In a recent interview, Rogers CEO Joe Natale describes life in the pandemic as “obviously the worst of times, but it’s also the best of times, in terms of unleashing imagination and reinvention,” projecting an optimistic outlook for the “revolution going on in wireless and Internet and 5G, which will change the country and change the world.” He forecasts 5G networks creating opportunities and capabilities “at the speed of thought.”

In a Public Policy Forum (PPF) podcast, PPF CEO Edward Greenspon and Joe Natale discuss the impact of billions of dollars of annual investment by Canada’s communications carrier in digital infrastructure and take a look at broader economic opportunities arising from continued investment in Canada’s digital infrastructure, with networks that are among the world’s best.

As PPF writes about its podcast, Natale “joins Policy Speaking to share his vision for the future of mobile tech, bridging the digital divide, and how industry can partner with government to bring Canada together as a nation.”

The conversation covers a wide range of topics including some important messages that often seem to be forgotten by many engaging in digital policy discussions at all levels of government.

[Joe Natale] In our industry, 70 percent of our network efforts are civil engineering efforts. The technology is 30 percent of the endeavor, but a lot of it is boots on the ground with shovels, getting rights of way from hydro companies, getting attachment rights to go under the streets, through ducts and rights of way that exist in every municipality.

In every municipality, for every project, is a bit of a puzzle because it requires multilateral negotiation with all the different players that are out there. And, you know, sometimes you just get frustrated to a point where you say, “You know what, it’s too hard in this particular area, or municipality, or this part of Canada. Let’s just go on the next one.”

The podcast also spoke of the challenges associated with multiple levels of (and sometimes confusing) regulations. For example, two identical cedar poles, each carrying telephone and electric wires, are regulated differently, depending on the entity that owns the pole. Attachment to a pole owned by a phone company is regulated by the CRTC; if the same pole is owned by an electric company, it is provincially regulated.

Although courts have repeatedly confirmed the supremacy of federal jurisdiction over telecommunications undertakings, municipal governments and local land use authorities have an ability to accelerate or inhibit investment decisions by the proponents of digital infrastructure investments, whether it is for siting new wireless towers or using municipal roadways. At all levels of government, policies and regulations can shift the timing or even the overall project economics for new services being made available to a community. The timing of broadband delivery can be impacted by a single bureaucrat’s pen stroke.

How many investments in rural broadband have been delayed or cancelled due to slow-moving municipal permit processes?

The discussion included examining conditions that create a favourable climate for investment.

[Edward Greenspon] If there was one issue you wanted to focus on, one message you wanted to impart, what would that be?

[Joe Natale] Consistency. Stability in the regulatory environment and therefore the partnership with government. We’re public companies, a number of us in this industry, with big balance sheets because we have to make these multibillion dollar investments every year.

We go to the capital markets across the globe to encourage investors to put their faith in us, from all kinds of countries of places. And, the number one question invariably that we start talking about is, “what will the regulatory environment look like in Canada in the years ahead?” And, “can we rely on that partnership with government? Can it be consistent and somewhat predictable? Because it’s hard for us to give you money and invest in the future if we’re not sure with what that looks like from a certain stability point of view.”

And so, that partnership needs to be long lasting, if we’re making investments that have 10, 15, 20 year paybacks

Natale speaks of a promise of 5G that arises from its speeds, bandwidth and low latency, capabilities that will enable “engineers and innovators to dream up things that were never before possible.” He says the promise of 5G is not a competition among companies, but rather a competition between nations. “It goes back to nation building. Canada has the opportunity to be first and be the greatest. As it relates to 5G. And that will that will stimulate innovation. That will create jobs, that will create an environment that will help Canada seize the future.”

He sets out a positive vision for the future: Opportunities at the speed of thought.

Which countries will create policy and regulatory environments that create a favourable environment for investment? What steps is Canada prepared to take to create an environment to “seize the future”?

A while ago, I did some work with a weather agency. The project leader, we’ll refer to him as Tony since that was his name, told me that he received a call from a news station that wanted to know what the long range forecast was for the upcoming winter. Tony told the reporter, without consulting any computer models and with a completely straight face, “we’re forecasting that there is a 50% chance of a warmer than average winter.” The station led with that breaking news.

The reporter didn’t understand that there was also a 50% chance of a colder than average winter ahead. Tony got a chuckle out of that story.

This story came to mind as I read the CRTC’s Decision on staying the requirement for facilities based telecom companies to file new tariffs as part of the implementation of last year’s aggregated wholesale high-speed access services ruling (2019-288).

It seems to me to be an impossible task for a regulator, or anyone, to set the rates exactly right. Set too high, competitive service providers won’t be able to compete; set too low and facilities-based providers are effectively subsidizing their competition and lose the incentives to invest in new technology and expanding territory.

