Is enough work being done to understand and quantify the impact of rural broadband investment in Canada?

There were a couple of interesting studies published in recent issues of Telecom Policy. In the May edition, I read “Evaluating the impact of broadband access and internet use in a small underserved rural community” [pdf, 4.1MB], looking at the impact of broadband in an under-served community in north-western Missouri.

The Missouri research had two primary findings:

1. changes in using the internet for employment, education, and health could not be directly attributed to the internet intervention, and
2. the internet intervention was associated with benefits stemming from the ability to use multiple devices at once.

The Missouri study is especially interesting because it examined improving service in underserved rather than unserved communities.

The other paper is from the July, 2023 issue: “Economic growth and broadband access: The European urban-rural digital divide” [pdf, 2.1MB]. Conclusions from the European study found the benefits aren’t limited to densely populated urban areas. It found economic growth across all regions, highlighting a need for rural broadband investment to close the urban-rural digital divide. “These results potentially indicate the presence of infant rural industries and technologies which rely on high-speed and high-quality broadband infrastructure to sustainably mature, aligning with the emergence of innovations in smart farming technologies and reassuring its importance in the future.” Not surprisingly, the European study observed private investments focus on providing faster connection rates in urban areas, supporting the use of public-private initiatives for rural broadband.

We know that there are broader benefits of broadband adoption, as I discussed in a blog post a couple weeks ago.

I started the year with a post looking at a policy agenda for the year ahead.

Over the summer, I’d like to put together a research agenda for telecom focused academic studies in Canada. What would you want to see on that list?

Canada’s policy environment is leading to the wrong climate for investment.

That is one of the key take-aways from a recent survey of leading business leaders published by the Globe and Mail. The survey [pdf, 5.2MB] included chief executives from a wide range of companies and business sectors, representing businesses with annual revenues ranging from $10M to more than $10B. Two thirds of the respondents represented companies with annual revenues over $1B.

The survey’s headline highlights nine out of ten participating CEOs in Canada see cybersecurity as a threat for their business; 70% say it’s a major threat. Still, Canada being on the wrong track for investment is one of the 4 key findings. “Over six in ten participating CEOs in Canada see Canada as being on the wrong track when it comes to being a place for businesses to invest (62%). When asked the reason for their views, participating CEOs most often said taxes and high costs (22%), poor leadership, regulators, and red tape or lack of clarity (22%), and incentives for business being weaker than other countries which does not create appealing environment for investment (17%).”

Further, when asked an open ended question “What are the biggest threats, if any, when it comes to your company conducting business in Canada in 2023”, 38% replied poor policy / regulation. It was the number one threat identified, by a nine point margin.

The regulatory and policy impact on the climate for investment is a key theme in the CRTC’s review of mandated wholesale access to fibre facilities. In its notice of consultation, the CRTC appears to trivialize the risk to further fibre investment by carriers, since fibre access networks “now cover most of their serving territories”. That stands in stark contrast to a recent statement by Bell Canada’s CEO that “There are still 4-5 million locations within our footprint without access to fibre.”

The regulator should know that broadband expansion business cases are examined on a project-by-project basis. After all, the CRTC administers its own subsidy fund to top up the shortfall in a limited number of rural broadband expansion projects. Policy makers must recognize that existing fibre is somewhat irrelevant to the millions of Canadian households that currently don’t have fibre access.

The economics associated with fibre expansion projects should be pretty simple to understand. I have written about broadband business cases numerous times. The incremental cashflows over time have to offset the upfront and ongoing costs associated with the project. If there is a shortfall, the project doesn’t get approved. If the economics don’t work, the private sector won’t invest in the project.

Cutting investment and cutting jobs aren’t threats; these are logical (and predictable) consequences of regulatory and government policy.

This week, we have seen stories about such consequences at TELUS and at Bell.

Will CRTC’s continued intervention in the marketplace drive an increased requirement for government funding for fibre in areas that would have otherwise had a business case for private sector investment?

Providing telecommunications in the Far North is a significant challenge. The population density is 0.03 people per square kilometre (0.02 in Nunavut), less than two orders of magnitude lower than the population of Canada as whole. Canada is already among the world’s least densely populated countries.

Adding to the engineering challenges are the vast distances to be covered, a harsh climate, and challenging geography. With less than 120,000 people, the Far North represents just 0.3% of Canada’s population across nearly 40% of Canada’s land mass. Indeed, on its own, the Far North would rank as the world’s seventh largest country (smaller than Australia but larger than India).

