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Before I went on vacation, I left a few posts to whet our appetites in anticipation of today’s filing of a report by the Competition Bureau. In “Climbing the ladder of investment” [November 12, 2019], I provided a number of quotations endorsing facilities-based competition from the past quarter century of Canadian regulatory proceedings. In “Do market results rule out the need to mandate MVNOs?” [November 18, 2019], I cited a report from Scotiabank that said “regulators face a delicate act of balancing competition and investment incentives. A wrong move could have years of unintended consequences.”

In its follow-up comments to the CRTC [pdf, 2.4MB and Matrix report, 3.0MB], the Competition Bureau withholds a wholesale endorsement of mandated MVNOs, instead recommending additional measures to support regional facilities-based competitors to derive the greatest consumer benefits. Indeed, the Bureau observed that MVNOs may drive lower prices and greater choice, but also could threaten the “progress in enhancing competition in this industry to date.”

While MVNOs can have positive effects on pricing in the marketplace, they are unlikely to deliver the benefits of sustained and vigorous competition that facilities-based wireless disruptors are capable of providing. The Bureau is concerned that the introduction of MVNOs would disproportionately affect these wireless disruptors, putting at risk the positive effects that they have had on pricing, and may impact long-term incentives to invest in high-quality networks in Canada.

Instead, the Bureau recommended that the CRTC should adopt policies focused on incentivizing and accelerating facilities-based competition from disruptors.” It suggests such measures as mandated seamless handoff, more effective tower sharing and site access rules, and updated roaming rates.

The submission by the Competition Bureau appears to agree with my November 18 post, saying “there are promising signs that policies aimed at promoting facilities-based competition are paying dividends.”

Further, the Bureau wrote “All else equal, facilities-based competition is the most sustainable and effective form of competition.” Further, the Bureau observed “A broad MVNO access criteria may also deliver competition, but at a cost.”

As the Bureau concludes, “[facilities-based] competition has not yet reached its full potential and a mandated MVNO policy applied broadly risks undermining the steps taken by wireless disruptors, without much certainty that the MVNO policy will significantly decrease pricing.”

As I indicated in last week’s post, “Scotiabank believes the filing by the Competition Bureau will carry significant weight.” Rather than supporting the CRTC’s call for mandated wholesale services for MVNOs, the Bureau is endorsing measures aimed at accelerating and expanding competition from existing market participants, thereby promoting a climate that supports continued network expansion and investment. That appears to reaffirm support for a model of facilities-based competition.

A big week ahead for telecom regulatory departments.

The revised schedule for the CRTC’s review of mobile wireless services (TNC 2019-57) are due on November 22, with the oral hearing phase scheduled to begin February 18, 2020. Final submissions in that regulatory proceeding are currently scheduled for March 23, 2020.

A week and a half ago, I wrote about the net new subscriber additions in the past quarter. A few days later, in a November 11 research report, Scotiabank argues that the recent quarter’s financial results released by Canadian mobile carriers are indicators that there isn’t a need for regulators to mandate the establishment of mobile virtual network operators (MVNOs).

According to the Scotiabank Converging Networks research note “the most important part of the proceeding revolves around the question: will the CRTC mandate Mobile Virtual Network Operators (MVNO) access?” Scotiabank believes the decision will be among the most important regulatory rulings since the new-entrant AWS-1 spectrum set-aside in 2008.

According to Scotiabank, the facilities-based competition that emerged from the 2008 decision, giving rise to mobile operators Quebecor (Videotron), Shaw (Freedom Mobile) and Eastlink, “looks sustainable.”

Quebecor has been a wireless facilities-based competitor in Quebec for a decade. Is that not sustainable enough? We estimate the company has now captured approximately 19% market share in the province, and, with its new Fizz brand, the momentum has actually accelerated. We estimate Freedom’s market share of covered population (POP) at just under 10%, and we see share gains continuing, driven by network quality improvement, and supported by network and spectrum investment.

Scotiabank’s research found that Shaw and Quebecor’s combined share of new subscribers has reached approximately 30%.

