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5G and Canada’s digital economy

In November, PwC released a series of reports on “The importance of 5G and the digital economy in Canada”:

  • 5G, the digital economy and Canada’s global competitiveness [pdf, 1.7MB]
  • The evolution of Canada’s telecom industry and the growing digital economy [pdf, 3.0MB]
  • The importance of 5G and the digital economy in Western Canada [pdf, 2.1MB]

As PwC notes, the past two years of life under the cloud of the COVID-19 pandemic have accelerated several trends associated with a transition to a new economic model, such as increasing demand for digital connectivity and greater adoption of digital processes by businesses and households.

PwC promotes the need to have a healthy domestic telecommunications sector to support the deployment of 5G, saying “jurisdictions where network operators were in poorer financial health had slower deployment and adoption rates.” PwC invites readers to read the first report for a discussion on the digital economy and implications on Canada’s global competitiveness associated with delays in 5G deployment. In that report, we read how the competitive landscape is being reshaped for mobile operators by hardware, software and service providers. PwC asserts that Canadian mobile network operators (MNOs) are “sub-scale relative to multinational digital economy players, whose business models are enabled by connectivity but do not invest in network infrastructure.” Further, PwC expects technological disruptions over the coming years from Low Earth Orbit satellites providing broadband internet, and the introduction of embedded SIM (eSIM) technology that “could be used by equipment manufacturers to disintermediate telecom operators.”

The second report makes four main points:

  1. The telecommunications industry is a core enabler of the digital economy;
  2. Canadian MNOs are relatively small compared to international peers, suppliers and new competition;
  3. Globally there is a trend of consolidation in the telecommunications industry; and,
  4. Canada needs to ensure its telecommunications industry can support the needs of the digital economy

Among the highlights, PWC observes that Canadian mobile operators spend a higher proportion of their revenue on capital investments than many peer countries. For example, the capital intensity (measured as a ratio of capital expenditure to revenue) for Canadian operators averages at 18%, five percentage points (or nearly 40%) higher than operators in the US and Australia at 13%.

The third report in the series zooms in on Western Canada looking at how 5G connectivity is expected to enable new “use cases”, such as automation enabling smart mining, connected and autonomous vehicles, and automated smart farming. “5G-enabled use cases require broad ubiquitous coverage to reach businesses outside urban areas (mining, agriculture, oil & gas, etc.) and enable use cases that are reliant on continuous connectivity (e.g., autonomous vehicles).”

According to PwC, Canadian mobile operators face three significant challenges: the cost of 5G driven by capital costs required to install new equipment, densify infrastructure and the
increased operational costs required to keep up with data use; Increased competition in the digital economy including hardware, software and service providers such as Google and Amazon; and, Canada’s current lag in spectrum allocations and the complexity of regulations for accessing passive infrastructure.

To deploy 5G at pace, and overcome these challenges, Canada will require a healthy telecommunications industry that has well-capitalized MNOs capable of funding national 5G deployment. To achieve this, Canada needs a supportive regulatory framework, that should: (i) maintain an appropriate level of market incentives, drive improved customer value and investment in innovation (ii) maintain predictable and fair regulations while being flexible to accommodate the evolving needs of the digital economy and (iii) consider the significant benefits of the digital economy, the role of 5G in enabling it, and the broader competitive landscape within it.

Canada requires a healthy, well-capitalized telecommunications industry to fund deployment of our national 5G networks.

Canada’s 5G future

On December 17, the Government of Canada opened its consultation on the 3800 MHz spectrum band. The day before, Ceri Howes, Head of Regulatory for Opensignal published an article that I think merits highlighting, in light of the government’s stated object for the consultation “to ensure Canadians have access to high-quality wireless services.”

In the header for “Canada’s 5G future – the story so far”, Opensignal indicates the article “discusses some key considerations for Canada’s 5G future and highlights how policymakers and regulators can better make use of independent, globally-standardized data that reflects the actual experience of the consumers they serve.”