Upgrading telecommunications in the Far North isn’t easy, but it could deliver significant positive changes for Territorial residents. Telecommunications services can be a vehicle to digitally shrink distances.

As I mentioned in April, the CRTC has been studying the state of telecommunications in the Far North. The Commission conducted a week long public hearing in Whitehorse in April to canvass views. Final comments on the proceeding were supposed to be submitted last Friday (June 9). However, on May 24, the CRTC suspended the proceeding, saying:

The Commission is committed to consulting a diversity of voices and perspectives on the issues raised in this proceeding. The Commission intends to take additional steps in this regard, while recognizing the importance of a timely decision.

Last week, TELUS filed an interesting proposal in the form of a procedural request. In its letter, TELUS made two recommendations to enhance the process:

• addition of a reply phase; and,
• the appointment of an inquiry officer “to engage directly with interested parties in Nunavut.”

The suggestion of including a reply phase is not that unusual. Given the nature of the proceeding, it likely should have been part of the CRTC’s original public notice. As TELUS noted, “Reply is commonly part of a major proceeding as it allows parties to challenge the veracity of any conclusions made in final submissions and to correct the record regarding any mischaracterizations of information already submitted.”

The appointment of an Inquiry Officer is a less frequently used power of the CRTC. Under the Telecom Act,

70 (1) The Commission may appoint any person to inquire into and report to the Commission on any matter
      (a) pending before the Commission or within the Commission’s jurisdiction under this Act or any special Act; or
      (b) on which the Commission is required to report under section 14.

In 2014, the CRTC appointed Commissioner Candace Molnar to be an Inquiry Officer to explore the Canadian marketplace for satellite services used on a wholesale basis. In 2012, Commissioner Tim Denton was appointed to be an Inquiry Officer to examine issues related to 9-1-1 evolution. Before that, we have to look back 40 years to see that the CRTC appointed a senior staff member to be an Inquiry Officer to examine Phase III costing.

TELUS notes in its letter that the CRTC has considerable discretion in who could be appointed.

In appointing an inquiry officer, the Commission is not limited to Commissioners and staff member, but may designate any person it deems to be suitably qualified. To address the particular issues in Nunavut, the inquiry officer could, for example, be from the Far North or very familiar with the circumstances, cultures and languages of Nunavut. Such an individual could engage with the people of Nunavut with a granularity and cultural sensitivity not possible in a regulatory hearing, but consistent with the Commission’s intentions toward Indigenous engagement as espoused in the Notice. Without the structure associated with a full hearing, an inquiry officer could converse directly with individuals in their homes or communities and the report could be completed comparatively quickly.

The purpose of the CRTC consultation is stated as “want[ing] to hear from you on what actions it should take to improve telecommunications services in communities in the Far North.” While the Commission sought comments using a “new online engagement platform”, without reliable internet access, how would most residents of Nunavut access it?

The people of Nunavut are the among most remote and the most dependent on satellite-based communications. For most residents, internet-based communications is slower and more expensive than similar services delivered to the majority of Canadians. Although the CRTC held its public hearing in the North, travel from Nunavut to Whitehorse is impractical for most. Participating via internet would not have been an option; isn’t that precisely why this consultation is being undertaken? Notably, the Government of Nunavut did not participate in the proceeding.

The CRTC itself noted that it “is committed to consulting a diversity of voices and perspectives on the issues raised in this proceeding”. The idea proposed by TELUS, to appoint an Inquiry Officer to collect evidence, would appear to be a solution to bridge the information gap, sensitive to the cultural diversity and geographical challenges that may have inhibited participation by Canada’s most remote citizens.

Until the state of telecommunications in the Far North is improved, it is imprudent to rely on conventional procedures to canvass local perspectives. Solving the challenges of upgrading telecommunications in the Far North will require unconventional engineering and regulatory approaches.

So isn’t this an appropriate occasion to use one of the more unconventional powers of the CRTC – appointing an Inquiry Officer?

Is it time for government telecom policy makers to say, “Mission accomplished”?

At a recent investor day hosted by TD Securities, Bell CEO Mirko Bibic said:

You talk about the competitive landscape or dynamics or intensity, I think it is to be fully expected. When you have four well capitalized companies who are integrated across wireless and wireline and, in several cases, broadcasting or media, it’s not surprising to me that there’s competitive behaviour we’re seeing across the board. Ultimately, it’s what you ought to want. As a consumer living in the country, it’s totally expected.

