Search Results for: incentives

Back in June 2009, the presidents of DAVE Wireless, Public Mobile and Globalive Communications were on a panel together at The Canadian Telecom Summit talking about how they planned to address an “underserved market” for mobile services.

Each company believed there was a sustainable business case for a carrier that focused on value-conscious mobile service clients, not needing the same levels of investment in the latest technologies, or the spectrum to support high throughput. In some cases, the initial networks were built without LTE, or used non-standard ranges of spectrum.

A variety of issues arose, but each of the carriers learned that value-conscious consumers still wanted to be able to access the latest devices, or bring their devices from their previous service provider. At least one service provider found that it was unable to get a hold of the hottest devices until its network was upgraded to LTE.

And that brings us to today, where most service providers are in the midst of massive levels of capital upgrades, some CEOs have termed it “generational levels of investment”, to implement 5G services.

What are the 5G apps that will capture our imaginations? From a consumer perspective, if I knew, I certainly wouldn’t share my ideas in a public forum.

But we know that 5G enables far higher density of connected devices, with far greater data speeds and throughput capacity, and significantly reduced latency. At the time mobile networks were being upgraded to LTE, we didn’t know which apps would be enabled. This next generation is no different.

For service providers that choose not to invest in 5G, there may be a small window of opportunity to simply go after a budget conscious consumer. The challenge will be in retaining the majority of customers who want to be able to access the newest apps and capabilities, and don’t understand why those don’t work on their legacy devices.

Some of those apps won’t be on their hand-held devices, but may be embedded in their car. Or, home appliances. Or, store shelves.

So, what will happen to service providers that are unable (or unwilling) to keep up with the investment required to upgrade networks to 5G? The transition to 5G can be a factor to drive consolidation in the marketplace, as service providers look at the need for more pervasive backhaul facilities to support the increased density of antennas. Recall, Brad Shaw told Canada’s Industry Committee in March that “it is clear that Shaw cannot build what Canada needs on our own.”

Reducing the number of competitors does not necessarily translate to a lessening in competitive intensity in the marketplace. For example, take a look at Manitoba and Saskatchewan, where Shaw currently operates as a cable TV provider, but not as a wireless service provider. Rogers offers mobile services in both provinces. What happens to the competitive intensity for consumer services in those two provinces when Rogers and Shaw combine forces?

The best way to encourage sustainable competition – not just in telecom but for the benefit of the economy at large – is by maintaining incentives to invest, enabling and encouraging the massive levels of investment necessary to upgrade networks to 5G.

As Dr. Christian Dippon of NERA has said “Quite simply, a market cannot both be noncompetitive and offer some of the best mobile wireless services in the world.”

Much has been written about the proposed Policy Direction released last week by ISED Minister Bains to the CRTC, and the Commission’s subsequent Mobile Wireless Services Notice of Consultation.

My regular readers know that I like to cover these kinds of things from paths that are less traveled, trying to bring a fresh perspective. As such, I’d like to examine last week’s releases from the perspective of incentives to invest.

The term “investment” appears 13 times in the CRTC’s notice of consultation; it appears just once in the proposed Policy Direction, and that instance is in relation to “stimulate investment in research and development and in other intangible assets that support the offer and provision of telecommunications services.” However, the proposed Policy Direction also speaks about “innovation in telecommunications services, including new technologies and differentiated service offerings” and ensuring “affordable access to high quality telecommunications services is available.”

That kind of language needs to be contrasted with the CRTC’s consultation that speaks in terms of the need “to make significant investments in network infrastructure” for 5G. The Commission’s concern about maintaining incentives for continued capital investment is set out in the core of the proclamation for this proceeding:

21. The Commission is hereby initiating a proceeding to review mobile wireless services in Canada. This proceeding will focus on three key areas:
    • Competition in the retail market
    • The current wholesale mobile wireless service regulatory framework, with a focus on wholesale MVNO access
    • The future of mobile wireless services in Canada, with a focus on reducing barriers to infrastructure deployment
22. The scope of each of these issues is described in detail below. In addition, parties may raise other matters, issues, or proposals that are relevant to and appropriate for a broad policy review of mobile wireless services. The Commission’s focus in this proceeding is to ensure that its mobile wireless service regulatory framework facilitates sustainable competition that provides reasonable prices and innovative services, as well as continued investment in high-quality mobile wireless networks in all regions of the country.

