An Examination of the Regulatory Framework for Mobile Virtual Network Operators and Other Wholesale Mobile Services
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CRTC TNC 2019-57 TELUS Communications Inc. Appendix C May 16, 2019 Revised BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION CRTC 2019-57 REVIEW OF MOBILE WIRELESS SERVICES An Examination of the Regulatory Framework for Mobile Virtual Network Operators and Other Wholesale Mobile Services EXPERT REPORT OF CHRISTIAN M. DIPPON, Ph.D. On behalf of TELUS Communications Inc. May 15, 2019 CRTC TNC 2019-57 TELUS Communications Inc. Appendix C May 16, 2019 Revised An Examination of the Regulatory Framework for Wholesale Mobile Services Table of Contents EXECUTIVE SUMMARY ...................................................................................................................... I I. INTRODUCTION .....................................................................................................................1 II. THE “MVNO MARKET” IS NOT SUSTAINABLE AND IS NOT A COMPETITIVE FORCE ............4 A. OECD Country Market Trends Remain Largely Unchanged Since 2014 ..................5 1. MVNO subscriber shares have remained constant since 2014 .............................5 2. The number of MVNOs in OECD countries has modestly increased since 2014.......................................................................................................................8 3. MVNOs continue to focus on niches in the market ..............................................9 B. The Empirical Evidence Demonstrates No Retail Effects ........................................14 III. REGULATORS CONTINUE TO REFRAIN FROM REGULATING MVNO ACCESS ......................25 1. Regulators do not endorse MVNO wholesale access regulation ........................25 2. Regulated MVNO regimes refrained from wholesale access .............................29 IV. MVNO MERGER REMEDIES ARE NOT RELEVANT AND CONFIRM THE LACK OF MVNO COMPETITIVE IMPACT .........................................................................................................32 A. Merger Remedies Mandating MVNOs Are Irrelevant for the Current Review .......33 1. Austria .................................................................................................................35 2. Ireland .................................................................................................................36 3. Germany ..............................................................................................................37 V. THE 2014 COMMISSION REVIEW SERVES AS A PROPER STARTING POINT FOR THE CURRENT REVIEW...............................................................................................................38 A. The CRTC Has Already Addressed MVNO Wholesale Access ..............................39 B. The Relevant Market Remains Very Competitive ....................................................41 C. Wholesale and Retail Markets Have Grown Since 2014 ..........................................41 D. Existing Wholesale Regulation Already Enables Retail Competition ......................42 E. The CRTC’s Recent Market Interventions Are Not Signs of Wholesale Market Failure .......................................................................................................................45 VI. IMPOSING MANDATED MVNO ACCESS WILL HARM CANADIAN CONSUMERS ...................48 A. The Economic Literature Confirms the Negative Investment Incentive ..................48 B. Wholesale Access Seekers Invest Minimally ...........................................................50 VII. CONCLUSIONS .....................................................................................................................52 APPENDIX A: CURRICULUM VITAE OF CHRISTIAN M. DIPPON, PH.D. .............................................53 NERA Economic Consulting CRTC TNC 2019-57 TELUS Communications Inc. Appendix C May 16, 2019 Revised An Examination of the Regulatory Framework for Wholesale Mobile Services List of Figures Figure 1: Correlation Values – ARPU and Total “MVNO Market” Share .................................. 15 Figure 2: Correlation Values – ARPU and IO “MVNO Market” Share....................................... 16 Figure 3: Correlation Values – Download Speed and Total “MVNO Market” Share.................. 17 Figure 4: Correlation Values – Download Speed and IO “MVNO Market” Share ...................... 18 Figure 5: Correlation Values – Churn Rates and Total “MVNO Market” Share ......................... 19 Figure 6: Correlation Values – Churn Rates and IO “MVNO Market” Share ............................. 19 Figure 7: Correlation Values – Data Usage and Total “MVNO Market” Share .......................... 20 Figure 8: Correlation Values – Data Usage and IO “MVNO Market” Share ............................... 