What are the defining characteristics of an ideal wholesale rate? For example, at one time, the regulator sought rates to be set at a level that smaller ISPs could find an opportunity to serve their customers, while maintaining an incentive to invest in facilities as they grow in a given area. Is this still part of the thinking when setting rates?

While the rates can never be ‘bang on’, since cost elements change over time and with 100% certainty will not precisely match the very best forecasts, there must be a range that can prove to be acceptable to both parties, the buyer and the seller.

It’s a real challenge in a regulated market for the adjudicator to find that middle ground. From the response to the rates decision of August 2019, it appears clear that the CRTC’s rate cuts coupled with retroactive rebates went too far.

Can a regulator reasonably replace the results of direct negotiations? Along these lines, I found it interesting to read in the Stay Decision of the competitive factors at play between some of the facilities-based providers. At what point should the regulator determine the wholesale marketplace is sufficiently competitive to allow market forces to take over in setting rates?

In the meantime, I’m prepared, with complete confidence, to forecast a 50% chance that the coming winter will be warmer than average. And, there is a 100% chance that however the CRTC rules in its review of the August 2019 rates, one side or the other (or maybe both) won’t be happy.

A week ago, with the new moon on Friday evening, the Jewish year 5781 began. Rosh Hashana marked the start of a 10 day period of introspection culminating in Yom Kippur, the Day of Atonement, a solemn fast day beginning this evening and concluding Monday night. Our offices will be closed Monday.

The global response to COVID imposed a most unusual end to the year 5780. The necessary restrictions on gatherings means that many normally crowded synagogues have turned to technology to live stream services to enable members to maintain a semblance of their sense of community. But it feels very, very different.

The Yom Kippur service includes a section describing in detail how the day was observed two thousand years ago in the days of the Temple, providing a chain of continuity linking participants with our ancestors. Historically, responses to plagues led to certain shifts in religious practices. I reflect and wonder what pandemic-influenced changes will be maintained going forward, launching new traditions for future generations.

The past 6 months of online work and learning demonstrate that technology can help to keep us connected. Still, it seems to me there is no substitute for personal face-to-face interaction.

As someone who plays in the world of electronic and digital communications, I appreciate all of the work my industry has done, but I hope the coming year allows a return to increased personal interactions, without masks hiding our facial expressions.

It is my hope that the year 5781 will be marked by good health, by personal and professional growth and a year of peace for all of us.

Did I mention good health?

גמר חתימה טובה

As expected, broadband service is part of the government agenda laid out in this afternoon’s Speech from the Throne:

In the last six months, many more people have worked from home, done classes from the kitchen table, shopped online, and accessed government services remotely. So it has become more important than ever that all Canadians have access to the internet.

The Government will accelerate the connectivity timelines and ambitions of the Universal Broadband Fund to ensure that all Canadians, no matter where they live, have access to high-speed internet.

I noticed that the language of the speech did not talk about accelerating the release of funds (it is already too late to do that), and there was no mention of increasing the level of funding.

Instead, we heard that the government will accelerate the connectivity timelines and ambitions of the Fund.

What are these timelines and ambitions that are to be accelerated? Presumably, this means the target will be advanced from 2030 to some point in time sooner for all Canadians to have the opportunity to subscribe to a service with 50 Mbps download speeds, coupled with 10 Mbps upload speeds and unlimited data transfer.

But we aren’t hearing about any increased or accelerated funding to accomplish that.

On these pages, we have suggested that there are non-financial means to accelerate broadband expansion in certain areas. Is the government exploring how it can use non-financial incentives to encourage accelerated and increased private sector investment?

Last week, an article in the Globe and Mail called for a reboot of Canada’s digital agenda.

On that headline point, I agree. A reboot may be needed.

As part of a typical reboot process, systems start fresh with clean data, clearing out faulty information. Some systems apply filters to improve the signal to noise ratios. As part of the reboot process, the government should ensure the information being loaded for processing passes error checks.

Unfortunately, I found a few points in the article that would fail error detection algorithms.

For example, in the second paragraph, we read:

The Liberals identified consumer telecom pricing, privacy protection and a modernized internet legal framework as priorities, but have struggled to develop an effective approach. Navdeep Bains, the Innovation, Science and Industry Minister, surprisingly backed a reversal on the affordability of communications services last month and has done little on privacy reform.

There is a little sleight of hand at work in those two sentences. Although affordability and prices are related, they are not the same and the terms should not have been used interchangeably. Indeed, recall from my post in January that a report from PwC found Canada’s telecom services to be the most affordable of all our G7 partners.

