Month: September 2024

“Delivering on the Copper Decommissioning Promise” is the title of a recent Scotiabank report, issued as part of its Converging Networks 2.0 series. Frequent readers know that I have often cited Scotiabank research. I thought the bank’s September 13 report merits highlighting.

North American incumbent local exchange carriers (ILECs) have been aggressively deploying fiber within their territories over the last decade. These upgrades have delivered sizable improvements in market share, churn, average revenue per user (ARPU), and cost to serve. Canadian ILECs have been more aggressive than their US peers in rolling out fiber; hence, they have been able to deliver stronger wireline metrics. But what about the “holy grail” of copper decommissioning? TELUS Corporation is the most advanced on the copper decommissioning path within our coverage. Why is this relevant to investors, and when should we begin to bake value upside into these names? In this report, we explore some of the regulatory differences between the United States and Canada related to copper decommissioning and provide an update on fiber rollout and decommissioning plans for companies under our coverage. Bottom line, we believe regulators should encourage ILECs to decommission copper while also making sure to protect vulnerable customers. Fulfilling the copper decommissioning promise will provide additional incentives for ILECs to invest in network upgrades down the road.

As this paragraph notes, Canadian phone companies have been more aggressive than their US counterparts in deploying fibre. Scotiabank estimates that fibre represents about 60-65% of the Bell and TELUS total footprint, while Verizon is about 60%, Frontier is approximately 47% and AT&T has the lowest percentage, despite covering close to 28 million of its premises.

The copper migration by TELUS is seen as enabling monetization of the scrapped copper cables, as well as permitting redevelopment of real estate as central offices are converted. “The saved space inside COs is being rented to cloud companies to install servers.”

Of course, this raises the question of how regulators view the network evolution to fibre. In the US, the FCC has had rules in place for nearly a decade. The US regulator has a web-page describing how technology transitions could affect consumer services. In Canada, the CRTC has indicated “it will shortly address issues related to decommissioning practices through further process.” In its wholesale broadband decision last month, the CRTC added “In the interim, to ensure that consumers are not negatively affected, parties are expected to avoid instances where competitors could lose access to higher-speed aggregated HSA. Should such situations arise, the Commission is prepared to address them expeditiously on a case-by-case basis.”

Scotiabank said “We believe it will be important for the CRTC to not impede ILECs’ copper decommissioning initiatives, especially now that fibre to the home (FTTH) wholesaling will be regulated, while at the same time enforcing measures to safeguard users who need access to 911 services in case of power outages.”

Scotiabank noted two primary concerns with copper decommissioning: reduced competitive choice; and, emergency phone access during a power loss. Solutions exist to mitigate against each of these. The CRTC’s Telecom Regulatory Policy CRTC 2024-180: Competition in Canada’s Internet service markets, addresses the risk of reduced competitive choice by mandating fibre resale. Battery backup provides an option for emergency access, where customers do not have alternate means to call during a power outage.

The CRTC has a very full calendar of activities, so it is difficult to forecast the timing of a regulatory review of copper decommissioning policies. I’ll leave the topic with this caution from the Scotiabank report. “We understand why putting some guardrails in place for copper decommissioning is important; however, we hope that this review does not lead to a heavy-handed regulatory decision that would curtail ILECs’ drive to decommission their copper.”

New Frontiers in Broadband, an Ivey telecom policy workshop, is coming up on the afternoon of October 16 in downtown Toronto. As frequent readers know, I have been a big supporter of these events ever since Erik Bohlin joined the Ivey Business School as the Ivey Chair in Telecommunications Economics.

The October 16 workshop will focus on the role of non-terrestrial networks, with a special focus on satellite and direct-to-device integration. The workshop will also look at how these extra-terrestrial networks can enhance network resilience and security, provide new business models. How does this raise new regulatory challenges, and help bridge the digital divide?

