Search Results for: incentives to invest

Telecommunications is a capital intensive business. Both wireline and wireless communications facilities require multi-billion dollar investments to upgrade technologies, extend the reach of networks and expand capacity for ever increasing demand from band-width hungry applications. A challenge for regulatory authorities is protecting consumer interests while preserving an investment climate that encourages investment by multiple market participants

In a recent blog post, former Austrian regulatory chief Georg Serentschy writes about the challenges being faced by European regulators trying to craft a new European Electronic Communications Code (EECC).

the EECC as it is taking shape is emerging as a ‘missed opportunity’ for Europe, threatening to fall far short of its original objectives. Presumably this will lead market participants to adopt a ‘wait-and-see’ attitude, with many not expecting more favourable investment conditions as a result of shifting this parallelogram of forces, through increasing state aid or other components for example.

He asks how regulators should respond to this ‘wait-and-see’ attitude, wondering if Europe should “start with a clean slate and put in place a clear, flexible and highly simplified regulatory framework.” He suggests “Why not dare to make investments in FTTH a matter of agreements under private law, for a limited term and subject to consistent ex-post supervision but completely free of regulation?”

Mr. Serentschy spent nearly a dozen years as CEO of RTR, the Austrian Regulatory Authority for Broadcasting and Telecommunication and was Chair of BEREC, the Body of European Regulators for Electronic Communication. He will be speaking on Tuesday June 5 at The 2018 Canadian Telecom Summit.

As Canada seeks to develop an innovation agenda, a new report [pdf, 6MB] from the MacDonald Laurier Institute warns Canada to avoid Europe’s state-imposed mandates and top-down regulations that have contributed to underinvestment and poor network quality.

The report, “Winners and Losers in the Global Race for Ultra-Fast Broadband: A cautionary tale from Europe,” was authored by Andrea Renda, who is Senior Research Fellow and Head of the Regulatory Policy Unit at CEPS, the Centre for European Policy Studies. He is also a Senior Fellow at Duke University’s Rethinking Regulation Program, based at the Kenan Institute for Ethics.

MacDonald Laurier Institute says the report “demonstrates Europe’s policy of mandatory network sharing has discouraged investment in the continent’s networks and diminished the positive economic benefits that high-quality networks can enable.”

For example, fibre to the premises coverage is approximately double in the US compared to Europe (23 percent versus 12 percent); and overall next generation access coverage reaches 82 percent in the United States versus 54 percent in Europe. Furthermore, telecommunications revenues are dramatically higher in Australia, the US, Switzerland, Japan, Canada, Iceland, and Norway than in EU nations, which all fall below the OECD average.

It warns that “continuing down the European path could lead to a substantial price to pay in terms of growth and jobs.”

As indicated by Renda’s report, the development of broadband communications creates both challenges and opportunities for policy-makers.

• How does public policy create the conditions for high-quality broadband infrastructure?
• How does it ensure market competition and protect consumer interests?
• And to what extent are these objectives in conflict?

Renda says the tension of these conflicting objectives resulted in many governments mandating “network sharing” where the owners of broadband infrastructure are required to grant access to competitors, particularly in the “narrowband” era of lower capacity networks.

But today’s ultra-fast broadband has become an information superhighway on which users can find all sorts of products and services that run “on top of” the network (so-called “over-the-top” services such as Netflix). These services are what users want when they connect to the broadband network; having 10 alternative identical ways to reach the same slow Internet is not going to add a lot of value to end users, especially if competition stifles incentives to deploy better networks, or to ultimately create products or services that highly depend on network speed.

The study investigates the policies most likely to create conditions for a jurisdiction to win the race for leadership in global ultra-broadband connectivity, with significant economic implications. It observes that the experience from Japan and South Korea suggests “a light regulatory touch can create the conditions for private investment in broadband networks and in turn help to produce the digital networks that can serve as the foundation for innovation, digital adoption, and economic growth.”

On the other hand, the study observes that the European Union has largely applied heavier-handed regulation (originally crafted for the age of legacy copper networks), with very different results. “The main takeaway is that Europe’s policy of mandatory network sharing has discouraged investment in the continent’s networks and diminished the positive economic benefits that high-quality networks can enable.”

While the report discusses the impact of the EU regulatory approach on competition, innovation, and investment with exclusive reference to wireline telecommunications, the author states “many of the findings apply also to wireless.”

“The lesson for the Trudeau government is that heavy-handed telecommunications regulations such as mandatory network sharing can lead to underinvestment in digital networks and in turn undermine its broader goals with regard to innovation and entrepreneurship.”

Did the CRTC’s “Review of wholesale wireline services and associated policies” decision in July contain provisions that reduce the incentives for major carriers to invest in advanced broadband infrastructure?

That may be the first major digital economy policy question to be faced by the Trudeau Government’s as yet un-named Minister of Industry. A day after the election, Bell Canada has filed a cabinet appeal of the CRTC’s decision, claiming that Canada position as a broadband leader is being threatened by the CRTC’s wireline wholesale decision, that changes the rules by mandating reseller access to these next generation fibre-to-the-home networks. Bell argues that its investment to date of more than $2.5B enables more than 2M households to access its Gigabit Fibe Internet service already.

Bell’s position in the proceeding leading to the July decision had warned that mandating resale of fibre-to-the-home could lead to:

1. reduced private capital being deployed in fibre-to-the-home infrastructure;
2. fibre-to-the-home going to fewer communities, particularly smaller and rural communities;
3. jobs being lost; and
4. undermining the competitiveness of Canada’s economy .

Why did Bell file immediately after the election?

