Why is internet so expensive in Canada?

Canadians benefit from high-quality internet networks that offer good reliability and speeds, but we pay more than other countries for the same level of service.

However:

• Canada currently has the 2nd most expensive internet (only behind the US) of the G7 countries for speeds over 41 Mbps and has consistently been the 2nd or 3rd most expensive for at least the past 5 years.
• The Big 5 4 Canadian Internet Service Providers (ISPs) (Bell, Rogers, Telus and Quebecor (Videotron)) receive 73.3% of the market’s revenues and charge higher prices due to a lack of competition. (Rogers is acquiring the internet business of Shaw, which was one of the ‘Big 5’)
• The CRTC makes independent wholesale providers pay unsustainably high rates to the Big 4 to resell their services and does not give them access to resell plans on their much faster fibre networks.
• The lack of competition is due to a wide variety of factors including the industry’s high barrier to entry, large market share, restricted foreign investment, potential for price coordination and history of privatization and acquisitions.
• The national telecom companies have a go-to list of reasons why prices are high, commissioning their own studies to try and disprove the cost disparity by claiming that the prices are “affordable” and trying to discredit independent studies (not paid for by Canadian telecoms) by claiming their methods are flawed.
• Independent ISPs still do not have viable access to incumbents’ fibre internet (FTTH) networks, greatly impairing their ability to compete.
• Year after year, the federal government studies the industry, acknowledges that prices are high and competition is lacking, commits to new approaches and initiatives, directs the CRTC to improve competition and prioritize the consumer, yet they capitulate when it comes time to assert their authority and decide in favour of consumers. The actions taken by the government and CRTC over the years to address industry competition, affordability and consumer choice have brought about slow, impermanent or even regressive progress.

Summary

The government has promised Canadians internet affordability for years and ordered the CRTC in 2019 to focus on affordability, competition and putting consumers first. Based on an extensive review of the industry, the CRTC reduced the wholesale rates – the price at which the Big ISPs are required to sell access to their networks to smaller, independent ISPs – a win for consumers – such as Teksavvy, VMedia (acquired by Quebecor) and Distributel (to be acquired by Bell for $335 million).

In response, many major ISPs issued threats and warnings saying that they would cut their investments in rural service infrastructure if wholesale internet rates were increased.

This hit the government’s weak spot. Universal high speed internet access – particularly in rural, remote and northern communities is a major component of the government’s platform, but it unfortunately does not include any mention of the affordability of the access provided, which helps explain what came next.

9 months later, the government asks the CRTC to re-evaluate their decision and essentially “go back to the drawing board”.

In May 2021, rather than finding a balance and setting middle-ground prices that both sides could reluctantly accept, the CRTC reverted rates all the way back to 2016 – ignoring their previous directives from the government and throwing out almost 5 years of their own work and findings in the process – a major win for the big ISPs. This made internet more expensive for Canadians.

Access to affordable, reliable and high-speed Internet is a necessity for all Canadians.

The CRTC (Canadian Radio-television and Telecommunications Commission) is the regulatory body in charge of setting and enforcing the rules in Canada’s broadcast and telecommunications industries. It declared broadband internet a basic service in Canada in 2016, and connectivity is increasingly vital for competing on the global stage and ensuring the continued growth of the Canadian economy.

The Competition Bureau’s report has found that most Canadians are well-served by world class broadband networks, and that Canadians are generally satisfied with their internet service provider (but that that those who use independent ISPs report higher satisfaction than those who use major ISPs). The Canadian Internet Registration Authority (CIRA) – who manage .ca domain names – similarly reports 81% satisfaction with home internet speed.

However, prices for the level of internet service quality we have here continue to be some of the highest in the developed world.

Is internet service expensive in Canada?

Ask any Canadian and they’ll likely tell you: yes – we pay more for internet than other countries. But how much more do we actually pay compared to similar countries such as the US and Australia?

The annual Price Comparisons of Internet Services report that compares monthly prices for specific speeds against those of 7 other developed countries found that Canada currently has the 2nd most expensive internet (only behind the US) for speeds over 41 Mbps and has consistently been the 2nd or 3rd most expensive for at least the past 5 years. The reports have been commissioned by the federal government for 13 years and counting and are completed by a 3rd party consulting firm.

The cost of home high speed internet had been trending downward in recent years, but jumped back up in 2020. Canadians’ appetite for more data and use of faster and faster internet speeds are contributing to a general increase in their communications bills.

Canadians still pay some of the highest rates for internet and mobile data and in the world.

According to studies commissioned by the Canadian government

The 13th (2020) edition of the Price Comparisons of Internet Services report prepared by Wall Communications Inc. on behalf of Innovation, Science and Economic Development Canada (ISED) found that internet prices increased in 2020 when compared to 7 other developed countries: US, France, Italy, Australia, Japan, Germany and UK. The price of 41 to 100 Mbps plans increased by an average of 7.2%, 100 to 250 (+0.85%) and 251 to 500 (+4.4%).

Below are the average monthly prices in Canada in each category’s range of advertised internet speeds for the last 5 years. Next to the price is Canada’s ranking relative to the countries that had sufficient data in that category. For example, 1/6 means Canada was 1st – the most expensive out of 6 countries, while 7/7 means we were 7th – the least expensive out of 7 countries.

It is important to note that not all categories are equally popular. First of all, most countries no longer provide service at 3 to 15 Mbps.

In addition, the government has committed to making 50/10 Mbps available to 100% of Canadians by 2030, so its worth focusing on where we stand for that and other commonly subscribed speeds such as those in the 41 to 100 Mbps and 100 to 250 Mbps categories.

When you highlight these areas, you find that Canada currently has the 2nd most expensive internet (only behind the US) for speeds over 41 Mbps and has consistently been the 2nd or 3rd most expensive for at least the past 5 years. The report notes that Canada’s internet service price rankings have stayed mostly constant relative to these countries since the study was first conducted in 2008.

Major vs independent ISP prices

Average prices from independent ISPs are uniformly lower than major ISP prices, with the exception of the highest speed category (500+ Mbps) and the lowest (where major ISPs do not offer service). Independents’ prices are on average 10.5% (between 4% and 18%) lower than major ISP prices for speeds between 10 and 500 Mbps – where almost all subscribers are. Notably, independents’ prices are almost 18% higher for 500+ Mbps service.

