Search Results for: affordable

Just how fast is fast enough for broadband?

I last wrote about this 3 years ago, challenging the myth that universal fibre should be on the national agenda.

A couple of weeks ago, the FCC launched an inquiry [pdf, 155KB] to examine that question. The FCC intends to look at “universal deployment, affordability, adoption, availability, and equitable access to broadband”. The FCC Chair, Jessica Rosenworcel says the intent is to update the US broadband standard (currently 25Mbps down, 3Mbps up) to 100/20 and set a long-term goal for gigabit speeds.

The FCC Chair said that the 25/3 standard “is not only outdated, it masks the extent to which lowincome neighborhoods and rural communities are being left offline and left behind.”

However, FCC data shows that 94% of US households had 100 Mbps access available by the end of 2021. According to Eric Fruits of the International Center for Law & Economics (ICLE), “If the FCC wants to increase the number of households with 100/20 Mbps speeds, it should recognize that much of the gap is driven by lower rates of adoption, rather than a lack of access to higher speeds.”

That is a familiar refrain for my readers. “The problem of increased broadband adoption can’t be fixed directly by throwing money at it, but we need to undertake more serious research into those factors that stand in the way of people subscribing to broadband.”

A September brief from ICLE was entitled “Finding Marginal Improvements for the ‘Good Enough’ Affordable Connectivity Program”. ICLE found that “about two-thirds of households without at-home internet have access, but don’t subscribe. The brief argues that, for households without a broadband subscription, their smartphone internet service may provide a superior “bang for the buck” relative to fixed broadband.”

Just as mobile devices have become a substitute for wireline home phones, we need to examine the extent to which smartphones and mobile services are substitutes for home internet connections.

In 2021, Pew Research found that 19% of respondents said the most important reason for not having broadband at home is that their smartphone does everything they need to do online. That study found that 15% of US adults are “smartphone-only” internet users – that is, they have a smartphone, but do not have a home broadband connection.

What is the best approach for encouraging continued broadband investment?

Do regulators need to raise targets? CRTC data shows that more two thirds of Canadian broadband subscriptions were already at speeds of 100 Mbps or higher, well above Canada’s broadband objective. Ninety percent of households had access to 100 Mbps service by year end 2021; more than three quarters of Canadians had access to gigabit speeds.

When there is demand for higher speeds, doesn’t this demonstrate companies will make the necessary investments? As I have said many times before, the future can be brighter for Canadian innovation and investment if the government would try harder to get out of the way.

A report from PwC Canada takes a new look at the state of telecom affordability in Canada.

According to “Understanding the affordability of wireless and wireline services in Canada” [26-page pdf, 7.7MB] focuses on assessing three elements of Canadian telecommunications affordability:

1. Canadian economics statistics, including telecommunications expenditure, inflation, and changing incomes.
2. The assessment of wireless and wireline affordability in Canada, including assessing the changing prices of wireless and wireline services over time relative to increases in data consumption and changing patterns of data usage.
3. The affordability of wireless and wireline services for Canadians against consumption and income metrics relative to global jurisdictions.

What did PwC find?

• Canadians have been impacted by inflation, with inflation in 2021 and 2022 surpassing the rate of income growth. Prior to 2021, incomes were growing faster than inflation for every quintile except the highest.
• Between 2017 and 2021, cellular services was the second largest CPI drop among the only 13 deflationary goods and services in the CPI bucket, falling at a CAGR of 8.1%. Driven by the decrease in cellular service CPI, communications was also a deflationary service, with communications CPI falling by 16% from 2017 to 2022.
• Affordability increased for all quintiles when assessing the cost of entry-level wireless and wireline plans against adjusted disposable incomes. Notably, for the lowest income quintile, the affordability of entry-level wireline plans improved by 11% between 2017 and 2021, while wireless affordability improved by 39%.
• The price per gigabyte of wireless and wireline data fell by over a 19% CAGR in Canada from 2017 to 2021. This is attributed to increases in data consumption significantly outpacing changes in prices, with data consumption growing at CAGRs of 24% for wireless and 28% for wireline. Among selected international peers, Canada has the second-lowest cost per gigabyte of wireline data.
• The affordability of wireless and wireline services in Canada is on par with peer countries. As the CPI of Canadian communications has dropped, it has brought the price of services in line with international peers as a percentage of income, indicating relative affordability.
• Together, the Canadian market and international analyses demonstrate that facilities-based competition in Canada is able to maintain a healthy telecommunications industry while delivering on network coverage, quality, and affordability

Earlier this year, I wrote, “Affordability is a complex and multifaceted concept that varies depending on the context and the goods or services being considered.”