Wireless key performance indicators show that competition has been rising with a long runway. In particular, all three incumbents’ ARPUs are now in decline and postpaid churn is rising. We believe these trends have been indirectly driven by competition from Shaw and Quebecor. As we noted above, we do not foresee either slowing down until they have achieved their market share objectives, which we believe is in the 20%-30% range of covered POP. At their current market share (of POP covered) and our estimate of the pace of share gains, we believe Quebecor still has another five years before it reaches 25% share and Shaw has 10 years of market share gains ahead before it reaches 20% share.

According to the Scotiabank report, the “real sustainable competition” is expected to encourage Bell, TELUS and Rogers to push forward with investment in 5G as a differentiator. Conversely, Scotiabank warns that “heavy-handed regulation such as regulated MVNOs may drive prices down temporarily, it will likely deter the move to 5G” because of an increased uncertainty of returns on future investment and a higher cost of capital.

We believe the United States offers a good example. Competition driven by T-Mobile and Sprint Corp. has driven Verizon Communications Inc. (VZ-N) to accelerate 5G investments, and, in the case of AT&T Inc. (T-N), to invest in media. While both Verizon and AT&T pursued different strategies, their objectives were similar in that they both pursued investments in areas where they thought would help differentiate against T-Mobile. This was all driven by challengers making network investments to compete against Verizon and AT&T, particularly in the case of T-Mobile.

Scotiabank’s recognizes that regulators face a “delicate act of balancing competition and investment incentives. A wrong move could have years of unintended consequences.” The report discusses a number of these potential unintended consequences:

• Large companies with global scale that are not current telecom service providers could become MVNOs under mandated MVNO regulations.
• Large global companies entering the MVNO market selling wireless services as loss leaders would commoditize and cause a significant decline in prices in the short term, causing investments in next generation network investments to decline in the medium to long term and causing network quality to ultimately suffer
• Smaller facilities-based wireless operators like Freedom, Vidéotron and Eastlink (the same companies that have created the competition over the past decade) are more likely to be affected by MVNOs than the incumbents

But Scotiabank warns “Even if the regulators knew of these consequences, trying to establish further regulations to prevent them may just add further complexity with less regulatory certainty.” For more coverage of the Scotiabank report, see the write-up by Greg O’Brien in Cartt.ca: “Wireless results show mandated MVNO is the wrong way to go, says report“.

A few weeks ago, I discussed important data arising from Statistics Canada’s release of the Internet Use Survey. That study included important information about adoption rates of connectivity and for those who don’t have a smartphone, asking why. In the current CRTC proceeding, will affordability concerns be backed by data?

Submissions are due at the end of this week. Scotiabank believes the filing by the Competition Bureau will carry significant weight. The CRTC’s schedule set January 13, 2020 for parties to reply.

Last night, Innovation Minister Bains released the results of Canada’s auction of spectrum in the 600 MHz band. The government released seven paired blocks of 5+5 MHz, 3 pairs of which were set-aside for facilities-based service providers that were not already operating nationally.

You can find more coverage on the results of the auction on other sites, such as CARTT.ca, but I look to look at these kinds of things from a different angle. All together, the government raised $3.47B which works out to roughly $100 per person in Canada. Scotiabank observed that this was about $600M more than it expected.

Bell did not end up with spectrum from this auction. In its post-auction comments to the media, Bell claimed that it has sufficient sub-gigahertz spectrum, and given that it is shutting down its old CDMA network, there is certainly spectrum available for re-purposing. CARTT.ca quotes Bell’s CTO Stephen Howe saying “Bell looks forward to participating in upcoming federal auctions of the mid band 3500 MHz and high band millimetre wave spectrum that will be required to drive the Fifth Generation of wireless.” This raises an important consideration: antenna sizes, which are proportionate to the wavelengths of the radio spectrum. The wavelength for 600 MHz spectrum is half a meter, 50 cm; the wavelength for 3500 MHz spectrum is about one-sixth that, or 8.5 cm. With the expected increased density of towers needed for 5G, to what extent is antenna size a factor in spectrum deployment?

As I observed last night on Twitter, and as I show in the table above, there is quite a range of prices paid per MHz Pop (calculated by looking at the total price paid divided by the amount of spectrum times the population covered in each license). The opening bid price varied by region (from 13 cents in the far north to 80 cents in more densely populated Southern Ontario and Southern Quebec), but in many cases, the set-aside spectrum was sold for the opening bid price.

