The CRTC is not ready for the Internet of Things

A key component of the federal government's priorities is the so-called "Innovation Agenda." One very innovative development that is picking up steam is the Internet of Things. Now at a stage of development similar to that of the Internet in the early 1990s, it is set to revolutionize every aspect of our economy and our lives and to become as ubiquitous as the Internet itself.

This "fourth industrial revolution," as it is described, will connect just about everything to the Internet, from appliances to security systems, and from body sensors for patients to the management of road traffic and agricultural production.

The number of connected objects in the world has already overtaken the number of electronic devices used by human customers, and is projected to explode in the coming years. In Canada alone, the total value of this market is projected to reach $21-billion by 2018.

Although they currently account for a relatively small portion of global IP traffic (going from 2.2 per cent in 2016 to 4.5 per cent by 2021), machine-to-machine (M2M) connections are bound to take up an increasingly large share as their numbers explode in the years to come.

But here's the rub: This increased data traffic will need to pass through telecommunications networks – in particular the new 5G wireless technology that will be deployed over the coming years. And as a result, federal government and CRTC policies aimed at propping up undercapitalized wireless players and Internet service resellers – which have led to waste of capital and the misallocation of resources such as spectrum over the past decade – will become even more problematic if pursued in the future.

In the end, only competition between strong providers that use their own networks ("facilities-based competition," in telecom jargon) can bring about the necessary network investments, as well as the quality and lower prices that consumers want. The rising importance of the Internet of Things only reinforces the arguments against propping up small players at the expense of strong facilities-based providers.

There are two crucial reasons for this. The first is that only Canada's large national (Bell, Telus, Rogers) and regional (Videotron, Shaw, Eastlink, SaskTel) providers have the means to invest in the wireline and wireless infrastructure that will be required to keep up with IoT developments. These facilities-based telecommunications providers have been investing more than $11-billion a year on average over the past five years to upgrade their networks, more than 300 times more than resellers, which only invested about $30-million a year.

The next generation of wireless networks, 5G, is expected to make all kinds of IoT solutions easier to implement because of much faster speeds, reduced latency and more flexible protocols for connections. The previous generation, 4G or LTE, has been in use for less than a decade. The deployment of this new technology in Canada over the coming years will once again require billions of dollars in investments.

The second reason has to do with the management of networks. Basic Net neutrality rules stating that a carrier should not block or unduly slow down services are widely accepted. But how should a data packet sending crucial information about the position of a self-driving car be treated, compared with another one sending a cat video? What about a platform monitoring a complex system of machines in a manufacturing plant? Or an eHealth platform on which the survival of patients depends?

The development of the Internet of Things will bring to the fore a whole new set of situations in which it may be necessary to treat customers, devices, applications or platforms differently.

Telus, for example, already has a dedicated enterprise network for M2M connections segregated from its consumer network for security reasons. Only the carriers that own the infrastructure will be able to manage their networks so as to meet these complex needs. Resellers will have no role to play in this evolving market.

In order to fully reap the benefits of the Internet of Things, Canadians need access to world-class networks. Some of the policies embraced by Industry Canada and the CRTC over the past decade not only failed to achieve their intended goals of increasing competition and improving quality of service; if pursued going forward, they may well slow down the development of the Internet of Things and harm the Canadian economy.

If it wants to "walk the walk" when it comes to innovation, Ottawa should stop fighting yesterday's regulatory battles and instead adapt its policies to the new IoT reality.

Martin Masse is senior writer and Paul Beaudry is associate researcher at the Montreal Economic Institute. They are the authors of "The State of Competition in Canada’s Telecommunications Industry – 2017" and the views reflected in this op-ed are their own.