Search Results for: incentives to invest

Last week, an article in the Globe and Mail called for a reboot of Canada’s digital agenda.

On that headline point, I agree. A reboot may be needed.

As part of a typical reboot process, systems start fresh with clean data, clearing out faulty information. Some systems apply filters to improve the signal to noise ratios. As part of the reboot process, the government should ensure the information being loaded for processing passes error checks.

Unfortunately, I found a few points in the article that would fail error detection algorithms.

For example, in the second paragraph, we read:

The Liberals identified consumer telecom pricing, privacy protection and a modernized internet legal framework as priorities, but have struggled to develop an effective approach. Navdeep Bains, the Innovation, Science and Industry Minister, surprisingly backed a reversal on the affordability of communications services last month and has done little on privacy reform.

There is a little sleight of hand at work in those two sentences. Although affordability and prices are related, they are not the same and the terms should not have been used interchangeably. Indeed, recall from my post in January that a report from PwC found Canada’s telecom services to be the most affordable of all our G7 partners.

Contrary to the article’s assertion, it isn’t true that Minister Bains “backed a reversal on the affordability of communications services last month.” That simply didn’t happen.

The article is apparently referring to last month’s Order in Council responding to a petition to review the CRTC’s wholesale rates Order of August 2019. Minister Bains explicitly said “Canada’s future depends on connectivity,” and indicated that Cabinet was concerned the CRTC had not balanced the objectives in a manner consistent with the government’s priorities. Minister Bains specifically chose not to act at this time, recognizing that the CRTC was already reviewing its decision. Instead, the Minister more clearly indicated the policy of the government. That is precisely what the government is supposed to be doing.

The government’s telecom policy has never had a single-minded focus on price. As I wrote a couple weeks ago, for years now, Minister Bains has consistently spoken of 3 priorities: Quality, Coverage, and Price. Price is just one element. Last month’s Order in Council should be recognized for helping guide the regulator through the challenges of balancing the policy objectives.

Look at the language of the Order in Council:

• “the Commission… is bound… to exercise its powers and perform its duties with a view to implementing the Canadian telecommunications policy objectives and in accordance with any orders made by the Governor in Council”
• “improved consumer choice and competition, further investment in high-quality networks, innovative service offerings and reasonable prices for consumers”
• “considers that the final rates set by the decision do not, in all instances, appropriately balance the objectives of the wholesale services framework… and that they will, in some instances, undermine investment in high-quality networks.”

The Order in Council sought to clarify the need for maintaining the balance.

Indeed, the Globe article itself acknowledges that “fast internet access is a must for all Canadians”, as we have all seen over the past 6 months of being home-bound. Unfortunately, the reader of the Globe article is left without an understanding of the tension between the objectives of quality, coverage and price.

Around the world, we can see what happens when low prices constrain investment, or what I have called the “high cost of low prices”.

The message from Cabinet was clear.

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.

This should not be viewed as a “reversal on the affordability of communications services.” Instead, as should be evident to most Canadians over the past 6 months, the pandemic has helped elevate awareness in the importance of Quality and Coverage, the other two legs of the Minister’s priorities. The government called for improving the balance to preserve incentives for investment, the key input to ensure Canadians have access to world leading network quality, covering urban and rural areas.

The vast majority of investment in networks – rural and urban, wireless and wireline – the overwhelming majority of capital investment in Canadian networks comes from the private sector, not government. While governments support and supplement network investment by carriers, large and small, governments do not (and generally should not) supplant private sector investment. An approach based on strategic, targeted support helps to ensure a greater reliance on market forces to achieve the objectives of Canada’s telecom policy.

As Cabinet understands, in many cases support for private sector investment does not require cash as much as it requires a policy environment that encourages investment. Cabinet more clearly understands the economics the drive network investment, as I discussed a few weeks ago in “The economics of broadband expansion”.

The Globe article also seems to be confused between judicial appeals and cabinet appeals of regulatory decisions. The article says “the government’s approach seems particularly troubling given that the Federal Court of Appeal last week upheld the CRTC decision.” In reality, this should not be troubling at all; there is no linkage between the two appeals.

