Intervention to the CRTC on the Review of the wholesale high-speed access service framework

June 22, 2023

Table of Contents

I. Introduction

  1. The Commissioner of Competition (Commissioner) wishes to intervene in the proceeding initiated by Telecom Notice of Consultation CRTC 2023-56 (Notice of Consultation), published by the Canadian Radio-television and Telecommunications Commission (CRTC) on March 8, 2023.
  2. The Commissioner submits these comments of the Competition Bureau (Bureau) in response to the Notice of Consultation.Footnote 1 The Bureau makes these comments further to the Commissioner's mandate to act as an advocate for the benefits of a competitive marketplace.Footnote 2
  3. In the Notice of Consultation, the CRTC invites comments on a variety of topics related to its wholesale high-speed access (HSA) framework. In this submission, the Bureau has sought to offer comments related to a number of such topics which relate to competition, including questions 2 to 5 and 7 to 13. In other stages of this proceeding, the Bureau may comment on the responses of other parties to any question posed in the Notice of Consultation as far as those responses relate to, or may have an effect on, competition.

II. Executive summary

  1. Wholesale access promotes competition in respect of vital telecommunications services across Canada. The wholesale HSA framework supports competition by reducing the barriers to entry for firms to compete with network operators. Greater competition means lower prices, increased consumer choice, and higher levels of innovation across the Canadian telecommunications industry.
  2. The concept of competition is central to the matters considered in this proceeding. In its first intervention, the Bureau highlights its recommended approach to analyzing the state of competition along with providing international comparisons of key dimensions of competition, including price, network quality and deployment.
  3. The Bureau also offers comments on the CRTC’s questions regarding the current wholesale HSA framework, along with the CRTC’s preliminary view of potential changes to the framework. At this point in the proceeding, the Bureau does not take a position regarding the CRTC’s preliminary view that aggregated access to fibre-to-the-premises (FTTP) facilities should be mandated but notes certain disparate impacts on competition that such a decision could have. The Bureau also submits that, if a workable standard can be found, the CRTC should continue to consider a disaggregated access framework in at least certain areas of the country.
  4. While not directly related to the wholesale HSA framework, the Bureau has also identified certain measures to boost competition for fixed internet services that the CRTC may wish to consider. The Bureau draws on types of switching costs identified in its past research and possible solutions for minimizing such costs based on rules used in other jurisdictions.
  5. Finally, the Bureau submits that the CRTC should consider updates to its wholesale HSA framework before considering a shift to retail regulation.
  6. On May 4, 2023, the Bureau filed a request for disclosure and request for the issuance of a request for information. On June 2, 2023, CRTC staff granted the request for disclosure and noted the request for the issuance of a request for information will be considered at a later date. In these requests the Bureau seeks data and information that may assist us in offering further insights in a later intervention. The Bureau anticipates that this may include:
    1. calculating measures of market concentration at the level of provinces or Census Metropolitan Aggregation (CMA);
    2. calculating average prices based on total revenue and total subscribers at the provincial or CMA level;
    3. descriptive analyses that correlate prices with measures of competitive intensity; and
    4. descriptive analyses of the prevalence of FTTP and higher speed internet services over time and across provinces and CMAs.

III. The Bureau’s approach for this submission

  1. The Bureau has experience in analyzing Canadian wholesale access regulation in the wireless and wireline industries, as well as in analyzing different methodologies for setting wholesale access rates. The Bureau also has gained experience relevant to these matters as part of past investigations and a market study that it has conducted in this industry. In preparing this submission, the Bureau has supplemented this experience by consulting with foreign communications regulators, reviewing foreign wholesale access regulation frameworks, and consulting academic literature. This section will offer an overview of certain of these efforts which are relevant to this proceeding.

