Tag Archives: cost

The Value Proposition of Northwestel’s Internet Services

A conversation earlier today about Northwestel’s recent minor adjustments to their internet services plans (read about them in the Yukon News story, Telco selectively increases rates and bandwidth) got me playing with numbers. I was trying to get a sense of the value of Northwestel’s internet services in Whitehorse compared to other Canadian jurisdictions. I’ve established Shaw’s services in Dawson Creek, British Columbia, as my benchmark for these exercises. Dawson Creek is just outside of Northwestel’s jurisdiction, being about 400 km south of Fort Nelson, and is comparable in size to Whitehorse (actually, it has about half the population of Whitehorse).

My goal was to summarize the value of the internet services in Whitehorse compared to a similar Canadian jurisdiction outside of Northwestel’s service area. It’s easy to say things like, “Dawson Creek residents pay just $75 a month for 400 GB of data and download speeds of 50 Mbps, and we pay $130 for 90 GB of data and download speeds of 25 Mbps”. But what does that mean? What does it look like?

From my view, there are essentially two components to any internet service: data transfers allowable and the speeds at which you’re able to transfer that data. So I decided to just illustrate these two aspects of service against cost, on a 1:1 basis, then compare Northwestel in Whitehorse to Shaw in Dawson Creek. Here’s data (click on the image for a larger view):

Across both grids, everything is 1:1, so you can directly compare Shaw’s costs and data allowances against Northwestel’s. To me, this directly addresses the question of value between the two services.

Next, there’s speeds:

Again, across both charts, it’s a 1:1 ratio.

I don’t know about you, but I get a remarkable sense of a lack of value in Northwestel’s service offerings compared to Shaw’s. And it’s not a moderate difference. It’s significant.

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Netflix Responds to Consumer Need

Netflix is the best thing to come along in the world of media consumption since iTunes. If you’re not subscribed you’re crazy. That said, I can understand why many people stay away from Netflix in Canada and in the Yukon particularly: the significant cost of internet access and a fear of overuse penalties.

If that’s the case with you, then Netflix has just introduced a significant new feature to help you avoid those problems. “Manage Video Quality” lets the Netflix subscriber control how much data they use to watch television and movies online. The company claims this can reduce data use by up to two-thirds:

For example, watching 30 hours of Netflix movies & TV shows will only use 9 GB of data, well below most Canadian ISP data caps. Previously, 30 hours from Netflix typically used 31 GB.

The options you’re offered are pleasantly simple:

  • Good quality (up to 0.3 GB per hour)
  • Better quality (up to 0.7 GB per hour)
  • Best quality (up to 1 GB per hour, or up to 2.3 GB per hour for HD)

Netflix’s library of content in Canada is constantly growing. New deals with major studios like Universal and upcoming exclusive content like a North American adaptation of House of Cards make the $7.99 monthly price tag the best deal for movies and TV shows around.

The new “Manage Video Quality” feature only adds to that value by enabling subscribers to mitigate the financial risks of accessing the internet in Canada.

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A Model for Explaining the Cost of a GB

When I spoked to Curtis Shaw at Northwestel yesterday, he emphasized the difficulty of identifying the true cost of a GB based on the complexity of the system that supports its delivery. Granted, that is likely true, but the systems within the oil and gas industry can’t be any less complex. Yet that industry has managed to represent the cost of gas to the consumer in clear and simple terms:

Obviously there’s a pretty strong political message wrapped up in this image, but it does somewhat justify what we pay at the pump. Northwestel could get a lot of mileage (pun intended) out of a similar graphic. (Unless, of course, 89% of the 10-per-GB penalty fee is profit!)

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How Much Does Northwestel Markup Data?

A piece in the Globe and Mail, “What is a fair price for Internet service?” by Hugh Thompson, revealed a truly interesting tidbit that Northwestel has been somewhat resistant to discuss: how much it costs to transmit 1 GB of data.

Here’s the relevant paragraph on this question from Thompson’s article:

To find out what is a fair price, I contacted several industry insiders. They informed me that approximately four years ago, the cost for a certain large Telco to transmit one gigabyte of data was around 12 cents. That’s after all of its operational and fixed costs were accounted for. Thanks to improved technology and more powerful machines, that number dropped to around 6 cents two years ago and is about 3 cents per gigabyte today.

3¢ per GB? That’s a chilling number, when you consider  that Northwestel resells it to internet customers for $10. In a nutshell, that means that Northwestel marks up the cost of the data that it doesn’t even provide, but merely transmits, at a rate of 33,233%.

