Telecom Notice of Consultation CRTC 2019-57 - Final Comments of the Competition Bureau

July 15, 2020

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I. Executive Summary

  1. This proceeding is more important than ever for consumers, businesses and the Canadian economy. The COVID‑19 pandemic reinforces the need for robust competition in the wireless sector, to drive the provision of ubiquitous, high-quality wireless networks that are accessible and affordable for all Canadians.
  2. The Competition Bureau's (Bureau) goal throughout this proceeding has been to present the Canadian Radio-television and Telecommunications Commission (CRTC) with objective, evidence-based recommendations. The evidence in this proceeding demonstrates three fundamental conclusions:
    1. There continues to be a market power problem in Canada's wireless sector;
    2. Regional facilities-based wireless disruptors are proven to drive significant competition where they operate by challenging Bell, Rogers and Telus' (Big 3) market power; and,
    3. A facilities-focused Mobile Virtual Network Operator (MVNO) model aimed at incentivizing and accelerating the growth and reach of regional disruptors is the most promising path forward.
  3. The evidence filed by the Bureau clearly demonstrate that there is a market power problem in most Canadian markets. The Big 3 are able to charge higher prices and offer lower plan limits when competitive discipline from regional carriers is low. This is the case after controlling for other regional differences that affect regional demand and costs.
  4. The launch of "unlimited plans" has not yielded the scope or amount of price reductions indicative of a lessening of market power. "Unlimited plans" marked a 25% decrease in plan prices for just a segment of customers. Yet, corresponding reductions in device subsidies meant that a customer's total monthly bill decreased by far less than 25%. This is well below price reductions realized in markets with strong regional competition, which can be upward of 50% overall.
  5. The most effective way to ensure sustainable long term competition is by disrupting the market power of the Big 3. That is the goal of the Bureau's recommended facilities-focused MVNO model. It represents an incremental, time-limited policy to incentivize and accelerate the expansion of regional carriers to deliver lower prices and greater choice to more Canadians.
  6. The facilities-focused MVNO model aligns regional carrier incentives with the CRTC's policy objectives to ensure sustainable competition and continued investment in high-quality mobile wireless networks, through two measures:
    1. a 5-year mandated MVNO access period; and
    2. financial penalties.
    These measures are designed to deter a regional carrier from acting as an MVNO without expanding its network, while minimizing potential customer disruption. Through targeted, commercially negotiated measures, the facilities-focused MVNO model can also reduce the administrative burden on the CRTC of mandating MVNO access.

II. There is a market power problem

a. The Matrix Study provides direct evidence of market power

  1. On November 22, 2019, the Bureau filed an expert economic study (Matrix Study) conducted by Matrix Economics, which analyzed wireless carrier data made available through this proceeding.
  2. The Matrix Study finds that the Big 3 are able to charge significantly higher prices and offer lower plan limits when competitive discipline from regional carriers is low.
  3. The results indicate that where regional carriers have a market share below 20%, market power exists since the Big 3 can charge significantly higher prices in these areas. As described in the Bureau's response to the hearing undertakings of February 18 2020 (Undertakings), this includes almost all Canadian markets.Footnote 1

b. Demand and network quality do not explain regional price differences

  1. Some parties to this proceeding submit that regional price differences are due to differences in network quality or demographics. For example, it has been suggested that prices in Quebec are lower due to lower demand, as measured by wireless penetration.
  2. The Matrix Study, however, demonstrates that, overall, the Big 3 respond to competition from regional facilities-based carriers. This is the case after controlling for other regional differences that affect regional demand and costs.

c. By any measure, the Canadian wireless market is highly profitable

EBITDA is a standard, widely used measure of profitability in the wireless industry

  1. In its Further Comments, the Bureau states that Canadian wireless carriers continue to maintain large profit margins relative to their global peers. In response, the Big 3 assert that earnings before interest, taxes, depreciation and amortization (EBITDA) is not an appropriate measure for profitability in the wireless industry.
  2. This assertion is counter to standard practice of industry analysts and the Big 3, who commonly use EBITDA as a primary measure for analyzing and reporting on the financial health of the wireless industry.Footnote 2

When factoring in capital costs, Canadian wireless carriers are still highly profitable

  1. Canadian wireless carriers are more profitable than their international counterparts, even when considering other measures, such as capital expenditures (Capex).
  2. Figure 1 illustrates the average annual revenue and Capex per subscriberFootnote 3 for wireless carriers in G7 countries. For Canadian wireless carriers, the average revenue per subscriber is $738.40 CAD and the average Capex per subscriber is $92.15 CAD – a ratio of approximately 8 to 1. Of the six countries shown, Canada is second to the UK, which has a revenue-to-Capex ratio of 9 to 1, followed by the US, which has a revenue-to-Capex ratio of 7 to 1.
  3. The disparity increases when comparing Canada to France, Germany and Italy, which have revenue-to-Capex ratios of 6 to 1. This means that for every dollar a Canadian wireless carrier spends on capital expenditure they make $8 in revenue, compared to $6 in France, Germany and Italy.
  4. The magnitude of this difference is also likely understated given that, as discussed in the Bureau's Further Comments, Canadian wireless carriers make more profit on every dollar of revenue earned (EBITDA margin) compared to their international peers.
  5. Even after factoring in the cost of spectrum, Canadian wireless carriers remain among the most profitable in the world. For instance, based on the accrued license cost per subscriber in 2018, as described in Dr. Crandall's second report, the average accrued license cost per subscriber for the Big 3 is $470 USD compared to $659 USD for AT&T and Verizon in the US.

    Figure 1 – International comparison of revenue and capital expenditure per subscriber, 2009-2018
    • Figure 1 – International comparison of revenue and capital expenditure per subscriber, 2009-2018Footnote 4
      Figure 1 – International comparison of revenue and capital expenditure per subscriber, 2009-2018
      Country Revenue per subscriber Capex per subscriber
      Canada $738.40 $92.15
      France $438.99 $69.98
      Germany $244.02 $37.93
      Italy $269.12 $47.38
      UK $387.19 $45.32
      US $657.81 $92.94

d. Spectrum costs do not explain regional price differences in Canada

  1. The Big 3 suggest that wireless prices in Canada are high relative to international jurisdictions due to the high cost of spectrum.Footnote 5 However, differences in spectrum costs relative to international jurisdictions do not explain regional price differences within Canada.
  2. The Matrix Study analyzed price differences across regions within Canada and found that markets with no regional carrier or a regional carrier with a market share below 20% exhibit significantly higher prices, suggesting that the Big 3 possess and exercise market power.

