Over the years, I have tried to draw attention to the need for better, and deeper statistical analysis to help guide policy making in Canadian telecom. I’m not just talking about public opinion polling, especially internet-based surveys that are open to ‘gaming’. We need ongoing econometric analysis of all segments of the communications marketplace.

Frankly, I wonder what kinds of conclusions will be drawn from the CRTC’s current consumer survey, drawn from a completely non-random sample, with such questions as:

• How much data is included in your cell phone plan?
• Do you bundle your cell phone service with other services from your provider?
• How satisfied are you with your current cell phone provider?
• Have you ever switched cell phone providers?
• How difficult or easy was it to switch cell phone providers?
• At the end of your contract with your current cell phone provider, how likely will you be to consider switching to another provider?
• Have you ever told your cell phone provider that you plan to switch to another provider in order to lower your bill?
• How much do you agree or disagree with each of the following statements?
  • I’m happy with the upload and download speeds I get with my cell phone provider.
  • I get good value for money from my cell phone provider.
  • I have a good selection of cell phone providers in my region.
  • The cost of cell phone plans has decreased in the last three years.
  • My cell phone calls are almost never dropped. [A dropped call occurs when you are disconnected from the person you are speaking with due to a cellular interruption]
  • I rarely experience dead zones with my cell phone provider. [A dead zone is an area in which there is no cell phone service available]
• In your view, are Canada’s cell phone prices better, worse, or about the same as what you would find in other countries?

The CRTC’s online survey might have been more useful with a few modifications. For example, the survey asks “In which Province or Territory do you live”, but does not examine the geographic location with any finer resolution, such as the first 3 characters of the respondents’ postal code. It might have also been interesting to ask for the first 6 digits of the respondents’ mobile phone number, to see if any people living in one location are subscribing to a service from a different province.

Many of the questions correlate highly to objective, quantitative data that could be obtained from the mobile service providers. Will the CRTC analyze the responses with such a view?

Just a month ago, in “We need more data”, I wrote “How is Canada supposed to be engaged in evidence-based policy making when there is so little information being gathered about who is online, how Canadians are using the internet and perhaps most importantly, who isn’t online yet and why not?”

The kinds of questions being asked might have more analytic value in quarterly tracking, based on representative sampling. For more than a decade, various arms of the government have been intervening in the wireless market, with spectrum set-asides, consumer codes, sharing rules and more. What kinds of econometric analysis has been undertaken to examine the effectiveness of the competitive measures? Before new measures are introduced, do we properly understand what the current measures are doing?

As the Competition Bureau notes in the conclusion to its November submission to the CRTC, “this competition has not yet reached its full potential and a mandated MVNO policy applied broadly risks undermining the steps taken by wireless disruptors, without much certainty that the MVNO policy will significantly decrease pricing.”

An opinion piece by partners of Boston Consulting Group appearing in the December 3 Globe and Mail observed, “Policy changes can be quick to implement, but take years to undo.”

With Canada’s digital future at stake, we need to ensure policy-making is based on evidence. Maybe it’s time for one of Canada’s public policy schools to undertake the ongoing research needed to help inform the discussion.

Before I went on vacation, I left a few posts to whet our appetites in anticipation of today’s filing of a report by the Competition Bureau. In “Climbing the ladder of investment” [November 12, 2019], I provided a number of quotations endorsing facilities-based competition from the past quarter century of Canadian regulatory proceedings. In “Do market results rule out the need to mandate MVNOs?” [November 18, 2019], I cited a report from Scotiabank that said “regulators face a delicate act of balancing competition and investment incentives. A wrong move could have years of unintended consequences.”

In its follow-up comments to the CRTC [pdf, 2.4MB and Matrix report, 3.0MB], the Competition Bureau withholds a wholesale endorsement of mandated MVNOs, instead recommending additional measures to support regional facilities-based competitors to derive the greatest consumer benefits. Indeed, the Bureau observed that MVNOs may drive lower prices and greater choice, but also could threaten the “progress in enhancing competition in this industry to date.”

While MVNOs can have positive effects on pricing in the marketplace, they are unlikely to deliver the benefits of sustained and vigorous competition that facilities-based wireless disruptors are capable of providing. The Bureau is concerned that the introduction of MVNOs would disproportionately affect these wireless disruptors, putting at risk the positive effects that they have had on pricing, and may impact long-term incentives to invest in high-quality networks in Canada.

