When Quebecor reported its results on March 12, Scotiabank observed that it beat analyst estimates for EBITDA, its Free Cash Flow estimates for 2020 and 2021 were raised substantially, its dividend was increased 78%. Still, the company’s stock price fell 11% that day.

These are difficult days in the investment markets. Scotiabank said “With both Canadian and global markets in turmoil, we believe the telecommunications space is a good place to hide” (March 10). In a follow-up late last week, Scotia said, “Communication services are critical during the current COVID-19 crisis. Our financial estimates are not immune to reductions, and the impact could come in waves, but we believe our telecom and cable financial estimates will be more resilient than media and many other sectors.”

Similarly, when TD Securities issued its report “Lowering Estimates for COVID 19”, it said “we want to make it clear that the point of this analysis is to identify opportunities as opposed to highlighting risk. Most of the names we cover are high-quality companies with defensive business models, sustainable dividends, and strong balance sheets.” TD is estimating that net additions for Canada’s wireless industry will decline 10% for the year, due to its estimate of a 30% reduction in net additions in the first 2 quarters of the year. Be sure to note this is a reduction in net additions, not a reduction in total subscribers. Offsetting the reduction in net additions, TD believes churn will be reduced by 0.3 percentage points. “The fact that many of these stocks have sold off as much as the overall market is illogical, in our view, … and we believe it has created some incredible buying opportunities on a risk-reward basis.”

Scotiabank noted “An area we are monitoring closely is network capacity.” So far, the networks for the major carriers are performing well. Still, it was fascinating to see a warning from Open Media, asking its followers to “Be considerate in your internet use”, and suggesting that people “try to keep downloads to sleeping hours when people are less likely to be accessing essential services and information on the web.” It is good advice, but I found it interesting to note that this message didn’t come from service providers.

So far, the networks have performed remarkably well under the stress of increased loads, and service providers have tried to provide some relief for their customers facing significant changes to how they use communications services as a result of quarantines and “social distancing” that has closed schools and sent most people home from work.

As Scotiabank observed,

Telcos and cablecos have stepped up their efforts during the COVID-19 crisis. We started this note by highlighting just how important communication services are during this current time of crisis, as more people are working remotely. We were pleased to see that all of the companies have taken important steps to ensure that services not only remain uninterrupted regardless of their customers’ circumstances but also, in many cases, are enhanced to address more work and entertainment at home.

An opinion piece by Rita Trichur in the Globe and Mail last week said the current pandemic is providing all of us with a better appreciation of how dependent we are on their smartphones. “Data use is surging on wireless networks as more people work remotely, banks encourage customers to use mobile apps instead of visiting branches and Canadians of all ages turn to social media to stay connected and informed.”

The telecom industry has stepped up to the challenge of handling the disruptions on our lives imposed by the COVID-19 pandemic. As Canada’s policy chiefs begin to examine how to respond to a new state of normalcy, the Prime Minister’s Office needs to re-examine the mandates handed to members of Cabinet. Targets that may have seemed appropriate last fall no longer fit within an environment that has yet to settle on a new equilibrium.

The Globe opinion piece concludes, “Wireless is a high-growth industry and one of Canada’s last industrial bright spots. The government’s target of a 25-per-cent price reduction always seemed arbitrary, but in light of the current crisis, it’s downright tone deaf. Ottawa should scrap it.”

There isn’t a need to focus at this time on the pricing objective; my views on such matters were detailed in posts on March 5 [“Moving the goalposts” and “Declare victory. Consumers are winning“]. But there should be a recognition by Ottawa of the value of Canada’s telecom sector as an “industrial bright spot” . Governments should be looking at ways to encourage increased employment created by further investment by the sector. Policy leaders need to explore how government can clear the path for increased capital spending, expanding capacity and extending the reach of networks.