III. "Unlimited plans"Footnote 6 do not represent a decrease in market power

  1. The Matrix Study identified significant market power issues. Unfortunately for Canadian consumers, the launch of "unlimited plans" does not represent a significant change in the level of competition in the industry.

a. "Unlimited plans" only apply to a segment of customers

  1. The Matrix Study analyzed pricing data, including all plan types, and consistently found that prices were higher where the Big 3 do not face competition from a strong regional carrier. This means that, overall, Canadians pay more on average if they live in a market without a strong regional carrier. Unlimited plans are unlikely to change this finding, as only a segment of customers subscribe to "unlimited plans".

b. Price reductions from "unlimited plans" are still above competitive levels

  1. The launch of "unlimited plans" arguably amounted to a decrease of approximately 25% in the Big 3's plan prices in most markets in Canada, as compared with previous equivalent plans.Footnote 7 For instance, prior to the launch of Rogers' Infinite plan which offers 10 GB for $75 per month, 10 GB Bell or Telus plans were priced at $100 per month.Footnote 8
  2. However, the Matrix Study finds that Canadians pay on average up to 50% less where a regional carrier achieves a 15% penetration rate. This benefit increases to a 65% saving where a regional carrier achieves a 20% penetration rate.
  3. Therefore, while the launch of "unlimited plans" may have led to price reductions for a specific plan type, the Matrix Study suggests that there is still room for prices to decrease further with additional competition, and for all plan types.

c. Regional price differences persist for "unlimited plans"

  1. There continues to be regional differences in the pricing of "unlimited plans" between provinces with and without strong regional competition. "Unlimited plans" are offered at $10 less per month in Quebec, Saskatchewan and Manitoba than in the rest of the country.Footnote 9  
  2. In addition, evidence in this proceeding demonstrates that price discounting is executed locally using targeted promotions and retention tactics, which are not captured by headline pricing on websites. For instance, the information filed by Bell in response to RFI 104 demonstrates that promotions are targeted to specific carriers, in specific regions. In 2018, Bell offered as much as ## in port-in credits for [## ##]. Similarly, in its response to RFI 204, Bell describes targeted win-back offers in response to competition from Freedom Mobile and other facilities-based carriers:
    • [## ##]
  3. It is likely that this practice continues, as the market conditions that led to regional price differences remain and there has been no evidence brought forward to suggest that regional pricing practices have changed.

d. Changes in device financing diminish the benefits of "unlimited plans"

  1. The introduction of "unlimited plans" also coincided with a reduction in the device subsidies offered by the Big 3, which partially offset the savings from the reduction in plan prices.
  2. This is evident upon review of the Consumer Price Index data published by Statistics Canada, as shown in Figure 2, in which the index for "multi-purpose digital devices" increased by 42.5% between June 2019 and July 2019, the same time "unlimited plans" were launched.Footnote 10

    Figure 2 – Consumer Price Index, Canada
    • Figure 2 – Consumer Price Index, CanadaFootnote 11
      Figure 2 – Consumer Price Index, Canada
        February 2019 March 2019 April 2019 May 2019 June 2019 July 2019 August 2019 September 2019 October 2019 November 2019 December 2019 January 2020 February 2020
      Telephone services (2002=100) 122.4 121.1 121.1 121.7 121.6 118.6 117.8 115.3 116.6 115.2 113.8 113.2 113.2
      Multipurpose digital devices (201104=100) 60.9 57.1 60.9 59 51.5 73.4 67.9 66.4 70.7 64.4 62.4 63.7 58.2
  3. This shift is described in Rogers' Q4 2019 Earnings Call:
    • "In 2020, we anticipate further declines in our subsidies as our value propositions for customers continues to shift to unlimited data plan offerings and zero interest rates on our Equipment financing."
    • "… subsidies on a per unit subscriber continue to decline year-on-year, albeit, at rates still well below our expectations when we first launched Equipment Installment plans back in July."Footnote 12
  4. Therefore, while the launch of "unlimited plans" can be argued to have led to a price reduction of approximately 25% from previous equivalent plans, the corresponding reduction in device subsidies likely means that the overall price reduction to a customers' monthly bill is substantially less than 25%.

e. Short term price changes may not indicate a change in the degree of competition

  1. The Matrix Study analyzed prices, plan limits, plan limit-adjusted prices, and data usage at the provider-brand-CMA-month level, for each month from January 2016 to December 2018. The results consistently show that the Big 3 are able to charge higher prices and offer lower plan limits when competitive discipline from regional carriers is low.
  2. In contrast, the introduction of "unlimited plans", which are only relevant to a segment of customers, represents a point-in-time event for which the actual consumer benefits are unclear and unlikely to be broad. In addition to the offsetting decrease to device subsidies, it is also unclear to what degree price decreases can be attributed to technological advances which have driven down the cost of providing wireless services.
  3. Further, as described in the Bureau's Further Comments, the timing of the launch of "unlimited plans" makes it difficult to know whether these plans were introduced in response to the current regulatory scrutiny or due to the natural competitive process.
  4. Based on the results of the Matrix Study it is clear that the Big 3 continue to possess market power in many regions of Canada. Accordingly, consumers still stand to benefit significantly from disciplining the exercise of this market power. The Matrix Study demonstrates that the most effective way to ensure effective, sustainable competition is by disrupting the market power of the Big 3.

f. Recent commentary by PwC and Dr. Dippon should carry little weight in this proceeding

  1. International pricing studies can be challenging to conduct and interpret, and should therefore be informative but not definitive in making determinations regarding market conditions. As described in the Bureau's Initial Intervention, international pricing comparison studies generally suggest that wireless prices in Canada are higher than in other countries.
  2. However, the recent international price comparison studies conducted by PwC and Dr. Dippon of NERA Economic Consulting claim that the Canadian wireless market is competitive relative to its international peers.
  3. Dr. Dippon released an international price comparison study in March 2020. This study employs a similar methodology to the one employed in Dr. Dippon's previous pricing study, published in October 2018.
  4. The Bureau raised serious concerns with Dr. Dippon's data in general, both in its Initial InterventionFootnote 14 and in communications with Dr. Dippon. These concerns included dramatic differences between pricing on carrier websites and in Dr. Dippon's dataset and the lack of variation in pricing across provinces compared to the Bureau's observations from carrier websites. The example described in the Bureau's Initial Intervention was illustrative of the serious nature of its concerns. Yet, in his November 22, 2019 Reply Report, Dr. Dippon chose to support the price of one plan in his dataset, out of 246 Canadian plans.Footnote 15
  5. While the Bureau does not have access to the most recent dataset, the Bureau has similar concerns about Dr. Dippon's recent study, namely that the plans studied may not be representative of plans actually consumed. For example, the study reports selecting the cheapest and most expensive prepaid plans as two out of the seven types of plans selected.
  6. In addition, Dr. Dippon cites a similar methodology used by the US Federal Communications Commission (FCC), but departs from that methodology without explanation; Dr. Dippon does not control for firm-level attributes or allow firms to respond differently to different product attributes.Footnote 16 The FCC explicitly notes the importance of this modelling flexibility.Footnote 17
  7. In January 2020, PwC published a report which finds that Canada's "unlimited plans" rank first among G7 countries,Footnote 18 based on PwC's Unlimited Data Plan Index. This index attributes equal weight to four components: speed (itself an equal weighted measure of download speed, upload speed, and throttled speed), access to 4G, latency, and price per GB. Based on this measure, the PwC report primarily captures differences in service quality, which have a 75% weight, as opposed to differences in pricing, which only have a 25% weight. 
  8. PwC does not explain why this weighting is appropriate and the results of the study change dramatically when alternative weightings are used. For example, giving equal weighting to price and quality results in Canada dropping from first to third place of the five countries ranked.
  9. Additionally, PwC's index is liable to amplify measured differences, the importance of which are questionable. For example, Canada had the fastest download speeds at 46.8 Mbps and Germany had the slowest download speeds at 20.1 Mbps. PwC converted the Canadian speed into a score of 10 and the German speed into a score of 1. Accordingly, Canada measured 133% faster but scored 900% higher on a difference that may not even be noticeable to users.Footnote 19 A similar distortion occurs for upload speeds, the only other measure where Canada ranked first.
  10. Finally, as described in the Bureau's Further Comments, Canadians may be consuming less data due to supra-competitive pricing among the Big 3. This necessarily has an impact on network speed comparisons as there is less traffic on Big 3 networks than those of their international peers.Footnote 20

