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.

When tackling large scale projects, the metaphor of eating an elephant is sometimes used by management consultants.

How do you eat an elephant?

One mouthful at a time.

It is a way of saying that such projects can often be broken down into smaller, measurable sub-projects. Those smaller targets help address the over-all goal, but are less intimidating, are more easily managed, and provide milestones to celebrate along the way.

I think the same approach can be applied to rural broadband. Street by street; block by block, broadband technology gets deployed.

A few years ago, an article in the Nation Valley News described the efforts by Storm Internet to rally neighbours together to help with the economics of extending service in its service area in Eastern Ontario. “Rural neighbours working together can help spur arrival of Storm Internet Services’ wireless broadband” describes how Storm would encourage groups to come together to help justify the costs of extending the reach of the network, “because the company ‘can’t throw a node up’ for one or two potential clients, … groups of residents must organize to sign up adequate households on their street or subdivision before the node goes in.”

A couple weeks ago, in “The economics of broadband expansion”, we had a macro level look at the economic considerations impacting rural broadband expansion. At a project level, the economic theory gives way to looking at a return on investment for each wireless tower, or each wire-line extension.

In many communities there are private companies, like Storm, ready to provide high quality broadband service, tower by tower, neighbourhood by neighbourhood. In all but a very few number of cases, the government doesn’t need to build and operate a network, but local, regional, provincial and federal bodies can each play an important role in creating conditions that accelerate network development.

How can governments create and maintain a policy framework that encourages private sector investment in rural broadband? In some cases, direct, partial subsidies are needed to make the business case go positive. In other cases, communities can help by facilitating access to ducts, rights of way or other support structures for fibre, and make available vertical real estate for radio antennas, as described in the Nation Valley News article.

How do you achieve universal access to broadband? You build it one neighbourhood at a time.