Search Results for: quality coverage price

I am going to take a little vacation time over the next couple weeks, so while I am gone, I thought I would provide a collection of quotations that I think are relevant for a couple hot regulatory issues these days: the state of Canada’s mobile wireless industry and the appeals associated with wireline wholesale.

As noted by the 2006 Telecom Policy Review Panel, the CRTC originally encouraged competition via resale through various rulings that “established a general policy requiring an incumbent who chose to offer a retail telecommunications service to permit resale of that service, whether by competitors or others.” When the CRTC approved facilities-based competition in 1992, “it did so recognizing that the construction of network facilities by entrants was necessary for the full benefits of competitive entry to be realized.”

Have those fundamental principles changed?

From Telecom Decision CRTC 92-12:

The Commission considers that resale can provide many benefits, but it is not a substitute for facilities-based entry. Facilities-based entry permits sustainable and more broadly-based competition, thereby increasing the benefits to be derived from competition.
…
However, resellers can complement facilities-based competition by providing price discipline, ensuring greater responsiveness and serving niche markets.

Testimony of Marc Gaudrault, CRTC Notice of Consultation 2009-261, Transcript 31 May 2010, Line 926:

In order for the ladder of investment to work most effectively, the wholesale services provided by ILECs and cable carriers at each rung of the ladder should be constructed so as to facilitate the maximum amount of service differentiation downstream at the retail level and the ability of competitors to climb the ladder. This means differentiation of functional attributes such as speed, throughput, quality and types of service, geographic coverage and service bundling.

From the report of the Telecom Policy Review Panel:

The Proper Scope of Mandated Wholesale Access
As stated above, a fundamental objective of mandated wholesale access should be to maintain incentives for innovation, network efficiency and investment. In the Panel’s view, the most effective method for promoting these incentives is to ensure that competitive market forces apply to the broadest possible range of network and service components in as many locations as economically feasible.

To this end, new entrants should have both opportunities and incentives to build their own facilities. Since by definition retail market entry is not possible without competitor access to essential facilities, the regulatory framework should continue to require incumbents to make these available, on a mandatory basis if necessary.

However, the Panel concludes that, given the current state of competition in Canada, continuing to require that incumbents make non-essential facilities available to competitors undermines the incentives for the latter to build alternative facilities. This in turn undermines competitive market incentives for all service providers to be efficient, to innovate and to invest, for several reasons.

First, when designing their networks, entrants can either build non-essential facilities or lease them from the incumbent. Mandated wholesale access at regulated prices reduces the cost and especially the risks associated with leasing relative to building. It thus increases the likelihood that leasing will be more attractive than building. Mandated wholesale access therefore tends to discourage entrants from supplying their own facilities, even where doing so would otherwise be economical. The potential negative impact is much more limited if mandated wholesale access is limited to essential facilities.

Second, regulated wholesale pricing reduces the revenues that entrants who build facilities can generate in the wholesale market when they lease those facilities to other providers. This arises because regulatory constraints on ILEC wholesale prices also effectively place upper limits on the price that other service providers can charge for facilities in the wholesale market. This in turn affects investment decisions of both incumbents and new entrants in cases where the viability of constructing network facilities is dependent on their ability to profitably supply facilities on a wholesale basis to other service providers. The broader the scope of mandated access, the greater the negative impact on investment decisions.

Third, artificially low wholesale rates undermine the price levels and revenues that could otherwise be sustained in the retail market. The broader the scope of mandated access, the more significant the impact on retail prices. This compromises the ability of both entrants and incumbents to recover potential network investments.

The argument in support of mandating the availability of non-essential facilities is that it can actually facilitate, rather than hamper, construction of facilities by entrants by providing them with a “stepping-stone” until the day they can build their own facilities. The validity of this argument rests entirely on the assumption that the CRTC can set prices that are both:

• low enough to facilitate entrants’ ability to expand their networks and more quickly acquire the customer base that would justify construction of their own facilities
• high enough to provide entrants with sufficient incentives to build such facilities.

The Petition to the Governor in Council procedure: Canada’s wholesale broadband policies, the appeal mechanisms that challenge them, and broader regulatory trajectories
Daniel Mackwood, 2016 Paper
CRTC Prize for Excellence in Policy Research

CRTC decision hearing outcomes have regularly supported wholesale competition in the fixed access broadband market. The agency’s ongoing aim has been for its regulatory decisions to help usher new-entrant and competitor ISPs into an eventual transition from service- to facilities-based competition. Referred to as the “ladder of investment” (LOI) or the “stepping-stone” approach, this regulatory strategy encourages an evolution from ISPs existing as wholesale access customers relying on tariffed usage of incumbents’ networks, to eventually being able to invest in and maintain their own facilities and infrastructure.

