You can’t measure competitiveness or competitive intensity simply by looking at prices or counting the number of competitors. Measuring competitiveness in the telecommunications industry can be complex and may involve multiple factors.

In a recent interview, the CEO of telecommunications supplier Ericsson said that Europe’s industry structure is “probably unsustainable”.

Börje Ekholm told CNBC, “I do believe Europe needs to consolidate.”

Mr. Ekholm said that in countries such as the US, China and India, consolidation had meant there were now just two or three operators nationwide. In Europe, he said there are “200 operators, pretty much four plus in almost every country. It is an industry structure that is probably unsustainable and that needs to be addressed.”

The issue is one of financial viability. “The big problem in Europe is really that our customers can simply not afford to build out the networks and I think that is going to hurt European competitiveness long term.”

As Ericsson’s CEO suggests, telecommunications is an economic enabler. Absent the macro economic conditions to encourage investment in networks, the overall competitiveness of the national economy can suffer. Protecting competition doesn’t mean protecting the number of competitors.

Once again, the words of previous Minister Navdeep Bains come to mind.

So our government understands that Canadians want three things from their telecom services.

• Quality. Is the service fast enough to do what I want it to do?
• Coverage. Is the service available where I want it to be?
• and lastly, Price. Is this service affordable?

These three areas are clearly where providers need to compete and that’s why our Government is doing our part to promote competition and investment.

In “Quality, Coverage And Affordable Prices”, I wrote, “There is a difficult tension in these objectives, seeking increased investment while maintaining, if not improving, affordability.”

How we approach and achieve these 3 outcomes: quality, coverage, and price, is the way we should measure success in telecommunications competitiveness.

The CRTC has launched yet another consultation, saying “its current approach is not meeting its objective of encouraging more competition in the Internet services market.” Telecom Notice of Consultation (TNC) CRTC 2023-56: Review of the wholesale high-speed access service framework, starts off with an immediate (interim) reduction in existing wholesale rates “that reflects a 10% decrease in the costs of traffic-sensitive components”. Revised tariffs are due March 17.

The Commission invites comments on several issues, including its preliminary views that (i) the provision of aggregated wholesale HSA services should be mandated; (ii) access to fibre-to-the-premises (FTTP) facilities should be provided over these services; and (iii) the provision of FTTP facilities over aggregated wholesale HSA services should be mandated on a temporary and expedited basis, until the Commission reaches a decision as to whether such access is to be provided indefinitely.

The first round of comments are due April 24.

I will have more comments on this proceeding over the coming weeks and months.

In the meantime, I’ll close with this observation (that I have cited previously). Dr. Christian Dippon has written, “Quite simply, a market cannot both be noncompetitive and offer some of the best mobile wireless services in the world.” The comment is as relevant for wireline as it is for wireless.

Last week, I looked at “The evolution of broadband services” and I thought it would be worthwhile to examine some of the implications of those trends.

As we saw in the subscriber growth figures, the overall market is maturing as broadband penetration rates approach saturation. That has important implications for industry participants. Recent investment analyst reports have highlighted the challenges for some carriers facing slowing growth, such as BMO Capital Markets February 23 report (Soft Q4 Reflects Mature Market) and Scotiabank’s February 24 report (Quebecor – Expansion Strategy Is Needed To Return To Growth). BMO wrote

Quebec market mature and competitive. Quebecor’s results over the past six quarters reflected a slowing growth profile based on two dynamics; 1) the maturation of its wireless franchise (which has reached its natural level of 25% share in a four player market); and 2) increased wireline competitive intensity as BCE is aggressively capturing share (reflecting its scale in its FTTH fibre footprint).

How can service providers grow their businesses in such an environment?

Let’s take a look at the CRTC data showing the evolution of consumer broadband services.

