What is an MVNO? List and Status in Canada

Canadians benefit from a world-class wireless network, but pay very high prices for their cell phone plans. MVNOs are one of the proposed solutions to make phone plans more affordable in Canada.

What is an MVNO?

An Mobile Virtual Network Operator (MVNO) is a mobile service provider that does not own the physical network infrastructure (eg. cell towers) or wireless spectrum with which it provides services to customers. Instead, it enters into agreements to purchase access in bulk at wholesale prices from mobile network operators (MNO) such as Bell, Rogers and Telus and resells that access in cell phone plans to consumers.

There are two main types of MVNOs:

Light MVNOs/resellers

Light MVNOs (also known as thin MVNOs or branded resellers) only handle marketing, billing and payments, call centres and retail stores. They do not own or operate their own network software (core network) or physical networks.

Existing examples of MVNOs in Canada include Lucky Mobile (Bell), Fido (Rogers) and Koodo Mobile (Telus), however, they are owned by the network operators (Bell, Rogers, Telus), and so do little to improve market competition, increase consumer choice or lower prices.

Full MVNOs

Full MVNOs own and operate their own their own network software (core network), but do not own any physical network infrastructure. They are able to provide services with the same top-tier speeds and features (5G) as the major network operators. They are to phone plans what Teksavvy and Start.ca are for internet service.

dotmobile is the first one to be approved by the CRTC, but unfortunately, there are no full or independent MVNOs operating in Canada because the network operators refuse to provide wholesale access to their highest quality networks.

Mandating true wholesale MVNOs would force the Big 3 to open up their networks and sell access to other companies, increasing competition and lowering prices.

MNO vs MVNO vs reseller

Full/independent MVNO advantages

• Increasing competitive pressure on Big 3
• Applying moderate downward pressure on prices
• Incentivizing better customer service
• Incentivizing more innovative plans
• Incentivizing higher-tech and leaner service delivery systems

Full/independent MVNO disadvantages

• Potentially slowing network quality improvement investments by network operators such as 5G
• Lowering profits for Canadian network operators and their shareholders
• Possibly undermining growth and lower prices of regional carriers like Videotron and Sasktel
• Impacts in Canada cannot be conclusively predicted as our market is different than other countries

CRTC MVNO decision

In response to the federal government’s policy directive to the CRTC, requiring them to consider competition, affordability, consumer interests and innovation in all of its telecommunications decisions and demonstrate to Canadians that it has done so.

In response to the policy directive, the CRTC initiated a proceeding to review mobile wireless services in Canada, focusing on competition, the wholesale regulator framework and the future of mobile services.

On April 15, 2021 (Policy 2021-130), the CRTC mandated access for full MVNOs in Canada, but instead of opening the door fully by requiring network operators to sell access to both new startups and existing companies at set wholesale rates, they limited access to existing facilities-based providers only (eg. SaskTel, Vidéotron and Eastlink).

These providers must already own their own network infrastructure (taking the “V” for Virtual out of MVNO) and are only eligible to become MVNOs

• for a limited period of 7 years,
• if they negotiate rates directly with the Big 3, with arbitration provided by the CRTC after 90 days
• if they own spectrum in, or adjacent to, the areas where they want to operate as an MVNO AND
• if they intend to invest in physical infrastructure in those areas within 7 years (if they hope to continue selling services there after that period).

And as if that wasn’t already limiting and ineffective enough, the CRTC made this decision 9 days after the deadline for deposits for the $9 billion auction of 5G spectrum and before the Rogers acquisition of Shaw was finalized – two monumental shifts in the industry that will determine the competitive landscape for years to come.

Facilities-based vs wholesale MVNOs

What are facilities-based MVNOs?

Facilities-based MVNOs are regional service providers who own, operate and maintain their own network infrastructure and have invested in access to a portion of the wireless spectrum, but do not have wide or national coverage. They purchase bulk network access from network operators at wholesale rates to extend their coverage outside of their owned and operated network such as for roaming agreements. Examples include Vidéotron, Eastlink and Xplornet.

Under the facilities-based MVNO mandate, the following national wireless carriers:

• Bell
• Rogers
• Telus
• and SaskTel (in Saskatchewan)

Must sell access to the following regional providers:

What are wholesale MVNOs?

Wholesale MVNOs, also known as true or full MVNOs, are non-facilities-based service providers that must rely on the physical infrastructure of a facilities-based network operator to provide phone services to their customers. They purchase network access in bulk at wholesale rates and develop attractive plans and packages that they sell to customers. They do not own and operate their own slice of spectrum or cellular network infrastructure.

What are wholesale rates?

Wholesale rates are the prices at which network operators and MVNOs buy/sell bulk access to the operators’ wireless network. The term is typically used to describe regulated rates that are set for the industry by the CRTC based on a detailed methodology (actual network operator costs, plus a markup), but is sometimes used to describe rates that can also be negotiated between the MVNO and network operator directly.

Negotiated wholesale rates for MVNOs

Distributel, TekSavvy and Tucows have indicated that their attempts to negotiate MVNO access directly with network operators failed because the national wireless carriers were unwilling to negotiate.