IV. A facilities-focused MVNO model will enhance competition and accelerate the disruption of market power

  1. The CRTC has been presented with a number of MVNO models, which include an MVNO model with broad access criteria and the facilities-focused MVNO model proposed by the Bureau.
  2. By accelerating the disruption of market power, the facilities-focused MVNO model charts the most promising course forward to lower wireless prices, improve choice and deliver high-quality networks to Canadians.

a. Mandating low cost or occasional use plans will only benefit a small segment of the population

  1. Mandating low cost or occasional use plans can deliver reprieve to only a small segment of Canadians.
  2. The Matrix Study found market power throughout wireless markets. Low cost or occasional use plans would not serve other market segments, which are substantial, and would not address the underlying industry-wide market power problem.

b. A facilities-focused MVNO model will accelerate competitive disruption

  1. The evidence demonstrates that the Big 3 are responding to competition from facilities-based regional carriers with superior competitive offerings. The Matrix Study estimates that Canadians pay on average 10% less for a GB of data where a regional carrier has achieved a 5.5% market share, compared to areas without a regional carrier. This benefit increases to a 65% saving where a regional carrier has achieved 20% market share.
  2. Regional carriers have demonstrated a willingness to continue to expand their networks in order to serve more Canadians. Freedom alone has entered over 20 Canadian cities since 2017. The evidence also demonstrates that more and more Canadians have the option to choose a regional facilities-based carrier and more and more are choosing one as their service provider. Five years ago, Videotron had around 10% of Quebec's subscribers and Freedom was approaching 800,000 subscribers. Since then, both of those numbers have nearly doubled. 
  3. The Bureau's recommendation represents an incremental, time-limited policy to incentivize and accelerate the expansion of regional carriers so that they can quickly deliver benefits to more Canadians.
  4. As part of its Undertakings, the Bureau demonstrated that a facilities-focused MVNO model could be applied across Canada. The Bureau provided a list of over 700 municipalities that could see accelerated regional entry if a facilities-based MVNO model is implemented. Throughout the hearing, regional carriers have also expressed their openness to taking advantage of a facilities-focused MVNO model, should it be implemented.Footnote 21
  5. Based on current spectrum holdings, a number of opportunities for expansion exist under the Bureau's facilities-based model. For example, the policy could accelerate Freedom's entry and expansion in Ontario, British Columbia and Alberta. Xplornet might choose to enter as an MVNO and build a network in the Maritimes where it purchased 600 MHz spectrum; accelerate its competitive impact and deployment in Manitoba; and potentially enter other areas across Canada where it holds spectrum in rural areas. Eastlink could sell beyond its existing network footprint in Ontario and the Maritimes. Tbaytel could expand in Northern Ontario. Iristel could expand its services in the Northwest Territories, the Yukon, Nunavut, Northern Quebec, and Newfoundland.

c. Broadening the eligibility criteria of the facilities-focused MVNO model may reduce regional carrier investment

  1. A policy that broadens the eligibility criteria of the facilities-focused MVNO model, by eliminating time limits or investment commitments, could undermine the willingness of regional carriers to expand, particularly in rural and remote communities.
  2. If mandated MVNO access is not time limited, regional carriers that can build their own network in a region may be less likely to do so if they have the option of acting as an MVNO indefinitely.
  3. Similarly, eliminating the investment requirements tied to mandated MVNO access may also lead to regional carriers being less likely to build-out. If multiple MVNOs enter an area at similar price points and target similar customer segments as the regional carrier, the business case to invest in that area will likely be diminished due to an expectation of serving fewer subscribers.
  4. The effects of broadening the eligibility criteria, as described above, would lower regional carriers' incentives to invest, which in turn will likely lead to reduced rural and remote investment where the business case is already challenging. In contrast, the facilities-focused MVNO model strengthens the investment case for a regional carrier in these borderline areas.

d. Policy design should align MVNO's incentives with policy objectives

  1. The facilities-focused model grants temporary MVNO access to regional carriers in areas of Canada where they have yet to build a network, but could do so. In this regard, the objective is to incentivize and accelerate network build-out, so that more Canadians can reap the benefits of competition quickly.
  2. At the same time, as described in the Matrix Study, the facilities-focused MVNO model would preserve incumbents' investment incentives because:
    1. the mandated access would be limited; and
    2. the incumbent would be competitively disadvantaged if it does not invest in infrastructure itself by the end of the finite access period because it would likely face increased competition from the newly created or expanded facilities-based regional competitor.
  3. In its Further Comments, the Bureau proposed two policy measures to align regional carrier incentives with the goal of encouraging network build-outs: financial penalties and a 5‑year mandated MVNO access period.
  4. With respect to these measures, the CRTC has asked for further detail regarding:
    1. Calibrating financial penalties in a practical manner; and,
    2. MVNO subscribers that cannot be transitioned onto the regional carrier's network at the end of the mandated period.Footnote 22
  5. It is the Bureau's understanding that the CRTC is concerned about two primary issues resulting from a potential misalignment between the incentives of an MVNO and the objectives of the facilities-focused MVNO model. First, that it is possible that a regional carrier will apply to be a facilities-based MVNO, but will simply act as an MVNO without investing in expanding its network. Second, that a facilities-based MVNO may sign up customers in areas they are unlikely to ultimately serve resulting in customer disruption, the cost of which may be borne by the customers themselves.
  6. Appendix A illustrates the various policy levers available to the CRTC, should it decide to implement the facilities-focused MVNO model. The following provides further detail and insights from the model on the policy measures and how they can be designed to align MVNOs' incentives with the objectives of the facilities-focused MVNO model.