According to Prices of Internet Around the World by Picodi

Online discount site Picodi found that Canada had the 5th most expensive 100 Mbps plans in 2019 – comparable to Australia and more expensive than the US. 55 out of the 62 countries studied had 100 Mbps plans and in Poland, France and Singapore there were no plans available at that level because the lowest offered started at least 150 Mbps.

Why plans are expensive according to telecoms

“They’re affordable”

The President of Bell Residential and Small Business responsible for home internet services – Rizwan Jamal – wrote an opinion piece in the Toronto Star after the CRTC reversal, stating: “a recent study by The Economist found that Canada is number one in internet affordability internationally.”

The study does support the claim that Canadians spend a smaller portion of their income than the other countries, including the US and Australia, but it did not comment on how prices per GB in Canada compared to the rest of the world.

Being able to afford something doesn’t necessarily make it a good deal.

Why is internet actually so expensive?

• High barriers to entry
• Large market share
• Restricted foreign investment
• Size and profitability
• Potential for coordination
• CRTC’s mishandling of the wholesale services framework

High barriers to entry

Facilities-based service providers (or network operators) are ISPs who own, operate and maintain the physical infrastructure (fiber and cables connecting customers and communities and routers, switches, interfaces in data centres) that make up the network and determine its quality, speed and reliability. All of the major ISPs (Bell, Rogers, Shaw, Telus, etc.) are facilities-based service providers.

The CRTC considers facilities-based competition to be the most sustainable form of competition. Their facilities-based approach to regulation promotes and incentivize the creation of facilities-based providers which, in theory, allows for more innovation and choice while also driving competition and network investment.

Wholesale-based service providers (or independent ISPs) are ISPs that must rely on the physical infrastructure of a facilities-based provider to provide internet services to their customers. They purchase network access in bulk and develop attractive plans and packages that they sell to customers. Many consumers use them to negotiate lower prices and other benefits from other competitors. They cannot purchase their own facilities (eg. run their own cables).

In order to enter the market and compete, a new challenger has to have a vast amount of capital available to build a new nationwide network by installing fiber.

According to the Competition Bureau, it is unlikely that additional wired connections will be made available in the future.

Large market share

Revenue share

In 2021, Canada’s Big 4 ISPs Bell, Rogers (incl. Shaw), Telus and Quebecor (Videotron) received 75.3% of the $12.2 billion of residential internet service revenues, which was 84% of the total revenue from internet services of $14.5 billion. The remaining 16%, or $2.3 billion was from businesses.

Percentage of residential Internet revenues generated by Top 5 (4) and total residential fixed Internet revenues

The Big 5 (4) have maintained a strong and consistent three-quarters or more share of the residential internet market for almost 2 decades.

The Big 5 (4) received 87.2% of total telecommunication revenues (mobile, internet, landlines, etc.) which totalled $55.3 billion:

Telecommunication revenue market share (%) of five (four) largest providers 2013-2021

The percentage of revenues represented by the top 5 (4) changes slightly from year to year as revenues grow, but significant changes are usually due to ownership transfers such as Bell’s acquisition of MTS in 2017.

Residential Internet service revenue shares, by type of service provider (%), 2013-2021

Independent ISPs have been gradually gaining market share for internet services, primarily taking it away from cable-based carriers. However, the impact of the flurry of acquisitions in 2022-23 is yet to be reflected in the CRTC’s reports.

• Large incumbent TSPs include Bell, SaskTel, and TELUS.
• Small incumbent TSPs include Execulink and Sogetel.
• Cable-based carriers include Rogers, Shaw, Eastlink and Vidéotron.
• Other facilities-based carriers include Allstream Business and Xplore (previously known as Xplornet).
• Wholesale-based service providers include CIK Telecom and TekSavvy.

Subscriptions

In 2019, independent, wholesale-based ISPs accounted for almost 10% of all fixed Internet service subscribers, while in 2021 this number had dropped to just over 8% and another drop is expected once the acquisitions are accounted for:

More effective measures to increase competition in the market are needed.

Acquisitions and consolidation

After the CRTC ruling in 2021 that set the rates for wholesale internet services at a price some observers called untenable for small providers, saying: “this has to be a wake-up call about telecommunications and affordability”.

This came true in 2022 and 2023, as Canada’s biggest telecom companies went on a buying spree, acquiring the largest of their independent competitors.

“We are living through an independent service provider mass extinction event that we have been warning the CRTC and politicians about for years,” said Geoff White, the executive director of the Competitive Network Operators of Canada (CNOC), an industry association that represents independent internet service providers (ISPs). In the past year, he said, the CNOC has lost a third of its members.

Some independent ISPs say that the larger carriers are looking to erase the competition while they are struggling, others suggest it’s to silence their largest critics. The companies say the acquisitions will help them expand their footprints and lower-cost offerings.

Colin Legendre, the president of Coextro, a Mississauga-based internet provider said that it seems incumbents are taking over competitors now to prevent them from exerting downward pressure on prices in the future. That way, “even if the [wholesale] rates do come down, there are going to be so few of us left [that] the impact on them will be minimized”.

The timing of the acquisitions also coincided with the end of Ian Scott’s (ex-Telus VP, lobbyist and friend of Bell CEO Mirko Bibic) time as CRTC chair, which was announced in September 2022 (part way through the flurry of acquisitions).

So not only were the major ISPs likely getting great deals on the purchase of their competitors due to the impact of the 2021 wholesale rates decision, but acquiring them would also mean that there would be fewer independent ISPs well positioned to quickly take advantage of changes made by the incoming CRTC chair, such as including lower wholesale rates and access to fibre-to-the-home services.

It would take a lot longer for competition-friendly policy changes to have an impact if new independent ISPs had to first be setup, find investment, gain consumer awareness and trust and get consumers to switch to them – particularly in a higher interest rate environment.

It’s almost as if they knew that the game was up once Ian Scott was no longer the chair of the CRTC.

March 2021-23 – Rogers acquires Shaw

Rogers announced it would acquire Shaw Communications, Canada’s 5th largest internet service provider and the owner of Freedom Mobile, Canada’s 4th largest phone service provider for $26 billion, which would consolidate the internet services market from the Big 5 ISPs to the Big 4 further increase the market share of the Big 3 phone companies.

