Tech

Why is internet so expensive in Canada?

Updated on

  • 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.
  • 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 Canadian Internet Service Providers (ISPs) (Bell, Rogers, Telus, Shaw and Quebecor (Videotron)) receive 73.3% of the market’s revenues and charge higher prices due to a lack of competition.
  • 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.
  • Actions taken by the government and CRTC over the years to address industry competition, affordability and consumer choice have brought about slow or impermanent 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 a couple of months later – a win for consumers.

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 major ISPs.

This has already 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 mobile data and internet 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 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.

Year3 to 9 Mbps10 to 15 Mbps16 to 40 Mbps41 to 100 Mbps101 to 250 Mbps251 to 500 Mbps500+ Mbps
2016$41.94 – 3/6$58.88 – 4/6$63.48 – 3/6$78.77 – 2/6$114.65 – 2/6
2017$41.83 – 4/5$65.54 – 2/6$65.59 – 4/7$82.54 – 3/7$95.10 – 2/7
2018$40.67 – 3/4$57.36 – 3/5$70.70 – 3/8$87.00 – 3/8$102.76 – 2/6$123.87 – 2/7
2019$35.98 – 3/3$53.20 – 2/3$55.20 – 3/6$72.01 – 3/7$83.25 – 2/7$93.03 – 2/7
2020$44.37 – 3/4$54.61 – 2/4$61.62 – 3/8$77.18 – 2/7$83.95 – 2/7$97.16 – 2/6$107.55 – 2/6

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.

Year41 to 100 Mbps101 to 250 Mbps251 to 500 Mbps500+ Mbps
2016$78.77 – 2/6$114.65 – 2/6
2017$82.54 – 3/7$95.10 – 2/7
2018$87.00 – 3/8$102.76 – 2/6$123.87 – 2/7
2019$72.01 – 3/7$83.25 – 2/7$93.03 – 2/7
2020$77.18 – 2/7$83.95 – 2/7$97.16 – 2/6$107.55 – 2/6

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

Facilities-based service providers (or network operators) are the ISPs who own, operate and maintain the physical infrastructure (fiber, cables, etc.) 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.

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

Canada’s Big 5 ISPs (Bell, Rogers, Shaw, Telus and Quebecor (Videotron)) receive 73.3% of residential internet service revenues which total $10.5 billion per year and 87.3% of total telecommunication revenues (mobile, internet, landlines, etc.) which total $54.1 billion a year.

YearIncumbent ISP revenue shareResidential internet revenue ($billion)
201292.3%$5.6
201391.8%$6.1
201490.3%$6.7
201588.7%$7.4
201688.8%$8.3
201787.6%$9.1
201886.3%$9.8
201986.1%$10.5
YearBig 5 revenue shareResidential internet revenue ($billion)
201674.8%$8.3
201773.3%$9.1
201871.7%$9.8
201973.3%$10.5

Independent ISPs are very slowly gaining market share, but it is coming from that of the cable-based carriers. The Big 5 have maintained a strong and consistent three-quarters or more share of the residential internet market for almost 2 decades. More effective measures to increase competition in the market are needed.

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.

TelecomEmployees (2019)Revenue (2019) ($Billions)Revenue per employee
Bell52,10023.96$459,884.84
Rogers25,30015.07$595,652.17
Telus65,60014.7$224,085.37
AT&T243,350239.18$982,864.19
Verizon135,000174.05$1,289,259.26
T-Mobile52,00059.37$1,141,730.77
Revenue per employee of top 3 telecoms – Canada vs US

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 ‘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.

Disaggregated wholesale high speed access service framework

The framework used to determine the wholesale rate is under review and in the process of transitioning from an aggregated to a disaggregated framework.

This model will provide 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.

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.

Timeline of actions on pricing

We put together this timeline of the actions taken by the CRTC, the Government and telecom companies to figure out where things currently stand and how we got here. Let’s take a look at the 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 reduces wholesale rates

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

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.

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. 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

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 a beer 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

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.

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.

OpenMedia.org has set up a petition that has collected over 22,000 signatures so far. (Feel free to add yours)

“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

The federal government said it is 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. The ball is in your court, François-Philippe Champagne.

Our take: 2 tales of “About, face!”

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”

The CRTC has thrown out 5 years of evidence, testimony, hearings, analysis, studies and reporting and given a huge win to the major ISPs. 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. The Commissioner of Competition must conclude its investigation into the incumbents’ abuses of dominance and enforce its governing statute. 

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.

Potential solutions to make internet less expensive

OR: How 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 invests millions 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.

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:

LineAmount
Revenue$23,964,000,000
Wireline Revenue$12,356,000,000
Data Services (Internet) Revenue$7,684,000,000
Net Earnings$3,253,000,000
Source: Bell Canada 2019 Annual Report

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.

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.

Thank you for hearing my concerns, I look forward to your response.

Regards,
Your Name

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

Stay informed

Sources

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?

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Cansumer Staff

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