Eastlink says it'll slow network spending because of CRTC. Videotron, Shaw to review network investments; estimated costs now over $300M
WHILE LARGE INCUMBENT network operators mull their legal options in the wake of last week’s CRTC decision to decrease the wholesale rates third party ISPs must pay them, three more have said the decision not only costs them millions, but will cause them to rein in network expansion, which will affect rural broadband builds.
The Commission’s decision to retroactively impose the rates with the decision that took more than three years to complete also threw the incumbents for a loop as those funds have to come out of their current profits.
Halifax-based Eastlink (the incumbent cableco in Nova Scotia and PEI) told Cartt.ca it was stunned by the new rates set because they are only one-third the company’s cost of service, something it submitted in its analyses filed with the Commission during the lengthy public process.
(Ed note: For what it’s worth, this is all about access to legacy network infrastructure as the CRTC is also still in the throes of a separate public process considering third party access to incumbents’ fibre to the premises networks.)
The company has been planning more rural expansion, which the federal government sorely wants, but since third parties can now ride on Eastlink’s network below its costs and compete with it, too, the company said it will have to curtail spending. Eastlink has spent more than $500 million on its wired network footprint over the past five years. It also is an incumbent cableco/ISP in certain other regions such as Delta, B.C., Southwestern and Northeastern Ontario and Grande Prairie, Alta.
In a statement, CEO Lee Bragg said he is “shocked and disappointed by the Commission’s decision last Thursday in which it set final wholesale internet rates at even lower rates than the previous interim rates set in 2016. Eastlink has consistently expressed concerns over the past three years about the impact that below cost rates have on our ability to expand into new communities and to deliver a robust and sustainable internet service that meets the consistently growing needs of consumers for speed and capacity.”
“This approach to rate setting, which decreases wholesale internet rates to a mere one-third of our cost to deliver service, coupled with a requirement for a substantial retroactive adjustment, is a blow to companies such as Eastlink. It raises serious concerns about decisions that force companies like ours who have invested, built and constantly enhance facilities and infrastructure, and make significant investments in cybersecurity and advanced technologies to deliver and expand access to internet services that are among the best in the world, to sell at a fraction of our cost to wholesale customers who make no investments in infrastructure or technology nor are they required to do so,” he continued.
“This decision is incomprehensible when our governments have been actively promoting the importance of ensuring all Canadians, including those in rural areas, are connected.” – Lee Bragg, Eastlink
“This decision is incomprehensible when our governments have been actively promoting the importance of ensuring all Canadians, including those in rural areas, are connected. It compromises the future of investment in internet networks and infrastructure across Canada, which ultimately will lead to a deterioration of the internet service available to all Canadians.”
Shaw Communications also set out its thoughts on the matter with an early Wednesday press release, saying the retroactive payments will cost it $10 million. “In time, this decision will be seen as short-sighted, and have negative far-reaching consequences for consumers and for the future investment required to build network capacity in all parts of Canada,” said CEO Brad Shaw.
“While the CRTC appears to be trying to use the reseller market as a primary source of broadband competition, it is ignoring the fact that the resale model relies on the investments of facilities-based providers like Shaw to create robust, fast and reliable networks for the future. In light of the decision, we are reviewing our future plans for capital expenditure and network deployment,” he added.
Vidéotron also released a statement this morning saying the decision will cost it $50 million, bringing the total estimated cost of the retroactive payments among Rogers, Bell, Vidéotron, Cogeco and Shaw to $325 million.
“It has been clearly established that a strong digital economy, supported by powerful networks, promotes the economic development of our communities, and we are concerned about the long-term consequences that delays in investments may have for the country,” said Jean-François Pruneau, Vidéotron’s president and CEO.
