Search Results for: incentives to invest

Too many community networks are failing their constituents.

I’m sure there are some exceptions, but the record shows that too many of them are a drain on scarce community financial resources and have created disincentives for private sector broadband investment. In the end, such projects can delay delivery of broadband services, precisely the opposite of what should have been sought.

Recently, i-Valley, an organization claiming to be behind “Canada’s largest rural network”, issued a press release “calling on all Federal Parties to take a new approach to broadband creation”. In “Fresh Approach Needed for ‘Broadband Nation’”.

Let’s take a look at i-Valley’s signature project, a broadband network for the Municipality of Pictou County in Nova Scotia. “In 2016, Council initiated a planning process to remedy the situation by taking the future into its own hands, without waiting for outside agencies for relief.”

The municipality has allocated $11M toward construction of the first ring. Another $4.46M in federal funding has been allocated as part of the rapid response stream of the Universal Broadband Fund, connecting 3600 households.

Five years later, the future still hasn’t arrived for residents of the Municipality of Pictou County. Five years. A fresh approach is certainly needed.

Last summer, I wrote about Beaumont, Alberta (“When a smart city plan isn’t so smart”). It still hasn’t decided on whether to proceed.

The poster child for community networks in Canada, O-Net, has been pushed into receivership by the town of Olds, Alberta, for failure to repay a $14M loan.

I have written before that Community networks are hard. A year ago, Rob McCann of Clearcable Networks (and President of the Hamilton Technology Centre) asked “Have Open Access Networks Seen Their Day?” in an article in the Intelligent Community Forum.

While the Conservative Party platform says it will “Promote investment in communications facilities by local and regional communities”, it should carefully consider the history of failed local government attempts to deliver on the promise of community networks.

There are business models that can accelerate investment in broadband facilities in underserved communities.

And, there are models that squander time and tax dollars. The smarter “Smart Communities” know the difference.

Two weeks ago, in “Peace, order and good government”, I wrote about what I would have liked to see in a party platform as we head into this pandemic election.

Earlier today, the Liberals finally released their “Forward. For Everyone” [pdf, 3.1MB] platform, at the midway point of this 5 week long election campaign. The Liberals and NDP released their platforms at the start of the process – and I discussed their platforms in my August 16 post.

Two years ago, the Liberal platform promised a 25% reduction in wireless prices over two years. That target was achieved, according to the Statistics Canada cellular component of the Consumer Price Index. Indeed, I argued back in early March of 2020 that the government could already “Declare victory. Consumers are winning”.

The 2021 Liberal platform does not contain much on the telecom policy front, beyond an affirmation of its commitment to drive further investment in rural broadband.

A re-elected Liberal government will:

• Require those that have purchased the rights to build broadband actually do so. With this use it or lose it approach, Canada’s large national carriers will be required to accelerate the roll-out of wireless and high-speed internet in rural and northern Canada by progressively meeting broadband access milestones between now and 2025. If these milestones are not met, we will mandate the resale of spectrum rights and reallocate that capacity to smaller, regional providers.

A couple pages later, the platform says:

With an increased reliance on the internet to access services, work remotely and attend school, rural communities in Canada have been disproportionately affected by the digital divide. Just under 50% of rural communities have access to Broadband at 50/10 Mbps and the CRTC estimates that only 30% of First Nations households have access to internet. Ensuring that companies accelerate the roll-out of their broadband projects will contribute to the economic growth of those communities and the wellbeing of Canadians.

The platform appears to be a strong signal that a Trudeau government will stick with its fundamental telecom policy statement from a year ago: “Canada’s future depends on connectivity”, setting out clearly that it favours a policy environment that encourages investment in high-quality network facilities. “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.”

As I have written before, it is easy to call for measures that lower prices. It is more responsible to set out a policy platform that understands the balance between competition, affordability, consumer interests, investment and innovation.

The Liberal platform seems to be pointing to maintaining balance.

As I have described before, “When I studied statistics, we were told to look for “outliers” – results that appeared to be inconsistent with the rest of the data. If an observation is a potential outlier, you begin an analysis to determine whether a cause can be identified for the spurious result.”

There has been a lot of noise surrounding last month’s Telecom Decision CRTC 2021-181, the review and vary of the Commission’s 2019 Order (Telecom Order CRTC 2019-288) regarding final rates for aggregated wholesale high-speed access services.

The faux outrage alleges that the Commission has suddenly shown a predisposition favouring ‘facilities-based competition’ over ‘services-based’, when in fact, supporting investment has been the position of the CRTC, and the Competition Bureau, and various expert reports, and the Minister of Industry, (or ISED) for nearly 3 decades (since 1992).