The CRTC is in the midst of a proceeding reviewing mobile wireless services in Canada, focusing on three areas: Competition in the retail market; The current wholesale mobile wireless service regulatory framework, with a focus on wholesale MVNO access; and, The future of mobile wireless services in Canada, with a focus on reducing barriers to infrastructure deployment.

It isn’t yet clear there is a justification to mandate wholesale access services for the mobile wireless market. That is the first gate.

Missing from the historical documents (cited above) is a discussion of the need to preserve appropriate incentives for facilities-based service providers to invest in network expansion in terms of reach and capacity.

Should there be a third principle in setting wholesale prices? Perhaps wholesale rates need to be:

• low enough to facilitate entrants’ ability to expand their networks and more quickly acquire the customer base that would justify construction of their own facilities
• high enough to provide entrants with sufficient incentives to build such facilities
• structured in a manner that encourages incumbents to expand capacity and reach for their own network facilities.

I will have spotty internet access for the next 10 days or so, a reminder that not every country has coverage as good as Canada; I look forward to reading your comments.

Bernard Baruch is credited with the coining the statement “Every man has a right to an opinion but no man has a right to be wrong in his facts.”

Important phrase to keep in mind as I read competing opinion pieces: Timothy Denton in the Financial Post and Dr. Robert Crandall in Cartt.ca.

Tim is a former CRTC commissioner and his piece was authored to respond to an opinion piece by Gael Campan of The MEI in support of its recent research paper (the subject of last week’s blog post “Permissionless innovation: is regulation penalizing infrastructure investments?”. Mr. Denton’s clients include Tucows, the parent of Ting, a company that has been trying to get the CRTC to mandate MVNOs.

Dr. Robert Crandall is is a senior fellow at the Technology Policy Institute, a Washington-based think tank that focuses on the economics of innovation, technological change, and related regulation around the world. Dr. Crandall has taught economics at Northwestern University, MIT, the University of Maryland, George Washington University, and the Stanford in Washington program. His opinion piece is based on data in The Inclusive Internet Index 2019, a study by the Intelligence Unit of The Economist. He has prepared evidence for TELUS in the CRTC’s review of mobile wireless services.

Now in its third year, the index assesses the performance of 100 countries in four categories of inclusion: Accessibility, Affordability, Relevance and Readiness. Each category incorporates key indicators of internet inclusion, including quantitative measures such as network coverage and pricing, and qualitative measures such as the presence of e-inclusion policies and the availability of local-language content.

Mr. Denton’s piece is titled “Some truths about why Canada’s cellphone bills are higher and our adoption rate lower than most OECD countries” but it actually mixes up a lot of facts confusing European regulatory obligations for wireline services (that we also have in Canada) in his discussion of what he (or his clients) think should be imposed for wireless. Like the discredited consultant report from Rewheel, Mr. Denton tries to compare Canada’s mobile service to Finland (“with their vast regions as empty as Canada”), failing to consider that Finland’s population density is 5 times that of Canada. He also refers to wireless penetration using the familiar, but invalid metric “SIM cards per capita”, as though it is a good thing for people to have to carry multiple subscriptions (and forgetting to consider that also means people are paying multiple bills). When looking at unique subscribers, Canada’s figure of 78% is in line with the US (85%) and Europe (86%).

The fact is, Canadians enjoy superior quality network performance, thanks in part to carriers’ capital investment per connection that is nearly double the average of their European counterparts. As Dr. Crandall observes, “Canada has among the highest spectrum prices in the developed world because of these policies, thereby increasing wireless carrier costs and, thus, wireless prices.”

We are entitled to our own competing opinions. But those opinions should be informed by facts.

“High spectrum prices can cause negative consumer outcomes, including lower coverage levels and slower data speeds.”

That’s just one of the findings of a new report released last week, by the GSMA. The report, “The impact of spectrum prices on consumers” [pdf], shows that countries with poor spectrum policies – policies which either inflate spectrum or delay spectrum assignments – are leading to millions of people being left unable to access mobile broadband services or experiencing reduced network quality.

The study is said to be the most detailed econometric study into spectrum pricing, considering more countries (64, including both developed and developing), more consumer outcomes (cost, quality and coverage) and the study controls for a wider range of other potential explanations for these outcomes, such as market competition, population density, timing of spectrum awards among others. “These findings have important ramifications for regulators, particularly when so many are trying to prioritise improved coverage and increased investment in 4G and 5G.”