I observed on Twitter last week that network investment frequently falls into 1 or more of the 3 C’s: Coverage, Capacity, or Capability.

Many carriers have focused their investments on coverage and capacity enhancements, adding reach to the networks to previously under-served regions and adding capacity to increase data connection speeds and relieve congestion. Most carriers have upgraded capabilities for most regions to enjoy access to advanced fourth generation technology and are readying to deploy 5G.

Mandated wholesale access has the potential to impact the business case for investment. Of course, in core urban areas, there are strong incentives to invest driven by competitive behaviour, where carriers will ensure that their networks are able to offer top speeds as part of their bragging rights. However, it is clear that the business case for such investments is not limitless, otherwise we would see 5 bars of LTE-Advanced everywhere in Canada.

So, we know that there are already certain areas with lower population densities that already cannot support a business case for some carriers to invest. Now, imagine that that the carrier will no longer be able assume the same level of retail revenues. What happens to the business case for those marginal areas? If potential revenues decrease, one would expect that fewer areas will be able to support a business case for enhanced levels of investment. People in under-served areas today should carefully consider whether mandated MVNO and lower retail prices will help or hinder their cause.

Recall that when the current CRTC Chair was welcomed to his job, he received a letter from the Ministers of Heritage and of Innovation, Science and Economic Development, saying, “All Canadians and Canadian businesses deserve high quality telecommunications services at affordable prices.” 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.”

The proposed Policy Direction echoes that language in the clause suggesting that the CRTC should consider the extent its regulatory measures “ensure affordable access to high quality telecommunications services is available.”

The CRTC consultative process will most likely be informed by engineering economic analysis, assessing the potential impact on investment in marginal areas for coverage, capacity and enhanced capabilities.

Maintaining incentives for investment requires a delicate balance.

Telecommunications is a capital intensive business. Both wireline and wireless communications facilities require multi-billion dollar investments to upgrade technologies, extend the reach of networks and expand capacity for ever increasing demand from band-width hungry applications. A challenge for regulatory authorities is protecting consumer interests while preserving an investment climate that encourages investment by multiple market participants

In a recent blog post, former Austrian regulatory chief Georg Serentschy writes about the challenges being faced by European regulators trying to craft a new European Electronic Communications Code (EECC).

the EECC as it is taking shape is emerging as a ‘missed opportunity’ for Europe, threatening to fall far short of its original objectives. Presumably this will lead market participants to adopt a ‘wait-and-see’ attitude, with many not expecting more favourable investment conditions as a result of shifting this parallelogram of forces, through increasing state aid or other components for example.

He asks how regulators should respond to this ‘wait-and-see’ attitude, wondering if Europe should “start with a clean slate and put in place a clear, flexible and highly simplified regulatory framework.” He suggests “Why not dare to make investments in FTTH a matter of agreements under private law, for a limited term and subject to consistent ex-post supervision but completely free of regulation?”

Mr. Serentschy spent nearly a dozen years as CEO of RTR, the Austrian Regulatory Authority for Broadcasting and Telecommunication and was Chair of BEREC, the Body of European Regulators for Electronic Communication. He will be speaking on Tuesday June 5 at The 2018 Canadian Telecom Summit.

As Canada seeks to develop an innovation agenda, a new report [pdf, 6MB] from the MacDonald Laurier Institute warns Canada to avoid Europe’s state-imposed mandates and top-down regulations that have contributed to underinvestment and poor network quality.

