In a recent article in Cartt.ca, economists Mark Meitzen and Nick Crowley of Christensen Associates said “Canadian costs are estimated to be 83% higher than average Benchmark Country costs” for carriers providing mobile services.

“The economic illusion of high wireless prices in Canada” describes the results of their analysis, comparing various factors driving carrier cost differentials in peer nations (United States, Japan, Germany, France, UK, Italy, and Australia). The study was commissioned by TELUS.

The first phase of their work, released last February, measured differences in key mobile cost drivers between Canada and a set of benchmark countries. A newly released report on the second phase of their research determines the aggregate impact of these cost differences on prices.

The economists wrote in Cartt.ca:

As government competition authorities around the world have long recognized, it is simply not possible to draw any meaningful conclusions about the “competitiveness” of markets without benchmarking prices against the underlying costs of providing the services in question.

To do otherwise may serve to fuel populist sentiment, but it does not establish that market forces in Canada are exerting less competitive discipline than those in Benchmark countries.

In fact, our analysis may well suggest that precisely the opposite is true. Because the price differences between Canada and these benchmark countries are presumptively less than the measured cost differences, market forces are actually exerting more competitive discipline in Canada than they are in peer countries to which Canada is compared.

The studies found Canadian costs are about 83% higher than average benchmark country costs, and 34% higher than costs in the US. Assuming 75-80% of costs get passed through, these would translate into Canadian rates having roughly a 2/3 higher price differential compared with the average of the benchmark countries and having about a 1/4 price differential with the US.

According to the authors, “cost differences such as these are an essential consideration.”

The report claims that higher costs mean that mobile wireless prices in Canada could be higher than those found in benchmark countries “without raising concerns that the exercise of market power in Canadian mobile wireless markets is problematic relative to the exercise of market power in peer countries.”

As the authors warn, “Any comparison of prices that fails to take this cost dimension into account cannot be credibly relied upon to inform public policy.”

We all want lower prices for everything, but lower prices can come at a high cost.

In the face of “internet infrastructure… riddled with gaps and bottlenecks,” an article from Bloomberg last week described a shift in thinking emerging from European policy makers, where the prevailing principle had previously been “that more competition leads to better services.”

The Bloomberg article says that European telecom companies are not prepared to fund network investment due to low returns. “So governments are starting to rethink whether consumers are best served by price wars and caps on investment returns that erode the profits companies need to invest in better services.”

If you can’t trust the data in a simple Thanksgiving tweet by Statistics Canada, whose data can you trust?

Nobody.

I always look at numbers with a critical eye.

Yesterday, in a tweet taken down this morning, Canada’s official government statistical agency wished its followers a Happy Thanksgiving and included some “fun facts” about turkeys.

Only thing is, the numbers in the Tweet weren’t correct. The production figure of 165.17 tonnes is off by three orders of magnitude. It should have been 165,170 tonnes. That is an awfully big difference.

The source data appears to be from a Statistics Canada table entitled “Production, disposition and farm value of poultry meat (x 1,000)”. Apparently, that paranthetic notation in the title was missed by the graphic production team and the error slipped through whatever review processes are in place for government social media accounts.

But in the spirit of the Thanksgiving holiday, let’s be thankful for this teaching opportunity. It provides an opportunity to reiterate a the importance of taking a careful look at the data, before you gobble up erroneous factoids.

As I wrote a few months ago, “It’s very easy to look at a chart on social media, nod one’s head, and retweet or reply without bothering to look beyond the headline.”

Always, always, always, look at the source data, regardless of the source of the data.

Even government statistical agencies can make mistakes.

In a recent interview, Rogers CEO Joe Natale describes life in the pandemic as “obviously the worst of times, but it’s also the best of times, in terms of unleashing imagination and reinvention,” projecting an optimistic outlook for the “revolution going on in wireless and Internet and 5G, which will change the country and change the world.” He forecasts 5G networks creating opportunities and capabilities “at the speed of thought.”

In a Public Policy Forum (PPF) podcast, PPF CEO Edward Greenspon and Joe Natale discuss the impact of billions of dollars of annual investment by Canada’s communications carrier in digital infrastructure and take a look at broader economic opportunities arising from continued investment in Canada’s digital infrastructure, with networks that are among the world’s best.

As PPF writes about its podcast, Natale “joins Policy Speaking to share his vision for the future of mobile tech, bridging the digital divide, and how industry can partner with government to bring Canada together as a nation.”

The conversation covers a wide range of topics including some important messages that often seem to be forgotten by many engaging in digital policy discussions at all levels of government.

[Joe Natale] In our industry, 70 percent of our network efforts are civil engineering efforts. The technology is 30 percent of the endeavor, but a lot of it is boots on the ground with shovels, getting rights of way from hydro companies, getting attachment rights to go under the streets, through ducts and rights of way that exist in every municipality.

In every municipality, for every project, is a bit of a puzzle because it requires multilateral negotiation with all the different players that are out there. And, you know, sometimes you just get frustrated to a point where you say, “You know what, it’s too hard in this particular area, or municipality, or this part of Canada. Let’s just go on the next one.”

The podcast also spoke of the challenges associated with multiple levels of (and sometimes confusing) regulations. For example, two identical cedar poles, each carrying telephone and electric wires, are regulated differently, depending on the entity that owns the pole. Attachment to a pole owned by a phone company is regulated by the CRTC; if the same pole is owned by an electric company, it is provincially regulated.

