High cost serving areas

It has been a number of years since I last looked at how the CRTC deals with telecom service in high cost serving areas. In 2020, I reminded readers of an under reported consequence of the Commission’s landmark 2016 Telecom Policy determination.

At that time, the CRTC created its own broadband subsidy fund – a pot of money that seems to be easier for the Commission to collect than to distribute. But, the regulator also announced, “the Commission will begin to phase out the subsidy that supports local telephone service.” The CRTC swapped out a program that provided ongoing support for all high cost serving areas, in favour of awarding one-time payments to specific winning projects. Although the CRTC’s Broadband Fund duplicates other federal and provincial government programs, the cynic in me blames the allure of handing out oversized ceremonial cheques or appearing at ribbon cuttings.

That is relatively old news. Why bring that up today? Good question.

There is a CRTC proceeding underway that I found interesting. Perhaps you will as well.

In British Columbia, there are 8 communities served by three very small telephone exchanges with a total of 110 residential customers and 5 businesses: Leading Hill and Espinosa in the Tahsis exchange; Nemiah Valley and the Xeni Gwet’in First Nations in the Alexis Creek exchange; and, Red Lake, Tranquille Valley, Heller Creek and Green Stone Mountain in the North Kamloops exchange. North Kamloops is a forborne market, meaning that telecom services there are not regulated; in Tahsis and Alexis Creek, services are provided under regulated tariffs. Tahsis is located about 200 km from Courtenay; Alexis Creek is about 100 km from Williams Lake; and North Kamloops is in an extremely mountainous region 50km from Kamloops.

As such, these communities are connected to the TELUS backbone network using microwave radio links using the 3500MHz band. The radio systems being used in these communities are outdated. The equipment is no longer supported; the manufacturer (SR Telecom) went bankrupt 15 years ago. As if that wasn’t enough, the spectrum is being reallocated by ISED. Despite an intent for the 3500 MHz spectrum plan to recognize how it was deployed for rural fixed applications, service in these communities is a victim of the band moving to mobile service.

All this to say, TELUS notified customers early in the New Year that their phone service was going to be discontinued. The letter from TELUS indicated that customers would be receiving a cheque for $1400 as compensation. The amount was seen as sufficient to cover the installation and up to one year of service fees for an alternate service provider operating in the area.

TELUS voluntarily offered this compensation because it was guided by related situations of regulated services withdrawal. In particular, the financial compensation is comparable to the amounts that the CRTC has recently ordered other carriers to compensate customers impacted by scenarios where such carriers have applied to the CRTC to withdraw a regulated service in its entirety due to obsolete technology or increased costs that make the service uneconomic.

Note that TELUS is giving the financial compensation to all affected residential customers, even if they might have Internet services from another provider. For customers who already have Internet services, the $1,400 is well above what they will need to pay to add VoIP services for one year.

As of May 1, 88% of customers had already cashed their cheques. More than a quarter of the customers have already migrated off TELUS. In its application, TELUS says that in one of the communities, there is only one remaining customer using the TELUS service.

As TELUS wrote to the CRTC, the business case to deploy fibre facilities to these communities is not viable. Each are located very far from the nearest local exchange, requiring significant expenditures to build transport facilities via terrestrial technology. TELUS said that constructing terrestrial transport networks is simply not feasible in the short or medium term. “Such construction would require TELUS to obtain land use and access rights over Crown and First Nations lands. It is TELUS’ experience that obtaining such rights often takes years, because of the need to conduct consultations with various agencies and stakeholders.”

And as you have read on these pages countless times, mandated wholesale fibre doesn’t help the business case. It makes it even less attractive. TELUS included precisely such a dig in response to one of the CRTC’s interrogatories:

Unserved fibre communities such as these underscore why wholesale fibre-to-the-premises (“FTTP”) mandates, such as those under contemplation in Review of the wholesale high-speed access service framework, Telecom Notice of Consultation CRTC 2023-56 (“TNC 2023-56”), are not sound policy. There are still many rural and remote communities that lack FTTP access. Regulatory mandates worsen the business cases for future FTTP deployment. As a result, FTTP deployment in rural and remote communities would be most at risk, given that the business cases there are already marginal. TELUS noted the especially adverse impact on remote and rural communities of wholesale FTTP mandates in its Intervention in TNC 2023-56.

Keep in mind, there is already at least one other service provider operating in the area. Customers are not being left without any options for telecom services.

Last month, the CRTC asked TELUS to file a Part 1 application to set out:

  • TELUS’ proposal for how it intends to respect the Commission’s policies and regulations governing the disconnection of local exchange service, and
  • alternate options that would be available to TELUS for serving these communities (for example: obtaining a license from the new spectrum licensees, using alternate spectrum, or implementing other technologies).

