Search Results for: incentives to invest

I wrote “The truth about structural separation” last May, describing the interaction between a Member of Parliament and TELUS COO Tony Geheran during a meeting of the Parliamentary Standing Committee on Industry, Science and Technology (INDU) that took place a year earlier.

Mr. Geheran said, “I haven’t seen [structural separation] work anywhere globally, to sustainable effect,” to which Calgary-Nose Hill MP Michelle Rempel Garner replied, “It’s in the UK, right?”

Mr. Geheran responded, “But if you look at the UK, they are wholesale moaning about the quality of their infrastructure, their lack of fibre coverage. across what is a very small geography. I know. I originated from there. And quite frankly, the Canadian networks are far superior in coverage and quality and performance through COVID has demonstrated that.”

Recently, that committee adopted a report, “Affordability and Accessibility of Telecommunications Services in Canada: Encouraging Competition to (Finally) Bridge the Digital Divide” [pdf, 3.4MB], that had been released by the Committee during the previous session of Parliament. I found it interesting that the Parliamentary Committee report did not recommend studying structural separation, despite a specific call for such a strong competitive safeguard from at least one of the witnesses. However, in its more recent report examining the Rogers – Shaw transaction [pdf, 3.1MB], that same committee suggested studying the matter further:

Recommendation 1: That the Government of Canada launch nationwide consultations to examine the implementation of structural separation in the telecommunications sector between businesses that build infrastructure and those that provide services in order to ensure a level playing field that fosters network development in both cities and rural areas.

As it turns out, the CRTC has already held nationwide consultations that examined proposals such as structural separation. In 2015, as part of its review of wholesale wireline services, the CRTC examined a CNOC proposal to implement an “Equivalence of Inputs” regime, a very basic form of structural separation, “such that any wholesale service offered by an incumbent carrier to a competitor be provided at the same price, quality, terms and conditions, and timescale, using the same systems and processes that incumbent carriers’ use in their wholesale operations to supply their own retail operations”. The Commission rejected the proposal, saying it “would represent an overly intrusive regulatory measure, which would neither be efficient nor proportionate to its purpose“.

As a regulatory measure, structural separation has rarely been used in wireline broadband markets, and only where there is a single dominant network operator. To my knowledge, it has never been used in the wireless industry.

Unlike some foreign markets, in Canada there is no single network with a dominant presence. For example, in the UK, BT agreed to separate its wholesale and retail operations into separate business units after the regulator concluded that it had a natural monopoly over phone and broadband infrastructure in the UK. In other words, if you wanted phone or broadband services, you had to use the BT network.

In contrast, Canada’s wireline and wireless broadband networks are provided by multiple national and regional wireline and wireless service providers. As discussed recently in “Truthiness and Canada’s Telecom Industry”, Canada has the least concentrated broadband market in the G7 plus Australia. Upon which network would separation be imposed?

Just as proponents of mandated wholesale MVNO access have been pushing for a wholesale model that has been tried and largely abandoned elsewhere, proponents of structural separation are pushing another form of regulatory intervention that has fallen out of favour.

As described in Federal Communications Law Journal [pdf, 2.9MB], “Concerns about the potential for such disruptions [in economic efficiencies]–combined with recognition that the more extreme forms of separation potentially are irreversible-have led most regulators to back away from mandatory separation, or to view it as a “last resort,” to be used only in cases of extreme and otherwise irremediable discrimination.” The authors indicate that separation “may discourage the introduction of new networks, thereby reducing economic welfare and harming consumers.” Further, “the available evidence fails to support the proposition that mandatory separation improves market performance, but this evidence does suggest that such a policy leads to reduced levels of innovation and investment.”

Reduced levels of innovation and investment would fail to deliver the Parliamentary Committee’s stated goal of “[fostering] network development in both cities and rural areas”.

Canada needs regulatory policies that create incentives for more investment and innovation, not less.

Structural separation isn’t a solution.

Canada’s future depends on connectivity.

In November, PwC released a series of reports on “The importance of 5G and the digital economy in Canada”:

• 5G, the digital economy and Canada’s global competitiveness [pdf, 1.7MB]
• The evolution of Canada’s telecom industry and the growing digital economy [pdf, 3.0MB]
• The importance of 5G and the digital economy in Western Canada [pdf, 2.1MB]

As PwC notes, the past two years of life under the cloud of the COVID-19 pandemic have accelerated several trends associated with a transition to a new economic model, such as increasing demand for digital connectivity and greater adoption of digital processes by businesses and households.

