The percentage of wireless only households in Canada had risen to 13.7% by the end of 2010, representing nearly 1.9 million households.  The incidence of wireless only is highest among households made up of younger adults (aged 18-34) and those who rent.  One-half of younger households were wireless only in 2010, up from 34% in 2008, while renters continued to account for one-third of all wireless only households.  It is also interesting to note that Vancouver and Victoria had the highest incidence of wireless only households in 2010, at 21.7% and 20.5%, respectively.  

An additional 1.8% of households reported having a wireline phone that was used only for business, computer or fax purposes.  This suggests that the number of households that rely on wireless only for residential purposes is more than 15%.

The growth in wireless only households in Canada was accompanied by a continued decline in the number of wireline connections.  As noted previously, local wireline connections peaked in Canada in 2006 at 21 million, based on CRTC statistics. As of 2010, 1 million wireline connections had disappeared, even as the number of households increased. The number of wireless subscriptions outnumbered wireline by 5.8 million.

Source: CRTC, Communications Monitoring Reports

The trend in wireless substitution is even stronger in the United States.  According to data published by the Centers for Disease Control and Prevention, 29.7% of all U.S. households were reported to be wireless only as of the close of 2010, up five percentage points from the previous year.  An additional 15.7% of U.S. households relied on their wireless phones for all or almost all of their calls.  These two groups of households account for more than 45% of all U.S. households. 

Canadian trends in wireless substitution appear to be following the same pattern as in the United States, with a delay of a few years.  

The accelerated shift to wireless that occurred south of the border in 2010 could have been due in part to economic pressures that may not occur to the same degree in Canada.  Even still, U.S. trends suggest Canadian wireless only households could reach 30% by 2014.  

The increasing functionality of wireless devices could drive wireless substitution at a faster pace.  Improvements in mobile networks and the growth in applications on smartphones are key contributors, as noted in our observation last year, and echoed in the CRTC’s second report on Navigating Convergence.

*This analysis is based on Statistics Canada Microdata file the Residential Telephone Service Survey which contains anonymized data collected in the 2010 Residential Telephone Service Survey. All computations on these microdata were prepared by Suzanne Blackwell and the responsibility for the use and interpretation of these data is entirely that of the author.

The OECD report accompanying the press release has more information and it is worth taking a closer look.

First, the data given in the press release is a simple average of all the data rates that apply when roaming in each of the 34 OECD countries. If there are a few countries where data roaming rates are high, this will push up the average even if these are not frequent destinations for Canadians.  A proper comparison would have weighted the prices by relative volumes or value for each destination. This information was not available for the OECD report.

Most Canadian travellers visit only a handful of countries and the vast majority of our visits – more than 70% in 2009 – are to the United States. (Statistics Canada provides a list of the top 15 countries.)  A simple average of all the rates does not match this reality.

Second, the press release comparison is based on using a single MB. Data usage on most mobile devices is considerably higher.  For example, Cisco recently reported that data usage across all mobile devices in Canada averaged 4 Petabytes per month in 2010. This equates to 4 trillion MB per month. Compared to the 5.7 million mobile broadband subscribers in Canada, the average mobile broadband subscriber consumes more than 750 MB of data each month, or about 25 MB daily. Undoubtedly, only a fraction of that would be outside of Canada, but it gives an order of magnitude of typical daily use.

Third, the press release also focused on prices for a single user-initiated data session, within one day.  The travel information provided by Statistics Canada referenced above indicates that Canadian visits to other countries typically last at least one week.  A price comparison based on use within one session or day does not match reality. While the prices for Canada plans do not vary if the use occurs within one session or multiple sessions, there are significant differences in other countries (notably Japan).

In fact, the detailed OECD report included fees for data usage that allows us to overcome all the shortcomings of the press release comparison. There are prices for the least expensive destination - also the most popular destinations; for higher levels of usage (5 MB and 20 MB); and with usage spread over multiple sessions during a week or month. It is illuminating to consider the results of the price comparison based on these scenarios.

The following chart compares Canada to the other G7 countries and the OECD average for the 5 MB and 20 MB prices.

All prices are in U.S. dollars converted to Purchasing Power Parity.

Canada has the second cheapest price for the 5 MB usage and the least expensive for those using 20 MB over multiple sessions among the G7 countries.  

Compared to all the OECD countries, Canada ranked seventh in terms of lowest price for the 20 MB plan. Canada’s prices came in 13^th place for the 5 MB plan, but in a virtual tie with the five countries that placed ahead of Canada.  

Canada’s mobile data roaming prices are not as far out of line as the OECD press release would have us believe. At least, not when doing the comparisons based on more realistic scenarios.