The Commission noted that ISED has extended permission for TELUS to continue to use the spectrum until March 31, 2025. ISED noted that “This authorization only applies to existing legacy 3500 fixed point-to-point links and will not grant protection from interference, nor can operation interfere with other licensees in the area. TELUS will be required to cease operation upon reports of any interference from the operations of these links in the area.”

The CRTC has stated a belief that TELUS has an obligation to serve communities in its operating territory.

In a competitive world, what does an “obligation to serve” mean? TELUS responded that it is a federally-incorporated company that has authority to provide telephone and other telecommunications services throughout Canada, but it has no legislative duty, either under its incorporating statutes or the Telecommunications Act, to provide its services to any particular community or in any particular part of Canada.

TELUS wrote in its application:

Under the current legislative and regulatory framework, Commission approval is not required for a scenario where an incumbent telephone provider like TELUS faces the loss of facilities necessary to continue provisioning home phone services generally. There is, however, a process to apply for CRTC approval in analogous situations involving the withdrawal of regulated services provided pursuant to a specific tariff item. The process requires that customers be notified, substitutes be identified, and reasonable compensation in the form of a one-time payment be provided to affected customers. TELUS has proactively taken these constituent steps, plus more, in this extraordinary scenario where the continued provision of service by TELUS has been rendered impossible absent the construction of an entirely new network.

The application lays out an alternative. TELUS says the Commission can authorize (and subsidize) new construction to support fixed or mobile broadband under its Broadband Fund, furthering the CRTC’s goals to bring broadband coverage to rural and remote areas. “Though TELUS is not subject to a regulatory obligation to build broadband facilities,” the application provided details for options for two of the communities.

There is a fundamental difference between having the authority to provide telecom service, versus having an obligation to provide such service. I’ll look more at the issue of the obligation to serve next week.

At the core of this regulatory proceeding is a need to understand the economics of providing telecom service in high cost serving areas.

Perhaps on a related front, the CRTC re-opened its consultation on the Broadband Fund, inviting comments until June 5. The original Notice of Consultation had comments close last September.

These are going to be files worth watching.

ARPU doesn’t reflect consumer bills

Earlier this month, I promised to explain why ARPU doesn’t reflect consumer bills. In that post, I explained why ARPU trends aren’t the same as pricing trends.
ARPU doesn't reflect consumer bills
Studies from ISED and monthly Consumer Price Index reports from Statistics Canada reveal significant lowering of mobile service prices.

At the same time, disinformation campaigns have said these price reductions aren’t showing up in consumer bills. Their evidence? Quarterly financial reports from service providers include an indicator, Average Revenue per User (ARPU). Industry critics say that ARPU is a proxy for monthly consumer bills, and ARPU has remained relatively flat compared to the dramatic fall in plan prices.

On Twitter, Prime Minister Justin Trudeau took the credit, saying “We’ve cut the cost of cell phone plans in half since 2019 — in part by increasing competition.” Opposition MPs and industry critics misread the post, confusing “plans” with “bills”, and then confusing “bills” with “ARPU”.

The problem is, ARPU simply isn’t a proxy for consumer bills.

Service providers have different ways of calculating ARPU. Broadly, wireless mobile phone ARPU is “wireless service revenue divided by average subscriber base for the relevant period.” The inclusions in the numerator and denominator can vary between service providers.

Superficially, we could take total consumer revenues, divide by total subscribers and the result would be the average consumer bill. Simple, right? The problem is that ARPU doesn’t just look at consumer revenues and consumer subscribers.

Oops. That is an important detail that gets missed by a number of academics and industry critics.

Let’s consider what kinds of things are included in the numerator. It usually includes more than just consumer service revenues. Most service providers report total wireless service revenues. That means the top line includes lots of things beyond consumer cellular phone plans. Connected cars? Those revenues are in there. Internet of things (meter readings, etc.)? In there. Security system connections? Fixed wireless broadband services? If it runs over the wireless network, the revenues are included in the numerator. Roaming fees are in there, but are dramatically shrinking since consumers have access to plans that include roaming. Overage fees are also becoming a thing of the past. And the $10 bundle savings you received when you combined your wireless with your home phone or internet or TV? That discount is charged to the wireline side; the full revenue is included in the wireless ARPU calculation.

As for the denominator, the ARPU calculation generally uses just the number of wireless mobile phone subscribers. So there is a mismatch between the revenues included in the numerator and the number of units included in the denominator. Consumer phone prices are dropping; most consumers have substantially lower monthly phone bills, but neither of these trends show up in the ARPU, because there are other sources of revenue being generated by the service providers. Those other sources of revenue have nothing to do with consumer revenues – or consumer bills.