A 5-year mandated access period and financial penalty can incentivise facilities-based MVNO network investment

  1. A 5‑year mandated access period and a financial penalty can deter a regional carrier from simply acting as an MVNO without investing in expanding its network. Illustrations of various profitability scenarios (see Appendix A) suggest that an entrant taking advantage of the facilities-focused MVNO model would be significantly more profitable over 10 years than either an entrant that pursued only facilities-based entry, or that took advantage of the MVNO access without building out.
  2. The main mechanism through which the facilities-focused MVNO model improves the investment case in an area is by permitting the regional carrier to build its subscriber base prior to activating its network. Regional carriers' profits from operating solely as an MVNO would be limited both by them having to pay a wholesale access cost and by the time-limited nature of the mandated access. The latter will be especially important in situations where a regional carrier would need to invest in a local retail presence and/or face other costs to sign up subscribers as an MVNO, because it only has a limited period to earn (relatively small) gross profitsFootnote 23 on these subscribers before losing mandated MVNO access.
  3. Given these factors inherent to a 5‑year mandated access period, the risk of a regional carrier acting solely as an MVNO and not expanding its network would be small. However, a financial penalty can eliminate the profitability of a regional carrier acting solely as an MVNO to further lower this risk.
  4. For example, the financial penalty could be set equal to the gross profits earned on each MVNO subscriber that the regional carrier cannot serve on its network at the end of the 5-year period. Gross profits can be measured as the amount billed to the subscriber less the wholesale access cost for the subscriber's usage. Alternatively, gross profits can be estimated by the number of uncovered subscribers, the average length of their service with the MVNO, and average revenue per user and usage along with the usage-based wholesale access costs. As the regional carrier would also incur some additional costs to serve these subscribers (e.g. sales, customer service, etc.), this approach would make acting solely as an MVNO unprofitable.
  5. In any of these scenarios, profits during the MVNO period would not be significant. However, by having an existing subscriber base that the regional carrier can transition to its network after it completes the build, the regional carrier begins to recoup its investment earlier since it will be immediately serving customers on its network. Absent the remedy, the regional carrier would only begin to add subscribers after finalizing its network in the area and therefore not begin to recoup its investment until some time after completing its network build and with fewer subscribers contributing to its gross profits.

A financial payment to uncovered subscribers can reduce consumer disruption

  1. Requiring a regional carrier to offer a payment to subscribers it cannot transition to its own network after five years can serve to reduce customer disruption.
  2. Should a facilities-based MVNO be unable to meet the build-out requirement, some of its customers that cannot be transitioned onto its network when mandated access expires will face costs associated with switching service providers (e.g. search costs, a store visit to change their SIM card, etc.).
  3. In this case, facilities-based MVNOs could be overly aggressive in signing up customers without factoring in the switching costs these customers would face in the event the MVNO is unable to transition them onto its own network at the end of the mandated access period. Customers may not have sufficient information to properly consider this risk when deciding whether to sign-up with a facilities-based MVNO.
  4. The cost of switching can be shifted to the regional carrier by requiring them to offer a payment to subscribers it cannot transition to its own network after five years and who are therefore forced to switch. This approach will lower the incentive for facilities-based MVNOs to sign up subscribers it is unlikely to cover and provides compensation to those subscribers who do have to switch providers at the end of the mandated access period (see Appendix A).
  5. The payment should be set based on the expected customer switching costs. Switching costs can be estimated based on the expected time it takes customers to switch providers and using an appropriate value of that time. An alternative approach is to estimate the switching cost from observed port-in credit promotions on the assumption that these promotions are designed to compensate customers for the switching costs they incur in switching to a new carrier. Carrier responses to Q104 of the May 24, 2019 RFI include such promotions with payments commonly in the range of ##.Footnote 24

A review of the market in five years provides flexibility to continue achieving policy goals

  1. As described in the Bureau's RFI response of 29 May 2020, to the extent the current crisis reduces regional carriers' willingness and ability to expand, the CRTC may wish to provide regional carriers with additional flexibility by extending the mandated MVNO access period. However, the MVNO access period should be clearly defined upfront to provide regulatory certainty and so that MVNOs can be held to their commitments.
  2. The success of the facilities-focused MVNO model in achieving the CRTC's policy objectives can be assessed in five years during its next wireless review. At that time, the CRTC will benefit from more information on the degree to which the policy is used and the impact it has on prices and investment.
  3. If the CRTC is satisfied that policy objectives are being met, it may decide mandating broad MVNO access is not necessary. However, as described in the Bureau's Further Comments, if the CRTC is not satisfied that the facilities-focused MVNO model is achieving its policy objectives, it may be appropriate to mandate broad MVNO access in markets that still lack competition.Footnote 25

V. A facilities-focused model can ease the burden of mandating MVNO access

  1. A facilities-focused MVNO model would likely result in less administrative burden imposed on the CRTC compared to a broad MVNO access model. A facilities-focused MVNO model where regional carriers commercially negotiate wholesale rates with the Big 3:
    1. Targets markets that are unserved or underserved. This avoids intervening in regions where market forces are already starting to take hold, thus focusing administrative burden on areas where intervention is most needed.
    2. Can eliminate the need for lengthy wholesale rate-setting processes that are typically associated with mandated terms of access. Further, in the context of final offer arbitration, a facilities-focused model which limits the number of potential applicants also reduces the number of agreements potentially brought to arbitration.
    3. Puts the onus on the regional carrier seeking MVNO access to demonstrate that it can and will build-out a region. Therefore, CRTC approval in granting MVNO access will be conditioned on the strength of their proposal. While these proposals may be more comprehensive than under a broad MVNO regime, they are also likely to be more limited in number due to the investment requirements.
    4. Limits the length of time regulatory oversight of mandated access is required.

VI. Conclusion

  1. The Bureau thanks the CRTC for the opportunity to contribute to this proceeding in a meaningful way. The extensive confidential data from Canadian wireless carriers made available to the Bureau allowed it and its economic expert to conduct in-depth analyses of Canadian wireless competition to inform its recommendations.
  2. The results of that analysis clearly demonstrate that there is a market power problem in most Canadian markets. However, they also demonstrates that regional carriers are increasingly disrupting the market power of the Big 3. Where regional carriers have achieved a market share above 5.5%, customers enjoy prices that are generally 35-40% lower.
  3. The Bureau's recommended facilities-focused MVNO model represents an incremental, time-limited policy to incentivize and accelerate the expansion of regional carriers so that they can quickly deliver lower prices and greater choice to more Canadians. Additionally, as described in the Bureau's Further Comments, policies which seek to lower barriers to entry and reduce switching costs may be considered in conjunction with this remedy to facilitate deployment and further market share gain by the wireless disruptors.

