Setting the Future of Internet Competition in Canada

Bryson Masse is a writer and analyst with a focus on Canada's telecommunications market

Canada’s telecommunications regulator, the Canadian Radio-television and Telecommunication Commission (CRTC), has made it through another in-person hearing about the wholesale access framework for wireline telecommunications in Canada. What does that mean in English? It means there’s an opportunity for more competition, innovation, and consumer choice in the market for the most advanced internet services available in Canada.

Last month, the CRTC hosted a week-long examination of the ways more competition would improve consumer outcomes in the Canadian telecommunications sector. The three-Commissioner panel heard from the Competition Bureau,  consumer groups, independent internet service providers (ISPs) like TekSavvy and Execulink, the national  telecommunications incumbents of Bell, Rogers and Telus as well as the smaller regional incumbents like Cogeco and Videotron. 

The item up for debate, with the Bureau, consumers, indie ISPs and some regional players on one side and other regional and the large national players on the other: whether the wholesale access regime should be updated to make it easier for smaller companies to purchase access to incumbent fibre-to-the-premises (FTTP or just simply ‘fibre’) infrastructure.

The history of the internet is hidden in the walls of the buildings around us. Some connections to the internet still use copper phone lines, others use the coaxial cable lines from the days of cable television, but the latest generation of connectivity uses fibre-optic cables to transmit data at high speeds with very reliable service. But these connections differ not only in their construction but also the regulations that apply to them.

Until now, cable and telephone lines built by the giant incumbent operators need to be shared with indie ISPs through mandated wholesale pricing determined by the CRTC. As it stands today, fibre lines also need to be shared. But the rules established in 2015 ended up being too unwieldy for the industry to navigate with no companies employing the wholesale access model to sell fibre-based services. This hearing sought to update these terms.

Fair wholesale access to incumbent last mile and transport networks is critical to maintain competition in Canada’s oligopolistic telecom sector. It’s not the first time the federal telecom regulator has been down this path, but this round had a different tone from the previous runs at this type of regulation.

If the CRTC continues its current trajectory, a functional wholesale access service will be extended to the fibre networks built by the large telephone and cable companies. This will enable a new generation of service offering that compete through improved customer experience and more affordable prices. 

This article provides a guide to  what wholesale internet regulations do, how they’ve worked in the past and what they might mean for the future of internet competition in Canada.

Telecom Regulation Recognizes Reality

In a sentence, wholesale internet access frameworks mandate a price ceiling on the fees that large telecommunication companies can charge to other ISPs for access to the wires, lines and radio towers that connect to end users. When other ISPs can offer their distinct network services (not just internet, but also telephony, television and other data transmission offerings) based on that wholesale access, consumers benefit from choice and what’s known as service-based competition. 

These wholesale-based indie ISPs, instead of relying on facilities-based competition that requires building an entirely new network , compete on better customer support, innovative services and perhaps most foundationally, better prices. Facilities-based competitors also claim to compete on these terms, but when the cost of admission is in the billions of dollars, consumers can be left waiting a long time for the benefits to appear. 

Internet access regulations stem from the basic fact that it’s expensive and inefficient to build multiple, overlapping network infrastructures. Much like water pipes, electricity lines and highways, telecommunication networks tend towards being natural monopolies and underlying infrastructure sharing is a way to maximize economic efficiency. This is particularly the case for Canadians living in small and remote communities, where multiple providers are less likely to build than their urban counterparts.

Wholesale Rollercoaster

The last 15 years of wireline telecom regulation in Canada have been a wild regulatory ride. The public fights over the wholesale access framework kicked off when smaller internet companies sought to access the incumbent infrastructure in the first place.

Since the early 2010s, the incumbents, indie ISPs and the CRTC have been in a dance over the details of the regulatory framework governing the sharing of wireline networks. Originally in 2011, the fight was over whether the CRTC should design a system which enabled unlimited home internet plans. At this time, internet offerings in Canada were often capped with a monthly download limit and overage charges would be incurred after users exceeded that limit. At the end of these early deliberations, the CRTC picked a pricing structure that would allow for the smaller companies to avoid implementing such caps.

This allowed the indie ISPs a keen market differentiator for their services that provided consumers an enormous benefit. Eventually, the indies and the Canadian consumer came out on top and innovative services from indie ISPs changed the Canadian home internet market forever. 

Following that, the debate moved to what types of technology indie ISPs should have access to. In 2015, sharing was mandated over the then-next-gen fibre networks, but the arrangement was a departure from the “aggregated regime” which originally allowed for unlimited home internet plans. This “disaggregated” system would have hypothetically lowered the ongoing costs for indie ISPs, but instead introduced massive barriers to implementing the new wholesale services. Think about having to buy all the parts of a car individually rather than in one go and you’ll have an idea of the complexity. Disaggregated fibre wholesale access remained unused until it was effectively scrapped in early 2023.

Is the Price Right?