Scotiabank’s review last week commented on the “initiatives that telcos and cablecos have undertaken to help their customers and society cope during the crisis.” How can we clear roadblocks that inhibit or discourage investment? What steps can be taken to enable, and indeed encourage, telecommunications carriers to reinforce Canada’s digital infrastructure to continue to deliver world leading service quality to Canadians throughout this crisis and beyond?

A new report released this morning warns “Mandated access could impair Canada’s next generation of digital infrastructure.” The report, “Mandated Competition or Free Ride?” [pdf, 329KB], expresses “concern” that the CRTC would act on political directions to reduce wireless prices and warns of the potential impact of the Minister’s mandate letter on the perception of independence of Canadian regulatory institutions.

In the context of the CRTC’s recent Wireless Review proceeding, as well as the ongoing Cabinet appeal of last year’s wholesale broadband decision [Telecom Order CRTC 2019-288], the Competition Policy Council of the CD Howe Institute held an ”ad hoc” meeting in February to discuss the issue of mandating access to telecommunications facilities. Members of the Council highlighted a lack of clarity for what consumer price level the federal government views as “economically efficient”. The report says certain members of the Council “doubted that the federal government has an empirical basis for its [25%] price reduction target. These members believed that the federal government has established its target arbitrarily and for political aims.”

The report notes the significant risk of setting wholesale rates ‘wrong’ and says that most members of the Council were “skeptical of the institutional competence of the CRTC to consistently identify the ‘right’ regulated rates for mandating access.”

The consensus of Council members present was that competition in telecommunications services involves fast-paced technological change, long lead-time investment in facilities, multiple and highly differentiated service offerings, consumer demand for high-quality services, and rapidly evolving cost structures. All Council members were cognizant of the “enabling” impact of high-quality infrastructure for digital services on Canada’s overall competitiveness. While certain Council members contended that mandated access would provide downward pressure on consumer prices, other members were concerned that short-run price reductions would come at the expense of long-term investment incentives for next-generation facilities. Council members agreed that setting rates for access at too low a level below facilities providers’ required return on infrastructure investments would discourage future investments.

Members of the Competition Policy Council said “Setting rates for access at too low a level below facilities providers’ required return on infrastructure investments would discourage future investments.”

Council members agreed that facilities to transmit information – whether by signals over wireline infrastructure or using radio spectrum – are essential for providing communications services. The question at the core of the discussion was whether competitors ought to build their own facilities, or whether mandating access by some competitors to other competitors’ facilities is preferable.

Recording the divergent views of some members of the Council, the report takes on the tone of ‘meeting minutes’ of the debate among council members:

One group of Council members argued that the CRTC should increase mandated access – particularly by allowing MVNO access to wireless transmission facilities at regulated wholesale rates. These members contended that the CRTC should not assume that the only way to compete is to build alternative transmission systems and operate them more efficiently. In these members’ opinion, such “facilities-based competition” is an out-dated concept in the current technological setting, in which they contend great efficiencies can be generated by superior computer power and algorithms without the need of owning and running hardware transmission facilities. While acknowledging that mandated access requires close attention to appropriate access prices, this group of Council members contended that facilities-based providers would continue to have an efficient incentive for new infrastructure if the CRTC adopts a “cost plus” framework for setting rates for mandated access. That is, these members argue that rates can be calibrated to provide sufficiently high risk-adjusted returns on capital to preserve incentive for new investment at the margin.

In contrast, as discussed further below, a second group of Council members expressed scepticism that the CRTC would have the capacity to set appropriate prices for access that provide the appropriate risk-adjusted rate of return to investment in facilities.

These sceptical members contended that mandating access has failed empirically to foster durable competition. For example, certain members pointed to the CRTC’s arguably unsuccessful earlier approach to compelling unbundling of local loops for telephones in order to foster competition in voice services. Nonetheless it was the development of voice services provided through cable and fiberoptic facilities (e.g., VoIP) that ultimately produced new competitors for telephone facilities.

