Search Results for: incentives

In an earlier part of my consulting career, I would frequently fly into Washington, DC on little commuter planes known as Beechcraft 1900. (Remember the good old days, when we could freely travel between countries?)

There were 19 seats on those planes, 9 on one side, 10 on the other. It was a twin engine turbo prop plane and I would joke that it pretty much followed the highways on its way back and forth between Toronto and DC. Truth be told, I was never really happy about flying in a plane that would have the pilot move people around in order to balance the load. I prefer to fly in aircraft that can handle us ‘fuller figure’ fellows moving around a little without it causing some self-induced turbulence, if you understand what I am saying.

Sometimes, there just isn’t an alternative. The pilot relies on people being anchored in certain seats and handles the plane accordingly.

I told you that story to talk about the importance of anchors in the design of broadband networks in remote and rural communities. In some areas, the economics of broadband service is tied to the presence of ‘anchor institutions’, such as schools, civic offices, medical facilities and libraries.

Indeed, in last week’s CRTC announcement of 5 projects awarded under its Broadband Fund, the Commission noted that 26 anchor institutions would be connected.

As most people realize, the broadband requirements for an institution are usually more substantial than those for an average residential user. Faster speeds, higher capacity and usually an increased ability to pay for those differences. The term “anchor” is appropriate for these clients because they can provide economic stability, a key determinant for the economic viability of offering service in some areas. In the absence of those anchor clients, a larger subsidy might be required.

These are important considerations to keep in mind when you hear some folks advocate for municipalities to connect anchor institutions to a separate municipal network. Pulling anchor clients off the market can have the effect of reducing the economic incentives or viability for a service provider to upgrade facilities in an area. Municipal governments need to consider more than their own corporate broadband requirements and understand how their buying power can influence the quality of services that can be offered to the entire community.

A counter-intuitive approach, perhaps even offering a premium to usual retail rates, may serve the community’s interests even more, accelerating private sector investments and reducing the requirements for federal funding.

Those anchor institutions can provide the economic stability necessary to make a broadband business case go positive.

How do you get to argue a case at Canada’s Supreme Court? First, one must seek ‘leave to appeal’, permission to argue the case itself, by demonstrating that the case involves a ‘question of public importance’ to be settled by the Court.

If leave is granted, then the case itself gets to be heard.

Last Thursday, in separate filings by Bell and a nationwide consortium of Canada’s major cable companies, the Supreme Court received applications for leave to appeal the CRTC’s August 2019 Decision on Final rates for aggregated wholesale high-speed access services.

The Decision was appealed using all three channels legislatively set out in the Telecom Act: to Cabinet, to the Commission, and to the Court.

Cabinet issued its determination on the appeal in a highly nuanced Order in Council, stating “Canada’s future depends on connectivity”. While Cabinet did not explicitly refer the matter back to the CRTC, the Order clearly sent a signal 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… 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.”

The CRTC has not yet issued a determination on the review of its own decision.

In September, the Federal Court of Appeal dismissed the judicial appeal, which is giving rise to the proposed appeal to the Supreme Court. The judicial appeal route can only examine questions of law or jurisdiction. In this instance, much hinges on whether the CRTC’s ruling conformed with the government’s 2006 Policy Direction.

The Policy Direction requires “the Commission, when relying on regulation, should … specify the telecommunications policy objective that is advanced by those measures and demonstrate their compliance with this Order.”

The Federal Court of Appeal agreed that the CRTC has a “statutory reasons requirement”, an obligation to include sufficient detail in its decisions to enable a reader, and a reviewing court, … to fairly understand the reasoning of the Commission”.

Beyond the rates themselves, a key element of the applications seeking leave to appeal is the question of transparency. “How must administrative tribunals satisfy their duties of transparency and accountability in considering and implementing legally binding legislative and executive policy directives… and how should a reviewing court scrutinize decisions of tribunals that do not satisfy their mandatory duty to consider and implement legally binding legislative and executive policy directives, and explain the manner in which they have done so?”

A year ago, the Supreme Court released decisions on a number of matters related to judicial reviews of administrative tribunals, in what McCarthy’s called a “Super Bowl trilogy.” Those cases clarified a number of matters including a requirement for the decisions of administrative tribunals to be held to a standard of correctness, not simply reasonableness.

A heading in one of the applications describes the current appeal, seeking a standard of transparency, as completing the work of the Court in those 2019 cases.

In my opening remarks at The 2018 Canadian Telecom Summit, I said “In my view, Canadian consumers would be better off if the Policy Direction is a guiding principle in decision making, not just a boilerplate afterthought in decision writing.”