Founded in 1966, and headquartered in Calgary, Alberta, Shaw Communications provides internet, TV and phone services primarily in Alberta and British Columbia and satellite television nationally.

February 2022 – Bell acquires EBOX

Bell acquired independent service provider EBOX for $139 million which had 67,090 internet, 9,025 retail Internet protocol television (IPTV) and 3,456 retail residential NAS lines subscribers.

Founded in 1993 and based in Longueuil, Que, they offer high speed internet in Ontario and Quebec.

Some of the reasons they provided for the sale was due to financial challenges caused by the CRTC’s 2021 decision along with increased costs related to higher data usage caused by a much higher number of people working from home.

June 2022 – Telus acquires Altima Telecom

July 2022 – Quebecor acquires VMedia

Quebecor acquired national independent service provider VMedia which had 36,400 internet, 16,700 TV, and 2,400 home phone subscribers and approximately $6.5 million in internet revenues.

Founded in 2013 and based in Toronto, ON, they provided internet VoIP and home security services to residents in Ontario, Quebec, Alberta and British Columbia.

The purchase was not publicized until after its CRTC approval and completion. The co-founder said scrapping CRTC’s 2019 wholesale rate played a role in its decision to sell. Quebecor stated that the acquisition was part of a long-term strategy to expand its operations nationally to compete with Bell, Rogers, and Telus.

September 2022 – Bell acquires Distributel

Bell acquired Distributel, one of Canada’s largest independent service providers with over 200,000 customers (2016) in Ontario and Quebec. They had previously acquired independent telecom competitors Acanac (2011), Yak Communications (2016), Zazeen (2017) and Primus Canada (2021). The deal is subject to regulatory approval.

Founded in 1988 and based on Ottawa, ON, Distributel successfully fought Bell in 2015 for the right to offer long-distance services through its network. The CRTC ultimately ruled in favour of Distributel, setting an important precedent for the competitive telecommunications market in Canada.

Distributel, EBOX and VMedia were among the largest independent providers when they were acquired.

January 2023 – Telus acquires Start.ca

March 2023 – Cogeco acquires Oxio

June 2023 – Teksavvy, Canada’s largest independent internet service provider with over 300,000 customers, puts itself up for sale

Restricted foreign investment

In Canada, every major internet, phone and television provider is Canadian. A few foreign companies also offer services to a handful of customers, but they are all ultimately dependent on accessing Canadian firms’ infrastructure.

Since 1993, the Telecommunications Act has required that a carrier must be incorporated in Canada, 80% of its board of directors must be Canadian, 80% of its voting shares must be owned by Canadians, and it must not be otherwise controlled by foreign interests. Corporations investing in the operating carrier (holding companies) are considered to be Canadian if 66.67% of voting shares of that corporation are held by Canadians and it is not otherwise controlled in fact by non-Canadians.

Without the threat of a new, well-financed foreign company coming in to build its own networks and steal customers, Canadian service providers benefit from this protectionism.

Size and profitability create market and lobbying power

Look no further than the Big 3’s annual financial reports. Bell, Rogers, Telus are consistently high-performing businesses and are amongst the largest and most profitable companies in Canada.

They have many shareholders

As publicly traded companies, the Big 3’s responsibility is to protect their interests and those of their shareholders – not necessarily to the Canadian consumer.

That said, their shareholders are in large part institutional investors with stakes of 47%, 48% and 53% respectively including mutual and pension funds. Their shareholders are also in large part the Canadian public, with stakes of 70%, 8% and 78% respectively, so in a roundabout way, they are beholden to many Canadians, but their growth and profitability are also of prime importance to those same people. Some consumers have jokingly referred to the high plan prices as a ‘forced savings plan’.

They have say over political promises

Major telecoms threatened to reduce their investments in improving rural networks if the government agreed with the CRTCs proposal to lower wholesale rates, leading the government to change their mind on wholesale internet prices.

Through lobbying

Major ISPs held more than 250 lobbying meetings with government officials in the department of Innovation, Science and Economic Development (ISED) and at least 11 solo meetings with the CRTC head Ian Scott in the 2 years leading up to the CRTC changing their mind on wholesale rates.

Through employment

In addition to financial performance, they are large organizations that provide employment to many people in Canada. A PwC study highlighted that the telecom industry in Canada directly employs over 120k people in high value, well-paying jobs.

Interesting to note is that Canadian telecoms have 1.3 to 6 times more employees per dollar of revenue than US telecoms, even though the US has 9 times the population of Canada.

This enables them to wield their employees as leverage in threats and warnings to government and regulators. For example, Telus said it would cut 5,000 jobs if CRTC approved MVNOs.

With size and profitability comes market power.

Potential for coordination

For example, in the case of wireless services, the Competition Bureau concluded that as a result of coordinated behaviour among Bell, TELUS and Rogers, mobile wireless prices in Canada are higher in regions where Bell, TELUS and Rogers do not face competition from a strong regional competitor. The same is likely true for regions that do not have a strong internet service competitor.

Price-fixing vs price coordination

Price-fixing refers to written or verbal agreements or arrangements made between competitors to fix, maintain or control the price of a product or reduce competition in a market.

Price coordination refers to an a situational understanding or implication that exists between competitors that isn’t necessarily communicated or negotiated. It stems from a recognition that both companies can benefit by competing less aggressively.

While price-fixing is an indictable criminal offence under Section 45 of the Competition Act, price coordination is not.

What is the wholesale services framework?

The wholesale services framework outlines the current ‘rules of the game’ that determine how network operators are required to provide smaller, independent ‘wholesale ISPs’ such as Teksavvy, VMedia and Distributel with access to the physical networks that they own, operate and maintain. The goal of this was to maintain competition, give Canadians options and keep prices in check.

Its objectives are:

• Facilitating vibrant and sustainable retail competition that provides Canadians with reasonable prices and innovative services of high quality that are responsive to their evolving social and economic requirements;
• Incenting efficient network investment to further the development of facilities-based competition;
• Considering network efficiency, competitive neutrality, and technological neutrality when establishing wholesale regulations; and
• Recognizing differences in regional markets.

