Canada has most affordable internet in the world: Economist study

Comparison of 75 countries finds little telecommunications market concentration here.

affordable internet

Canada’s Affordable Internet?

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The Economist Intelligence Unit on Wednesday morning released “The Inclusive Internet,” a report that – among its other findings – suggests Canada’s internet is the most affordable in the world.

Measuring price and the competitive environment for wireless and wired broadband services, the report – sponsored by Facebook’s – has Canada edging out the United States, France, Sweden, the United Kingdom and 70 other countries.

Rounding out the bottom of the affordability list are Malawi, Niger and Congo.

The results are surprising, to say the least. Separate studies from the Canadian Radio-television and Telecommunications, the Organization for Economic Co-operation and Development and other independent organizations typically find the opposite – that Canada is comparatively expensive.

A 2015 study by the Public Interest Advocacy Centre, for one, found that many Canadians are having to make cuts in their food spending to afford communications.

So how does the EIU come to such different conclusions? A cursory examination of the report’s methodology suggests a few explanations.

For one, a host of emerging countries are lumped into the rankings, which inevitably makes developed nations look better. Related to that is the fact that several countries that tend to perform well in other studies – Hong Kong, Denmark, Finland, to name a few – aren’t included.

The EIU also gives weight to how much services cost relative to a country’s average gross national income.

It’s ultimately a meaningless measure because the differences between developed countries are minor, while those between developed and developing countries are big.

Case in point: according to the EIU, a monthly postpaid service plan with 500 megabytes data eats up only 2 per cent of income in Canada, or 1 per cent in the U.S., Japan, Germany and France. The same plan requires 20 per cent of the average income in Malawi, 93 per cent in Niger and  44 per cent in Congo.

In other words, of course wireless service is relatively cheaper in Canada than it is in Malawi. But it isn’t relatively cheaper by this measure than in most other developed countries. Either way, it’s nothing to crow about.

The EIU’s other factor in determining affordability is competitive environment, a category in which Canada places first overall – a highly problematic finding.

Using the Hirschman-Herfindahl Index to measure industry concentration, the EIU finds Canada’s wireless market to have a score of 2,740 out of a possible 10,000, which it deems to be “unconcentrated.” In other words, Canada’s wireless industry is competitive.

The same goes for wired internet, where Canada scores 1,508 points.

In this measure, the EIU seems to have a far more lax definition of concentration than most. The U.S. Justice Department, for one, considers markets in which the HHI is between 1,500 and 2,500 points to be “moderately concentrated.”

An HHI over 2,500 points – which is where both the Canadian and U.S. wireless markets rate under the EIU’s findings – is considered “highly concentrated.”

Canada’s Competition Bureau agrees. Despite giving its blessing last month to Bell’s takeover of MTS, the bureau found that “Canadian mobile wireless markets possess a number of factors which make them susceptible to coordination. Mobile wireless markets are highly concentrated and possess high barriers to entry and expansion.” (Emphasis is mine.)

Without a definitive explanation from the horse’s mouth, it’s hard to know exactly why the EIU chose to differ so vastly from other findings in competitive environments.

One possibility is that the organization simply counted the total number of wired and wireless providers in Canada without accounting for their limited regional scope.

Rather than three national wireless providers, for example, Canada could thus be considered to have at least eight if Eastlink, Videotron, Freedom, MTS and Sasktel are counted. Taken at face value, that looks like a very competitive market. Of course, any Canadian knows better.

International comparison studies can always be criticized for methodology, but the EIU’s Inclusive Internet report’s case for countering the prevailing wisdom – that Canada’s communications are comparatively expensive – is weak for the reasons outlined.

If anything, the EIU inadvertently counters its own findings by confirming that Canadian wireless operators enjoy the highest average revenue per user (ARPU) in the world.

With annual ARPU of $653 (U.S.), Canadian consumers are spending more per year on wireless service than anyone else – even more than Americans, who are in second place with $633. Brits and Australians, in comparison, respectively spend $313 and $478.

Industry boosters suggest that ARPU – otherwise known as the size of the average monthly bill – isn’t a reflection of high prices, but rather voluntary expenditure by consumers. That’s not 100-per-cent untrue, but every Canadian also knows it’s about 98-per-cent bull.

To paraphrase the old saying, where there’s ARPU smoke, there’s pricing fire. It’s really odd that the EIU overlooked that fact.

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