Throughout this process the question of whether the prices for wholesale access for indie ISPs are fair has long been a challenge to the CRTC.

On the pricing of the access to the former telephone and cable networks, after years of analysis the CRTC issued a decision in 2019 which substantially reduced the rates paid by access seekers. So much so that the incumbent telecoms owed hundreds of millions in retroactive overpayments. This decision was met with jubilation from the competitive ISPs and the public, but white hot corporate rage from the incumbents. 

In response, incumbents filed appeals at the CRTC, the courts and even the federal Cabinet. Despite their extensive efforts, the Supreme Court of Canada refused to hear the incumbents’ arguments after they lost in the Federal Court of Appeal and Cabinet, which had expressed concerns about the lower rates, decided not to intervene and modify the CRTC's decision. 

Unfortunately for consumers, the CRTC overruled its own previous decision and maintained the wholesale rates at prices established in 2016, ending the requirement for the giant incumbents to pay back hundreds of millions in overpayments to the indie ISPs. While it claimed to have found errors in its own calculations, the CRTC promised a fuller review of wholesale services overall to determine what would be considered “just and reasonable” wholesale rates.

Will 2024 Mark a New Dawn in Internet Competition?

To finally reach those “just and reasonable” rates the CRTC launched a comprehensive hearing in early 2023, throwing out the unused disaggregated fibre model and heading back to the drawing board on aggregated fibre access.

The question again remained who should get access and at what price.  In early 2023 the CRTC asked for views on interim access to fibre assets, and in a November 2023 decision, the CRTC issued a preliminary order to have Bell and Telus provide that aggregated access to their fibre networks in Ontario and Quebec within six months— sparing Telus’ larger footprint in the west of the country. Since then, Bell has tried to appeal the November decision to the federal cabinet and the Federal Court of Appeal. While the court agreed to hear the case, it was not convinced of Bell’s argument to pause the six-month timelines during its appeal and as it stands, Bell will need to launch wholesale fibre services by May 7, 2024. 

But to determine the future of Canada’s approach to internet competition, the CRTC continued with its public hearing in February 2024. By creating a public record, these hearings provide an important layer of transparency to an otherwise opaque and technocratic process. While much of the process remains shrouded by redacted submissions and in-house calculation, the CRTC’s hearings remain an important lever of public accountability.  

The CRTC heard from witnesses from consumer groups, indie ISPs as well as the big incumbents. The big incumbents pushed back with the usual claims of reduced investment and the wildly competitive telecom sector in Canada, but it was not with the usual vigour (or as many threats to cut jobs). More attention was focused on ensuring competitive options would not get drowned out by a large incumbent choosing to leverage wholesale access.

During the course of the hearing, Bell advocated for speed caps and restrictions on indie ISPs accessing its wholesale networks, particularly within five years of new fibre investments. Unsurprisingly, Bell threatened to reduce fibre network investments in areas deemed commercially unviable if regulatory conditions were unfavorable. Robert Malcolmson, Bell's chief legal and regulatory officer, stated that they were ready to shift to reselling cable and Telus fibre if necessary.

Telus maintained that it should not be considered an incumbent in Ontario and Quebec, the focus of the CRTC's interim decision. Brittany Larsen, Telus' director of regulatory affairs, proposed that wholesale mandates should not apply to network owners in their incumbent territories. Telus sought access exclusions only within its traditional operating areas of Alberta, British Columbia, and parts of Eastern Quebec. However, Rogers' senior vice president, Dean Shaikh, countered that Telus' proposal was hypocritical and self-serving, dismissing the notion that Telus was a plucky regional carrier providing competition.

Cogeco and TekSavvy pushed back against incumbent influence, with Cogeco's president, Frédéric Perron, asserting that 50% of their wholesale customers were associated with Bell, Rogers, or Telus due to "takeovers" of independent ISPs, posing an existential threat to regional carriers. TekSavvy's Andy Kaplan-Myrth highlighted the tenuous state of telecom competitors in Canada, with their subscriber count declining since its peak, emphasizing that no rational business runs on hope forever. 

The Competitive Network Operators of Canada supported aggregated access mandates and called for improved customer quality-of-service metrics to track differences in response times between first-party and third-party providers. Meaning that the other services that incumbents provide to indie ISP customers should be at the same level of their own first party customers.

It appears much more likely that a workable framework will emerge for the latest internet wireline technology, though there are concerns over the price-setting methodology. Quebecor-owned telecom companies Videotron and Vmedia have accused Bell of pricing its retail services beneath the wholesale services. Either indicating that the wholesale prices remain above associated costs, or that Bell is employing below-cost retail pricing to drive competition out of the market.

The success of these efforts remains a wait-and-see, but there are encouraging signs that the new CRTC chair, and former Competition Bureau and ISED bureaucrat, Vicky Eatrides understands the stakes that internet users in Canada face when it comes to competition.

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by Keldon Bester