Over the past 6 months, I have been following developments in cellular and satellite convergence. Recently, ISED launched a consultation on mobile coverage and satellite networks. Similar initiatives have been launched in the US, the United Kingdom, and Australia.

This event will convene international experts from academia, government, and industry to address pressing questions and solutions.

The Ivey workshop will bring together international experts from academia, government, and industry to address questions and solutions.

Topics to be addressed include:

• Emerging geopolitical security and resiliency dimensions
• Space race, legal options and crowding-out
• New business models and network substitutions
• New solutions for digital divide
• Regulatory asymmetries, bottlenecks, roaming and open access
• Extra-territorial impacts of satellite networks
• New spectrum assignment and licensing opportunities
• Resilience reconsidered: GPS, cybersecurity, emergency management
• New opportunities for public-private partnerships and government finance

The event will be held at Ivey’s Donald K. Johnson Centre, located on the Ground Floor of the Exchange Tower at 130 King Street West in the heart of Toronto’s financial district.

You can download the program agenda here [pdf, 650KB]. I hope you’ll register to join this special session looking at new frontiers in broadband.

There are competing policy approaches to build national leadership in a digital future.

A recent article by Mark Jamison describes a choice American voters might make this November. He describes a Republican platform, embracing “the consumer-oriented and business-led economic policies that made the US the leading country for tech startups, AI research capacity, and creating world leading tech giants.” On the other side of the ballot, is the Democratic platform, with “a European-style government-built economy where government is the creator of jobs and director of business.”

Dr. Jamison is the director of the Public Utility Research Center at the University of Florida’s Warrington College of Business.

Dr. Jamison says the Democratic platform puts government as the central planner for evolution of the information technology sector. “In this paradigm, the government creates tech hubs, breaks up companies, and oversees what businesses do. The vision is clear: Government supervision and direction are necessary to distribute the benefits of technology and curtail large, successful businesses.”

He describes an alternate vision, with government simply setting out a legal framework for economic and technological development. He describes the Republican platform as emphasizing deregulation to spur innovation. “An underlying belief is that less government interference allows for greater technological advancements, led by customers and the private sector.”

Last week, I referred to the European Union’s newly released report, “The future of European competitiveness”. The report laments “there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion have been created in this period.”

The problem is not that Europe lacks ideas or ambition. We have many talented researchers and entrepreneurs filing patents. But innovation is blocked at the next stage: we are failing to translate innovation into commercialisation, and innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive regulations.

There are competing visions for how governments should support the economic drivers for a digital future. Europe is being advised that past approaches favouring heavy regulatory intervention are counter-productive.

Dario Betti, CEO of the Mobile Ecosystem Forum, was quoted by Telecoms.com asking “should telecom services be treated as utility services like water, electricity, and gas, where government oversight limits prices but stifles innovation? Or should the industry operate as a free market, where businesses innovate, set prices, and consolidate freely?”

I question whether US voters will actually place an emphasis on economic platforms when voting for president. I think other fundamental questions are (or at least, should be) front of mind for voters. Perhaps pocketbook issues will play a bigger role as voters fill out other portions of their ballots, such as voting in congressional and senate races.

Based on what I hear in Parliamentary Committee meetings, it isn’t clear that one political party favours a materially different level of government intervention in the market. Once we get past the carbon tax rhyming rhetoric, I wonder if a change in government will simply replace the name of the Industry Minister with a thumb on the scale.

Will competing visions for a digital future emerge in the development of election platforms in Canada?

Effective with the release of the August 2024 Consumer Price Index (CPI), Statistics Canada is enhancing the way it calculates the cellular services price index.

Each month, I examine the telecommunications-related components of the CPI, and I frequently refer to the results on these pages (such as here or here) or on social media.

Last month, Statistics Canada’s CPI release included a notice of an “upcoming enhancement”. The technical note, available in HTML or pdf formats, contains a lot of statistical jargon that reminded me of my graduate school days.

