The CRTC announced in July that it had sided with Quebecor and against Rogers over prices the former would pay to use Rogers wireless networks in Western Canada.Sean Kilpatrick/The Canadian Press
Dvai Ghose is the principal at Ghose Investment Corp. His clients include Telus Communications Inc. He is the former head of global research and strategic development for Canaccord Genuity Group.
“In the history of the world no one has ever washed a rented car.”
These words come from Lawrence Summers, a former Harvard University president and U.S. Treasury secretary, and have been used by telecom regulators to justify why established companies that built and own network infrastructure should not be forced to rent it out to newer entrants.
Regulators have favoured facilities-based competition over forcing network operators to sell access to their networks at mandated prices to competitors. The latter system reduces the incentive for newer entrants to build their own infrastructure while hobbling established players’ ability to expand theirs. It adds little to no economic value.
Unfortunately, the CRTC is now abandoning this long-held position, and the unintended consequences could be dire for Canadian consumers and businesses for decades to come.
In July, the CRTC announced it had sided with Quebecor QBR-B-T and against Rogers RCI-B-T over prices the former would pay to use Rogers wireless networks in Western Canada.
While the actual terms were not released, the CRTC made it clear that it sided with Quebecor’s lower rate proposal in order to stimulate resale competition; it is willing to impose wholesale rates that may not provide the owner with an immediate-term return on investment; and it is willing to mandate rates that require an otherwise profitable enterprise to incur a loss in one line of business provided it is profitable in other lines of business.
While the CRTC may have good intentions, it demonstrates naiveté when it comes to the private sector, and the consequences could be incredibly destructive for wireless investment and quality in Canada, risking our ability to compete globally.
There is nothing new per se about established companies selling network access to competitors, who then become mobile virtual network operators (MVNOs). They have existed for decades, paying what are called resale tariffs to established companies in exchange for accessing their networks.
It’s just that in most countries, including the U.S., MVNOs are not mandated and wholesale terms and rates are commercially negotiated. In such cases, MVNOs often concentrate on niche markets and have little impact on overall pricing.
However, in some cases, such as in France in 2004, Spain in 2006 and Israel in 2009, regulators stepped in and set artificially low resale tariffs to stimulate competition and reduce pricing for mobile customers. In each case, the consequences were devastating and have lasted decades.
In Israel, the established network operators’ market share declined from 95 per cent in 2010 to 73 per cent in 2018, while average revenue per unit (ARPU) fell 40 per cent. While some may argue that was a positive result of more competition, there was a greater impact.
The problem was that everything was still running on the established networks, and their operators’ earnings before interest, taxes, depreciation and amortization (EBITDA) had fallen almost 80 per cent. In response, the network operators slashed jobs and capital expenditures by 35 per cent, resulting in a significant degradation in wireless quality for everyone.
While Israel had traditionally enjoyed some of the best wireless infrastructure in the world, according to network testing firm Ookla, the average wireless download speed in Israel is now approximately 60 per cent lower than in Canada. Ookla ranks Canada 16th in the world for mobile download speeds, while Israel is now ranked 76th out of 140 countries (below Iran and Kazakhstan). France and Spain have faced similar issues.
Today the same European regulators who forced resale competition are crying out for wireless consolidation to improve ARPU, profitability, investment, innovation and job creation. Ericsson CEO Börje Ekholm recently said, “The big problem in Europe is really that our customers can simply not afford to build out the networks, and I think that is going to hurt European competitiveness long term.”
Canadian regulators need to understand that Canada has some of the best wireless networks in the world because of large investments by the network operators. According to the CRTC, telecom investment per capita in Canada in 2021 was $260, compared with an average of $150 in Europe. That has significant implications for network upgrades, economic productivity and consumer satisfaction. The Canadian economy performed relatively well during pandemic lockdowns, in part due to efficient and resilient networks.
Canadian regulators must realize that if they negatively affect the profitability of publicly listed telecom network operators through regulation (as the CRTC has publicly stated), it is the fiduciary responsibility of the network operators to offset the financial impact by cutting jobs and investment – to the detriment of Canada.