There are 2 types of wholesale services that independent ISPs can use to access the Big 4’s networks and provide services to customers, aggregated and disaggregated HSA.

Aggregated HSA (current model)

• Available across Canada.
• Provides access to fibre-to-the-node (FTTN) but not fibre-to-the-home (FTTH)*.
• Competitors connect their network to a smaller number of points in the large companies’ networks.
• Competitors have to rely almost entirely on the large companies’ networks.
• Generally higher costs to transport large amounts of traffic over the large companies’ networks.

CRTC’s attempted transition from aggregated to disaggregated wholesale high speed access (HSA) service frameworks

After reviewing the wholesale services framework in 2015, the CRTC concluded that their objective would be to foster “sustainable competition” (ie. the creation of, and competition between, facilities-based providers who own their own physical infrastructure) by transitioning independent ISPs from the aggregated framework above to a disaggregated HSA.

The CRTC would require major ISPs to provide access to their FTTH networks to independents, but only to those who qualified as “sustainable competition” – ISPs who own their own physical infrastructure – in a framework known as disaggregated HSA. Rates and conditions were set for the framework in 2017.

It would take time to implement the disaggregated model, so the CRTC required that the aggregated model continue alongside it while the transition took place.

Disaggregated HSA

Disaggregated HSA provides independent ISPs with:

• Access to the fibre to the home (FTTH) portion of major ISPs’ networks (this is already available only in Ontario and Quebec) in addition to the existing fibre to the node (FTTN), allowing them to provide higher internet speeds.
• Access to connect to a larger number of points in the major ISPs’ networks, giving them greater control to optimize the size and shape of their networks (reducing transport costs) and the services they offer.
• The option to purchase and operate their own facilities to transport traffic, which they were previously not allowed to do under the aggregated model.

In theory, it would give independent ISPs greater control over their services and cost structure, reduce their dependence on wholesale price regulation and encourage them to invest in their own networks by providing them access service on a wholesale basis with high-speed paths to end-customers’ premises from an incumbent’s central office or carrier head-end. By investing in their infrastructure, independents could compete to a greater extent than under the aggregated model.

While the CRTC had previously determined that independents’ access to FTTH was essential to support competition, they decided to reserve access to this essential service only for providers who transitioned to the disaggregated HSA framework, simultaneously using it as both a carrot and stick to encourage push ISPs to transition to the new model.

However, the Commission did not include transport facilities as part of the service, so independent ISPs had to either invest in their own transport facilities to support each central office or head-end where they have end-customers, or lease transport network facilities from other service providers.

The model ended up with a lack of adoption, due to a number of oversights by the CRTC including:

• prolonged period of interim rates preventing independent ISPs from making business decision to invest,
• disagreements over implementation, and
• several ISPs arguing that transport services were not practically available at many locations.

as well as regulatory gaming by participants which impaired progress and added to market uncertainty.

In March 2023, over 7 years since the decision to transition to a disaggregated model was made, the CRTC found that the disaggregated wholesale high-speed access (HSA) service framework has not fulfilled its mandate or achieved its objectives, there was no effective way to reconfigure disaggregated wholesale HSA services and launched a review of the wholesale framework.

What is the wholesale internet rate?

The wholesale internet rate is the regulated price determined by the CRTC at which the major network operators must sell access to their network in bulk to smaller, independent ‘wholesale ISPs’ such as Teksavvy, VMedia and Distributel. Final wholesale rates are determined by the actual costs incurred by the ISPs plus a reasonable markup.

The pricing is determined through a comprehensive review, analysis and consultation with industry stakeholders and ISPs who were asked to file their own cost studies. The goal of the CRTC’s review is to ensure the cost models used to determine rates were still effective at determining “just and reasonable rates”.

Increasing the wholesale rate

If the rate is increased by the CRTC, the network operators’ get to charge wholesale ISPs more for the same amount of internet access, so their revenue increases and wholesale ISPs expenses increase. This makes it less attractive and more difficult for smaller companies to compete with the major ISPs – decreasing competition and choice.

Decreasing the wholesale rate

If the rate is decreased, the network operators’ have to charge resellers less for the same amount of access, so their revenue decreases and wholesale ISPs expenses decrease. This makes it more attractive and easier for smaller companies to compete with the major ISPs – increasing competition and choice.

Potential solutions to make internet less expensive

How could the government could negotiate lower rates for Canadians? There are several ‘bargaining chips’ the Government of Canada could use to accomplish both its platform to build out universal high-speed and stated commitments to keep things affordable:

The government should have more say on the millions it invests into high-speed internet infrastructure

“Our government has made significant investments to support the building of Internet infrastructure in rural and remote areas so these communities can succeed in the digital age” 

Through the High-Speed Access for All: Canada’s Connectivity Strategy, the government is delivering over $6 billion in investments in rural broadband over the next 10 years.

• $2.75 billion – Universal Broadband Fund & Rapid Response Stream
• $750 million CRTC Broadband Fund
• $585 million Connect to Innovate
• $2 billion Rural and Northern Stream of the Investing in Canada Infrastructure Program  
• $1 billion over the next 10 years, and leverage at least $2 billion through the Canada Infrastructure Bank
• Accelerated Investment Incentive to encourage Internet service providers to invest in high-speed connectivity across the country.  

The government’s intent is to target its investments to areas where there the business case for investment by the private-sector is limited (rural, remote and northern areas).

ISPs are awarded contracts to build out the infrastructure which are paid for by government (taxpayer) funds – subsidizing their investments in internet infrastructure with taxpayer funds with seemingly few to no stipulations. This brings additional customers online and they get to own the assets and pocket the profits. Of the $652.6 million awarded so far across the first 3 programs listed above, $117 million was to major ISPs – including almost $57 million to Bell.

This could have been used as an opportunity to negotiate wholesale rates. How could the ISPs threaten to reduce the scope of high-speed internet buildout in rural communities in response to lower wholesale rates when the government is already giving them millions of dollars to do so?

Put the impact of wholesale rates into perspective

“[wholesale] rates may undermine investment in high-quality networks, particularly in rural and remote areas” 

A fair question to ask would be: How much of an impact do wholesale rate changes actually have on rural investments?