So which decision is the outlier?

The discontinuity in wholesale rate policy was found in the rates set in 2019, not the most recent review of that decision issued in May of 2021. Following last summer’s determination by Cabinet (“Canada’s future depends on connectivity”), there should have been no surprise that the CRTC would need to carefully examine its 2019 determination.

It was pretty easy to see that the “outlier”, or statistical anomaly, in wholesale rate-setting was 2019, with hundreds of millions of dollars in windfall rebates and dramatically lowered forward-looking rates that have since been confirmed to be below the carriers’ costs. Looking at the 2019 rates, last August, Cabinet said “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.”

Those who oppose the CRTC’s most recent decision argue that it leads to higher consumer prices. However, Bell Canada has asserted that its wholesale rates will drop by an average of 7%; in the case of wholesale rates from Canadian cable companies, some cost elements are increasing.

There was a time that the independent internet service providers celebrated the CRTC following its processes. Less than 2 years ago, CNOC recognized the need to balance a range of interests in reaching a decision. “The CRTC regulates the market to protect consumers and promote the public interest.”

CNOC’s own press release seemed to recognize that there are many more considerations involved in determining the “public interest” than simply lowering consumer prices. Indeed, there is a public interest cost associated with low, low prices as we have seen in other markets. Canada needs substantial levels of ongoing investment from the private sector to extend the reach of our networks into unserved and underserved areas. Setting wholesale rates too low can result in lowering incentives for rural investment, as I described, and as Canada’s Federal cabinet stated last August.

As CWTA President and CEO Robert Ghiz recently wrote, “Those who discount this balanced approach and argue in favour of one-dimensional policy-making willingly ignore the impact it would have on Canadians’ access to the internet and their ability to participate in the digital world.”

There has been a long-standing recognition that the most sustainable form of competition is found among those companies making the multi-billion dollar annual investments to “deploy, maintain and continually upgrade the physical networks that enable Canadians to connect to the internet.”

For nearly 30-years, Canada’s policy and regulatory frameworks have consistently favoured policies that support investment by facilities-based carriers. Independent ISPs have been able to thrive in this environment, continuing to gain market share with the wholesale rates that were set in 2016 and re-affirmed last month. Wholesale-based ISPs have grown nearly 50% between 2016 and 2019 (the last year covered by official data); with a 10% market share, independent ISPs are attracting about 20% of new customer growth, with the 2016 rates in place.

It is somewhat disingenuous for independent ISPs to endorse the CRTC and its processes when the Commission rules in their favour but call for regulatory reform and heads to roll at the CRTC when determinations go the other way. The Telecom Act has provisions that enable reviews and appeals of decisions.

The system works.

Canada’s future continues to depend on connectivity. Increasing connectivity depends on regulatory stability and a policy environment that continues to favour investment.

PwC’s Canadian Telecommunications practice released a report [pdf, 2.8 MB | Executive Summary, 1 MB] last week looking at Canada’s connectivity needs in a post-COVID environment.

COVID-19 has forced us to quickly change our ways of working and living, and this has been made possible by internet connectivity. Going forward, both connectivity and Industry 4.0 will be critical to Canada’s long-term economic success. While Industry 4.0 will drive productivity, efficiency and flexibility across the economy, it will rely on advanced connectivity networks such as 5G.

Right now, there’s a window of opportunity for Canada to more firmly leverage 5G as an investment catalyst. But this will require cooperation across government, the telecommunications sector and broader industry.

The report defines Industry 4.0 as “The Fourth Industrial Revolution: the ongoing automation of traditional manufacturing and industrial practices using modern smart technology. It leads to the end-to-end digitization of all physical assets and integration across the value chain using Internet of Things (IoT) hardware, software and connectivity.”

According to PwC, the high quality of Canada’s connectivity networks allowed industries to quickly adapt to digital ways of working during COVID-19. This, combined with Canada’s health and fiscal policy response, supported Canada’s economic activity showing more resilience than the average of its global peers. In addition, the report notes that of course, Canadians’ social well-being during COVID-19 has been supported by the ability to use connectivity for work and school and entertainment. “These uses of connectivity significantly increased overall broadband consumption in Canada, with daily average broadband usage increasing by 43% (Q2 2020 compared to Q2 2019) during the first lockdown period.”

PwC observed that Canada’s overall average mobile download speed (which was 71% higher than the average of global peers pre-COVID-19) maintained its leading position relative to peer countries, despite the significant increase in demand.