PwC promotes the need to have a healthy domestic telecommunications sector to support the deployment of 5G, saying “jurisdictions where network operators were in poorer financial health had slower deployment and adoption rates.” PwC invites readers to read the first report for a discussion on the digital economy and implications on Canada’s global competitiveness associated with delays in 5G deployment. In that report, we read how the competitive landscape is being reshaped for mobile operators by hardware, software and service providers. PwC asserts that Canadian mobile network operators (MNOs) are “sub-scale relative to multinational digital economy players, whose business models are enabled by connectivity but do not invest in network infrastructure.” Further, PwC expects technological disruptions over the coming years from Low Earth Orbit satellites providing broadband internet, and the introduction of embedded SIM (eSIM) technology that “could be used by equipment manufacturers to disintermediate telecom operators.”

The second report makes four main points:

1. The telecommunications industry is a core enabler of the digital economy;
2. Canadian MNOs are relatively small compared to international peers, suppliers and new competition;
3. Globally there is a trend of consolidation in the telecommunications industry; and,
4. Canada needs to ensure its telecommunications industry can support the needs of the digital economy

Among the highlights, PWC observes that Canadian mobile operators spend a higher proportion of their revenue on capital investments than many peer countries. For example, the capital intensity (measured as a ratio of capital expenditure to revenue) for Canadian operators averages at 18%, five percentage points (or nearly 40%) higher than operators in the US and Australia at 13%.

The third report in the series zooms in on Western Canada looking at how 5G connectivity is expected to enable new “use cases”, such as automation enabling smart mining, connected and autonomous vehicles, and automated smart farming. “5G-enabled use cases require broad ubiquitous coverage to reach businesses outside urban areas (mining, agriculture, oil & gas, etc.) and enable use cases that are reliant on continuous connectivity (e.g., autonomous vehicles).”

According to PwC, Canadian mobile operators face three significant challenges: the cost of 5G driven by capital costs required to install new equipment, densify infrastructure and the
increased operational costs required to keep up with data use; Increased competition in the digital economy including hardware, software and service providers such as Google and Amazon; and, Canada’s current lag in spectrum allocations and the complexity of regulations for accessing passive infrastructure.

To deploy 5G at pace, and overcome these challenges, Canada will require a healthy telecommunications industry that has well-capitalized MNOs capable of funding national 5G deployment. To achieve this, Canada needs a supportive regulatory framework, that should: (i) maintain an appropriate level of market incentives, drive improved customer value and investment in innovation (ii) maintain predictable and fair regulations while being flexible to accommodate the evolving needs of the digital economy and (iii) consider the significant benefits of the digital economy, the role of 5G in enabling it, and the broader competitive landscape within it.

Canada requires a healthy, well-capitalized telecommunications industry to fund deployment of our national 5G networks.

On December 17, the Government of Canada opened its consultation on the 3800 MHz spectrum band. The day before, Ceri Howes, Head of Regulatory for Opensignal published an article that I think merits highlighting, in light of the government’s stated object for the consultation “to ensure Canadians have access to high-quality wireless services.”

In the header for “Canada’s 5G future – the story so far”, Opensignal indicates the article “discusses some key considerations for Canada’s 5G future and highlights how policymakers and regulators can better make use of independent, globally-standardized data that reflects the actual experience of the consumers they serve.”

The article shows that Canada’s wireless carriers have consistently invested in new technologies, increasing spectrum efficiency and capacity, leading to Canada currently having some of the fastest 4G networks in the world, “despite Canada’s relatively low population density and the high capex and opex costs involved in deploying networks in rural and remote parts of a large country.”

However, the article observes that Canada is “unfortunately slipping behind” when it comes to 5G, and Opensignal suggests that spectrum policy is a factor.

The political and regulatory dynamics in Canada are complex, and spectrum management approaches also must consider factors such as a long, shared land border with the US. However, it is clear that various decisions around the timing, availability and pricing of critical 5G spectrum may be leading to constrained deployment.

Opensignal supported PWC Canada’s March 2021 report that looked at Canada’s connectivity needs in a post-COVID environment and looked at the implications for the roll-out of 5G. As I wrote at the time, the report identified six policy drivers to incentivize 5G deployment and broadband-enabled use cases, including spectrum timing and costs; network investment incentives; rural subsidies; and, funding for research and development.

Opensignal warns that Ottawa has a “pressing opportunity to prioritize the auction of additional mid-band and lower band spectrum”.

In Minister Champagne’s mandate letter, spectrum policy is only mentioned once: “Accelerate broadband delivery by implementing a ‘use it or lose it’ approach to require those that have purchased rights to build broadband to meet broadband access milestones or risk losing their spectrum rights.” I think much greater focus on spectrum policy is needed.

Opensignal says, “The speed with which new spectrum is allocated to carriers is also important if Canada is to see the full economic benefits of 5G and also if it is going to continue to rank highly on mobile network experience worldwide.”

As 2022 opens, 5G use cases in “agriculture, mining and manufacturing will play a central role in the transformation of Canada’s industrial policy and digital economy”.

Spectrum policy needs to take a higher profile on Canada’s political and economic agenda.

For the 3800 MHz consultation, comments are due February 15, with replies due March 7.

“I’ll be frank: we got that initial decision wrong.”

