“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.”