The Globe and Mail - 18.02.2020

B8| REPORTONBUSINESS O THEGLOBEANDMAIL| TUESDAY, FEBRUARY 18, 2020

The Liberals said they wanted to
bring prices down to just below
$3,000 annually for a family of
four. Telus says the current an-
nual cost of four of its unlimited
data plans, with a family dis-
count, comes to $2,880 a year.
But Mr. Bains has only doubled
down on the campaign promise.
In an interview with The Cana-
dian Press last month, he said the
25-per-cent rate reductions he has
been mandated to achieve over
the next two years are on top of
any price reductions introduced
before the election.
Telecom executives counter
that it seems thegovernment has
not even decided how it plans to
define wireless prices – whether
it’ll be looking at the prices of spe-
cific plans, the per-gigabyte price
of data or the average user’s bill.
And Ottawa seems to want it all

• lower prices and much-im-
  proved service across the country


• the telecoms point out.
  “The government seems to
  have all these conflicting policy
  objectives,” said Robert Malcolm-
  son, chief regulatory officer at
  BCE Inc. “They want low cell-
  phone prices, they want us to
  build out 5G, they want us to build
  connectivity in rural areas. We’re
  doing all of those things, but it has
  to be funded by revenue, and rev-
  enue comes from the provision of
  services. Thegovernment’s singu-
  lar focus on wireless prices has
  implications for other objectives
  they’re trying to accomplish.”
  One of the tools the govern-
  ment plans to use is forcing carri-
  ers to sell network access to wire-
  less resellers that lack their own
  infrastructure, referred to as mo-
  bile virtual network operators, or
  MVNOs. The issue will come be-
  fore the CRTC on Tuesday for nine
  days of hearings in Gatineau. The
  regulator has said the benefits of a
  well-developed MVNO market
  would likely outweigh any nega-
  tive effects, although the rates,
  terms and conditions need to be
  ironed out.
  The chief executives of both
  BCE Inc. and Rogers Communica-
  tions Inc. have emphasized the
  impact of such regulatory policies
  on network investments, with Joe
  Natale warning that Rogers could
  significantly cut the almost $3-bil-
  lion it plans to spend on infras-
  tructure this year if regulations
  become overly punitive.
  Another industry executive,
  who is not being identified by The
  Globe and Mail because they are
  not authorized to discuss the mat-
  ter publicly, said their company
  has been thrown into contingen-
  cy planning mode, mapping out
  the kinds of cuts they would have
  to make – not only to infrastruc-
  ture investments but to their re-
  tail footprints and call centre
  staffing levels – to meet the 25-
  per-cent price reduction.
  Last summer’s introduction of
  data plans with no overage fees –
  which slow down speeds when a
  customer’s data limit has been
  reached – was a paradigm shift for
  an industry that previously had
  gleaned roughly 5 per cent of its
  annual wireless revenue – rough-
  ly $1-billion – from overage fees.
  However, not all customers are
  seeing their monthly bills go
  down on the new plans. After
  launching its “Infinite” offering
  last June, Rogers said about 60 per
  cent of customers moving to the
  new plans were actually upgrad-
  ing from cheaper ones. Although
  the price of data has been on the
  decline for years, data consump-
  tion has been climbing steadily.
  Statistics Canada says that in 2017,
  Canadian households spent an
  average of $101 a month on mo-
  bile services – a year-over-year in-
  crease of 9.7 per cent.
  There are indications, though,
  that thegovernment’s practice of
  setting aside spectrum for region-
  al players such as Freedom (previ-
  ously Wind Mobile) and Quebe-
  cor Inc.’s Videotron, as well as oth-
  er measures, is beginning to bear
  fruit. According to a study pub-
  lished by the CRTC last year, the
  prices of wireless plans offering
  two gigabytes of data or more fell
  about 32 per cent between 2016

and 2018. And in its submission to

the CRTC ahead of the wireless

hearings, the Competition Bu-

reau says it found prices are 35 per

cent to 40 per cent lower in mar-

kets where so-called wireless dis-

ruptors have achieved a market

share above 5.5 per cent.

“That’s really a reflection of our

policies,” Mr. Bains said, adding,

“but we have more to do.”

Yet consumers, for the most

part, seem unaware of all that.

Only 16 per cent of the 1,208 Cana-

dians surveyed via telephone late

last year for a CRTC report agreed

that the cost of cellphone plans

has gone down in the past three

years. And two-thirds said they

think cellphone prices in Canada

are higher than in other coun-

tries.

And industry analysts caution

that allowing low-cost competi-

tors to piggyback on the networks

of larger carriers will create a dis-

incentive for companies to invest

in infrastructure – which could

stunt advanced network rollout

in rural areas and put Canada be-

hind in the global 5G race. Cana-

dians, who currently enjoy high-

quality networks, may soon find

themselves dealing with slower

speeds and poorer coverage than

their peers around the world, they

say.

