Mark Goldberg


www.mhgoldberg.com





The COVID wild card

Final comments for the CRTC’s Review of Wireless Services consultation were submitted last Wednesday evening and the file is now in the hands of the Commission for determinations on whether to mandate MVNOs as well as a host of other issues.

Going into the hearing, the CRTC’s Notice of Consultation set out a preliminary view [at ¶39]:

that it would be appropriate to mandate that the national wireless carriers provide wholesale MVNO access as an outcome of this proceeding. The Commission considers that, on balance, it is likely that the benefits that a well-developed MVNO market would deliver to Canadians are now more likely to outweigh any negative impacts that a policy of mandated wholesale MVNO access might have on wireless carriers’ network investments, particularly given the extensive investments that have been made in recent years. Further, properly structured rates, terms, and conditions should further mitigate potential negative impacts on future investments.

However, 2 months ago, the CRTC re-opened the evidentiary record, asking parties to comment on a new interrogatory:

Does the ongoing situation with respect to the Covid-19 pandemic change the views you have previously put forward on any of the issues being examined in this proceeding? Explain why or why not with supporting rationale and evidence, as necessary.

What significance should we place on the Commission’s May 15 letter? To what extent, does the letter reflect an understanding at the Commission of the significant change in circumstances, that could change its preliminary view on the potential impacts on network investment? Or conversely, was the Commission papering the record, preparing a preemptive defense against a future appeal on the basis that it didn’t consider the change in circumstances?

The importance of maintaining incentives for investment figures prominently in the final comments submitted last week.

The Competition Bureau’s comments open with “This proceeding is more important than ever for consumers, businesses and the Canadian economy. The COVID-19 pandemic reinforces the need for robust competition in the wireless sector, to drive the provision of ubiquitous, high-quality wireless networks that are accessible and affordable for all Canadians.”

TELUS’ comments open with, “COVID-19 demonstrates the fundamental importance of network connectivity.”

Bell worked its way up to the subject, using 4 introductory paragraphs before stating “It [mandated resale] would be particularly destructive now, during a period of unprecedented economic turmoil brought on by the COVID-19 pandemic and at a time when large investments of private capital are required to support rapidly expanding usage, the roll-out of 5G, and the continued extension of access to underserved rural and remote communities.”

For Rogers, the COVID-19 factor was midway through the executive summary:

It is critical that regulatory policy continue to take a long-term view. Canada will require substantial ongoing investments to improve productivity, maintain its competitiveness globally, and to realize the promise of 5G. The importance of ongoing investments in high quality, resilient broadband networks across Canada, and of extending these networks to remaining and underserved areas of Canada, have been dramatically underscored by the current COVID-19 crisis. The ongoing COVID-19 pandemic has heightened awareness of the critical importance of our wireless networks to Canadians and the Canadian economy. Canada’s networks have performed among the best in the world during this unprecedented time. Mandated wholesale access to mobile wireless networks will significantly undermine incentives, and the ability, to invest going forward, jeopardizing Canada’s recovery and future success.

In the second paragraph of its final comments, Shaw warns against “artificial support for resale models that would destroy the economics of competitive investment”:

As this proceeding draws to a close, the world continues to struggle with the COVID-19 pandemic, which has illuminated the power and importance of robust, resilient and competitive telecommunications networks. These networks, and the investment capital that sustains and nourishes them for the future, cannot be taken for granted. New competitors like Shaw have invested many billions of dollars in spectrum and new wireless infrastructure that form our footing in the fight for sustainable competition. We are not done.

Videotron’s introduction to its executive summary is entitled “Introduction – les leçons de la crise COVID-19”, concluding the introduction with “Compte tenu de ce qui précède, il nous apparaît évident qu’il est dans l’intérêt national de maintenir une approche de réglementation privilégiant la concurrence axée sur les investissements.”

In its comments, CWTA was more reserved, deciding to close its executive summary with the COVID card: “As Canada emerges from the health and financial crisis caused by COVID-19, the wireless industry will play an important role in Canada’s economic recovery. The demand for high-quality, reliable wireless services will continue to grow.”

Even the potential new entrants put COVID front and centre. In the second paragraph of Cogeco’s submission, we read “This need [investments in all types of telecommunication infrastructure] is now even greater, as society has shifted many location-based activities (work, shopping, cultural activities, etc.) online in response to the current COVID-19 pandemic.”

