Opinion: For a better internet, stop controlling wholesale prices

What’s the point of lower prices if we can’t make a seamless call on Zoom or watch a movie in HD?

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Internet consumption has exploded since March 2020. Not surprisingly, closed Canadians spend more time online (55 percent spend more than five hours a day, compared to just 36 percent five years ago), whether for work, education or or entertainment. E-commerce also took off, with sales up 70 percent in 2020, with retail sales declining. Between the first quarter of 2019 and the third quarter of 2021, the average amount of data downloaded per online subscription rose 80 percent. The amount of data uploaded more than doubled (from 16.3 GB to 32.7 GB) over the same period. There is no doubt about it: telecommunications networks, especially residential ones, have been under great pressure. However, with the exception of the occasional zoom disconnect or download interruption, Canadian Internet infrastructure performed well.

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However, good performance does not fall from the sky. It is clear that the remarkable increase in Canadian data consumption would not have been possible without investments averaging $8.5 billion annually since 2013 to deploy, maintain and modernize their networks. This investment was provided almost exclusively by “utility-based” telecom providers (eg Bell, Rogers, Telus, and Videotron).

Continuous investment has resulted in network improvement. The number of resident subscribers with network speeds of at least 50 megabytes per second (Mbps) for download and 10 megabits per second for upload – CRTC’s target standards – increased from 46 percent of all subscribers in early 2019 to 70.5 percent in 2021.

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These investments and the resulting improvements in service are the result of intense competition between the major internet providers (led by the phone companies and cable providers) despite the fact that the CRTC has repeatedly thrown obstacles in their way. Among the most important, it has imposed price cuts on fees paid by sellers for access to broadband networks and data transmission – with the aim of artificially promoting the entry of new retail operators.

The evolution of regulated bandwidth rates per 100 Mbps illustrates this trend in CRTC. In 2013, the regulator announced that it had completed a detailed examination of wholesale prices, and declared them final. But in 2016, it cut those prices significantly, by nearly 90 percent in some cases. Similarly, in 2019, the CRTC announced new reductions in all wholesale prices, including network access rates, which were to be applied retroactively through 2016.

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Utility-based providers who have invested in high-speed networks have seen their profitability threatened and have challenged these cuts with various authorities. Last May, the CRTC re-reviewed wholesale pricing, eventually canceling its 2019 price cuts, and once again setting 2016 prices as final. The situation remains uncertain and could change, however, as it is currently being challenged by sellers.

Price cuts prior to COVID-19, especially those that occurred in 2016, penalized utility providers and their investments. Were it not for these imposed wholesale price reductions and related regulatory uncertainty, new, faster, and better quality networks would have been deployed more quickly.

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If they want Canadian consumers to continue to have access to high-quality, reliable internet services, the authorities should certainly think carefully before rescinding the latest CRTC decision and re-imposing the most dramatic price cuts of 2019. Such a rescission may be in the interest of retailers and consumers with lower prices. In the short term, it could come at the expense of the reliability and quality of tomorrow’s networks, which Canadian consumers rely on for many of their online activities.

What’s the point of lower prices if we can’t make a seamless call on Zoom or watch a movie in HD?

Gabriel Geiger is a public policy analyst at the Montreal Institute of Economics, where Valentin Petcanchen is a senior fellow.

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