Consumers are choosing to subscribe to higher speed services, with three quarters of Canadians subscribing to broadband services delivering download speeds of more than 50 Mbps in the third quarter of 2022; sixty percent subscribe to speeds over 100 Mbps, up 10 percentage points from a year and a half earlier, when only half of Canadian households subscribed to broadband services over 100 Mbps.

Consumers have demonstrated a willingness to pay for faster broadband. That requires investment, but it is investment that pays off with higher revenues. Therein is one of the common sophomoric errors made by some telecom industry critics who confuse price with ARPU (Average Revenue Per User). In fact, the price of higher speed services has declined over time, which is one of the reasons that more consumers are electing to upgrade their connection to a faster service. Between third quarter of 2019 and third quarter 2022, average monthly downloads nearly doubled (from 204.8 GB to 394.4 GB). In the same three year period, average monthly uploads increased nearly 50% (from 25 GB to 34 GB).

The mix of customers at each product tier has changed for many carriers, transitioning toward higher speed premium services as consumers select a connection that delivers the best value for their steadily increasing connectivity needs. The Scotiabank report observed that Bell is spending close to $20B on its FTTH (Fibre to the Home) strategy, to bring FTTH to 9 million premises by 2025.

One way a carrier can grow its business is by investing, perhaps to be able to offer more advanced services, or to expand networks to underserved areas.

Another approach is by acquisition. As some industry participants look at the capital investment required to upgrade their services portfolio, some choose to exit, which may be a driver for many of the recent acquisition in the Canadian broadband market. Faced with the increased competitive intensity described by BMO, some ISPs have been acquired over the past year by bigger, facilities-based carriers. A Scotiabank report dated March 6 suggests that third party internet access (TPIA) and fixed wireless access (FWA) are tools that may enable mobile wireless carriers to offer bundled services beyond their traditional home territory.

Videotron is looking to expand the geographic reach of its mobile and internet services into Ontario and Western Canada by acquiring Freedom Mobile and leveraging the expertise of recent acquisition, VMedia. As BMO wrote, “The reality likely is, not only does Quebecor want the Freedom transaction, it NEEDS the Freedom transaction.”

It is a natural evolution of a maturing market.

Businesses operating in maturing markets need to find ways to differentiate themselves from their competitors, through innovation, improving customer service, or creating unique products or services that meet the evolving needs of consumers.

These continue to be interesting times in Canadian telecom.

Last month, in “Net neutrality 20 years later”, I wrote “Canada’s policy framework for net neutrality is among the most prescriptive and restrictive.”

That led me to wonder: Is it time for that framework to be reviewed?

After all, the United States has operated without such regulations for more than half a decade and the sky has not fallen.

The UK regulator, Ofcom, has been reviewing submissions to its recent consultation on the subject, seeking a more nuanced approach. In its call for comments, the regulator observed:

because the net neutrality rules constrain the activities of the ISPs, they may be seen as restricting their ability to innovate, develop new services and manage their networks. This could lead to poor consumer outcomes, including consumers not benefiting from new services as quickly as they should, or at all. These potential downsides might become more pronounced in the future, as people’s use of online services expands, traffic increases, and more demands are placed on networks.

As Ofcom has noted, as technology evolves and we continue to move even more activities online, it is important for net neutrality regulations “to support innovation, investment and growth, by both content providers and ISPs. Getting this balance right will improve consumers’ experiences online, including through innovative new services and increased choice.”

I noted last fall that Ofcom was proposing:

• most zero-rating offers will be allowed;
• ISPs have flexibility to offer retail packages with different levels of quality;
• ISPs can use traffic management measures to manage networks;
• ISPs have more scope to develop specialised services, such as network slicing;
• Ofcom will not prioritise enforcement action where there is clear public benefit, in relation to:
  • the prioritisation and zero-rating of all communications with the emergency services;
  • traffic management of internet services provided on transport;
  • the use of parental controls and other content filters involving the blocking of traffic; and
  • blocking access to fraudulent or scam content.

