Search Results for: incentives

The UK telecom regulator, Ofcom, has proposed to revise its guidance on how ‘net neutrality’ rules should apply, indicating that a more nuanced approach may be appropriate given the evolution of broadband technologies and the marketplace.

Since the current rules were put in place in 2016, there have been significant developments in the online world – including a surge in demand for capacity, the emergence of several large content providers such as Netflix and Amazon Prime, and evolving technology including the rollout of 5G. So Ofcom has carried out this review to ensure net neutrality continues to serve everyone’s interests.

Ofcom indicated that “the [current] net neutrality rules constrain the activities of the ISPs, [and] may be seen as restricting their ability to innovate, develop new services and manage their networks.” The regulator considered that this could lead to poor consumer outcomes, “including consumers not benefiting from new services as quickly as they should, or at all. These potential downsides might become more pronounced in the future, as people’s use of online services expands, traffic increases, and more demands are placed on networks.”

The consultation document [pdf, 1.5MB] is 139 pages long, plus an additional 62-page set of annexes [pdf, 917KB].

Ofcom is proposing:

• most zero-rating offers will be allowed;
• ISPs have flexibility to offer retail packages with different levels of quality;
• ISPs can use traffic management measures to manage networks;
• ISPs have more scope to develop specialised services, such as network slicing;
• Ofcom will not prioritise enforcement action where there is clear public benefit, in relation to:
  • the prioritisation and zero-rating of all communications with the emergency services;
  • traffic management of internet services provided on transport;
  • the use of parental controls and other content filters involving the blocking of traffic; and
  • blocking access to fraudulent or scam content.

Ofcom has also proposed additional reporting from ISPs to allow monitoring the effects of the increased flexibility being provided.

Ofcom is also seeking comment on providing greater flexibility for ISPs in certain areas that could generate positive consumer outcomes, but are not permitted under the current legislation, including: allowing zero-rated content to be accessed after a customer’s data allowance has been exhausted; allowing retail offers which guarantee different quality levels for traffic associated with specific content; and allowing greater flexibility to apply traffic management to specific content to address congestion.

Finally, Ofcom has provided views on “the possibility of allowing ISPs to charge content providers for carrying traffic that might lead to more efficient use of networks.”

We acknowledge that in principle there could be benefits to a charging regime, particularly in improving the incentives on CAPs to deliver traffic efficiently. However, we also recognise the difficulties that designing an effective scheme raises, the risks and uncertainty such a change could create, and the unclear impact on consumers. A charging regime would be a significant step and we have not yet seen sufficient evidence that such an approach would support our objectives at this time. We also consider our other proposals provide flexibility that should help mitigate several issues identified by ISPs.

Comments are due January 13, 2023. Ofcom says that it expects to issue its decision and revised guidance by Autumn 2023.

“We want to make sure that as technology evolves and more of our lives move online, net neutrality continues to support innovation, investment and growth, by both content providers and ISPs. Getting this balance right will improve consumers’ experiences online, including through innovative new services and increased choice.”

The public interest for telecommunications is multi-dimensional. Although some lobbyists seem to focus solely on lower prices, government policy needs to balance other factors, like investment in increased coverage, new technology and services, and quality.

Last Thursday, when Minister François-Philippe Champagne announced a new policy direction, there were 3 “associated links” in the press release:

• Order Issuing a Direction to the CRTC on a Renewed Approach to Telecommunications Policy
• Backgrounder: Summary of the Government of Canada’s new proposed policy direction to the CRTC
• Backgrounder: Renewing Canada’s approach to Telecommunications Policy: Context for Action

Much of the focus of media coverage was on the proposed Policy Direction as well as the disposition of the wholesale rates appeal:

We recognize the important balance that must be achieved between the need to invest in our networks and the need to promote continued competition and affordability. The wholesale rates decision made by the CRTC in 2021 is an attempt to correct errors made in 2019, and it makes permanent the rates that have been in force since 2016. The decision provides stability, and the government has determined that it will not alter this decision.