In 2009, 80% of Canadians were going online, 77% using a connection at home. 70% of Canadians surveyed reported having a high speed connection at home.  These findings are from Statistics Canada’s Canadian Internet Use Survey, which collected data from 23,000 Canadians.

The results of the survey were released in May and included a number of interesting results. A paper presented by Statistics Canada staff at a recent conference included some further analysis. 

Among the more interesting illustrations are two that show a dramatic increase from 2007 to 2009 in the rate of adoption of high speed internet by economic regions.

In just two years, several additional economic regions had at least 70% of the population using a high speed internet connection from home.

A complement to the survey data is found in the information published by the CRTC as part of its annual Communications Monitoring Report. 

The CRTC relies mainly on data reported by internet service providers to measure the number of residential internet subscriptions.  This information can be compared to total household counts to gauge penetration rates by household, rather than population. It also has more detailed information on the type or speed of internet connection.

The following chart shows the distribution of internet connections among Canadian households.

Source: CRTC CMR 2010, Table 5.3.3 and page 137.Source: CRTC CMR 2010, Table 5.3.3 and page 137.

This information generally corroborates the Statistics Canada population surveys, indicating about 76% of households with a connection, compared to 77% reported by Statistics Canada.  The CRTC subscriber data also indicates 72% with a high-speed connection, slightly higher than the 70% of Canadians in the Statistics Canada survey.

The CRTC subscriber data also indicates that 62% of Canadian households have a broadband connection (defined as at least 1.5 Mbps downstream). More striking is the fact that 45% of all homes, or nearly one-half, have a broadband connection of 5 Mbps or greater.

The adoption of broadband internet among the population may be a popular metric for gauging success. However, the availability of broadband internet has been the focus of most government initiatives, both in Canada and elsewhere.

The reality is that adoption continues to lag availability by a considerable margin. According to the CRTC data, broadband internet is available to 95% of households in Canada, excluding services available from satellite.

Nationally, 38% of households do not subscribe to broadband internet, which is more than seven times the proportion of households that lack access to such service.

In terms of rural communities, broadband is available to 84% of households, compared to 100% in urban.  However, the gap between availability and adoption is not that different between the two regions. Data on urban versus rural adoption is for high-speed connections rather than broadband but still suggests a gap of more than 30 percentage points in either case.

Provincial breakdowns between broadband availability and adoption indicate a similar pattern, with the gap ranging from a low of 17 percentage points in the North (which also has the lowest level of availability) to a high of 42 percentage points in New Brunswick, where broadband is reported to be available to all households. 

Source: CRTC CMR 2010, Figure 5.3.7

The availability statistics are based on primarily wireline broadband technologies. Recent announcements related to mobile and satellite technologies have the potential to make broadband connections availability to all households. 

However, the Canadian experience to date indicates that other steps are needed to close the gap between adoption and availability. More research on the barriers to adoption that are not related to availability would be welcome.

Statistics Canada reported that about 8% of Canadian households had wireless as the only telephone service in the home in 2008. This is up from 5% in 2005.  Another 74% of households had at least one wireless subscriber.

Other surveys indicate that the incidence of wireless only households has continued to grow. IDC Canada reported in June 2009 that 11.6% of Canadian consumers use wireless as their only phone service. By June 2010, another 4% had joined their ranks, bringing the total to 15.6%, according to IDC Canada's latest survey.  This equates to almost 12% wireless only households when adjusted for the proportion of Canadian households with a wireless phone.

The rise in wireless only households has been accompanied by a decline in wireline subscribers. Local wireline connections peaked in Canada in 2006 at 21 million, based on CRTC statistics. Three years later, there were 650,000 fewer wireline connections. Wireless subscriptions now surpass wireline, reaching almost 24 million in 2009.

Source: CRTC, Communications Monitoring Reports

There is evidence that the rate of substitution of wireless over wireline is going to continue to ramp up.  The IDC Canada survey released in June 2010 found that the percentage of Canadians who are thinking about going wireless only is 14% higher in 2010 than in 2009. 

At some point, it may become normal to expect to reach most people via a wireless connection rather than wireline. This point may already be within sight in the United States where one in four households had already switched to wireless only in 2009, according to data published by the Centers for Disease Control and Prevention. An additional 15% of U.S. households relied on their wireless phones for all or almost all of their calls. Combined, 40% of U.S. households fall into the categories of wireless-only or “wireless-mostly”.

Canadian trends in wireless only have tended to track those of the United States with about a three year lag. Canadian wireless only households could reach 25% in 2012, based on patterns in the U.S. 