Surely the revenue lost is in some way proportional to the rate reductions, but one would assume this impact is lessened considering their wholesale business is the smaller part of their total internet business? Wouldn’t rural investments be based primarily on expected first-party subscriber revenues and to a lesser extent expected wholesale internet revenues (if a connected customer chooses an independent ISP)?

Rogers said the retroactive rate change will cost it $140 million. Bell put its cost at $100 million, Vidéotron at $50 million, Cogeco at $25 million and Shaw at $10 million. Eastlink didn’t put a dollar figure on its expected cost. Telus Communications declined to comment.

CBC confusingly compared these impacts to the companies’ previous quarter’s earnings:

“the amounts cited above translate to 24 per cent of Rogers’ $591 million profit; 13 per cent of Bell’s $761 million profit; 14 per cent of Cogeco’s $182 million profit; and four per cent of Shaw’s $229 million profit.”

However, this is not an accurate way of looking at the cost impact of the wholesale rate changes – more like comparing apples to wrenches.

Let’s take Bell as an example. First of all, the $100 million estimated cost is the total accumulated retroactive effect back to the decision on March 2016 – so about 2.5 years (and counting) worth of impact. So that’s roughly $40 million per year on average.

That annual figure should then be compared to Bell’s annual profits, which are as follows:

So in Bell’s case, the $40 million annual cost of the wholesale rate changes would amount to:

• 3.83% of the estimated portion of annual profit produced by Data Services (Internet)*
• 1.23% of their total annual profits, or
• 0.316% of their total annual Wireline Revenue
• 0.167% of their total annual revenues

*Based on an estimate of the portion of Net Earnings that could be attributed to the provision of Data Services (internet) of $1,043,066,731. It assumes the same profit margin as BCE Inc. (Net Earnings/Revenue = 13.575%). This is a rough guesstimate made for for illustration purposes and is not reported in Bell’s annual report.

The wholesale rate changes would cost major ISPs peanuts.

Increase competition by reducing wholesale rates

“Wholesale broadband is a proven regulatory tool for enabling retail competition”

Increasing the wholesale rate:

• Reduces competition in the internet services market.
• Increases prices for Canadians
• Increases the profits of some of the largest and most profitable companies in Canada.  
• Doesn’t seem to materially increase the appetite for rural investment.

Decreasing the wholesale rate:

• Increases competition in the internet services market.
• Has been proven to reduce prices for Canadians (Teksavvy gave 85% of its customers a rate decrease).
• Reduces the profits of some of the largest and most profitable companies in Canada.
• Seems to significantly reduce rural investment commitments.

The wholesale rate lever works both ways, so why not use it to apply additional financial and competitive pressure? Lower wholesale rates would indeed gradually shift ISPs’ first-party subscribers to lower margin wholesale subscribers which would certainly reduce their profits, but given:

• Their focus on areas including revenue and subscribers in earnings reports 
• Their Strategic Imperative 1 is to “Build the best networks”
• Capital markets strategy of continued growth in free cash flow and a strong balance sheet, supporting a healthy level of ongoing capital investment on advanced broadband networks and services that are essential to driving the long-term growth of our business.

Major ISPs’ investments in infrastructure (including rural) would certainly continue, just maybe not at as fast a rate.

Restrict the use of data caps/overage charges

In 2009, the CRTC ruled that telecom providers should invest and expand their networks as the primary means of combating congestion, with caps that discouraged streaming to be used as a backup.

However, given the lack of congestion and the intent behind the CRTC’s 2016 universal-service objective that all Canadians have access to internet with unlimited data, experts say caps continue to exist only to make network owners more money.

According to the latest CRTC data, 47.5% of Canadians actually subscribed to unlimited services as of 2018, up from 12% in 2013. The Canadian Internet Registration Authority reports a lower total, with only 45% of subscribers unlimited as of 2019, up from 29% in 2016. There has been progress, but there is still a lot of room for improvement.

Giving an ultimatum

In March 2020, the government announced that telecom companies will get two years to slash their cell phone plan prices by 25%, or face the consequences. The progress is tracked in the Telecom Quarterly Report: Price collection data published by the government which based on its name confusingly only collects cellphone plan prices. Why isn’t a similar approach being used for home internet?

If the government does not have enough leverage to compel these companies to invest in their own internet networks in order to provide access to Canadians at speeds expected of a developed country, then their status as an oligopoly should be called into question.

As a citizen, taxpayer and internet subscriber, I expect my government to find the middle-ground upon completion of the CRTC’s review of the rates. As the previous prices did not balance objectives “in all instances”, surely they were not too far off and that some minor modifications (not complete reversal) are all that is necessary.

Previously suggested or implemented solutions

Mandatory wholesale rate access

Unlimited home internet has only recently become common in Canada after a long regulatory battle between major and independent ISPs. It started around 2010 when Netflix expanded into Canada and critics argued that the major telecom companies were keeping monthly caps low and applying overage fees to discourage streaming and protect their TV businesses.

In August 2010, as directed by the government, the CRTC issued Policy 2010-632 (the high-speed access decision), that the network providers must offer the independent service providers wholesale access to and use of speeds that match all speed options the network providers offer their own retail Internet service customers.

In doing so, they implemented a capacity-based billing system where independent ISPs could purchase their own “virtual pipes” of different sizes (eg. 100 Mbps or 1 Gbps), rather than a usage-based system where the wholesale ISPs would pay for every GB their customers used (eg. 100 MB or 1 GB) – which was preferred by major ISPs.

This allowed independent ISPs to offer unlimited data with no caps – which forced the major providers to follow suit.

Timeline of actions by the government and CRTC

We put together these timelines of the actions taken by the CRTC, the Government and telecom companies to figure out where things currently stand and how we got here.

Federal government

In summary, here is the federal government’s approach:

When announced by the government, 4 out of the 5 stages make it sound like they’re taking action and making progress, but little to no progress is made when they do not assert their authority and force the CRTC or network operators to follow through.