“We’ve seen examples of that

in Europe,” Desjardins analyst

Maher Yaghi said. “When regula-

tion for MVNOs is implemented,

all these companies pull back on

[capital expenditure], because

that’s the easiest way to protect

your free cash flow.”

Ben Klass, a PhD candidate at

Carleton University whose re-

search into wireless pricing is

funded by the Social Sciences and

Humanities Research Council,

isn’t entirely convinced that carri-

ers will cut back on network in-

vestments, since doing so is sim-

ply a smart business move.

“This is a familiar refrain to

anyone who’s paid attention to

this for a long time,” Mr. Klass

said. “I think that, to a large ex-

tent, it’s theatrics.”

One potential compromise

would be to introduce a hybrid

model such as the one proposed

by the Competition Bureau. In a

submission to the CRTC, the bu-

reau suggests that the larger carri-

ers should only be required to sell

network access, on a temporary

basis, to regional carriers who

plan to invest in and expand their

own networks.

At least one telecom provider is

in favour. Cogeco Inc., which

serves 850,000 internet custom-

ers in Ontario and Quebec, would

love to be able to get into the wire-

less space, but the barriers to en-

try are too high.

“We need something in the

middle – a little of what we have,

with a twist of new regulation to

increase competition and in-

crease investment,” president

and CEO Philippe Jetté said. “It’s

always the same players that can

play in the ecosystem. We need

new players.”

Wireless:Dataindicatemakingspaceforregional

playersinmobilemarketisstartingtobringresults

MONTHLYPRICESFORMOBILESERVICESINCANADA

AverageSricesurbanandrural

JOHNSOPINSKI/THE GLOBEANDMAIL,SOURCE: CRTC;WALLCOMMUNICATIONS

20

201620172018

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40

50

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$80

Level4:Unlimited min.,SMS/5 GB data

Level3: 1 ,200 min./300 SMS/2 GB data

Level2: 4 50 min./300 SMS/ 1 GB data

Level1: 1 50 min./no data

Level4:Unlimited min.,SMS/2GB data

Level3: 1 ,200 min./300 SMS/ 1 GB data

Level2: 4 50 min./300 SMS

Level1: 1 50 min./no data

SURVEY:PERCEPTIONOFCELLPHONESERVICESINCANADA

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Cost ofcellShoneSlans hasd aecresedinthelast threeyears

Agree Neither Disagree Strongly disagree

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statements usingascaleofonetofive

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22% 24 26 14 1 2

8% 8 17 18 40

INTERNATIONALMOBILEPRICECOMPARISON,2018

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FROM B1

In response, the Beaudoin family, which controls Bombardier

through a dual-share structure, spun out the recreational ve-

hicle division and its supposedly cyclical results to focus on

just two divisions, trains and planes.

Getting rid of Ski-Doos is sort of the sensible strategy

taught in Harvard Business School. Can’t you hear a professor

explaining dabbling in luxury goods is to be avoided, while an

enterprise that generates dependable cash flow from a single

business, such as making trains, is to be embraced?

How did the Ski-Doo spin work out? Well, the Beaudoin

clan and private equity firm Bain Capital bought the division

for $1.23-billion 17 years ago. They rolled out new product

lines, including three-wheeled motorbikes called Spyders,

and shifted manufacturing to Mexico. In 2013, the recreation-

al vehicle maker went public as BRP Inc.

While the stock price bounced around over the past seven

years, reflecting shifts in consumer spending, BRP shares are

up threefold since the initial public offering, making this a

huge win for investors. BRP now sports a market capitaliza-

tion of $6.7-billion; the company is 50 per cent more valuable

than Bombardier. Which tells you the Beaudoin offspring,

and the managers they hire, know something about selling

expensive toys to wealthy customers.

Can Bombardier chief executive Alain Bellemare replicate

the success of BRP? That’s certain-

ly the goal. Mr. Bellemare is an

aerospace veteran. He was hired

in 2015 to oversee a turnaround.

The job featured two major chal-

lenges: Paying down debt that ran

to more than US$9-billion and fo-

cusing Bombardier on what it

does best. Both problems may

have finally been solved by the Al-

stom deal.

Going forward, Bombardier

will be a business-jet maker with

an industry-leading US$14.4-billion backlog of orders. The

company will introduce new products, in the form of larger

planes with greater range. Mr. Bellemare will expand a servic-

ing business that kicks off dependable cash flow by keeping a

fleet of more than 4,800 existing Bombardier jets in the air.

Alstom, on the other hand, will shoulder responsibility for

fixing a trains business that has been plagued by cost over-

runs and missed deadlines in recent years. The headaches

that come with dealing with a Bombardier factory in Thunder

Bay that laid off 550 employees in November – half its work

force – are now a Paris-based CEO’s problem.

