Innovation Minister Navdeep Bains revealed Thursday how he expects Canada’s cellphone companies to cut their prices, despite warnings from the Big Three last month that wireless bills are already getting more affordable, and that regulatory action will come with repercussions for their businesses. Here’s what you need to know:

The demand: Over the next two years, the government wants Rogers, Telus and Bell and their budget brands to drop the average monthly base fee for a 2 GB plan from $50.00 to $37.50, a 4 GB package from $55.00 to $41.25, and 6 GB from $60.00 to $45.00. “Prices have gone down for low-end [and] high-end plans, but the mid-range prices have remained relatively flat,” Bains told The Logic in an interview, citing the latest annual study from Wall Communications commissioned by Innovation, Science and Economic Development Canada (ISED), also released Thursday. He said 40 per cent of wireless subscribers with mobile data plans use between 2 GB and 6 GB a month, according to an internal government estimate, so “a good number of Canadians will benefit.” The announcement comes after the Liberals promised a 25 per cent reduction during last fall’s election campaign. Bains’s mandate letter instructed him to “use all available instruments” and “work with telecom companies” to achieve that goal. 

The or-else: ISED will publicly track progress against the new targets, issuing quarterly reports using data compiled by Statistics Canada. “If the companies are unable to hit their 25 per cent target within two years, we will look at additional measures around how we deploy future spectrum and mobile virtual network operators [MVNO] to increase more competition,” Bains said. Thursday’s announcement doesn’t include any new policies on MVNOs, carriers that buy access to other firms’ networks. In February, the Canadian Radio-television and Telecommunications Commission (CRTC) held hearings on wireless services, including a proposal where incumbents would be required to sell space to such providers at set rates. Bains said he wasn’t going to “pre-judge the work of the CRTC.”

What the Big Three said: None of the carriers directly answered questions about whether they would try to meet Bains’s targets, or whether they agreed with the price benchmarks. “We operate in a highly competitive market that continues to deliver more affordability and value, and we always evolve our services to meet the needs of Canadians,” said Sarah Schmidt, a spokesperson for Rogers. “We’ll study the government’s direction,” said Bell’s Jacqueline Michelis. She added that “policies discouraging investment, including regulating wireless pricing or continuing to deny fair access to spectrum for all competitors, put jobs and innovation at risk in an industry that’s delivering tremendous value to consumers. Telus spokesperson Richard Gilhooley said it is “extremely disappointing to see that the 25 per cent decreases are limited to the national carriers,” calling it a “punitive action” that “jeopardizes hundreds of thousands of skilled jobs in Canada, as well as the millions of jobs associated with our global supply chains.”  

What they told the CRTC last month: The Canadian wireless market is already competitive, and prices are falling, the CEOs of the telecom giants all said. The three firms have said they would have to reduce planned infrastructure investments if virtual carriers get mandated network access. To prove these warnings aren’t “just theatre perpetrated by the incumbents,” Telus CEO Darren Entwistle revealed at the hearing that his board had signed a resolution ordering management to cut $1 billion in investment, 5,000 staff and philanthropic activity if the government enforces MVNO regulations or a further 25 per cent price reduction.

Cooperation expectations: The government has “a very good working relationship” with incumbent carriers, Bains told The Logic in January, citing previous collaborations on programs like Connect to Innovate, which expands broadband access to rural and remote communities, and Connecting Families, which gives low-income households $10 monthly internet plans. On Thursday, he said he’s still hoping for cooperation, despite the Big Three CEOs’ recent comments. “I’ve communicated directly with the companies; I’ve been very transparent and open with them,” said Bains. “It’s never been a better time to invest, and by promoting more competition, this will benefit the industry through innovation and will help lower prices for consumers,” he added, citing November 2018 changes that allowed firms to write off network equipment purchases sooner, and “debt financing rates at historic lows.” 

The math problem: The 2019 Wall study did indeed find that prices for wireless packages with 2 GB and 5 GB of data—the categories it typically measures—had not budged much since 2018. But most of the data was collected earlier in the year, and the report notes that the national carriers subsequently “dramatically changed their service plans.” Between May and September 2019, the average price of a Big Three 2 GB plan dropped 29.7 per cent to $53.48, while a 5 GB package fell 24.1 per cent to $66.55; their budget brands dropped less. “Some progress has been made,” Bains acknowledged. “But that’s why we’re being very definitive [about] when the clock starts—on Jan. 1, 2020, and it’s a two-year timeline.” 

Spectrum auction rules revealed: Bains also announced Thursday that the government will reserve 50 MHz of the 200 MHz it’s planning to sell in the 3,500 MHz band for small and regional carriers. Companies need those airwaves to deploy 5G networks. Bains’s mandate letter instructs him to consider “consumer choice, affordability and broad access” in spectrum decisions, but he said the government won’t be offering carriers any discounts they can pass on to consumers. “The deployment of spectrum is really a reflection of market forces,” he said. “If companies want to grow and deploy 5G [and] make additional investments—that’s something they will determine, and that’s why we have an auction process.” In April 2019, ISED said the sale of licences in the 600 MHz band would bring in $3.47 billion.

What analysts have said: “If consumers keep moving up to plans with 10GB of data or more (especially with the launch of 5G services in 2020/2021), then we would assume that both the pricing on these 2GB and 5GB plans will be easy to adjust in order to satisfy the government’s goal,” wrote Vince Valentini and Bentley Cross of TD Securities in an investor note just after the Liberals’ campaign announcement in September 2019. The new targets weren’t public at that time, so the analysts’ calculations were based on the platform’s goals, which were themselves based on higher prices. But in a note issued Thursday morning, before Bains’s announcement, Valentini said the testimony at the CRTC hearing “proved that pricing in Canada is very reasonable relative” compared to the costs to carriers of spectrum and infrastructure across the country. “If ISED simply declares that … that rates must be arbitrarily lowered, then we would question why the industry just wasted time on dozens of hours of testimony and thousands of pages of evidence.”