As one of the sets of leave documents states “The unorthodox approach taken by the Federal Court of Appeal in its judgment upholding the Decision gives rise to pressing issues of national and public importance that go to the very heart of the modern Canadian administrative state.”

The issues raised by the proposed appeal are profoundly important. They must not be left unanswered. The stakes are too high, both for the future of the modern administrative state, and for the future of the internet in Canada.

There is no specific timetable for the Supreme Court to Act. It is quite possible, indeed quite likely, the CRTC will issue the decision on its own review prior to the Court even making a determination on whether this case raises “questions of public importance.”

In any case, it seems certain we will see less of a boilerplate affirmation of Policy Direction compliance appended to the end of CRTC Decisions.

A new study [pdf] from the GSMA looks at the expected economic benefit to Canada to be derived from the transition to fifth generation mobile technologies. The study sets out to “evaluate Canada’s readiness for 5G, assess the expected macroeconomic impacts from the introduction of the technology, and identify key barriers for the rollout of 5G in Canada to reach its full potential and drive future economic growth.”

“5G and economic growth: An assessment of GDP impacts in Canada” says that 5G will contribute US$150 billion in additional value add to the Canadian economy over the next 20 years.

To put the number in perspective, GSMA says “the additional yearly economic activity generated by 5G in Canada will be similar in size to the value add generated by the aerospace industry every year, and will be significantly larger than the GDP contribution of many other sectors in the country.”

However, GSMA warns that policymakers and the industry need to address a number of barriers in order to obtain the full macroeconomic dividends that can be brought by 5G, including a policy environment that includes the appropriate incentives to support the level of capital investment needed for these next-generation networks.

The report highlights the new spectrum, across all bands, required by 5G operators to provide widespread coverage, and to support all potential 5G use cases. GSMA observes that by the time Canada conducts its 3.5 GHz spectrum auction, 37 other countries will have already assigned that band. Further, the International Telecommunications Union (ITU) has recommended at least 100 MHz per operator; Canada has designated just 200 MHz in total with 50 MHz set aside for ‘new’ operators.

For more than a decade, Canada’s spectrum policy has focused on set asides to promote the growth of regional mobile operators; GSMA observes “there are clear trade-offs that the government needs to recognise when formulating spectrum policy – in particular, the likely impact this could have on network operators’ ability to invest and on the consumer experience and the economy more broadly.”

GSMA contrasts Canada’s limited spectrum release with the spectrum plans by the US (360 MHz), Japan (500 MHz) and most European markets (300–400 MHz). According to GSMA, “We estimate that bringing 5G spectrum policies in Canada in line with international best practice would deliver well in excess of a total of $30 billion in additional GDP growth for the entire period 2020–2040.”

Compared to 4G networks, 5G networks will deliver 10 to 100 times faster data rates, at signal response times up to 10 smaller. These next generation networks are also required to accommodate addressing and connectivity for the massively higher density of connected devices expected in the near future.

The complete report examines the projected benefits brought by 5G to a number of key economic sectors in Canada, including agriculture, and oil & gas. It is perhaps notable that TELUS announced the launch of TELUS Agriculture, seeking to optimize food production and contribute to a better yield of food supply. A report [pdf] conducted by Accenture for CWTA also cited agriculture as a key 5G use case.

The GDP impact projected by the Accenture report [$40B by 2026] appears to be in line with the $150B figure over 20 years in the GSMA study.

The report concludes with an emphasis on the importance of getting spectrum policy right: “Countries that make sufficient spectrum available in a timely fashion will facilitate the investments needed and deliver greater benefits to consumers, businesses and the overall economy sooner.”

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.

As expected, broadband service is part of the government agenda laid out in this afternoon’s Speech from the Throne:

In the last six months, many more people have worked from home, done classes from the kitchen table, shopped online, and accessed government services remotely. So it has become more important than ever that all Canadians have access to the internet.

The Government will accelerate the connectivity timelines and ambitions of the Universal Broadband Fund to ensure that all Canadians, no matter where they live, have access to high-speed internet.

I noticed that the language of the speech did not talk about accelerating the release of funds (it is already too late to do that), and there was no mention of increasing the level of funding.

Instead, we heard that the government will accelerate the connectivity timelines and ambitions of the Fund.

What are these timelines and ambitions that are to be accelerated? Presumably, this means the target will be advanced from 2030 to some point in time sooner 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.

But we aren’t hearing about any increased or accelerated funding to accomplish that.

On these pages, we have suggested that there are non-financial means to accelerate broadband expansion in certain areas. Is the government exploring how it can use non-financial incentives to encourage accelerated and increased private sector investment?