Last May, I discussed an interesting CRTC proceeding looking at high cost serving areas.

At the time, I described an interesting CRTC proceeding underway to examine the future of voice telephone service to a total of 110 households and 5 businesses located in 8 communities served by 3 telephone exchanges located off the beaten track in British Columbia. The communities are connected to the TELUS backbone network using microwave radio links using the 3500MHz band. The radio systems used in these communities are outdated, manufacturer discontinued, so the equipment is no longer supported. Indeed, the manufacturer (SR Telecom) went bankrupt more than 15 years ago. As if that wasn’t enough, the 3500MHz band is being reallocated by ISED.

ISED told TELUS that it could no longer guarantee its use of the spectrum beyond the end of March, 2025.

So a year ago, TELUS told their remaining subscribers that it would be sending each one $1400, enough to pay to get connected to a satellite-based voice-over-IP service. That amount would cover the costs of the equipment, installation and the service fees for a full year. TELUS filed its plan with the CRTC in May, 2024, which is what stimulated my high cost blog post last year.

The CRTC decision on the matter was released two weeks ago, which is what brings us to today’s story.

Basically, the CRTC agreed with TELUS that it is not viable to modify (and maintain) the SR Telecom equipment operating on another frequency. The CRTC agreed that satellite-based VoIP was a reasonable substitute, but was concerned with the monthly price differential after the initial gift of $1400 runs out. So, the CRTC awarded residents an additional $4,428. That amount represents 3 years of the price differential between current rates of $32 per month, compared to a total of $155 per month for a satellite-based VoIP service. Never mind the fact that these households will effectively be getting residential broadband for free as part of the deal.

The CRTC basically waved its hands over the contentious issue of whether the “Obligation to Serve” continues to exist for these communities. The Commission acknowledged that TELUS tariffs contain an explicit exception “when it cannot acquire or maintain the equipment or rights of access that are necessary to provide service.” And the decision itself agrees that the status quo is not viable.

15. While the Commission agrees with TELUS that there are limits to the obligation to serve, the Commission considers that the obligation continues to apply when there is a loss of access to spectrum or other existing facilities. All facilities will eventually require replacement due to technological advancements and regular wear and tear. If the obligation to serve no longer applied when a provider was unable to maintain its facilities, this would effectively time-limit the obligation to serve. This would be particularly problematic in high-cost serving areas. Instead, the Commission considers that ILECs are obligated to serve where they can reasonably replace those facilities or find alternative methods to serve customers.

The Commission seems to have forgotten that the Obligation to Serve comes from an era that included a subsidy for high cost serving areas. Expenditures to build and maintain infrastructure were recovered from a kind of regulatory tax on other service and other regions – the national contribution fund in later years.

Once again, the CRTC is demonstrating that it lacks appropriate tools to deal with high monthly costs on an ongoing basis for certain remote communities. For a number of years, I have written about what the CRTC itself recognized as a consequence of its 2016 Broadband Decision.

As I wrote in 2020:

Many people didn’t give much thought to what the CRTC termed a consequence of that decision, “As a result, the Commission will begin to phase out the subsidy that supports local telephone service.” In other words, the Commission swapped out a program for ongoing support for all high cost serving areas, in favour of awarding one-time payments to specific winning projects.

I wrote about the CRTC’s former high cost serving area subsidy regime in my post about wealth redistribution last month. In today’s case, the CRTC decided that TELUS should cover the shortfall, now that the Commission’s own subsidy regime has collapsed.

The decision’s analysis of the Obligation to Serve strikes me as overly simplistic. The Decision says “the Commission considers that ILECs are obligated to serve where they can reasonably replace those facilities or find alternative methods to serve customers”. Then, the CRTC agrees that TELUS cannot reasonably replace those facilities, but still maintain that TELUS has an ongoing obligation to serve. The alternative is another facilities-based service provider: Starlink. Why is TELUS still involved?

To its credit, the CRTC found that a third-party satellite-based VoIP service was a satisfactory solution for service continuity for these communities, similar to a finding 2 years ago when Bell withdrew its exchange radio service.

