“Scare tactic,” says CNOC
By Linda Stuart
OTTAWA — If the CRTC mandates mobile virtual network operator (MVNO) access to wireless incumbents’ networks, Canada’s gross domestic product would be reduced by an estimated $10 billion within five years, according to a new PricewaterhouseCoopers (PwC) study released today by the Canadian Wireless Telecommunications Association (CWTA).
In addition, other negative impacts on the Canadian economy would include an estimated $2.5 billion reduction in government tax revenue, approximately 94,000 jobs lost across the supply chain, and a widened digital divide between rural and urban communities in Canada, says the PwC report, which was commissioned by members of the CWTA.
The report, called Understanding the likely impacts of MVNOs in Canada: Impacts on the Canadian telecom industry and economy, evaluated possible outcomes should wholesale MVNO access be mandated by the CRTC as part of its current wireless policy review. PwC conducted a detailed economic assessment taking into consideration a range of factors including federal government objectives and policy levers at the CRTC’s disposal, says the release.
This study will not form part of the Commission’s policy making since its evidence-gathering period is complete.
The study is based on information sourced from OECD, Recon Analytics, Government of Canada, CWTA, Statistics Canada, Capital IQ and GSMA, among other sources, reads the report.
According to PwC’s analysis, requiring Canada’s facilities-based wireless carriers to sell access to their networks to MVNOs “at reduced rates” (however, whatever the wholesale rates might be under such a scenario is not known) would significantly impact investment, including estimated annual reductions of $5 billion in operating expenditures and $3 billion in capital expenditures over the next five years.
The study found that this would translate in aggregated impacts to network operators including an estimated 24,000 fewer jobs and 850 retail stores closed within five years. These cuts would also result in the delayed rollout of new services and a widening of the digital divide between Canadians living in urban and rural areas, according to the study.
Readers will recall Telus CEO Darren Entwistle was very specific during the hearing about how his company would react to mandated MVNOs.
Some of the findings in the PwC study run counter to other previous studies submitted to the CRTC by Cogeco and the Canadian Network Operators Consortium (CNOC) during the wireless policy hearing earlier this year.
For example, a September 2019 study prepared on behalf of Cogeco by Nordicity Group concluded that Cogeco’s proposed hybrid mobile network operator (HMNO) model for mandating wholesale wireless access would actually result in a 6% ($158 million) annual increase in overall investment in the Canadian wireless industry. It should be noted Cogeco’s HMNO model would mandate wireless access only to existing facilities-based carriers in areas where the HMNO has existing wireline or wireless telecom network facilities that serve retail customers, and the HMNO would be required to continue investing in its networks.
In addition, according to the Nordicity study, the introduction of HMNOs would generate a 4.81% ($1.47 billion) increase in Canadian GDP and an additional 40,100 jobs (16.65% increase). The job figure includes a 7,200 job increase within the wireless industry and 32,900 jobs representing the consumer surplus impact across all sectors of the Canadian economy, says the Nordicity study.
In a May 2019 economic study prepared by Dr. Zhiqi Chen on behalf of CNOC, Chen found mandated wholesale access for MVNOs was unlikely to cause a reduction in investments by existing national wireless carriers, and could very possibly stimulate their investments in order to meet the larger demand for network capacity brought by the entry of the MVNOs into the market.
Furthermore, the emergence of a wholesale market for MVNO access services offers carriers another way to earn profits from their investments and will likely have a positive impact on their incentives to invest, the Chen report says. In addition, mandated wholesale MVNO access will provide new business opportunities for smaller, regional carriers and these new revenue lines will reduce their risk of investing in infrastructure, the report says.
In an email sent to Cartt.ca, CNOC executive director Jeff Brownlee wrote: “Introducing competition through MVNOs will in fact spur investment in regional areas and benefit consumers as well as the Canadian economy… This is the same scare tactic that the incumbents use time and again whenever there is a threat of more competition. It’s getting tired. The bottom line is that Canada and Canadians will benefit from increased competition in Canada’s wireless market and the only threat MNVOs pose is to the inflated profit margins of the incumbents.”
“Our country’s networks are playing a critical role in sustaining social and economic activity as Canadians deal with Covid-19 and they will play a critical role as we rebuild and secure Canada’s future prosperity,” said Robert Ghiz, president and CEO of CWTA, in the news release. “Now is not the time for regulatory intervention that would slow down investment — it’s time for measures that further encourage network operators to expand connectivity so all Canadians can thrive in the digital economy.
“These cumulative impacts on Canada’s network operators would negatively impact Canadians and our national economy,” he added. “Canada is already dealing with millions of job losses and an economy expected to shrink by 6.8%. We need to stimulate long-term investment and economic growth, not stifle it.”
To access a copy of the PwC report, please click here. Part two of the study, focusing on the potential impact of MVNOs on Canada’s transition to 5G, is expected to be released shortly, said the association.
