existing data services is something that Cogeco Data Services will need to do in order to keep pace with Bell, Rogers, and Telus.

Finally, and this is an area that could really make a difference, there is actually an opportunity for far better coverage with regulation. Imagine a company like Cogeco utilizing wholesale pricing not from Bell, Rogers, or Telus, but from Bell, Rogers, and Telus. In smaller locales, sometimes coverage is only provided by one of the big three. Cogeco could possibly offer coverage everywhere by utilizing all three networks.

The CRTC has a big decision to make. They’re now aware that a competitor is waiting to enter the game – something the CRTC has publicly desired. They just need to decide how significantly they are willing to change the rules of that game.

Original Article