As a result, ARPU may be a useful financial indicator for analysts, but it does not reflect consumer bills. ARPU is one of the many financial measures used by investors. It simply isn’t meaningful as a proxy for what consumers pay. That is why I continue to push back on those who keep spreading the misinformation.

I’ll repeat what I told a talk radio program last month. If you haven’t looked at your mobile phone plans in the past year, call your service provider or visit a shopping mall today. It is much cheaper for most plans than it used to be.

Digital literacy

In one of my posts last week, I mentioned “Measuring Digital Literacy Gaps Is the First Step to Closing Them“, a recent article from ITIF.

We all agree on the importance of being digitally literate in today’s world. Most of us can’t imagine communicating, working, studying, being entertained, banking, shopping, or driving without using a computer, our smartphone or a tablet. Knowing how to safely use digital devices and the internet is a basic need. However, as ITIF writes “we have no clear system of measuring this type of literacy rate.”

How do we know where our population stands? How do we compare to other comparable countries? Do we have any idea if we have a problem with digital training?

I, for one, suspect we do.

ITIF suggests a data-driven approach, meaning we need to develop measurements for rates of digital literacy.

Simply connecting to the Internet is no longer enough. To really benefit from the information age, populations need the ability to navigate the Internet and use connected devices with some baseline level of skills. To equip our population with essential twenty-first-century skills, we need to standardize that baseline and figure out how to assess whether and when it’s met.

Recall, a few months ago I wrote about Alberta’s approach to upgrading digital skills. Alberta offers two streams, beginner and intermediate. But how do you know which one to take? How do we know the size of our literacy gap in the absence of a measurement tool.

The term digital literacy can mean different things to different people. ITIF cites a definition by the National Digital Inclusion Alliance. “Digital Literacy is the ability to use information and communication technologies to find, evaluate, create, and communicate information, requiring both cognitive and technical skills.” Can you access information online? Do you know how to communicate using email or messenger applications? Are you comfortable with online banking? Joining a Zoom meet-up or webinar?

ITIF notes that since it can be important to identify reasons behind digital illiteracy. For example, does the user have difficulty with problem-solving in general or is it due to unfamiliarity or discomfort with a particular application. These would require different approaches to remediation. “From that perspective, a largely outcome-based definition leaves room for ambiguity.”

Researchers also need to contend with the fact that digital skills themselves, no matter how narrowly defined, can be difficult to measure. Any attempt to measure practical, and not always outwardly discernible skills—such as comfort with or understanding of a particular process—often relies on self-assessment or otherwise self-reported data. This fact opens digital literacy studies up to a measurement problem. Different people’s evaluations of their own competency at the same task might reflect different understandings of what the standards for that competency should be. In other words, people don’t always know what they don’t know.

What gets measured, gets done.

The CRTC and ISED measure progress toward universal access to broadband. But, we also need to focus on the demand side, ensuring Canadians are getting online. It isn’t enough to have access to high speed internet at your doorstep. We need Canadians to actually get online, and feel comfortable doing so.

Should we add digital literacy indicators to Canada’s online dashboard?

Is the internet making us stupid?

Fifteen years ago, I referenced a Nicholas Carr article in the Atlantic, “Is Google making us stupid”.

I couldn’t help but think of that article thanks to a number of social media interactions over the past few weeks. People were replying to me with various Tiktok videos that were just plain wrong.

Carr’s article in the Atlantic said that the web is able to deliver a lot of information to us very quickly. This was 15 years ago, remember. Unfortunately, in doing so it tends to encourage us to not look at the information very thoughtfully.

media are not just passive channels of information. They supply the stuff of thought, but they also shape the process of thought. And what the Net seems to be doing is chipping away my capacity for concentration and contemplation. My mind now expects to take in information the way the Net distributes it: in a swiftly moving stream of particles. Once I was a scuba diver in the sea of words. Now I zip along the surface like a guy on a Jet Ski.

Zipping along in a jet ski is a great metaphor for those 30 second TikTok videos that seem to be a major source of information for too many members of our society. I am more of the scuba diver kind of consumer of news. Superficial skimming through articles isn’t necessarily making us stupid, but I doubt it is making us any smarter. It’s like topsoil: pretty good on the surface, as long as you don’t dig very deep.

When the federal budget was released a few weeks ago, I downloaded it [pdf, 5.3MB] as soon as the Minister started speaking. I did a quick search for terms like “broadband”, “telecom”, and “internet” as I listened to her. Most Canadians have access to that same capability, but few would have bothered. I suspect many would consider the 400+ pages to be too intimidating. What I found was that the budget speech itself was misleading in claiming the government would remove costs of switching phone companies; these already don’t exist. The CRTC’s Wireless Code dealt with that in 2013. From this we see that even statements by senior government leaders require verification.

