(UPDATED) The latest CRTC policy dedicated a half-dozen paragraphs to explaining why we can’t have nice things in Canada, and it’s because they are stuck in 2006 and convinced that their failed policies just need a little more time.
In 2006, the wireless industry was showcasing technology that was indistinguishable from magic. Soon, you would be able to use your phone to stream video and audio at the same time. Bell and Telus had formed a joint venture to build a shared 3G HSDPA network to compete with Rogers. BlackBerry and Nokia were kings until the iPhone changed everything in 2007. The red brand was exclusively distributing that newest iPhone 3Gs with a blazing top speed of 3.6Mbps.
If you think that BlackBerry is from prehistoric times and anyone carrying it is a Luddite, think of where other important components of any modern digital services were when government policies were being contemplated. Public-cloud infrastructure was in its infancy - AWS launched the same year with Simple Storage Service (S3). Youtube and the machine learning algorithms that they pioneered had just launched in December 2005. Netflix was still ten years away (yes 2015!).
Anyone thinking of launching a wireless service provider in 2006 had to focus on very different aspects of the build - building physical infrastructure, operating their own servers, and licensing proprietary, closed technologies designed for telecom (read: expensive). Up until that point, MVNOs had been resellers who sold pre-determined plans and then managed the relationship with the people who bought from them. The technology to innovate in this space was new.
So when the government issued the 2006 Policy Direction to the CRTC, it focused on creating more facilities competition in wireless, also known as building more towers. Because it was 2006, and it was all they had known up until then. They thought that more towers would bring prices down, and it did... for a few years, at least, and in just a handful of cities.
The facilities-first policy failed
In 2009 that Policy Direction had birthed several new entrants to Canada’s telecom space: Mobilicity, Public Mobile, and WIND Mobile. The first was bought by Rogers while in distress, absorbed, dismantled, and forgotten. The second was bought by Telus, absorbed and converted into a low-cost brand to fight against WIND Mobile. WIND was bought and sold a few times, eventually becoming Freedom Mobile. Shaw spent more than one and half billion dollars buying Freedom Mobile and many millions more trying to figure out how their shiny new toy works.
Fifteen years after that 2006 Policy Direction, Rogers has reached an agreement to buy Shaw in what will forever be known as the #SHAWGERS acquisition (if only to annoy Rogers). No one from the “class of 2009” remains standing. Their investment in facilities spurred little competition, instead, bolstering the facilities of Robelus (shorthand for Rogers, Bell, and Telus).
The 2019 policy supports new types of competition
The writing was on the wall, so in 2019 the government issued a new Policy Direction to the CRTC. It was signed into law on June 17, 2019. You can read it on the Canadian government’s Justice Laws website.
This new policy did away with the focus on building more towers, instead, encouraging innovation and competition in all forms. Investment should include research and development and other intangible assets that make wireless better and more affordable. Everyone in Canada should benefit from this, not just people in densely populated areas that can support more than one tower company.
So here it is, the 2019 Policy Direction. Pay attention to the parts we’ve highlighted, it’s important later.
1 In exercising its powers and performing its duties under the Telecommunications Act, the Commission must implement the Canadian telecommunications policy objectives set out in section 7 of that Act, in accordance with the following:
(a) the Commission should consider how its decisions can promote competition, affordability, consumer interests and innovation, in particular the extent to which they
(i) encourage all forms of competition and investment,
(b) the Commission, in its decisions, should demonstrate its compliance with this Order and should specify how those decisions can, as applicable, promote competition, affordability, consumer interests and innovation.
The CRTC ignores the new policy
The CRTC read this new 2019 Policy Direction and decided it was largely the same as their 2006 Policy Direction (paragraph’s 17 to 21 in policy 2021-130). This part of their decision is something you would normally skip past (because if you're reading the CRTC decision, you're probably familiar with the 2019 Policy Direction).
These six paragraphs explain why more than two years of public testimony ended up as more of the same old $#@!.