In fact, the ruling of the Federal Court of Appeal itself answers the concerns that the article finds “troubling”. As stated by the Court at paragraph 23:

[23] Significantly, neither section 62 nor subsection 12(1) circumscribe the types of questions that may be raised before the CRTC or the Governor in Council. This stands in contradistinction to the prescription in subsection 64(1) that limits this Court to reviewing questions of law or jurisdiction.

The Court is limited to ruling only on “questions of law or jurisdiction” while there are no limits on the scope of issues that may be raised in appeals to Cabinet (the “Governor in Council”) or the CRTC. So, it is completely consistent for a Court to find no fault with questions of law or jurisdiction, but have Cabinet to take issue with a CRTC decision on the basis of matters of policy.

There are valid concerns raised about delays in launching new broadband funding programs and we have unfortunately squandered 3 months of prime broadband construction season in failing to implement what I described as “An easy way to increase rural broadband speeds”.

Looking forward, we need serious discussions on the role of government in implementing the recommendations of the Broadcast and Telecom Legislative Review and updates to other areas impacting the digital economy.

But we need to make sure that when the government does its reboot, it carefully examines the data being input for processing. Much of it needs error-checking.

What does it mean to act in the public interest for telecommunications?

Does it mean working to get Canadians universal access to the fastest internet speeds? The lowest prices? The greatest coverage? All of the above?

There are few people who would say they oppose lower prices, faster speeds or improving coverage. In his remarks opening The 2017 Canadian Telecom Summit, Minister Bains said:

our government understands that Canadians want three things from their telecom services.

• Quality. Is the service fast enough to do what I want it to do?
• Coverage. Is the service available where I want it to be?
• and lastly, Price. Is this service affordable?

These three areas are clearly where providers need to compete and that’s why our Government is doing our part to promote competition and investment. The goal is very clear. We want to improve quality, coverage and price for all Canadians.

There is a tension that ties these together. Quality and coverage each require capital investment, which in the Canadian context is measured in billions of dollars each year. Canada has achieved world leading quality scores for our mobile and fixed line networks. The overwhelming majority of Canadians have access to the latest generation of wireless technology, delivering the fastest speeds in the world.

The Minister carefully defined “Price” as offering service at an affordable level. An affordable price is not necessarily the same as the lowest price. PwC recently looked at Canada’s mobile affordability and described its analytic process in concluding “Canadian mobile services top G7 affordability ranking”:

To provide a holistic view of wireless affordability in Canada, this report examined a number of aspects related to the overall affordability of consumer wireless in Canada, including:

1. The changing pattern of household expenditures, as wireless data use is enabling a different delivery of products and services – including the substitution of select historic spend categories by wireless.
2. The assessment of wireless affordability in Canada, as measured by recognized affordability metrics.
3. The affordability of wireless services for Canadians in proportion to their income relative to other jurisdictions.

As I concluded at the time, “We need to focus on strategies to drive “demand”: increasing adoption rates among groups that could subscribe, but have not. That is a problem across all geographies, and perhaps more pronounced in urban markets. That should start with developing a greater understanding of those individuals and households on the wrong side of the digital divide.” Last week, I wrote more about “Using evidence to solve the digital divide.”

The third leg, coverage, is a real challenge. Many countries define regions as “rural” in terms of population densities that Canada considers to be “suburban”. Not only are there remarkably low population densities in some areas, but some of these are in extremely harsh geographies or so far north to be difficult for equatorial geostationary orbit satellites to “see”. Other underserved areas are close to high quality networks but located just beyond the economic reach of existing service providers. These households are perhaps the most frustrated, and understandably so.

In some cases, it means direct subsidy to offset the uneconomic costs associated with building to an area. Government subsidy programs only amount to a fraction of the level of investment required to extend coverage to unserved and underserved areas. The balance comes from the private sector.

The challenge is how do we create the right environment to incent investment. In some cases, there can be policy incentives, ranging from simplifying approval processes, making available government owned (or government controlled) passive infrastructure, or changing regulatory disincentives. It is important to understand that the current regulatory and financial conditions do not support the business case for extending service to other regions. To incent investment, there has to be an increase in top line revenue or a reduction in costs. Some of these levers are within the control of regulators and policy makers.