Although courts have repeatedly confirmed the supremacy of federal jurisdiction over telecommunications undertakings, municipal governments and local land use authorities have an ability to accelerate or inhibit investment decisions by the proponents of digital infrastructure investments, whether it is for siting new wireless towers or using municipal roadways. At all levels of government, policies and regulations can shift the timing or even the overall project economics for new services being made available to a community. The timing of broadband delivery can be impacted by a single bureaucrat’s pen stroke.

How many investments in rural broadband have been delayed or cancelled due to slow-moving municipal permit processes?

The discussion included examining conditions that create a favourable climate for investment.

[Edward Greenspon] If there was one issue you wanted to focus on, one message you wanted to impart, what would that be?

[Joe Natale] Consistency. Stability in the regulatory environment and therefore the partnership with government. We’re public companies, a number of us in this industry, with big balance sheets because we have to make these multibillion dollar investments every year.

We go to the capital markets across the globe to encourage investors to put their faith in us, from all kinds of countries of places. And, the number one question invariably that we start talking about is, “what will the regulatory environment look like in Canada in the years ahead?” And, “can we rely on that partnership with government? Can it be consistent and somewhat predictable? Because it’s hard for us to give you money and invest in the future if we’re not sure with what that looks like from a certain stability point of view.”

And so, that partnership needs to be long lasting, if we’re making investments that have 10, 15, 20 year paybacks

Natale speaks of a promise of 5G that arises from its speeds, bandwidth and low latency, capabilities that will enable “engineers and innovators to dream up things that were never before possible.” He says the promise of 5G is not a competition among companies, but rather a competition between nations. “It goes back to nation building. Canada has the opportunity to be first and be the greatest. As it relates to 5G. And that will that will stimulate innovation. That will create jobs, that will create an environment that will help Canada seize the future.”

He sets out a positive vision for the future: Opportunities at the speed of thought.

Which countries will create policy and regulatory environments that create a favourable environment for investment? What steps is Canada prepared to take to create an environment to “seize the future”?

A while ago, I did some work with a weather agency. The project leader, we’ll refer to him as Tony since that was his name, told me that he received a call from a news station that wanted to know what the long range forecast was for the upcoming winter. Tony told the reporter, without consulting any computer models and with a completely straight face, “we’re forecasting that there is a 50% chance of a warmer than average winter.” The station led with that breaking news.

The reporter didn’t understand that there was also a 50% chance of a colder than average winter ahead. Tony got a chuckle out of that story.

This story came to mind as I read the CRTC’s Decision on staying the requirement for facilities based telecom companies to file new tariffs as part of the implementation of last year’s aggregated wholesale high-speed access services ruling (2019-288).

It seems to me to be an impossible task for a regulator, or anyone, to set the rates exactly right. Set too high, competitive service providers won’t be able to compete; set too low and facilities-based providers are effectively subsidizing their competition and lose the incentives to invest in new technology and expanding territory.

What are the defining characteristics of an ideal wholesale rate? For example, at one time, the regulator sought rates to be set at a level that smaller ISPs could find an opportunity to serve their customers, while maintaining an incentive to invest in facilities as they grow in a given area. Is this still part of the thinking when setting rates?

While the rates can never be ‘bang on’, since cost elements change over time and with 100% certainty will not precisely match the very best forecasts, there must be a range that can prove to be acceptable to both parties, the buyer and the seller.

It’s a real challenge in a regulated market for the adjudicator to find that middle ground. From the response to the rates decision of August 2019, it appears clear that the CRTC’s rate cuts coupled with retroactive rebates went too far.

Can a regulator reasonably replace the results of direct negotiations? Along these lines, I found it interesting to read in the Stay Decision of the competitive factors at play between some of the facilities-based providers. At what point should the regulator determine the wholesale marketplace is sufficiently competitive to allow market forces to take over in setting rates?

In the meantime, I’m prepared, with complete confidence, to forecast a 50% chance that the coming winter will be warmer than average. And, there is a 100% chance that however the CRTC rules in its review of the August 2019 rates, one side or the other (or maybe both) won’t be happy.

A week ago, with the new moon on Friday evening, the Jewish year 5781 began. Rosh Hashana marked the start of a 10 day period of introspection culminating in Yom Kippur, the Day of Atonement, a solemn fast day beginning this evening and concluding Monday night. Our offices will be closed Monday.

The global response to COVID imposed a most unusual end to the year 5780. The necessary restrictions on gatherings means that many normally crowded synagogues have turned to technology to live stream services to enable members to maintain a semblance of their sense of community. But it feels very, very different.

The Yom Kippur service includes a section describing in detail how the day was observed two thousand years ago in the days of the Temple, providing a chain of continuity linking participants with our ancestors. Historically, responses to plagues led to certain shifts in religious practices. I reflect and wonder what pandemic-influenced changes will be maintained going forward, launching new traditions for future generations.

The past 6 months of online work and learning demonstrate that technology can help to keep us connected. Still, it seems to me there is no substitute for personal face-to-face interaction.

As someone who plays in the world of electronic and digital communications, I appreciate all of the work my industry has done, but I hope the coming year allows a return to increased personal interactions, without masks hiding our facial expressions.

It is my hope that the year 5781 will be marked by good health, by personal and professional growth and a year of peace for all of us.

Did I mention good health?

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