Last week, I thought it was interesting that the CRTC itself chose a more nuanced approach to zero-rating in its determinations in TRP CRTC 2023-41: Mobile wireless service plans that meet the needs of Canadians with various disabilities. In that policy determination, the question of permitting (and even mandating) zero-rating was at issue for Video Relay Service (VRS). The CRTC found that “zero-rating VRS clearly benefits the public interest, with minimal associated harm, and would be consistent with the DPP (Differential Pricing Practices) framework”. Still, the CRTC did not consider it to be necessary to mandate zero-rating of VRS by all of the service providers, finding that consumers have access to competitive choice of providers that offer zero-rated VRS services and other suitable solutions.

Competitive choice, freedom to innovate and develop new services. Those might be clues that the CRTC should reassess its overly prescriptive approach to net neutrality.

Last week also saw President Biden renominate (for the third time) long-time net neutrality advocate Gigi Sohn to fill a seat on the Federal Communications Commission that has been open for 2 years. David McGarry writes “Should she gain the Senate’s approval, she will break the agency’s current 2–2 Democrat-Republican logjam and allow the agency to re-enact Obama-era net neutrality regulations, which are economically nonsensical and largely unnecessary.”

According to McGarry, “Mandated net neutrality was the worst sort of technocratic overreach. Bureaucrats dreamed up an overbroad market intervention to ameliorate an imagined crisis—to the detriment of innovation and consumers.”

In 2017, Ken Engelhart wrote about the natural experiment created when the the US got rid of its net neutrality regulations under previous FCC Chair Ajit Pai while Canada established its framework.

When Canada banned zero-rating, the United States didn’t. As a result, T-Mobile, an American cellphone company, started zero-rating video services. The other wireless carriers in the U.S. retaliated with unlimited data offers. Now, the U.S. has unlimited wireless offers and Canada doesn’t. Can I say definitively that this is a permanent difference or that it can be attributed to our zero-rating rules? No, but it is the kind of anti-consumer impact that happens when regulators regulate too much.

Two years later, he followed up saying, “You might have expected that as a result two very different internets would develop in the two countries.”

Of course, that didn’t happen. He noted that the US and Canada have similar internet services, with similar average speeds. Indeed, fixed broadband speeds in the US are now about 35% higher than Canada. The sky didn’t fall as predicted by US Senate Democrats.

As Engelhart wrote, “In the end, it seems that public interest groups and regulators were selling the public elephant repellant: a harmless, but useless spray, meant to defend against a threat that does not exist.”

In his 2017 primer on net neutrality, Professor Daniel Lyons wrote, “A small delay in packet delivery may be imperceptible to someone browsing the web but can erode the quality of a video stream or a telemedicine app. Prioritizing these packets could improve the experience for Netflix users or rural doctors, without adversely affecting users of congestion-insensitive services.”

I’ll give Professor Lyons the final word. “More generally, net neutrality discourages innovation by broadband providers. It assumes that the way broadband is currently delivered is the way it must always be, which limits providers’ ability to test new business models.”

Isn’t it time to review Canada’s net neutrality framework?

Figures from the CRTC show that the number of broadband subscriptions in Canada have only been growing at a rate of 3.3% per year on a base of 12 million.

Between 2018 and 2021, the number of households in Canada grew by about 440,000.

In other words, broadband subscription growth is largely attributable to growth in the total number of households (population growth and immigration) and new construction in rural and remote areas.

The overwhelming majority of households that have access to broadband already subscribe to a broadband service. Growth in the industry is fuelled by consumers choosing to subscribe to higher speed services, as can be seen in CRTC data:

In the first quarter of 2021, there were 3.6M broadband subscriptions with download speeds less than 50 Mbps, and 8.1M subscriptions over 50 Mbps, including 0.8M with speeds over 940 Mbps. In the third quarter of 2022, just a year and a half later, there were just 3.1M subscriptions with download speeds of less than 50 Mbps and 9.2M with speeds over 50 Mbps, including 1.7M with speeds over 940 Mbps.