The network operators claimed to have negotiated in good faith, stating that they would voluntarily enter into an agreement if it were beneficial for them to do so. However, it would not be beneficial for them to have additional competitors taking away customers, so rates cannot be successfully negotiated, unless there is decisive arbitration provided by the CRTC. Unlike how Bell and Telus have cell towers that cover half the country and have a network sharing agreement so that their customers can get national coverage.

In their review of wireless services, the CRTC admits this, stating:

If left to negotiation, it is unlikely that carriers and MVNOs would successfully negotiate a wholesale rate that allows for an MVNO to compete aggressively on price, due to the significant disparity in size and bargaining power.

Regulated wholesale rates for MVNOs

In their review of wireless services, the CRTC states:

…if the Commission were to determine the wholesale rate, then the MVNOs’ profit margins, and their services offerings, will constantly be tied to that rate and restrict differentiation. As a result, the Commission is concerned that a mandated regime allowing for broad MVNO entry would be difficult to sustain over the long term without careful and ongoing regulatory assistance.

In effect, they’re saying that regulating the rate would require a lot of work, except regulating wholesale rates is literally their stated purpose and a process that they already perform to determine the regulated wholesale rates for internet providers.

Their concern about restricting differentiation is odd considering they later state that MVNOs would likely have a “moderate impact on service delivery innovation”, including solutions such as cloud services and virtualized core networks, providing some differentiation that the market may currently lack.

Regulated wholesale rates are already required for internet services

A similar solution to MVNOs is already in place for internet services (the wholesale services framework), where the CRTC regulates the rates at which telephone and cable companies must sell access to their networks to independent ISPs at wholesale prices and has done so to varying degrees since the mid-1990s. However, these regulated wholesale rates do not currently exist for mobile phone services.

This is odd considering how the open wholesale access model has had some success in the internet services market – enabling independent wholesale ISPs to hold 7.2% of the market as of 2019 – up from 4.6% in 2013.

Canada’s first MVNO: dotmobile

After incorporating in 2018 and applying in early 2019, dotmobile received CRTC approval in January 2021 to become Canada’s first full Mobile Virtual Network Operator.

While they aren’t yet providing wireless services, everything will be done entirely through an app – no waiting in queues at call centres or lining up in stores. Their pay-as-you-go plans will let you set spending limits, donate extra data to a friend, pause or cancel your service.

They signed their first wholesale network agreement with Iristel in September 2020 to provide service in the far north and northern Quebec, but have a long way to go to becoming a national provider. They didn’t get a green light from the CRTC decision, but it did open the possibility to purchase wholesale access to national networks through a regional provider.

MVNOs in other countries

In the US, there are 139 MVNOs including brands such as Google Fi, Straight Talk, Mint Mobile and Ting which have consistently received higher customer satisfaction scores from consumers.

MVNOs generally capture between 5% and 30% of the markets that they enter. In the US, MVNOs serve 7 out of 100 wireless subscribers, while in Japan, the market share of MVNOs is 12.2% and in the UK it is 15.9%. In many instances, there were price reductions after MVNOs entered the market, particularly for the youth market or the prepaid, lower-cost service market.

MVNOs have been able to successfully negotiate a wholesale agreement with the network operator directly without the intervention of a regulator in a number of countries, but in these cases the carriers had a large amount of spare network capacity.

In the case of Austria, Germany and Ireland, wholesale network access came about as a merger remedy to counterbalance the reduced competitiveness of the market – something that may need to be considered in Canada if the Rogers acquisition of Shaw/Freedom Mobile goes through.

What is a mobile virtual network enabler (MVNE)?

An MVNE is a company that provides network infrastructure services such as SIM configuration, support systems and billing to MVNOs. They make it cheaper and faster for a new MVNO to get up and running by providing them with the technological structures necessary to run an MVNO business.

What is a mobile virtual network aggregator (MVNA)?

An MVNA is a business model that buys network access in large volumes and resells it to multiple small MVNOs. They greatly reduce the number of business relationships an MNO has to maintain by managing the process of selling to MVNOs on their behalf.

Timeline of regulatory actions regarding MVNOs

May 2015 – CRTC mandates wholesale roaming

The Commission mandated the provision of wholesale roaming by the national wireless carriers (mandated wholesale roaming).

The Commission did not mandate wholesale MVNO access due to concerns that doing so would undermine investment in spectrum and networks by facilities-based wireless carriers, particularly competitors.

February 2019 – CRTC states that benefits of wholesale MVNOs would outweigh negative impacts

2 days after the Ministry of Innovation, Science and Economic Development issued a new policy directive to the CRTC, the CRTC stated:

[I]t is the Commission’s preliminary view that it would be appropriate to mandate that the national wireless carriers provide wholesale MVNO access as an outcome of this proceeding. The Commission considers that, on balance, it is likely that the benefits that a well-developed MVNO market would deliver to Canadians are now more likely to outweigh any negative impacts that a policy of mandated wholesale MVNO access might have on wireless carriers’ network investments[.]

