Thoughts on the wireless spectrum auction

Much as I'd love to believe Industry Minister Jim Prentice's claims that the recent auction of new wireless spectrum is going to revolutionize the industry in Canada by giving consumers more choice for less money, I don't.

Whether you're one of those early adopters willing to pay Rogers' exorbitant rates to get your hands on the iPhone, or just a Luddite shelling out a $7.95 "system access fee" on your no-option phone for no good reason every month, it should be painfully clear that Canadians pay more than almost anyone else in the world to use cellphones.




The CBC's handy iPhone index calculates that Canadians will pay a minimum of $2,572 over three years to use the new iPhone, under Rogers' cheapest plan. That's well over the global average, and almost three times as much as the basic plan's costs in Switzerland, for example.

I think it's great that new entrants like Quebecor, Shaw, and Yak have bought tiny slices and will presumably soon be rolling out service plans in the near future. I have especially high hopes for Yak because they run a GSM network (currently Rogers is the only one, which explains the iPhone exclusivity) and they've been a genuinely cheap alternative in conventional long distance and Internet service.

But the cynic in me finds it hard to believe that Yak, for example, is going to be particularly motivated to undercut the Big Three's prices after they've just dug themselves a $423-million hole just to get in the game in the first place. The whole thing looks like an oligopoly to me.

I'm trying to be optimistic, but we'll see how this plays out.

As for what Ottawa should do with the $4.5-billion windfall, I normally hate the knee-jerk partisan bitching that usually comes out of the opposition no matter who's in charge, but I find myself nodding in agreement with Liberal critic Scott Brison's suggestion that some of the money should be used to bring high-speed Internet to remote northern and rural communities.

Changing banks -- update

Ever since RBC made the mistake of denying me their multiproduct rebate for customers with multiple accounts, I've been working towards moving my accounts away from them, or switching to no-fee versions of the accounts I choose to keep with them -- for now.

Things are progressing nicely on all fronts. I opened a no-fee President's Choice chequing account a few weeks ago, and I've been diligently transferring paycheques and automatic bill payments over to that account for the past month or so. Once I knew everything was kosher on that end, I set about cutting the fee-taps on my existing RBC chequing account. I decided there's no point in officially closing it altogether, but I've switched it to what they call a Day-to-Day Savings account in the interim. The account will pretty much be dormant, although it is there if I ever want to fire it up again for some new promotion they're offering me. In the meantime, there's no charge to put money into it via ATMs, and I get one free debit per month (which I'll probably use to pay my Royal VISA with.)

And speaking of VISA, I went ahead and switched from the RBC Platinum Avion card (with an annual fee of $120) to a lesser card that has no annual fee and accumulates points twice as slowly. The key component here is the no annual fee part.

Add it all up, and Royal no longer gets a penny from me in bank fees or VISA charges (since I pay my balance in full every month.) I'm quite pleased with myself for following through with this. There's simply no reason to pay bank fees in this day and age, because it's such a competitive marketplace. The minute I realized this, RBC's goose was cooked.

I should also mention I'd be more than happy to switch back if they'd simply give me what I wanted in the first place -- to not have to pay monthly fees for having a basic chequing account.

My last remaining account with RBC is my investment account, which I'm currently talking myself into changing. It's the last hassle, really, but after having come this far, there's no point in stopping here.

As always, I'll keep you posted.

I hate fees -- and you should too

Yet another worthwhile issue of MoneySense magazine plunked into my mailbox this week. I highly recommend getting yourself a subscription -- it's easily the best $20 I ever spent for my personal finance education.

A highlight for me was Duncan Hood's column on page 16, entitled Do fees really matter?

It's not available online yet, I don't think, and while I highly recommend buying yourself a copy, I'm going to excerpt a particularly enlightening passage here because it provides mathematical ammunition for why investing fees are the surest, quickest way of eating into your investment returns.

If you invest $100,000 in a standard portfolio of stocks and bonds for 25 years, history suggests you might get an average return of 7%. At that rate, your money would grow to more than $540,000.

But taxes takes the first bite out of that.. If you keep you portfolio outside an RRSP and you earn $75,000 a year or more, you will end up paying taxes on your investment returns of at least 20%, reducing your rate of return to 5.5% a year and leaving you with a portfolio worth just under $400,000.

Once we factor in inflation, which has been running at about 2.5% a year, your return drops to 3%, leaving you with a portfolio worth $200,000 in today's dollars.

The average Canadian mutual fund charges 2.5% per year in fees. That won't take a full 2.5% off yoru returns as fees are deducted before taxes and inflation, but it will do some serious damage, Fees reduce your return to 1%, leaving a portfolio worth $130,000 in today's dollars

At the end of our experiment, the sample portfolio has been knocked down from 7% growth a year to 1% a year. That bleeds the hypothetical $540,000 portfolio into an actual $130,000 one.

$30,000 profit to show for a quarter-century of diligent, diversified investing?

Fees matter. Anything you can do to reduce the amount that is trickled out of your portfolio every year, do it. It all adds up.

If you're paying a financial advisor 2% of your money each and every year to buy you a Canadian index fund, stop. And say it with me: ETFs! ETFs ETFs!