DOT Mobile’s first paragraph opens “The ongoing COVID-19 pandemic has made acute the needs of the underserved Canadians who must rely on communication services more than ever. The underserved are now faced with severe impacts from the pandemic, such as a decrease or complete loss of income, reduction of job opportunities or mental health issues caused by COVID-19 induced stress, social distancing and solitude.”

Teksavvy said “Covid19 has brought an additional urgency to the completion of these proceedings. It has revealed how people rely on general network connectivity, as well as exposing gaps in that connectivity caused by the incumbents’ profit-seeking behaviour.” I’m not sure I understand the implicit pejorative nature of “profit-seeking behaviour”, but I am equally unclear how Teksavvy believes reductions in revenues and profits will help close those connectivity gaps.

The Coalition for Cheaper Wireless Services said in its opening paragraph “The COVID-19 pandemic has only increased Canadians’ individual
technological dependency.”

This is just a small sampling excerpted from the final comments submitted Wednesday night.

It is clear that COVID-19 is the wild card in the CRTC deliberations. What is less clear is whether the CRTC has been swayed from its preliminary view favouring mandated MVNO, despite explicitly recognizing the “negative impacts that a policy of mandated wholesale MVNO access might have on wireless carriers’ network investments.”

We’ll share more in the coming days.

PwC weighs in on mandating MVNO

A new report by PwC (released by CWTA this morning) says mandating wholesale access to MVNOs may deliver some pricing benefits to Canadians but would also bring significant negative consequences. The report, “Understanding the likely impacts of MVNOs in Canada” [3.7MB, pdf], warns that the reductions in the industry’s financial capacity would result in delays or cancellation of investments in fibre and 5G networks, leading to a wider digital divide emerging between urban and rural Canadians. Ultimately, according to PwC, Canadian competitiveness on the global stage could be jeopardized.

during the unfolding of the COVID-19 crisis, Canadian telecoms were the connectivity backbone of the country. Policymakers, regulators, the business community, and consumers all have an interest in the future of Canada’s telecommunications infrastructure. And everyone will feel the impact if regulation mandating wholesale MVNO access is introduced.

The report cites OpenSignal’s recent study showing that Canada maintained some of the world’s fastest wireless speeds, with little to no decline in speeds compared to data before the pandemic crisis. “The curtailing of network investments that could result from mandating wholesale MVNO access would hamper the ability of network operators to support crisis response efforts in the future.”

PwC’s models show that EBITDA margins could fall from 42% (2019) to 38% by 2025. Recall, in the past I have lamented how some confuse EBITDA margin with profit, inappropriately ignoring the massive capital outlays that must be covered by the “ITDA” portion. PwC notes that average return on invested capital (ROIC) generated by Canadian mobile carriers is already below the US and Australia and PwC expects that carriers will be unable to absorb the decline in revenues expected from a mandated MVNO model. To date, the report says Canada’s facilities-based mobile service providers have invested more than $70 billion in building Canada’s wireless networks; the wireless industry contributed more than $48 billion to Canada’s GDP in 2018 alone.

In the short term, according to PwC, mandating MVNO entry will lead to cuts of $5B in annual operating costs and $3B in annual capital expenditures.

We are of the view that the Canadian telecom industry today is healthy, with high-quality services offered at affordable prices via world-class networks that drives Canadian competitiveness and contributes to Canadian GDP, employment, government tax revenue and shareholder returns. Based on our analysis, we conclude that if the CRTC were to adopt the regulatory intervention some have proposed, it would lead to significant negative consequences. Ultimately, it could lead to a deterioration in the health of the telecom industry and negative outcomes for Canadians.

Under the third revision to the original schedule for CRTC Notice of Consultation 2019-57, final submissions in the “Review of mobile wireless services” are due today (July 15).

Today’s report is Part 1, looking at impacts on the Canadian telecom industry and the economy. Part 2 of PwC’s study, examining how Canada’s transition to 5G could be affected, is slated to be released in the coming weeks.

