“High spectrum prices can cause negative consumer outcomes, including lower coverage levels and slower data speeds.”

That’s just one of the findings of a new report released last week, by the GSMA. The report, “The impact of spectrum prices on consumers” [pdf], shows that countries with poor spectrum policies – policies which either inflate spectrum or delay spectrum assignments – are leading to millions of people being left unable to access mobile broadband services or experiencing reduced network quality.

The study is said to be the most detailed econometric study into spectrum pricing, considering more countries (64, including both developed and developing), more consumer outcomes (cost, quality and coverage) and the study controls for a wider range of other potential explanations for these outcomes, such as market competition, population density, timing of spectrum awards among others. “These findings have important ramifications for regulators, particularly when so many are trying to prioritise improved coverage and increased investment in 4G and 5G.”

The study provides the following recommendations:

1. Maximising revenues from spectrum awards should no longer be a measure of success
2. Auctions can deliver inefficient outcomes when poorly designed
3. Artificially limiting the supply of spectrum, including through set-asides, risks slowing services and inflating prices
4. Spectrum should be released to the market as soon as there is a business case for operators to use it
5. Policymakers should work with stakeholders to enable timely, fair and effective spectrum licensing to the benefit of society

The use of set-asides have been contentious in recent Canadian spectrum auctions. The study observes that “Governments often design awards with the intention of promoting competition and innovation in the sector – for example set-asides or reserved spectrum for a new entrant (or existing operator).”

However, the report says “While such policies may be designed with the right objectives in mind, they may also have unintended consequences if they are poorly designed or implemented and result in higher spectrum prices, thus harming consumers.”

There is a cost associated with spectrum policy, not all of which is financial. As Canada moves forward with development of auction policy for the next wave of spectrum, it is critical to consider the potential for unintended consequences to have significant impact on consumers.

As we move closer to the official start of election season, many political parties are trying to curry favour among the electorate by bashing telecom service providers.

Such positioning may be good politics, but not necessarily good policy.

We should look for greater balance. In the 2019 Policy Direction to the CRTC, there was an important balance of interests, between “competition, affordability, consumer interests and innovation.”

1. the Commission should consider how its decisions can promote competition, affordability, consumer interests and innovation, in particular the extent to which they
   1. encourage all forms of competition and investment,
   2. foster affordability and lower prices, particularly when telecommunications service providers exercise market power,
   3. ensure that affordable access to high quality telecommunications services is available in all regions of Canada including rural areas,
   4. enhance and protect the rights of consumers in their relationships with telecommunications service providers, including rights related to accessibility,
   5. reduce barriers to entry and barriers to competition for new, regional or smaller telecommunications service providers,
   6. enable innovation in telecommunications services, including new technologies and differentiated service offerings, and
   7. stimulate investment in research and development and in other intangible assets that support the offer and provision of telecommunications services; and
2. the Commission, in its decisions, should demonstrate its compliance with this Order and should specify how those decisions can, as applicable, promote competition, affordability, consumer interests and innovation.

It is particularly telling to examine how the text of the Policy Direction changed from its preliminary version to the final Order. These changes, which added the word “investment” in section (a)(i) and strengthened the concept of investment in high quality services “in all regions of Canada including rural areas”, are found in my June blog post.

As I wrote a few months ago, “most government programs continue to focus on increasing ‘supply’, extending access to broadband. We need to ensure there are strategies to drive ‘demand’: increasing adoption rates among groups that could subscribe, but have not. That is a problem across all geographies, and is perhaps more pronounced in urban markets.”

The demand side of the equation is often overlooked when governments deal with universal broadband adoption. That isn’t just a matter of price, but understanding all the barriers.

It is easy to call for measures that lower prices. It is more responsible to set out a policy platform that understands the balance between competition, affordability, consumer interests, investment and innovation.

Ask candidates how their platforms meaningfully ensure that all Canadians, those in urban and rural areas, will have access to high quality, innovative services.

The week before Labour Day has always felt strange for me. It is the last week of summer vacation for most Canadian kids.

When I was a kid, we would try to cram so much joy into those last few days of freedom, while our parents would try to force us to face the more practical realities of checking on school supplies and arguing about whether we had suitable clothes to make a positive impression on the first day of classes. Those last few days of vacation never seemed to be filled with the same level of joy as the first few days, as we hummed Alice Cooper’s anthem to ourselves.

It has been years since I have been directly involved in getting myself or my kids ready for the start of the school year. Still, the arrival of cooler August evenings make me reflect on summer vacations as a kid and with my kids.

I hope you have been able to find time to get re-energized this summer.

In early July, I mentioned that this would be a less active summer for me on these pages as I tended to a few important family matters. It will be mid-to-late September before I can start to return to normalcy in my schedule. In the meantime, I have tried to stay on top of the biggest issues over the past couple months and share my independent perspectives on trends in Canada’s communications sector. Thank you for allowing me to indulge my family priorities.

