Some consumers uncertain about wholesale competitor quality: Comp Bureau

Despite being “impressed” by the competitive presence of wholesale-based internet competitors, the Competition Bureau said there’s still a bit of uncertainty about how far that competitive dynamic will go into the future, according to its study on residential broadband internet services. That’s due in part to consumers unsure about whether wholesale competitors can provide the same level of service as the facilities-based carriers from which they rent their network space. “The Bureau’s consumer research underlines the hesitation and uncertainty in the minds of some consumers as to whether wholesale-based competitors can deliver services on par with their facilities-based counterparts,” the Competition Bureau said in its report on broadband competition, released Wednesday morning. The agency’s public opinion research found a “striking” one-third of consumers are just not sure what a wholesale-based competitor is, finding it “difficult to judge their service offerings without additional information.” Among the ones who said they have enough information, the bureau said respondents felt facilities-based competitors are somewhat better in providing reliable service and making repairs when problems arise. “While there is reason to be impressed by the competitive presence of wholesale-based competitors, there is also reason to hesitate when considering how far this competitive effect will manifest into the future,” it added. The study found that 14.7 per cent of respondents made a choice of ISP based on whether the provider was wholesale- or facilities-based. The bureau set out to study broadband competition over a year ago. It looked at the ability of ISPs to launch competitive offers, how consumers react to new competitive alternatives, how existing regulation impacts broadband providers, and if there are “lessons to be learned from how other countries manage and regulate broadband competition.” Over the course of that time, it found that wholesale-based competitors “fulfill a meaningful competitive presence in the marketplace,” serving over one million households which “continues to grow.” That presence has allowed Canadians to “negotiate lower prices and better terms from other competitors in the marketplace.” That is at least in part a result of industry regulation, it said. The study also found these wholesale-based competitors had a market share of between 15 and 20 per cent where they have focused marketing efforts. Still, “a significant portion of consumers” are “not aware” of those wholesale offers and “feel they need more information to properly assess their offerings.” That competition -- where bigger, more established facilities-based players react to the actions of those smaller telecoms -- could be elevated, the bureau said, in light of the fact that some of the larger wholesale-based competitors are introducing television services into their service rotations. Internet service providers that have launched TV service relatively recently include Distributel Communications Ltd., TekSavvy Solutions Inc., and Start.ca. “The addition of television services to the suite of services that these wholesale-based competitors can provide is likely to make these providers a more attractive alternative to consumers who wish to purchase a full range of services from a single provider,” the bureau said about the bundling tactic. The study found that those bundles can have a “significant impact on ISP choice.” Customers of facilities-based carriers, for example, are “substantially more likely to purchase a bundle” compared to customers of a wholesale-based competitor. Still, the bureau said it “remains to be seen” if these new services will poke the facilities-based bears into further driving down prices -- such as in the wireless market, where Shaw Communications Inc.'s Freedom brand introduced higher data packages at relatively low prices, which forced the bigger telecoms to respond. Overall, the bureau found that Canadians are “generally satisfied” with their internet service provider and the choice of existing providers. With their existing provider, 38 per cent said they were very satisfied, 52 per cent they were somewhat satisfied, eight per cent said they are not very satisfied, and two per cent said they are not at all satisfied. Responding to the choices of provider, 28 per cent said they were very satisfied, 50 per cent were somewhat satisfied, 17 per cent were not very satisfied, and five per cent said they were not at all satisfied. Those with a wholesale-based provider reported higher satisfaction with their provider than those with incumbents, it said. The exception to that overall satisfaction is those in rural and remote areas, where only 37 per cent of homes have access to the CRTC’s basic service threshold of 50 Mbps download, the study found. Those from those regions involved in the focus groups “demonstrated significant dissatisfaction with both the quality of their current services and their choice of ISPs,” the report said. The federal government and the CRTC have pledged a number of funds and initiatives to improve those poorer connected regions, including the most recent budget’s $1.7 billion Universal Broadband Fund and the $85-million top-up of the existing $500-million Connect-to-Innovate program, as well as the regulator’s $750-million Broadband Fund, which began accepting applications recently. The government has also pledged considerable funds to low-earth orbit satellites to improve connectivity in areas where fibre connections aren’t financially viable for the telecoms. Last month, the government announced it would invest $85 million to Ottawa-based satellite company Telesat Holdings Inc. The strategy is in line with past pledges, including those in the 2018 budget. But while satellites represent a popular way to connect the region, the bureau concluded in its study that it’s “less clear” that those technologies, as well as fixed-wireless services, can be considered “close substitutes” for wired services. It said those technologies may not be up to snuff with certain applications, such as streaming and online gaming; when comparing the same speeds, satellite and fixed-wireless proved slower; and currently, satellite networks could only service two per cent of Canadian households, representing a capacity problem. Price made up the single most significant factor for consumer choice, at 36.6 per cent, compared to upload and download speeds (21 per cent), monthly download limits (18.2 per cent), average wait time for customer service (6.8 per cent) and reliability of service (2.7 per cent). The agency also recognized that wholesale access to networks can discourage investment in the networks of facilities-based carriers. It recommended that the CRTC set wholesale access rates at the “correct level,” so as to maintain investment levels while also allowing wholesale competitors to continue to offer competition in the space. This was a point of contention for telecoms including TekSavvy and VMedia Inc., who argued that the current rates for wholesale fibre under the new disaggregated regime are higher than what they sell to their retail customers, meaning the incumbents can undercut the wholesalers. The study took the bureau through over 1,000 pages of submissions, more than 42,000 online survey responses, 12 focus groups, 2,005 surveyed representative households, 10 requests for data from industry participants and 20 stakeholder interviews, which took place during the summer and fall of 2018 (follow-ups were done in winter and spring of this year). According to those confidential interviews, the bureau’s finding of a burgeoning wholesale-based competitor class didn’t seem to faze some. “Several facilities-based competitors, in the context of this study, reported that they do not consider wholesale-based competitors to be a significant competitive threat to their business,” the confidential information yielded. — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Michael Lee-Murphy at mleemurphy@thewirereport.ca

Some consumers uncertain about wholesale competitor quality: Comp Bureau

News | August 7, 2019

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