How concentrated is Canada’s communications market? I guess the answer depends on answering “compared to what”?

If we want to examine how concentrated Canada’s market is compared to other countries, there is a reasonable way to measure that, known as the Hirschman-Herfindahl Index (HHI). To calculate a Herfindahl-Hirschman Index, take the percentage market share of each firm in a sector (measured as a whole number), square that number, and then add all of those squares together. You end up with a number between 1 and 10,000.

If there is one player in the market, with 100% share, the HHI is 100×100 = 10,000. If there are 3 players with say, 40%, 30% and 30% share respectively, then the HHI is calculated as 40² + 30² + 30² = 1600 + 900 + 900 = 3400

As described by the Economist Intelligence Unit, HHI views the concentration of global telecom markets as:

• HHI < 3,000 “unconcentrated”;
• HHI 3,000-4,000 “moderately concentrated”;
• HHI > 4,000 “highly concentrated”

So, let’s look at the question from that perspective. Compared to our peers, how concentrated is Canada’s telecom market? Here is what the Economist Inclusive Internet Index is reporting:

As can be seen in this table, Canada’s wireless and wireline communications markets are less concentrated than our international peers. Indeed, of the 100 countries examined this year, the Economist Inclusive Internet Index ranked Canada’s Broadband market as the least concentrated and ranked the Wireless market concentration as the 90th of 100.

As I mentioned two weeks ago, a review of the world’s LTE deployments shows that there are 10 LTE networks operating in Canada compared to 9 in the US, 3 or 4 in most European countries (Russia has 9; Sweden has 6; Denmark has 5).

These are important factors when considering network diversity for overall resilience of Canada’s communications infrastructure.

A recent report from the Vernonburg Group is intended to help various levels of governments develop more effective and comprehensive broadband strategies.

Last month, Boston College law professor Daniel Lyons observed that in 2010, the FCC estimated it would cost $24B to make broadband available to all Americans. Between 2009 and 2017, the US government invested $50B to do just that, but the FCC estimates that 14.5M Americans still lack access/ Under its infrastructure bill, the US is about to spend another $65B on broadband.

As Professor Lyons writes, “it is vital to understand how those earlier billions were spent and why we have not yet closed the digital divide.”

Toward Effective Administration of State and Local Fixed Broadband Programs [pdf, 3.1MB] “is designed to help governments and community-based organizations think holistically about how broadband availability and adoption initiatives can complement and further other public policy priorities.”

The report shows ways to maximize funding impact from various government broadband infrastructure programs, including principles to guide program administrators seeking to increase broadband availability and adoption. The Vernonburg report includes advice on needs analyses, prioritization, goal setting, and evaluations.

Vernonburg Group encourages government administrators to allocate funding based on nine guiding principles:

1. Prudent Administration and Oversight: Programs should minimize red tape and only impose requirements on recipients that are necessary to achieve the defined objectives of the programs while ensuring their integrity.
2. Targeted: Any broadband funding mechanism should be designed and limited to addressing known market failures, and should not allow other policy objectives to distract from the primary goal – bridging the digital divide.
3. Technology Neutral: Broadband funding should be made available on a technology neutral basis. Narrowing the scope of eligible technologies and providers would reduce competition for subsidies and increase program costs.
4. Broadband Capable: Both current and proposed networks should be required to meet at least the regulatory-defined speed for broadband, both on an advertised and actual basis.
5. Secure and Resilient: Broadband fund recipients should be required to deploy technologies and implement measures to optimize their critical infrastructure and network resilience and implement best-in-class cybersecurity measures.
6. Best Value: To minimize costs while aligning on desired and integrated outcomes, funding amounts should be determined through a competitive bidding process, a scoring system that balances project costs and other factors such as service quality or speed of network deployment, or by some combination of the two.
7. Non-Distortionary: Any program should aim to minimize market distortions in how funds are collected and how they are distributed. Examples of market distortions would be targeting support to places where unsubsidized commercially sustainable networks can be deployed, choosing to fund only one technology solution when equally capable less costly solutions are available, or requiring certain market participants to internally cross subsidize the cost of deploying networks in high-cost and other commercially infeasible areas.
8. Deployed Quickly: Preference should be given to broadband providers that commit to rapid deployment of broadband networks and services, especially in areas deemed “unserved” or “underserved.”
9. Digital Equity by Design: Efforts to close the digital divide must account for underlying social and economic inequities. Equal access will not necessarily address inequitable access. Much like other forms of inequality, digital divides continue to disproportionately impact people who are: lower income; located in rural areas; are less educated; lack digital skills; older; and from vulnerable groups such as persons with disabilities and ethnic minorities.

The report includes themes that may sound familiar to my readers.

However, this report notes that achieving universal high-speed internet use by all citizens isn’t just a question of providing faster connections. It also involves making sure people can afford the fixed broadband services made available to them, have devices that enable them to productively work and learn online, and have the skills, comfort, and motivation to navigate and leverage online content and services.

Interestingly, available data shows that the so-called “broadband adoption gap” is far greater than the broadband availability gap. While the availability gap is closing, the adoption gap persists. Non-adoption appears strongly linked to certain demographic variables, such as income, age, disability, education level, rurality, and some ethnic distinctions—factors that state and local governments can effectively address.

