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The bottom line on wireless roaming rates

Canadian carriers are raking it in thanks to high rates across the board, which includes roaming.

Last week saw the release of some statistics on wireless roaming prices that caused quite the stir. As usual, Canada came out looking like the worst of the bunch, with some of the highest rates in the developed world, according to the Organization for Economic Co-operation.

Some industry members and their defenders took to the usual tactics, which is to criticize the OECD’s methodology. Bell Canada, for one, said the Paris-based think tank’s report “selectively chose one ranking from a larger report that actually offers plenty of examples where Canadian roaming rates compare quite favourably internationally.”

Financial Post editor Terry Corcoran went into greater depth and explained how, as I’ve said before, statistics are indeed like a bikini (they reveal a lot but hide what’s most important). As he argued, if the stats are looked at a different way, Canada’s roaming rates are actually some of the lowest around.

But wait a second—what’s this about Telus agreeing with the OECD report? Indeed, as the Toronto Star reported: “‘We absolutely agree with the OECD’s findings,’ said Brent Johnston, vice-president of mobility marketing for Telus, referring to the report’s findings on prices. Canada lacked real competition in data roaming until 2009 when Rogers ceased to be the only company with the right technology, he noted.”

Michael Hennessy, Telus’s senior-vice president of regulatory and government affairs, expanded on that on Twitter, stating that while Telus disagrees with the OECD’s methodology, it does support the bottom line. The OECD report only counted the two biggest wireless carriers in each country and, with Telus being third, naturally its rates didn’t come into play. To further follow up, the company on Monday announced it was slashing its roaming rates by up to 60 per cent.

So, are Canada’s roaming rates—the money Canadian subscribers pay when using their phone abroad—higher than elsewhere? The answer is found in the bottom line, but before we get there, some anecdotes.

A few months ago, the producers of CBC Marketplace called me in to help out with their now-annual Canada’s Worst Cellphone Bill special, wherein they document the stories of some of the worst customer experiences they can find.

The producers had amassed thousands of submissions and needed help determining which were the absolute ugliest. The vast majority of complaints stemmed from astronomical roaming bills, where using a cellphone—particularly the data capabilities—resulted in hundreds or thousands of dollars owed (I remember there was one story about someone being in the hole for $60,000+). In almost every case, the customer said they simply had no idea that using their phone would rack up such huge charges. Many situations were also accidental, where customers didn’t know to turn off their data roaming.

I must admit that in helping cull the submissions, I wasn’t too sympathetic on the roaming cases. Most phones and carriers today provide some sorts of warnings, either through text messages or otherwise, that tell users they’ve crossed on to another network and that substantial charges can result. It’s probably safe to assume that in many of the submissions, users had simply ignored or overlooked such warnings. I was much more taken by the more heartless stories, such as the woman who was forced to pay off her dead husband’s early termination fee.

I also must admit to being considerably more educated on such issues. As such, I stress to everyone I know that they should buy an unlocked phone so they can pop in a local SIM card wherever they go and use local rates. I did just that last week in Los Angeles—I got a SIM card from T-Mobile for the grand total of $11, which gave me $25 of credit. Unlimited web access gobbled only $1.50 of that credit each day, so all of my needs were taken care of. For a measly $11.

Nevertheless, the majority of cellphone users don’t know they have such options and those thousands of stories contribute to some of the most solid wireless bottom lines in the world. I’ve written before about how Canadian carriers score very well on the Merrill Lynch Global Wireless Matrix, which measures just about every statistic, from minutes of use to percentage of revenue derived from data. The carriers don’t dispute these numbers—indeed, they tout them to investors as proof of how well they’re doing.

Click here to see latest Matrix I could find that is publicly available, from September 2010. Check out the key chart on page 2—as usual, Canadian carriers have the highest average revenue per user at $57.09 and the second highest profit margin at 46.4%.

Average revenue per user, or ARPU, is the wireless industry’s key figure since it measures how much money each customer brings in. It’s also at the heart of this roaming issue. The fact is roaming rates are high everywhere, including Europe, which in many cases is the main explanation for why some countries have high penetration rates. Greece, for example, has a penetration rate of 163%, which means that every person carries 1.6 cellphones—or more likely 1.6 cellphone SIM cards. Since Europe is so small, when a cellphone user from one country enters another, rather than pay high roaming rates, they just slip in a SIM card from the new country and take advantage of local rates.

This is the same rationale that Canadian carriers have used to explain their own higher ARPU. In other words, if multiple SIM card use in countries with penetration rates of over 100% is accounted for, Canada doesn’t look that bad. The list below, which counts ARPU as multiplied by penetration rates in countries where it is more than 100%, shows that to be absolutely false.

  • Australia $52.08
  • NZ $59.69
  • Singapore $47.05
  • Austria $38.09
  • Denmark $38.19
  • Finland $42.36
  • Germany $25.24
  • Greece $30.28
  • Italy $36.96
  • Netherlands $40.44
  • Norway $53.86
  • Portugal $28.69
  • Spain $34.98
  • Sweden $$38.87
  • Switzerland $55.53
  • UK $34.68

With multiple SIM cards factored in, only New Zealand carriers surpass their Canadian brethren in terms of ARPU. Put another way, it’s cheaper to use 1.6 phones in Greece than it is to use one in Canada. In Portugal, it’s almost cheaper to use three phones than one in Canada.

In the end, ARPU and roaming both add up to profit—and in that measure Canada is (almost) king. Only Italian wireless carriers make a higher relative profit from customers, according to Merrill Lynch. The bikini statistics can therefore be looked at from a hundred different perspectives but the bottom line is pretty indisputable: Canadian carriers are raking it in thanks to high rates across the board, which includes roaming.