The total amount we are talking about here is just half a million dollars (115 households at $4,428 each). A court challenge could easily cost that and more. Is this a precedent that TELUS will allow to stand? How many other communities will be left in a similar situation across the country because of the CRTC’s decision in 2016 “to phase out the subsidy that supports local telephone service”? Why is Starlink considered to be an appropriate solution for these communities, but not for the 3 communities I described a month ago in “Fifteen million of other people’s money”?

That particular decision really needs to be revisited.

The CRTC is continuing to be quite comfortable spending other people’s money. Are Canadians getting value?

What is the right amount of competition in the telecom market place? Is it possible to have too much?

Those are some of the questions being assessed by Cabinet and the CRTC right now in the context of mandated wholesale access to fibre to the premises (FTTP) facilities.

Long time readers will know that I don’t think such mandates are appropriate in a competitive environment. A fundamental issue is getting the wholesale pricing right in order to maintain appropriate incentives to invest.

However, if a wholesale FTTP mandate is going to exist, I am having trouble understanding the justification for limiting the kinds of service providers who can make use of those facilities.

TELUS wants to be able to bundle residential internet and TV with its mobile services in Eastern Canada. Bell, Rogers and the association of independent internet providers (CNOC) are arguing against it. They want mandated wholesale access to be limited to just smaller service providers. CNOC said:

TELUS would like the CRTC to give it regulated access to networks of large and small providers instead of building its own networks.

If the CRTC does not close this loophole, the future of smaller players, and of competition, will be in jeopardy.

TELUS isn’t telling the whole story. Regulated wholesale access is meant to remove barriers for local and regional carriers so they can bring additional competition to Canada’s broadband market. It was not intended to help Canada’s Big Three dominant telecom companies from growing even larger.

CNOC itself isn’t really telling the whole story. For residential internet, Bell and TELUS are really no different from Sasktel; they are regional service providers. These so-called “dominant” companies may have been former incumbents in their home regions, but they have no residential broadband customers, and virtually no residential last mile facilities, outside those geographies. Keep in mind that Teksavvy Solutions told Cabinet, “wireline communications networks are natural monopoly facilities — precisely the challenge that wholesale was introduced to address”. So which is it? Are wireline networks natural monopolies, or should competitors be building their own networks? This contradiction strikes me as a fundamental breakdown in logic.

Rogers, Bell and TELUS are national mobile service providers, but CRTC data shows that TELUS enjoys more than double the market share in BC and Alberta compared to what it has in Ontario. The CRTC shows TELUS as the market leader in its home territory, but it is a distant third in Ontario where, at 21.3%, it has less than half the share of Rogers (45.4%). In BC, CRTC figures show Bell with just 17.6% share, compared to TELUS and Rogers with over 40% each. In Alberta, Bell has just 23.3% share compared to TELUS with 50%.

Why are there such significant regional fluctuations in market share? These kinds of figures seem to point to customers choosing to bundle.

The point is, it is misleading to view Canada’s telecom market as being dominated by a monolithic “Big Three”. In most areas, bundling is available from two, not three.

In each region, there are two large competitors: one was the incumbent phone company; the other was the incumbent cable TV provider. Each has transformed to be integrated communications service providers. [I would argue that for internet, no industry participant should be considered to be the “incumbent”, but that discussion is for another day.] There are a lot of other competitors operating, some facilities-based and some based on wholesale access, some using wireline and some using wireless (fixed, mobile, and satellite).

The arguments against regional phone companies having access to wholesale FTTP seem to come down to saying “we don’t mind a little bit of wholesale-based competition, but we don’t want too much of it.” The seems to be that wholesale-based internet is good (that’s why it is mandated), as long as it doesn’t take a serious amount of customers. That was the argument put forward to Cabinet by a coalition or smaller regional companies in their appeal last December [pdf, 221KB]. The petitioners complained that large service providers could use wholesale access to fibre to sell bundles of internet, TV and wireless services, leveraging their brand recognition and existing wireless services.

