Mark Goldberg


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Maintaining incentives to invest

Much has been written about the proposed Policy Direction released last week by ISED Minister Bains to the CRTC, and the Commission’s subsequent Mobile Wireless Services Notice of Consultation.

My regular readers know that I like to cover these kinds of things from paths that are less traveled, trying to bring a fresh perspective. As such, I’d like to examine last week’s releases from the perspective of incentives to invest.

The term “investment” appears 13 times in the CRTC’s notice of consultation; it appears just once in the proposed Policy Direction, and that instance is in relation to “stimulate investment in research and development and in other intangible assets that support the offer and provision of telecommunications services.” However, the proposed Policy Direction also speaks about “innovation in telecommunications services, including new technologies and differentiated service offerings” and ensuring “affordable access to high quality telecommunications services is available.”

That kind of language needs to be contrasted with the CRTC’s consultation that speaks in terms of the need “to make significant investments in network infrastructure” for 5G. The Commission’s concern about maintaining incentives for continued capital investment is set out in the core of the proclamation for this proceeding:

  1. The Commission is hereby initiating a proceeding to review mobile wireless services in Canada. This proceeding will focus on three key areas:
    • Competition in the retail market
    • The current wholesale mobile wireless service regulatory framework, with a focus on wholesale MVNO access
    • The future of mobile wireless services in Canada, with a focus on reducing barriers to infrastructure deployment
  2. The scope of each of these issues is described in detail below. In addition, parties may raise other matters, issues, or proposals that are relevant to and appropriate for a broad policy review of mobile wireless services. The Commission’s focus in this proceeding is to ensure that its mobile wireless service regulatory framework facilitates sustainable competition that provides reasonable prices and innovative services, as well as continued investment in high-quality mobile wireless networks in all regions of the country.

I observed on Twitter last week that network investment frequently falls into 1 or more of the 3 C’s: Coverage, Capacity, or Capability.

Many carriers have focused their investments on coverage and capacity enhancements, adding reach to the networks to previously under-served regions and adding capacity to increase data connection speeds and relieve congestion. Most carriers have upgraded capabilities for most regions to enjoy access to advanced fourth generation technology and are readying to deploy 5G.

Mandated wholesale access has the potential to impact the business case for investment. Of course, in core urban areas, there are strong incentives to invest driven by competitive behaviour, where carriers will ensure that their networks are able to offer top speeds as part of their bragging rights. However, it is clear that the business case for such investments is not limitless, otherwise we would see 5 bars of LTE-Advanced everywhere in Canada.

So, we know that there are already certain areas with lower population densities that already cannot support a business case for some carriers to invest. Now, imagine that that the carrier will no longer be able assume the same level of retail revenues. What happens to the business case for those marginal areas? If potential revenues decrease, one would expect that fewer areas will be able to support a business case for enhanced levels of investment. People in under-served areas today should carefully consider whether mandated MVNO and lower retail prices will help or hinder their cause.

Recall that when the current CRTC Chair was welcomed to his job, he received a letter from the Ministers of Heritage and of Innovation, Science and Economic Development, saying, “All Canadians and Canadian businesses deserve high quality telecommunications services at affordable prices.” At the time, I wrote “It is a delicate balance. Quality and coverage require significant levels of capital investment, especially in a country like Canada.”

The proposed Policy Direction echoes that language in the clause suggesting that the CRTC should consider the extent its regulatory measures “ensure affordable access to high quality telecommunications services is available.”

The CRTC consultative process will most likely be informed by engineering economic analysis, assessing the potential impact on investment in marginal areas for coverage, capacity and enhanced capabilities.

Maintaining incentives for investment requires a delicate balance.

1 comment to Maintaining incentives to invest

  • Leonard Eichel

    Mark,

    It’s a good comment and it should be taken into consideration by the CRTC in the proceeding. But, I have little hope as the Commission doesn’t seem to be too concerned about the investment issue in wireline Internet, when it mandates wholesale access services on telcos and cable carriers. The balance you speak of is a devlishly difficult thing to grasp, particularly when the tools you use to determine that balance (Phase II costing) are dated, do not follow the market and are subject to interpretation by the regulator for policy reasons. For every application under the CRTC’s new Broadband Fund, for example, carriers have to open their newly funded networks to competitors, thereby reducing the revenues the constructing carrier can obtain over the lifetime of the investment. There will be cases where – even with public funding – the investment will not make an adequate return.

    So, if that’s the issue that we must address, then a balance, as you so correctly state, is required. If facilities investment is to be a key component of any wireless resale regime, then it behooves advocates of a more open regime to propose a framework that not only lowers barriers to entry, but maintains – as much as possible – incentives to invest.