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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.
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 is much bigger than the states...
...but with far less people
Only barely, and this comes up in the next point...
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.
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.