The proportion of Canadian households expected to be wireless-only is forecast to reach 28% by 2014, according Convergence Consulting Group, as indicated in a chart published in the print version of the Globe and Mail's Report on Business for September 20, 2010 (page B3). 

Is it possible that one-third of Canadian households will be wireless only within the next five years? One major driver is the rapid rate at which wireless services and devices are adding new functionality and therefore becoming more highly valued compared to a wireline service.

Wireless service and devices offer an increasing range of advantages over wireline, far beyond just mobility.  They enable a whole range of communication tools: text/picture/video messages and emails, as well as the ability to stay in contact with social media and access the web on the go. Wireless phone can also be used to watch videos, listen to music and access multitudes of applications including location-based applications.

As more consumers subscribe to wireless services and advanced features, it will spur growth among an ever-widening circle of contacts.  The substitution effect will accelerate further with shifts in the relative prices and further enhancements in wireless devices.

Canada’s ranking according to the Berkman Center’s report gives the impression that broadband service is relatively poor in this country.  However, closer examination of key indicators shows that Canada’s results are not substantially behind many of those in the top tier. 

Canada’s broadband penetration is within a few percentage points of the top three countries, particularly when household penetration rather than per capita measures are used. 

Canada’s broadband service delivered download speeds that are within 1.5 Mbps of the fastest countries (after Japan and South Korea), as measured by Akamai’s “State of the Internet”, as noted in the previous observation. 

Canada’s broadband service prices, at least for cable modem services, compare favourably with those in highly-ranked countries such as Denmark and the Netherlands, as shown in the following chart taken from a recent submission by the Canadian cable companies.

As was noted in an observation posted after the draft report was released, the Berkman Center’s rankings were based on penetration (service adoption), speeds and prices.  The final version fixed some aspects that were problematic in the draft report but the vast majority of the indicators remain unchanged for Canada. 

First, more data on prices was incorporated from a new source – Point Topic that included more recent price information from mid-2009 and, in Canada’s case, prices for services with speeds greater than 35 Mbps that had not been used for the rankings in the draft report.

Second, it abandoned the practice of assigning a last place score for any indicator for which there was no data available. 

Taken together, these changes had the greatest impact on Canada’s ranking on relative price of broadband service, which improved from 25^th to 19^th. 

However, Canada’s ranking on price remains biased downwards because the Berkman Center continued to rely heavily on OECD data, which has flaws as previously discussed. In addition, it excluded pricing information from all but the top four service providers.  In response to an earlier critique posted here, the Berkman Center stated at footnote 57 that it only looks at the top four providers and in doing so it excluded Vidéotron. 

The rationale for taking data for the top four might be justified in countries where there is a legacy of a single national provider (often formerly government-owned) and competitors that rely on national access to that provider’s infrastructure and/or are affiliates of incumbent providers in other countries.  However, in Canada, the market is mainly served by regional providers facing different market conditions that can affect the price and services offered.  These are not “smaller, more marginal providers, who might be small providers in uncompetitive remote markets or who are not well known to customers” as stated in the Berkman Center report.

Including only the top four providers in Canada excludes more than 30% of the market based on subscriber numbers. In fact, recent reports of subscriber numbers suggest that Vidéotron has edged out TELUS for fourth place.  Interestingly, the Berkman Center appeared to have calculated the price of broadband based on the top five providers as noted at footnotes 58 and 226 and found that the prices for Canada decreased as a result.  If these results had been incorporated into the analysis, it is likely that Canada’s ranking would have improved further.

The other notable change was the addition of an indicator for average download speed achieved based on Akamai’s “State of the Internet”.  However, this data was blended with the same data from the draft that used the flawed OECD data on advertised speeds and Speedtest.net’s data on user-generated speeds (see discussion here).  Interestingly, adding the one indicator from Akamai improved Canada’s ranking from 20^th to 17^th on service speed.  Even more significantly, this was based on Akamai’s “State of the Internet” report from the fourth quarter of 2008 when Canada ranked 13^th among OECD countries.  The most recent report indicated Canada ranked 10^th. 

Akamai’s “State of the Internet” report for the third quarter of 2009 reported that the average achieved speed was 4.25 Mbps downstream for wireline internet connections in Canada.

Most OECD countries were reported to be delivering similar speeds, with the exception of South Korea and Japan.  Sweden ranked third after these two countires, with an average speed of 5.7 Mbps, only 1.5 Mbps greater than the average in Canada.  As shown in the chart below, several countries achieved speeds in the 4 to 6 Mbps range.  Most users would find little difference in their internet experience within this range.