VII. Appendix A – Firm incentives under the facilities-focused MVNO model

a. Purpose

  1. This Appendix considers firm incentives and the corresponding policy levers available to the CRTC, should it decide to implement the facilities-focused MVNO model. The Appendix begins by outlining the model used by the Bureau in considering firm incentives, then suggests ways to increase accuracy of the model, and finally provides some preliminary results of the modeling exercise.

b. Model Methodology

  1. In order to understand firm incentives with regard to geographic entry or expansion, the model considers these business cases through the lens of profitability. Profitability of a firm action depends broadly on the magnitudes of investments (the one-time upfront costs faced by entrants), and the resulting recurring revenues and operating expenses. Taking these net cash flows, and discounting them such that they are reflective of present day value, provides the Net Present Value (NPV), which can be used to gauge profitability of the geographic entry or expansion scenario under consideration. We have used this process to consider effects of changes to the regulatory environment on NPV, with the goal of better aligning firm incentives with the desired outcomes of the regulatory policy.
  2. In order to perform this modeling, we have estimated the magnitudes of monthly cash flows in the investment stage (outgoing cash flow to be used for required inputs to offering services), and later in the revenue-generating stage (incoming operating revenues less operating expenses). We have scaled both initial investment and operating cash flows by the size of the area to be entered or expanded into, as measured by population primarily.

Parameters

  1. The modelling exercise includes plausible investment costs through a lump-sum payment at the modeling period outset (in the first month) that comprises a fixed entry cost (for population invariant investments, such as setting up a retail store) as well as a population-scaled investments (such as network build expenses).
  2. Monthly subscriber counts are estimated by assuming a monthly churn rate for incumbent mobile network operators (incumbents), and modelling subscriber gains by the entrant in each month as a proportion of subscribers available for capture (the subscribers churned out from incumbents), net of the entrant's own churn.
  3. Estimates of operating revenues and expenses are generated by scaling estimated monthly average revenues per subscriber and costs per subscriber by these estimated subscriber counts in each month.
  4. In order to calibrate a model of this type, the CRTC can use a combination of publicly available information,Footnote 26 RFI responses from the record of this proceeding,Footnote 27 or additional information requests from carriers as a condition of application for the use of the remedy.
  5. For more specificity, see Table 1 included at the end of this appendix for a comprehensive list of input parameters and default parameter estimates used in the Bureau's Modelling, as well as potential sources of information to be used for parameter calibration.

Model Specifications

  1. The model has two periods, with a number of months in each period. In the first period, the entrant either takes advantage of the Bureau Remedy (adding subscribers and offering MVNO service) or does not (simply invests and does not sign up subscribers until it activates its network). In the second period, the entrant may activate its network and either begins to or continues to add subscribers, while serving them using its network.
  2. To calculate the estimated values for each month, we first estimate the subscriber numbers based on the subscriber growth rateFootnote 28 for the applicable period. We then calculate present valuesFootnote 29 of monthly net cash flows, based upon the estimated number of subscribers in that month and the estimated average revenues and costs per subscriber.

c. Interpretation

  1. A model of this form allows interpretation and results to be produced in two differing forms. NPVs can be produced for any static time frame desired, allowing simple comparisons between scenarios or measurement of the estimated effects of changes in parameters. Similarly, the path over time of cash flows, subscribers, and cumulative profits or losses can be examined on a temporal basis as granular as allowed by the modeling, which in this case is monthly.
  2. The first interpretation allows for quick and consistent comparisons between modeled scenarios, in order to quickly examine business case sensitivities of differing input parameters to determine bottom line relative profitability. Once a baseline model is specified, NPVs can allow for swift comparison of profitability over defined time horizons given changes to policy parameters or sensitivity to estimated input parameters.
  3. The second interpretation allows for analysis of the remedy mechanism over time,Footnote 30 which allows for consideration of incentives over differing time-frames, showing the implicit reasoning underlying differing NPVs resulting from changes to parameter inputs. This allows for analysis of the dynamic incentives created under the remedy during and following the expiry of the mandated MVNO access provided by the remedy.

Preliminary Results

  1. The modelling undertaken by the Bureau shows that under default parameters, an entrant taking advantage of the proposed remedy would be significantly more profitable over 10 years than either an entrant that pursued only a facilities-based entry, or that took advantage of the MVNO access without building out. We have modeled business cases for the following scenarios:
    1. 80% Facilities Coverage, Bureau Remedy Entry Scenario: A geographic entry, supported by the ability to operate as an MVNO in the area for 5 years using the Bureau Remedy. The entrant invests in facilities to support the expansion. After the 5 year mandated MVNO period, the entrant is able to offer service on its own facilities-based network in the geographic area to 80% subscribers they have within the geographic area, losing 20% of the subscribers gathered in the MVNO period and paying 'Customer Switching Compensation' for these subscribers. The modelling of the business case for this entry scenario suggests a breakeven period in NPV of approximately 5.5 years.

      80% Facilities Coverage, Bureau Remedy Entry Scenario
      Time Period 5 Years 10 Years
      Net Present Value ($98,271) $2,407,471
    2. 80% Facilities Coverage, Pure Facilities Entry Scenario: The entrant invests in facilities to support the expansion. At the 5 year point, the entrant is able to offer service on its own facilities-based network in the geographic area and begins to sign up subscribers within the 80% of the geographic area in which it can offer service. The modelling of the business case for this entry suggests a breakeven period in NPV of nearly 11 years.

      80% Facilities Coverage, Pure Facilities Entry Scenario
      Time Period 5 Years 10 Years
      Net Present Value ($914,539) ($266,669)
    3. MVNO Only, Bureau Remedy Entry Scenario: The entrant forgoes investment in facilities to support the expansion. The entrant does not invest in facilities, and its initial investment serves only to set up client-serving operations. The entrant loses all subscribers at the 5 year mark, pays 'Customer Switching Compensation' and an 'MVNO Only Fine' of just over $1 million (scaled by their gross margins and subscriber months), and exits the market. The modelling of the business case for this type of entry has an initial break-even period of just over 2.5 years; however, the penalty structure ultimately renders this entry unprofitable.

      MVNO Only, Bureau Remedy Entry Scenario
      Time Period 5 Years 10 Years
      Net Present Value ($636,165.98) ($636,165.98)
  2. Figure 3 shows the present values of projected profits over time for each of these three scenarios using the parameters shown in Table 1, and demonstrates the primary mechanism by which the Bureau remedy improves the business case for entry. The ability of the entrant to attract subscribers in advance of activation of their network significantly improves the profitability of the entry, relative to a scenario in which subscribers are only added after the network is activated. While the cash flows resulting from the MVNO access provide significant benefit to an entrant under the proposed remedy, much more significant is the increase in monthly recurring revenues upon activation of their network as a result of the installed subscriber base.

