What is the right amount of competition in the telecom market place? Is it possible to have too much?
Those are some of the questions being assessed by Cabinet and the CRTC right now in the context of mandated wholesale access to fibre to the premises (FTTP) facilities.
Long time readers will know that I don’t think such mandates are appropriate in a competitive environment. A fundamental issue is getting the wholesale pricing right in order to maintain appropriate incentives to invest.
However, if a wholesale FTTP mandate is going to exist, I am having trouble understanding the justification for limiting the kinds of service providers who can make use of those facilities.
TELUS wants to be able to bundle residential internet and TV with its mobile services in Eastern Canada. Bell, Rogers and the association of independent internet providers (CNOC) are arguing against it. They want mandated wholesale access to be limited to just smaller service providers. CNOC said:
TELUS would like the CRTC to give it regulated access to networks of large and small providers instead of building its own networks.
If the CRTC does not close this loophole, the future of smaller players, and of competition, will be in jeopardy.
TELUS isn’t telling the whole story. Regulated wholesale access is meant to remove barriers for local and regional carriers so they can bring additional competition to Canada’s broadband market. It was not intended to help Canada’s Big Three dominant telecom companies from growing even larger.
CNOC itself isn’t really telling the whole story. For residential internet, Bell and TELUS are really no different from Sasktel; they are regional service providers. These so-called “dominant” companies may have been former incumbents in their home regions, but they have no residential broadband customers, and virtually no residential last mile facilities, outside those geographies. Keep in mind that Teksavvy Solutions told Cabinet, “wireline communications networks are natural monopoly facilities — precisely the challenge that wholesale was introduced to address”. So which is it? Are wireline networks natural monopolies, or should competitors be building their own networks? This contradiction strikes me as a fundamental breakdown in logic.
Rogers, Bell and TELUS are national mobile service providers, but CRTC data shows that TELUS enjoys more than double the market share in BC and Alberta compared to what it has in Ontario. The CRTC shows TELUS as the market leader in its home territory, but it is a distant third in Ontario where, at 21.3%, it has less than half the share of Rogers (45.4%). In BC, CRTC figures show Bell with just 17.6% share, compared to TELUS and Rogers with over 40% each. In Alberta, Bell has just 23.3% share compared to TELUS with 50%.
Why are there such significant regional fluctuations in market share? These kinds of figures seem to point to customers choosing to bundle.
The point is, it is misleading to view Canada’s telecom market as being dominated by a monolithic “Big Three”. In most areas, bundling is available from two, not three.
In each region, there are two large competitors: one was the incumbent phone company; the other was the incumbent cable TV provider. Each has transformed to be integrated communications service providers. [I would argue that for internet, no industry participant should be considered to be the “incumbent”, but that discussion is for another day.] There are a lot of other competitors operating, some facilities-based and some based on wholesale access, some using wireline and some using wireless (fixed, mobile, and satellite).
The arguments against regional phone companies having access to wholesale FTTP seem to come down to saying “we don’t mind a little bit of wholesale-based competition, but we don’t want too much of it.” The seems to be that wholesale-based internet is good (that’s why it is mandated), as long as it doesn’t take a serious amount of customers. That was the argument put forward to Cabinet by a coalition or smaller regional companies in their appeal last December [pdf, 221KB]. The petitioners complained that large service providers could use wholesale access to fibre to sell bundles of internet, TV and wireless services, leveraging their brand recognition and existing wireless services.
“This would create immediate challenges to the long-term sustainability of regional and independent providers.” The petitioners are actually arguing that since they aren’t able to offer bundles to consumers – and they don’t have brand recognition – a third choice for consumers could wipe them out.
As I wrote in November 2023, it is a mistake to measure competitive intensity by simply counting the number of smaller wholesale service resellers. Isn’t pricing an important measure of competitive intensity? Despite rampant inflation, prices for internet services declined nearly 8% in 2023 and a further 4% last year according to data from Statistics Canada’s Consumer Price Index. Internet speeds have increased dramatically For wireless services, prices have fallen nearly 60% since 2019, while the overall CPI has risen nearly 20% in that time period.
What about levels of investment as a measure of competitive intensity? A PwC report found “the Canadian telecom sector has invested an annual average of $12.1 billion in capital on network infrastructure. This represents approximately 18.6% of average revenues, which is higher than the 14.2% average across the peer telecoms in the U.S.A., Japan, Australia, and Europe.” CRTC data shows availability of gigabit speeds to nearly 90% of Canadian households by year-end 2023, up from 65% in 2019.
Falling prices and high levels of capital investment strike me as inconsistent with declining levels of competitive intensity. For more than 10 years, I have been writing about the impact on investment created by mandated wholesale access, such as this piece. Still, we have already made the decision that wholesale access is going to be mandated, and that the CRTC would set wholesale rates that appropriately consider the incentives to invest.
So, what is the right amount of competition? It seems to be a confusing message for the government or for the independent regulator to say that wholesale access is good, as long as those wholesale-based service providers aren’t too successful.
Consumers want more choice. If consumers want more options, including integrated services bundles, why would we preclude access to out-of-region integrated service providers? Wouldn’t these service providers significantly increase the level of competitive intensity?
Governments should be concerned about protecting competition, not protecting competitors. What should be the right amount of competition? Is there really such a thing as too much? Should regulators or policy makers be imposing limits on who can compete?