Enjoy the last few days of summer. Thank you for your continued support.

The CRTC’s decision earlier this week set final wholesale rates for broadband internet access services, a proceeding that has been dragging on since interim rates were set in 2016. The CRTC’s final rates are up to 77% lower than the interim rates, and retroactive adjustments could cost carriers close to a third of a billion dollars.

Bell responded, indicating that the retroactive payments will have impacts of up to $100M and will result in cutting back on capital investment in rural markets. A news story in Cartt.ca indicates that Minister Bains is “‘disappointed’ but believes others will step up as incumbents pull back from network investment”.

Bell’s announcement referred specifically to its plans for Wireless Home Internet, a program that had aimed to offer wireless broadband to up to 1.2M households. As a result of the CRTC’s decision, Bell said it needed “to scale back Wireless Home Internet rollout in smaller towns and rural communities by approximately 20%”. As Cartt.ca observed, other carriers have similarly indicated that there would be impacts on capital investment programs.

Although the Minister may be disappointed, one has to wonder where people thought the money would come from. With a material impact on cash, there has to be a reassessment of budgets inside all of the companies. Put yourself in the shoes of the Chief Financial Officer and you have to find $100M. What choices do you have? You would look at various lines in the budget and find projects with the lowest return on investment.

There are always some projects with better returns on investment than others; some areas that have more marginal business cases. Bell’s announcement appears to be indicating that 20% of its Wireless Home Internet program had lower potential returns and that it would be the best source for funding the CRTC order.

Rural broadband, even using wireless technology, has a lower return on investment, almost by definition. After all, if it had a strong business case, then we would see all sorts of service providers fighting over that space. Instead, the business case is typically so poor that the government has had to give away billions of dollars in incentives to get service providers to build and operate rural networks.

In the case of the projects that are being impacted by this week’s CRTC decision, there was no direct government money other than an accelerated investment incentive – basically a faster capital tax write-off. So, the Minister may be hopeful that “others will step up as the ‘incumbents’ pull back from network investment,” but it is far more likely that the business cases for many communities won’t work any better for smaller players than for the major carriers. If there was a strong business case for smaller players to build in these communities, wouldn’t those networks have been built already?

Those rural areas may find that they have to wait for the next wave of government broadband funding programs. At the end of the day, that may end up being the answer to where the money comes from.

The Association of Community Organizations for Reform Now, ACORN Canada, released a study [“Barriers to Digital Equality in Canada“] that aims to “shine a light on the urgent need to tackle [the] barriers to ensure equal access to digital opportunities.”

This is a theme that I have discussed frequently on these pages for more than a decade. Government programs have distributed billions of dollars to expand broadband networks based on geographic considerations, without regard to affordability. Typically, we have seen government funding focus on expanding supply rather than addressing demand through efforts aimed at affordability or digital literacy. See these posts for example:

• May 19, 2015: Affordable broadband isn’t just a rural issue;
• July 15, 2015: Canada still silent on low income broadband;
• August 5, 2015: Why we need to get low-income households online;
• January 21, 2016: Should broadband be part of “basic service”;
• February 2, 2016: Looking at who, not where;
• March 17, 2016: One home’s subsidy is another home’s cost; and,
• March 31, 2016: Unrepresentative survey.

Unfortunately, the ACORN study fell short of its objective. In its Introduction, the study cites a government statistic that says “Almost half of households with an annual income of $30,000 or less do not have high-speed internet access.” But ACORN conducted its own survey of 472 respondents and found 80% of those with household incomes of less than $30,000 had an internet connection. Either the government statistic is out of date or ACORN’s survey is not representative, or both. I suspect it is both. Statistics Canada data shows that 89% of Canadian households had an internet connection by year-end 2017. The data point of roughly 50% of low income households lacking a connection is very old – it was reported by Statistics Canada in its “Daily” on May 25, 2011, reporting on the results of the Canadian Internet Use Survey.

The Connecting Families initiative, a program funded entirely by the telecommunications industry, has gone a long way in helping to get affordable computers and broadband connections into low income households with school-aged children, thanks to the driving by leadership at TELUS and Rogers. This was always my first target: helping to bridge what FCC Commissioner Jessica Rosenworcel has termed the Homework Gap.

Frankly, I was disappointed with the quality of the ACORN research study. There is not a very big difference between the 80% adoption rate among low income households in the ACORN study and the current 89% adoption rate among all Canadian households. How does this “shine a light on the urgent need to tackle … barriers to ensure equal access to digital opportunities”? I have no doubt that there is a problem; I am not persuaded that ACORN has illuminated the subject.

We need to understand the factors that are inhibiting universal broadband adoption. That will require more research, improved data and increased dialog among stakeholders. Canada’s Internet Registry Authority (CIRA) apparently supported the development of the ACORN report through its Community Investment Program. Perhaps CIRA should consider commissioning better quality research on its own, to contribute to the development of policies that further its objective “to build a better online Canada.”