21 Figure 9: Correlation Values – 4G Take-Up Rate and Total “MVNO Market” Share................. 22 Figure 10: Correlation Values – 4G Take-Up Rate and IO “MVNO Market” Share ................... 22 Figure 11: Correlation Values – Capacity Utilization and Total “MVNO Market” Share ........... 23 Figure 12: Correlation Values – Capacity Utilization and IO “MVNO Market” Share ............... 24 List of Tables Table 1: Total MVNO Subscriber Shares OECD – 2014 and 2018 ............................................... 6 Table 2: IO MVNO Subscriber Shares OECD – 2014 and 2018 ................................................... 7 Table 3: Change in Number of MVNOs between 2014 and 2018 in OECD Countries ................. 8 Table 4: MVNO Count OECD –2018 ............................................................................................ 9 Table 5: Non-Niche MVNOs vs. Niche MVNOs OECD 2018 .................................................... 10 Table 6: IO Non-Niche MVNOs vs. IO Niche MVNOs OECD 2018.......................................... 10 Table 7: Niche IO and OO MVNOs in OECD Countries ............................................................. 12 Table 8: Canadian MVNOs – December 2018 ............................................................................. 13 Table 9: MVNO Access Regulation in OECD Countries and IO MVNO Share ......................... 26 Table 10: EC Remedy Components in 4-to-3 Mergers ................................................................ 34 Table 11: Canadian Telecommunications Revenue and Investments by Provider Type.............. 51 NERA Economic Consulting CRTC TNC 2019-57 TELUS Communications Inc. Appendix C May 16, 2019 Revised An Examination of the Regulatory Framework Executive Summary for Wholesale Mobile Services Expert Report of Christian M. Dippon, Ph.D. EXECUTIVE SUMMARY ES1. This report responds to the Commission’s preliminary view to regulate the wholesale access market for MVNOs. Using actual data from Canada and other OECD countries, the evidence clearly demonstrates that implementing wholesale MVNO access regulation will harm Canadian consumers. The main findings leading to this conclusion include: . MVNOs have little to no competitive impact as their business model focuses on identifying niches in the market, rather than competing in existing markets. MVNOs are generally not sustainable as market saturation and competition yields few, if any, viable niches in the market. There has been no economic change in Canada or elsewhere that warrants a change in the Commission’s 2015 decision that MVNO regulation was not beneficial, but rather would be harmful. MVNOs do not benefit consumers as data from OECD countries find no relationship between the MVNO share in the market and the consumer experience. OECD regulators largely refrain from intervening in the MNO-MVNO relationship and the three regulators that have some form of regulation still predominately rely on commercial negotiations and do not mandate regulated wholesale access rates. Imposing wholesale access regulation nevertheless will reduce network investment. With no benefits from MVNOs, the net effect for Canadian consumers will be negative. ES2. As was the case in 2014 when the Commission assessed the competitive effects of mobile virtual network operators (MVNOs), these service providers still do not meaningfully add to the competitive forces in the relevant marketplace. MVNOs remain niche players prone NERA Economic Consulting i CRTC TNC 2019-57 TELUS Communications Inc. Appendix C May 16, 2019 Revised An Examination of the Regulatory Framework Executive Summary for Wholesale Mobile Services to exit from the market or acquisition by their host mobile network operators (MNOs) due to market forces. Similarly, imposing a regulated wholesale access market for MVNOs nevertheless, still induces inefficient MVNO entry and results into lower network investments. Thus, the net effect of MVNO regulation remained unchanged: Regulating the wholesale access market for MVNOs stands to harm, not benefit, Canadian consumers. ES3. Data from the OECD find no relationship between MVNO share of the market and an improved consumer experience (e.g., higher download speeds), demonstrating that these providers do not enhance competition. Regulators worldwide agree and rarely intervene in the MNO-MVNO relationship. Even in the rare instances of intervention, the regulators rely principally on commercial negotiations and refrain from mandating wholesale MVNO access. ES4. The Canadian market environment does not require further wholesale regulation because it is already competitive. Moreover, it is one of the most regulated mobile wireless markets in the world. There are several regulatory measures place (e.g., regulated domestic wholesale roaming) in the off chance that