In this way, these members observed that regulators tend to be “backwards-looking.” That is, regulators arguably focus on static sources of competition. By assuming that existing infrastructure will be the only technology for delivering a given service, certain Council members believe that regulators run the risk of interfering in the dynamic that drives entry of durable new facilities-based competition.

The report concludes with a discussion warning of political interference in the independence of Canada’s telecommunications regulator. “If government pursues short-run political objectives at the expense of returns on long-lived infrastructure investments, certain Council members believe confidence in Canada’s regulatory regime for telecommunications will be difficult to win back.”

According to members of the Council, politically driven policy shifts that result in reduced returns on past investments will be viewed by the investment community as a form of sovereign risk “unless political decision-makers make credible commitments to an independent regulatory process grounded in consistent principles.”

Although it has been percolating for a few months already, the past week or so has seen dramatic changes in our lifestyles due to the impact of the COVID-19 virus.

Many of us are now working from home, practicing ‘social distancing’ with the hope that we can slow the spread of the disease, smoothing the curve to try to avoid overwhelming our healthcare systems. Schools are closed; businesses have asked employees to work from home where possible; entertainment venues have suspended operations; where bars and restaurants are still operating, medical officers of health are asking people to choose take-out.

Canadian telecom service providers have responded, removing data overage charges from residential internet service plans, and in many cases waiving mobile roaming fees for people caught in global hot spots. Some TV providers have opened up free access to additional channels to help keep kids entertained, or providing access to subscription news channels. Most have also promised flexible payment options, recognizing the financial difficulties that may arise as a result of job interruptions.

A number of years ago, I wrote “4 degrees of impersonal communications”, describing a paradox in that “we seem to take more care in communications when the conversation can most easily be private and candid. Conversely, we pay less attention to etiquette and courtesy when the audience is global and of diuturnal impact.”

Face-to-face communications (a first degree interaction) has no record, no evidence beyond the memory of the participants. Telephony (second degree) may have a record, such as an audio voice message. Email (3rd degree) gets circulated, over and over. Thanks to search engines and web-archiving tools, the web (4th degree) offers a permanent record.

For the next little while, our ‘first-degree’ interactions will be limited. As we use other forms of communications, let’s hope we can try to emulate more of the courtesy that comes to us more naturally when speaking face-to-face.

Please make a point of contacting people who may be isolated at home; you never know how important it can be to provide a virtual embrace for people facing a changing future.

And when you venture out to the store, or interact with someone who has a job that keeps them working on the front lines (including first responders, check-out clerks, pharmacy workers and the folks maintaining our communications systems), be sure to offer a genuine smile and ‘thank-you’.

Those little acts of courtesy, of humanity, can go a long way.

Stay safe. Stay healthy.

With the COVID-19 pandemic leading more Canadians to work from home, some people are asking if this will put too much stress on the networks or on consumer service plans.

The good news is that Canada’s networks are ready for working from home, even with kids streaming videos while home for March break or closed schools, and very few types of work should put undue strain on typical residential subscriptions.

Popular Science recently published “Here’s how much internet bandwidth you actually need to work from home” which provided the types of bandwidth needed by many of the more popular business conferencing services.

Contrast these relatively low speed requirements to Netflix, which Popular Science says needs 25 Mbps for its highest quality content, or 3 Mbps for its standard definition streams.

We know that the greatest consumption of residential internet bandwidth is high definition streaming video. Very few work-at-home applications would come close; hardly any would involve sustained levels of streaming data that rival delivery of 4K video streams.

According to the CRTC’s Communications Monitoring Report, in 2018 (almost a year and a half ago), more than half of Canadian home had already subscribed to residential internet packages with more than 50 Mbps download speeds. The average residential download speed in 2018 was 126 Mbps, double the speeds experienced in the United States. A third of Canadian households subscribed to speeds faster than 100 Mbps.