Instead, the Bureau recommended that the CRTC should adopt policies focused on incentivizing and accelerating facilities-based competition from disruptors.” It suggests such measures as mandated seamless handoff, more effective tower sharing and site access rules, and updated roaming rates.

The submission by the Competition Bureau appears to agree with my November 18 post, saying “there are promising signs that policies aimed at promoting facilities-based competition are paying dividends.”

Further, the Bureau wrote “All else equal, facilities-based competition is the most sustainable and effective form of competition.” Further, the Bureau observed “A broad MVNO access criteria may also deliver competition, but at a cost.”

As the Bureau concludes, “[facilities-based] competition has not yet reached its full potential and a mandated MVNO policy applied broadly risks undermining the steps taken by wireless disruptors, without much certainty that the MVNO policy will significantly decrease pricing.”

As I indicated in last week’s post, “Scotiabank believes the filing by the Competition Bureau will carry significant weight.” Rather than supporting the CRTC’s call for mandated wholesale services for MVNOs, the Bureau is endorsing measures aimed at accelerating and expanding competition from existing market participants, thereby promoting a climate that supports continued network expansion and investment. That appears to reaffirm support for a model of facilities-based competition.

A big week ahead for telecom regulatory departments.

The revised schedule for the CRTC’s review of mobile wireless services (TNC 2019-57) are due on November 22, with the oral hearing phase scheduled to begin February 18, 2020. Final submissions in that regulatory proceeding are currently scheduled for March 23, 2020.

A week and a half ago, I wrote about the net new subscriber additions in the past quarter. A few days later, in a November 11 research report, Scotiabank argues that the recent quarter’s financial results released by Canadian mobile carriers are indicators that there isn’t a need for regulators to mandate the establishment of mobile virtual network operators (MVNOs).

According to the Scotiabank Converging Networks research note “the most important part of the proceeding revolves around the question: will the CRTC mandate Mobile Virtual Network Operators (MVNO) access?” Scotiabank believes the decision will be among the most important regulatory rulings since the new-entrant AWS-1 spectrum set-aside in 2008.

According to Scotiabank, the facilities-based competition that emerged from the 2008 decision, giving rise to mobile operators Quebecor (Videotron), Shaw (Freedom Mobile) and Eastlink, “looks sustainable.”

Quebecor has been a wireless facilities-based competitor in Quebec for a decade. Is that not sustainable enough? We estimate the company has now captured approximately 19% market share in the province, and, with its new Fizz brand, the momentum has actually accelerated. We estimate Freedom’s market share of covered population (POP) at just under 10%, and we see share gains continuing, driven by network quality improvement, and supported by network and spectrum investment.

Scotiabank’s research found that Shaw and Quebecor’s combined share of new subscribers has reached approximately 30%.

Wireless key performance indicators show that competition has been rising with a long runway. In particular, all three incumbents’ ARPUs are now in decline and postpaid churn is rising. We believe these trends have been indirectly driven by competition from Shaw and Quebecor. As we noted above, we do not foresee either slowing down until they have achieved their market share objectives, which we believe is in the 20%-30% range of covered POP. At their current market share (of POP covered) and our estimate of the pace of share gains, we believe Quebecor still has another five years before it reaches 25% share and Shaw has 10 years of market share gains ahead before it reaches 20% share.

According to the Scotiabank report, the “real sustainable competition” is expected to encourage Bell, TELUS and Rogers to push forward with investment in 5G as a differentiator. Conversely, Scotiabank warns that “heavy-handed regulation such as regulated MVNOs may drive prices down temporarily, it will likely deter the move to 5G” because of an increased uncertainty of returns on future investment and a higher cost of capital.

We believe the United States offers a good example. Competition driven by T-Mobile and Sprint Corp. has driven Verizon Communications Inc. (VZ-N) to accelerate 5G investments, and, in the case of AT&T Inc. (T-N), to invest in media. While both Verizon and AT&T pursued different strategies, their objectives were similar in that they both pursued investments in areas where they thought would help differentiate against T-Mobile. This was all driven by challengers making network investments to compete against Verizon and AT&T, particularly in the case of T-Mobile.

