Canadian carriers have spent billions of dollars investing in telecom infrastructure.

Indeed, Statistics Canada data shows that the year 2022 represented the greatest level of investment in communications networks on record ($9.674B). More than a third of that ($3.332B) was invested in Optical Fibre.

A few weeks ago, I highlighted an excerpt from the CRTC’s wholesale broadband notice of consultation. At paragraph 70, we read:

the Commission considers that a number of incumbent carriers have made fibre the focus of the retail Internet service market, resulting in a seven-year head start in establishing and securing a broad customer base by building out and deploying their fibre access networks, which now cover most of their serving territories. Therefore, the Commission expects that there would be minimal risk regarding the future investment of fibre deployment by accelerating the competitive introduction of FTTP facilities.

As I noted last month, Bell Canada’s CEO has stated “There are still 4-5 million locations within our footprint without access to fibre.” And, that is just within Bell’s footprint.

In 2016, when the CRTC set an aspirational target for all Canadians to have access to 50/10 unlimited broadband, it was viewed as an aggressive, but achievable goal. Seven years later, the FCC is considering a target of 100/20 for its rural broadband programs.

CRTC figures show that, at the end of 2021, 91.4% of Canadian households have access to 50/10 unlimited broadband. But barely over three quarters (77.4%) have access to gigabit speeds (a proxy for fibre or equivalent technology). In rural Canada, nearly two thirds (62%) of Canadians have access to the 50/10 unlimited service, but just over half of those (36.9% of total rural households) could get gigabit services.

The Commission’s own data demonstrates that the CRTC is just plain wrong to conclude “there would be minimal risk regarding the future investment of fibre deployment”.

In its recent submission to the CRTC’s wholesale consultation, the Competition Bureau explicitly warns the Commission about wholesale regulation creating a risk to investment.

Wholesale access regulation can increase competition in the short-term, including through offering increased choice and lower prices to consumers. However, it is worth noting that wholesale access regulation can also have a negative effect on investment decisions, potentially impacting long-term or dynamic competition.

Wholesale regulation can have a material impact on the business case for rural and suburban fibre deployment, as recognized by the Competition Bureau. The CRTC should be playing the long game, continuing to focus on a dynamic marketplace for the long term.

In the coming weeks, I expect to be writing more about the CRTC’s recent determinations in its “Review of the approach to rate setting for wholesale telecommunications services”.

Canadian carriers have spent billions of dollars investing in telecom infrastructure, but the job is not yet complete. This is not the right time for regulation to discourage carriers from investing in telecom infrastructure.

Indeed, there is never a “right time” for governments to discourage private sector investment.

I thought it might be helpful for understanding EBITDA to look at why margins are higher in certain capital intensive industries.

EBITDA is short for Earnings Before Interest, Taxes, Depreciation and Amortization. It is considered to be a proxy for cash flow due to adding back Depreciation and Amortization, but it does not represent net profit, since the business has to pay for its own investments somehow. In capital-intensive businesses, interest, depreciation and amortization can be pretty substantial amounts.

The CRTC’s recent CMR summary included a chart that compared capital intensity across various industrial sectors. Notice that capital intensity (the ratio of capital expenditures to revenues) in telecommunications ranks near the top of all of Canada’s industries. Around 25 cents out of every dollar in revenue is invested by Canada’s telecommunications carriers.

Warren Buffet of Berkshire Hathaway has a well known disdain for EBITDA as a measure of corporate performance. Those who cite EBITDA margins as evidence of excessive profits fall into what Buffet has phrased as thinking “The tooth fairy pays for capital expenditures”. Understanding EBITDA margins, and why this figure varies between capital intensive businesses and those that are less investment intensive, is key to analysing the telecom sector.

Wholesale-based service providers, companies that are reselling carrier infrastructure, have a higher proportion of their network facilities paid for in monthly leases, an expense that is recorded above the line. Carriers, the companies that invest in major telecom infrastructure, need bigger operating margins in order to pay for their investments – those payments recorded below the line resulting in interest, depreciation and amortization. Facilities-based service providers invest in connectivity and long-haul facilities and pay billions of dollars for spectrum, the radio frequencies that power wireless communications.

Those investments require real cash, funds that are not paid for by the tooth fairy.

Keep that in mind the next time you look at EBITDA margins in the telecom sector. Understanding EBITDA means understanding that capital intensive businesses necessarily have higher EBITDA margins.