“This would create immediate challenges to the long-term sustainability of regional and independent providers.” The petitioners are actually arguing that since they aren’t able to offer bundles to consumers – and they don’t have brand recognition – a third choice for consumers could wipe them out.

As I wrote in November 2023, it is a mistake to measure competitive intensity by simply counting the number of smaller wholesale service resellers. Isn’t pricing an important measure of competitive intensity? Despite rampant inflation, prices for internet services declined nearly 8% in 2023 and a further 4% last year according to data from Statistics Canada’s Consumer Price Index. Internet speeds have increased dramatically For wireless services, prices have fallen nearly 60% since 2019, while the overall CPI has risen nearly 20% in that time period.

What about levels of investment as a measure of competitive intensity? A PwC report found “the Canadian telecom sector has invested an annual average of $12.1 billion in capital on network infrastructure. This represents approximately 18.6% of average revenues, which is higher than the 14.2% average across the peer telecoms in the U.S.A., Japan, Australia, and Europe.” CRTC data shows availability of gigabit speeds to nearly 90% of Canadian households by year-end 2023, up from 65% in 2019.

Falling prices and high levels of capital investment strike me as inconsistent with declining levels of competitive intensity. For more than 10 years, I have been writing about the impact on investment created by mandated wholesale access, such as this piece. Still, we have already made the decision that wholesale access is going to be mandated, and that the CRTC would set wholesale rates that appropriately consider the incentives to invest.

So, what is the right amount of competition? It seems to be a confusing message for the government or for the independent regulator to say that wholesale access is good, as long as those wholesale-based service providers aren’t too successful.

Consumers want more choice. If consumers want more options, including integrated services bundles, why would we preclude access to out-of-region integrated service providers? Wouldn’t these service providers significantly increase the level of competitive intensity?

Governments should be concerned about protecting competition, not protecting competitors. What should be the right amount of competition? Is there really such a thing as too much? Should regulators or policy makers be imposing limits on who can compete?

Last July, I wrote about Canada taking pride in being among the first countries to develop AI regulations with its Artificial Intelligence and Data Act (AIDA). I commented that being first isn’t necessarily the best, especially when Canadians might lose out on access to innovative technologies. If the choice is between getting AI regulation right, or getting regulation right now, was there really a need for AI regulations right now, at the expense of regulating AI right?

The July post included a reference to where I argued against technology specific legislation.

I noticed that last week, Canada signed the Council of Europe Framework Convention on Artificial Intelligence and Human Rights, Democracy and the Rule of Law.

Recently, Lazar Radic of the International Center for Law & Economics had an interesting piece, writing that “DeepSeek Shows Why Regulators May be Getting AI Wrong”.

He argues that AI is evolving faster than regulation. In December, a number of international competition agencies issued a joint statement warning “that firms with existing market power in digital markets could entrench or extend that power in adjacent AI markets or across ecosystems”. The agencies, representing the US, the EU and the UK, said: “Given the speed and dynamism of AI developments, and learning from our experience with digital markets, we are committed to using our available powers to address any such risks before they become entrenched or irreversible harms.”

The regulators are concerned that only the richest, best funded giants could afford to train AI models. However, we are seeing numerous alternatives emerge, including China’s DeepSeek, and Mistral AI from France. DeepSeek’s simple origins shook the global equity markets in late January, but Tim Shufelt of the Globe and Mail saw a bright side. “This [DeepSeek] could prove to be a technological breakthrough that makes AI more accessible, with the benefits spreading to companies beyond the Magnificent Seven group of tech giants.” He believes more affordable AI technology would be beneficial to a wide range of businesses, large and small.

Radic says that DeepSeek shows that AI development isn’t limited to a few deep-pocketed American firms. It “may be possible with far lower levels of investment than previously imagined.” Further, he writes that “the open-source AI movement more generally is thriving, with thousands of developers collaborating on decentralized AI projects that challenge the idea that only a handful of companies can drive innovation.”