Legislation in the budget implementation bill appears to be based on misinformation that somehow reached the highest levels of government.

In the past, most people would have waited for their daily newspaper (or multiple newspapers) to be delivered the next morning to provide the details of what the various reporters thought were most important. Today, too many households go without home delivery of a newspaper. Many of us read the reports online, as they are posted (and updated).

Others listen to curated soundbites from their “go-to” political leaders. That isn’t necessarily a bad source, but I would recommend listening to political leaders of all stripes.

Since I was a kid, I have always read multiple newspapers. I grew up on the London Free Press, the Globe and Mail, and the Toronto Star. We would also get the Telegram until it shut down. Today, I subscribe to multiple news sites (at least 2 of which regularly infuriate me) and I access a bunch of other sites without subscriptions.

I don’t use Facebook or Instagram for news; there tends to be too much garbage to filter out on those sites. I don’t have a Tiktok account.

Is the internet making us stupid? Not necessarily. The internet delivers a lot of information very quickly in response to what you might be seeking. But, it’s still up to the user to choose which resources are actually credible and worthwhile. Unfortunately, many search engine responses are no more reliable than the office rumour mill. It is like trying to depend on what your colleague said that he heard from his cousin.

Learning how to find quality information on the internet is a key part of digital literacy. Diverse viewpoints, and diverse sources are important tools to keep the online world from making us stupid. You need to break free from the echo chamber that amplifies similar thoughts and preconceived notions, smothering what could be important dissenting opinions. As a general rule, if none of your sources of news and opinion make you angry, I’d suggest you aren’t reading sufficiently diverse viewpoints.

I recently wrote about Alberta’s approach to upgrading digital literacy skills. I also refer you to a recent article from ITIF. I’ll have more on digital literacy in a future post.

In the meantime, how do you find consistently trustworthy sources of information?

ARPU trends aren’t the same as price trends

For years now, I keep trying to explain why you can’t look at ARPU trends to determine trends in pricing. Conflating ARPU trends with pricing is one of those zombie fallacies – we can’t seem to kill it no matter how hard we try. But I am going to give it another go anyway.

Last week, the government released its annual review of telecom prices [full report pdf, 1.8MB]. The report found that “prices for most wireless and home Internet services declined in 2023”. Notably, the media release observed that mobile prices in Japan and the USA were consistently higher than those prices paid in Canada. It is also worth noting that the study was conducted using October 2023 price data. Since then, Canadian mobile prices have dropped more than 10%, while prices have increased in many of Canada’s peer countries.
ARPU trends
We have seen Statistics Canada regularly reporting declines in mobile pricing of more than 25% as part of its monthly Consumer Price Index.

So, why the disconnect with ARPU?

ARPU is a financial analyst measure that calculates average revenue per user, by taking the total wireless service revenues and dividing by the number of subscribers. But, as I wrote 11 years ago, “Not all ARPUs are the same”. It just isn’t the same as unit prices.

Last summer, I wrote another post on the subject, “ARPU doesn’t measure price”.

That was a follow-up to a piece I wrote in 2017. I complained at that time about a number of Canadian telecommunications industry observers who confuse ‘ARPU’ with ‘prices’. Plus ça change, plus c’est la même chose.

I recently saw a post about per capita grocery spending in Canada that resonated with me:

Per capita grocery spending is down 26% over the past 4 years. Is there anyone who would look at that statistic and conclude that food prices are lower now? Of course not. Clearly, average revenue per user for Canadian grocery stores has been declining. Sounds like ARPU, right? But, we also know that the price of food items has been one of the biggest drivers of inflation. Our consumption habits change, which contributes to shifts in overall monthly spending patterns. That same reality applies to groceries and mobile services.

The items in our shopping carts today are different from the items we bought 4 years ago. It is no different for mobile services. Plans today deliver more data, faster speeds, wider calling areas and can optionally include international roaming.

So, why do so many have trouble separating flat or slightly rising wireless ARPU from falling wireless prices? Maybe it is people who don’t pay for their own phone service, or folks who have an agenda. I recently told a morning talk radio audience to call their service provider or visit any shopping mall if they haven’t looked at their mobile plans recently.

More for less. The opposite of shrinkflation as some might say. Indeed, as I have already said.

Can we finally put this to rest? ARPU trends aren’t the same as price trends. And, contrary to the assertion of some, ARPU trends aren’t representative of consumer bills either. But, that will be the subject of a future post.

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