The report, “Winners and Losers in the Global Race for Ultra-Fast Broadband: A cautionary tale from Europe,” was authored by Andrea Renda, who is Senior Research Fellow and Head of the Regulatory Policy Unit at CEPS, the Centre for European Policy Studies. He is also a Senior Fellow at Duke University’s Rethinking Regulation Program, based at the Kenan Institute for Ethics.

MacDonald Laurier Institute says the report “demonstrates Europe’s policy of mandatory network sharing has discouraged investment in the continent’s networks and diminished the positive economic benefits that high-quality networks can enable.”

For example, fibre to the premises coverage is approximately double in the US compared to Europe (23 percent versus 12 percent); and overall next generation access coverage reaches 82 percent in the United States versus 54 percent in Europe. Furthermore, telecommunications revenues are dramatically higher in Australia, the US, Switzerland, Japan, Canada, Iceland, and Norway than in EU nations, which all fall below the OECD average.

It warns that “continuing down the European path could lead to a substantial price to pay in terms of growth and jobs.”

As indicated by Renda’s report, the development of broadband communications creates both challenges and opportunities for policy-makers.

• How does public policy create the conditions for high-quality broadband infrastructure?
• How does it ensure market competition and protect consumer interests?
• And to what extent are these objectives in conflict?

Renda says the tension of these conflicting objectives resulted in many governments mandating “network sharing” where the owners of broadband infrastructure are required to grant access to competitors, particularly in the “narrowband” era of lower capacity networks.

But today’s ultra-fast broadband has become an information superhighway on which users can find all sorts of products and services that run “on top of” the network (so-called “over-the-top” services such as Netflix). These services are what users want when they connect to the broadband network; having 10 alternative identical ways to reach the same slow Internet is not going to add a lot of value to end users, especially if competition stifles incentives to deploy better networks, or to ultimately create products or services that highly depend on network speed.

The study investigates the policies most likely to create conditions for a jurisdiction to win the race for leadership in global ultra-broadband connectivity, with significant economic implications. It observes that the experience from Japan and South Korea suggests “a light regulatory touch can create the conditions for private investment in broadband networks and in turn help to produce the digital networks that can serve as the foundation for innovation, digital adoption, and economic growth.”

On the other hand, the study observes that the European Union has largely applied heavier-handed regulation (originally crafted for the age of legacy copper networks), with very different results. “The main takeaway is that Europe’s policy of mandatory network sharing has discouraged investment in the continent’s networks and diminished the positive economic benefits that high-quality networks can enable.”

While the report discusses the impact of the EU regulatory approach on competition, innovation, and investment with exclusive reference to wireline telecommunications, the author states “many of the findings apply also to wireless.”

“The lesson for the Trudeau government is that heavy-handed telecommunications regulations such as mandatory network sharing can lead to underinvestment in digital networks and in turn undermine its broader goals with regard to innovation and entrepreneurship.”

I received a note from a researcher in the UK over the weekend who offered an interesting observation about open access initiatives.

The researcher was dismayed with the “lack of objectivity” in recent university branded reports on the state of telecommunications. In the case of the Harvard report commissioned by the FCC, the bias is evident that the report was to endorse an open network agenda.

Unbundling might have been an effective strategy to maximise consumer benefits from the existing copper infrastructure, but it is a positive hurdle to next-generation investment, unless one can set the access pricing formula correctly. And that’s the whole trouble because one can’t.

In the pharmaceutical sector, once a new drug has been developed, it would be better for consumers if the government took that drug off-patent immediately, and allow generics to compete with it. But if the government did that, then it would need to consider the effect on the pharmaceutical sector’s incentives to invest in R&D.;

The warning from abroad: opening next generation networks to mandated sharing could yield short term consumer dividends without appropriate incentives for innovation in the future.

Policy makers may choose to follow that route, but they should do so based on sound economic evidence, not by fiddling with the numbers.