A. The Broadband Study

  1. In August 2019, the Bureau concluded its Broadband Market Study (Broadband Study).Footnote 3 The Broadband Study was a year-long effort undertaken by the Bureau to evaluate the state of competition in Canada's fixed internet industry. In conducting the Broadband Study, the Bureau surveyed consumers and industry participants with the goal of better understanding how internet service providers (ISPs) in Canada compete for consumers' business.
  2. The results of this study painted a largely positive picture at the time. In concluding the Study, the Bureau noted:

    The Canadian broadband industry is unique in respect of its wholesale access regime. The Bureau's research tends to indicate that this regime is working to deliver increased choice and competition to consumers. A diversity of competitors, both Wholesale- and Facilities-Based, compete daily to win customers and provide Canadians with access to world-class broadband networks. Balancing today's marketplace results with the longer-term need to maintain the incentive for continued investment in Canada's communications networks is a delicate matter, and will remain a challenge into the future.Footnote 4

  3. Although time has passed since the Broadband Study was completed, the Bureau believes many of its findings continue to be instructive in the current proceeding. In particular, the Bureau conducted surveys and experiments relating to consumer behaviour yielding insights that may be of assistance to the CRTC in this proceeding.
  4. However, the Bureau also recognizes that certain trends since the publication of the Broadband Study are of potential concern. As noted in the notice of consultation, the most recent data published by the CRTC shows that that the number of subscriptions served by Wholesale-Based Competitors peaked in 2019 and has since been in decline despite the overall number of subscriptions growing.Footnote 5 At the same time, several significant Wholesale-Based Competitors have been acquired by Facilities-Based Competitors.Footnote 6 These developments may indicate that the existing wholesale HSA framework is not providing a conducive environment for the independent operation of Wholesale-Based Competitors, and warrant careful consideration during this review.

B. Intervention on Wholesale Rate-setting Methodology

  1. In August 2020, the Bureau submitted an intervention to CRTC 2020-131 on the approach to rate setting for wholesale telecommunications services (Rate Setting Methodology Intervention).
  2. The Rate Setting Methodology Intervention identified relevant competition-related concepts and applied these to compare and contrast different rate setting methodologies for wholesale access in telecommunications.
  3. The Rate Setting Methodology Intervention also commented on certain matters related to wholesale regulation more broadly. In particular, the Bureau analyzed different countries to determine which may serve as the most appropriate international comparators to Canada when considering wholesale access regulation. The Bureau did so by comparing the state of fixed internet deployment in each country at that time, and found that six countries fit this profile. The Bureau described these countries as Two-Platform Comparators, namely: Belgium, Denmark, Hungary, the Netherlands, Portugal, and the United States.Footnote 7 The Bureau will refer to these countries in certain sections of its intervention when relevant to the consideration of wholesale access regulation.

C. Additional work undertaken by the Bureau to inform this submission

  1. In preparing this submission, the Bureau has performed a broader review of academic literature and international practices in wholesale access regulation. In this review, the Bureau has sought expertise and perspective by conferring with a number of foreign telecommunications regulators.
  2. The Bureau has also used updated data to reassess its Two-Platform Comparator conclusions. This updated data confirms that the six countries identified in the Rate Setting Methodology Intervention remain appropriate comparators for the purposes of considering current international practices regarding wholesale access regulation.

IV. Contextual considerations for this proceeding

  1. As noted in the Notice of Consultation, this proceeding is taking place under a new policy direction issued to the CRTC.Footnote 8 The Bureau notes that a number of the directions to the CRTC concern competition, and the Bureau wishes to highlight certain points related to competition that may be of assistance to the CRTC in applying these directions.
  2. Competition occurs across multiple dimensions, and in particular it is worth considering the differentiation between short-term and long-term competition. Competition in the short-term is typically characterized by firms competing for customers using existing processes and technologies across dimensions including price, service, and choice. While these dimensions are important in any consideration of competition, it is also necessary to consider long-term (or “dynamic”) competition wherein firms compete through making investments in new technologies and processes.
  3. This is of relevance as the issues under consideration in this proceeding could have disparate impacts on both short-term and long-term competition. Wholesale access regulation can increase competition in the short-term, including through offering increased choice and lower prices to consumers.Footnote 9 However, it is worth noting that wholesale access regulation can also have a negative effect on investment decisions,Footnote 10 potentially impacting long-term or dynamic competition.
  4. It goes without saying that it is a delicate and challenging exercise to strike the appropriate balance between these considerations. Recent years have seen significant investments by Facilities-Based Competitors, as seen in the growth of FTTP networks.Footnote 11 On the other hand, as discussed above, certain trends suggest there may have been a diminution of Wholesale-Based Competitors as an independent competitive force. Taken together, these developments suggest that it is appropriate for the CRTC to consider improvements to the wholesale access regime to facilitate service-based competition, while also maintaining the benefits of dynamic, facilities-based competition.