– CRTC

January 2020 – CRTC proposes wholesale access for all MVNOs on a temporary basis

In its comprehensive review of mobile wireless services, the CRTC stated that MVNOs should have mandatory access to wireless providers’ networks via regulated wholesale rates (as is done for internet prices) until they establish themselves in order to increase competition and lower prices.

July 2020 – Competition Bureau suggests access for facilities-based MVNOs on a temporary basis

In response to the CRTC, the Competition Bureau submitted an intervention providing their own findings, further comments, noting that regional carriers such as Videotron and Freedom have doubled their subscribers in the last 5 years and Canadians pay an average of 10% less per GB in areas where a regional provider has a 5.5% market share, which they estimate could increase to 65% savings if their market share grew to 20%.

However, introducing MVNOs could slow or disrupt this progress as they would be competing most directly with the regional providers who are already favoured by price-conscious consumers.

They proposed implementing MVNOs on a temporary basis in specific regions to help regional providers expand into new markets. The Big 3 would be required to sell access to their networks for a limited time to enable the regional provider to offer competitive plans while they build out their own network infrastructure.

They believe that in the short term, this will provide price competition while in the long term, it will incentivize investment into additional national networks and provide competitive pressure.

Big 3 say mandatory MVNOs will have negative impacts

Unsurprisingly, the Big 3 oppose mandatory say they’ll significantly reduce investments if they’re forced to sell wholesale access to MVNO and that this could hurt Canada’s transition to 5G.

• Telus said it would cut $1 billion in spending and 5,000 jobs
• Bell’s annual capital spending would be “significantly less” than the $4 billion

The PwC report concluded that Canada’s GDP would be reduced by $10 billion over 5 years, tax revenue would drop $2.5 billion and 94,000 jobs would be lost if MVNO access was mandated.

March 2021 – Rogers announces it has agreed to acquire Shaw

April 2021 – CRTC chooses facilities-based MVNO over a wholesale MVNO model

The decision requires the Big 3 to sell access to their wireless networks, but only:

• to providers who own and operate their own network infrastructure,
• to providers who own spectrum in, or adjacent to, the areas they want to operate in,
• for a limited period of 7 years,
• to providers who intend to invest in physical infrastructure in those areas within 7 years,
• after negotiating rates with the prospective MVNO, with arbitration provided by the CRTC after 90 days

This will enable, but not require existing regional providers such as Videotron, SaskTel and Freedom Mobile to start serving new areas and bring in new customers for up to 7 years before having to commit to investing the hundreds of thousands to millions of dollars to build network infrastructure to serve them. So customers before investment rather than the typical investment before customers.

This decision cuts out existing and would-be smaller, independent MVNOs such as dotmobile from entering the market without first buying wireless spectrum – an extremely scarce and expensive resource.

Commentary

The CRTC hopes this will be enough to convince a regional provider to expand across Canada and become a national player over the next 7 years, but their decision could not have come at a worse time. It was announced in the middle of the proceedings of a $9 billion auction of 5G spectrum and an ongoing acquisition where the 3rd and 4th largest networks would end up consolidating.

Spectrum auction

However, their decision was quite preemptive/premature as it took place 9 days after the deadline for deposits on the pending 5G mid-band spectrum auction – a “key milestone in the deployment of 5G services in Canada” which sold around 1500 licenses for almost $9 billion. The decision was also before they know the results of the auction, so not only could no new companies could jump onboard to get the spectrum needed to launch an MVNO, but the CRTC also didn’t know which players would end up with the most 5G spectrum.

Eastlink, TBayTel, Iristel and SaskTel are unlikely to start buying spectrum and setting up towers across the country. However, Quebecor Inc., the parent company of Videotron, spent over $800 million purchasing 294 licenses in the auction in southern and eastern Ontario, Alberta, Manitoba and British Columbia. They announced that these investments were a step in the expansion outside of Quebec.

Freedom Mobile/Shaw Communications sat out of the auction due to their pending acquisition by Rogers, making them less likely to expand in the short term whether or not the acquisition goes through. This also allowed Rogers to purchase 325 licenses for $3.3 billion – the largest amount spent by a participant.

Rogers acquiring Shaw (and Freedom Mobile)

The decision also came 1 month after Rogers announced that it would acquire Shaw, before the deal went through or seeing the result of any Competition Bureau or Cabinet intervention.

Freedom Mobile/Shaw Mobile would have been the provider most likely to expand nationally – increasing the number of national networks from 3 to 4 (or 2 to 3 if you count Bell and Telus’ shared network as 1).

However, if Rogers is allowed to buy Shaw (and by extension, Freedom), the expansion of a 4th national carrier is not likely to happen. That said, if the Competition Bureau or Cabinet does not allow Rogers to keep Freedom and is forced to sell it to another telecom company, there could still be hope.

Sources

• Executive summary of the Bureau’s submission to the CRTC on mobile wireless services
• 2021 review of mobile wireless services – CRTC
• Mobile virtual network operator – Wikipedia