Search Results for: affordable

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.

Affordability of telecom services is a major theme in the CRTC’s review of telecommunications in the far north. The far north is one of the only areas where broadband service is price regulated, and prices in many areas are substantially higher in the north than consumers typically pay in urban areas. Of course, prices for virtually everything are substantially higher in the north.

For more than 15 years, I have been writing about the relationship between income and the adoption of computers and broadband, observing as early as 2008 that the rate of adoption of broadband are as much an issue of getting computers into households as it is an issue of affordability of telecom services.

Economists typically define affordability as the ability of individuals or households to purchase or access goods, services, or resources without undue financial burden or hardship. Various measures of affordability relate costs to a personal (or household) income, expenses, and financial situation.

There are various ways to measure affordability, depending on the context. Some common methods include:

• Income-based affordability: This approach measures affordability by comparing individual (or household) income to the cost of a particular good or service. For example, a common measure is the “housing cost-to-income ratio,” calculating the proportion of household income spent on housing costs such as rent or mortgage payments.
• Expense-based affordability: This approach measures affordability by considering overall expenses for an individual (or household) in relation to income. It takes into account not only the cost of a particular good or service, but also other expenses such as transportation, utilities, food, and healthcare.
• Relative affordability: This approach compares the affordability of a good or service across different groups or locations. For example, economists may compare the affordability of housing in different cities or countries by looking at factors such as median incomes, housing prices, and cost of living indices.
• Subjective affordability: This approach takes into account perceptions of affordability. It may involve surveying individuals or conducting qualitative research to understand their subjective experiences and perceptions of affordability, including their ability to meet their basic needs, maintain a certain standard of living, or achieve their financial goals.

Affordability is a complex and multifaceted concept that varies depending on the context and the goods or services being considered. Economists may use one or a combination of these approaches to assess affordability in different situations. Policy makers must rely on such measures to inform policy decisions related to income redistribution, social welfare programs, or market regulations, especially as the CRTC considers acting as an agent to provide social welfare subsidies for telecom services in the north.

In a 2015 report [pdf, 2.1MB], the Public Interest Advocacy Centre (PIAC) said “We suggest that communications services are “affordable” where, as a guideline, they make up about 4% to 6% of a household’s income.” In 2017, PIAC found that low income households considered home internet to be equally important as health care.

At the hearing on telecom services in the Far North, NWTel announced that it will be joining Connecting Families, an industry-led program to bring affordable broadband services to the most disadvantaged households. Connecting Families provides 50 Mbps (down) / 10 Mbps (up) speed service for just $20 a month to families receiving the maximum Canada Child Benefit or low-income seniors receiving the maximum Guaranteed Income Supplement. There is also a 10/1 service available for just $10 per month.

Too many people confuse affordability with the overall desire to lower prices across the board. We all want lower prices for everything. The best approach for affordability of telecom services is to target help to those who need it most, with programs like Connecting Families.

A recent study by UK regulator Ofcom found that half of those eligible were unaware of “social tariffs” that could reduce household broadband rates by about £200 per year for millions of households.

Savings opportunities for eligible Canadian families are even greater than in the UK. But, the industry, including service providers, policy makers and the regulator, may need to develop partnerships with trusted community groups and social service agencies to understand (and overcome) the reasons why some households are not adopting broadband, even at deeply discounted pricing, with services priced well below costs.

It isn’t enough to make affordable broadband service available to targeted communities. Collectively, we need to make sure people actually get online.