    Figure 3 – Projected NPV of Profits, from remedy outset (2022) to 10 years after remedy outset (2032)
    • Figure 3 – Projected NPV of Profits, from remedy outset (2022) to 10 years after remedy outset (2032)
      Figure 3 – Projected NPV of Profits, from remedy outset (2022) to 10 years after remedy outset (2032)
      Date 80% Facilities Coverage, Pure Facilities Entry Scenario 80% Facilities Coverage, Bureau Remedy Entry Scenario MVNO Only, Bureau Remedy Entry Scenario
      January 2022 -$900,000.00 -$900,000.00 -$100,000.00
      February 2022 -$900,000.00 -$900,497.92 -$100,498.00
      March 2022 -$900,000.00 -$900,256.94 -$100,257.00
      April 2022 -$900,000.00 -$899,291.28 -$99,291.30
      May 2022 -$900,000.00 -$897,614.94 -$97,614.90
      June 2022 -$900,000.00 -$895,241.69 -$95,241.70
      July 2022 -$900,000.00 -$892,185.07 -$92,185.10
      August 2022 -$900,000.00 -$888,458.41 -$88,458.40
      September 2022 -$900,000.00 -$884,074.83 -$84,074.80
      October 2022 -$900,000.00 -$879,047.23 -$79,047.20
      November 2022 -$900,000.00 -$873,388.31 -$73,388.30
      December 2022 -$900,000.00 -$867,110.57 -$67,110.60
      January 2023 -$900,000.00 -$860,226.29 -$60,226.30
      February 2023 -$900,000.00 -$852,747.57 -$52,747.60
      March 2023 -$900,000.00 -$844,686.32 -$44,686.30
      April 2023 -$900,000.00 -$836,054.23 -$36,054.20
      May 2023 -$900,000.00 -$826,862.82 -$26,862.80
      June 2023 -$900,000.00 -$817,123.43 -$17,123.40
      July 2023 -$900,000.00 -$806,847.20 -$6,847.20
      August 2023 -$900,000.00 -$796,045.10 $3,954.90
      September 2023 -$900,000.00 -$784,727.93 $15,272.07
      October 2023 -$900,000.00 -$772,906.29 $27,093.71
      November 2023 -$900,000.00 -$760,590.64 $39,409.36
      December 2023 -$900,000.00 -$747,791.24 $52,208.76
      January 2024 -$900,000.00 -$734,518.19 $65,481.81
      February 2024 -$900,000.00 -$720,781.45 $79,218.55
      March 2024 -$900,000.00 -$706,590.79 $93,409.21
      April 2024 -$900,000.00 -$691,955.83 $108,044.20
      May 2024 -$900,000.00 -$676,886.03 $123,114.00
      June 2024 -$900,000.00 -$661,390.71 $138,609.30
      July 2024 -$900,000.00 -$645,479.02 $154,521.00
      August 2024 -$900,000.00 -$629,159.97 $170,840.00
      September 2024 -$900,000.00 -$612,442.41 $187,557.60
      October 2024 -$900,000.00 -$595,335.07 $204,664.90
      November 2024 -$900,000.00 -$577,846.51 $222,153.50
      December 2024 -$900,000.00 -$559,985.16 $240,014.80
      January 2025 -$900,000.00 -$541,759.32 $258,240.70
      February 2025 -$900,000.00 -$523,177.13 $276,822.90
      March 2025 -$900,000.00 -$504,246.63 $295,753.40
      April 2025 -$900,000.00 -$484,975.70 $315,024.30
      May 2025 -$900,000.00 -$465,372.10 $334,627.90
      June 2025 -$900,000.00 -$445,443.47 $354,556.50
      July 2025 -$900,000.00 -$425,197.29 $374,802.70
      August 2025 -$900,000.00 -$404,640.96 $395,359.00
      September 2025 -$900,000.00 -$383,781.73 $416,218.30
      October 2025 -$900,000.00 -$362,626.74 $437,373.30
      November 2025 -$900,000.00 -$341,183.01 $458,817.00
      December 2025 -$900,000.00 -$319,457.44 $480,542.60
      January 2026 -$900,000.00 -$297,456.81 $502,543.20
      February 2026 -$900,000.00 -$275,187.81 $524,812.20
      March 2026 -$900,000.00 -$252,656.99 $547,343.00
      April 2026 -$900,000.00 -$229,870.81 $570,129.20
      May 2026 -$900,000.00 -$206,835.60 $593,164.40
      June 2026 -$900,000.00 -$183,557.62 $616,442.40
      July 2026 -$900,000.00 -$160,042.99 $639,957.00
      August 2026 -$900,000.00 -$136,297.75 $663,702.30
      September 2026 -$900,000.00 -$112,327.81 $687,672.20
      October 2026 -$900,000.00 -$88,139.03 $711,861.00
      November 2026 -$900,000.00 -$63,737.11 $736,262.90
      December 2026 -$914,538.71 -$98,270.96 -$636,166.00
      January 2027 -$927,923.51 -$65,238.28 -$636,166.00
      February 2027 -$940,175.74 -$31,774.91 -$636,166.00
      March 2027 -$951,316.39 $2,108.78 -$636,166.00
      April 2027 -$961,366.15 $36,402.56 -$636,166.00
      May 2027 -$970,345.35 $71,096.39 -$636,166.00
      June 2027 -$978,273.99 $106,180.40 -$636,166.00
      July 2027 -$985,171.79 $141,644.87 -$636,166.00
      August 2027 -$991,058.12 $177,480.26 -$636,166.00
      September 2027 -$995,952.05 $213,677.17 -$636,166.00
      October 2027 -$999,872.36 $250,226.38 -$636,166.00
      November 2027 -$1,002,837.52 $287,118.81 -$636,166.00
      December 2027 -$1,004,865.70 $324,345.54 -$636,166.00
      January 2028 -$1,005,974.79 $361,897.80 -$636,166.00
      February 2028 -$1,006,182.38 $399,766.95 -$636,166.00
      March 2028 -$1,005,505.80 $437,944.53 -$636,166.00
      April 2028 -$1,003,962.08 $476,422.20 -$636,166.00
      May 2028 -$1,001,568.00 $515,191.76 -$636,166.00
      June 2028 -$998,340.04 $554,245.17 -$636,166.00
      July 2028 -$994,294.46 $593,574.50 -$636,166.00
      August 2028 -$989,447.21 $633,171.97 -$636,166.00
      September 2028 -$983,814.01 $673,029.93 -$636,166.00
      October 2028 -$977,410.34 $713,140.87 -$636,166.00
      November 2028 -$970,251.40 $753,497.39 -$636,166.00
      December 2028 -$962,352.16 $794,092.22 -$636,166.00
      January 2029 -$953,727.36 $834,918.24 -$636,166.00
      February 2029 -$944,391.49 $875,968.42 -$636,166.00
      March 2029 -$934,358.81 $917,235.87 -$636,166.00
      April 2029 -$923,643.33 $958,713.81 -$636,166.00
      May 2029 -$912,258.88 $1,000,395.59 -$636,166.00
      June 2029 -$900,219.01 $1,042,274.64 -$636,166.00
      July 2029 -$887,537.10 $1,084,344.55 -$636,166.00
      August 2029 -$874,226.28 $1,126,599.00 -$636,166.00