Canada’s average speed of 4.25 Mbps downstream reflects the types of services to which consumers subscribe.  If the bulk of subscriptions are concentrated among tiers of service with maximum speeds of 5 Mbps, then the achieved speed will tend to be closer to that, regardless of the potential speeds of the fastest service tiers.  In 2008, more than 40% of Canadian subscribers used a service with advertised speeds of less than 5 Mbps.

Further details from the Akamai report indicated that 77% of internet connections in Canada achieved speeds of at least 2 Mbps or greater and 24% were at 5 Mbps or greater.  Canada ranked tenth in terms of high broadband (5 Mbps or greater) connections per capita.

Most of the growth was due to higher revenues from non-programming services, which increased by 24%.  Subscriber growth is likely the primary driver, with internet subscribers up more than 6%; and telephony subscribers up 23% between the third quarter of 2008 and 2009, as indicated in the four companies’ quarterly financial reports. 

Video services revenues increased by 7%.  A small portion of the increase can be attributed to subscriber gains of 1.4% - which is consistent with normal household growth.  Another source of the increase comes from subscribers adding digital services and related equipment (personal video recorders, high-definition set-top boxes).  Increases in the prices for video services account for some of the gains as well.

The faster growth in non-programming services has boosted these services to about 45% of the total revenues earned by the large cable operators.  Current trends indicate that these services could become the predominant source of revenues within the next couple of years.

Non-programming services already account for about two-thirds of operating income.  The higher operating income for these services is due to much lower operating expenses, which account for only about 25% of the total.  Non-programming services do not require expenditures on community channel or programming content (affiliation fees), which together account for 37% of cable operators’ total operating expenses.

There are a few gaps in the data publicly released for the cable operators that require some estimates to derive the profit before interest and taxes (PBIT) for the video programming and non-programming segments, respectively.  An allocation of the depreciation expense is necessary to determine the PBIT for video only services.  Information filed in a recent CRTC proceeding, combined with historical data, supports an allocation of about 65%.  

This analysis indicates the large cable operators earned PBIT from video services of less than $250 million – about 10% of the total profits before interest and taxes.

The following chart provides a comparison of the revenues and profits (PBIT) for video programming and internet & telephony services of the four large cable operators in 2009.

CTVglobemedia Inc. and Canwest Media Inc. – the two largest private OTA broadcasters – filed results indicating year-over-year ad revenue decreases of 6% and 9%, respectively. 

At the same time that broadcasters experienced decreased advertising revenues, CTV and Canwest increased programming expenditures by 5% and 8%, respectively.  Since programming expenditures represent some 80% of their total operating expenses, it is difficult to offset the decline in revenues through cuts in other expenses.

Expenditures on foreign programming increased, while those on Canadian programming decreased.  This widened the spending gap between foreign and Canadian programming expenditures.  In 2009, CTV spent $1.82 on foreign programming for every dollar spent on Canadian, while Canwest spent $2.12 on foreign programming for every dollar spent on Canadian. The chart below illustrates the relative levels of programming spending for each company in 2008 and 2009.

Canada’s main public broadcasters, CBC, continued to spend the vast majority of its programming budget on Canadian content.  However, CBC's English language stations also increased spending on foreign programming, from $26 million in 2008 to almost $40 million in 2009 - an increase of 52%.

There is much to be learned from the growing body of international comparisons, including the Berkman Center Broadband Report.  Unfortunately, for Canada, many will put too much emphasis on a few select rankings from the Report without taking the time to consider how these were derived. 

As noted in the previous post to this website, the report Lagging or Leading, The state of Canada’s broadband infrastructure, covered similar territory and looked at many of the same sources for data.  The Berkman Center’s rankings were based on penetration (service adoption), speeds and prices – all factors considered in Lagging or Leading. And yet the Berkman Center Broadband Report found Canada ranked 22^nd out of 30 – towards the bottom of the pack.

The Berkman Center relied extensively on OECD data for a number of its comparisons.  It used OECD data on broadband penetration per 100 population as a key input.  However, as noted in Lagging or Leading, this measure is biased against countries such as Canada.  The Berkman Center Broadband Report also included penetration per household but relied on older OECD data where Canada ranked 8^th even though more recent international comparisons where Canada ranked as high as 5^th (see Lagging or Leading, Table 4.2.2).