Scotiabank’s recognizes that regulators face a “delicate act of balancing competition and investment incentives. A wrong move could have years of unintended consequences.” The report discusses a number of these potential unintended consequences:

• Large companies with global scale that are not current telecom service providers could become MVNOs under mandated MVNO regulations.
• Large global companies entering the MVNO market selling wireless services as loss leaders would commoditize and cause a significant decline in prices in the short term, causing investments in next generation network investments to decline in the medium to long term and causing network quality to ultimately suffer
• Smaller facilities-based wireless operators like Freedom, Vidéotron and Eastlink (the same companies that have created the competition over the past decade) are more likely to be affected by MVNOs than the incumbents

But Scotiabank warns “Even if the regulators knew of these consequences, trying to establish further regulations to prevent them may just add further complexity with less regulatory certainty.” For more coverage of the Scotiabank report, see the write-up by Greg O’Brien in Cartt.ca: “Wireless results show mandated MVNO is the wrong way to go, says report“.

A few weeks ago, I discussed important data arising from Statistics Canada’s release of the Internet Use Survey. That study included important information about adoption rates of connectivity and for those who don’t have a smartphone, asking why. In the current CRTC proceeding, will affordability concerns be backed by data?

Submissions are due at the end of this week. Scotiabank believes the filing by the Competition Bureau will carry significant weight. The CRTC’s schedule set January 13, 2020 for parties to reply.

Earlier today, CWTA released a report developed by Accenture Strategy examining how the deployment of 5G wireless networks will benefit both cities and rural communities.

The report, “Accelerating 5G in Canada — Benefits for Cities and Rural Communities,” estimates the economic impact of 5G’s ultra-fast, ultra-reliable and higher-capacity wireless connectivity in Canada will reach $40 billion of annual GDP uplift by 2026, with 250,000 permanent jobs added to the economy.

5G is more than the next generation of mobile technology. It will bring entirely new ways of using mobile technology that do not exist today. Much as 4G’s speed and capacity propelled us into the app economy and expanded the use of mobile video, 5G will be a platform for entirely new innovations. Imagine what can be done with a 100x increase in traffic capacity and network efficiency, a 10x decrease in end-to-end latency, and speeds that are over 600 times faster than the typical 4G speeds on today’s mobile phones.

According to the report, many of these advancements won’t directly impact consumers in the near term. Instead, many of the initial deployments of 5G will advance technology adoption for specific industry and government use cases. For example:

• Transportation: Traffic management, autonomous vehicles, rail/transit maintenance
• Healthcare: Connected ambulance, remote care, wearables
• Agriculture: Crop and soil management, autonomous vehicles
• Energy Management: Smart grid, smart street lighting
• Water/Waste Management: Smart metering
• Municipal Services: Smart parking meters, garbage collection, snow removal
• Public Safety: Smart policing, disaster management
• Rural Connectivity: Fixed wireless access

The report explores four of these use cases in greater depth, solutions that are expected to be adopted in the next three to five years, as 5G becomes more widely deployed, examining the benefits estimated from adoption in Canadian cities and select rural settings: Transportation & Mobility; Precision Agriculture; Energy Management; and, Rural Connectivity.

The report argues that accelerating the deployment of 5G will rely on three key actions by government policy makers: encouraging innovation in advanced technologies, encouraging investments in wireless infrastructure, and enabling ecosystems to collaborate in deploying innovative use cases.

I am going to take a little vacation time over the next couple weeks, so while I am gone, I thought I would provide a collection of quotations that I think are relevant for a couple hot regulatory issues these days: the state of Canada’s mobile wireless industry and the appeals associated with wireline wholesale.

As noted by the 2006 Telecom Policy Review Panel, the CRTC originally encouraged competition via resale through various rulings that “established a general policy requiring an incumbent who chose to offer a retail telecommunications service to permit resale of that service, whether by competitors or others.” When the CRTC approved facilities-based competition in 1992, “it did so recognizing that the construction of network facilities by entrants was necessary for the full benefits of competitive entry to be realized.”

Have those fundamental principles changed?

From Telecom Decision CRTC 92-12:

The Commission considers that resale can provide many benefits, but it is not a substitute for facilities-based entry. Facilities-based entry permits sustainable and more broadly-based competition, thereby increasing the benefits to be derived from competition.
…
However, resellers can complement facilities-based competition by providing price discipline, ensuring greater responsiveness and serving niche markets.

Testimony of Marc Gaudrault, CRTC Notice of Consultation 2009-261, Transcript 31 May 2010, Line 926:

In order for the ladder of investment to work most effectively, the wholesale services provided by ILECs and cable carriers at each rung of the ladder should be constructed so as to facilitate the maximum amount of service differentiation downstream at the retail level and the ability of competitors to climb the ladder. This means differentiation of functional attributes such as speed, throughput, quality and types of service, geographic coverage and service bundling.

