Effects of mandated wholesale fibre access depend on final rates, stakeholders say

While some companies praised the CRTC’s long-awaited decision to mandate aggregated wholesale access to fibre networks across Canada, they are hesitant to celebrate just yet, as they say the effectiveness of the new policy relies on what interim rates will be set. Those numbers are expected to be announced by the end of the year. Tuesday, the CRTC issued a decision ordering BCE Inc.’s Bell Canada, Bell Aliant, and Bell MTS, along with Saskatchewan Telecommunications Holding Corp., and Telus Corp. to provide competitors wholesale access to their existing fibre networks. The telecom providers, all of which are incumbent local exchange carriers (ILECs) — meaning they were the original operators in their regions — will have until Feb. 13, 2025 to provide competitors with aggregated access to their fibre across Canada. SaskTel said it was still reviewing the decision to determine the impact on its business and operations. Bell and Telus have yet to respond to a request for comment. As part of Tuesday’s decision, the CRTC is exempting the companies’ new fibre builds from wholesale access until Aug. 13, 2029. This should encourage continued investment in fibre, including in rural and remote areas, said the commission, giving Bell, SaskTel, and Telus more time to recoup their investments. Incumbent cable carriers including Cogeco Communications Inc., Bragg Communications Inc.’s Eastlink, Rogers Communications Inc., and Quebecor Inc.’s Videotron, will not be mandated to provide wholesale access to their fibre networks “at this time,” said the CRTC, noting that their networks are significantly smaller than the larger incumbents. The commission said the “limited” amount of fibre built by cable companies to date connects five per cent of households, which “does not currently justify an additional wholesale fibre requirement. “However, cable companies must continue to allow competitors to use their cable networks to serve consumers at the highest available speeds. This will ensure equitable competitor access to gigabit-speed networks across Canada, regardless of whether those networks are owned by a cable company or a telephone company,” it said. All incumbent internet service providers (ISPs) must rely on their own networks within their traditional service areas, the decision states. This means that the country’s largest ISPs — and their affiliated flanker brands — are not allowed to use other companies’ networks to offer services in areas where they already have their own well-established infrastructure. Telus had asked the CRTC for this measure during a public hearing on the wholesale framework this February. Interim wholesale rates will be set by the end of 2024, with final rates to follow. Competitors say unknown wholesale rates makes it difficult to plan ahead Videotron applauded the decision, but urged the CRTC to lower wholesale rates in order to help competitors contend with cheaper internet offerings from incumbents. “This positive decision by the CRTC is entirely consistent with our desire to increase competition, continue our expansion and offer Canadians lower prices for high-speed Internet services,” said Pierre Karl Péladeau, CEO of Videotron’s parent company Quebecor, in a statement. “However, the final rates will be critical. We urge the CRTC to set rates that are just and reasonable, and reflect market realities, as soon as possible. Real competition is not possible at this time, as the regulated rates of $68.94 and $78.03, depending on speed, are far higher than the retail rates charged by Bell and Telus, making the business model unviable for competitors and forcing Canadians to stay with these two providers.” As part of an extensive consultation process launched in March 2023, including a week-long public hearing, the CRTC found that competition in the internet services market is declining, leaving many Canadians with fewer options for high-speed internet. With the aim of improving competition and providing more choice to consumers, in November the CRTC temporarily mandated large incumbents Bell and Telus to offer wholesale access to their fibre-to-the-premises (FTTP) networks — with fibre optic cables that run directly into customers’ homes — in Ontario and Quebec, regions that saw the most significant decline of wholesale-based competitors. That access was officially launched in May and will remain in place, according to Tuesday’s decision. Extending wholesale fibre access to the rest of the country is a “step in the right direction,” said TekSavvy Solutions Inc.’s VP of regulatory and carrier affairs Andy Kaplan-Myrth. “This is something we've fought for for years, so it's good to see it finally arrive.” He noted, however, that without knowing what the interim rates are going to be, competitors such as TekSavvy are stuck in the dark. “We only know part of the picture, because whether we're going to be able to use this new fibre service in the rest of the country totally depends on the rates, and we didn’t even get interim rates here. “It's very hard for us to plan… without knowing the rates,” he said. “So, that was disappointing.” Although interim rates have not been set yet, Kaplan-Myrth is hopeful that they will be low enough for TekSavvy to compete with incumbent ISPs. Current rates to access fibre in Ontario and Quebec are too high for TekSavvy to effectively lean into its fibre offerings, he said. But, by granting a five-year exemption to new fibre builds in order to allow companies’ to recoup the costs of their investment, new wholesale rates should not have to reflect those upfront costs anymore. “There's a markup as an incentive for investment… and that should be removed now, because the incentive for investment has been shifted over to the five-year ‘head start,’” said Kaplan-Myrth. Despite its potential to lower wholesale rates, TekSavvy is “not happy” with the exemption, saying it gives incumbents “a guaranteed five-year monopoly.” The measure should create incentives for incumbents to continue to invest in their