Does CRTC policy inhibit investment?

Did the CRTC’s “Review of wholesale wireline services and associated policies” decision in July contain provisions that reduce the incentives for major carriers to invest in advanced broadband infrastructure?

That may be the first major digital economy policy question to be faced by the Trudeau Government’s as yet un-named Minister of Industry. A day after the election, Bell Canada has filed a cabinet appeal of the CRTC’s decision, claiming that Canada position as a broadband leader is being threatened by the CRTC’s wireline wholesale decision,¬†that changes the rules by mandating reseller access to these next generation fibre-to-the-home networks. Bell argues that its investment to date of more than $2.5B enables more than 2M households to access its Gigabit Fibe Internet service already.

Bell’s position in the proceeding leading to the July decision had warned that mandating resale of fibre-to-the-home could lead to:

  1. reduced private capital being deployed in fibre-to-the-home infrastructure;
  2. fibre-to-the-home going to fewer communities, particularly smaller and rural communities;
  3. jobs being lost; and
  4. undermining the competitiveness of Canada’s economy .

Why did Bell file immediately after the election?

Under Section 12 of the Telecom Act, a petition for Cabinet review of a CRTC decision must be presented within 90 days. Since the CRTC issued its decision on July 22, the deadline happens to fall on October 20 – today – the day after Justin Trudeau’s Liberals were swept into power. The timing is purely coincidental and should not viewed as a test of the new government.

The CRTC’s decision clearly caught Bell by surprise.¬†Just a month before¬†the release of the CRTC’s decision, both TELUS and Bell announced significant, multi-billion dollar investment plans for fibre to the home projects across the country. These aren’t just sharply enhancing service quality in big cities; Bell Aliant has connected more than 60% of homes in Atlantic Canada to date. And only¬†2 weeks ago, Rogers announced its plan to roll out gigabit speeds to its entire cable footprint [see “A national gigabit dream“].

In the proceeding leading to the CRTC’s wireline wholesale decision, many smaller ISPs were looking for liberal resale privileges for fibre-based services; the CRTC stated “Increased choice is expected to drive competition, resulting in further investment in high-quality telecommunications networks, innovative service offerings, and reasonable prices for consumers.”

The fundamental question for the government is whether that CRTC determination is sound.

Does price competition from smaller non-facilities-based ISPs increase or decrease the incentives for continued infrastructure investment by facilities based providers?

Bell warns that the CRTC’s decision to favour resale over investment will result in reduced investment in infrastructure in Canada. Its evidence to the CRTC showed that is what happened to Europe, “where policy-makers are now searching for ways to recover.”

Does increased price competition for consumers promote further development of innovative services and investment, as the CRTC states? Are mandated wholesale rules required, or indeed, appropriate, in a marketplace that has multiple wireline and wireless choices for most consumers.

Since the CRTC’s landmark¬†long distance decision more than 20 years ago (a proceeding with which I had more than just a passing interest) the Government, CRTC, and the Competition Bureau have all promoted facilities-based competition as¬†the model¬†to promote, sustainably delivering price, quality, and innovation benefits of competition to consumers.

While the timing of the appeal was driven by the CRTC, not the election of a new government, there are some fundamental policy questions raised in the application that will force the new cabinet to give consideration to how to approach private sector investment in the digital economy.

The Liberal platform said “It is time for smart, strategic investments that will turn our economy around and get it growing again. Our plan will deliver the services we need, create jobs, and restore economic security to the middle class.”

The major carriers in Canada have been making multi-billion dollar investments in strategic infrastructure, without government funding, creating jobs both directly and indirectly. While major centres could still attract fibre-to-the-home investment, Bell has warned there is a risk that the business case for fibre may not be supportable in smaller towns and rural areas under a mandated resale regime.

Under the Telecom Act, the yet to be formed cabinet has until July 22, a year after the original CRTC decision, to “vary or rescind the decision or refer it back to the Commission for reconsideration”. Bell’s application will get the new government to conceive its own digital policy in the next 9 months.

The term “infrastructure” appears 50 times in the Liberal platform. Will the new government want to take the risk that the private sector will curtail billions of dollars of its own investment?

It may be notable that the 2006 Report of Telecom Policy Review Panel was delivered to Stephen Harper’s first Minister of Industry, Maxime Bernier, but the panel was actually created by the Liberal government under Prime Minister Paul Martin and Industry Minister David Emerson in April 2005. That 2006 report called for a fresh review every 5 years, a call that was ignored by the Conservative government. Perhaps the new Trudeau government, in its quest to return to fact-based policy making, will strike a new expert panel to engage in consultations, just 5 years overdue.

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