From the report of the Telecom Policy Review Panel:

The Proper Scope of Mandated Wholesale Access
As stated above, a fundamental objective of mandated wholesale access should be to maintain incentives for innovation, network efficiency and investment. In the Panel’s view, the most effective method for promoting these incentives is to ensure that competitive market forces apply to the broadest possible range of network and service components in as many locations as economically feasible.

To this end, new entrants should have both opportunities and incentives to build their own facilities. Since by definition retail market entry is not possible without competitor access to essential facilities, the regulatory framework should continue to require incumbents to make these available, on a mandatory basis if necessary.

However, the Panel concludes that, given the current state of competition in Canada, continuing to require that incumbents make non-essential facilities available to competitors undermines the incentives for the latter to build alternative facilities. This in turn undermines competitive market incentives for all service providers to be efficient, to innovate and to invest, for several reasons.

First, when designing their networks, entrants can either build non-essential facilities or lease them from the incumbent. Mandated wholesale access at regulated prices reduces the cost and especially the risks associated with leasing relative to building. It thus increases the likelihood that leasing will be more attractive than building. Mandated wholesale access therefore tends to discourage entrants from supplying their own facilities, even where doing so would otherwise be economical. The potential negative impact is much more limited if mandated wholesale access is limited to essential facilities.

Second, regulated wholesale pricing reduces the revenues that entrants who build facilities can generate in the wholesale market when they lease those facilities to other providers. This arises because regulatory constraints on ILEC wholesale prices also effectively place upper limits on the price that other service providers can charge for facilities in the wholesale market. This in turn affects investment decisions of both incumbents and new entrants in cases where the viability of constructing network facilities is dependent on their ability to profitably supply facilities on a wholesale basis to other service providers. The broader the scope of mandated access, the greater the negative impact on investment decisions.

Third, artificially low wholesale rates undermine the price levels and revenues that could otherwise be sustained in the retail market. The broader the scope of mandated access, the more significant the impact on retail prices. This compromises the ability of both entrants and incumbents to recover potential network investments.

The argument in support of mandating the availability of non-essential facilities is that it can actually facilitate, rather than hamper, construction of facilities by entrants by providing them with a “stepping-stone” until the day they can build their own facilities. The validity of this argument rests entirely on the assumption that the CRTC can set prices that are both:

• low enough to facilitate entrants’ ability to expand their networks and more quickly acquire the customer base that would justify construction of their own facilities
• high enough to provide entrants with sufficient incentives to build such facilities.

The Petition to the Governor in Council procedure: Canada’s wholesale broadband policies, the appeal mechanisms that challenge them, and broader regulatory trajectories
Daniel Mackwood, 2016 Paper
CRTC Prize for Excellence in Policy Research

CRTC decision hearing outcomes have regularly supported wholesale competition in the fixed access broadband market. The agency’s ongoing aim has been for its regulatory decisions to help usher new-entrant and competitor ISPs into an eventual transition from service- to facilities-based competition. Referred to as the “ladder of investment” (LOI) or the “stepping-stone” approach, this regulatory strategy encourages an evolution from ISPs existing as wholesale access customers relying on tariffed usage of incumbents’ networks, to eventually being able to invest in and maintain their own facilities and infrastructure.

The CRTC is in the midst of a proceeding reviewing mobile wireless services in Canada, focusing on three areas: Competition in the retail market; The current wholesale mobile wireless service regulatory framework, with a focus on wholesale MVNO access; and, The future of mobile wireless services in Canada, with a focus on reducing barriers to infrastructure deployment.

It isn’t yet clear there is a justification to mandate wholesale access services for the mobile wireless market. That is the first gate.

Missing from the historical documents (cited above) is a discussion of the need to preserve appropriate incentives for facilities-based service providers to invest in network expansion in terms of reach and capacity.

Should there be a third principle in setting wholesale prices? Perhaps wholesale rates need to be:

• low enough to facilitate entrants’ ability to expand their networks and more quickly acquire the customer base that would justify construction of their own facilities
• high enough to provide entrants with sufficient incentives to build such facilities
• structured in a manner that encourages incumbents to expand capacity and reach for their own network facilities.

I will have spotty internet access for the next 10 days or so, a reminder that not every country has coverage as good as Canada; I look forward to reading your comments.