• 2006 – Issue an order direction to the CRTC on implementing policy directives SOR/2006-355
• 2018 – Commission industry report
• 2019 – Issue a pro-consumer policy direction to the CRTC
• 2019 – Issue a pro-consumer policy direction to the CRTC
• 2019 – Commission industry report
• 2020 – Decide against lower prices and greater competition and defer to CRTC
• 2020 – Commission industry report
• 2021 – Commission industry report
• 2022 – Decide against lower prices and greater competition and defer to CRTC
• 2022 – Acknowledge prices are high, competition is low
• 2022 – Issue a pro-consumer policy direction to the CRTC
• 2023 – Issue a renewed approach to telecommunications policy direction to the CRTC, replacing the 2006 and 2019 directions

CRTC

Let’s take a look at the CRTC’s timeline so far:

July 2015 – CRTC reviewed the wholesale services framework

March 2016 – CRTC reviews the costs required to provide wholesale access

October 2016 & November 2016 – CRTC sets interim wholesale rates

The 2016 rates were set at a higher-than-anticipated level for the time being, while the Commission worked on analyzing what a fair rate should be.

Major ISPs submitted their own cost studies and proposed wholesale rates, but the CRTC found that they did not do the studies in accordance with the standard costing principles outlined in their Regulatory Manuals, and did not provide justification for not using those principles and methodologies.

CRTC expressed significant concern that most of the major ISPs chose to disregard the CRTC’s guidance, the Manual, and past Commission determinations. They held the reduced interim rates they set in order to ensure they were not based on the overstated costs submitted by the major ISPs.

Some of the wholesale rates that internet providers can charge independent ISPs for access to their networks were reduced by up to 89%.

The CRTC Chairman at the time, Jean-Pierre Blais, called the companies’ behaviour “very disturbing.”

February 2019 – Government orders the CRTC to focus more on affordability and consumer interests

The CRTC was directed to consider competition, affordability, consumer interests and innovation in its telecommunications decisions and demonstrate to Canadians that it has done so.

June 2019 – Government asks the CRTC to place consumer at forefront of telecom decisions

The CRTC was asked by the Minister of Innovation, Science and Economic Development in June 2019 to consider competition, affordability, consumer interests and innovation in all of its telecommunications decisions and the extent to which these decisions can encourage all forms of competition and investment.

August 2019 – The CRTC set new, even lower wholesale rates

On August 15, 2019, the CRTC further reduced the wholesale rates, with retroactive effect back to March 2016. The final rates announced were lower than the interim rates and retroactive to the date they were set in 2016, meaning that small ISPs would be owed millions of dollars in back payments for what they’d been overcharged since then. The monthly capacity rates were 15% to 43% lower than the interim rates. As for the access rates, they were 3% to 77% lower than the interim rates.

In my case, savings were passed on immediately to me by Teksavvy. I received a reduction of $8 (almost 13%) from $62.95 to $54.95 on my next month’s bill.

November 2019 – Telecom companies file petitions against the decision

The major ISPs immediately appealed the decision. They argued that the rates were too low and said that it would undermine investment in high-quality networks, particularly in rural and remote areas:

• Bell said it would reduce the scope of broadband internet buildout for smaller towns and rural communities by 20%, or about 200,000 households.
• Telus emphasized that having such low wholesale rates will reduce the incentive for facilities-based carriers from wanting to invest in expanding network infrastructure.
• Rogers, Shaw Communications, Eastlink, Cogeco, and Videotron (cable companies) argued in unison that this will affect their business and their willingness to invest in network expansion particularly in rural and remote areas. And that it will reduce “operating margins by an amount that translates to as much as 54 percent of their planned investments in expanding and improving their broadband networks over the next five years.”

The Minister of Innovation, Science and Economic Development, said in a statement earlier this week that he was “deeply disappointed” in Bell’s decision to cut 200,000 homes from a wireless broadband rollout, but that he expects broadband infrastructure will continue to expand:  

“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.”

– Source

The rates were put on hold by the appeal court:

Bell Canada and five major cable carriers (the Applicants) have obtained leave to appeal the Decision from the Federal Court of Appeal. The Federal Court of Appeal has also granted stay of the Decision until it makes its final ruling. The Applicants and TELUS Communications Inc. (Telus) further appealed the Decision to the Federal Cabinet and have filed review and vary applications of the Decision with the CRTC. As a result of the stay, the impact of the Decision has not been recorded in our 2019 financial statements.

– Bell 2019 Annual Report

August 2020 – Innovation Minister sides with major ISPs and fails to uphold these rates

On August 15, the cabinet gave in to the pressure and threats made by the major ISPs and chose not to uphold the Internet wholesale rates set by the CRTC in 2019 – instead asking them to continue to re-examine them – while echoing the same reasons given by the major ISPs as justification for their decision.

“On the basis of its review, the (cabinet) considers that the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high-quality networks, particularly in rural and remote areas,” 

– Statement by Minister Navdeep Bains (emphasis ours)

This came less than 2 weeks after Bell Canada reported in its Q2 earnings call that profit fell 70% as the pandemic took a bite out of revenues.

This decision will inevitably lead to higher Internet prices for Canadians. In my case, I was notified by Teksavvy that as of October 1, 2020 my internet package of 60 Mbps with Unlimited GB would increase by $10 (almost 17%) – from $59.95 to $69.95.

TekSavvy is left with no choice but to interpret this announcement as an expectation from the government that retail prices should be raised, specifically to protect Incumbent investments. We are therefore making a difficult decision in order to continue providing you with the service you have come to expect.

August 25 email notice from Teksavvy

Government gives up on their promises

• 2019 – Government orders the CRTC to consider competition and affordability in its decisions and demonstrate it has done so.
• 2019 – Government finalizes the directive to the CRTC to increase competition and reduce prices.
• 2019 – As the major ISPs appealed the CRTC’s rates, the Minister said he expected broadband infrastructure to continue to expand and were “confident new competitors will step up to make these investments”.
• 2020 – Minister is suddenly concerned that rural investments may be at risk and asks CRTC to re-evaluate.

The Government’s decision to not uphold the rates should be considered a failure in negotiation as it appears to yield to the collective threats made by the telecom companies – including Bell’s threats to hold the broadband wireless Internet access of 200,000 Canadians hostage – and by echoing their reasoning as justification for the Government’s decision.

August 2020 – Competition Bureau advises CRTC on setting wholesale rates

September 2020 – Federal Court of Appeal dismisses appeals by big ISPs

The Federal Court of Appeal reviewed and upheld the CRTC’s 2019 rates – adding that the companies’ arguments were of “dubious merit.” The Supreme Court of Canada and the Cabinet similarly opted not to modify it.

