Bell Canada - an Economic Analysis

...

to increased working costs.

Accordingly, the federal government has introduced subsidiaries to the new entrants, including subsidizing spectrum caps. It has also aimed to regulate mandatory roaming and tower sharing (Masse & Beaudry, 2015).

With respect to license and regulations, the government has put great effort into promoting fair competition and making sure customers have all their freedom of options. The industry is regulated by the 1993 Telecommunications Act and the Canadian Radio-television and Telecommunications Commission (CRTC). According to the 1991 Broadcasting Act’s stipulation, “the Canadian broadcasting system should… through its programming and the employment opportunities arising out of its operations, serve the needs and interests, and reflect the circumstances and aspirations, of Canadian men, women and children, including equal rights” (Broadcasting Act, 1991). The fundamental concept is that Canadians should have access to an effective, high standard communication system.

In section 3.b of the 1991 Broadcasting Act, market participants should “be readily adaptable to scientific and technological change”. Indeed, in the long run new trends of technology will contribute to the reduction of entry barriers, as competitors are able to enter telecommunication industry without investing massively in advance in technological, distribution and marketing resources. For example, BCE’s television service would suffer from online substitutes such as Netflix, Hulu and other streaming providers which priced their services aggressively against traditional ones. Online chatting and calling applications like Skype and Messenger are replacing calling and texting which have long been the core of the mobile communication industry. With more of its services now begin to see redundant in the era of the Internet and social media, BCE is exposed to a future market that appears to be rather challenging if not unpredictable.

Question 3: What are Bell’s pricing strategies?

On August 11, 2016, Canadian Radio-television and Telecommunications Commission released 2016 Price Comparison Study of Telecommunications Services in Canada and Select Foreign Jurisdictions (CRTC, 2016). This report compared the various prices paid for telecommunications services across the developed world, and we can find once again that Canada ranked around top among every category. Also, the three big Canadian telecoms--Bell, Telus and Rogers, have almost identical prices for wireless and thus remain among the most expensive in the world. The big three charge about $90 a month for a nationwide wireless plan, with their in-house “discount” brands, Fido and Koodoo costing about $70 a month (Tencer, 2014).

While Bell is the largest and fastest network across the country, it practices third degree price discrimination among different locations in Canada by charging different prices to consumers. For example, people who live in Saskatchewan, Manitoba and Quebec enjoy lower prices from Bell, even for the exact same plan (see Appendix G for Bell plans’ prices). Whether there are viable regional competitors is a big factor for determining prices in Canada. In provinces with more competitors, Bell tends to set the price higher because of the telecommunication oligopoly and consequent price wars. For example, Manitoba and Saskatchewan have strong regional competitors such as SaskTel and MTS, resulting in Bell plans’ higher starting price--$65 per month with five GB of data, while an equivalent plan in other regions costs only $55 more per month (“Wireless carriers hike prices across Canada”, 2014). By setting prices differently, Bell can enjoy higher revenue.

Another pricing strategy Bell uses is providing bundles choices. Bell provides both pure bundling and mixed bundling. For example, Bell’s most popular bundle includes Fibe TV, Fibe internet and home phone services. While this bundle gives a $44 off (see Appendix H for Bell bundle) from the regular price per month, it also helps promote Bell’s new product Fibe TV. Other than mixed bundling, customers can choose their own bundle. Customers can choose more than one service from TV, Internet, home phone and mobility to form their own bundle and get a discount price. Offering bundles helps Bell to attract more customers and promote themselves, therefore increases sales.

In summary, Bell has disciplined but very competitive pricing strategies. Bell charges high to gain a higher margin and practice third degree price discrimination to further increase its revenue. It also provides bundles choices to attract customers and promote its products. These pricing strategies help Bell maintain its market power.

Question 4: How does Bell increase its net income?

Bell ’s increased net income is contributed by its higher revenue and controlled cost. The company’s revenue is increasing on account of its pricing discipline and good customer service, while the lower operation costs and vertical integration contribute to the controlled costs.

Except for the abovementioned pricing strategies in Question 4, Bell also implements a strategy based on the current market structure to increase revenue. Since the industry remains an oligopoly with an extremely high market share, Bell operates on a strategy that fully exploits the high inelasticity of demand in the market. Bell’s highly inelastic price of demand leads to high sales (see Appendix I for service revenue growth) because the price grows consistently (Vomiero, 2016) while the quantity demanded doesn’t fall much (see Appendix J for the numbers of subscribers to Bell Canada services). Bell’s advanced customer service helps it attract more potential customers and maintain customer loyalty. The strong connection between Bell’s information technology team and the customers enables more efficient installation and repair services ("Our strategy", 2016). Measured by the number who would recommend Bell services, Bell Mobility’s customer satisfaction jumped by 55% since 2011 (“Strategic Imperative 6”, 2015)

In terms of the cost, Bell’s backward vertical integration is one of the factors that contributes to controlled costs. Bell faces no price threat from suppliers for their services since it holds its own network infrastructures (HeliHubcom, 2016). By controlling its three subsidiaries Bell creates a stable supply of inputs and ensures the final product quality. As a result, it has kept a very low production cost as opposed to its competitors. Besides, Bell did a pretty good job in controlling its operation costs. Bell encourages discretionary spending, and it continues to reduce employee travel costs significantly by substituting video and teleconferences for flights.