Canadians Pay Extra For Their Wireless Hardware

Todd Alivoy writes "Looks like Canadian wireless subscribers have been getting hosed when looking to get new hardware. This isn't the first time Canadian carriers have managed to charge far more than thier US conterparts for the same services. Anyone up there know why? It sure isn't the exchange rates." The linked article shows the price disparity for 14 phones available in both markets.

Comments

Basic economics...

[WIAKywbfatw]

More competition = lower prices. Less competition = higher prices. (Duh.)

Also:

More customers = lower prices. Fewer customers = higher prices. (Less overhead per customer.)

Simple

[dolo666]

Canada is much bigger than the states, but with far less people. The cost of having towers running is a nobrainer.

Re:Simple

[ergo98]

Canada is much bigger than the states...

Only barely, and this comes up in the next point... ...but with far less people

It's a common misconception of Canada that we're vastly spread out evenly across 10 million square kilometers. In reality the vast majority of us are clustered in a couple of relatively (I mean relative to Canada, although still quite huge compared to most nations) small areas. Outside of this it's sparsely distributed settlements, often related to natural resources, throughout the rest.

For instance Rogers claims "Our digital TDMA and Analog cellular phone network covers up to 93% of the Canadian population with over 85% digital coverage.". I suspect that 93% of Canadians live in (far) less than 10% of the land mass.

Re:Simple

[Anonymous Coward]

That is a good point, but what does making a phone have to do with maintaing the service towers?

Everything. A cellphone being sold with a service package has much of the cost of the phone bundled in the term of the contract. For example, a $50 US phone does not *cost* $49 (or less) - it probably costs much more than $49, but a portion of the cost of the phone is amortized across the term of the contract. Let's say that amount is $10 per month (nice round numbers) for a two-year contract.

We did that because the phone actually cost us $180. We're going to make $240 over 24 months on the $10 amount, plus the initial $50. While it sounds like we did fine making $290 for a $180 phone, there's a good amount of self-insurance cost (people that break phones and want another without paying the real $180), there's financing costs, and other costs that factor in here.

Our service rate is $50/month gross, so after phone costs of $10, there's $40/month left for the basic service.

Here's where the Canada problem enters. In the US, there are many more subscribers per cell - greater density that we can distribute fixed costs (towers, facilities, backoffice, etc.) over a much larger base. Assuming our $50 per month price, the fixed costs in Canada eat up much more of that $50 than they do in the US. This leaves much less room for things like phone internal financing. So we have to charge a up-front price that more closely reflects the cost of the equipment - Canadian customers (we hope) should just be happy to have service.

I'd personally argue that if they're looking for greater densities, charging a higher nonrecurring fee is a bad way to approach this. High initial costs only prevent people from becoming your customer. But perhaps there are competitive issues in Canada per what the market expects from a monthly rate that don't let them push the Canadian costs into that category.

Carrier subsidies

[Anonymous Coward]

It has a lot more to do with carrier subsidies for the phones. Most countries in the world don't have the same system that we do in the US, where your phone will only work on the network of the carrier that sold it to you.

When a carrier gives you a discount on a phone, it makes a bet that writing off part of the cost of the phone will pay off with the contract you have to sign to use the phone on their network.

Since GSM is now fairly prevelant in the US, I've taken to buying my phones and using whatever carrier I want (ok - there are only 3 choice right now) and allows me to use my unlocked phone with any carrier around the world, as long as my phone uses a frequency that is used in that country. Hence, I have 3 very high tech phones that I can choose between, depending on what I'm doing and where I am.

That's what mobility is all about.

My guess

[jasonditz]

The higher corporate tax rate and heavy regulation of Canada is encouraging these companies to pass the added expenses on to the customer.

That or there is some form of protectionist tariff designed to protect domestic telecom hardware.

It can't be a question of the companies just overcharging, if they were someone could undercut everyone else and drive them out of business.

Think Economics 1 Folks!