Earlier this week, PwC released another report, “The importance of a healthy telecommunications industry to Canada’s high-tech success” [pdf, 2.4 MB] as a follow-up to the study titled “Understanding affordability of consumer mobile wireless services in Canada” released last December and discussed on my blog in January. This report confirmed:

  • Canadian telecommunications providers (telcos) spend approximately 5.3 percentage points more on capital expenditures (CapEx) as a percentage of revenue than comparison countries, due to higher factors of production largely driven by geography, scale, and spectrum costs
  • The higher factors of production for Canadian telcos require higher EBITDA levels than comparison countries to maintain investment levels while keeping healthy free cash flows
  • Canadian telecom free cash flow yields, a measure of financial solvency (health), are 26% below the S&P 500 median, suggesting that Canadian telcos are not producing abnormal earnings

[Update: July 27, 2020] The second half of PwC’s study has been released, “Understanding the likely impacts of MVNOs in Canada – Part 2: Impact on Canada’s transition to 5G” [pdf, 2.6MB]

This part is composed of 4 sections:

  1. The importance of 5G to Canada
  2. What can we learn from the global 3G and 4G transitions?
  3. The opportunity cost of delayed 5G rollout in Canada
  4. A 2030 lookback: What could delayed 5G rollout mean for Canadians?

PwC says “Our analysis in Part 2 of this study supports the conclusions made in Part 1, namely that mandating wholesale MVNO access in order to reduce consumer wireless prices will lead to an unhealthy Canadian telecom industry and result in unintended negative consequences for the Canadian economy.”

No government funds for broadband in 2020

It’s already too late for government broadband funding programs to help rural Canadians get better broadband this year. But, there are still ways that governments can (and should) support new investment.

A few weeks ago, I wrote “Announcing a coming announcement”, which mentioned Ontario’s re-announcement of a program first announced almost a year ago. Last week, the Ontario Government finally released the application guide for ICON – Improved Connectivity for Ontario. For the first round of funding, applications are due August 21 and the government will consider projects that only require up to 25% in provincial support. A little more digging into the Program Guide [released by the government in Word docx format] reveals that funding offers won’t be made until April 21, 2021, so construction may actually begin in the summer of 2021.

In the case of federal funding, recall that Rural Economic Development Minister Maryam Monsef told the Rural and Remote Broadband Conference that a call for applications for the Universal Broadband Fund would be released “in the coming days”. That was over a month ago.

I think we are now well past “in the coming days”, we’re past “in the coming weeks”, and now have to score this one as “in the coming months”.

Remember, this is just to get to the point of announcing the application process. Not a single government subsidized shovel will go in the ground in 2020 to help extend the reach of high speed broadband service for rural Canadians.

It is sometimes painful to watch the glacial pace of government responding to the need for more investment in broadband facilities.

All hope should not be lost, however.

There is still private investment being made. For months, there have been announcements of fibre routes being extended and fixed wireless capacity expansions from carriers large and small. And as I wrote, the federal government can accelerate rural broadband expansion with immediate effect by simply reducing spectrum fees now, instead of waiting until next April 1. Recall, the reduced fee schedule was originally set for 2020, but was delayed a year for no apparent reason.

Not all investment in rural broadband needs to come from government coffers. Government funding of broadband distorts the marketplace. When government funds are provided to one service provider, it has a permanent advantage over its competitors.

What is needed from governments, at all levels, is to enact policy in ways that encourage increased private sector investment in new facilities.

Every policy pronouncement, every regulatory ruling, needs to be examined through lens that asks “will this help get broadband extended or expanded for more people?” We have a national service objective that we need to keep in focus.

In the meantime, the overhang from potential government funding announcements has the potential to delay private sector investment.

Indeed, the promise of next year’s lower spectrum fees for point-to-point connections is delaying investment in upgrading umbilical connections to rural broadband radio towers, delaying service upgrades, and delaying availability for new subscriber connections. As I suggested 2 weeks ago, the federal government should advance the implementation of the new fee schedule to take effect immediately.

Fixing this needs to be a priority for the federal government. It will likely delivery the greatest impact for the least cost.

More than 10% of Canadians still don’t have a residential broadband connection. The next school year opens in a month and a half and for many, we are looking at more online learning.

How can government move faster to get more broadband access, and faster broadband access, available to more people?

Sometimes, it can be easy as getting out of the way.

Strange bedfellows

An old proverb says that adversity makes strange bedfellows.

If so, there must be a lot of adversity in the CRTC’s review of paper billing practices by communications services providers, because a glance at the interventions indicates there are some strange bedfellows.