As we approach the Canada Day holiday weekend, it is an appropriate time to pause for a mid-term report on the top posts so far this year.

These are the blog posts that attracted the greatest viewership so far.

• Incubating innovation, November 22, 2022
• #CHPC reviews government funding of antisemitism, February 16, 2023
• ChatGPT on “issues facing Canadian telecom policy”, January 18, 2023
• Dealing with online harms, January 24, 2023
• An agenda for the year ahead, January 4, 2023
• The economics of broadband revisited, March 28, 2023
• Aggregated wholesale internet access, March 14, 2023
• 2023 Policy Direction to the CRTC, February 13, 2023
• Measuring competitiveness in telecommunications, March 8, 2023
• Telecom price studies: 2022 edition, March 21, 2023
• 3800 MHz auction preview, May 25, 2023

The most viewed post in the first half of the year was from late 2022. Most of the top viewed articles in the mid-term report are from March or earlier; only one is from the past 5 weeks.

Which subjects are of the greatest interest to you? Which articles have you forwarded to a friend or colleague?

The CRTC has a problem with budgeting.

Last year, I wrote about the CRTC’s 25% increase in the fees charged to telecom service providers. It turns out that it didn’t really need most that extra money after all. In its 2023 Telecommunications Fees Order, the CRTC said that it had a surplus of more than $7 million left over from last year’s fees.

That surplus is getting applied against the budget requirements for the current year (1 April 2023 to 31 March 2024), just a hair under $54 million.

The CRTC characterized the requirement for fees as “This estimated net billing represents a decrease of 1.37% compared to the amount for the 2022‑2023 fiscal year ($47.520 million).”

On a first glance, you might have read the CRTC’s short announcement and thought this is unusually frugal budgeting by a government agency. After all, it is a net billing decrease of 1.37%.

But, let’s look at what is really going on here.

A year ago, the CRTC said it needed $48M to cover “its estimated total telecommunications regulatory costs”. It had a surplus of $7.127M, meaning it really only spent $41M. It is now forecasting a requirement of $53.997M, an increase of $13M over last year’s amount, an increase of more than 30%.

Two important take aways from this announcement: the CRTC is forecasing a substantial (30%) increase in its costs this year; and, the CRTC has again demonstrated what I have termed budgetary myopia. The only reason fees aren’t going up again this year is that the service providers already pre-paid a big chunk last year.

Where can you find trusted sources for telecom data?

I have written extensively about bad data sources such as Rewheel or Cable.co.uk. It is hard to do meaningful international price comparisons, given wide variations in quality and underlying costs. But where can Canadians go when looking for trusted sources for telecom data?

I tend to be a fan of government data. I did my graduate work in mathematical statistics at a time when Statistics Canada was one of the world’s most respected statistics agencies. It remains the most reliable source of Canadian telecom data in my books.

Statistics Canada maintains a telecommunications information portal, “Telecommunications: Connecting Canadians”, as a subset of its “Digital economy and society statistics” portal. There are also communications industry sub-indices produced each month as part of the Consumer Price Index.

The Digital economy portal has breakouts for:

• Cyber security and cybercrime;
• Digital technology and Internet use;
• E-commerce;
• Information and communications technology sector;
• Price indexes for digital economy goods and services;
• Telecommunications;
• and, Television and radio industries.

There is a lot of other information available through that portal, including the Canadian Internet Use Survey.

The Statistics Canada telecom portal also has links to the CRTC’s Communications Market Reports, which are regularly updated with financial and performance information. The CRTC’s portal generally has more current information than it publishes annually. The Commission’s 2021 annual summary was published last week, eighteen months after the end of the year represented in the report. According to the CRTC, “With its investment in new technologies, and its new streamlined data collection and validation processes now in place, the CRTC has the tools to release data not only in a timelier fashion, but also in a more transparent and accessible way. The timing of the releases of the future iterations of the Annual Highlights will benefit from these improvements.”

The CRTC’s Communications Market Reports site is also a portal, with data summaries on various sectors and access to raw data in spreadsheet form. The CRTC portal also offers a number of tableaus (such as the one below), produced in conjunction with Statistics Canada, that can be configured dynamically by the viewer.

So where do I go for reliable facts and statistics? I start with government agencies, especially data produced by Statistics Canada.