My initial impressions were captured in a blog post, “A new direction for Canadian telecom”.

I noticed that many of the news articles cited language that appeared in the Policy Direction Backgrounder, as opposed to the more moderate language found in the actual draft Order.

There seemed to be less attention on the Context Backgrounder, and as has become usual, that is where I like to focus.

I have talked about a theme of balance that I think continues from Minister Navdeep Bains era 5 years ago, balancing Quality, Coverage And Affordable Prices. A few weeks ago, I observed, “In its rejection of an appeal on the CRTC’s Review of Wireless Services, just last month Cabinet said: “the Governor in Council considers that the Commission’s decision appropriately balances investment incentives to build and upgrade networks, and sustainable competition and the availability of affordable mobile wireless prices for consumers”.”

Nearly two years ago, Minister Bains said Canada’s Future Depends on Connectivity. Generally, last week’s telecom policy announcement promises a framework that continues to balance consumer interests, including the incentives for service providers to make investments that deliver quality services, available to all Canadians.

Policy consistency is important. The context backgrounder leads with details of how these policies have delivered benefits for Canadian consumers:

Canada has benefited from very high investment levels over time, with the private sector investing $11.4 billion in 2020. Canada has consistently been above the Organisation for Economic Co-operation and Development (OECD) average. For example, in Canada the share of telecommunications revenues invested in capital expenditures over time was 30-50% above the OECD average. This has led to high quality telecommunications networks. For example, according to Ookla’s March 2022 Global SpeedTest, Canada ranked 16th out of 142 countries for median mobile speeds, ahead of all members of the G7, and 17th out of 182 countries for median fixed broadband speeds ahead of all members of the G7, except the USA and Japan.

When it comes to the household availability of full fibre networks, in 2020 the household coverage in Canada (49%) was ahead of the US (42%), Australia (16%), UK (18%), Germany (11%), and Italy (34%) and the EU average of 43%. Similarly, when factoring in cable networks, coverage of the faster speeds of 100 Mbps and 1 Gbps are available to 87% and 76% of homes compared to 76% and 51% in European Union countries. Data from OpenSignal shows strong speeds for new Fifth generation (5G) services with Canada ranking 4th in 2021, strong historical coverage of 4G services, and for more specialized application metrics Canadian operators were not among global leaders but above the sample average. Fibre and new 5G services continue to roll out and ongoing investments will ensure Canadians benefit from these and future technologies as they are introduced and deployed.

The subsequent paragraphs, talking about rural service gaps, demonstrate an understanding and appreciation of the challenging aspects of business cases to build in parts of Canada.

The background document provides a market overview and helps to understand the context in which policies are being formed, “promoting more competition, universal access and a more consumer-oriented telecommunications sector in Canada.”

Minister Champagne said “We recognize the important balance that must be achieved between the need to invest in our networks and the need to promote continued competition and affordability.”

This reference to balance, coupled with the Policy Direction’s requirement for predictability, provide important messages of policy consistency.

Have we seen the end of Calvinball in Canadian telecom regulation?

We have seen the expression “sustainable competition” used frequently in Canadian telecommunications policy circles.

In its rejection of an appeal on the CRTC’s Review of Wireless Services, just last month Cabinet said: “the Governor in Council considers that the Commission’s decision appropriately balances investment incentives to build and upgrade networks, and sustainable competition and the availability of affordable mobile wireless prices for consumers”.

The terms “sustainable” and variations like “sustainability” appear 29 times in that CRTC decision.

Which brings us to the Competition Bureau filing with the Competition Tribunal to block the merger of Rogers and Shaw.

As reported by Bloomberg, the application is somewhat “baffling”. According to the Bureau, the merger “is likely to prevent or lessen competition substantially in Wireless Services in Ontario, Alberta and British Columbia.” Further, the Bureau says “divestitures proposed by the merging parties are not likely to alleviate the substantial prevention or lessening of competition from the Proposed Transaction.”

