For better internet, stop controlling wholesale prices

The consumption of internet services has exploded since March 2020. Not surprisingly, locked-down Canadians spent more time online (55 per cent spent over five hours a day, up from just 36 per cent five years ago), whether for work, education, or entertainment. E-commerce also took off, with sales rising 70 per cent in 2020, as retail sales declined. Between the first quarter of 2019 and the third quarter of 2021 the average volume of data downloaded per internet subscription rose 80 per cent. The volume of data uploaded more than doubled (from 16.3 gigabytes to 32.7) over the same period. No doubt about it: telecommunications networks, especially residential ones, have been put under considerable pressure. And yet, with the exception of the occasional zoom disconnection or download stall, Canadians’ internet infrastructure has performed well.

Good performance does not fall from the skies, however. The remarkable increase in Canadians’ data consumption clearly would not have been possible without investments totalling an average of $8.5 billion a year since 2013 to deploy, maintain, and update their networks. This investment was provided almost exclusively by “facilities-based” telecommunications providers (such as Bell, Rogers, Telus, and Videotron).

Continuing investment has brought network improvement. The number of residential subscribers who enjoy a network with speeds of at least 50 megabytes per second (Mbps) for downloads and 10 Mbps for uploads — the CRTC’s target criteria — has increased from 46 per cent of all subscribers in early 2019 to 70.5 per cent in 2021.

These investments and the resulting improvements in service are the result of intense competition among large internet providers (led by telephone companies and cable providers) despite the fact that the CRTC has repeatedly thrown obstacles in their path. Among the most important, it imposed price reductions on the fees that resellers pay both to access broadband networks and to transport data — this with the goal of artificially promoting the entry of new retail operators.

The evolution of regulated capacity rates for data transport per 100 Mbps illustrates this tendency of the CRTC. In 2013, the regulatory agency announced that it had completed its detailed examination of wholesale prices, and declared them final. But in 2016, it nevertheless dramatically reduced these prices, by close to 90 per cent in certain cases. Similarly, in 2019, the CRTC announced new reductions in all wholesale prices, including network access rates, which were meant to be applied retroactively back to 2016.

Facilities-based providers — which had invested in ultra-high-speed networks — saw their profitability threatened and contested these reductions with various authorities. Last May, the CRTC revisited its wholesale pricing again, eventually cancelling its 2019 price reductions, and again fixing the 2016 prices as definitive. The situation remains uncertain and could still change, however, as it is currently being challenged by resellers.

The pre-COVID-19 price reductions, especially those from 2016, penalized facilities-based providers and their investments. Had it not been for these enforced wholesale price reductions and related regulatory uncertainty, new, faster and better-quality networks could have been deployed more rapidly.

If they want Canadian consumers to continue to have access to high-quality, reliable internet services, the authorities should certainly think twice before cancelling the CRTC’s latest decision and re‑imposing its more dramatic 2019 price reductions. Such a cancellation might favour retail resellers and their consumers with lower prices in the short term but it would come at the expense of the reliability and quality of tomorrow’s networks, on which Canadian consumers depend for their many online activities.

What good are lower prices if we can’t have a smooth call on Zoom or watch a film in HD?

Gabriel Giguère is a Public Policy Analyst at the MEI and Valentin Petkantchin is a Senior Fellow at the MEI. They are the authors of “For a Stable Broadband Internet Framework Favouring Investment, Innovation, and Competition” and the views reflected in this opinion piece are their own.