The article shows that Canada’s wireless carriers have consistently invested in new technologies, increasing spectrum efficiency and capacity, leading to Canada currently having some of the fastest 4G networks in the world, “despite Canada’s relatively low population density and the high capex and opex costs involved in deploying networks in rural and remote parts of a large country.”

However, the article observes that Canada is “unfortunately slipping behind” when it comes to 5G, and Opensignal suggests that spectrum policy is a factor.

The political and regulatory dynamics in Canada are complex, and spectrum management approaches also must consider factors such as a long, shared land border with the US. However, it is clear that various decisions around the timing, availability and pricing of critical 5G spectrum may be leading to constrained deployment.

Opensignal supported PWC Canada’s March 2021 report that looked at Canada’s connectivity needs in a post-COVID environment and looked at the implications for the roll-out of 5G. As I wrote at the time, the report identified six policy drivers to incentivize 5G deployment and broadband-enabled use cases, including spectrum timing and costs; network investment incentives; rural subsidies; and, funding for research and development.

Opensignal warns that Ottawa has a “pressing opportunity to prioritize the auction of additional mid-band and lower band spectrum”.

In Minister Champagne’s mandate letter, spectrum policy is only mentioned once: “Accelerate broadband delivery by implementing a ‘use it or lose it’ approach to require those that have purchased rights to build broadband to meet broadband access milestones or risk losing their spectrum rights.” I think much greater focus on spectrum policy is needed.

Opensignal says, “The speed with which new spectrum is allocated to carriers is also important if Canada is to see the full economic benefits of 5G and also if it is going to continue to rank highly on mobile network experience worldwide.”

As 2022 opens, 5G use cases in “agriculture, mining and manufacturing will play a central role in the transformation of Canada’s industrial policy and digital economy”.

Spectrum policy needs to take a higher profile on Canada’s political and economic agenda.

For the 3800 MHz consultation, comments are due February 15, with replies due March 7.

We got it wrong

“I’ll be frank: we got that initial decision wrong.”

It isn’t often that a government official uses clear language to acknowledge mistakes, but this is precisely how CRTC Chair Ian Scott addressed the elephant in the room when speaking at The 2021 Canadian Telecom Summit earlier this week. I think it is worthwhile including a lengthy excerpt directly from the text of his speech.

Another matter that has attracted a great deal of attention and commentary is our decision that set the final wholesale rates for aggregated high-speed broadband access services. Obviously, and as you know by now, we reversed course on implementing the rates we set in 2019. Rates, I will add, that were never implemented in the marketplace.

I’ll be frank: we got that initial decision wrong.

There were unquestionably errors in the initial decision. We are not infallible, and we could not ignore those errors once they were properly identified. We have always said we will review any decision if a party submits an application. Legislators anticipated that the CRTC may sometimes make mistakes or base its decisions on an incomplete record, and for that reason included the review and vary provision in the Telecommunications Act.

When a party submits an application asking us to review a decision, we address the issues in question seriously, fairly and in an independent manner. Because no one benefits from uncertainty in the market.

The work we at the CRTC do is not always popular or easily understood, especially when it comes to the costing of wholesale services. We recognize that. But I will say that in the process of reaching a decision—be it on rates for high-speed access services or any other matter you care to name—the process we follow is always based on sound administrative-law principles. We build a public record, our expert Commission staff analyze the evidence and Commissioners – all of whom share equal voting rights – make decisions. And we do all of this with the public interest foremost in mind.

Unfortunately, in the aftermath of this high-speed access decision, some remain focused on perceived winners and losers. We, however, have moved on. The industry continues to evolve and move forward, and we’re looking at far bigger and frankly, much more productive things. Our focus is on the multitude of threads—the multitude of proceedings before us, if you prefer—that we are currently weaving together to create a policy framework that fosters more competition in the marketplace in order to reduce prices for consumers.

Those threads include more than our mobile wireless and high-speed access decisions. They also include our ongoing work in developing our high-speed access framework across Canada, including in the North, as well as a variety of issues relating to detailed technical and policy matters.