His concern is that aggressive regulatory intervention could freeze a market that is still taking shape, serving to discourage new entrants rather than fostering them. Radic argues this risk “is compounded when intervention is pursued via regulation, rather than the more flexible case-by-case approach of traditional competition law.” Radic warns, “Premature interventions risk locking in artificial monopolies instead of preventing them—turning “monopolistic AI” into a self-fulfilling prophecy.”

DeepSeek demonstrates that AI may emerge to be one of the more competitive fields in technology. With the pace of AI development moving so quickly, regulators may want to consider exercising greater humility before trying to craft solutions for a problem that does not yet exist.

A few weeks ago, in “Telecom professional development”, I described a series of upcoming webinars, including one coming up next week that looks at the issue of regulating space.

On February 18, 2025 [at 9:30 am Eastern], the International Telecommunications Society is hosting Satellite Technology and the Future of Space Regulation. This webinar is free and will feature Professor Rob Frieden of Penn State University Law.

Last year, I wrote about cellular and satellite convergence, as low earth orbit companies like AST-Space Mobile and SpaceX Starlink began offering direct-to-cellular device connectivity, bridging gaps in coverage in remote and rural areas.

What is the legal framework to govern activities beyond traditional national borders?

How do we navigate complex, and sometimes conflicting, international treaties and national space regulations? Are there jurisdictional gaps and inconsistent space policies across countries that demand resolution?

Space-based technologies involve billions of dollars of capital investment. As operations expand around the globe, the private sector is already taking significant technology risks. With an opportunity to offer connectivity with satellite and other non-terrestrial communications technologies in rural and remote areas, operators of these systems need more regulatory certainty. What standards should guide behavior in space? What agency (and under what authority) will enforce these standards? How should the global community respond to non-compliant states or rogue actors in the private sector?

The February 18 webinar will attempt to address these questions. Professor Frieden will discuss the major international treaties shaping space law: from space safety and debris management to liability in space, along with other jurisdictional issues. The session aims to explore the interaction between these treaties and domestic policies, looking at the challenges for private sector entities and governments in the satellite communications space.

The objective is to identify strategies for regulating space, driving increased certainty, as we technology ventures toward the stars.

I look forward to seeing you online February 18, at 9:30am (Eastern).

Many governmental programs are a form of wealth redistribution. We tax those in the best position to pay in order to provide universal programs for citizens of all means. Think of it as a kinder, gentler, (democratically elected) Robin Hood.

Progressive tax systems involve a tax rate that increases (or progresses) as taxable income increases. It imposes a lower tax rate on lower-income earners and a progressively higher rate on those with higher incomes.

In the olden days – before telecom competition got underway 30 or so years ago – the CRTC administered such a redistribution of wealth that effectively provided subsidies to lower the price of telecom services for certain classes of users. Business customers paid more in order to lower residential service prices. Urban customers paid more in order to lower the price for rural. Long distance phone calling was seen as discretionary, so the surpluses enabled local services to be more attractively priced. In the industry, we called those surpluses “contribution”. Business service surpluses provided a contribution; the surplus in revenues over costs from urban services provided a contribution; long distance profits were considered a contribution; calling features like voice mail, conference calling, caller ID, touch tone, all provided a contribution. As an aside, touch tone tied up less equipment – and actually cost less to provide – than rotary dial, but it was originally considered a premium feature so it was expected to (you guessed it) provide a contribution.

The contribution pot was then used to fund services in high cost serving areas, helping to lower prices in rural and remote areas.

All of this could be centrally managed because we lived in a rate-regulated monopoly world. The CRTC would review capital programs and determine the reasonableness of the spending plans. Approvals were expressed as whether or not the Commission found the “Construction Program” to be reasonable – and it was often expressed in the form of a double negative (“we do not find the program to be unreasonable”). In a monopoly, rates of return were not guaranteed. Regulation was intended to provide opportunities to achieve certain rates of return. It was a very different era.

