On June 8, Rural Economic Development Minister Maryam Monsef told the Rural and Remote Broadband Conference that a call for applications for Canada’s Universal Broadband Fund would be issued “in the coming days.”

Today, 5 months later, the ‘coming days’ finally came. Prime Minister Justin Trueau was joined by Ministers Monsef, Bains, McKenna and Rodriguez in announcing “Universal Broadband Fund and Telesat low Earth orbit capacity agreement”.

The highlights of the announcement:

• increased the funding available through the Universal Broadband Fund from $1 billion, announced in Budget 2019, to $1.75 billion.
• accelerating the target for broadband access to 98% by 2026 (from 95%)
• a Rapid Response Stream for the Universal Broadband Fund, making up to $150 million available for projects that will be completed quickly (provide service by November 15, 2021)
• $50 million dedicated to improving mobile Internet availability in areas of benefit to Indigenous communities
• up to $600 million to secure capacity on Telesat’s LEO satellite constellation (a project announced more than a year ago)

Is enough funding being allocated to the Rapid Response Stream? Last week, CRTC Chair Ian Scott told the ISP Summit that the CRTC’s last call for broadband funding (in November 2019) drew “600 applications with a combined ask of more than $1.5 billion.” That is far in excess of the CRTC’s funding. A year later, we might assume that many of these projects are ready to go, awaiting funding.

Do we have too many different broadband funding programs, operating at various levels of government, without sufficient coordination? Have we looked at ongoing operating costs and affordability in these areas?

Have we created too much overhead, in creating and administering the programs and for applicants seeking funding?

The ‘coming days’ have finally arrived, just as winter weather creates challenges for construction.

How quickly will we actually get projects approved and service launched?

The coming days have finally come. Was it worth waiting for?

There is a story of a shopper going into butcher shop to ask about getting a prime rib roast. The butcher responds that it is $20 per kilo. The shopper responds saying that the butcher down the block only charges $15 per kilo for prime rib. The butcher replies, “so why don’t you buy it from them?” The customer says that the other shop doesn’t have any prime rib, to which the butcher answers “well, when I am sold out, I only charge $10.”

In the past week, Rewheel released another misleading and problematic report [pdf] that confuses international pricing variations with the level of competitiveness in various countries. Rewheel has been criticized in the past, with NERA saying that “policy makers and regulators should ignore” its international pricing study.

There are all sorts of methodological problems with Rewheel’s latest report, “4G&5G connectivity competitiveness 2020”, such as arbitrary selections of plans, arbitrary weighting assignments, and artificially assigning prices to service providers that don’t have offerings that line up with Rewheel’s buckets. But among the most egregious problems is the failure to consider quality in examining measures of competitiveness.

Using Rewheel’s artificial scorecard, the consultancy concluded that “Telus, Bell and Rogers Canada had the least competitive monthly prices”. But, what was Rewheel actually looking at? A careful examination of the chart shows that Rewheel has combined smartphone plans with mobile data plans and apparently, has also added fixed wireless data plans into the mix. It is no wonder the International Center for Law and Economics referred to a previous Rewheel study as a “careless mish-mash of data points from which no reliable conclusions can be drawn.”

Indeed, the Rewheel report itself showcases some of the flaws in its own methodology with two of its specific comparisons:

• MIN monthly price for 1 gigabyte: 4G&5G smartphone plans with at least 100 mins, 1 gigabyte and 1Mbit/s peak speed
  • Jio India was the operator in 2H2020 with the lowest monthly price for a 4G or 5G smartphone plan that included at least 100 mins, 1 gigabyte and 1 Mbit/s peak speed.
  • Telus Canada was the operator in 2H2020 with the highest monthly price (~16x higher than Jio’s).
• MIN monthly price for 100 gigabytes: 4G&5G mobile broadband plans with at least 100 gigabytes and 50Mbit/s peak speed
  • Jio India was the operator in 2H2020 with the lowest monthly price for a 4G or 5G mobile broadband plan that included at least 100 gigabytes and 50 Mbit/s peak speed.
  • Rogers Canada was the operator in 2H2020 with the highest monthly price (~17x higher than Jio’s).

While Rewheel may have been seeking to shore up its assertion that Canada’s prices are the least competitive, these direct comparisons highlight the flaws in the research methodology.

In the first comparison, Rewheel examines prices for a 1 Mbps 4G/5G plan. Such low speed data plans aren’t sold in Canada. So Rewheel is comparing the prices offered by TELUS, one of the world’s fastest networks (87.3 Mbps) with the price of service on a network that offers barely a tenth of the speed (9.7 Mbps).