The study provides the following recommendations:

1. Maximising revenues from spectrum awards should no longer be a measure of success
2. Auctions can deliver inefficient outcomes when poorly designed
3. Artificially limiting the supply of spectrum, including through set-asides, risks slowing services and inflating prices
4. Spectrum should be released to the market as soon as there is a business case for operators to use it
5. Policymakers should work with stakeholders to enable timely, fair and effective spectrum licensing to the benefit of society

The use of set-asides have been contentious in recent Canadian spectrum auctions. The study observes that “Governments often design awards with the intention of promoting competition and innovation in the sector – for example set-asides or reserved spectrum for a new entrant (or existing operator).”

However, the report says “While such policies may be designed with the right objectives in mind, they may also have unintended consequences if they are poorly designed or implemented and result in higher spectrum prices, thus harming consumers.”

There is a cost associated with spectrum policy, not all of which is financial. As Canada moves forward with development of auction policy for the next wave of spectrum, it is critical to consider the potential for unintended consequences to have significant impact on consumers.

Over the coming weeks, I will post some of the sessions from The 2019 Canadian Telecom Summit. Today’s post is the first in the series.

On June 5, the closing keynote address at The 2019 Canadian Telecom Summit was delivered by Innovation, Science and Economic Development Minister Navdeep Bains. Following his speech, I had a chance to sit down and have a chat with him, as captured in the video.

Here are his remarks. Please check against delivery:

Much has been written about the proposed Policy Direction released last week by ISED Minister Bains to the CRTC, and the Commission’s subsequent Mobile Wireless Services Notice of Consultation.

My regular readers know that I like to cover these kinds of things from paths that are less traveled, trying to bring a fresh perspective. As such, I’d like to examine last week’s releases from the perspective of incentives to invest.

The term “investment” appears 13 times in the CRTC’s notice of consultation; it appears just once in the proposed Policy Direction, and that instance is in relation to “stimulate investment in research and development and in other intangible assets that support the offer and provision of telecommunications services.” However, the proposed Policy Direction also speaks about “innovation in telecommunications services, including new technologies and differentiated service offerings” and ensuring “affordable access to high quality telecommunications services is available.”

That kind of language needs to be contrasted with the CRTC’s consultation that speaks in terms of the need “to make significant investments in network infrastructure” for 5G. The Commission’s concern about maintaining incentives for continued capital investment is set out in the core of the proclamation for this proceeding:

21. The Commission is hereby initiating a proceeding to review mobile wireless services in Canada. This proceeding will focus on three key areas:
    • Competition in the retail market
    • The current wholesale mobile wireless service regulatory framework, with a focus on wholesale MVNO access
    • The future of mobile wireless services in Canada, with a focus on reducing barriers to infrastructure deployment
22. The scope of each of these issues is described in detail below. In addition, parties may raise other matters, issues, or proposals that are relevant to and appropriate for a broad policy review of mobile wireless services. The Commission’s focus in this proceeding is to ensure that its mobile wireless service regulatory framework facilitates sustainable competition that provides reasonable prices and innovative services, as well as continued investment in high-quality mobile wireless networks in all regions of the country.

I observed on Twitter last week that network investment frequently falls into 1 or more of the 3 C’s: Coverage, Capacity, or Capability.

Many carriers have focused their investments on coverage and capacity enhancements, adding reach to the networks to previously under-served regions and adding capacity to increase data connection speeds and relieve congestion. Most carriers have upgraded capabilities for most regions to enjoy access to advanced fourth generation technology and are readying to deploy 5G.

Mandated wholesale access has the potential to impact the business case for investment. Of course, in core urban areas, there are strong incentives to invest driven by competitive behaviour, where carriers will ensure that their networks are able to offer top speeds as part of their bragging rights. However, it is clear that the business case for such investments is not limitless, otherwise we would see 5 bars of LTE-Advanced everywhere in Canada.

So, we know that there are already certain areas with lower population densities that already cannot support a business case for some carriers to invest. Now, imagine that that the carrier will no longer be able assume the same level of retail revenues. What happens to the business case for those marginal areas? If potential revenues decrease, one would expect that fewer areas will be able to support a business case for enhanced levels of investment. People in under-served areas today should carefully consider whether mandated MVNO and lower retail prices will help or hinder their cause.

Recall that when the current CRTC Chair was welcomed to his job, he received a letter from the Ministers of Heritage and of Innovation, Science and Economic Development, saying, “All Canadians and Canadian businesses deserve high quality telecommunications services at affordable prices.” At the time, I wrote “It is a delicate balance. Quality and coverage require significant levels of capital investment, especially in a country like Canada.”

The proposed Policy Direction echoes that language in the clause suggesting that the CRTC should consider the extent its regulatory measures “ensure affordable access to high quality telecommunications services is available.”

The CRTC consultative process will most likely be informed by engineering economic analysis, assessing the potential impact on investment in marginal areas for coverage, capacity and enhanced capabilities.

Maintaining incentives for investment requires a delicate balance.