On Friday, the CRTC issued a Decision finding both Iristel and TELUS guilty of violating the non-discrimination provisions of the Telecom Act (Section 27(2)) and it also issued a companion Notice of Consultation, seeking public comment on whether it should issue fines for the incidents.

Nearly 4 years ago, I wrote about the back story on all of this [see Gaming the system • November 2016].

The allegation at the time was that Iristel was artificially stimulating calls to telephone numbers operated the company in area code 867. Because these numbers were in the far North, the terminating carrier received an exceptionally high rate to route long distance/ calls to the final destination. There was a financial incentive to create an artificial imbalance of calls and in December 2017, the CRTC found that Iristel was guilty of “engaging in regulatory arbitrage activities”. No penalties were issued at that time.

At stake was the financial viability for Canadian telecom service providers to continue to offer nationwide calling that included calls to the north. Even though the cost of routing calls to the North was so substantially higher than calls to the rest of Canada, service providers considered the extremely low percentage of the population living there are were willing to take the financial risk.

Skip ahead. Just 7 months later, TELUS filed an application with the CRTC saying Iristel “stopped only briefly after the issuance of that decision” and was back in the traffic stimulation business again.

As one of the major wholesale long distance providers, TELUS started limiting the size of its trunk groups to Iristel in a move to mitigate its financial exposure.

TELUS and Rogers submitted data to the CRTC that showed the volume of calling to Iristel’s telephone numbers in the 867 area code dropped in after the CRTC’s 2017 Decision, but then traffic volumes started to increase. “By May 2018, the volume of traffic had increased to levels similar to the volume of traffic levels that existed prior to the effective date of Telecom Decision 2017-456.”

So, on Friday, the CRTC decided to retroactively (and significantly) change the rate that Iristel charges for calls to its customers. The rate drops about 75% retroactive to November 2018.

The Commission found that Iristel was conferring upon itself an undue preference, and that TELUS unjustly discriminated against Iristel, both in contravention of Section 27(2) of the Telecom Act.

The regulatory process is not speedy. It took more than 2 years for the CRTC to respond to the TELUS complaint. The CRTC took 3 and a half months to respond to applications for interim relief. Tens of millions of dollars were at stake representing hundreds of millions of minutes.

As the CRTC wrote “[TELUS] submitted that its control of traffic was justified, given the renewal of traffic stimulation activities and the associated costs that it would incur if it ceased that control.”

On the other hand, the CRTC says “there are avenues available for Commission direction to stop the offending activity. It is not open to [TELUS] to take matters into its own hands.”

As the Commission moves into the penalty phase of this proceeding, it will be interesting one to follow. Will the CRTC take into account the mitigating circumstances for TELUS’ traffic management, and the audaciously “narrow interpretation” of the Commission’s 2017 Decision that led to the continued traffic pumping? Will the retroactive rate setting be able to be implemented meaningfully?

Is self defense justified in telecom traffic management?

“Canada’s future depends on connectivity.” Those were the opening words in the statement issued by Innovation, Science and Industry Minister Navdeep Bains in discussing Cabinet’s decision not to formally intervene in last summer’s wholesale internet Order by the CRTC. While declining to take action, Cabinet sent a clear message that it expects significant changes to those rates in the pending outcome of the Commission’s own review of the Order.

The CRTC’s Order was issued August 15, 2019. Under Section 12(1) the Telecom Act, subsequent to a ‘petition’, “within one year after a decision by the Commission”, Cabinet (the Governor in Council) could “vary or rescind the decision or refer it back to the Commission”.

Exactly one year later, Cabinet decided not to take any of those actions, at this time.

The statement from Minister Bains explicitly acknowledges that the original CRTC Order got the rates wrong and says that the Commission did not strike the appropriate balance between the competing objectives of the Telecom Act, failing to apply sufficient weight to Section 7(b): “to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada”. Cabinet recognized that wholesale rates got set so low that carriers were unable to continue expanding their networks into unserved and under-served regions.

On the basis of its review, the Governor in Council considers that the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high-quality networks, particularly in rural and remote areas. Retroactive payments to affected wholesale clients are appropriate in principle and can foster cooperation in regulatory proceedings. However, these payments, which reflect the rates, must be balanced so as not to stifle network investments. Incentives for ongoing investment, particularly to foster enhanced connectivity for those who are unserved or underserved, are a critical objective of the overall policies governing telecommunications, including these wholesale rates. Given that the CRTC is already reviewing its decision, it is unnecessary to refer the decision back to the CRTC for reconsideration at this time.

With such strong views about the CRTC’s Order, some may ask why Cabinet didn’t exercise its power to formally “refer it back to the Commission.”

The better question is “Why would it bother referring it back to the CRTC?” All that would do is cause a delay.

The CRTC already has its own review of the Decision underway. That process began last November and submissions have already been received. Had Cabinet chosen to exercise its option to “refer it back to the Commission”, the resultant process might have to start over.

By setting forth a statement outlining its expectations for the Commission’s own review process, Cabinet is expediting the process that will ultimately release wholesale rates that balance the competing objectives. Although it declined to act, Cabinet is sending a signal to the Commission for what could trigger a subsequent review of the CRTC’s reconsideration proceeding.

[The CRTC’s Order was also the subject of a judicial process that was heard by the Federal Court of Appeal this past June. The Court imposed a stay of the Order, saying “the implementation of the CRTC Order that could result in a permanent market distortion which would be difficult to remedy posteriori.”]

A little over a week ago, I wrote that there are “other regulatory or policy levers that don’t require direct subsidies to improve the business cases for rural expansion”. In today’s release, we see Cabinet pulling a powerful policy lever that will significantly improve the business case for network investment including rural expansion.