In the second case, we are supposed to be comparing 50 Mbps services, but Jio doesn’t achieve such speeds. In its notes, Rewheel claims “Countries were [sic] operators did not sell a plan that met all the criteria listed above for a given metric (e.g. 5G smartphone plan with 1000mins, UNLIMITED data and 500Mbps) were assigned the highest monthly price among all 48 countries for that given metric.”

How can Jio be ranked as the lowest price provider when it offers a service that doesn’t come close to the 50 Mbps metric? Rewheel is comparing the price of prime rib with the price of ground meat, another careless mish-mash.

You just cannot compare prices without consideration of the quality of the products or services. And you cannot draw conclusions on level of competitiveness in a market based solely on prices.

As Dr. Christian Dippon of NERA has said in the past “Quite simply, a market cannot both be noncompetitive and offer some of the best mobile wireless services in the world.”

When the CRTC issued its landmark 2016 broadband decision, “Modern telecommunications services – The path forward for Canada’s digital economy” [TRP 2016-496], I observed at the time that there was “a high likelihood that the basic service objective will not be much more than a score card bound to disappoint.”

At the time, the CRTC set an ambitious broadband objective relative to its peers in other countries: that within 10-15 years, all Canadians should have access to subscribe to an unlimited broadband service with speeds of 50 Mbps down and 10 Mbps up, as well as access to the latest generally deployed mobile technology in our homes, our businesses and major transportation roads. Since the ten to fifteen year target was issued at the end of 2016, the government objective has set 2030 as the target for universal access. To help achieve that objective, the CRTC decided that it would also get into the funding game, with its Broadband Fund joining a myriad of other government agencies at all levels who pick winners and losers in handing out ceremonial cheques to provide a one-time funding stimulus.

Many people didn’t give much thought to what the CRTC termed a consequence of that decision, “As a result, the Commission will begin to phase out the subsidy that supports local telephone service”. In other words, the Commission swapped out a program for ongoing support for all high cost serving areas, in favour of awarding one-time payments to specific winning projects.

As I wrote last week, the current environment may be creating an ‘expense gap’ for rural telecommunications service providers. Capital stimulus programs, whether by the CRTC or any other government agency, provide a one-time incentive payment to offset the higher costs of building networks in rural and remote areas. The forecasted business cases used in funding applications have a finite time horizon.

There remains a much higher ongoing cost to operate and maintain rural and remote networks. What happens at the end of that application funding period?

Will service providers be able to sustain service at affordable prices at the end of the funded business plan?

There is always a great photo-op and media coverage when a big capital funding cheque is awarded. A short while later, there might be a second press release when service is actually launched and a ceremonial ribbon gets cut.

The problem is that the need for ongoing support tends to be ignored (present company excepted, of course). But these support payments can be critical to maintaining affordable service in certain areas, as well as enabling ongoing upgrades. As I observed last week, a report from the FCC (“Improving the Nation’s Digital Infrastructure” [pdf]) recognized the need for $2B in annual support to accompany $40B in one time subsidies in the US context.

Did the CRTC err in phasing out its ongoing subsidy of local services in rural and remote markets? Was there a way to add broadband to the contribution eligible services to provide ongoing funding of service providers operating in high cost serving areas?

When other agencies and departments at federal provincial and regional levels of government are already in the business of awarding grants, did we need the CRTC to create yet another broadband capital funding program?

The CRTC acknowledges it “may conduct future consultation processes to review the eligibility and assessment criteria for the fund as needed.”

Perhaps such a review should consider whether the CRTC should exit the game of choosing winners and losers in favour of providing the more mundane, but necessary, perpetual and universal support for high cost serving areas.

The Pew Research Center is a jewel in the crown of social research, acting as a non-partisan “fact tank” without taking policy positions on issues. Through the years, it has produced valuable research on the internet and technology that I have highlighted more than a dozen times through the years, often adding that it is unfortunate no such institution exists in Canada.

In May, I referred to a dataset released by Pew that looked at perspectives on the internet based on research gathered in April, during the first month of the pandemic.

A couple weeks ago, IIC held a webinar looking at “American life in the midst of crisis”, featuring a discussion led by Lee Rainie, Pew’s Director of Internet and Technology.

I have embedded the 90 minute webinar here. Around the 26:40 mark, we are provided with some particularly interesting insights from data on Internet Use and Attitudes During the Crisis.

Among the findings highlighted from the April data was a chart showing that 53% of Americans considered the internet to be essential, with another 34% saying it was “important, but not essential”. Ten percent said it was not too important and the remaining 3% said it was not important at all. Looking at these responses by demographic groups, we can see the influence of age, education, income and urban versus rural respondents.

Again looking at the April dataset, there were also charts that I found interesting on US attitudes on the role of government in ensuring all Americans have a home high-speed internet connection and cellphone during the coronavirus outbreak. Roughly two thirds of Americans felt that government did not have this responsibility.