The court also ordered Bell, Rogers, Telus and others to pay costs of the appeal to TekSavvy Solutions Inc. and an association of independent internet companies because they hadn’t been successful in convincing the three judges on any of the issues.

August 2019 to May 2021 – Major ISPs’ lobbyists meet privately with CRTC Chair almost a dozen times

Government lobbying records show that Bell, Rogers, Shaw, Cogeco, Quebecor and Telus had more than 250 meetings with government officials in the department of Innovation, Science and Economic Development (ISED), including one with Rogers the day after the announcement and one with Bell within the week.

In contrast, CNOC (a lobbyist for small ISPs), TekSavvy and fellow independent ISP Iristel met with ISED or the CRTC just 19 times. The specific matters and length of lobbying meetings are not required to be disclosed.

Scott had at least 11 reported solo meetings with Bell, Rogers or Shaw during the course of the CRTC’s open and active file with Ian Scott including one meeting with Bell’s CEO over beers in a Ottawa bar popular with government officials and the media. Here is a picture of that very meeting:

Ex-CRTC chair Von Finckenstein (2007-2012) has noted he would include a third party – typically CRTC’s general counsel – in lobbying meetings with industry. Ex-CRTC vice-chair of telecom Peter Menzies (2007 to 2017) confirmed the recommended practice was to meet with lobbyists in the office and have a third person present. He said he thought meeting at a bar “would fall into the category of high-risk behaviour.”

May 2021 – CRTC reverses their decision to lower wholesale rates, reverting to original 2016 rates

CRTC abruptly changes their mind

• 2016 – “wholesale rates should be lower”
• 2019 – “yeah, even lower than that”
• 2019 to 2021 – *has private meetings with major ISP execs*
• 2021 – “nevermind, forget everything we said the past 5 years, keep prices high”

In a complete 180° from their stance and statements for the past almost 5 years, the CRTC says it made errors when it ordered major ISPs decrease their wholesale internet rates.

The CRTC threw out 5 years of evidence, testimony, hearings, analysis, studies and reporting and given a huge win to the major ISPs.

What we did (during the review) was an extensive re-examination of the costing models, and the application of the costing principles to those carriers rates, and the results speaks for itself, they’re laid out in the decision.

We went back, we did the requisite detailed analysis and reached the conclusions that we reached.

–Ian Scott

Items cited as being incorrectly calculated in the CRTC’s methodology included:

• Cost of equipment use – an independent ISP would only need to pay for around 70% of the equipment cost even though the wholesaler would lose access to the said equipment when it’s leased
• Labour costs – Applying the same installation costs to Bell as it did with the other incumbents due to independent contract and internal labour costs
• Amortization periods – Doubling Bell’s amortization period for the final project development cost estimate from 5 to 10 years

The 2019 rate changes have been rolled back and the majority of the higher 2016 wholesale rates will remain in effect, with the exception of a markup by phone companies.

This decision greatly favours the likes of Bell, Telus and Rogers and will save them hundreds of millions of dollars (at least $325 million) that they would have had to pay to independent ISPs for overcharging them over the last 5 years.

A week before the decision was announced Ian Scott spoke at a Canadian Club Toronto event, expressing that he has a: “personal preference or a stronger belief in reliance on facilities-based [major ISP] competition” than wholesale-based [independent ISP] competition, and specifically linked this view in part to “some of my experience in the private sector.”

When asked about the decision’s impact on prices, Ian Scott said that the decision won’t lead prices to go up because the lower rates were never implemented, calling that a “false narrative.”, adding:

Why would it go up? I’m not buying this – not as a result of the establishment of these rates.

–Ian Scott

Within hours, multiple independent ISPs announced actual or planned price increases due to the reverted rates. TekSavvy announced that they are likely to scale back plans to invest $250 million in building fibre and wireless networks around Southwestern Ontario.

TekSavvy petitioned the Government to overrule the decision and publicly called for Ian Scott to be fired.

“I was stunned by this decision,” He said he was shocked that the commission would reverse itself on so many issues and that since regulation is rarely black and white, the “best thing is if you come up with something that both sides grudgingly accept.”

“[The ruling] seems to come totally down on one side. … I’ve never seen anything quite that one-sided in terms of regulatory decision-making.”

Konrad von Finckenstein, CRTC chair 2007-2012

There are only 2 reasons I can think of for this:

1. They’re incompetent, or
2. They’re toothless (or worse, captured)

Side note: The government (Heritage Minister Melanie Joly) appointed Ian Scott – a former Telus executive and registered lobbyist (as well as short stints at lesser positions at the Competition Bureau and CRTC) – as the head of the CRTC in 2017 for a 5 year term.

Can anyone say “regulatory capture“?

When regulatory capture occurs, the result is that an agency, charged with acting in the public interest, instead acts in ways that benefit incumbent firms in the industry it is supposed to be regulating.

Much of the blame rests with the government, as it appointed CRTC Chair Ian Scott, who has presided over a dismantling of a pro-consumer, pro-innovative policy approach.

Michael Geist, University of Ottawa law professor

Either way, with no decrease to the wholesale rate, and the anticipated retroactive payments cancelled, this will undoubtedly lead to 3 things: less competition, less choice and higher prices.

The CRTC’s decision not to uphold the wholesale rate changes should be considered a huge failure of their stated mission to: regulate and supervise broadcasting and telecommunications in the public interest. They have placed the interests of major ISPs above the interests of Canadians.

Their disregard for both their mandate from Cabinet, as well as Cabinet’s mandate from the Prime Minister, makes it clear that they CRTC actively undermined the government’s agenda and promises to Canadians.

It is clear that internet affordability is not something that the CRTC (or even the government) can be relied on to provide Canadians.

May 27, 2021 – Federal government says they will review the CRTC’s decision

The federal government announced that it will be reviewing the decision to ensure it aligns with its priorities of affordability, competition and innovation in the sector. The CRTC is operates at an arm’s-length from the government, but the government still has the power to override the decision.

1 year later, the Minister of ISED François-Philippe Champagne announced that the government will not alter the CRTC’s decision as it provides stability, is an attempt to correct errors made in 2019, and makes permanent the rates that have been in force since 2016.