Acting in the public interest involves balancing priorities to achieve an optimal outcome. It isn’t all about price. As a nation, we can use targeted subsidies, or programs like Connecting Families to aid with affordability.

It takes a certain level of intellectual maturity to understand that reaching an optimal balance of Quality, Coverage, and Price is a challenge in the Canadian environment. There are trade-offs and prioritization required, especially in these difficult economic times with extraordinary and shift demands for connectivity.

Ultimately, the responsibility for determining the policy priorities rests with the government. Given the response to the pandemic, it is understandable that the federal Cabinet decided Canada’s future depends on connectivity.

How does this shift the equilibrium between Quality, Coverage, and Price?

“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.

Final comments for the CRTC’s Review of Wireless Services consultation were submitted last Wednesday evening and the file is now in the hands of the Commission for determinations on whether to mandate MVNOs as well as a host of other issues.

Going into the hearing, the CRTC’s Notice of Consultation set out a preliminary view [at ¶39]:

that it would be appropriate to mandate that the national wireless carriers provide wholesale MVNO access as an outcome of this proceeding. The Commission considers that, on balance, it is likely that the benefits that a well-developed MVNO market would deliver to Canadians are now more likely to outweigh any negative impacts that a policy of mandated wholesale MVNO access might have on wireless carriers’ network investments, particularly given the extensive investments that have been made in recent years. Further, properly structured rates, terms, and conditions should further mitigate potential negative impacts on future investments.

However, 2 months ago, the CRTC re-opened the evidentiary record, asking parties to comment on a new interrogatory:

Does the ongoing situation with respect to the Covid-19 pandemic change the views you have previously put forward on any of the issues being examined in this proceeding? Explain why or why not with supporting rationale and evidence, as necessary.

What significance should we place on the Commission’s May 15 letter? To what extent, does the letter reflect an understanding at the Commission of the significant change in circumstances, that could change its preliminary view on the potential impacts on network investment? Or conversely, was the Commission papering the record, preparing a preemptive defense against a future appeal on the basis that it didn’t consider the change in circumstances?

The importance of maintaining incentives for investment figures prominently in the final comments submitted last week.

The Competition Bureau’s comments open with “This proceeding is more important than ever for consumers, businesses and the Canadian economy. The COVID-19 pandemic reinforces the need for robust competition in the wireless sector, to drive the provision of ubiquitous, high-quality wireless networks that are accessible and affordable for all Canadians.”

TELUS’ comments open with, “COVID-19 demonstrates the fundamental importance of network connectivity.”

Bell worked its way up to the subject, using 4 introductory paragraphs before stating “It [mandated resale] 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.”

For Rogers, the COVID-19 factor was midway through the executive summary:

It is critical that regulatory policy continue to take a long-term view. Canada will require substantial ongoing investments to improve productivity, maintain its competitiveness globally, and to realize the promise of 5G. The importance of ongoing investments in high quality, resilient broadband networks across Canada, and of extending these networks to remaining and underserved areas of Canada, have been dramatically underscored by the current COVID-19 crisis. The ongoing COVID-19 pandemic has heightened awareness of the critical importance of our wireless networks to Canadians and the Canadian economy. Canada’s networks have performed among the best in the world during this unprecedented time. Mandated wholesale access to mobile wireless networks will significantly undermine incentives, and the ability, to invest going forward, jeopardizing Canada’s recovery and future success.

In the second paragraph of its final comments, Shaw warns against “artificial support for resale models that would destroy the economics of competitive investment”:

As this proceeding draws to a close, the world continues to struggle with the COVID-19 pandemic, which has illuminated the power and importance of robust, resilient and competitive telecommunications networks. These networks, and the investment capital that sustains and nourishes them for the future, cannot be taken for granted. New competitors like Shaw have invested many billions of dollars in spectrum and new wireless infrastructure that form our footing in the fight for sustainable competition. We are not done.