Sometimes, the best decision is choosing not to make a decision at all.

A few months ago, in “A key to recovery? Communications leadership”, I wrote “Set clear objectives; Align activities with the achievement of those objectives; Stop doing things that are contrary to the objectives.”

Canada’s future depends on connectivity.

That is a strong statement, around which we can build objectives.

Last month, in “The COVID wild card”, I wrote about the supplementary comments filed in the CRTC’s mobile services review. “The importance of maintaining incentives for investment figures prominently in the final comments submitted last week.” On the subject of mandated resale of mobile services, I noted that Bell wrote “It would be particularly destructive now, during a period of unprecedented economic turmoil brought on by the COVID-19 pandemic and at a time when large investments of private capital are required to support rapidly expanding usage, the roll-out of 5G, and the continued extension of access to underserved rural and remote communities.”

With the ability to declare victory on falling prices for mobile services, the government is rightly turning its focus on maintaining incentives for investment in advanced facilities and expansion in unserved and under-served markets. What implications can we extract from today’s Cabinet release that may guide the outcome of the CRTC’s review of mobile services?

After all, Canada’s future depends on connectivity.

The following OpEd appeared on National Newswatch earlier today:

The past 6 months have witnessed an unprecedented shift in the consumption of digital connectivity by Canadians whose lives and livelihoods have been disrupted by the COVID-19 pandemic.

Communications services providers have rapidly reconfigured their networks to accommodate the shifts in daytime traffic patterns from business centres to residential neighbourhoods; telecom carriers have extended the reach of broadband networks to previously unserved and under-served areas.

The fastest way to roll-out high-speed broadband networks is using wireless technology, for mobile and fixed services. Today’s wireless technologies are already able to connect households and businesses at speeds far in excess of the 2030 target objectives set by the Canadian Radio-television and Telecommunications Commission (CRTC). Those objectives call for all Canadians to have the opportunity to subscribe to a service with 50 Mbps download speeds, coupled with 10 Mbps upload speeds and unlimited data transfer.

Even prior to the rollout of fifth generation mobile technology (5G), Canada’s mobile networks have topped the world in independent speed tests, consistently exceeding 100 Mbps down and more than 50 Mbps up. Technology for rural fixed wireless networks, are being deployed this summer to upgrade service to hundreds of thousands of homes and businesses.

But these wireless technologies need spectrum, the radio frequencies that connect our devices to the networks. Increased levels of data and faster speeds mean that service providers require even more spectrum to be assigned in order to be able to offer fixed and mobile broadband services.

The industry often speaks of radio frequencies as low, mid, and high-band spectrum. Lower frequencies, those under 1000 MHz (1 GHz), are ideal for carrying signals over long distances. High-band radio waves, those with frequencies over 6 GHz, travel a shorter distance but usually have greater data capacity. Mid-band spectrum, ranging from 1000 MHz to 6 GHz, is important because it can deliver higher capacity over longer distance.

Last June, at The 2019 Canadian Telecom Summit, Innovation Science and Industry Minister Navdeep Bains announced plans to increase the spectrum available for 5G services. Those measures included determinations on the 3500 MHz band, plans to release a decision in 2021 on millimetre wave (high-band) spectrum for 5G mobile service, and to release the 3800 MHz band in 2022.

Two hundred MHz in the 3500 MHz band was scheduled to be auctioned later this year; due to the pandemic, that auction has now been delayed 6 months to June 2021.

Canadians are continuing to connect with a seemingly insatiable appetite. Every quarter, there are more new mobile subscriptions; existing users continue to increase data consumption, stimulated by world leading data speeds and, in part thanks to new pricing plans that offer unlimited use, removing the fear of added charges.

Most Canadians have a choice of 4 mobile carriers; this means there is often more competition for limited radio spectrum than in countries, like the US, with just 3 carriers.

As carriers continue to expand the reach their network into previously unserved and under-served areas, these companies are increasing capacity and deploying the latest fifth generation mobile networks, to help drive the next generation of innovation in virtually every sector of the economy.

How can we feed our appetite for connectivity? The industry is investing billions of dollars in technology, but the industry needs radio waves to connect us to the towers.

It is critical for Canada’s government to do its part. We need the government to press forward aggressively with the release of more spectrum.

A new report from the Canadian Internet Registration Authority’s (CIRA) shows that rural broadband speeds have increased 50% since the start of the pandemic.

In its May report, CIRA said “In April, median rural download speeds were measured at 3.78 Mbps”; the latest report, issued earlier today says “In July, median rural download speeds were measured at 5.62 Mbps”.

That is an increase of 50%.

Why then is CIRA characterizing this dramatic improvement as “Since the pandemic began, median download speeds have plateaued around 5.5 Mbps for rural internet users”?

Earlier today, TD Securities issued a report that said “it is time for the government to declare victory in the 12-year quest (since the first set aside of spectrum in the 2008 auction) to help consumers via sustainable competition from a facilities-based fourth carrier in almost every region.”

TD found that the average revenue per user (ARPU) for Canadian mobile service providers are “comfortably below” US, “which feeds into our strong view that the CRTC and ISED should not and will not implement new measures to mandate either lower prices or widespread MVNOs.” In the view of TD, network quality, spectrum costs, scale, and population density all impact operating expense and capital expenditures for Canadian carriers relative to their global peers and should be considerations in the various regulatory and policy reviews of consumer wireless pricing.

“But even if we ignore these factors and just look at what Canadian consumers pay on average per month to incumbent carriers (keeping in mind that reported ARPU for new entrants Shaw and Quebecor is even lower than that of Rogers/BCE/TELUS), we no longer see a problem that policymakers need to fix.”

I said it 5 months ago: “Declare victory. Consumers are winning”.