The Public Interest Advocacy Centre (PIAC) and the National Pensioners Federation (NPF), say that they are “intervening on behalf of all Canadian consumers and in particular senior members of NPF.” They want the CRTC to order, as a condition of offering communications services in Canada that “Customers should be enrolled in paper billing unless they voluntarily switch to ebilling”; and “Companies should be required to obtain explicit, verifiable consent to switch a
customer to e-billing.”

Recall that Canada’s Harper Government enacted anti-e-commerce legislation 5 years ago [see: “Paper artifacts of political pandering“], where this clause was added to the Telecom Act:

27.2 Any person who provides telecommunications services shall not charge a subscriber for providing the subscriber with a paper bill.

At the time, I wrote about the strange (but different) wording chosen for a similar clause in the Broadcast Act. As the CRTC found earlier this year, the legislation may have prohibited charging for paper bills, but “there is no indication that Parliament intended this provision to be interpreted as also imposing an obligation to provide subscribers with paper bills”. In other words, the CRTC’s view of the legislation is that service providers can’t charge for a paper bill, but there is also no obligation to actually provide a paper bill.

PIAC’s view was supported by a variety of parties, some of them I found to be quite interesting. A number of the independent service providers were in favour of mandating paper bills, as long as those obligations fell upon their competitors and not themselves. Apparently, their customers don’t have the same needs.

The CEO of Peterboro Matboards, a company that provides mats to the framing industry, said “Since as Canadians we pay the highest cell phone rates in the world I believe I should get a hard copy mailed to me if I so choose.” He apparently didn’t see the connection between service prices and the imposition of high cost regulatory obligations.

That wasn’t the only paper company to intervene. The vice president of government relations of giant Domtar (2019 revenues of US$5.2B) wrote from South Carolina to tell the CRTC “Communication service providers should be required to have clear consent from consumers before a switch to digital is made.”

I thought the most interesting filing came from a group called “Keep Me Posted North America“. Although Keep Me Posted North America is Chicago based, the “Supporters” page for the organization includes Canada’s PIAC as a coalition member. “Keep Me Posted North America is a coalition of consumer groups, charities and businesses that represent North Americans who are disadvantaged by lack of choice, or simply want to retain paper-based communications.”

The intervention is interesting and it cites a “survey of 1,044 Canadian consumers [that] was commissioned by Two Sides”. There is no other reference to Two Sides, other than a link to its study. It turns out that Two Sides North America happens to share the same office as Keep Me Posted North America, in the heart of Chicago. As an aside, the 52-story office tower (330 N. Wabash) looks like it should be part of Toronto’s TD Centre; it too was designed in the same era by modernist architect, Ludwig Mies van der Rohe.

But let’s get back to Two Sides. According to its website,

Two Sides North America is an independent, non-profit organization, and is part of the Two Sides global network which includes more than 600 member companies across North America, South America, Europe, Australia and South Africa. Our member companies span the Graphic Communications and Paper-based Packaging value chain, including forestry, pulp, paper, paper-based packaging, chemicals and inks, pre-press, press, finishing, printing, publishing, envelopes and postal operations.

So, Keep Me Posted North America claims to be a consumer coalition that just happens to share office space with the pulp and paper lobbyist, Two Sides North America. Perhaps it was by happy coincidence that Keep Me Posted North America came across a survey of Canadians conducted by its office mate. After all, the filing by Keep Me Posted only said “KMP is a pro-consumer campaign designed to provide educational and awareness programs so that consumers are empowered to choose the best delivery method for their social and economic needs.”

Of course, it isn’t a coincidence. A 2018 article in Graphic Arts Magazine makes it clear that Keep Me Posted is a ‘campaign’ overseen by Two Sides. Some might call it astro-turfing. PIAC is close enough to Keep Me Posted that it was PIAC that filed the intervention on Keep Me Posted’s behalf, when the Chicago-based group had trouble accessing the CRTC’s website.

A couple years ago, Two Sides wrote a blog post “Comcast’s “EcoBill” is all about saving money, not trees!” With so many complaining about communications prices in Canada, why would a Canadian public interest group be a coalition member, jumping into bed with “Big Paper”? As I have written so many times before, there is a cost associated with regulation, costs that ultimately get passed on to consumers.

Shouldn’t we support efforts to lower costs?

Speaking of costs, normally PIAC would file an application with the CRTC following the close of filings for a proceeding, seeking reimbursement of its costs associated with participating, in accordance with the CRTC’s Rules. I have to wonder if PIAC should be seeking costs from its coalition partners, North America’s multi-billion dollar pulp and paper industry.