Nearly 60% of lower income Americans surveyed in April said that their children would encounter at least one of the following problems in participating in online classes: having to use a cellphone for connectivity; having to use public Wifi (because there was no home internet connection); or, not having access to a home computer. Interestingly, 80% of Americans said that schools should provide computers to students during the pandemic: 37% said to all students; 43% responded only for students from families that could not afford it.

Contrasting the opinions on the role of government on broadband access versus the supply of computers, the analysis suggested that when kids were involved, more Americans felt government intervention was warranted.

In the discussion section of the webinar, we are told “it’s relatively easy to say in the abstract that broadband ought to be a human right, and that governments have a responsibility to provide it particularly in school contexts”, but “compared with the other things we want government to do, is this a high priority or not? For some people it really is, but for significant numbers of people, there are other ‘stressors’ in their lives or other public policy preferences that they have, that make them think that broadband is not necessarily a top-of-mind top priority.”

As Mr. Rainie says, it will be really interesting to see whether people’s priorities have shifted when Pew conducts its next survey on these issues.

As you playback the webinar, be sure to listen to the discussion for the ‘colour commentary’ that follows the initial presentation of the data. There have been shifts in attitudes over time, lending support to my perspective that we need to turn our minds toward examining digital literacy and demand side factors for adoption of broadband.

Looking at the treasure trove of information being gathered by Pew, once again I am reminded that we need more data to inform our policy making in Canada.

It costs more to provide most goods and services in rural areas than in urban settings. This isn’t just an issue for telecommunications service providers, but nearly every product and service, including basic needs like groceries.

In many of these rural communities, the price people are willing to pay for broadband service do not allow a service provider to recover its costs. That has led to the myriad of funding programs at all levels of government, attempting to off-set the shortfall in the business cases for telecommunications service providers, so that rural prices can be brought within sight of urban levels.

In recent years, we have seen some significant levels of subsidies handed out, frequently in the order of $4000 per household and higher.

Depending on the broadband funding program, applicants generally produce a plan indicating the business case to extend broadband service to a given region. The program usually covers the shortfall in the business case by subsidizing a portion of the upfront capital costs. In order to minimize disruption to the workings of marketplace, the programs usually require evidence that, absent funding, the proposed project would not be financially viable.

One of the challenges in providing service in rural territories is that the ongoing costs for installation, operations and maintenance is often higher on a per subscriber basis. Technicians experience lengthy unproductive “windshield time” driving between locations. Lower population densities and harsher geographic conditions contribute to higher capital costs on a per subscriber basis, and can also lead to higher operating expenses.

A 2017 FCC report (“Improving the Nation’s Digital Infrastructure” [pdf]) is one of the few studies I have seen recognizing that, for some of the most challenging locations, there would not be sufficient revenue available to cover ongoing costs, so it suggests a requirement for an annual subsidy program. In the US context, the report suggested that a $2B annual subsidy would be required on top of $40B in up front subsidies.

The CRTC used to operate an explicit subsidy program for High Cost Serving Areas. In 2016, when the Commission established its “Modern telecommunications services – The path forward for Canada’s digital economy” under Telecom Regulatory Policy 2016-496, it began “to phase out the subsidy that supports local telephone service.”

Was this a mistake?

As noted in “Canada’s Communications Future: Time to act” [pdf], the report of the Broadcasting and Telecommunications Legislative Review Panel, indigenous communities said they are “looking for a more inclusive consultation process in the development of any fund to support broadband buildout with more constant, stable, and accessible funding.” The report noted “Historically, the preferred approach has been to provide one-time contributions toward capital costs to build networks or the leasing of satellite capacity to serve remote communities.”

Business cases for broadband subsidies have a finite time horizon. What happens at the end of that period? Should Canada be preparing for an ongoing cross subsidy for high cost serving areas? Should one-time contributions be supplemented with a “more constant, stable” funding mechanism to account for higher ongoing operating expense for service providers operating in certain areas? The alternative is that rural areas will suffer sub-standard service levels in perpetuity.

Governments – at all levels – have responded far too slowly to the COVID19 pandemic in releasing broadband funding. There is no question that Canada’s governments could have and should have moved faster to get broadband projects launched in unserved and under-served regions. We missed the entire 2020 construction season and many companies are already in the process of setting their 2021 capital budgets.

At some point, hopefully some day soon, various federal and provincial broadband programs will be opened to for the next round of applications, funds will allocated to projects, construction will take place and more customers will be connected.

It likely won’t be long before some service providers reach the end of their original business cases and find there is an operating shortfall in remote regions. What happens then?

Some might say that we should simply accelerate the release of funds and not take time to worry about the future. I disagree. When should we start to consider how to deal with the eventuality of operating expense shortfalls?