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TORONTO – Amid predictions that data consumption will double by 2027, industry stakeholders assert that phone carriers need to augment their network investments even as Canada’s largest telco plans to reduce spending on its fiber network expansion.
The Canadian Telecom Outlook report by PwC, presented at the Canadian Telecom Summit in Toronto on Tuesday, reveals that Canadian providers must increase their capital expenditures for 5G and fiber networks by two per cent annually to meet the escalating demand for mobile data usage.
“Telecoms must make substantial investments in the infrastructure expenses required to serve customers across all these networks,” said John Simcoe, partner and national media and telecom leader at PwC Canada.
He cautioned that these estimates were calculated prior to the CRTC’s highly anticipated partial decision on Monday during its ongoing review of third-party access to fiber networks.
The decision permits independent Internet providers in Ontario and Quebec to utilize the fiber networks of large telephone companies, aiming to foster competition for Internet services in these provinces, where independent Internet providers currently serve 47 percent fewer customers compared to two years ago.
The ruling mandates BCE Inc. and Telus Corp. to grant competitors access to their fiber-to-the-home networks within six months.
However, Bell Canada, a subsidiary of BCE, announced a reduction of more than $1 billion in network investment plans for 2024-25, including a minimum of $500 million the following year, in response to the decision. Bell has already decreased its 2023 spending plans by $100 million, anticipating the CRTC decision.
Telus has not disclosed its response yet, but during a panel discussion at the conference, Stephen Schmidt, vice president of telecommunications policy and chief regulatory legal counsel, criticized the decision as “part of a 25-year trajectory of the CRTC doing things that no other regulator on Earth has done.”
“For peer regulators, the times have moved on and they are focusing on privacy, on 6G, on AI, on digital markets, but the Commission is carrying on a quarter-century-old job,” Schmidt said.
“The bigger concern is the extent to which it leaves other meritorious issues and other meritorious groups out of the center of its focus… but that will never be possible if we have the next 25 years of wireline proceedings.”
In addition to regulatory pressures, Simcoe highlighted various challenges that Canada’s telecommunications industry confronts in meeting 5G and fiber commitments, including high interest rates and capital costs, labor and material shortages, and the impact of worsening severe weather on infrastructure.
“How much can the industry withstand before it begins to deteriorate and we witness investment and job cuts?” added Sam O’Halloran from PwC during the group’s presentation at the conference.
Robert Gies, president and CEO of the Canadian Telecommunications Association, emphasized the need for the Canadian government to foster a regulatory environment that promotes investment and competition among companies building the networks.
“If they fail to create the regulatory environment that encourages investment, the investment will flow elsewhere,” he stated in an interview at a telecommunications conference.
According to a separate PwC report commissioned by the association and released on Monday, Canada’s six largest telecommunications companies are projected to spend $13.3 billion on their wireless and broadband networks in 2022. Over the past five years, the average annual investment by the Canadian telecommunications sector has been $12.1 billion. This represents about 18.6 percent of revenues dedicated to network infrastructure.
Gies acknowledged that the CRTC is attempting to strike a balance between promoting investment and reducing consumer costs, but he emphasized that major carriers seek “stability.”
“From my perspective, investment is the most crucial element in this equation,” he stated.
According to a spokesperson for Industry Minister François-Philippe Champagne, ministers are currently reviewing the CRTC’s decision.
“Our government’s top priority, as directed by the Minister, is to offer the best prices for Canadian consumers through a competitive telecommunications market,” said Audrey Champoux in a statement.
RBC Capital Markets analyst Drew McReynolds predicted that the impact of the CRTC’s interim decision would be “manageable” for existing carriers, considering mitigating factors such as cuts in capital spending.
However, McReynolds criticized the regional nature of the decision, stating that it was “puzzling” to apply the interim wholesale Internet access framework to Ontario and Quebec and not to other regions with fiber to the home services.
The regulator clarified on Monday that it had not yet determined whether a similar move would affect internet services in other provinces.
A comprehensive review of the rates paid by smaller competitors to major telcos for network access is ongoing, with the next public hearing scheduled for February 12, 2024.
Matt Hatfield, executive director of OpenMedia, an advocacy organization that promotes improved Internet access, remarked that Monday’s move should have been helpful to small Internet service providers, but it came too late for many of them.
“Canadians now demand fiber internet high-speed internet gold standard, and the CRTC’s indifference to that reality has led to most of the smaller ISP players being squeezed out by the telecom giants over the past few years,” Hatfield said in a statement.
“This means higher internet prices for Canadians and less innovation in our essential service telecommunications sector, despite the fact that we already pay some of the highest prices in the world.”
This report by The Canadian Press was first published on November 7, 2023.
Companies in this story: (TSX:BCE, TSX:T)
Sammy Hoods, The Canadian Press