networks, but without competitors being able to access cable carriers’ fibre networks either, there is the potential for it to cause “huge operational problems,” said Kaplan-Myrth. “If we don't have access to new fibre that's being built and we lose existing footprints where we don't have customers — as decommission copper and build more fibre that we don't have access to — this is going to create huge markets that are not open for competition for the next five years.” Tuesday’s decision stated that the issue of decommissioning practices will be addressed in a further proceeding “shortly.” The Competitive Network Operators of Canada (CNOC) also applauded the arrival of the CRTC’s decision, sharing TekSavvy’s stance. “We appreciate the commission’s swift progress on this file,” said CNOC’s chair and president Paul Andersen in an emailed statement. “While rates are yet to be determined — a critical factor for the success of this framework — we now have clarity on several key issues. The expansion of the temporary regime will benefit Canadians; however, granting further head starts to the ILECs and a lack of mandate for cable carriers risks creating two classes of Canadians in terms of competitive options.” “We are continuing to review the decision and consider our next steps,” he concluded. Material effect on wholesale market, rural connectivity unlikely right now Ted Woodhead, president of Woodhead Regulatory Consulting and former chief regulatory officer at Rogers, was less optimistic about the pending wholesale rates than TekSavvy. He said he expects them to be close to those that were set in November because of the greater costs associated with aggregated wholesale access, especially when looking at markets outside of the densely populated areas of Ontario and Quebec. “I don't think that going to have some great shift in market share to resellers from incumbents,” he said, adding that they might allow competitor ISPs to “hang around,” but will not impact ILECs’ ability to respond with competitive prices. The CRTC has undertaken a “huge task” in trying to open up fibre to competition and it would be a failure if wholesale rates do not work for competitors, said TekSavvy’s Kaplan-Myrth when asked about the possibility of rates remaining too high. “I have to believe that there's a purpose to this whole exercise, and that only succeeds if the rates are low enough that we can actually compete,” he said. When it comes to the restrictions on incumbents from accessing networks inside their own territory, Woodhead said he supported it. Although, “they could have gone further and clarified that they shouldn't resell at all, inside or outside," he said. Like the competitors, Woodhead was also critical of the exemption for cable carriers’ fibre networks, questioning why the CRTC deemed FTTP access as essential while only targeting the networks of specific companies. The regulatory consultant also took aim at the five-year head start that protects new fibre builds from the wholesale regime. “A five-year moratorium is meaningless,” he said. “It's nice window dressing, but doesn't really provide any kind of protection or relevance at all.” He argued that incumbents have “reached the end of the line” on their fibre rollouts and that most remaining locations that have yet to be connected are not a priority due to poor financial incentives, including investment “payoff periods well exceed five years.” Because of the high costs and low return on investment, Woodhead said he also doubts the effectiveness of the Universal Broadband Fund in connecting people in underserved areas, like those in certain areas of Manitoba or Saskatchewan. “Subsidy or not, it is not economic to serve them,” said Woodhead. “The government is going to have to, at some point, determine that the taxpayer is going to have to pay for these people to be connected… and it isn't going to be fibre, it'll be low earth orbit , or maybe for some, fixed wireless.” “The CRTC believes that protects the incentive to invest in those areas, I'm afraid I have to disagree,” said Woodhead. “Those areas certainly would have been very low on the priority level of building prior to this, and are less so after.” National Bank of Canada financial analyst Adam Shine shared a similar sentiment. “We don't view the CRTC decision as one that really incentivizes telco fibre investment, notwithstanding the initial five-year reprieve from exposure which steadily contracts to 2029,” he wrote in a research note. “What about fibre investments that have been made in recent years, let alone over the past one or two years. All the easy deployments have presumably been done already, with those remaining arguably more expensive and with lower .” “We would be surprised if Bell doesn't further prune back fibre-related capex investments,” he added, referring to Bell’s initial response to the commission’s November decision by cutting over $1 billion in planned network investments. The company also appealed the decision in court but it was postponed, pending the CRTC’s final decision. Bell did not respond to a request for comment. “It's difficult for the sector when the CRTC keeps changing the rules of the game. We'd expect the response by carriers will be to reduce capex investments and focus on debt reduction,” concluded Shine. - Reporting by Phalen Tynes-MacDonald at pcreed@thewirereport.ca

Effects of mandated wholesale fibre access depend on final rates, stakeholders say

News |
By Phalen Tynes-MacDonald
| August 13, 2024

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us

Effects of mandated wholesale fibre access depend on final rates, stakeholders say

News | By Phalen Tynes-MacDonald | August 13, 2024

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Related Stories

Union gets injunction against Telus over back-to-office rules

UPDATED: CRTC approves Rogers-Shaw broadcasting acquisition

ISED opening up 6 GHz band for WiFi

Incumbents appeal CRTC wholesale rates at Supreme Court

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us

News |
By Phalen Tynes-MacDonald
| August 13, 2024