What causes many analysts to scratch our heads is an implicit presumption in the Bureau’s arguments that ending the merger will result in Shaw continuing to invest in operating its wireless business.

The lede in the Bloomberg story captures the issue. “The antitrust case against Rogers Communications Inc.’s takeover of a rival is thousands of pages long but comes down to one core idea: the company it’s buying is too good. Analysts don’t see it that way.”

Effectively, the Competition Bureau appears to be saying that Shaw would never be allowed to sell Freedom Mobile, because there are synergies with Shaw’s wireline business, even though the mobile business wasn’t originally integrated with a wireline company when it launched or when Shaw bought it. That seems pretty extreme. Earlier this week, BMO Capital wrote “We believe an outright rejection of this deal would not satisfy the government’s position of a four-player market (i.e., Shaw will not keep funding wireless, that’s why they sold)”.

The Bloomberg article notes “while Freedom may be a tough competitor, analysts question how healthy it really is. Shaw is struggling to generate much cash flow from it.”

As I wrote on Monday, Brad Shaw told the Parliamentary Industry Committee that the status quo is not an option, as the level of investment required for wireless was beyond the ability of Shaw to undertake. While the Competition Bureau may be correct in saying that Freedom contributed to competition in the wireless market, it does not say how Freedom can sustain its past level of competition if the merger is blocked. Shaw has clearly concluded that it cannot.

This is not a unique occurrence. Market consolidation has been happening, or is under discussion, in the U.S., Europe, the UK, Asia and Australia. One of the reasons for consolidation is that remaining competitive is an expensive proposition. GSMA estimates that the deployment and ongoing costs of 5G will be up to 71% more expensive than previous network generations. If Freedom is to remain a competitive force, additional financial resources are required.

Blocking the merger does not maintain Freedom’s contribution to competition in the marketplace; it weakens it.

New investors have apparently stepped up, enabling the “merging parties” to propose a divestiture. The multi-billion dollar purchase price being reported in the media implies that these potential buyers have developed business plans that are attractive to their investors and are willing to undertake the investments necessary to compete.

The outcome of the merger review process, like the CRTC and Cabinet reviews of wireless services, needs to “balance investment incentives to build and upgrade networks, and sustainable competition and the availability of affordable mobile wireless prices for consumers.”

The Competition Bureau’s position disrupts that balance, risking the long-term sustainability of all market participants.

In its recent rejection of a Cabinet appeal of the CRTC’s Review of Wireless Services, Canada has maintained consistency in its approach to telecom policy, balancing the often competing objectives of extending the reach of networks, delivering world-leading service quality, and affordable prices.

We read “the Governor in Council considers that the Commission’s decision appropriately balances investment incentives to build and upgrade networks, and sustainable competition and the availability of affordable mobile wireless prices for consumers”.

It hasn’t always been that way. Over the past ten years, I have referred to Canada’s telecom policy environment as being like “Calvinball” at least a dozen times. “The only permanent rule in Calvinball is that you can’t play it the same way twice.”

That is hardly the way to provide policy leadership for an economic segment at the core of the digital economy.

In a dissenting opinion a few years ago, former CRTC Commissioner Candace Molnar wrote “Citizens and regulated entities alike deserve a Commission that is fair, predictable, and transparent.”

In upholding the CRTC’s decision, the determination was consistent with an Order in Council from August 2020, which declared, “Canada’s Future Depends On Connectivity”.

At that time, Cabinet said:

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.

Recall that CRTC Chair Ian Scott’s welcome letter, the Ministers of Heritage and of Innovation, Science and Economic Development said “The Government’s objectives are to improve the quality, coverage, and price of services.” 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.”

Consistency in policy and regulation is critical for the investment community. “Citizens and regulated entities alike deserve a Commission that is fair, predictable, and transparent.”

Canadian telecom policy appears to be clear. Canada’s future depends on connectivity.