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How much does an iPhone cost in Asia? Very affordable (compared to North America) [Update]

I was helping my mom consider whether or not to buy an iPhone in Macau, China, this afternoon and I was blown away by the cost differences for mobile services in Asia.

Here’s a quick comparison of the bottom-tier plans from Bell in Canada and 3 Mobile in Macau (I’ve converted Macau patacas at today’s rate of 0.128446).

Bell Canada 3 Mobile
iPhone 3GS (16 GB) Cost
$199.95
$408.49
Device status
Locked
Unlocked
Contract deposit (refunded monthly through contract)
$0
$210.65
Contract term
36 months
18 months
Plan Name
Combo 50
n/a
Monthly fee
$50.00
$24.15
Local calling (minutes)
100
200
Additional calling (per minute)
40¢
10¢
Additional same-network local calling (minutes)
0
300
Data (MB)
500
500
Additional data (per MB)
2.5¢
Text-messaging
15¢ each
unlimited
MMS messages
$2.50 each
10 included

Four things strike me about this:

  1. up-front costs are higher in Macau;
  2. you get an unlocked device in Macau;
  3. the contract term in Macau is only half as long as in Canada; and
  4. monthly fees are lower in Macau, but service levels are higher.

The “contract deposit” is an interesting phenomenon. My mom and I chatted about this and we figure that’s it’s a contractual defence again the cultural difference of a highly transient population in Asia. In Canada, (well, in North America in general, actually) that cost is somewhat hidden; it only applies if you try to exit a contract early.

In Macau (and perhaps other parts of Asia, I’m not sure) that’s the deposit that’s held to make sure you stay in the contract. And if you don’t, well, then it saves 3 Mobile having to chase you down to collect the fee.

To be honest, I’ve heard so many horror stories in Canada of people being bitten by that early-departure fee, I prefer this Asian way of collecting it up-front as a form of incentive to make you stay in the contract. Much more logical and open.

[Update] So my mom has reported that you get the contract deposit back in equal monthly portions over the term of the contract. So it is, in a sense, a permanent discount on the monthly fee. For the above plan, for example, you’d get $11.70 back every month, effectively dropping your monthly fee down to $12.45.

That’s $12.45 per month for an iPhone with 500 MB of monthly data, 20 minutes of talk time, and unlimited text messaging. Just let that sink in a minute.[/Update]

Just for fun, I also did a quick comparison of the highest-level device and plan from both companies.

Bell Canada 3 Mobile
iPhone 3GS (32 GB) Cost
$299.95
$100.19
Device status
Locked
Unlocked
Contract deposit (refunded monthly through contract)
$0
$621.68
Contract term
36 months
18 months
Plan Name
Combo 100
n/a
Monthly fee
$100.00
$63.97
Local calling (minutes)
500
1,400
Additional calling (per minute)
40¢
10¢
Additional same-network local calling (minutes)
0
800
Data (MB)
3 GB
unlimited
Additional data (per MB)
2.5¢
Text-messaging
unlimited
unlimited
MMS messages
unlimited
45 included

The cost-to-service-level ratio is just crazy here. [Update]And, once again, consider you’d get a monthly repayment of the contract deposit, effectively dropping your monthly fee to $29.43.

That’s $29.43 per month for the best iPhone (unlocked!) with unlimited monthly data, 1,400 minutes of talk time and unlimited text messaging. I’m drooling here, people.[/Update]

When things go truly out of whack, however, is when you look at the gross cost of the contract to the iPhone consumer.

At the low end, with the 16 GB iPhone 3GS, here’s how that compares.

Company Contract Total Cost
Bell $1,999.95
3 Mobile $843.19

And then on the high end, with the 32 GB iPhone 3GS, it’s really ugly.

Company Contract Total Cost
Bell $3,899.95
3 Mobile $1,251.65

That’s a huge difference. On the lowest-end iPhone contract, Bell is netting over $1,100 more than 3 Mobile. On the high end it’s over a $2,600 difference. These numbers almost make it worthwhile to fly over to Macau just to buy an unlocked phone so you can engage with Bell on a non-contractual basis.

Bell’s pricing is not atypical of other North American carriers. So it makes you wonder: what’s the fundamental economic difference that drives those North American carriers to charge so much more and push for such longer contracts?

As I wrote this my mom called and let me know she’d received about a $150 discount on the cost of the iPhone, plus a bottle of gin (WTF?!?!). It all makes me wish I were an Asian, rather than North American, iPhone user.

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