In his address at this week’s Scotiabank TMT conference, CRTC Vice-Chair (Telecom) Adam Scott spoke about the Commission working to promote dynamism in the telecommunications marketplace, “where companies make big bets in new technology… to differentiate their offers and bring new value to consumers”. His address offered a detailed explanation of how the CRTC is thinking about the telecommunications industry and some its recent telecom policy decisions.
The CRTC says telecom needs more “dynamism.” There are many ways the industry has been taking big risks for decades — but as I wrote earlier this week, there are signs suggesting CRTC regulation is cooling investment.
One phrase stood out: the Vice-Chair described the Commission’s decisions as ‘regulatory hypotheses’ that will ultimately be tested by evidence.
We go through proceedings to crystallize issues and identify the strategically important outcomes that our decisions need to promote. And then we take the evidence on the record and use it to form a regulatory hypothesis—that by taking a certain course, we will see a certain type of outcome.
That framing is welcome. Regulatory policy should absolutely be judged by its real-world outcomes.
But the speech also contained a premise that deserves closer scrutiny: the suggestion that telecom companies need encouragement to take bold commercial risks to inject dynamism into the market.
If anything, the opposite is true.
Canada’s telecom sector has always been about big bets. Canada’s telecom networks exist today because companies repeatedly took enormous risks on new technologies.
In the 1980s, operators invested heavily in cellular networks long before there was certainty that Canadians would adopt mobile services. At the time, many observers believed mobile phones would remain a niche product for executives and emergency services.
Fast forward a few decades to see tens of billions of dollars poured into nationwide LTE networks, fibre-to-the-home deployments, and now 5G. The shift from copper to fibre alone represents one of the largest infrastructure upgrades ever undertaken in Canada’s communications sector.
These investments weren’t made because regulators encouraged companies to ‘take risks.’ They were made because companies believed that, if they made the right bets, the regulatory and policy environment would allow them to recover the enormous capital required to build those networks.
That distinction is important.
Telecommunications is one of the most capital-intensive industries in the economy. Networks require billions of dollars in upfront investment with payback periods measured in decades as confirmed by one of the CFOs at the Scotiabank event. Companies only deploy that kind of capital when there is a reasonable expectation of regulatory stability and an opportunity to earn a return on investment.
The issue isn’t willingness to invest — it’s the risk environment associated with those investments.
The Vice-Chair’s speech repeatedly emphasized affordability and competition as policy goals. Few would disagree with those objectives. But, the real balancing act in telecom policy is ensuring that regulator’s competition frameworks don’t undermine the incentives driving facilities-based investment.
Investors pay close attention to regulatory risk. When policy signals suggest that long-term returns could be constrained, capital allocation decisions adjust accordingly. Those signals don’t take years to show up. In fact, as I wrote earlier this week, the CRTC’s own Canadian Telecommunications Market Report (CTMR) demonstrates we are seeing early evidence. Several Canadian carriers have pulled back on capital spending plans.
At the same time, financial analysts have begun openly questioning whether further reductions in capital expenditures (capex) are warranted. For example, analysts at Scotiabank recently wrote “wouldn’t it make more sense for incumbents to materially reduce capex” given the evolving regulatory environment. Those comments didn’t come from industry lobbyists. They came from the investment community that finances telecom infrastructure.
Another theme in Mr. Scott’s remarks was the suggestion that large network operators might prefer a world without wholesale competition. That framing misses the real debate.
Canada’s telecom providers compete intensely every day. They spend billions expanding networks, upgrading technology, and fighting for customers in one of the most capital-intensive sectors of the economy.
The question has never been whether competition should exist.
The question is how to structure competition policy and regulation in a manner that preserve strong incentives to build and upgrade infrastructure.
Facilities-based competition — companies building and operating their own networks — has been the foundation of Canada’s telecom success. Fibre networks, nationwide wireless coverage, and now 5G infrastructure exist because companies – competing companies – invested billions of dollars to build them.
Resale-based competition can play a role in the market. But if it significantly weakens the economics of building networks, the long-term consequences are felt in slower investment and delayed upgrades.
Let’s return to the description of Commission policies as regulatory hypotheses that will ultimately be tested by evidence. As we heard in his address,
We have advanced regulatory hypotheses that now serve as blueprints for the future. The architect’s job is done, and the plans have been handed over to the builder. Might we need to adjust as we go? Sure, that’s normal, prudent, and expected. A good regulator, like a good builder, will adjust to conditions on the ground. We will need to, and are in fact required to, actively gather the evidence that will inform us as we go.
The hypotheses are already being tested and evidence (in the form of the CTMR) is already in the hands of the Commission. Price movements are one piece of evidence, but they are far from the only one. The more important indicators are the signals coming from capital markets and the investment decisions being made inside telecom companies.
When analysts begin advising operators to reduce network investment, that should get policymakers’ attention. Those policymakers might want to explore whether their hypothesis needs to be adjusted, recognizing the “conditions on the ground.”
I’m not convinced the regulator’s job as architect is done and that it is now up to the industry to build.
Ultimately, whether the industry continues building at the pace Canadians expect depends upon the blueprint regulators have drawn.
Telecom operators have never lacked the willingness “to make big bets,” to take risks “to differentiate their offers and bring new value to consumers”.
But, even the most ambitious builders need a regulatory framework that supports long-term investment, not one that makes such investments harder to justify.
How should the CRTC promote dynamism in telecommunications? By architecting a policy framework that supports long-term investment by carriers to build facilities and infrastructure.