However, when competition was introduced, each of those markets with prices well above costs created arbitrage opportunities. It created challenges for central administration of a contribution fund. Local phone rates started to be rebalanced to remove many of the broader subsidy requirements. One might have thought the CRTC should exit the wealth redistribution business and leave it to the government to fund social subsidy programs out of the general tax system. The problem is, the government is somewhat addicted to having the CRTC operate an off-the-books alternate funding system. It isn’t just telecom revenues getting taxed to fund special programs. Recall, TV customers are the ones paying for the national public alert system. Most of us get those alert signals on our mobile devices, but it is the ever shrinking number of cable and IPTV subscribers who fund the system. It is all part of the CRTC’s wealth redistribution.

It was the CRTC’s Telecommunications in the Far North decision that inspired today’s post. That decision spawned a consultation to determine how to administer a subsidy for internet service in the north. As I mentioned a couple weeks ago, the first round of interventions are due February 18.

If it wasn’t obvious from my earlier blog post, I think the CRTC’s universal subsidy plan for the Far North is misguided and ill-conceived. In an Op-Ed, I referred to it as “The CRTC’s flawed Far North approach”. The Commission said that prices for internet service can be 50% higher in northern communities, but its universal subsidy plan ignores ability to pay as a consideration. Indeed, the ability to pay is ignored, not just for those receiving the subsidy, but also for those in the rest of Canada who will be paying more in order to fund the subsidy.

Median household incomes in the north are considerably higher than in the rest of Canada. However, Statistics Canada’s survey of household spending does not indicate that overall household expenditures in the territories are as disproportionate to those in the rest of Canada as the incomes, or the differences in internet prices.

The income distributions (using the 2021 Census) vary widely between the three territories (Yukon, Nunavut, NWT) and the country as a whole. Nationally, 17% of Canadians earn more than $80,000, but more than 36% of NWT residents earn more than $80,000; 27% in Nunavut and 28% in the Yukon. Nationally, 51% of Canadians earn less than $40,000. In NWT, that figure is 39%; 54% in Nunavut and 37% in Yukon.

The CRTC’s decision shrugs off use of an income-based subsidy because it is harder to do.

a subsidy that is based on household income would involve a long implementation process and would have a greater administrative burden and higher costs. Household incomes can change frequently and would need to be assessed routinely at an individual customer level. Determining eligibility based on household income would therefore require the ongoing collection of personal data and extensive cross-departmental collaboration because the Commission does not have access to, nor regulatory oversight over, Canadians’ personal income data. [paragraph 35]

It was indeed very difficult for the pioneering carriers (Rogers and TELUS) that launched these targeted subsidy programs, notably without any government funding. Those of us who were involved in the early days can recall the battles with various government departments trying to get them to assist with identifying eligible households. But, we have already cleared that challenge. We know how to do that. The CRTC ignored Northwestel’s launch of Connecting Families, a program targeting low-income households based on a system that already accesses income information while preserving personal privacy. Indeed, there is no mention of the program in the decision. I remember writing about the announcement which came during the oral phase of the CRTC’s Far North hearing.

What motivated the CRTC to ignore the existence of Connecting Families in its decision? If it wanted a broader application, it didn’t mention it. How can the decision talk about wanting to “improve affordability, especially for low-income households” but not mention the program that exists for precisely that group?

By deciding on a subsidy that will go to all service providers, and to all customers, we end up a regressive form of wealth redistribution. All customers in the far north will receive a subsidy, regardless of their financial need. All customers in the rest of Canada will fund that subsidy regardless of their financial ability to pay.

The absurdity continues in looking at the decision that all service providers, terrestrial and satellite, will participate. Starlink charges all customers in Canada $140 per month for service. The company is now among the largest internet service providers in rural and remote areas in Canada. Under the CRTC’s subsidy plan, Starlink customers in the Far North will actually pay less for their service than consumers in the south.

This makes no sense.

When there is so much effort underway to keep prices for telecom services down across the board, the CRTC’s Far North subsidy will work in opposition. The Commission’s Broadband Fund already duplicates funding programs from various federal, provincial and regional government departments.

We should be asking why the CRTC is trying to re-insert itself into the social welfare business.