Are today’s home connections approaching fast enough for broadband? That was the subject of a late November post of mine in the context of an FCC review of the US broadband standard. In 2020, I wrote a similarly entitled post, challenging the myth that universal fibre should be on national agendas.
According to Deloitte’s 2024 TMT Predictions, “In some parts of the world, some consumers may have all the bandwidth they need in 2024.”
Deloitte predicts the most commonly used applications (audio and video streaming, video calling, gaming, and home security) will not see any increase in the recommended bitrates. Indeed, Deloitte suggests that some applications may loosen bitrate requirements thanks to improvements in compression technologies.
The implication is that consumers may be reaching a ceiling for the speed of their residential broadband connections.
For 40 years, those of us who were online at home sought faster connections. I remember dialling into Bell Labs with my Hayes 1200 modem. I marvelled as my AT&T Unix PC painted the green screen so much faster than my old 300 baud acoustic coupler.
Deloitte predicts that consumers may focus less on headline broadband speeds and look more at factors such as reliability, bundles, indoor networks, or just plain value.
That said, consumer demand for higher speeds is only part of what drives network infrastructure needs for broadband providers. Globally, there are governmental incentive programs and regulatory requirements aimed at eliminating the digital divide with minimum speed requirements. These range from as little as 10 megabits per second (Mbps) to 1 gigabit per second download speeds, so providers should build networks with these speeds to receive funds or comply with mandates. Next, there are competitive pressures in the market: If one provider is advertising ultrafast speeds, others may need to match or at least come close. Further, building network infrastructure is often an investment with a 20 year plus horizon, so there is an element of futureproofing.
Still, Deloitte observes that the technologies being deployed today are “more reliable, more sustainable, easier to provision, cheaper to operate, and have lower latency.” As such, carriers will continue to deploy fiber to the home and DOCSIS 4, upgrading existing facilities and expanding to unserved areas.
So are we approaching fast enough for broadband yet? Deloitte says that 100 Mbps is more than enough for a household with 2 people; the firm suggests that fewer than 1% of households in most markets might need over 300 Mbps.
By the end of 2022, CRTC data says 93% of Canadians (including 67% of rural Canadians) had access to 50/10 Mbps speeds with unlimited downloads. 87% of Canadians have access to 100 Mbps service (at year end 2021, the latest published data point). On a weighted average basis, the CRTC says Canadians subscribe to 331 Mbps (2022).
Does that mean the need for investment is complete? Hardly. There’s more work needed to upgrade certain areas, and to extend networks to unserved communities.
To what extent will consumers look at factors beyond headline speeds when buying broadband services?
Can light touch regulation benefit consumers? In today’s competitive telecom world, a new paper answers that question, “yes”.
In my 2024 agenda post, I noted how CRTC’s determinations on mandated wholesale access can actually lead to reduced competition by negatively impacting the business case for certain marginal investments. That will lead to reduced coverage for enhanced broadband and advanced wireless services.
CTIA, the US wireless industry association recently released a report that looked at a paper by Georgetown University professor John Mayo: “The Evolution of Consumer Welfare in the Mobile Wireless Service Industry” [pdf, 517 KB]. As CTIA notes, the paper “offers a systematic assessment of the evolution of competition in the wireless industry and how it drives consumer welfare, concluding that the decades of light-touch regulation of mobile broadband provided the framework for substantial gains to consumers.”
… virtually every dimension of economic performance within the wireless telecommunications sector reveals that the light-touch regulatory approach that has governed the industry for decades has created a business-government framework that has generated nothing short of massive gains to consumer welfare in the United States.
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[The light touch] policy framework has not only produced consumer welfare benefits for today’s customers, but has also resulted in a robust feedback loop in which firms, in competitive efforts to retain existing customers and attract new customers, are driven to constantly invest in next-generation network technologies that produce a steady stream of new innovations. These innovations, in turn, create new consumer welfare benefits for tomorrow’s wireless customers.
The FCC in the US is considering the application of more heavy-handed regulation for its wireline and wireless telecommunications services industries under its Notice of Proposed Rulemaking for reclassifying broadband internet service [pdf, 2.2MB].
In Canada, there seems to be a never ending regulatory process to establish a broadband regulatory framework. Further, the government has sent mixed messages with Policy Directions, and Ministerial letters to the CRTC, challenging regulatory independence. As I wrote last week, the Standing Committee on Industry and Technology plans to “undertake a study on the modernization of the regulatory framework and the convergence of wired and wireless products to ensure that future decisions are informed by robust data and recommendations for the benefit of all consumers in terms of accessibility and affordability”.
What will this mean for the climate for investment in telecommunications infrastructure?
In May of 2021, I wrote about a report that demonstrated that Canadian consumers put a value on quality, and will migrate between service providers based on their mobile network experience.