According to PwC, COVID-19 accelerated 6 key trends having implications for connectivity and broadband-enabled use cases:

1. Shifts in population centres: The rate of population growth in large urban centres is expected to slow down due to increasing unaffordability in large urban centres and increased viability of remote working and learning.
2. Shift in relationship and entertainment preferences: Increased social media, video streaming and video chat usage habits are likely to persist post-COVID-19.
3. Shifts in business operating models: Employers are expected to accelerate digital transformation and automation plans to increase business resiliency, respond to future disruption and manage increased costs from localized supply chains.
4. Shift to localized supply chains: Supply chains are expected to continue to trend towards onshoring to protect against geopolitical and unpredictable disruption risk.
5. Shifts in service preferences: Preferences for virtual services are expected to continue to increase, as COVID-19 has exposed consumers and businesses to new virtual service offerings.
6. Shifts in consumer purchasing habits: Canadians are expected to continue to increase eCommerce activity and their preference for digital service channels.

PwC examines the impact on connectivity of these trends and the implications for bandwidth usage and network densification.

Looking across the G7, plus Australia and South Korea, PwC says “governments have enacted policies and regulations across six key levers that incentivize and facilitate private investment in the deployment of 5G faster and in different ways than market forces would likely dictate.”

1. Spectrum timing, allocation and costs
2. Network investment incentives
3. Rural network subsidies
4. Regulatory standards
5. Research and innovation funding (technology development)
6. Vertical industry application funding (technology adoption)

The report looks at each of these, and each country’s use of these policy levers, in much more detail.

“Through cooperation between government and industry on 5G and Industry 4.0, Canada can support the mid to long term success of the economy, while providing the telecommunications networks required to meet the connectivity needs of Canadians’ economic and social lives post-COVID-19.”

“Wholesale telecom services are a lot like selling the big guys’ hand-me-downs.”

That’s how a then-independent telecom journalist described the non-facilities based service providers a few years ago.

On paper, the wholesale scheme seems to make sense: Big network owners are forced to provide airtime to any and all commercial interests at regulated terms and rates, which other companies then resell to consumers at whatever prices they see fit.
…
But in the grand scheme of things, it’s worth asking whether the whole wholesale regime has really accomplished anything.

He concluded with “If the government is going to consider regulated wholesale wireless access, it would have to ensure that it doesn’t just enable hand-me-down services. Realistically, though, that hasn’t happened elsewhere so there’s no reason to expect it would in this situation.”

The 2013 article speaks of the ineffectiveness of a 10% market share for US mobile resellers (Mobile Virtual Network Operators, or MVNOs) as “the best reason for why the Canadian government shouldn’t be – and probably isn’t – thinking of wholesale service as a solution to what ails the country’s wireless market.” [CRTC figures show that Canada’s wholesale-based internet service providers still have less than 10 percent market share [xlsx] after well over a decade of regulated access to wholesale highspeed internet service.]

In the years subsequent to this article, we have seen the capital intensive nature of telecommunications globally drive consolidation in the MVNO marketplace. The two largest US MVNOs, Tracfone and Cricket, have been acquired by Verizon and AT&T, effectively turning these two MVNOs into flanker brands of the mobile giants.

MVNOs continue to exist in Canada on a non-mandated basis and Telegeography data (filed by CWTA in its Wireless Review intervention [pdf]) shows that the market shares of Canada’s flanker brands (own-brand MVNOs) combined with MVNOs is among the highest in the OECD.

Last summer, Cabinet told us “Canada’s future depends on connectivity”, signalling quite strongly that the CRTC’s August 2019 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.” Throughout its statement, Cabinet was clear in stating that preserving incentives for network investment was missing from the August 2019 wholesale framework.

A great body of economic evidence and observations from markets around the world has been provided to the CRTC to assist in its deliberations on varying its wholesale internet rates decision and its review of wireless services.

As reported here a couple weeks ago, a recent communiqué from the Telecommunications Working Group of the C. D. Howe Institute (chaired by the Dean of McMaster University’s DeGroote School of Business) concluded “Investment in the telecommunications sector is vital for ensuring Canada’s next generation digital infrastructure.”

Balancing Quality, Coverage and Price. It takes investment, massive levels of private sector investment, to drive quality and increase coverage. Prices have been coming down thanks to facilities-based competition.

MVNOs can continue to exist without regulatory intervention (like in most countries), where carriers and operators are able to identify business opportunities that make sense.

As that former journalist wrote, wholesale telecom services aren’t the solution.