The CRTC will make a determination on whether to impose costly new regulatory obligations on communications services providers. Should Canadian communications services subscribers underwrite costs for the bedfellows of the pulp and paper industry.

Indeed, the CRTC could even determine that the pulp and paper industry can be called upon to look after their own coalition member, and have the various participating paper companies named as respondents for other cost-award applicants. The CRTC needs to “follow-the-money” on the interventions, looking at Keep Me Posted from more than one angle – perhaps from two sides, so to speak.

When it joined a front group representing the pulp and paper industry, did PIAC know with whom it was getting into bed?

Look at the data

I noticed a number of people retweeting a chart produced by Visual Capitalist that looked at the price of 1 GB of mobile data in various countries.

Canada was listed near the top with an average price said to be $12.55 (USD), along with a caption of “Canada’s high cost for data can be explained by its high market concentration. In 2018, Bell, Rogers and TELUS collectively had over 82% of all wireless service revenues”, citing the CRTC as its source. I am not able to find a source for that figure. The CRTC’s Communications Monitoring Report actually shows a higher data point for 2018, but that isn’t really what is important. It simply isn’t true that ‘high market concentration’ is responsible for Canada’s mobile service prices.

In virtually every developed country in the world, the top three service providers hold an even higher share of the market. The trajectory of Canada’s smaller carriers is increasing; in 2019, Freedom Mobile and Videotron accounted for a third of net new subscribers. Other countries are experiencing consolidation.

In his opening remarks at the CRTC Review of Wireless Services, Dr. Robert Crandall testified “Canada continues to benefit from a competitive wireless industry, an industry that is less concentrated than the wireless industries in all but two developed countries in the world – Denmark and Sweden.”

Dr. Crandall continued, saying “In a regulatory environment that has relied heavily on platform competition, Canadian carriers have invested far more per subscriber than have European carriers, who have been traditionally much more regulated.” Indeed, if you look at the text that accompanies the pretty picture (and I know, many don’t bother with such detail), you’ll find that Visual Capitalist has a section that discusses variations in prices. “Relatively wealthy nations tend to charge more for mobile services since the population can generally afford to pay more, and the cost of operating a network is higher. This is apparent in countries like Canada or Germany.”

But let’s look at the data in a little more detail. How was this Canadian average price of US$12.55 calculated? The source information for the Visual Capitalist chart comes from cable.co.uk; there is a lot of important detail to be gleaned from its original research and data set [xlsx, 128 KB].

Apparently, cable.co.uk looked at 60 Canadian price plans on February 6, 2020. The samples ranged in price from C$2.50/GB to C$140/GB. Yes, that is right. Converted into US (cable.co.uk used an exchange rate of US$0.712 = C$1.00), and we see a range of US$1.78 to US$99.68. A remarkably wide range included in the sample. How was the sample size of 60 determined? In its description of methodology, the company says “Packages were recorded up to a maximum of 60 per country – records beyond this number have negligible impact on the average.” But, that actually isn’t true.

Plans that are in the order of $100 per GB each add $1.66 to the average, more than a 10% impact on the average for each plan at that level. Canada is one of very few countries in the sample that hit the arbitrary maximum in the sample size. In itself, is that an observation on the amount of choice available to consumers? Looking at last year’s data, the maximum price plan included in the Canadian samples was $80, contributing to a lower average price point, despite a worse exchange rate. The data set shows the average at C$15.92 (US$12.02) on October 26, 2019 compared to C$17.63 (US$12.55) on February 6, 2020. Does anyone think prices actually increased in Canada between October and February?

Further, the mere availability of a plan at that $140/GB level (likely something like a $15 plan with 100MB), says nothing about its relative popularity or relative affordability. It is absurd to think that someone looking for 1 GB of data would give more than a passing glance at a $140 plan, when unlimited plans are in the marketplace from about $50. Similarly, someone mainly looking for an emergency phone, needing minimal data, might find such a plan to be a better solution than an unlimited plan.

Is it even appropriate to use straight arithmetic averages to compare countries or should there be weighting based on various factors, such as which plans consumers are actually choosing in the marketplace.

It’s very easy to look at a chart on social media, nod one’s head, and retweet or reply without bothering to look beyond the headline. It is tougher to apply a critical eye, look at the data, and determine policy based on deeper analysis.