      September 2029 -$860,299.48 $1,169,031.78 -$636,166.00
      October 2029 -$845,769.43 $1,211,636.77 -$636,166.00
      November 2029 -$830,648.63 $1,254,408.00 -$636,166.00
      December 2029 -$814,949.39 $1,297,339.56 -$636,166.00
      January 2030 -$798,683.83 $1,340,425.68 -$636,166.00
      February 2030 -$781,863.86 $1,383,660.66 -$636,166.00
      March 2030 -$764,501.18 $1,427,038.92 -$636,166.00
      April 2030 -$746,607.34 $1,470,554.97 -$636,166.00
      May 2030 -$728,193.67 $1,514,203.43 -$636,166.00
      June 2030 -$709,271.32 $1,557,978.99 -$636,166.00
      July 2030 -$689,851.26 $1,601,876.45 -$636,166.00
      August 2030 -$669,944.29 $1,645,890.71 -$636,166.00
      September 2030 -$649,561.02 $1,690,016.75 -$636,166.00
      October 2030 -$628,711.89 $1,734,249.63 -$636,166.00
      November 2030 -$607,407.18 $1,778,584.52 -$636,166.00
      December 2030 -$585,656.97 $1,823,016.67 -$636,166.00
      January 2031 -$563,471.21 $1,867,541.40 -$636,166.00
      February 2031 -$540,859.67 $1,912,154.12 -$636,166.00
      March 2031 -$517,831.96 $1,956,850.35 -$636,166.00
      April 2031 -$494,397.53 $2,001,625.64 -$636,166.00
      May 2031 -$470,565.67 $2,046,475.68 -$636,166.00
      June 2031 -$446,345.52 $2,091,396.18 -$636,166.00
      July 2031 -$421,746.09 $2,136,382.97 -$636,166.00
      August 2031 -$396,776.20 $2,181,431.94 -$636,166.00
      September 2031 -$371,444.55 $2,226,539.05 -$636,166.00
      October 2031 -$345,759.70 $2,271,700.34 -$636,166.00
      November 2031 -$319,730.05 $2,316,911.94 -$636,166.00
      December 2031 -$293,363.88 $2,362,170.01 -$636,166.00
      January 2032 -$266,669.30 $2,407,470.83 -$636,166.00
      February 2032 -$239,654.32 $2,452,810.70 -$636,166.00
      March 2032 -$212,326.80 $2,498,186.03 -$636,166.00
      April 2032 -$184,694.47 $2,543,593.27 -$636,166.00
      May 2032 -$156,764.93 $2,589,028.95 -$636,166.00
      June 2032 -$128,545.65 $2,634,489.66 -$636,166.00
      July 2032 -$100,043.98 $2,679,972.06 -$636,166.00
      August 2032 -$71,267.14 $2,725,472.86 -$636,166.00
      September 2032 -$42,222.25 $2,770,988.83 -$636,166.00
      October 2032 -$12,916.27 $2,816,516.83 -$636,166.00
      November 2032 $16,643.91 $2,862,053.76 -$636,166.00
      December 2032 $46,451.56 $2,907,596.56 -$636,166.00
      January 2033 $76,500.04 $2,953,142.27 -$636,166.00
      February 2033 $106,782.83 $2,998,687.95 -$636,166.00
      March 2033 $137,293.50 $3,044,230.73 -$636,166.00
      April 2033 $168,025.77 $3,089,767.81 -$636,166.00
      May 2033 $198,973.43 $3,135,296.42 -$636,166.00
      June 2033 $230,130.39 $3,180,813.85 -$636,166.00
      July 2033 $261,490.67 $3,226,317.46 -$636,166.00
      August 2033 $293,048.38 $3,271,804.64 -$636,166.00
      September 2033 $324,797.74 $3,317,272.84 -$636,166.00
      October 2033 $356,733.06 $3,362,719.57 -$636,166.00
      November 2033 $388,848.76 $3,408,142.37 -$636,166.00
      December 2033 $421,139.34 $3,453,538.84 -$636,166.00
      January 2034 $453,599.41 $3,498,906.62 -$636,166.00
      February 2034 $486,223.66 $3,544,243.42 -$636,166.00
      March 2034 $519,006.89 $3,589,546.96 -$636,166.00
      April 2034 $551,943.97 $3,634,815.04 -$636,166.00
      May 2034 $585,029.87 $3,680,045.48 -$636,166.00
      June 2034 $618,259.64 $3,725,236.16 -$636,166.00
      July 2034 $651,628.43 $3,770,384.99 -$636,166.00
      August 2034 $685,131.45 $3,815,489.94 -$636,166.00
      September 2034 $718,764.03 $3,860,549.01 -$636,166.00
      October 2034 $752,521.54 $3,905,560.23 -$636,166.00
      November 2034 $786,399.46 $3,950,521.70 -$636,166.00
      December 2034 $820,393.34 $3,995,431.54 -$636,166.00
      January 2035 $854,498.80 $4,040,287.91 -$636,166.00
      February 2035 $888,711.57 $4,085,089.01 -$636,166.00
      March 2035 $923,027.41 $4,129,833.08 -$636,166.00
      April 2035 $957,442.18 $4,174,518.40 -$636,166.00
      May 2035 $991,951.82 $4,219,143.29 -$636,166.00
      June 2035 $1,026,552.32 $4,263,706.09 -$636,166.00
      July 2035 $1,061,239.76 $4,308,205.19 -$636,166.00
      August 2035 $1,096,010.28 $4,352,639.01 -$636,166.00
      September 2035 $1,130,860.10 $4,397,006.00 -$636,166.00
      October 2035 $1,165,785.48 $4,441,304.67 -$636,166.00
      November 2035 $1,200,782.79 $4,485,533.52 -$636,166.00
      December 2035 $1,235,848.44 $4,529,691.12 -$636,166.00
      January 2036 $1,270,978.89 $4,573,776.04 -$636,166.00
      February 2036 $1,306,170.69 $4,617,786.92 -$636,166.00
      March 2036 $1,341,420.45 $4,661,722.40 -$636,166.00
      April 2036 $1,376,724.82 $4,705,581.17 -$636,166.00
      May 2036 $1,412,080.54 $4,749,361.93 -$636,166.00
      June 2036 $1,447,484.39 $4,793,063.43 -$636,166.00
      July 2036 $1,482,933.21 $4,836,684.43 -$636,166.00
      August 2036 $1,518,423.91 $4,880,223.74 -$636,166.00
      September 2036 $1,553,953.45 $4,923,680.18 -$636,166.00
      October 2036 $1,589,518.83 $4,967,052.61 -$636,166.00
      November 2036 $1,625,117.14 $5,010,339.91 -$636,166.00
      December 2036 $1,660,745.49 $5,053,541.00 -$636,166.00
      January 2037 $1,696,401.06 $5,096,654.80 -$636,166.00
  3. Similarly, an entry without including facilities investment, provides higher profits in the short term than either facilities-based strategy. These profits are limited as a result of the time limit on MVNO access included in the proposed remedy. Consequently, if the time limit on the MVNO access is enforced, and penalties are credible should build-out not occur, incentives for entry as a pure MVNO carrier should be minimised.