Here, in paragraph 19, they explicitly state that encouraging all forms of investment, including R&D and other intangible assets, is the same as “investment in high-quality telecommunications facilities”. Remember, when the CRTC says “facilities” they mean towers.
|19. In the Commission’s view, the strategic objectives of its previous mobile wireless service framework remain generally relevant when matched against the 2019 Policy Direction. For example, the strategic objective of continued innovation and investment in high-quality telecommunications facilities espouses similar principles to subparagraphs 1(a)(i), (iii), (vi), and (vii) of the 2019 Policy Direction. Likewise, the strategic objective of sustainable competition that provides benefits, such as reasonable prices and innovative services to Canadians, espouses similar principles to subparagraphs 1(a)(i), (ii), (iv), and (vi) of the 2019 Policy Direction.|
So, having decided that nothing much had changed, the CRTC made some minor tweaks to their own strategic objectives.
They did this by adding just a few words (changes are bolded):
- Continued innovation and investment in, and affordable access to, high-quality telecommunications facilities in all regions of Canada, including rural and remote areas;
- sustainable competition that provides benefits, such as affordable prices, and innovative services, to Canadians;
- implementing efficient regulatory measures with respect to wholesale mobile wireless services, along with continued reliance on market forces where appropriate; and
- reducing barriers to entry into the market for competitors that are new, regional, or smaller than the incumbent national carriers.
Wireless service is about more than building towers
Notice that the policy is still about investment in high-quality telecommunications facilities and there was no change to the objectives around wholesale mobile wireless services.
ROBELUS spends just 10% of its wireless revenues on building and maintaining facilities; which are the towers, backhaul and core networks. To be fully transparent another 10% on top of that are spectrum costs ($18B over the 25 years of wireless existence went into the kitty), the government collects it from the network infrastructure companies. Think of it as a transfer tax. The government spends most of this money on rural investments that the BIG3 then benefit from. $6B! is planned for the near future, 1/3 of all the funds ever collected for the license to use the airwaves to deliver the wireless service. Read more about the capital investments in the CRTC yearly report.
Wireless revenue is all the money that Canadians spend on their wireless services. Doing the math, that means that 80% of what we spend on wireless services is either profit or is spent on costs that are not facilities. Things like stores, marketing, customer service, phone subsidies, executive salaries.
This 80% is where the opportunity is for competition and innovation. More direct and affordable-by-design wireless service. Important: low-income Canadians spend up to 9.1% of their annual income on telecommunication services, 3/4 of Canadians are not on the best available for them connectivity options due to affordability, about 40% and anyone earning below $40k per year is sensitive to price according to the Competition Bureau 2019 report.
There is nothing in this objective that separates that 10% (towers, etc) from all other forms of investment. Nothing that recognizes the money spent on intangible assets is what leads to innovation and service differentiation.
If the only difference between wireless providers is whether you get a signal from their towers, we’re doing something horribly wrong as a nation. Getting a few bars of service everywhere in Canada should be table stakes.
Let's all pretend the new law doesn't exist
These are the things missing from Canada’s telecom industry. Conspicuously, they are missing from the CRTC’s objectives even though they were signed into law two years ago.
- All forms of competition
- All forms of investment
- New technologies
- Differentiated service offerings
- Research and development
- Innovation in telecommunications services
Clearly, the CRTC chose to ignore many of its policy objectives in favour of building more towers and keeping the power in the hands of a few dominant Canadian companies (92%+ of the Canadian market is in the hands of ROBELUS. This regulatory decision is not going to change that (all industry analysts agree with that too). They don’t want to admit that their policies from 2006 have failed and all the new competitors they spawned have been bought up.
Perhaps we need some new approach and blood in the CRTC, independent from dominant Canada’s telecom giants, unswayed by lobbying (fact: ROBELUS lobbied government on average twice per day during 2020), someone that understands the industry trends are not going to steer it the same way as BlackBerry or Nortel - bygone dominant, turn non-competitive reminders of the failed old strategies.
What’s even worse is that this latest ruling is unlikely to promote affordable access in all regions of Canada, despite it being the newest addition to the CRTC’s self-imposed objectives. Check out my previous blog post for a breakdown of just how convoluted this regulator's proposed direction is.