The CRTC undermines investment in Canadian telecom infrastructure

Economic Note showing that the CRTC’s mandatory sharing policy facilitates free-riding on telecom infrastructure which, in turn, reduces the incentive to invest in the networks of tomorrow

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This Economic Note was prepared by Gabriel Giguère, Senior Policy Analyst at the MEI. The MEI’s Regulation Series aims to examine the often unintended consequences for individuals and businesses of various laws and rules, in contrast with their stated goals.

Whether fibre optic or cable, ultra-high-speed telecommunications networks are subject to the Canadian Radio-television and Telecommunications Commission’s (CRTC) territory-wide mandatory sharing policy.

With regard to fibre optics, the CRTC has issued decisions and regulatory policy since 2023 that first imposed this sharing obligation in Quebec and Ontario, before extending it to the whole country in 2024.(1) These decisions concerning fibre optics align with the policy in place for several years now of compulsory sharing of cable infrastructure.(2) The CRTC’s approach facilitates free-riding on telecom infrastructure which, in turn, reduces the incentive to invest in the networks of tomorrow, all to the detriment of Canadian households and businesses.

Mandatory sharing of ultra-high-speed networks is becoming increasingly invasive

The policy of mandatory sharing of these networks—whether fibre optic or cable broadband —follows from the similarly compulsory sharing of the traditional telephone network after the “deregulation” of the telecommunications sector in the 1990s.(3) It is based on a model of competition founded on the number of players in a market. According to this logic, the more companies provide services to the population, the better the telecommunications services available to subscribers.

The policy was originally designed to encourage the emergence of competitors to the incumbent monopoly by enabling them to take advantage of existing telephone infrastructure.

Over the years, however, it has transformed into a mechanism for keeping small retail resellers alive artificially. These companies now use modern infrastructure such as fibre optics, set up by other companies, without having contributed any of the necessary investments. The CRTC’s policy expansion now applies to modern ultra-high-speed networks infrastructures, whether fibre optic or cable (see Figure 1).

The result is the following dynamic: the company that owns the infrastructure invests billions of dollars to improve the quality of service offered to Canadians. Then regulation deprives them of control over their own infrastructure as well as over the prices at which their own competitors can access them. This approach inevitably reduces the profitability of the investments that these modern high-speed networks would never have seen the light of day without.

“Free-riders” Competitors(4)

The CRTC’s policy of mandatory network sharing has given rise to an economic phenomenon known as “free-riding.” This concept refers to a situation in which an economic agent benefits from resources without incurring their actual costs.

In this case, the various decisions and regulations of the CRTC actually encourage telecom resellers to behave like stowaways, free-riding on infrastructure built and financed by other companies without having contributed anything to it (see Figure 2).

When large companies also behave like stowaways

While the stated aim of the mandatory sharing policy is to enable smaller competitors to survive, it paradoxically takes no account of a company’s size when granting it access to existing infrastructure. As a result, the policy also allows Canada’s large telecom companies to take advantage of other companies’ infrastructure and to behave like free-riders themselves, all while they are perfectly capable of investing in their own networks.

Access to other companies’ infrastructures is open to any telecom provider, regardless of its size, its ability to deploy its own infrastructure, or the fact that it already has networks elsewhere in Canada. The current policy therefore encourages large companies—which would normally be expected to continue to invest in infrastructure to intensify real competition—to behave like free-riders instead. After all, why bother to invest if the CRTC will grant you access to the network of your direct competitors, even the smaller ones, with the added indirect benefit of considerably undermining their profitability? And why invest in new infrastructure if you will then be forced to share it with your own rivals?

Such a reality could have been avoided by analyzing the incentive structure gradually implemented by the CRTC. Since 2023, CRTC decisions on fibre optics, for example, have significantly disadvantaged Bell, and to a lesser extent Telus which has less infrastructure in Ontario and very little in Quebec. The decisions also penalize all infrastructure owners, to the benefit of companies (including the largest) that are well established in Western Canada.

This approach inevitably reduces the profitability of the investments that these modern high-speed networks would never have seen the light of day without.

Instead of investing in their own infrastructure to provide real competition for the benefit of consumers (as they would have without CRTC regulation), these companies are encouraged to adopt free-rider behaviour. The CRTC has institutionalized free-riding not only on Bell and Telus fibre optic networks in these two central provinces, but also on the ultra-high-speed networks of all the cable operators.

