THE 2006 POLICY DIRECTIVE to the CRTC (which came under then-PM Stephen Harper and then-Industry Minister Maxime Bernier) said the Commission must regulate based on market forces to the maximum extent feasible and reinforced that facilities-based competition (Canadian-owned, built, networks) was to be the backbone of the Canadian telecom marketplace.
It said a bunch of other things, too, but didn’t mention consumers at all. However, the Conservative government of the day insisted as long as the CRTC followed its directive, that should spur competition and lower retail prices.
Last week’s Liberal government proposed policy directive places consumers at the top of the heap and replaces the old Tory one, shuffling off that commitment to facilities based competition and market forces, right?
Apparently not.
Cartt.ca and others have been told by the ministry and ISED Minister Navdeep Bains’ office the two policy directives will exist “concurrently.” So, Mad Max Bernier’s market forces directive remains. It will not be replaced by the new one, which is something many have so far assumed was the case.
So that means the CRTC must act to make sure consumers have low prices and new options (mandated MVNOs are coming, for a while, and perhaps Wi-Fi first operators – more on that below), but the Regulator must also continue to keep facilities-based competition at the forefront and also rely on market forces to the maximum extent possible.
Since it’s just a proposed directive (whose Order-in-Council hasn’t been officially published yet and won’t be in the Canada Gazette until March 9th, after which anyone can provide comment for 30 days), and not finalized, wireless carriers are confused and afraid. Maybe the feds are redefining the “maximum extent feasible” test with this proposal, meaning the Commission will have to rely on market forces only up to how the government says may impact retail pricing (or votes)? Hard to know until the proposed directive is finally written and the CRTC finishes its work.
Also last week, the CRTC launched its review of the mobile wireless market (this happened separate, but concurrently with the ISED proposed policy directive). In the CRTC review announcement, you will find the Commission is finally favouring the forced entry of mobile virtual network operators (MVNOs) on the Big Three’s networks – but for a limited time only because, well, market forces still have to prevail.
“(I)t is the Commission’s preliminary view that it would be appropriate to mandate that the national wireless carriers provide wholesale MVNO access as an outcome of this proceeding. The Commission considers that, on balance, it is likely that the benefits that a well-developed MVNO market would deliver to Canadians are now more likely to outweigh any negative impacts that a policy of mandated wholesale MVNO access might have on wireless carriers’ network investments,” reads Telecom Notice of Consultation CRTC 2019-57.
However, the Commission then wants to be able to stand down from mandating MVNOs at some point and so the notice says it “continues to support the view that an appropriate mix of facilities-based and service-based competitors can and should exist in the market without specific regulation requiring their presence.”
“If MVNOs are mandated at the right terms, then why build?” – Jeff Fan, Scotiabank
We have two state of the art national networks – Rogers and Bell/Telus’s shared network. We have regional ones which overlap that are owned and operated by Shaw/Freedom, Eastlink, Videotron, Xplornet, Ice Wireless and some additional tiny regional players.
If I’m Freedom, or one of the other independents, I might be wondering why I’d build anything else at all? Its service offering can be part facilities-based where they now own spectrum and run their networks, and MVNO everywhere else. “If MVNOs are mandated at the right terms, then why build?” wrote Scotiabank analyst Jeff Fan in a note to clients on Friday. “Shaw is still in network expansion phase in Ontario, BC and Alberta. We wonder if it would be more favorable for it to rely on the MVNO terms to expand its network rather than building it out. That could result in significant capex savings.”
However, mandated MVNOs just may upend the progress being made by the smaller, newer, regional competitors. In regulatory-speak, they could be one of those unintended consequences.
While Xplornet declined to comment to Cartt.ca on either of last week’s announcements, in its submission to CRTC 2017-259, the proceeding where the CRTC was forced to reconsider the final terms and conditions for wholesale mobile wireless roaming service, it said mandating MVNOs “is far too blunt an instrument of public policy. It will lead to the possible failure of smaller wireless carriers and to a decline in CAPEX expenditures by the larger carriers… This would not be a surgical intervention and would not constitute sound public policy. It would definitely discourage facilities-based entry and the innovation that may bring.”
During the same proceeding, Eastlink was similarly unimpressed with the idea of mandating more resellers.” Eastlink submits that expanding the definition of Home Public Mobile Network would deepen and make permanent the digital divide in Canada between urban and rural areas, and would effectively prevent much of rural Canada from participating in the digital economy,” reads its submission.
“We further note that these impacts would undermine the hundreds of millions of dollars the Commission and ISED are separately directing to rural broadband investment; those investments only work if they are paired with investment from the private sector, which would be significantly lessened if the definition of HPMN is expanded and resellers are able to enter the mobile wireless markets on a mandated basis.”
“It seems to us that it defies logic for the government to move meaningfully away from its traditional facilities-based model when it is poised to generate significant funds from spectrum auctions over the next few years." – Tim Casey, BMO
So, with all of this now essentially up in the air (the proposed policy directive will become an actual one before the CRTC’s wireless market review is complete), we wonder how this confusion is going to affect the 600 MHz spectrum auction starting a week from today. “It seems to us that it defies logic for the government to move meaningfully away from its traditional facilities-based model when it is poised to generate significant funds from spectrum auctions over the next few years,” wrote BMO Capital Markets analyst Tim Casey in a note to investors.
“The industry is currently investing heavily in Gigabit/fibre networks and preparing for an evolution to 5G… With 5G technical standards emerging and initial testing well underway, commercial deployment, at scale, is expected over the next five years. To facilitate this evolution, the federal government is auctioning off spectrum over the next few years, which should generate billions of cash for government coffers,” Casey added.
Will we see mandated MVNOs? Sure seems likely. When? With the wireless review public hearing not scheduled until January 2020, with rules to follow months later, it seems any mandated MVNO would not come to market until 2021.
Casey also presciently noted that with the proposed directive the Liberal government is hoping to swing votes their way, but also added: “It is worth noting that the Harper government, which was very transparent in its confrontation with the industry, failed to convert their strategy into votes in the last federal election.”