Under Section 12 of the Telecom Act, a petition for Cabinet review of a CRTC decision must be presented within 90 days. Since the CRTC issued its decision on July 22, the deadline happens to fall on October 20 – today – the day after Justin Trudeau’s Liberals were swept into power. The timing is purely coincidental and should not viewed as a test of the new government.

The CRTC’s decision clearly caught Bell by surprise. Just a month before the release of the CRTC’s decision, both TELUS and Bell announced significant, multi-billion dollar investment plans for fibre to the home projects across the country. These aren’t just sharply enhancing service quality in big cities; Bell Aliant has connected more than 60% of homes in Atlantic Canada to date. And only 2 weeks ago, Rogers announced its plan to roll out gigabit speeds to its entire cable footprint [see “A national gigabit dream“].

In the proceeding leading to the CRTC’s wireline wholesale decision, many smaller ISPs were looking for liberal resale privileges for fibre-based services; the CRTC stated “Increased choice is expected to drive competition, resulting in further investment in high-quality telecommunications networks, innovative service offerings, and reasonable prices for consumers.”

The fundamental question for the government is whether that CRTC determination is sound.

Does price competition from smaller non-facilities-based ISPs increase or decrease the incentives for continued infrastructure investment by facilities based providers?

Bell warns that the CRTC’s decision to favour resale over investment will result in reduced investment in infrastructure in Canada. Its evidence to the CRTC showed that is what happened to Europe, “where policy-makers are now searching for ways to recover.”

Does increased price competition for consumers promote further development of innovative services and investment, as the CRTC states? Are mandated wholesale rules required, or indeed, appropriate, in a marketplace that has multiple wireline and wireless choices for most consumers.

Since the CRTC’s landmark long distance decision more than 20 years ago (a proceeding with which I had more than just a passing interest) the Government, CRTC, and the Competition Bureau have all promoted facilities-based competition as the model to promote, sustainably delivering price, quality, and innovation benefits of competition to consumers.

While the timing of the appeal was driven by the CRTC, not the election of a new government, there are some fundamental policy questions raised in the application that will force the new cabinet to give consideration to how to approach private sector investment in the digital economy.

The Liberal platform said “It is time for smart, strategic investments that will turn our economy around and get it growing again. Our plan will deliver the services we need, create jobs, and restore economic security to the middle class.”

The major carriers in Canada have been making multi-billion dollar investments in strategic infrastructure, without government funding, creating jobs both directly and indirectly. While major centres could still attract fibre-to-the-home investment, Bell has warned there is a risk that the business case for fibre may not be supportable in smaller towns and rural areas under a mandated resale regime.

Under the Telecom Act, the yet to be formed cabinet has until July 22, a year after the original CRTC decision, to “vary or rescind the decision or refer it back to the Commission for reconsideration”. Bell’s application will get the new government to conceive its own digital policy in the next 9 months.

The term “infrastructure” appears 50 times in the Liberal platform. Will the new government want to take the risk that the private sector will curtail billions of dollars of its own investment?

It may be notable that the 2006 Report of Telecom Policy Review Panel was delivered to Stephen Harper’s first Minister of Industry, Maxime Bernier, but the panel was actually created by the Liberal government under Prime Minister Paul Martin and Industry Minister David Emerson in April 2005. That 2006 report called for a fresh review every 5 years, a call that was ignored by the Conservative government. Perhaps the new Trudeau government, in its quest to return to fact-based policy making, will strike a new expert panel to engage in consultations, just 5 years overdue.

I received a note from a researcher in the UK over the weekend who offered an interesting observation about open access initiatives.

The researcher was dismayed with the “lack of objectivity” in recent university branded reports on the state of telecommunications. In the case of the Harvard report commissioned by the FCC, the bias is evident that the report was to endorse an open network agenda.

Unbundling might have been an effective strategy to maximise consumer benefits from the existing copper infrastructure, but it is a positive hurdle to next-generation investment, unless one can set the access pricing formula correctly. And that’s the whole trouble because one can’t.

In the pharmaceutical sector, once a new drug has been developed, it would be better for consumers if the government took that drug off-patent immediately, and allow generics to compete with it. But if the government did that, then it would need to consider the effect on the pharmaceutical sector’s incentives to invest in R&D.;

The warning from abroad: opening next generation networks to mandated sharing could yield short term consumer dividends without appropriate incentives for innovation in the future.

Policy makers may choose to follow that route, but they should do so based on sound economic evidence, not by fiddling with the numbers.

Following up on Monday’s posting about building broadband networks, I noticed Verizon’s comments to the US government about the American broadband stimulus bill speaks in similar terms to what I have been suggesting.

Verizon observed that 90 percent of U.S. households already have access to broadband, and that of the households that have computers, 80 percent of them subscribe to broadband services.

Verizon is calling for the program to focus on extending broadband connections to unserved areas, and addressing demand-side factors that hamper growth, such as many households still lacking a computer.

Verizon took issue with those seeking to attach regulatory conditions to broadband funding:

In order to ensure that the recovery act’s broadband programs do not get bogged down in regulatory wrangling that would undermine quick job creation and economic stimulus, [the government] also should avoid imposing regulatory ‘strings’ or eligibility criteria that will deter participation or otherwise inhibit sustainable broadband investment and job creation.

In other words, keep net neutrality restrictions off this program. Recall that last month, we wrote about the kinds of strings that some wanted attached to funding.

We have a session called Building Broadband on June 15 at The 2009 Canadian Telecom Summit. On June 16, we have a panel looking at Net Neutrality. Have you registered yet?