Alternative policies or objectives

  1. To the extent that the CRTC is considering another policy option or has other objectives, it can analyse the relevant incentives following a similar approach, namely looking at the profitability of different scenarios. 
  2. For example, if the Commission were concerned that an applicant might not make use of a MVNO license, it may wish to consider additional financial incentives related to such non-use.Footnote 31 These could be scaled relative to the profitability of alternative strategies for regional carriers, such as alternative investments. 
  3. One way to alter the relative profitability of investment options is to require a portion of planned investments be committed upfront such that they are effectively sunk.

    Table 1 – List of Parameters Used in Bureau Simulations
    Common Inputs Descriptions Default Values
    (80% Facilities Coverage, Bureau Remedy Entry Scenario)
    City Population Population of the area to be entered or expanded into. Populations for most sizable population centres are publically available from Statistics Canada. 50,000.00
    Discount Rate Estimated cost of capital for entrant investments. Estimated based upon public information; present and forecasted costs of capital for entrants can be requested by the CRTC in the application phase. 0.05
    Proportion of Subscribers Covered by Network at MVNO Service End The proportion of population covered by the entrant network by the end of the mandated MVNO access period.Footnote 32 Forecasted coverage can be requested by the CRTC in the application phase ex ante and a range of values can be used in a sensitivity analysis. Realized coverage can be determined to a high degree of accuracy ex post. 80.00%
    Initial Period Start The start date of the investment horizon (initial investment) and/or the mandated MVNO access period (depending upon whether entrants choose to use the remedy). This is a policy parameter that will be determined based upon remedy application by the CRTC. January, 2022
    Second Period Start The end of the mandated MVNO access regime and/or the entrant's network activation date. This is a policy parameter that will be determined based upon remedy application by the CRTC. January, 2027
    Initial Entrant Penetration Rate A value that allows for an initial base of subscribers or an immediate influx of subscribers for the entrant when they begin to offer service (either under mandated MVNO or on their own network). Anecdotal evidence suggests that entrants might achieve high initial subscriber gains when they begin offering services, and additional information can be requested by the CRTC in the application phase. 0
    Customer Switching Compensation A dollar value assessed for each subscriber signed up to an entrant who was not covered by the entrant's network.Footnote 33 This is a policy parameter that reflects customer switching costs. It can be adjusted to reflect customer switching cost estimates provided in the application phase. ##
    MVNO Only Fine This fine is applied in only the MVNO only scenario, and is structured to replicate a fine scaled by gross profits from MVNO services, assuming that $5 of Average Service Cost (MVNO) is the MVNO's own costs (yielding an average gross margin of $20 per subscriber-month). NA
    Subscriber Load Cost (MVNO) The total cost to the entrant of adding a subscriber in the MVNO phase. This may include marketing, promotional offerings, sales overhead, or handset subsidies. This cost is modeled to be borne as a lump sum in the period each subscriber is added. Additional information can be requested by the CRTC in the application phase. 25.00
    Average Service Revenue (MVNO) The average revenue per subscriber in the MVNO phase. This may include equipment revenues as well as service revenues. This is modeled as a monthly recurring revenue for each subscriber of the entrant. Assuming that the entrant offers plans consistent with their current offerings, this can be estimated using RFI 103 from the record of this proceeding. Additional information can be requested by the CRTC in the application phase. 50.00
    Average Service Cost (MVNO) The average cost of service per subscriber in the MVNO phase. This is modeled as a monthly recurring cost of service for each subscriber of the entrant. This will be determined by the agreements between entrants and incumbents,Footnote 34 and forecasted costs can be requested by the CRTC in the application phase and a range of values can be used in a sensitivity analysis. 35.00
    Entrant Churn Rate (MVNO) The monthly churn rate of the entrant during the MVNO phase. This is used to determine monthly subscriber losses of the entrant, by multiplying subscriber counts of the entrant by this proportion. Assuming that the entrant offers service consistent with their current offerings, this can be estimated from publically available information. 0.01
    Entrant Churn Capture Rate (MVNO) The capture rate by the entrant of incumbent churn in the MVNO phase. This is used to determine monthly subscriber gain of the entrant, by multiplying this proportion by the number of subscribers churned out of the incumbents' subscriber pool. Assuming that the entrant offers plans consistent with their current offerings, this can be estimated using net subscriber growths from RFI 103 on the record in this proceeding. 0.10
    Facilities PV of Installation Cost Estimated present value of the investment required for the entrant to offer services on their own network. Estimates of investment can be created based upon some information on the record in this hearing, and more precise estimates can be requested in the application phase.Footnote 35 1,100,000.00
    Incumbent Churn (MVNO) The incumbent carrier churn in the MVNO phase, used to determine the number of subscribers churned out of the incumbents subscriber pool, by multiplying this proportion by the number of incumbent subscribers (estimated to be city population less the number of entrant subscribers). This information, aggregated to the national and carrier level, is publically available. 0.01
    Subscriber Load Cost (Facilities) The total cost to the entrant of adding a subscriber in the facilities-based phase. This may include marketing, promotional offerings, sales overhead, or handset subsidies. This cost is modeled as a lump sum in the period each subscriber is added. Additional information can be requested by the CRTC in the application phase. 500.00
    Average Service Revenue (Facilities) The average revenue per subscriber in the facilities-based phase. This may include equipment revenues as well as service revenues. This is modeled as a monthly recurring revenue for each subscriber of the entrant. Assuming that the entrant offers plans consistent with their current offerings, this can be estimated using RFI 103 from the record of this proceeding. 50.00
    Average Service Cost (Facilities) The average cost of service per subscriber in the facilities-based phase. This is modeled as a monthly recurring cost of service for each subscriber of the entrant and may include customer service costs and roaming costs. Forecasted costs can be requested by the CRTC in the application phase. 15.00
    Entrant Churn Rate (Facilities) The monthly churn rate of the entrant in the facilities-based phase. This is used to determine monthly subscriber losses of the entrant, by multiplying subscriber counts of the entrant by this proportion. Assuming that the entrant offers service consistent with their current offerings, this can be estimated from publically available information. 0.01
    Entrant Churn Capture Rate (Facilities) The capture rate by the entrant of incumbent churn in the facilities-based phase. This is used to determine monthly subscriber gain of the entrant, by multiplying this proportion by the number of subscribers churned out of the incumbents' subscriber pool. Assuming that the entrant offers plans consistent with their current offerings, this can be estimated using net subscriber growths from RFI 103 on the record in this proceeding. 0.10
    Incumbent Churn (Facilities) The incumbent carrier churn in the facilities-based phase, used to determine the number of subscribers churned out of the incumbents subscriber pool, by multiplying this proportion by the number of incumbent subscribers (estimated to be city population less the number of entrant subscribers). This information, aggregated to the national and carrier level, is publically available. 0.01
  4. For the purposes of this Proceeding, the designated representative of the Commissioner is:

    Laura Sonley
    Senior Competition Law Officer, Competition Promotion Branch
    Competition Bureau
    21st Floor, 50 Victoria Street
    Gatineau, Quebec K1A 0C9

***End of document***

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