COVID-19 Crisis Stark Reminder Why Governments Should Encourage More (Not Less) Private Sector Investment in Advanced Networks

Ontario business is deeply concerned about the disproportionate impacts the COVID-19 crisis is having on communities that lack internet connectivity. Broadband is a basic infrastructure requirement in today’s economy, but the ongoing pandemic has made it even more essential to public health and economic resilience.

For businesses and workers, particularly those practicing physical distancing, connectivity is necessary to ensure they can remain productive by using digital tools such as video conferencing. Without adequate access, those in rural and remote regions will be vulnerable to additional layoffs and business closures. There are also industry-specific consequences for sectors that are predominantly rural, including agriculture, that must face the significant challenge of adapting to the crisis by rapidly shifting to online marketing and training workers virtually for the upcoming season.

While there are important projects underway across Ontario by major network carriers like Bell, Cogeco and Rogers that are moving us in the right direction, future infrastructure projects similarly undertaken at no cost to taxpayers are in jeopardy, and rural areas in particular could be left behind.

The Government of Canada can – and should – address this problem, but it should not rely exclusively on taxpayer-funded broadband programs.

Instead, the federal government should encourage more private sector investment by correcting a decision issued by the Canadian Radio-television and Telecommunications Commission (CRTC) last August.

Historically, the CRTC has tried to achieve an important balance when setting wholesale rates paid by internet resellers to use carriers’ networks, setting rates at levels low enough that internet resellers can offer competitively priced retail services yet high enough that carriers can cover their own costs and still have an incentive to invest in new infrastructure.

Last August, the CRTC threw this critical (and successful) balanced approach out the window, reducing the wholesale rates internet resellers pay to levels that in many cases are below the carriers’ costs to build and maintain their networks. This forces carriers to incur negative rates of return on their investments – never a good result for any business, let alone companies that spend billions of dollars every year on new network infrastructure.

As a result, Ontario’s leading network providers have already indicated that planned investments in broadband networks are at risk, especially in rural areas. Some have already stopped projects in small Ontario communities.

Governments at every tier appreciate the social and economic benefits advanced networks provide but they must also fully grasp the necessity of making returns on investment. Absent those returns, something has to give.

We believe that wholesale rates set by the CRTC should promote key public policy objectives, including affordability, competition, investment, innovation, and the expansion of high-speed internet access across rural, remote, and Indigenous communities province-wide and throughout Canada. The final rates now under appeal do not achieve these important policy objectives.

We have made progress. Over the past five years, Canada’s network carriers have invested over $41 billion in network infrastructure across the country. Internet access prices have remained essentially stable since 2014 while Canadians consumed 33 percent more internet usage over the same period and purchased 53 percent higher internet speeds each year.

In addition to below-cost wholesale rates, the CRTC decision also includes retroactive payments from carriers to resellers worth an estimated $325 million. That’s capital that could otherwise be directed towards much-needed investment in infrastructure, a level of investment that all resellers combined would never come close to matching or even contemplate.

By failing to strike that important balance between what internet resellers require to be successful and what network providers need to support investments, the CRTC’s order puts the brakes on our future economic well-being.

The Government of Canada must do everything it can to limit the profound impact this crisis will have on Canada’s social and regional disparities. This means correcting the CRTC’s short-sighted decision by restoring previous wholesale rates until fair and reasonable rates can be established under a new rate setting process and eliminating requirements for retroactive payments. Doing this would support private sector investments that are critical to businesses and consumers in Ontario communities and across Canada.

Published as an op-ed in The Hill Times on June 8, 2020