CRTC decision to lower access costs risks compromising Internet speed and infrastructure quality
The Canadian Radio-television and Telecommunications Commission (CRTC) recently imposed strict conditions on large infrastructure providers in an attempt to lower consumers’ internet bills in Quebec and Ontario. It is forcing the owners of large fibre-optic networks – the type of cable necessary for high-speed wired internet – to sell access to their networks at very low cost to internet and cable re-sellers in our two most populous provinces.
In the long run, this approach risks jeopardizing the quality of our infrastructure, which means more frequent disruptions and slower internet speeds.
Laying down and maintaining a large fibre optic network is an expensive endeavour. In 2021 alone, the major operators of those networks – Telus, Bell, and Rogers – spent $9.4 billion maintaining and upgrading their networks. They can’t make such investments unless they can recoup their costs from a sufficiently large number of consumers at fair market rates.
These consumers range from individuals like you and me to other telecommunications companies piggybacking off the network at an agreed-upon rate. When the CRTC forces infrastructure owners to lower the rates at which they sell such access to other telecommunications companies – their competitors – that makes it harder, all else being equal, for them to recoup the costs of building, maintaining and upgrading their infrastructure.
As consumers of public transportation infrastructure well understand, the result of inadequate maintenance and upgrading can be potholed roads and highways and crumbling, potentially deadly, overpasses and tunnels. In telecommunications, less frequent inspection and upgrading of equipment may not be so dangerous, but it does translate into slower internet speeds and more frequent service disruptions.
Of course, one group of businesses did celebrate the CRTC’s intervention: internet service re-sellers. These companies’ entire business model relies not on building and maintaining infrastructure but on buying it wholesale and dividing it into smaller, consumer-sized packages. Though they made up 7.3 percent of the market in 2021, their collective investment in infrastructure that year was just $70 million – 0.8 percent of the industry total.
Small wonder re-sellers are so vocal about getting the CRTC to lower the price they pay for infrastructure access: It reduces their costs without affecting their revenues, making them more attractive to consumers, more profitable – or both.
As for those who take care of the lion’s share of our internet infrastructure, their reaction to the CRTC’s decision to force them to sell access at low cost in Quebec and Ontario has been to shrink their investment plans in these two provinces. It didn’t take long for Bell to announce it would cut its investments by more than $1 billion over the next two years, slowing the expansion of its fibre optic network.
And while Telus has yet to react, there is little doubt its finance department is re-evaluating a number of planned upgrade and expansion plans in light of this new regulation. As for Rogers, their infrastructure primarily uses a slightly different technology, and as such, it wasn’t targeted by this decision. But because their technology already had been targeted by such restrictions, it’s no surprise they weren’t unhappy to see their competition’s hands tied just as much as theirs already were.
The majors’ reaction will not have surprised the CRTC. In 2019, it imposed a similar policy of artificially lowering the wholesale prices charged to internet re-sellers in a bid to help them become larger players. At the time, the Competition Bureau noted that doing so would reduce investment in our telecommunications infrastructure. By 2021, the CRTC had reversed its decision.
Regulators need to remember that price is just one of the many aspects of competition. Infrastructure competition, which has to do with service speed and reliability, is often just as important, if not more so.
As everyone knows, cheaper is not always better.
By Gabriel Giguere
Gabriel Giguère is a public policy analyst at the Montreal Economic Institute.