I wrote “The truth about structural separation” last May, describing the interaction between a Member of Parliament and TELUS COO Tony Geheran during a meeting of the Parliamentary Standing Committee on Industry, Science and Technology (INDU) that took place a year earlier.

Mr. Geheran said, “I haven’t seen [structural separation] work anywhere globally, to sustainable effect,” to which Calgary-Nose Hill MP Michelle Rempel Garner replied, “It’s in the UK, right?”

Mr. Geheran responded, “But if you look at the UK, they are wholesale moaning about the quality of their infrastructure, their lack of fibre coverage. across what is a very small geography. I know. I originated from there. And quite frankly, the Canadian networks are far superior in coverage and quality and performance through COVID has demonstrated that.”

Recently, that committee adopted a report, “Affordability and Accessibility of Telecommunications Services in Canada: Encouraging Competition to (Finally) Bridge the Digital Divide” [pdf, 3.4MB], that had been released by the Committee during the previous session of Parliament. I found it interesting that the Parliamentary Committee report did not recommend studying structural separation, despite a specific call for such a strong competitive safeguard from at least one of the witnesses. However, in its more recent report examining the Rogers – Shaw transaction [pdf, 3.1MB], that same committee suggested studying the matter further:

Recommendation 1: That the Government of Canada launch nationwide consultations to examine the implementation of structural separation in the telecommunications sector between businesses that build infrastructure and those that provide services in order to ensure a level playing field that fosters network development in both cities and rural areas.

As it turns out, the CRTC has already held nationwide consultations that examined proposals such as structural separation. In 2015, as part of its review of wholesale wireline services, the CRTC examined a CNOC proposal to implement an “Equivalence of Inputs” regime, a very basic form of structural separation, “such that any wholesale service offered by an incumbent carrier to a competitor be provided at the same price, quality, terms and conditions, and timescale, using the same systems and processes that incumbent carriers’ use in their wholesale operations to supply their own retail operations”. The Commission rejected the proposal, saying it “would represent an overly intrusive regulatory measure, which would neither be efficient nor proportionate to its purpose“.

As a regulatory measure, structural separation has rarely been used in wireline broadband markets, and only where there is a single dominant network operator. To my knowledge, it has never been used in the wireless industry.

Unlike some foreign markets, in Canada there is no single network with a dominant presence. For example, in the UK, BT agreed to separate its wholesale and retail operations into separate business units after the regulator concluded that it had a natural monopoly over phone and broadband infrastructure in the UK. In other words, if you wanted phone or broadband services, you had to use the BT network.

In contrast, Canada’s wireline and wireless broadband networks are provided by multiple national and regional wireline and wireless service providers. As discussed recently in “Truthiness and Canada’s Telecom Industry”, Canada has the least concentrated broadband market in the G7 plus Australia. Upon which network would separation be imposed?

Just as proponents of mandated wholesale MVNO access have been pushing for a wholesale model that has been tried and largely abandoned elsewhere, proponents of structural separation are pushing another form of regulatory intervention that has fallen out of favour.

As described in Federal Communications Law Journal [pdf, 2.9MB], “Concerns about the potential for such disruptions [in economic efficiencies]–combined with recognition that the more extreme forms of separation potentially are irreversible-have led most regulators to back away from mandatory separation, or to view it as a “last resort,” to be used only in cases of extreme and otherwise irremediable discrimination.” The authors indicate that separation “may discourage the introduction of new networks, thereby reducing economic welfare and harming consumers.” Further, “the available evidence fails to support the proposition that mandatory separation improves market performance, but this evidence does suggest that such a policy leads to reduced levels of innovation and investment.”

Reduced levels of innovation and investment would fail to deliver the Parliamentary Committee’s stated goal of “[fostering] network development in both cities and rural areas”.

Canada needs regulatory policies that create incentives for more investment and innovation, not less.

Structural separation isn’t a solution.

Canada’s future depends on connectivity.