The path forward won’t be easy. Mr. Bellemare may need to

do one more significant deal to pay down more of Bombar-

dier’s US$2.5-billion remaining debt, such as landing in an in-

vestment from a private equity fund. He must deal with com-

petitors such as Gulfstream and Cessna that are part of larger

aerospace conglomerates. When the next economic down-

turn comes, as it surely will, Bombardier’s faith in demand for

corporate jets will be tested.

However, on Monday, Mr. Bellemare finally shed the bulk

of the debt left over from the company’s ill-fated foray into

commercial aircraft manufacturing. The Alstom deal signals

that five years after he arrived, Mr. Bellemare has determined

that going forward, this company makes business jets and

that’s it. For Bombardier, the runway is finally clear.

Willis:Bombardier

has$14.4-billionbacklog

ofbusiness-jetorders

FROM B1

[BombardierCEO

Alain]Bellemare

mayneedtodoone

moresignificantdeal

topaydownmore

ofBombardier’s

US$2.5-billion

remainingdebt.

The review’s expert panel, led by telecom lawyer Janet Yale,

recommended imposing conditions on tech giants related to

the amount of money they spend in Canada and how easy it

would be to discover Canadian content on their platforms.

Reynolds Mastin, who heads the industry group that rep-

resents independent content creators, said that federal regu-

lators need to play an active role.

“It’s about the future of the entire industry,” said Mr. Mas-

tin, president of the Canadian Media Producers Association.

“It’s not about any one particular streamer or studio. That’s

why we encouragethe government to have as many tools

available as possible so that we have flexibility in a new-and-

improved Broadcasting Act that can adapt to this fast-chang-

ing, dynamic market.”

In its submission to the expert panel, Google Canada sug-

gested that the new regulations should take into account the

business models of the different platforms. For instance,

while Netflix Inc. actively commissions shows, YouTube pro-

vides a platform for any user to upload content – which

would make it tricky to track, let alone guarantee, a certain

amount of Canadian content.

“We’re deeply committed to

the Canadian creator ecosystem

and look forward to working col-

laboratively with thegovernment

and industry,” Google spokeswo-

man Maria Cortellucci said in a

statement to The Globe and Mail.

The danger to the federal gov-

ernment would be that the regu-

lations could be so stringent that

the companies could pull one or

more products out of Canada, rather than live with the new

law. For example, when the federal Liberals changed the elec-

tions law before the 2019 vote, companies adapted in con-

trasting ways. Facebook Inc. introduced new transparency

tools in Canada to fulfill its obligations, while Google decided

it would ban political ads on its sites in the country so it

wouldn’t have to deal with the new rules.

While the Heritage Ministry works with tech giants on cul-

tural policy, the Finance Department is moving ahead in oth-

er areas. The federal government is expected to announce in

its coming budget that it will require foreign-owned digital

companies to collect and remit federal sales tax on their ser-

vices. Quebec and Saskatchewan recently required the same

for provincial sales taxes.

Finance Minister Bill Morneau has said that thegovern-

ment will wait on imposing any extra corporate taxes on the

tech companies until after Organization of Economic Co-op-

eration and Development countries come to an agreement

on how to tax international companies that operate outside

the country in which they are based.

The minority Liberal government will require the support

of one of the opposition parties to pass the CRTC legislation.

Both the Bloc Québécois and the NDP have called for high-

er taxes on the tech companies. “If Mr. Guilbeault really

wants to help our industries, he and the Liberals can work

with us to make sure that web giants pay their fair share,”

NDP MP Alexandre Boulerice said.

The Conservatives did not respond to a request for com-

ment.

CRTC:BlocQuébécois,

NDPhavecalledforhigher

taxesontechcompanies

FROM B1

TheminorityLiberal

governmentwill

requirethesupport

ofoneofthe

oppositionparties

topasstheCRTC

legislation.

Apple Inc.said on Monday that
it will not meet its revenue
guidance for the March quarter
owing to the coronavirus out-
break affecting both production
and demand in China.
The company said that de-
spite the fact that its production
facilities in China have re-
opened, they are ramping up
slower than expected.
The company had forecast
US$63-billion to US$67-billion in
revenue for the quarter ending

in March, ahead of estimates of

US$62.4-billion.

Apple said that supply for its

iPhones will be “temporarily

constrained” as manufacturing

facilities in China are still not

operating at full capacity. Sales

of iPhones were up for the first

time in a year in the December

quarter. It also said that store

disruptions have affected its

sales in China, with most stores

either closed or operating at

reduced hours.

The outbreak is expected to

pile pressure on China’s econo-

my with companies struggling to

restart production after an

extended new year holiday as

supply chains from the car

industry to smartphones remain

disrupted.

Analysts have estimated that

the virus may slash demand for

smartphones by half in the first

quarter in China, the world’s

biggest market for smartphones.

REUTERS

APPLESAYSITWON’TMEETQUARTERLYREVENUEGUIDANCEBECAUSEOFVIRUSOUTBREAK