Consumer welfare isn’t just about price. Will we consider how light touch regulation can bring longer term, more holistic benefits to consumers?
Both are worth a fresh look. Should the test for effective regulation be creating an environment that enables and encourages improved consumer welfare?
We all want reliable and resilient networks. Telecom policy makers, regulators, network planners, service provider executives, customers (large and small), all of us want our communications networks to be available – always. So why aren’t they?
Over the past 4 years, with so many of us working for home, there is an even greater dependence on our voice and data networks. Working from home, schoolwork and classes online, streaming video for entertainment, gaming hand health applications all mean that degradations in data communications are effectively the same as being out-of-service. We have come to expect perfection from our networks, even as competitive pressures drive down prices for service, despite inflationary pressures in the rest of the economy.
How do service providers increase network resilience to meet consumer expectations? When I wrote about the subject last April, I observed, “With all the best preparations in the world, networks will still sometimes go down.” I noted the CRTC’s own storm-related system failure from a week earlier. A year and a half ago, I pointed out that the Rogers network failure of 2022 wasn’t even the biggest network outage that week – KDDI had 40 million customers off the air for 3 days. And just two months ago, Australia’s Optus disrupted service to 10 million customers for 12 hours.
Networks sometimes go down.
In the olden days, defined as the BC era (before competition), telecom rates were regulated in a way that provided monopoly service providers with an opportunity to earn a reasonable rate of return on their investments. Since those rates were tied to capital spending, the Canadian regulator held annual Construction Program Reviews, looking at various categories of planned capital spending, which were tied to various categories of spending and a wide range of service objectives. In this way, the regulator was able to set measurable service standards, and review the levels of capital investment to meet those objectives. The outcome of the review would usually be that the CRTC found the program plans to be reasonable.
Those days are long gone. The overwhelming majority of revenues for most service providers are from unregulated rates. The majority of capital spending is “at-risk” investment, tied to success in the marketplace.
Before the holidays, I noticed a December survey released by a UK-based consumer advisory site. That survey found that 1 in 3 UK households experienced a broadband outage of some kind in the previous 12 months. When asked how many service interruptions exceed 3 hours, the average number of incidents was 33.
It is a remarkably high level of service disruption, but the December results represent an significant improvement over a similar survey conducted 3 months earlier.
Networks will still sometimes go down and weather-related service disruptions will likely be a bigger factor in the coming years.
In a competitive environment, what is the role of regulators in setting standards or objectives for reliable and resilient networks?
To paraphrase Neil Diamond’s song (recorded by The Monkees), disappointment haunts my dreams. In part, I think it’s because I’m a believer.
Why? I’m talking about watching last week’s emergency meeting of Canada’s Standing Committee on Industry and Technology (INDU), called to review the announcement that there will be price increases for some mobile customers – those not currently under contract – at some of the service providers. You would never know that Canada’s mobile prices are lower – much, much lower – in the past year if you watched that meeting. You would never know that the price increases aren’t across the board.
I wrote about this issue last week in advance of the INDU meeting. But during the meeting, there was so, so much misinformation being spewed that I had trouble figuring out where to start. Indeed, on Monday, National Bank Financial issued a report entitled “What To Make of Last INDU Meeting With Incorrect Statements”.
Conservative members of INDU made these statements on Jan. 11: “it was a promise that prices would go down…we realize now that it’s false”, “I don’t think I have a single constituent in my riding that would agree that cellphone prices have come down”, and “Rogers…made it very clear that this deal…would inject a new and substantial source of competition…and we didn’t see that”
It’s hard to reconcile these with reality.
Aggressive price competition characterized the mobile market throughout 2023. This continued a trend of declining prices that has been going on for several years and has seen Statistics Canada’s Cellular Services Price Index decline by almost 50% in the last five years. A number of times in the past year, Statistics Canada pointed to mobile services as the largest downward contributor, moderating the monthly consumer price index. Last month, Statistics Canada wrote “Consumers who signed on to a cell phone plan in November paid 22.6% less than those who did so in November 2022” (The December CPI figures released earlier this week show that cellular services are down 26.8% compared to December 2022). New mobile options have also been introduced, with some service plans waiving roaming fees in destinations like the US and Mexico and 5G service being expanded to include some flanker brand offerings.
MPs cited so-called international price studies claiming Canada had the highest mobile prices in the world. That simply isn’t true. This blog has consistently pointed out the errors in methodology by many groups who try to undertake international pricing comparisons (such as Rewheel Research or Cable.co.uk). Last year, I wrote “Telecom Price Studies: 2022 Edition” (March 21, 2023) and “Trusted Sources For Telecom Data” (June 27, 2023) which should be good reference points for you. The posts would be even better starting points for Members of Parliament, and their staff.
