In a decision this month, the federal telecom regulator significantly lowered the wholesale rates that smaller internet resellers pay to access broadband network infrastructure built by major providers like Bell Canada. The CRTC said it did so to increase choice, affordability and ensure a competitive marketplace across Canada.
The major telecommunication companies have tried to push back, saying the lower rates will hurt the future investment required to build network capacity in all parts of the country and vastly reduce the scope of network buildout for home internet in smaller Canadian towns and rural communities.
In part that’s because the Canadian Radio-television and Telecommunications Commission’s Aug. 15 decision triggers a one-time bottom line hit in the form of retroactive payments to resellers. That payment could exceed $140 million for Rogers Communications Inc. alone.
TekSavvy, Distributel and other internet service resellers say the new rate regime will be a boon to consumers, although the magnitude of savings is unclear since providers have options to appeal the decision.
The Star asked Janet Lo, TekSavvy Solutions Inc.’s vice president of privacy and consumer legal affairs, for her views on impacts of the new rate regime.
Toronto Star: How will the CRTC’s move benefit consumers?
Janet Lo: The CRTC’s decision is very good news for consumers — it will result in lower internet prices. For years, the large carriers inflated the wholesale rates they charged smaller competitors like TekSavvy, so consumers paid higher retail prices. Since last week’s decision, TekSavvy has already launched new, very competitive offers in the GTA and other regions and we hope to announce more exciting news soon.
How do you see residential broadband retail rates trending over the next 12 months or so?
JL: We expect to see a more competitive retail marketplace with Canadians paying less for broadband. It’s just too early to speculate by how much. We are doing a review, but we have to see what the providers do.
How will the CRTC move help internet service providers compete?
JL: To connect our customers to the internet, TekSavvy must buy access to infrastructure owned by former monopoly carriers such as Bell Canada at wholesale rates set by the CRTC. TekSavvy has been ringing alarm bells about inflated wholesale rates for years. The benefit to consumers is clear — lower wholesale rates means lower retail prices and more network investments from competitors.
TekSavvy has called the decision a step toward more wholesale-based competition. What else needs to be done?
JL: Canadians still don’t have meaningful choice for fibre internet and cellphone services. The CRTC is considering ways to remove roadblocks that shut competitors out of those markets. Until that happens, the large carriers will continue to dominate and consumers will overpay.
How much have the incumbents inflated their wholesale rates over the years? What has been the impact on competitors and consumers?
JL: The amounts are astronomical — the CRTC reduced some components of wholesale rates by up to 77 per cent and further corrected other wholesale rate components, that it had adjusted in 2016, by 15 per cent to 43 per cent. (The) decision corrected rates back to March 2016, which incumbents say adds up to $325 million. The impact to competitors was devastating — we struggled to compete and were denied capital to invest in our businesses. The impact to consumers is simple — they paid more than they should have.
The big carriers argue that the issue is one of fairness. Why is it fair for rivals to resell services from networks created through the investment of others?
JL: Companies like Bell benefited from decades of taxpayer subsidies and protection from competition. It is only fair they be required to compete against newer companies like TekSavvy, especially since they are compensated with wholesale rates that ensure they receive a fair return on their investments.
This decision could lower costs for consumers, but might it also discourage the rollout of broadband in underserved areas?
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JL: The consensus among the investor community is that the new rates will not have a material impact to these extremely profitable, large telecom companies. The federal government has already granted them generous tax incentives to roll out broadband in rural Canada. So it is genuinely disturbing to see these companies threaten rural Canadians as part of a cynical public relations ploy to avoid more competition.
Innovation Minister Navdeep Bains has said that competitors can pick up the slack in terms of investment in rural broadband infrastructure after Bell said it would pull back spending in non-urban areas due to the wholesale decision. Is this realistic?
JL: Yes. As we’ve said before, a critical precondition to our investments is rate certainty, which this decision achieves. For our part, TekSavvy is building a fibre network in Chatham-Kent (TekSavvy is based in Chatham) and fixed wireless internet for rural underserved communities in southwestern Ontario. The industry has access to several important funding mechanisms, such as the Connect to Innovate program and the CRTC Broadband Fund, which have been put in place specifically to ensure that all Canadians have access to broadband services, regardless of where they live.