The report looks at telecom affordability across various income quintiles, but it did not explicitly include a discussion of targeted affordable services such as the industry-led Connecting Families initiative. It is worth noting that Rogers recently introduced its Connected for Success 5G Wireless Program, promised as a benefit of the Shaw acquisition, and it has rolled out its broadband Connected for Success to the former Shaw footprint. TELUS offers Mobility for Good, among other targeted services, as I have described.

The PwC report lays out a fact-based narrative on telecom affordability in Canada, and paints a very different picture from the conventional wisdom.

This decision helps to promote access to affordable telecommunications services for Canadians and to foster sustainable competition and continued investment.

That was how the CRTC summarized its decision last night on final offer arbitration between Bell Mobility and Quebecor for wholesale mobile virtual network operator (MVNO) access rates.

The decision was notable for a few reasons:

• A focus on creating and maintaining incentives for investment;
• Fostering “sustainable competition”, which has historically been CRTC and Competition Bureau language for “facilities-based competition”;
• Clarifying that the wholesale framework is not intended to guarantee profitability for wholesale-based service providers;
• The CRTC explicitly discounted the usefulness of comparisons to European rates;
• Recognition that average network costs don’t support investment in suburban and rural infrastructure.

The Bell – Quebecor decision should be read in the context of a similar arbitration between Rogers and Quebecor released by the CRTC nearly two months ago. In the earlier instance, the CRTC required Rogers to offer a wholesale service at rates acknowledged to be below Rogers’ costs. The CRTC said Rogers’ shortfall could be made up “through other telecommunications services”. The Rogers decision has been appealed to the courts because of the precedent-setting nature of wholesale rates being set below costs.

This week, the CRTC selected Bell Mobility’s offer.

The Commission clearly accepted the concern that wholesale rates impact the incentives for investment by both parties.

49. Nevertheless, the Commission considers that Bell Mobility has raised a valid concern regarding the long-term impact of artificially low wholesale rates on the policy objective of fostering network investments, which is particularly relevant in suburban and rural areas. While lower retail prices backed by lower wholesale rates are desirable, as discussed earlier, these different interests must be balanced with the wholesale MVNO access provider’s incentives for continued network investment. Accordingly, the Commission is of the view that Bell Mobility’s offer best strikes the balance of maintaining both parties’ incentives to invest.

The CRTC said “the MVNO access framework is not intended to guarantee a risk-free profit margin for [Quebecor’s] MVNO operations, and QMI’s ability to compete should not be assessed by looking at only the profitability of specific plans, but rather by looking at all of the wireless plans it offers.” While the CRTC wants to see lower-priced plans, it also needed to consider the potential negative consequences of lower rates on sustainable competition, and incentives for investment.

The Commission referred to the controversial cross subsidization aspect of the Rogers – Quebecor arbitration decision in this Bell – Quebecor determination, saying “that it does not necessarily have to ensure that costs are recouped over the short term for a rate to be considered just and reasonable, fair compensation for the wholesale MVNO access provider is still an important consideration in evaluating offers”.

Quebecor had asked the CRTC to compare Canadian wholesale rates to those found in Europe. The CRTC clearly stated European wholesale roaming rate structures “have very limited comparative value given the different contexts in which European and Canadian carriers operate, resulting in different cost structures.” Many Canadians have fixated on international comparisons that have such “limited comparative value” precisely because of the “different contexts in which European and Canadian carriers operate”. It was somewhat encouraging to see the CRTC explicitly discount such comparisons.

Finally, the CRTC seems to have given weight to the argument that wholesale-based service providers have uneconomic arbitrage opportunities when average rates are applied for urban, rural and suburban traffic. Such rate structures create incentives to build urban facilities but create a disincentive for investment in suburban and rural areas. “Bell Mobility submitted that, on average, a rural cell site costs more to build, while serving less data volume, than an urban one, resulting in higher costs per GB.” As Scotiabank observed in a research note this morning, Quebecor’s favourable MVNO deal with Rogers will result in Bell’s network being used only in areas where Rogers isn’t as strong. This would result in a disproportionate level of wholesale traffic running on rural and suburban while leading to disincentives for either party to invest.

Fostering sustainable competition and continued incentives for investment are clear themes of this wholesale wireless rate decision. To what extent does it provide clues for the way the CRTC will approach revisions to the wireline wholesale framework?

How do we encourage universal broadband connectivity?

In Canada, government funding programs have focused on stimulating access to broadband. Canada’s regulator has been tracking its objective for every household in Canada to have the ability to subscribe to a broadband connection with 50 Mbps down, 10 Mbps up and unlimited download by the year 2031.

In my post a few weeks ago (“Digital inclusion”), I wrote that it is one thing to have broadband available at every doorstep in Canada, it is something very different to get people to actually subscribe. Last week, I noted some of the research that is helping to understand the non-financial factors that are inhibiting broadband adoption.