The Berkman Center incorporated into its ranking data on the penetration of 3G mobile services.  Canada was reported to have a very low level of 3G subscribers per 100 population – less than 10%.  There are two concerns with this data point.  First, Canada and the United States do not compare well on measures of mobile penetration per 100 population because subscribers in these countries generally do not have multiple accounts (or SIMs).  The Berkman Center Broadband Report acknowledged this difference yet did not make any adjustments.  Second, Canada’s very low ranking on 3G penetration is not consistent with the fact that the service is available to 91% of the population, as noted in the CRTC Communications Monitoring Report.  Since the Berkman Center’s ranking assigns a 30% weight to this indicator, Canada’s overall ranking on penetration is pulled down.

The Berkman Center next turned to measures of broadband service speeds where OECD data once again played a significant role, accounting for one-half of the country rankings for this indicator.  As noted previously on this website, the OECD rankings on speeds are not reliable.  In the case of Canada, the OECD relied on only 16 observations and, among those, significantly under represented higher service levels and over represented lower service levels.  The OECD relied on many more observations for most other countries, with some countries' lists including duplicate services for these higher speeds.  

The Berkman Center made some effort to address the multiple and duplicate offerings for its analysis of service prices among the 30 countries.  It supplemented the OECD observations with its own analysis of advertised service prices.  Some of these included higher speed services available in Canada, as noted in Figure 4.15 of its Broadband Report.  Yet, none of these observations were included for the speed comparisons.

The other components of the Berkman Center Broadband Report rankings on speed were drawn from results of user-generated tests of achieved throughput speeds and latency conducted using Speedtest.net.  It was acknowledged that this data has “several confounding factors that [require] we interpret the data with caution,” and the results on latency “produced very counterintuitive results”.  Yet, the resulting rankings from this data accounted for the other half of the countries’ rankings on speed.  Concerns respecting the use of data from Speedtest.net were discussed previously on this website.

Prices composed the third aspect of the Berkman Center Broadband Report on international comparisons.  The OECD data on prices figured prominently here as well, accounting for one-half of the overall price ranking.  As noted, the Berkman Center took additional measures to update and expand the OECD pricing data to derive new rankings based on the price across different levels of service.  In each case, Canada’s ranking improved by four to six places. 

While the steps taken to improve the pricing data were helpful, it is curious why the Berkman Center decided to create its overall ranking on price based on both the OECD price observations and a combination of the OECD and its own updated and expanded data.  The latter would, for the most part, encompass the former observations so there is no reason to use both.  In the case of Canada, using both sets of price rankings pulls Canada down in the rankings. 

The other significant factor affecting Canada is the exclusion of very high speed services (download speeds of at least 35 Mbps), notwithstanding the fact that Figure 4.15 of the Berkman Center Broadband Report clearly indicates that it had price data from Canada for such services.  Because this data was ignored, Canada was assigned a nominal ranking of 30 out of 30 for this category.  And because the OECD also failed to include any such services from Canada, this very poor ranking was double-counted. 

The Berkman Center Broadband Report does not do justice to Canada’s broadband performance because of these missteps.  Compounding this is the Report’s heavy reliance on OECD data that have serious methodological problems and biases that weigh against Canada.  Since the Report is only in draft form and is being review by the Federal Communications Commission, perhaps some of these concerns will be addressed.

This extensive report (tipping the scales at 100+ pages) provides a wealth of information on the country’s broadband infrastructure, how it developed and where it stands relative to other countries. 

Highlights of the numerous statistics include:

• Some 70% of Canadian households have adopted broadband services, an 8^th place ranking among OECD countries;
• 94% of Canadian households can access broadband services based on wireline – with a high degree of overlap between DSL and cable facilities, while virtually all households can subscribe to wireless (e.g., satellite) broadband;

• Canada has among the least expensive broadband entry-level service offers – second only to the United States according to the International Telecommunications Union (ITU);
• The proportion of Canada’s internet connections of 5 Mbps or greater reached 27% in the second quarter of 2009, according to Akamai Technologies Inc.; putting Canada in 10^th place among the more than 200 countries studied;

• Canada achieved 7^th place on the LECG/Nokia Siemens Networks Connectivity Scorecard and 9^th place on the Economist/IBM E-Readiness index, measures that combine multiple indicators of internet infrastructure and use.

Frequently cited OECD results on the relative price and speed of broadband services are not reliable because of methodological problems discussed previously on this site and as noted in the report. 

The report also notes:

"To be constructive in our own analysis, we have focused on the broader issues rather than any particular piece of research. In that regard, to help simplify the overwhelming amount of research that is available, we want to focus on answering a few simple, yet key questions:

1.         Is broadband available to Canadians? If not, why not?

2.         If it is available, do Canadians adopt the technology? If not, why not?

International comparisons can help us understand whether we lag or lead in terms of availability or adoption, but it is these questions that should be the focus of debate."

This new report provides a strong foundation on which to move the debate forward.