This is precisely what has taken place: in response to CRTC incentives, the biggest competitor in the West has started to take advantage of its main rival’s networks, particularly in Ontario and Quebec. And it’s not just the big companies that are suffering; medium-sized businesses are also paying the price.(5)

The CRTC has thus established a distortion of competition in Canada. Large and medium-sized companies in these two provinces, which have invested massively in their infrastructure to serve the population, must now open their networks to their western competitors. This includes even the biggest players, directly threatening their profitability and, ultimately, their survival.

The Quebec government expressed its concerns regarding this issue during the consultations on the 2024 decision.(6) Indeed, the impact on certain medium-sized Quebec companies that own infrastructure has raised concerns, particularly because of the danger that these companies will reduce their future investment, something that could adversely affect the quality of Quebec’s networks.(7) The report concluded as follows:

“The impact [of the CRTC’s recent decisions] on the level of future investment by operators in their communications infrastructures in Quebec could, in the long term, become a cause for concern if these infrastructures, due to a lack of new deployments or technological upgrades, become less efficient or insecure, and fail to cover the needs of the entire population.

“What’s more, our view of the current market leads us to fear that, in the long term, certain intermediary companies, which play an important economic and strategic role in Quebec, could find themselves in a precarious economic situation that could jeopardize their future.”(8)

Mandatory sharing of modern networks across Canada is a mistake

The extension of the CRTC’s 2024 policy to all Canadian provinces is likely to have a particularly negative impact in the long term, as no company will be interested in investing in the development of fibre optics or other new technologies.(9) Even worse, when combined with the policy of sharing other types of modern networks, this approach could even discourage maintenance of existing networks due to the incentive structure put in place by CRTC policy.

In effect, the current regulatory conditions encourage a form of free-riding in which companies with infrastructure in Western Canada use the networks of players in Eastern Canada, and vice versa, rather than investing in their own networks. Extending this mandatory sharing policy to the whole of Canada could thus compromise future infrastructure development. Because why would you invest in infrastructure just to be forced to share it with your competitors?

The current policy encourages large companies—which would normally be expected to continue to invest in infrastructure to intensify real competition—to behave like free-riders instead.

The long-term consequence of this policy could be the emergence of a true tragedy of the commons applied to telecommunications networks.(10) This economic concept describes a situation in which a resource is freely accessible, and economic players acting in their own interests overexploit it and neglect to invest in preserving or developing it.

Applying the CRTC’s mandatory sharing policy to the entire Canadian telecommunications sector, such that every company, including the largest, behaves like a free-rider on their competitors’ networks, diminishes or even completely eliminates any incentives to invest in new technologies, or in the maintenance and deployment of existing infrastructures.(11)

We should not forget that the high quality that Canadian networks currently exhibit(12) is the result of investments made by infrastructure companies who inject billions of dollars every year. Without the necessary capital inputs, this quality risks stagnation, or even deterioration.

However, there already seems to be a downward trend emerging: investment in telecommunications infrastructure in 2023 was $600 million lower than in 2019; this represents a 6 per cent drop (in constant 2023 dollars ).(13)

For this decline in investment to continue would be particularly alarming, given that today’s investments are what guarantees the high quality of tomorrow’s networks, something of a key factor in the economic competitiveness of Canadian businesses.

Such an absence of investment incentives, however, was highlighted by the Competition Bureau in its report on the telecommunications sector, where it indicated that the CRTC’s mandatory sharing policy risked reducing motivation to invest in new infrastructure.(14)

There already seems to be a downward trend emerging: investment in telecommunications infrastructure in 2023 was $600 million lower than in 2019; this represents a 6 per cent drop (in constant 2023 dollars ).

This observation is no longer merely theoretical. Indeed, recent CRTC decisions have quickly translated into a billion-dollar setback in planned investments by one of the telecom industry’s biggest players, equivalent to more than 10% of total investments by 2023.(15) A preliminary reduction of $700 million seems already to have materialized in 2024-2025.(16)

If the current policy of compulsory sharing—and mutual free-riding—of infrastructure is maintained, other players in the sector could in turn scale back both their current and future investments in networks.

Conclusion

The current regulatory framework implemented by the CRTC provides for mandatory sharing of modern ultra-high-speed networks in Canada. This framework reduces incentives to invest in new technologies and telecommunications infrastructure, thus compromising the quality of both current and future networks.

Moreover, it encourages the big players—the very ones who should be driving these investments—to behave as free-riders on their competitors’ networks, even when these networks are smaller. This dynamic directly threatens the profitability of companies that have invested in their own infrastructure.

This is a particularly harmful situation that the CRTC should rectify without delay by preventing Canada’s big players from taking undue advantage of their competitors’ networks. Eventually, the government will have to abolish the mandatory sharing of telecommunications infrastructures.