Contrary to the article’s assertion, it isn’t true that Minister Bains “backed a reversal on the affordability of communications services last month.” That simply didn’t happen.

The article is apparently referring to last month’s Order in Council responding to a petition to review the CRTC’s wholesale rates Order of August 2019. Minister Bains explicitly said “Canada’s future depends on connectivity,” and indicated that Cabinet was concerned the CRTC had not balanced the objectives in a manner consistent with the government’s priorities. Minister Bains specifically chose not to act at this time, recognizing that the CRTC was already reviewing its decision. Instead, the Minister more clearly indicated the policy of the government. That is precisely what the government is supposed to be doing.

The government’s telecom policy has never had a single-minded focus on price. As I wrote a couple weeks ago, for years now, Minister Bains has consistently spoken of 3 priorities: Quality, Coverage, and Price. Price is just one element. Last month’s Order in Council should be recognized for helping guide the regulator through the challenges of balancing the policy objectives.

Look at the language of the Order in Council:

• “the Commission… is bound… to exercise its powers and perform its duties with a view to implementing the Canadian telecommunications policy objectives and in accordance with any orders made by the Governor in Council”
• “improved consumer choice and competition, further investment in high-quality networks, innovative service offerings and reasonable prices for consumers”
• “considers that the final rates set by the decision do not, in all instances, appropriately balance the objectives of the wholesale services framework… and that they will, in some instances, undermine investment in high-quality networks.”

The Order in Council sought to clarify the need for maintaining the balance.

Indeed, the Globe article itself acknowledges that “fast internet access is a must for all Canadians”, as we have all seen over the past 6 months of being home-bound. Unfortunately, the reader of the Globe article is left without an understanding of the tension between the objectives of quality, coverage and price.

Around the world, we can see what happens when low prices constrain investment, or what I have called the “high cost of low prices”.

The message from Cabinet was clear.

On the basis of its review, the Governor in Council considers that the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high-quality networks, particularly in rural and remote areas. Retroactive payments to affected wholesale clients are appropriate in principle and can foster cooperation in regulatory proceedings. However, these payments, which reflect the rates, must be balanced so as not to stifle network investments. Incentives for ongoing investment, particularly to foster enhanced connectivity for those who are unserved or underserved, are a critical objective of the overall policies governing telecommunications, including these wholesale rates.

This should not be viewed as a “reversal on the affordability of communications services.” Instead, as should be evident to most Canadians over the past 6 months, the pandemic has helped elevate awareness in the importance of Quality and Coverage, the other two legs of the Minister’s priorities. The government called for improving the balance to preserve incentives for investment, the key input to ensure Canadians have access to world leading network quality, covering urban and rural areas.

The vast majority of investment in networks – rural and urban, wireless and wireline – the overwhelming majority of capital investment in Canadian networks comes from the private sector, not government. While governments support and supplement network investment by carriers, large and small, governments do not (and generally should not) supplant private sector investment. An approach based on strategic, targeted support helps to ensure a greater reliance on market forces to achieve the objectives of Canada’s telecom policy.

As Cabinet understands, in many cases support for private sector investment does not require cash as much as it requires a policy environment that encourages investment. Cabinet more clearly understands the economics the drive network investment, as I discussed a few weeks ago in “The economics of broadband expansion”.

The Globe article also seems to be confused between judicial appeals and cabinet appeals of regulatory decisions. The article says “the government’s approach seems particularly troubling given that the Federal Court of Appeal last week upheld the CRTC decision.” In reality, this should not be troubling at all; there is no linkage between the two appeals.

In fact, the ruling of the Federal Court of Appeal itself answers the concerns that the article finds “troubling”. As stated by the Court at paragraph 23:

[23] Significantly, neither section 62 nor subsection 12(1) circumscribe the types of questions that may be raised before the CRTC or the Governor in Council. This stands in contradistinction to the prescription in subsection 64(1) that limits this Court to reviewing questions of law or jurisdiction.

The Court is limited to ruling only on “questions of law or jurisdiction” while there are no limits on the scope of issues that may be raised in appeals to Cabinet (the “Governor in Council”) or the CRTC. So, it is completely consistent for a Court to find no fault with questions of law or jurisdiction, but have Cabinet to take issue with a CRTC decision on the basis of matters of policy.

There are valid concerns raised about delays in launching new broadband funding programs and we have unfortunately squandered 3 months of prime broadband construction season in failing to implement what I described as “An easy way to increase rural broadband speeds”.

Looking forward, we need serious discussions on the role of government in implementing the recommendations of the Broadcast and Telecom Legislative Review and updates to other areas impacting the digital economy.

But we need to make sure that when the government does its reboot, it carefully examines the data being input for processing. Much of it needs error-checking.