It is worth highlighting a recent paper from the Information Technology & Innovation Foundation (ITIF), “Enabling Equity: Why Universal Broadband Access Rates Matter”.

High rates of broadband adoption benefit all of society, yet those who stand to benefit the most are also least likely to be online. Pushing hard for near-universal connectivity is crucial if we want technology to help bridge, rather than widen, existing divides.

The key takeaways in the report resemble themes common on these pages:

• High broadband connectivity rates are positively linked to factors such as GDP growth and stability. They enable jobs, promote resiliency in the face of disasters, and support the massive and growing digital economy.
• Huge online marketplaces of every stripe are subject to network effects: They become more valuable to every user the more users there are. For all these reasons, increasing connectivity rates is broadly beneficial.
• Broadband enables cheaper, more convenient access to critical resources such as health care and government programs, so people with the fewest resources are often the ones who stand to benefit the most from being connected.
• From every angle, getting offline groups online—and aiming for as close to universal connectivity rates as possible—should be a policy priority.
• Doing so requires both completing deployment and increasing adoption rates.

It is notable that broadband subsidy programs in the United States are funded by the US Government, not by the carriers. A White House press release in February estimated that as many as 40% of US households could qualify for subsidies. “Over 16 million households now saving $500 million per month, thanks to the Affordable Connectivity Program (ACP)”.

Such a broad program of subsidies would not be sustainable if funded by the carriers themselves.

The ITIF report’s list of key takeaways concludes with a call for Congress and the administration to “sustain funding for subsidy programs such as the Affordable Connectivity Program (ACP), build economic impact analyses into them, and survey households that remain offline.”

ITIF recognizes that it will take more than low cost broadband to get every household online.

Canada’s communications industry has stepped in to provide the social services support for disadvantaged households where other jurisdictions rely on government funding. It is notable that NorthwestTel recently filed a proposal with the CRTC to offer deeply discounted broadband services to disadvantaged households.

Targeted offers of lower rates aren’t enough to drive universal broadband connectivity. But, these programs are an important part of the solution.

How do we develop a more holistic approach to connect the unconnected?

As we near completion of the job of bringing a broadband pipe to every household, what will encourage everyone to drink from that fountain?

Digital inclusion needs more than just money.

Like many countries around the world, various government departments and agencies in Canada allocate funding to support building affordable broadband access facilities. We have a national target: for every Canadian to have the ability to access a broadband service with speeds of at least 50 Mbps down, 10 Mbps up and unlimited data. The goal is for such universal access to be available by the year 2030. Simple enough.

It is a formidable engineering challenge to get broadband connections to every household in Canada. But, it is a solvable challenge.

On the other hand, it will take multi-disciplinary efforts to try to get every Canadian to actually make use of the broadband services at their doorstep. And it isn’t clear to me that we will.

In 2016, Canada set an intermediate target for 90% of Canadians to have access to 50/10 unlimited service. The CRTC shows this milestone was achieved with 91.4% having access at the end of 2021.

Despite the relative simplicity of the objective, it is often misunderstood. Some people think the objective is for everyone to subscribe to a service with at least 50/10 speeds. As a result, we have seen people look at community speed tests and conclude that observed average speeds below 50/10 demonstrate shortcomings in infrastructure. That simply isn’t true. Some people may choose to subscribe to a lower tier of service. As well, many speed tests are unable to measure the speed of the service being delivered to the home.

According to the latest Canadian Internet Use Survey, 94% have an internet connection at home, and of those, roughly 7 out of 8 subscribe to a service with speeds exceeding 50 Mbps down, 10 Mbps up.

Among Canadians under the age of 45, 99.2% report using the internet. That declines to 82.6% among Canadians over the age of 65. Still, that is up from 76.3% just two years earlier.

While most government programs are designed to stimulate supply, I’d like to focus on digital inclusion. How do we stimulate demand for broadband? How do we encourage people to subscribe to broadband, and to increase their use of digital services?

A recent report from the Information Technology and Innovation Foundation (ITIF) calls for “dramatic reforms to old [broadband] programs” in the United States. “Federal broadband subsidy programs are a mess of redundancies and have spent too much money to have failed to close the geographic digital divide.”

Earlier this week, the FCC announced [pdf, 168 KB] that its Affordable Connectivity Program has connected more than 20 million households. Still, according to ITIF, “Subsidies alone will never close the whole digital divide. Individuals will have nonfinancial reasons for not connecting, which will require targeted digital inclusion efforts, not just spending more money.”

As we have discussed before, studies show that low prices aren’t enough to get people to sign up.

Canada continues to make significant progress ensuring all Canadian households have access to a broadband connection. However, building broadband access is only part of solution for digital inclusion.

We need more multi-disciplinary research to understand and solve the non-price factors inhibiting people from connecting to broadband services that are at their door.