Canada’s telecommunications market is notorious for relatively high prices for consumers, given the small number of key players in the market and the country’s low population density. The Canadian Radio-television and Telecommunications Commission (CRTC) has made numerous determinations in favour of enabling the deployment of mobile virtual network operators (MVNOs) in Canada, which would allow smaller regional carriers to leverage the large infrastructure developed by incumbent Canadian telecommunication providers. MVNOs do not own a mobile spectrum license but sell mobile services under their brand names, using the network of another mobile network operator (MNO).
The commission’s potential change would likely have a substantial impact on the competitive landscape. The decision would allow Freedom, SaskTel, Videotron and other middle market regional providers to expand nationally, without having to build out their own network across the country. The negotiations of wholesale rates for facility-based MVNOs and the MNOs would remain with each party to facilitate.
Canada’s telecom landscape
Canada’s mobile infrastructure is concentrated among three major national providers and their subsidiary brands, with over 89 per cent of consumers subscribed to one of the them. These national providers each also operate both flanker brands and budget brands, which operate on the same network as their parent national providers but at lower prices and typically reduced quality.
Regional providers, like Freedom and SaskTel, are present in specific urban centers or provinces in Canada. In these regions, the presence of regional providers increases competition, resulting in lower prices for consumers. No single mobile network operator covers the entire country. They all have agreements with each other to share networks or to pay a wholesale rate for access resulting in significant reliance on one another.
In contrast, the regulatory landscape in the United States permits several MVNO operating models (including reseller, service operator and full MVNO), which enables operators to offer diverse, flexible and affordable plans that attract budget-conscious consumers and prepaid users. U.S. MVNO subscriptions increased from 29 million in 2014 to 37 million in 2021, according to Bloomberg. As of 2022, there are 139 MVNOs in the U.S.
A recent CRTC ruling provides a window of opportunity for middle market MVNOs in Canada.
CRTC ruling and impact on Canada market
In 2019, the CRTC initiated a review of mobile wireless services in Canada and made recommendations to the Competition Bureau. The bureau found that the top three providers possess market power at both the retail and wholesale levels and that wireless disruptors have a significant impact on pricing, where they exist. Its final recommendation was for the CRTC to adopt a temporary MVNO policy focused on incentivizing and accelerating facilities-based competition from disruptors.
The CRTC has issued policies for MVNOs in Canada, limiting MVNO operations there to facilities-based MVNOs to enable eligible regional wireless carriers (also referred to as wholesale customers and MVNO customers in this decision) to use the networks of Canadian MNOs. The commission indicated that measure aimed to bring new competitive choice in wireless services to millions of Canadians, while also encouraging network expansion and sustainable competition over the longer term.
In May 2023, the CRTC set MVNO access rules, giving companies until this past August to negotiate pricing agreements. In the instance where they do not come to an agreement, companies can approach the CRTC for rate arbitration to help come to a resolution. This is all part of the CRTC's policy to boost cellphone competition.
The current policies in Canada maintain that “light” MVNOs—which provide cellular services that operate marketing, billing, payments, call centers and retail stores without owning their own network, as opposed to full MVNOs which own and operate all aspects of their services except towers—are still prohibited. The CRTC and Competition Bureau hold the belief that permitting facility-based MVNOs to operate will lead to their further growth, fostering competition in the Canadian market.
This approach aims to enable the progress made by these providers to date to continue paying dividends to Canadians. An investment-based MVNO policy achieves the goal of spurring additional price competition from wireless disruptors in the short term, while avoiding the risk of declining network quality in the long term—a win-win for average Canadian consumers.
Looking ahead
Amid these changes, Canada’s major telecom providers—who have historically fought to gain every bit of market share from each other—are under much more pressure to provide value to their shareholders by being even more creative with their sales and marketing efforts while maintaining operational excellence. A potential downside of the ruling is that it could disincentivize telcos from investing in network infrastructure if they anticipate reduced returns on investment due to selling network access at a discount.
As such, the push to claim the unofficial title as the “best network in Canada” might not be so appealing to the leaders; this might lead to a slowdown in network infrastructure improvements as well as fewer new rollouts overall. These factors would contribute to suboptimal network quality down the line, which would be a negative for Canadian consumers, who are forecasted to significantly increase data consumption over the next few years.
A balance between spurring competition within the telecom industry and keeping the positive trajectory of network infrastructure upgrades is going to be key. Regulators will need to ensure that there is a correction to the historically oligopolistic landscape to boost competition rather than a total revamp that could lead to problematic stagnation.