According to the CRTC, “The average amount of data downloaded by residential Internet service subscribers increased by 25.4% between 2017 and 2018 to 192.9 GB per month, and by an average of 30.5% annually from 2014 to 2018.”

As temperatures begin to reflect the annual Spring thaw, it marks the beginning of outside plant construction season for wireline and wireless carriers in Canada seeking to invest in capacity upgrades and service expansion to underserved regions.

The government is launching a billion dollar economic assistance package, “to help Canadians cope with the COVID-19 outbreak, with half of the money going to the provinces and territories.”

I mused yesterday on Twitter

A number of regulatory and federal policy actions over the past year have contributed to a “hostile political environment” that inhibits private sector investment.

How much more broadband and wireless investment could be taking place?

The CRTC’s Mobile Wireless Review hearing wrapped up a couple weeks ago with appearances from the fringe, groups expressing concerns about mobile safety.

I addressed these issues on this blog 7 or 8 years ago, but it seems nearly impossible to halt the circulation of junk science, based on flawed studies, promoted by modern day snake oil salesmen and amplified across social media channels.

Let’s look at the facts. The groups like to claim that mobile wireless safety standards are outdated. That simply isn’t true. The Food and Drug Administration (FDA) in the US has recently published its most recent review of the scientific evidence, concluding “there is no consistent or credible scientific evidence of health problems caused by the exposure to radio frequency energy emitted by cell phones”.

The FDA is very clear in repudiating the oft-cited 2018 National Toxicology Program (NTP) Studies on High Dose Radio Frequency Radiation – sometimes called “The Rat Study”. Those experiments were conducted with high levels of radio frequency radiation over the bodies of experimental rodents. The radio frequency energy was delivered in intervals of 10 minutes on and 10 minutes off for 18 hours and 20 minutes, every day for 2 years. “The conclusions relating to public health risks reached by the FDA’s scientists differ from those of the NTP, and the FDA determination is that the study did not demonstrate that cell phones cause cancer.”

5 Facts About the Rat Study

1. Rats received radiation over their entire bodies.
2. Rats received this whole-body radiation for 9 hours per day for their entire lives.
3. Rats received levels of radiation that were up to 75 times higher than the whole-body exposure limit for people.
4. The study found no health effects on female rats or mice (both male and female) exposed to these extreme conditions that passed a test for statistical significance.
5. Exposed rats lived longer than the control group rats.

Many cite the IARC classification of electromagnetic frequency radiation as a ‘Class 2B’ possible carcinogen, without a proper understanding of what these categories mean. The FDA clarifies that this “is an indication that more research is probably justified.” As the BBC recently observed, “That puts it in the same category as pickled vegetables or talcum powder but not as dangerous as alcohol or processed meat.”

The FDA said:

The 2013 IARC classification was based on limited evidence in humans which were from a few case-control epidemiological studies.

The IARC committee acknowledged that those studies were susceptible to certain limitations such as recall errors by the participants and the selection criteria for participation.

The FDA emphasizes “Time trends in cancer of the brain have not shown evidence of a trend that would indicate a promptly acting and powerful carcinogenic effect of mobile-phone use.”

Recently, people have raised the spectre of 5G as a new threat. The FDA says “5G cell phones will use frequencies covered by the current FCC exposure guidelines (300 kHz-100 GHz), and the conclusions reached based on the current body of scientific evidence covers these frequencies.” It is also worth noting that BBC recently reported that the UK regulator, Ofcom, found radiation levels at “tiny fractions” of safe limits in its first UK safety tests of 5G base stations. “The highest result they found for the 5G band was 0.039% of the recommended exposure limit.” Let’s clarify that number. That means exposure would need to be more than 2500 times stronger than the highest level observed, before it even begins to approach the safety limits.

Our federal agencies are aware of the public concerns and are monitoring the scientific evidence. Once again, it is important to keep in mind, mobile services are safe. Indeed, as I have written before, “Cell phones save lives”.