March 2021-23 – Rogers acquires Shaw for $26 billion

Shaw’s home telephone, wireless and internet services are not subject to CRTC approval, but are being reviewed by the Competition Bureau and Innovation, Science and Economic Development Canada (ISED), which controls the usage of spectrum licenses used to provide wireless services.

The acquisition of Shaw’s broadcasting (TV) services was approved by the CRTC, with the following requirements:

The Competition Bureau filed court applications seeking to block the transaction, so Shaw announced it would sell off Freedom Mobile-branded phone and internet subscribers to Quebecor, and sell the remaining TV, internet businesses and Shaw-branded subscribers to Rogers in the hopes of getting regulator approval.

The Competition Bureau lost its appeal when the Competition Tribunal ruled that competition wouldn’t be substantially reduced. Final approval was given by federal Innovation, Science and Industry Minster Francois-Philippe Champagne on March 31, 2023.

April 2022 – Government announces affordable high-speed internet for low-income families and seniors

Up to 220,000 eligible families who currently receive the maximum Canada Child Benefit (CCB) (net family income less than $32,028) or seniors who receive the maximum Guaranteed Income Supplement (GIS) (annual income less than $19,656 (single) or $47,146 (couple)) – can get 50 Mbps download / 10 Mbps upload with 200 GB of usage for $20 per month through the Connecting Families Initiative from 14 participating ISPs including Telus, Bell, Cogeco, Rogers, Shaw, Videotron and SaskTel.

May 24, 2022 – OpenMedia delivers 50,000 consumers’ demands to Cabinet

OpenMedia.org delivered 33,000 signatures and 17,000 emails sent to ministers to Cabinet demanding the government reverse the CRTC’s wholesale rate hike to the federal government.

May 26, 2022 – Government refuses to reverse the CRTC’s wholesale rate decision

Minister of ISED François-Philippe Champagne announced that the government will not alter the CRTC’s decision as it provides stability, is an attempt to correct errors made in 2019, and makes permanent the rates that have been in force since 2016.

ISED directed the CRTC to support small companies that operate on the wholesale model and grant them greater access to incumbents’ fibre-to-the-home networks.

January 5, 2023 – New CRTC Chair and CEO Vicky Eatrides appointed to a 5 year term

March 8, 2023 – CRTC admits that the disaggregated HSA model has been a failure

March 8, 2023 – CRTC opens review of wholesale high-speed access framework

In light of changing market conditions, the significant challenges in implementing the framework, and the importance to Canadians of having access to greater choice and more affordable services.

The CRTC applied an immediate 10% reduction to the traffic-sensitive components of aggregated wholesale HSA service, seemingly acknowledging that

The CRTC found that the disaggregated wholesale high-speed access (HSA) service framework has not fulfilled its mandate and requires reconsideration.

The CRTC’s preliminary views are that:

1. the provision of aggregated wholesale HSA services should be mandated;
2. access to fibre-to-the-premises (FTTP) facilities should be provided over these services; and
3. the provision of FTTP facilities over aggregated wholesale HSA services should be mandated on a temporary and expedited basis, until the Commission reaches a decision as to whether such access is to be provided indefinitely.

June 22, 2023 – Competition Bureau advises the CRTC on promoting wholesale internet competition

Take action

Make your voice heard in 2 clicks

If any of this doesn’t sit well with you and you want to see change including more competition and lower prices, you can Email the Minister of Innovation, Science, and Industry, CRTC Chair Ian Scott and your MP (find yours here) to ask for government and Competition Bureau intervention.

An example of what to write:

“Dear Minister, I am writing to you as my elected official, because I am concerned about the future of Canada’s internet and the flaws in the regulation of internet services.

The Liberal government promised to introduce policies that would ensure innovation, competition, and more affordable prices for telecom services. The government even directed the CRTC to promote competition, affordability, and consumer interests.

In 2019, after five years of cost studies, consultations, and hearings, the CRTC found that the prices we were paying – and continue to pay – were too high.

However, in May 2021, after Bell, Rogers or Shaw held at least 11 solo meetings with Ian Scott and over 250 meetings with government officials in your department, the CRTC, rather than finding a middle-ground on rates that both facilities-based and wholesale providers would reluctantly accept, threw everything out and reinstated those high prices.

This reversal went against its previous findings, stated goal to encourage competition and direction from the government. It saved the major ISPs hundreds of millions of dollars and home internet prices immediately started increasing for Canadians.

We have a system in which competition is not present, prices are high and regulatory bodies are not acting in the public interest. As a Canadian I’m formally requesting that you respond and overturn Telecom Decision 2021-181. I also ask that this letter is sent to the Competition Bureau.“

You can also take action in several different ways on Teksavvy’s PayLesstoConnect.ca website.

Send a message to the Competition Bureau

Canadian consumers and stakeholders who wish to share their views on competition-related issues regarding a merger or acquisition transaction are invited to complete the following form.

Stay informed

• Know your rights by reading Canada’s Internet Code of Conduct
• How to Make a Complaint About Your Internet Service – CRTC
• CRTC public inquiries and complaints form
• Support the Public Interest Advocacy Centre
• Support OpenMedia, a registered non-profit working to keep the Internet open, affordable, and surveillance-free in Canada, Follow them to keep up to date on regulatory and government decisions and take action by signing petitions and sending emails to your Members of Parliament.

Sources

• Communications Monitoring Reports – CRTC
• Open Data:
  • Telecommunications Sector
  • Retail Fixed Internet Sector
  • Retail Mobile Sector
• Communications Monitoring Reports
  • 2017
  • 2018
  • 2019
  • 2020
  • 2021
  • 2022
• Price Comparison Study of Telecommunications Services in Canada and Select Foreign Jurisdictions – Innovation, Science and Economic Development Canada
  • 2016
  • 2017
  • 2018
  • 2019
  • 2020
  • 2021
• Delivering Choice: A Study of Competition in Canada’s Broadband Industry (2019) – Competition Bureau
• Media and Internet Concentration in Canada, 1984-2019
• The Internet Code, simplified – CRTC
• CRTC’s Communications Monitoring Reports

Over to you

What are your thoughts? How much do you pay for internet and what do you get for it? Have your internet rates gone up and if so, by how much?