But there is a lot of summary information that everyone can understand. Bottom line? Statistics Canada is getting information on actual sales to calculate the cellular services component of the Consumer Price Index.

The Consumer Price Index (CPI) measures price change by comparing the cost of a fixed basket of consumer goods and services through time. To produce a CPI that accurately reflects the experience of Canadians, Statistics Canada regularly updates the methodologies of various components of the CPI. The method used to calculate the CPI follows accepted international standards. It is also regularly reviewed internally and by experts outside the agency, and adjusted as needed to ensure it meets best practices.

Effective with the August 2024 release, “Statistics Canada now receives monthly transaction data containing plan level information from WSPs with several retail brands across Canada.” The transaction data provides a more comprehensive source of information used to enhance the index than the previous methods of data collection, and Statistics Canada says it represents a “more complete picture of the market.”

There is a cautionary “however” attached to the enhancements.

This enhancement improves the quality of the data, while ensuring the representativeness of prices paid by Canadian consumers. Users should exercise caution when interpreting the year-over-year change for the first 12 months following the implementation of a new methodology and data source.

Users are also advised to exercise caution when making provincial/territorial comparisons. The market shares of the sampled wireless service providers vary across provinces and territories, and price changes derived from transaction data may differ from price changes derived from web-collected data as transaction data includes monthly charges for in-market and legacy plans, while web-collected data only contains monthly charges for advertised plans.

It bears repeating with emphasis: “Users should exercise caution when interpreting the year-over-year change for the first 12 months following the implementation of a new methodology and data source.”

I will be starting a new spreadsheet effective with tomorrow’s CPI release. Watch out for anyone citing the CPI for year-over-year changes in cellular services prices.

I have frequently written about government keeping out of the way. The phrase “out of the way” appears in about 25 of my posts.

Twice, I used the same title, “Getting out of the way” [2012, 2016]. Earlier this year, in “Let the marketplace work”, I describe government policies and regulations inhibiting capital investment by the telecom sector.

So, it was with interest that I read a recent article on “The Hub”, “Want to be a more productive country, Canada? Get the government roadblocks out of the way” by Jerome Gessaroli. He says “policies relying on government intervention to replace the free market seldom produce improved growth and productivity.” His article includes 4 policy recommendations relating to government maintaining a smaller economic footprint.

Mario Draghi’s newly released report for the European Union, “The future of European competitiveness” [Part A (A competitiveness strategy for Europe) pdf, 3.4MB | Part B (In-depth analysis and recommendations) pdf, 11.5MB], cites “inconsistent and restrictive regulations” among the hindrances for innovative company growth. The report calls for reducing the regulatory burden imposed on European companies. “More than half of SMEs in Europe flag regulatory obstacles and the administrative burden as their greatest challenge.” According to the report, “Regulation is seen by more than 60% of EU companies as an obstacle to investment”.

In other words, I’m not alone in wanting government to stay out of the way.

A few years ago, I quoted Ronald Reagan’s 1986 remarks to the National White House Conference on Small Business. “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

That approach gives the appearance of government doing something, but rarely achieves a positive long-term outcome. It seems to be where Canada is heading with its legislation on the digital economy. The Online News Act and Online Streaming Act already drove unintended consequences, as predicted. In addition, Canada is risking a trade dispute with the US over its approach to taxing digital services.

It is so very tempting to intervene in the marketplace. It takes much stronger leadership to trust in the power of competitive markets. Look at the telecom market. Canada ensured there are 4 well-capitalized facilities-based wireless service providers operating in most of the country, including all population centres. These service providers have sufficient spectrum and technology to compete in both mobile and fixed markets.

Continued regulatory intervention in the marketplace threatens to return Canadian telecom to the haphazard Calvinball era of a decade ago. Such an environment discourages investment, precisely the opposite of what is needed to drive productivity.

Government needs to try a new approach. Stand aside.