In the INDU meeting, you will hear some Members of Parliament read correspondence from constituents who complain that they are paying over $250 per month for 2 phones and can’t afford an increase in price. If those MPs were really serious about helping their constituents, they would tell their constituents that mobile rates have dropped considerably and they should contact their service provider (or a competitor) to find out what better deals are available.
If consumers have an affordability issue, there are programs offered by a number of service providers to help disadvantaged households. These services are provided by the service providers with no government funding. In addition, to address those subscribers who only want a cell phone for emergencies or occasional use, the CRTC requires that the major mobile service providers offer a $15 plan with 250 MB of data, 100 minutes of outbound calling and unlimited inbound calling and SMS texting. It is worth noting that this CRTC plan skews Canada’s ranking in some international pricing studies because they attribute a $60/GB price to such a plan, even though no one seriously in the market for a data plan would select this mandated offering.
Time expired for the INDU Committee before the meeting could reach agreement on next steps. At some point, the Committee will be returning to undertake a more complete review of telecommunications, one that was proposed by Bloq MP Sébastien Lemire last September:
That, pursuant to Standing Order 108(2), the committee undertake a study on the modernization of the regulatory framework and the convergence of wired and wireless products to ensure that future decisions are informed by robust data and recommendations for the benefit of all consumers in terms of accessibility and affordability; that it examine this convergence with relevant stakeholders and what they can enable through technological advancements such as 5G, fiber optics, Wi-Fi 6, and many others; that it examine the need for ubiquitous connectivity, necessary data transmission speeds, and innovative opportunities for businesses and consumers in Canada and internationally; that it scrutinize the operating costs of these technologies and the maintenance of so-called critical infrastructure; that it examine the need for network resiliency in the face of climate change; that it specifically investigate unused spectrum in more remote and rural areas as well as deployment targets; that it examine the need to expand mobile connectivity to improve public safety, particularly along roads and highways; that it examine telecommunications tower construction programs and infrastructure deployment financing; that the Committee allocates a minimum of six meetings for conducting this study and that it report its findings and recommendations to the House.
It remains to be seen whether such a study will generate heat and smoke, but fail to create light. As National Bank Financial said “There will be more headlines and studies, but any analysis should be based on correct information.”
Watching certain Parliamentarians in Committee means that sometimes disappointment haunts my dreams. But, I’m still a believer.
A recent report from Desjardins Capital Markets looked at changing demographic trends that could impact the trajectory for growth in Canada’s mobile marketplace.
Last March, Statistics Canada reported that Canada’s population grew by over 1 million people in 2022, the first time that a 12 month period recorded a 7-digit growth in population. Canada’s population was estimated at 39,566,248 on January 1, 2023.
Three months later, in June the agency reported that Canada’s population reached 40 million, and noted that international migration accounted for nearly all (96%) of the growth recorded in 2022. “While several countries are bracing for the impacts of population decline, Canada continues to lead the G7 when it comes to population growth.” By the end of September, Canada added more than another half million people to reach 40,528,326, representing 12-month growth of 1.25M people, a growth rate of 3.2%.
In a post last November, I discussed the importance of understanding some basic demographics in order to analyze economic indicators for the telecom sector. Desjardins’ January 7 note locked in on an observation by Statistics Canada attributing so much of Canada’s recent accelerated population growth on the number of non-permanent residents. “From July 1 to October 1, the country saw the number of non-permanent residents continue to increase; the total non-permanent resident population increased from 2,198,679 to 2,511,437.” This net increase of 312,758 non-permanent residents was the greatest quarterly increase since such data started getting collected more than 50 years ago.
Desjardins notes that it is not clear how to predict that trajectory for growth in the future. “We anticipate that population growth will continue to be strong relative to other developed countries but highlight the risk that the current pace of population growth might not be sustained over the long term.”
Desjardins estimates that growth in non-permanent residents of Canada was responsible to 30-45% of Canada’s wireless net additions last year, “outpacing our estimate of 25‒40% for penetration increases and 25‒30% for growth in the number of permanent residents.”
Since there is pressure on revenues per customer (ARPU), overall wireless service revenue growth is even more dependent on subscriber growth. Population growth contributes significantly to subscriber growth. At the same time, strong population growth is seen as likely contributing to ARPU pressure “as companies tend to discount more aggressively when there are more consumers actively shopping in the market”.
On the flip side, population growth has been blamed for driving Canada’s skyrocketing costs of housing.
Canada’s high population growth rate is an outlier among our peer economies, significantly exceeding the rates in all of our G7 partners. Beyond housing, there are impacts on infrastructure, including telecom networks, and the delivery of public services. A January 10 report from Desjardins found “closing the door to temporary newcomers would deepen the recession expected in 2024 and blunt the subsequent recovery.”
One of my first jobs coming out of school looked at population modelling, driving spending requirements for local telecom investment.
Understanding the impacts of population shifts is important. How will changes in public immigration policy impact the macro and micro economics of Canadian telecom?