Update: SaskTel responded to the CRTC decision as well, telling Cartt.ca in an emailed statement the decision will not cause it any immediate financial impact, "however, we are very concerned about the long-term impact of the decision as SaskTel has invested hundreds of millions in network upgrades and the CRTC seems focused on directing us to effectively give it away to resellers who will invest virtually nothing in the province and likely will not employ any Saskatchewan residents. This and future decisions will significantly impact the economic viability of ongoing investment in rural Saskatchewan.
"SaskTel is committed to continuing to expand its broadband footprint, but the business case may be severely impacted by the CRTC’s short-term decisions," concluded the statement.
Telus, the other incumbent affected by the Commission’s decision, told Cartt.ca the company would not be commenting on the decision at this time.
“We are deeply disappointed Bell is considering walking back its commitment to Canadians in rural and remote communities.” – Minister Navdeep Bains, ISED
We asked Innovation, Science and Economic Development Minster Navdeep Bains for his thoughts last week when Bell made its initial announcement saying the CRTC’s decision will cause it to decrease rural broadband rollouts. “We are deeply disappointed Bell is considering walking back its commitment to Canadians in rural and remote communities,” Bains said in the emailed statement. (Ed note: We would imagine he is equally disappointed with the other carriers who say they, too, are reconsidering network spending and expansion.)
He noted the federal government’s Connect to Innovate program has been a key driver pushing rural broadband, connecting hundreds of communities and up to 380,000 Canadians so far, something he won’t see curtailed, whatever the incumbents’ decisions.
“With our targeted programs and the introduction of new incentives for capital investments, more incentives exist now than ever before to invest in connecting rural and remote regions,” he added. “Our government has also been relentless in promoting competition to lower prices, improve the quality, and increase the coverage of telecom services in Canada, which is already showing results.
“I am confident new competitors will step up to make these investments.” – Bains
“This will not distract from our government’s commitment to connect every Canadian to affordable high-speed internet by 2030, and I am confident new competitors will step up to make these investments.”
Bains is not the only one irked by the big ISPs’ announcements. “We are disappointed Canada's incumbent telecommunications providers are threatening to leave rural internet users behind in response to last week’s CRTC decision,” said Canadian Internet Registration Authority CEO Byron Holland. Calling the Commission’s decision “a welcome step towards promoting greater competition in Canada's broadband market,” he also added, “companies like Bell have benefited from decades’ worth of public subsidies and protections from competition, and now they’re threatening to abandon rural Canadians because the CRTC is forcing them to compete. If market-based incentives are insufficient to provide rural Canadians with high-quality internet access, then the CRTC has an obligation to step in and make sure it happens.”
It's wholly unfair for the incumbents to tie this regulatory change – even with the millions of retroactive dollars the companies have warned their shareholders about – to rural broadband, Public Interest Advocacy Centre executive director John Lawford told Cartt.ca in an interview.
Wholesale internet rates and rural broadband “aren’t related,” he said, adding he believes the carriers are targeting a pullback in network expansion in rural areas “because it's an area where they have a fair bit of leverage because for the most part they’re likely to be the builder of rural broadband.
“They're putting them together on purpose and using rural Canadians as a pawn in their game and it's not nice… It’s just pure blackmail.” – John Lawford, PIAC
“You're pitting people who want cheaper internet and more internet competitors against rural Canadians… and those two things don't really have anything to do with each other. They're putting them together on purpose and using rural Canadians as a pawn in their game and it's not nice… It’s just pure blackmail.”
Lawford believes each of the companies are big enough and profitable enough to absorb the financial hits – and if they really do need to find the money, there are a wide range of other places where the companies can cut back. “They could have taken it out of 5G investment. They could've taken it out of upgrading switches… or executive compensation. There are a million places they could find this money.”
To put it all on rural, “smacks of trying to punish the average Canadian because they didn't get a regulatory decision they like,” he added.
If the companies want to fight the CRTC decision, they have 90 days to apply to the Commission to Review and Vary its decision, 90 days to appeal it to cabinet, or 30 days to launch an appeal to the Federal Court of Appeal. None of the companies have indicated what, if anything, they plan to do in this avenue.
