5G and Canada’s digital economy

In November, PwC released a series of reports on “The importance of 5G and the digital economy in Canada”:

  • 5G, the digital economy and Canada’s global competitiveness [pdf, 1.7MB]
  • The evolution of Canada’s telecom industry and the growing digital economy [pdf, 3.0MB]
  • The importance of 5G and the digital economy in Western Canada [pdf, 2.1MB]

As PwC notes, the past two years of life under the cloud of the COVID-19 pandemic have accelerated several trends associated with a transition to a new economic model, such as increasing demand for digital connectivity and greater adoption of digital processes by businesses and households.

PwC promotes the need to have a healthy domestic telecommunications sector to support the deployment of 5G, saying “jurisdictions where network operators were in poorer financial health had slower deployment and adoption rates.” PwC invites readers to read the first report for a discussion on the digital economy and implications on Canada’s global competitiveness associated with delays in 5G deployment. In that report, we read how the competitive landscape is being reshaped for mobile operators by hardware, software and service providers. PwC asserts that Canadian mobile network operators (MNOs) are “sub-scale relative to multinational digital economy players, whose business models are enabled by connectivity but do not invest in network infrastructure.” Further, PwC expects technological disruptions over the coming years from Low Earth Orbit satellites providing broadband internet, and the introduction of embedded SIM (eSIM) technology that “could be used by equipment manufacturers to disintermediate telecom operators.”

The second report makes four main points:

  1. The telecommunications industry is a core enabler of the digital economy;
  2. Canadian MNOs are relatively small compared to international peers, suppliers and new competition;
  3. Globally there is a trend of consolidation in the telecommunications industry; and,
  4. Canada needs to ensure its telecommunications industry can support the needs of the digital economy

Among the highlights, PWC observes that Canadian mobile operators spend a higher proportion of their revenue on capital investments than many peer countries. For example, the capital intensity (measured as a ratio of capital expenditure to revenue) for Canadian operators averages at 18%, five percentage points (or nearly 40%) higher than operators in the US and Australia at 13%.

The third report in the series zooms in on Western Canada looking at how 5G connectivity is expected to enable new “use cases”, such as automation enabling smart mining, connected and autonomous vehicles, and automated smart farming. “5G-enabled use cases require broad ubiquitous coverage to reach businesses outside urban areas (mining, agriculture, oil & gas, etc.) and enable use cases that are reliant on continuous connectivity (e.g., autonomous vehicles).”

According to PwC, Canadian mobile operators face three significant challenges: the cost of 5G driven by capital costs required to install new equipment, densify infrastructure and the
increased operational costs required to keep up with data use; Increased competition in the digital economy including hardware, software and service providers such as Google and Amazon; and, Canada’s current lag in spectrum allocations and the complexity of regulations for accessing passive infrastructure.

To deploy 5G at pace, and overcome these challenges, Canada will require a healthy telecommunications industry that has well-capitalized MNOs capable of funding national 5G deployment. To achieve this, Canada needs a supportive regulatory framework, that should: (i) maintain an appropriate level of market incentives, drive improved customer value and investment in innovation (ii) maintain predictable and fair regulations while being flexible to accommodate the evolving needs of the digital economy and (iii) consider the significant benefits of the digital economy, the role of 5G in enabling it, and the broader competitive landscape within it.

Canada requires a healthy, well-capitalized telecommunications industry to fund deployment of our national 5G networks.

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