The Vernonburg report says “closing the broadband adoption gap may be more challenging for state, municipal, and local governments than closing the broadband availability gap. Even if fixed broadband was made available to the entire U.S. population for little or no cost, state and local governments and their partners would need to overcome demographic and other factors that hinder some citizens from using the internet.”

The findings presented by the report mirror findings emerging from Canadian programs. Adoption isn’t just a matter of overcoming the affordability of broadband services, but also need to address access to devices, and address issues like the “relevance of content, illiteracy, concerns over safety and security of internet use, lack of so-called “digital skills” or knowing how to work devices and apps, lack of trust in private and public low- and no-cost programs, and misunderstandings about such programs.’

The 68-page report is a must-read for those involved in development of government broadband policy.

I am grateful for video chat technology.

Whether it is Facetime, WhatsApp, Zoom, Webex, Teams, Duo, Hangouts, Messenger or whatever, I have been feeling blessed to have access to such technologies over the past two years.

Two years ago, I referred to video chat as the ‘the next best thing’, but acknowledged that “it just isn’t the same as being there”. No, it isn’t. But video calling sure helps, when being there just isn’t possible.

Earlier this month, I spent time with my one-year-old grandson who normally lives 3 time zones away. We don’t get to be up-close and personal often enough, but we usually start each day with a virtual breakfast together. That meant that we weren’t strangers when we got together in real-time, in real-life. I had a similar experience last November when I met my (then 15-month old) granddaughter for the first time, after COVID-induced travel restrictions were lifted.

With each of the kids, there was an immediate attachment – reaching to touch the life-sized version of the person they recognized from the small screen of their parents’ phones.

We have come a long way from the AT&T Picturephone demonstrated at the 1964 World’s Fair, but the concept is the same.

I salute all of those involved in making the technology as functional and economical as it is today.

Thank you for making it easier to keep connected.

The FCC is taking steps to try to block telecom arbitrage schemes, announcing plans to change the inter-carrier compensation rules.

By way of background, the FCC notes

The access charge regime was originally designed to compensate carriers for the use of their networks by other carriers. It also helped ensure that people living in rural areas had access to affordable telephone service through a system of implicit subsidies.
…
Arbitrage schemes take advantage of relatively high access charges, particularly for the remaining terminating tandem switching and transport services that have not yet transitioned to bill-and-keep.

In 2019, the FCC adopted an Access Arbitrage Order, revising its Access Stimulation Rules to prohibit local exchange carriers (LECs) from charging interexchange carriers (IXCs) for services used to deliver calls to access-stimulating LECs. “The revised rules sought to end the ability of LECs to engage in arbitrage of the intercarrier compensation system by extracting artificially inflated tandem switching and transport charges from IXCs to subsidize “free” high volume calling services.”

The FCC found “This sort of arbitrage harms consumers, who ultimately bear the costs for these services, whether or not they use them.”

Since then, the FCC learned about new ways that some carriers are using to continue leveraging arbitrage “schemes.” I would call them scams.

The announcement last Friday was to introduce new rules to try to close these loopholes in the access rate regime.

In a separate notice, the FCC proposed a $116M fine [pdf, 157KB] against a company that the Commission says has been engaging in local rate arbitrage, with nearly 10 million robocalls to generate toll-free compensation.

With IP telephony, traffic can readily be generated anywhere in the world and target distortions in access fees in any country or any region.As the US closes arbitrage opportunities for companies engaged in pumping traffic to generate fraudulent telecom access fees, will such schemes move to other jurisdictions?

Has the CRTC acted adequately to protect Canadian networks and Canadian consumers from the impact of artificial traffic stimulation from foreign and domestic actors?

Do we understand the magnitude of the issue? Does the CRTC have sufficient tools to detect and prevent traffic pumping?

Is more proactive regulatory action and enforcement required?

What should be our national objective for broadband speeds?

Of course, faster is almost always better. Last Friday, in the United States, FCC Chair Rosenworcel announced that she will be proposing to increase the US national standard for minimum broadband speeds from 25 Mbps download / 3 Mbps upload to 100/20. The 25/3 standard was set in 2015. She is also proposing to set a long-term goal for broadband speed of 1 Gbps down and 500 Mbps up.

Canada’s 50 / 10 objective was set in 2016.

I thought it was interesting to see such a long term aspirational national objective, effectively setting today’s commonly available urban speeds as a national target. In addition, Chair Rosenworcel is looking beyond speed, proposing that the FCC consider “affordability, adoption, availability, and equitable access as part of its determination as to whether broadband is being deployed in a reasonable and timely fashion.”

The aspirational target does not specify a symmetric speed. Will that be addressed by some in the comments phase? The reality is that there are very few consumer applications for symmetric gigabit per second connections. Such connections are more commonly found in business.

It will be an interesting proceeding to follow. A year ago, the US government’s infrastructure stimulus package allocated $65B for broadband.

Changing the minimum broadband speed from 25/3 to 100/30 means that considerably more areas will be classified as deficient. What additional costs will be associated with the move to a 100/20 standard and where will the funding come from?

Will a more aggressive new minimum standard mean that some areas will be funded for upgrades to 100/20 service before other regions have even received service at today’s 25/3 service levels?