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CRTC: THE CASE FOR PUBLIC INVESTMENT IN LONG LIFE CYCLE BROADBAND INFRASTRUCTURE THROUGH PUBLIC POLICY

by Rob McPhee on June 23, 2015

This opinion is provided by Rob McPhee of McPhee and Associates for the CRTC to consider as it initiates a review of basic telecommunications services for all Canadians.

More information on the CRTC review can be found here: http://news.gc.ca/web/article-en.do?nid=960029

Rob has led technology and technology infrastructure development for communities, governments, not-for-profit corporations and the private sector for over 20 years.

The CRTC is asking 4 basic questions, and my responses are included below.

QUESTION 1:

WHAT SERVICES ARE REQUIRED TO PARTICIPATE IN THE DIGITAL ECONOMY?

RESPONSE 1:

To participate in the digital economy,  the first question that needs to be asked is “who needs service?”.

There are different stakeholder groups and each needs different things. These stakeholder groups include:

  • Governments at all levels (Political)
  • Governments at all levels (Operational)
  • Businesses including SME’s, Nationals, and Multinationals
  • Residents

The second question now being “What type of service?”.

Successful participation in the digital economy is dependent on 3 broad factors:

  • Capital
  • Infrastructure
  • Skills and Knowledge

These 3 factors are required for the digital economy, and having 2 out of 3 of these factors addressed doesn’t present a partial measure of success.  All three need to be adequately addressed for a successful ecosystem.

Muskoka, and indeed Canada, will need to determine where we want to position ourselves in the global competitive landscape as it relates to the digital economy.  A credible set of data that depicts Canada’s global position regarding telecommunications infrastructure is available from the OECD at http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm

As Canadians, do we want to trail, be in the middle, or be leaders in the digital economy? Personally, I want Canada to be in a leadership position.

From my observations, governments (operational), national and multi-national businesses have a successful mix of the 3 essential factors which are putting them in the leadership space in the digital economy. Their needs are being addressed and they have been able to occupy leadership in this space.

However, according to Industry Canada, as referenced by the Canadian Chamber of Commerce, there are also over 1 Million small businesses in Canada. (Source: http://bit.ly/1e5XDaL )

A nominal portion of small businesses are pro-active in their information and communication technology (ICT) investment. In most cases though, small businesses is somewhat unaware of the benefits, and in cases where benefits are apparent, small businesses lack the capital or expertise to execute and implement.

In most cases, the skills and knowledge gap is a bigger problem than the capital problem.

For small business to engage and benefit in the digital economy, capital, infrastructure, skills and knowledge will have to be addressed in unison and in earnest.

The last stakeholder group,  governments (political ) at all levels, have a brewing problem.  The private sector technology providers can and should only provide service where it is in the best interest of shareholders.

Governments’ role is to be involved only where the public interest is served and where the private sector providers cannot meet the needs.  It is abundantly clear and there is significant intelligence available to all levels of government, that leading broadband infrastructure is an urban delight and is more ubiquitous in large centres and where population densities are higher.

So for most residents and small businesses that are located in a rural or small population centre, the best existing broadband choices are often mobile wireless (aka cellular).  This may be a reasonable choice for personal broadband connectivity, but is a poor or very expense broadband choice for a family, or a small business.

Residents and small businesses do not have the ability to singularly change this landscape, so the onus should be on governments (political) at all levels to be determined and co-ordinated to address this issue for the benefit of Canadians.

As noted above, we need infrastructure, capital, and skills and knowledge.   Leading edge broadband infrastructure is the essential component above all other components in the digital economy.

QUESTION 2:

UPLOAD AND DOWNLOAD SPEED IN THE DIGITAL AGE?

RESPONSE 2:

There is no specific number that can be quantified for several reasons.

Firstly, what may be appropriate for one party may be totally inappropriate for another party.  For example, a family may operate well on a 10Mbps X 5Mbps service today, but a small business video production company who produces and transfers high definition video couldn’t even begin to operate with that level of service.  One size doesn’t fit all in the digital economy.

Since Internet infrastructures is a shared infrastructure, Broadband must be built for the highest common denominator, rather than for the lowest.

Secondly, adequate bandwidth isn’t a complete broadband solution.  In most cases providers business models aren’t built around bandwidth, they are built around data usage.  Bandwidth is a technical component; data transfer caps and usage is a financial implication.  Data transfer caps are the bane of small businesses and residents and the economic backbone of internet service providers.

So price points for various levels of performance and data transfer caps must be considered when setting policy.

QUESTION 3:

THE POSSIBLE NEED FOR FUNDING MECHANISMS TO SUPPORT THE PROVISION OF MODERN TELECOMMUNICATIONS SERVICES.

RESPONSE 3:

We must consider the life cycle of broadband investment.  There is investment by private sector ISP’s in technologies  that produce short and near term revenues and returns.  Private sector has to operate this way, but this doesn’t always serve the best interest of the public.