We’re looking at these matters, and others, with a goal of building a comprehensive regulatory approach that supports sustainable competition and balances the various perspectives of all stakeholders. Regulatory certainty, after all, is important to everyone. It’s important to consumers, who want better services at lower rates; to competitors, who want to explore opportunities to serve new markets; and to incumbents, who want the capacity to invest in, and expand, their services. That’s why we are focused on getting it right.

A few minutes earlier, the Chair had said “Although aspects of both of our mobile wireless and high-speed access service decisions are being appealed to Cabinet and the courts, the Commission is convinced of the validity of our approach. Both are helping to lay the foundation for the continued growth of smaller service providers and new entrants into the market. Both are helping to support sustainable competition that will ultimately lower what Canadians pay for their telecom services. And both are helping to build confidence in the marketplace.”

The appeals can work their way through the system. The reality is that the federal government has consistently affirmed and reaffirmed its support for sustainable, facilities-based competition, providing appropriate incentives for investment to upgrade networks and extend the reach into unserved and underserved communities.

Canada’s future depends on connectivity.

In search of perfection

Government programs to provide better broadband are failing underserved markets. On this point, a number of recent releases agree.

Whether it is improving availability of higher speed, better quality, more reliable services, or improving rates of adoption among certain communities, governments in Canada at all levels are simply not delivering fast enough on their commitments to improve access to broadband services for their constituents.

Subsidy programs designed to stimulate construction in underserved areas have moved too slowly, and in some cases, the overhang of promised funding may have delayed roll-outs to areas that might have otherwise seen construction without government funding. (See: “A less than rapid response stream”.)

Social service agencies aren’t dispensing direct subsidies to allow low income households to sign up for communications services of their own choosing, leaving the development of such services to the goodwill of the private sector, which has stepped up to fill the void left by a failure of government leadership. Contrast this with the Emergency Broadband Benefit in the United States, that provides “a discount of up to $50 per month towards broadband service for eligible households”.

“Waiting to Connect”, a report [pdf, 3.8 MB] from the Council of Canadian Academies, says “Canada’s current broadband funding and consultation processes are often complex, onerous, competitive, and involve many actors, making them difficult for small, capacity-limited organizations to navigate.” This is accurate. However, it is difficult to support a conclusion that says “Broadband infrastructure can only meet long-term connectivity needs if it is scalable and sustainable, and if there is local expertise and capacity to build, operate, and maintain it.” The paper appears to argue against the efficiencies of scale, in favour of local capabilities. About a year ago, I wrote “Toward a universal broadband strategy”, that talked about the problems caused by the lack of stable funding to offset the higher ongoing operating costs associated with rural and remote telecommunications services. There is a relatively easy solution, reminiscent of the funding for high-cost serving areas that was formerly administered by the CRTC before it chose to duplicate other branches of government funding capital projects.

In another paper, from the Public Policy Forum, “Future Proof: Connecting Post-Pandemic Canada” [pdf, 1.8 MB] argues that Canada needs to be a global leader in 5G as I discussed a couple weeks ago. The paper argues for “future-proof digital connectivity infrastructure — connectivity that is scalable so it is capable of supporting data rates that far exceed needs that can be foreseen today” but also notes “It is prudent to enter a caveat that truly universal future-proof connectivity cannot be assured within specified time.” Recognizing that universal access to fibre is impractical, the paper argues for Canada to develop a strategy to be a global leader in 5G.

Two papers, both talking about connectivity, but ignoring the issue of adoption. The papers focus on the supply side, without looking at measures to increase demand among those who are not yet connected.

In part, I believe the problem is a result of a failure to apply some basic systems engineering principles, defining requirements rather than specifying solutions. In the past, I have described this as having people start with a premise that they need nails, which is a specific kind of solution, rather than defining the real requirement, that they need to put two pieces of wood together.

