Mark Goldberg


www.mhgoldberg.com





#CTS20

Where do you think the money comes from?

The CRTC’s decision earlier this week set final wholesale rates for broadband internet access services, a proceeding that has been dragging on since interim rates were set in 2016. The CRTC’s final rates are up to 77% lower than the interim rates, and retroactive adjustments could cost carriers close to a third of a billion dollars.

Bell responded, indicating that the retroactive payments will have impacts of up to $100M and will result in cutting back on capital investment in rural markets. A news story in Cartt.ca indicates that Minister Bains is “‘disappointed’ but believes others will step up as incumbents pull back from network investment”.

Bell’s announcement referred specifically to its plans for Wireless Home Internet, a program that had aimed to offer wireless broadband to up to 1.2M households. As a result of the CRTC’s decision, Bell said it needed “to scale back Wireless Home Internet rollout in smaller towns and rural communities by approximately 20%”. As Cartt.ca observed, other carriers have similarly indicated that there would be impacts on capital investment programs.

Although the Minister may be disappointed, one has to wonder where people thought the money would come from. With a material impact on cash, there has to be a reassessment of budgets inside all of the companies. Put yourself in the shoes of the Chief Financial Officer and you have to find $100M. What choices do you have? You would look at various lines in the budget and find projects with the lowest return on investment.

There are always some projects with better returns on investment than others; some areas that have more marginal business cases. Bell’s announcement appears to be indicating that 20% of its Wireless Home Internet program had lower potential returns and that it would be the best source for funding the CRTC order.

Rural broadband, even using wireless technology, has a lower return on investment, almost by definition. After all, if it had a strong business case, then we would see all sorts of service providers fighting over that space. Instead, the business case is typically so poor that the government has had to give away billions of dollars in incentives to get service providers to build and operate rural networks.

In the case of the projects that are being impacted by this week’s CRTC decision, there was no direct government money other than an accelerated investment incentive – basically a faster capital tax write-off. So, the Minister may be hopeful that “others will step up as the ‘incumbents’ pull back from network investment,” but it is far more likely that the business cases for many communities won’t work any better for smaller players than for the major carriers. If there was a strong business case for smaller players to build in these communities, wouldn’t those networks have been built already?

Those rural areas may find that they have to wait for the next wave of government broadband funding programs. At the end of the day, that may end up being the answer to where the money comes from.

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