Canada needs to think strategically about where the country needs to be 10, 20, 30, and 50 years from now.  As a county, we need robust reliable high capacity infrastructure development. Currently, and in the foreseeable future the only technology that can deliver that performance is fibre optics.  Fibre has the capacity, reliability, and scalability to serve us well with a forward looking vision.

Broadband infrastructure development requires planning, consultations, engineering, marketing, and the list goes on.  This means that the delivering a chosen technology is not the complete cost.  Regardless of the technology these other costs exist.

So from a public policy perspective, my recommendation is to develop policy where public investment is tuned to provide incentives and capital for long term life cycle, high capacity, high reliability broadband infrastructure delivered by the private sector.  This can be done through public capital contribution programs for broadband infrastructure as well as tax credit and incentives for companies that can accomplish this.  On the commercial and residential  consumer side, voucher systems can be used to increase the build capital available for under served areas.

While not trivial, it costs nominally more to build 10 Gigabit broadband Infrastructure than it does to build 100Mbps infrastructure. However, the result is a 100 fold improvement in performance, but not a 100 fold increase in required investment.

Note to public policy makers:  Make the investment in longer life cycle, high capacity, and high reliability broadband infrastructure.

The future will come regardless, and as Canadians, we will either have planned and executed well, or we will be reflecting on our diminishing broadband infrastructure position as the globe races past us.

Politicians and public policy makers would do well to quickly come to terms that increasing public investment is affordable and will benefit our economy.  The amounts being publicly invested right now are minuscule compared to the revenue generated.  Also, public investment is pale compared to private sector investment.

QUESTION 4:

THE ROLES OF THE ECONOMIC AND REGULATORY PLAYERS IN TELECOMMUNICATIONS SERVICES, SUCH AS THE PRIVATE SECTOR, GOVERNMENTS, AND THE CRTC.

RESPONSE 4:

Private sector providers are accountable to their shareholders.  Of course they need to operate legally and ethically, however, private sector providers should have no obligation to provide service to Canadians other than what market forces guide.

Governments should not legislate telecom service delivery any more than it should legislate portion sizes of meals in restaurants.  These relationships should exist between providers and their corporate and residential consumers.

Governments role should be to affect policy to maximize a competitive landscape.  Currently, the prominent oligopoly in Canadian telecom allows a few large commercial companies to have a significant stranglehold on the market. In fact the 5 player oligopoly sees 85% of Canadian market share.

Source: http://www.crtc.gc.ca/eng/publications/reports/policymonitoring/2014/cmr5.htm

Governments have tried to improve competitiveness but apparently with very limited success, while a few new entrants slowly attempt to build market share.

“The federal government said Friday that Wind Mobile Corp., Videotron Ltd. and Eastlink Wireless all won significant blocks of AWS-3 (advanced wireless services) spectrum covering most of the country for a combined total of less than $100-million, while Telus Corp. and BCE Inc. together will spend about $2-billion for the licences they won.”

Source: http://www.theglobeandmail.com/report-on-business/spectrum-auction-results/article23327602/

The quote and article above demonstrate this issue with clarity.  In this instance the oligopoly gains access to spectrum at a rate of 20:1 compared to other entrants.

Multiple spectrum auctions in recent years has provided billions (Yes that’s Billions) in revenue for the Federal Government.  This revenue is easily somewhere between 5 and 10 billion dollars. The Canadian Government’s corresponding expenses on this would be limited to Industry Canada’s administration of this.  This is only the money raised on the spectrum auctions and doesn’t account for the taxes that are contributed to federal coffers by the telecom industry players.

However, if you look at what the Canadian Government has invested into broadband infrastructure, the number is in the range of a few hundred million dollars.  Without doing deep-dive, quantitative research, I would place estimates are around 500 million in recent years.

These numbers might be disputed, but will have to stand until someone can produce some better ones.

While spotlighting the Canadian Government for their anaemic investment, it should be simultaneously recognized that the Feds has consistently taken a stronger leadership role than the Provincial, Territorial, or Municipal governments in investment in broadband infrastrucutre. This is probably since the Canadian Government has the largest telecom revenue stream to reinvest, compared to any other government. But again, still anaemic investment.

CONCLUSION

As noted earlier, politicians and public policy makers would do well to quickly come to terms that increasing public investment is affordable and will benefit our economy and country.  The amounts being publicly invested right now are minuscule compared to the revenue generated.  Also, public investment is infinitesimal compared to private sector investment.

Let the private sector serve Canadians where it can under the free market forces of Keynsian supply and demand.  Where the private sector fails to meet the needs of Canadians, create public incentives to provide development. This lagging is currently in the consumer residential and small business segments.  Target those investments to bring service levels to the leading edge instead of “basic service”.

Do it now, and do it with earnest. Make that investment for the benefit of all Canadians.

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Rob McPheeCRTC: THE CASE FOR PUBLIC INVESTMENT IN LONG LIFE CYCLE BROADBAND INFRASTRUCTURE THROUGH PUBLIC POLICY