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May 5, 2016

5 May 2016

The State of Competition in Canada’s Telecommunications Industry – 2016

Research Paper analyzing various aspects of the Canadian telecommunications industry related to competition

The federal government and the CRTC should not repeat the mistakes of recent years by intervening in the broadband sector as they have in the wireless sector, argues the MEI in the 2016 edition of a Research Paper entitled The State of Competition in Canada’s Telecommunications Industry. The Paper notes that 96% of Canadian households already had access to download speeds of 5 Mbps in 2014, with 77% of households subscribing to such a service, a trend that has shown strong growth in recent years.

Media release: Telecommunications: Ottawa should not intervene in the broadband Internet sector as it has in the wireless sector
 

Links of interest

We don't need a 'plan' for high-speed Internet (National Post, March 5, 2016)

Consumers should welcome the end to a four wireless players policy (The Globe and Mail, May 11, 2016)
Interview (in French) with Martin Masse (Ce matin en Beauce, COOL-FM, May 6, 2016) Interview with Paul Beaudry (The Street, BNN TV, March 5, 2016)


The State of Competition in Canada’s Telecommunications Industry – 2016

Highlights

The 2015 edition of this report pointed out that Canadians continue to be among the biggest consumers of telecommunications services in the world, and argued that the government and the CRTC should stop emulating the failed policies of Europe and revive Canada’s historically less interventionist wireless regulation, which has served consumers well. Here are some highlights from this year’s edition.

Chapter 1: How Does Canada Measure Up?

 

  • Penetration and usage rates for newer wireless technologies like tablets, smartphones and LTE connections in Canada are among the highest for industrialized countries.
  • In terms of the quality of services, Canadians benefit from some of the most advanced and efficient wireless and broadband Internet services in the world.
  • Once again this year, the prices Canadians pay for wireless services remain generally higher than in Europe but lower than in the United States or Japan.


Chapter 2: WINDs of Change in Canada’s Wireless Sector

  • The highlight of 2015 was indisputably the proposed acquisition of WIND Mobile by Shaw Communications for $1.6 billion in December of 2015, providing a well-established fourth player in Ontario, British Columbia, and Alberta.
  • As Canada now has a solidly established fourth player from coast to coast, some have claimed the Shaw/WIND transaction is a vindication of the federal government’s interventionist spectrum policies. But insofar as this constitutes a victory, it has come at a high cost.
  • The government’s exclusionary auction rules, such as spectrum set-asides or caps, as well as mandatory roaming and tower sharing rules, have prevented efficient competition and hindered investment in the state-of-the-art wireless networks and services that consumers are demanding.
  • The biggest beneficiaries of the federal government’s interventionist rules during the past years have been the shareholders of WIND and Public Mobile, who arbitraged their government-subsidized spectrum acquisition to secure a windfall, and Videotron, which might do the same when it decides to divest itself of the spectrum licenses it holds outside of Quebec.
  • By insisting on the benefits of a fourth wireless player, the previous federal government went against a worldwide trend of consolidation in the wireless sector and embraced a static view of competition, whereas a more dynamic concept of competition shows that competitive discipline and rivalry are not necessarily conditional on the presence of a multitude of players in the market.
  • Considering that hundreds of millions of dollars will be needed to upgrade WIND’s network to LTE, it is to be expected that WIND’s prices will rise as a result of these significant investments and increasingly come to resemble those of the three large national players going forward.
  • As an example of the efficiency of markets, roaming rates have been declining—not primarily because of the Wireless Code, as the CRTC claims, but because consumers asked for it and carriers saw an opportunity to solve a major irritant and to attract new customers.


Chapter 3: Should Broadband Internet Be Regulated and Subsidized as an Essential Service?