It should form part of a different type of dialog that we should be having. To the extent anyone thought there was an issue with competitiveness, haven’t we kind of solved it? You’re seeing the benefits of having four well capitalized companies operating across wireless and wireline, which by the way, you don’t see anywhere else in the world. Very few countries have four wireless players. And frankly, no countries have the ubiquity of fibre deployment that we have, with four players who own their wireline and their wireless assets.

In “Thoughtful policy”, I cited a recent Financial Post article by economists Dr. Jeffrey Church and Dr. Christian Dippon. The article notes how so many observers of Canada’s telecom markets “mistakenly attribute all price differences to differences in competition.” In reality, a number of factors that can have significant impacts on costs vary between countries. “In other words, prices will differ even if “competition” is the same.”

Using multiple regression analysis, it is possible to develop a model to account for variables such as “the quality of network service, availability of family plans, consumer preferences, income, availability and terms of handset provision, alternatives to wireless services, costs of provision, and the institutional / regulatory / legal environment”. Using such an analysis, it is possible to compare market prices to the statistically predicted price, to produce what Dr. Dippon calls a “value ratio” (as shown in the figure).

Measuring price without consideration of variances in quality produces meaningless results. “Value” seems to be a much more relevant metric.

Policy makers need to look at factors beyond price as a measure of competitiveness. The marketplace is working. As I told the Canadian Press a couple weeks ago, price reductions we are seeing in the mobile market are “well beyond any of the expectations that were set by Ottawa”.

So, are authorities in Ottawa preparing to declare “mission accomplished”? That would be unlikely. However, with the recent substantive changes in the structure of the sector, it might be appropriate to ask if regulators should stand aside and let marketplace dynamics work.

A recent Globe and Mail survey of Canada’s top chief executive officiers found that more than 60% of CEOs “believe Canada is on the wrong track when it comes to being a place for business to invest”. That should be a source of concern for policy makers.

Canada’s four facilities-based national competitors are spending billions of dollars extending and upgrading their wireless and wireline networks. That work is not complete. Policies need to support and encourage these continued levels of investment. And that usually calls for a lighter touch.

Canada’s future depends on connectivity.

Are there broader benefits arising from broadband connectivity?

We know about the power of broadband investments in driving toward an innovation-based economy. A new report [full report pdf, 686 KB] from the Montreal Economic Institute examines decreases in energy consumption and emissions facilitated by broadband networks. It notes the potential for 5G networks to achieve further environmental sustainability. This is a benefit of 5G about which I recently wrote.

MEI’s report observes “A 10-percentage-point increase in mobile broadband penetration is associated with a 7% reduction of CO2 emissions per capita”. New 5G networks are more energy efficient than previous generations. An Accenture report [pdf, 3.8MB] notes “that for a general 5G cell site, energy used in data transmission will be 8-15% of what it currently is for a similar 4G cell site and milimeter wave technology can further reduce energy consumption to 1-2% of a 4G macro site.”

According to MEI,

The 5G network architecture will facilitate the expansion of the Internet of Things (IoT)—the “fourth industrial revolution”—in which nearly everything will be connected to the internet. Thanks to billions of sensors, intelligent management, and real-time data analytics, sophisticated learning and optimized processes can have very real impacts on energy efficiency and consumption, and therefore on GHG emissions.

In my post late last week looking at the future of the future of work, I noted that at the end of last year nearly one in ten Canadian workers had a hybrid work arrangement. Ten percent of Canadians are working part-time from their offices, and part of the time from home or remotely. A further 16% were working exclusively from home. So, a quarter of Canadians rely on broadband connectivity to perform their jobs. MEI notes that broadband enabled remote work contributes to reductions in commuter traffic and office use, reducing energy consumption and emissions. The report cites a study estimating that a 10% reduction in traffic congestion would result in “the city of Montreal slashing 130,000 tonnes of CO₂ emissions, equivalent to removing 29,000 cars off the road.”

Broadband decreases the demand for transportation, improves industrial processes, and changes the way public services are accessed and delivered.

With these environmental considerations, clearly there are broader benefits associated with accelerated broadband deployment. MEI says “Given these benefits of the digital economy, facilitated by broadband internet and wireless mobility, it would be advisable for governments to reexamine the burdensome regulatory framework and public policies that stifle investment and innovation in this area.”