Over an 18 month span, we saw market growth of 600,000, while nearly double than number went into service speeds of more than 50 Mbps. Half a million households migrated from slower speed services to services delivering speeds over 50 Mbps. More than a million subscribers migrated to gigabit speeds.

Consumers are choosing faster speed services as households change the way we use our connectivity, and as prices for premium connectivity have become more affordable.

Growth in the broadband market is being driven by investment in physical facilities: upgrading existing service areas to gigabit speeds, and expanding service territories.

The data demonstrates an interesting transition in the broadband marketplace as overall subscriber growth slows. I’ll take a deeper look at some implications of this market trend next week.

Canada’s future depends on connectivity; enhanced and advanced connectivity that depends on investment.

A recent study, published in the “Proceedings of the National Academy of Science”, found that most US citizens preferred quashing harmful misinformation over protecting free speech, despite measurable differences along political lines.

The study may be informative as Canada continues down the path of developing legislation in respect of “online harms”.

The scale and urgency of the problems around content moderation became particularly apparent when Donald Trump and political allies spread false information attacking the legitimacy of the 2020 presidential election, culminating in a violent attack on the US Capitol. Subsequently, most major social media platforms suspended Trump’s accounts. After a sustained period of prioritizing free speech and avoiding the role of “arbiters of truth”, social media platforms appear to be rethinking their approach to governing online speech. In 2020, Meta overturned its policy of allowing Holocaust denial and removed some white supremacists groups from Facebook; Twitter implemented a similar policy soon after. During the COVID-19 pandemic, most global social media platforms took an unusually interventionist approach to false information and vowed to remove or limit COVID-19 misinformation and conspiracies — an approach which might undergo another shift soon. In October 2021, Google announced a policy forbidding advertising content on its platforms that “mak[es] claims that are demonstrably false and could significantly undermine participation or trust in an electoral or democratic process” or that “contradict[s] authoritative, scientific consensus on climate change”. And most recently, Pinterest introduced a new policy against false or misleading climate change information across both content and ads.

Content moderation, and terminating or suspending accounts is described by the researchers as a moral dilemma: “Should freedom of expression be upheld even at the expense of allowing dangerous misinformation to spread, or should misinformation be removed or penalized, thereby limiting free speech?”

When choosing between removing a post and allowing a post to remain online, decision-makers face a choice between two values, public safety or freedom of expression, that cannot be honored simultaneously. “These cases are moral dilemmas: situations where an agent morally ought to adopt each of two alternatives but cannot adopt both”.

The researchers examined public support for these “moral dilemmas” in a survey experiment with 2,564 respondents in the United States. Respondents were asked to indicate whether they would remove problematic social media posts and whether they would take punitive action against the accounts in the case of posts with:

1. election denial,
2. antivaccination,
3. Holocaust denial, and
4. climate change denial.

Respondents were provided with key information about the user and their post as well as the consequences of the posted misinformation.

The majority of respondents preferred deleting harmful misinformation over protecting free speech. However, respondents were more reluctant to suspend accounts than to remove posts, and were more likely to do either if the harmful consequences of the misinformation were severe, or in the case of it being a repeated offense.

Information about the person behind the account, the posting party’s partisanship, and their number of followers had little to no effect on respondents’ decisions.

Although support for content moderation of harmful misinformation was widespread, it was still a partisan issue. “Across all four scenarios, Republicans were consistently less willing than Democrats or independents to remove posts or penalize the accounts that posted them.”

The type of misinformation was also a factor: Climate change denial was removed the least (58%), whereas Holocaust denial was removed the most (71%), closely followed by election denial (69%) and antivaccination content (66%).

According to the researchers, their “results can inform the design of transparent rules for content moderation of harmful misinformation.”

“Results such as those presented here can contribute to the process of establishing transparent and consistent rules for content moderation that are generally accepted by the public.”