  • Critics who note that access to high-speed Internet is limited in some regions of Canada, or among less advantaged socioeconomic groups, invariably conclude that government intervention will be necessary to close the gap, but what they consider a market failure is actually just the normal course of technology adoption.
  • Every technology goes through a series of phases when it is adopted by one group after another, from innovators and early adopters to laggards, finally reaching a saturation level when essentially 100% of the population is using it.
  • The major difference today is that new information technologies reach a critical mass and become widely accessible to all not in a matter of decades, but in a matter of years.
  • According to the CRTC, 96% of Canadian households could access a download speed of 5 Mbps in 2014, with which an Internet user can do almost everything he or she wants on the Internet, including watching relatively high quality videos—and 77% of households do subscribe to such a service, up from 71% just one year earlier.
  • In 2014, 93% of Canadians were also covered by the LTE wireless network, a 4G technology offering speeds higher than 5 Mbps. Given that more and more Canadians now access the Internet using a smartphone or a tablet rather than a personal computer, this is another indication of the availability of high-speed Internet.
  • Broadband services with download speeds exceeding 100 Mbps were already available to 71% of Canadian households in 2014, and various providers have already started to deploy “gigabit” service (1,000 Mbps) in several areas of the country.
  • The telecommunications industry is investing billions of dollars every year to develop these new technologies and deploy the necessary infrastructure—not because of any comprehensive national strategy devised by bureaucrats in Ottawa, but because of competitive pressure.


Chapter 4: Facilities-Based Competition as a Spur to Innovation

  • Facilities-based competition between providers of the same or similar services, each using its own network, should be a key pillar of intelligent telecommunications policy because innovation thrives in environments characterized by facilities-based rivalry.
  • Despite the intense rivalry that exists between telcos and cable companies, the CRTC has maintained a 1990s-era wholesale access regime over the years, which forces telephone companies and cable companies to provide small Internet service providers (ISPs) with access to their networks at regulated rates.
  • Last July, the CRTC expanded its mandatory wholesale regime by requiring telcos to allow small ISPs to access their highest-speed fibre broadband services, also known as fibre-to-the-premises (FTTP) facilities, but there is no convincing case for mandating access to these networks, as incumbents do not have any inherent competitive advantage in deploying them.
  • Technology research firm Gartner Inc. predicts that 6.4 billion connected things will be in use worldwide in 2016, up 30% from 2015, and that this number will reach 20.8 billion by 2020. Technology giant Cisco puts this figure even higher, at 50 billion.
  • This Internet of Things will bring about significant benefits for individuals and businesses alike, but it will also have a considerable impact on demand for bandwidth: According to Cisco, global mobile data traffic grew by a staggering 74% in 2015 alone, and will see an eightfold increase by 2020.
  • In order to satisfy consumers’ insatiable appetite for bandwidth, network operators will need to invest billions of dollars in new infrastructure in the coming years.
  • Although the European regulator has now recognized the negative impact of two decades of network sharing regulations and an obsession with price competition, which has led to a decline in mobile revenues and underinvestment in network infrastructure, the CRTC appears to have ignored this lesson in its recent FTTP decision.


Introduction

For each of the past two years, The State of Competition in Canada’s Telecommunications Industry has assessed how Canada measured up with other jurisdictions regarding the quality and pricing of its telecommunications services. The report has also evaluated how competition was faring in key areas of the Canadian telecommunications market, and provided a critical assessment of Canada’s legislative and regulatory framework for this industry.

One of the primary motivations for the publication of the first two editions of this report was that many Canadians are, in our opinion, under the mistaken impression that Canada’s telecommunications industry compares poorly with that of other jurisdictions.

The report has attempted to dispel the notion that Canadians pay uncompetitive prices for low quality services. It has also argued that the federal government’s and the CRTC’s interventions in the wireless and wireline sectors aiming to increase the number of players through indirect subsidies and mandated access were not likely to have the intended effects and might jeopardize investments and innovation. Instead of these interventions, the report has argued that the government should liberalize its policies on spectrum transfer and the mandatory sharing of broadband networks, and recognize the role of innovation in assessing the level of competition that exists in a dynamic market.

This third edition continues to explore these themes. Chapter 1 provides updated statistics regarding the performance of the Canadian telecommunications industry compared with other jurisdictions.

Chapter 2 describes the current state of Canada’s wireless market, with a focus on the acquisition of WIND Mobile by Shaw Communications in December of 2015, as well as a discussion of how and why roaming rates have been declining.

Chapter 3 looks at the widespread access to broadband Internet that already exists in Canada, obviating the need for the CRTC to impose a plan on the industry to promote such access as an essential service.

Finally, Chapter 4 argues that facilities-based competition should be a key pillar of intelligent telecommunications policy, especially given that the burgeoning Internet of Things will have a considerable impact on demand for bandwidth in the coming years.

Read the Research Paper in PDF format

The Research Paper entitled The State of Competition in Canada’s Telecommunications Industry – 2016 was prepared by Martin Masse and Paul Beaudry, respectively Senior Writer and Editor and Associate Researcher at the Montreal Economic Institute.

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