By Ahmad Hathout
OTTAWA – During one of the CRTC’s most anticipated hearings earlier this year, Telus CEO Darren Entwistle appeared before the Commission reviewing impending changes to the wireless industry and warned mandating new entrants without facilities to ride on the networks of the incumbents would mean many jobs lost, philanthropic spending slashed and reductions in investments.
It was a defining moment during the hearing. Drawing the attention of national media and critics on social media, it encompassed for some the realities of the competitive delicacy of the industry; for others, it was viewed as a baseless threat from a large carrier with deep pockets. (This week, the CRTC asked Telus to publicly disclose the board resolution that was the basis of those comments or remove them from the proceeding.)
But the warning came in February, at least a month before Covid-19 was declared a global pandemic that thrashed workplaces, upended daily life and eliminated jobs. While the wireless and wireline industries are distinct, similar grievances affecting both businesses will likely carry over to the two-day hearing that — beginning Thursday in front of the Federal Court of Appeal — will determine whether the CRTC was right in August to slash wholesale internet rates smaller carriers pay the big ones to use their network.
The hearing will ultimately determine whether or not the incumbents will charge a fraction of the normal price for renting capacity and if they’ll pay a total sum of about $325 million to the smaller carriers in retroactive fees dating back to interim rates set by the regulator in 2016, which Bell will argue is an unconstitutional tax.
The last time we heard of the wholesale rate appeal, most people were still physically going to work. Following the August decision, some third party internet access providers quickly slashed retail prices while the cable and telco incumbents challenged the decision in the courts, to the Regulator and through cabinet appeals (which are still outstanding). Meanwhile, the facilities-based carriers announced cutbacks to investments, and Videotron even claimed its decision to eventually pull its gigabit service was a result of the decision. The court eventually stayed the CRTC’s decision.
The pandemic, with no real end date, may well shape Thursday’s hearing in some ways (it’s certainly shaping the hearing itself, which will be virtual). The default argument from the large carriers has long been if resellers are allowed to run on their networks at below cost, it will signal the death knell for investments in both current network upkeep and future fibre and 5G technology. During the crisis, the incumbents already used their relatively strong network performance to argue against the need for the CRTC to mandate mobile virtual network operators (MVNO). The incumbents were able to suspend fees and defer payments for their customers while maintaining strong network performance.
For broadband internet, which is the primary driver of connectivity during a crisis that has kept so many people chained to their homes, those same arguments will carry more water. It will be an opportunity to show, for both large and small carriers, where the priorities should lie: more competition through facilities-based investments or cheaper rates through third parties providers.
The facilities-based argument was propped-up again after the CRTC asked the wireless hearing participants whether the pandemic changed anything about their leanings. Some said the Covid-19 crisis was more reason for the CRTC not to meddle in the market.
For the incumbents, the pandemic has shown both sides of the coin: the devastation and the salvation. For the former, it means jobs, at least temporarily, with cuts seen at Quebecor, and Shaw; for the latter, it means the opportunity to show that investments in facilities should lead thinking on the future of telecommunications reform. In fact, some incumbents have accelerated investments during these unprecedented times.
A survey by the Canadian Wireless Telecommunications Association found the networks were resilient throughout the crisis.
“The current crisis… highlights in a very clear way the benefits of Canada’s Global Network leadership, which has been made possible because of our massive investments supported by long-standing facilities based regulatory policies,” Bell CEO Mirko Bibic said on a first quarter conference call earlier this year. “It has never been more important for governments and regulators to stay the course with policies that incent continued deployment of high speed fibre networks, wireless home internet in Canada’s underserved rural communities and next generation mobile 5G technology. The bottom line is, Canada cannot risk losing its global leadership on networks.”
Shaw also used the moment to drive home the narrative that facilities-based investments have allowed the carriers to perform exceptionally during the crisis. “Facilities-based operators have showcased their strength during this difficult time and we encourage regulators to be mindful of Canada’s relative strength on this front,” CEO Brad Shaw said.
In an op-ed in the Financial Post, Shaw went further and said had the CRTC’s August rates been in place seven years ago, the carriers wouldn’t have been able to build the networks that are handling the pandemic.
In early April, analysts expected the facilities-based carriers to weather the storm. Jeff Fan of Scotiabank said the pandemic has proved the importance of investments in facilities to navigate such an ordeal. But he also noted that third party carriers are under “significant pressure.”
To be sure, things haven’t looked as rosy for the small provider camp. Loudest of the complaints has been the uncertainty surrounding the viability of some TPIAs struggling to operate without some relief: TekSavvy asked the CRTC to consider emergency Covid wholesale rates, as the Chatham-based ISP announced layoffs and an increase in prices starting last month. Meanwhile, the Competitive Network Operators Consortium (CNOC) earlier this year asked, and was denied, relief from the larger players for such things as lifting capacity constraints free-of-charge, speeding up network enhancements and instituting wholesale payment term flexibility.
Make no mistake, this court hearing (along with the other appeals), combined with the hit from the pandemic, will either cement “facilities-based” as Canada’s go-to telecom policy for years to come, or allow resellers to use low wholesale rates and multi-million-dollar refunds to expand rapidly, offering low prices.