It isn’t often that a government official uses clear language to acknowledge mistakes, but this is precisely how CRTC Chair Ian Scott addressed the elephant in the room when speaking at The 2021 Canadian Telecom Summit earlier this week. I think it is worthwhile including a lengthy excerpt directly from the text of his speech.

Another matter that has attracted a great deal of attention and commentary is our decision that set the final wholesale rates for aggregated high-speed broadband access services. Obviously, and as you know by now, we reversed course on implementing the rates we set in 2019. Rates, I will add, that were never implemented in the marketplace.

I’ll be frank: we got that initial decision wrong.

There were unquestionably errors in the initial decision. We are not infallible, and we could not ignore those errors once they were properly identified. We have always said we will review any decision if a party submits an application. Legislators anticipated that the CRTC may sometimes make mistakes or base its decisions on an incomplete record, and for that reason included the review and vary provision in the Telecommunications Act.

When a party submits an application asking us to review a decision, we address the issues in question seriously, fairly and in an independent manner. Because no one benefits from uncertainty in the market.

The work we at the CRTC do is not always popular or easily understood, especially when it comes to the costing of wholesale services. We recognize that. But I will say that in the process of reaching a decision—be it on rates for high-speed access services or any other matter you care to name—the process we follow is always based on sound administrative-law principles. We build a public record, our expert Commission staff analyze the evidence and Commissioners – all of whom share equal voting rights – make decisions. And we do all of this with the public interest foremost in mind.

Unfortunately, in the aftermath of this high-speed access decision, some remain focused on perceived winners and losers. We, however, have moved on. The industry continues to evolve and move forward, and we’re looking at far bigger and frankly, much more productive things. Our focus is on the multitude of threads—the multitude of proceedings before us, if you prefer—that we are currently weaving together to create a policy framework that fosters more competition in the marketplace in order to reduce prices for consumers.

Those threads include more than our mobile wireless and high-speed access decisions. They also include our ongoing work in developing our high-speed access framework across Canada, including in the North, as well as a variety of issues relating to detailed technical and policy matters.

We’re looking at these matters, and others, with a goal of building a comprehensive regulatory approach that supports sustainable competition and balances the various perspectives of all stakeholders. Regulatory certainty, after all, is important to everyone. It’s important to consumers, who want better services at lower rates; to competitors, who want to explore opportunities to serve new markets; and to incumbents, who want the capacity to invest in, and expand, their services. That’s why we are focused on getting it right.

A few minutes earlier, the Chair had said “Although aspects of both of our mobile wireless and high-speed access service decisions are being appealed to Cabinet and the courts, the Commission is convinced of the validity of our approach. Both are helping to lay the foundation for the continued growth of smaller service providers and new entrants into the market. Both are helping to support sustainable competition that will ultimately lower what Canadians pay for their telecom services. And both are helping to build confidence in the marketplace.”

The appeals can work their way through the system. The reality is that the federal government has consistently affirmed and reaffirmed its support for sustainable, facilities-based competition, providing appropriate incentives for investment to upgrade networks and extend the reach into unserved and underserved communities.

Canada’s future depends on connectivity.

Throughout the COVID-19 pandemic period, I have taken advantage of continuing education opportunities from the International Telecommunications Society (ITS), and I have promoted many of its sessions on this blog. ITS serves as “a global platform for industry, policy makers and regulators to create a 360-degree view of an issue from the perspective of different regions and jurisdictions.”

I want to highlight another webinar coming up in just over 3 weeks (November 22, at 8 am Eastern). It is especially timely as the new government in Canada prepares to reintroduce legislation to regulate “Big Tech” and internet content.

The role of digital platforms and how to regulate them has become the new frontier for regulators and policy maker around the world. There is a tension between competition, choice, and consumer protection on the one hand, and innovation, investment incentives and entrepreneurial freedom on the other.

“Digital Policies – an East-West Perspective” will discuss approaches to digital platform regulation in the US, Canada, Europe, South Korea, and Japan. This webinar will highlight the most important aspects of this topic:

• Alexandre de Streel, academic co-director of CERRE and professor at Namur University, will present a European perspective;
• Seongcheol Kim, Director and professor at the School of Media and Communication, Korea University, Seoul, will share insights into the discussion in South Korea;
• Seiji Ninomiya, Director General of the Telecommunications Bureau at the Ministry of Internal Affairs and Communications (MIC), Tokyo, will present Japan’s approach; and
• Michael H. Ryan, Principal at MHRyan Law (London), will provide insights on how digital policy compares in North America and Europe.

The session will be moderated by Georg Serentschy, a past chair of BEREC, the Body of European Regulators for Electronic Communications.

Michael Ryan is a familiar name to the Canadian regulatory scene, having literally written the book on Canadian telecommunications law. It is certain to be an interesting session, of relevance to Canadians who are watching for the government’s digital legislation.

Registration is free.