Two blocks of set-aside spectrum went unsold in Manitoba and in Northern Ontario, as did one block in each of Newfoundland & Labrador, Yukon, Nunavut, and the Northwest Territories. Xplornet paid about 3 times the opening bid price for its set-aside spectrum, even though its licenses are in regions where the rest of the set-aside spectrum was unsold, or was sold at what appears to be the opening bid level.

How will the auction impact pricing and the level of competition among wireless service providers? What differentiators will emerge? How will the policy makers measure success as an outcome from the sales process? Will any changes be contemplated for the next wave of spectrum to be put up for auction?

A recent CBC story about PEI caught my eye: “Province issues RFP for high-speed internet in rural areas”. The province has launched a new Request for Proposals [RFP pdf, 655KB], seeking “Expansion of Broadband Internet Services across PEI”.

The vision and objective of this RFP is to enhance broadband internet services in underserved areas of the Province. The initiative is intended to address the telecommunication infrastructure gaps that still exist across PEI.

According to the RFP, approximately 31,000 civic addresses are considered to be underserved. The RFP hopes to attract proposals that will improve “access to broadband internet services at speeds up to 50 Mbps for downloads and 10 Mbps for uploads”, clearly aiming at the CRTC’s broadband service objective. It is worth noting that the CBC article incorrectly refers to the CRTC targets as being “mandated”.

How will this new PEI project be paid for?

The funding support models are still under consideration, but will likely involve some award component to build out the delivery network with sufficient capacity, reliability, and scalability to fulfil the RFP objectives… Federal Government funding support has also been explored and may become a component. The [Government of] PEI has advised that the proposed solutions may not move forward without federal funding approvals.

Ten years ago, I wrote a piece (“PEI leads horses”) about the PEI government entering into a contract to make the province the first to have broadband internet service available to 100% of its residents.

At the time, I observed:

Here is the real rub. Despite having some of the highest levels of access to broadband internet, PEI has the lowest adoption of service at only 43%. Well under half the people who could have broadband internet are finding it worth paying for.
…
Policy makers need to look beyond the raw numbers of people who have access to DSL or cable-based broadband. We need to be concerned about the affordability of service to lower income Canadians regardless of where they live.

PEI doesn’t have as much of a problem with broadband access as it has with broadband adoption.

Since that time, broadband service adoption has nearly doubled, reported to be 83% in 2016, according to last year’s CRTC Communications Monitoring Report, moving the province into the middle of the pack, ahead of Saskatchewan, Manitoba, Quebec and Nova Scotia.

Ten years ago, I suggested “PEI may end up being a great case study of how our current approach to broadband access is leading citizens to the fountain without helping them find it worth taking a drink.”

The latest RFP might provide inspiration for development of another study: How many times will governments be called upon to subsidize broadband access projects for the same region?

Are broadband subsidies ever finite?

There were some surprise results when Innovation, Science and Economic Development Canada released the results of the Residual Spectrum auction last week.

Cogeco Connexions paid a little more than $24M to pick up pockets of spectrum in a variety of Ontario and Quebec communities as well as Victoria, BC for a total coverage of about 5.7M people.

Freedom Mobile picked up spectrum in BC and Alberta, covering about 3M people for $8.6M. Xplornet covered 7.5M people for $8.2M, while TELUS picked up spectrum covering New Brunswick and Northern Ontario, reaching 1.6M people for the bargain price of just $900K.

Iristel picked up spectrum in the Yukon for $100K to cover 35,000 people; Ecotel paid $1.2M to reach 1M people in a variety of northern communities.

How will the spectrum be put to use? Will we see enhanced mobile service or more fixed broadband from some of these service providers? In a report issued early this morning, Scotiabank wonders if Cogeco’s spectrum purchase is “a ploy to get Shaw/Freedom or Quebecor/Videotron to negotiate MVNO deals in Ontario and Quebec.” Scotiabank asks if Cogeco might have more leverage with the larger new entrants if there is a threat of an additional company participating in the 600MHz auction, which would increase spectrum prices.

It is interesting to try to understand some of the spectrum purchases. More discussion material for The Canadian Telecom Summit, taking place in less than 2 weeks in Toronto. Have you registered yet?