It is easier to define problems in terms of solutions with which we are familiar, or in terms of concrete, physical solutions. As a result, we have had people hijack the need to increase broadband adoption among low income households and advocate for municipalities to build their own fibre network. The most extreme case is the Connect TO project, overlaying municipal fibre in one of the world’s most connected cities. Look at Beaumont, Alberta, a suburb of Edmonton, that in the summer of 2020 promised to have construction underway before the end of the year. A year and a half later, all that Beaumont has done is inhibit investment by private sector service providers. At least Beaumont isn’t as far along in squandering taxpayer dollars as Olds, Alberta which is rescuing its community network from bankruptcy.

As I have written before, we need a smarter approach to community networks.

The proponents and advocates for such local community network programs aren’t ill-willed, but unfortunately, I think many of these programs suffer from a failure to examine the potential for unintended consequences emerging from their solutions.

For example, if a municipality builds its own private network to link all schools, hospitals, and other municipal public institutions, it can have the effect of significantly damaging the business case for investment in communications infrastructure in the rest of the community. When a government infrastructure subsidy program is announced, it can freeze the incentives to invest until funding is distributed. Further, it is important to recognize that a government subsidized network, or a municipally owned network, impairs the business case for a competitive network build. It enshrines a monopoly in that area and the history of government telecom monopolies is not a good one.

There is some activity on the supply-side. Rogers (Connected for Success) and TELUS (Internet for Good) have each upgraded the initial targeted programs for affordable broadband, empowering disadvantaged households to choose the services that best meet their needs. It is expected that there will soon be upgrades to the national Connecting Families program, a private sector led initiative, coordinated under a federal government umbrella.

As we approach the end of the year, we need to look back at what we have learned from more than 20 months of pandemic-induced changes to our way of working and studying, driving increased needs for improved broadband connectivity at home.

Which programs are working? Can we, or should we, do more of them? How can we accelerate service improvements?

I have long argued “Isn’t some broadband better than nothing?” Isn’t it better to get some broadband service to unserved areas rather than wait for future-proof connectivity? When some Canadians are wanting for any kind of affordable broadband, it takes a certain kind of arrogance to proclaim that 25Mbps (or 50 Mbps) just isn’t good enough.

Le mieux est le mortel ennemi du bien.

We can’t wait for a perfect, “future-proof” solution for universal broadband for all Canadians. But surely we can strive to do a lot more, a lot better, and a lot sooner.

An East – West perspective on digital policies

Throughout the COVID-19 pandemic period, I have taken advantage of continuing education opportunities from the International Telecommunications Society (ITS), and I have promoted many of its sessions on this blog. ITS serves as “a global platform for industry, policy makers and regulators to create a 360-degree view of an issue from the perspective of different regions and jurisdictions.”

I want to highlight another webinar coming up in just over 3 weeks (November 22, at 8 am Eastern). It is especially timely as the new government in Canada prepares to reintroduce legislation to regulate “Big Tech” and internet content.

The role of digital platforms and how to regulate them has become the new frontier for regulators and policy maker around the world. There is a tension between competition, choice, and consumer protection on the one hand, and innovation, investment incentives and entrepreneurial freedom on the other.

“Digital Policies – an East-West Perspective” will discuss approaches to digital platform regulation in the US, Canada, Europe, South Korea, and Japan. This webinar will highlight the most important aspects of this topic:

  • Alexandre de Streel, academic co-director of CERRE and professor at Namur University, will present a European perspective;
  • Seongcheol Kim, Director and professor at the School of Media and Communication, Korea University, Seoul, will share insights into the discussion in South Korea;
  • Seiji Ninomiya, Director General of the Telecommunications Bureau at the Ministry of Internal Affairs and Communications (MIC), Tokyo, will present Japan’s approach; and
  • Michael H. Ryan, Principal at MHRyan Law (London), will provide insights on how digital policy compares in North America and Europe.

The session will be moderated by Georg Serentschy, a past chair of BEREC, the Body of European Regulators for Electronic Communications.

Michael Ryan is a familiar name to the Canadian regulatory scene, having literally written the book on Canadian telecommunications law. It is certain to be an interesting session, of relevance to Canadians who are watching for the government’s digital legislation.

Registration is free.

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