[Anonymous Coward]

You don't think that this disparity is because of the ability of these companies to differentiate the cost legitimately? There is large fixed cost to be amortized in providing wireless infrastucture over such a large country, with such low population density.

Here in Vermont we have the same problem with electricity - it costs a lot when you have few customers per mile of wire (or even wireless miles). For the national utilities (like Verizon Wireless and the wired long distance carriers) they lose money on rural areas in order to provide the same bundle to all customers within the country. In rural Alaska all your long-distance calls come over satellite to ground stations that might serve 1000 people who are paying 6.2 cents a minute for long-distance!!!

Always look for a rational reason before you complain too much about conspiracies.

Intense competition in the US, and economic forces

[ComputerSlicer23]

Well, in the US, most of the people who get cell phone plans, couldn't afford the hardware. Thus, some of the price is rolled into the 2 year contract that you have to pay an additional 150-300 dollars to get out of early.

Most of the people I know who have Cell phones, couldn't afford $500 CDN, and pay more for minutes. Cell phone companies are trying to bring in new users, so they sell the phones cheap, figuring they'll make it up over time while they make a profit on the service.

Second, the US market probably has more cell phones in the top 20-40 markets then Canada has people period. So a lot of fixed costs have to be amortized over fewer people in Canada.

Finally, everything the in US wireless market appears to be about taking it in the shorts to gain market share, and to gain volume, to drive prices down. So they are investing (read losing their shirts) tons, and tons of money, trying to steal customers away from the other carriers, and make money on slim margins. Where as the Canadian market appears to be trying to sustain profitability at a much smaller volume. This means that Canadian service is probably a much better investment (from a business perspective). 5-10 years ago, cell service was a lot more expensive down here then it is now. Pricing for service is probably about the same. Not sure about the phone pricing.

Kirby

Re:Question:

[Txiasaeia]

How long is a piece of string? You can get "pay as you go" phones that cost a lot upfront (upwards $200) with no monthly fees, or sign up for a free phone and get a plan for $20-30/mo (plus taxes, surcharges --> $45/mo) for 1-2 years. It all depends.

Wow..

[mindstrm]

You mean, the same things in different countries have different prices?

What a stunning observation.

Canada is not the US. You will find a great many things where prices are not the same, some higher, some lower, sometimes by a lot either way.

Re:50lu710n

[jangell]

You don't think that this disparity is because of the ability of these companies to differentiate the cost legitimately? There is large fixed cost to be amortized in providing wireless infrastucture over such a large country, with such low population density.

Here in Vermont we have the same problem with electricity - it costs a lot when you have few customers per mile of wire (or even wireless miles). For the national utilities (like Verizon Wireless and the wired long distance carriers) they lose money on rural areas in order to provide the same bundle to all customers within the country. In rural Alaska all your long-distance calls come over satellite to ground stations that might serve 1000 people who are paying 6.2 cents a minute for long-distance!!!

Always look for a rational reason before you complain too much about conspiracies.

Canada doesn't have the McCaws...

[barfy]

There is one and only one reason that phones are so cheap in the States. (It isn't that they are more expensive in Canada).

Craig McCaw and bro's changed the rules of cellular in the United States. There belief was that it was "the subscriber" uber alles. That all else would just follow. In other words, you have to give away the expensive phones to get the subscriber. A large part of the cellular network has been paid on the backs of investors and lenders in Bankruptcy court, and the McCaws made billions selling out to ATT while the getting was good.

It is going to be more difficult to get new players (capital) to play the same game and risk that kind of capital that would likely be lost in a massive buildup of customers. Canada, just doesn't have a McCaw to rock the boat, and force everyone to play a different game. They do have Canadian Tire money though!

It's not based on country

[X]

I checked the price for the 270 here in Los Angeles: $349.99 + a $100 rebate. That works out to $446.51 CDN + $127.55 CDN rebate. Sounds like the Rogers deal is pretty good by comparison.

The moral of the story: cell phone deals are *very* regional, and while you might be able to get a great deal in one town, you won't find such a great one elsewhere. It has nothing to do with which country you are in.