Videotron’s introduction to its executive summary is entitled “Introduction – les leçons de la crise COVID-19”, concluding the introduction with “Compte tenu de ce qui précède, il nous apparaît évident qu’il est dans l’intérêt national de maintenir une approche de réglementation privilégiant la concurrence axée sur les investissements.”

In its comments, CWTA was more reserved, deciding to close its executive summary with the COVID card: “As Canada emerges from the health and financial crisis caused by COVID-19, the wireless industry will play an important role in Canada’s economic recovery. The demand for high-quality, reliable wireless services will continue to grow.”

Even the potential new entrants put COVID front and centre. In the second paragraph of Cogeco’s submission, we read “This need [investments in all types of telecommunication infrastructure] is now even greater, as society has shifted many location-based activities (work, shopping, cultural activities, etc.) online in response to the current COVID-19 pandemic.”

DOT Mobile’s first paragraph opens “The ongoing COVID-19 pandemic has made acute the needs of the underserved Canadians who must rely on communication services more than ever. The underserved are now faced with severe impacts from the pandemic, such as a decrease or complete loss of income, reduction of job opportunities or mental health issues caused by COVID-19 induced stress, social distancing and solitude.”

Teksavvy said “Covid19 has brought an additional urgency to the completion of these proceedings. It has revealed how people rely on general network connectivity, as well as exposing gaps in that connectivity caused by the incumbents’ profit-seeking behaviour.” I’m not sure I understand the implicit pejorative nature of “profit-seeking behaviour”, but I am equally unclear how Teksavvy believes reductions in revenues and profits will help close those connectivity gaps.

The Coalition for Cheaper Wireless Services said in its opening paragraph “The COVID-19 pandemic has only increased Canadians’ individual
technological dependency.”

This is just a small sampling excerpted from the final comments submitted Wednesday night.

It is clear that COVID-19 is the wild card in the CRTC deliberations. What is less clear is whether the CRTC has been swayed from its preliminary view favouring mandated MVNO, despite explicitly recognizing the “negative impacts that a policy of mandated wholesale MVNO access might have on wireless carriers’ network investments.”

We’ll share more in the coming days.

Perhaps more than ever before, the availability of universal on-line connectivity has been a prominent part of the public conversation. With people stuck at home, awareness of the digital divide has never been more profound.

It is worthwhile taking a look at intermediate successes that should be celebrated. We should take the time to understand the significance of factors that lead to success, to see if we can replicate them in other areas.

Canadian carriers’ investment in mobile wireless has resulted in Opensignal declaring last month that Canada has the world’s fastest mobile networks. A follow-up Opensignal report tells us that “rural users in Canada on the networks of Telus, Bell Mobility and Rogers have download speeds that surpass those experienced by users in most countries.” Indeed, the report continues, saying “rural Canadian users have far better download speeds than users in five of the seven G7 countries in the world.”

While there is more work to be done in 4G availability in rural markets, Opensignal indicated that rural 4G access climbed to nearly 90%, up to 10% higher than last year.

Canada’s policy framework favouring facilities-based competition in mobile services has delivered world leading network quality, in urban and rural markets.

How do we make sure that all Canadians have access to reliable, high-speed fixed communications, including voice and high speed internet?

How should the various levels of government create the right policy environment, policies, stimulus and incentives to accelerate investment programs in un-served and under-served markets?

Still, at the end of the day, it takes more than technology to get everyone online. Universal adoption needs universal access and universal demand. Most government programs have targeted the denominator side of the equation, without sufficient focus on the numerator.

It just takes money to stimulate supply. And that over-sized ceremonial cheque makes for a great photo op.

Stimulating demand is a lot harder.

We need to start working harder at doing that hard stuff.

Statistics Canada data shows that household computer ownership has stagnated at 84-85% since around 2013. Indeed there are apparently more households that have internet service than those with computers.

Do we understand why?

What steps will we take to address the needs of Canadians who have access to affordable services, but still have chosen not to adopt digital connectivity.

As I have written before, “A national broadband strategy needs leadership to understand and deal with concerns and fears that may inhibit adoption. It will take more than technology to get everyone online.”