V. Comments on the state of competition in Canada

  1. A central theme in this proceeding is the current state of competition in the fixed internet industry in Canada. The Bureau offers the below comments outlining its process for evaluating the state of competition in an industry and certain relevant insights it has obtained in past work for consideration in the CRTC’s assessment. The Bureau also has gathered information relating to how Canada compares to other countries across different dimensions of competition. The Bureau anticipates that it will be able to offer additional comments relevant to the state of competition with the benefit of the data identified in its May 4, 2023, request for disclosure and request for issuance of request for information.

A. Framework for assessing the state of competition

  1. When the Bureau assesses the state of competition in an industry, it seeks to determine the degree to which any firm(s) possess market power. The Supreme Court of Canada has defined "market power" as "the ability to ‘profitably influence price, quality, variety, service, advertising, innovation or other dimensions of competition’".Footnote 12 Market power is relevant to the CRTC’s evaluation of the state of competition as market power and competition generally have a negative relationship, with more of one meaning less of the other.
  2. When considering whether a firm possesses market power, the Bureau generally seeks first to define the relevant market(s) in which such market power may exist. This process involves defining geographic and product dimensions to such relevant market(s). Market definition focuses on identifying the bounds within which competition occurs, based on the products and geographic regions that customers see as close substitutes. The Bureau offers additional context on this process below, along with considerations for doing so for fixed internet services that are informed by its past work.

1. Geographic market considerations

  1. A geographic market consists of all locations or supply points regarded as close substitutes by buyers.
  2. The concept of a geographic market for fixed internet services is somewhat unique, in that the Bureau’s view is that each buyer’s location (such as their house) is a geographic market. This is due to the fact that buyers would generally not switch to internet access services associated with different locations, meaning that the buyer is limited to the ISPs who offer retail services at their location. Similarly at the wholesale level, an ISP seeking to serve that retail buyer would be limited by the internet access services associated with that buyer’s house. While this geographic market definition may be narrow, aggregation of such geographic markets across areas with similar competitive conditions may be performed for ease of analysis.Footnote 13
  3. In the Broadband Study, the Bureau concluded that Wholesale-Based Competitors tended to focus their marketing efforts on highly-populated areas in certain areas of the country and have tended to be more effective in and around the cities in which they are based.Footnote 14 The Bureau used confidential data to estimate market shares in certain urban centres in Canada, which differed from the national market shares described in the CRTC's Communications Monitoring Report.Footnote 15 Accordingly, the Bureau considers that, at least in certain areas of the country, aggregating retail markets at the local level may provide a clearer picture of competitive intensity than more aggregated levels. In analyzing wholesale markets, the degree of appropriate geographic aggregation may be the same as at retail or different (for example, if the same suppliers of wholesale inputs offer the same competitive conditions across a larger or smaller area).
  4. A more local approach to geographic market definition also has precedent in certain Two-Platform Competitors. In Denmark,Footnote 16 Hungary,Footnote 17 Portugal,Footnote 18 and the United StatesFootnote 19 regulators have considered market power and the selection of any remedies in geographic areas that were narrower than an incumbent Facilities-Based Competitor’s serving territory. In Belgium, while its market analysis used geographic markets that were at least as large as an incumbent Facilities-Based Competitor’s serving territory, it also differentiated its remedies in certain narrower regions.Footnote 20

2. Product market considerations

  1. A product market is the set of products that buyers regard as close substitutes.
  2. In seeking to define a product market, the Bureau generally uses a number of tools including the hypothetical monopolist test,Footnote 21 direct evidence of buyer switching in response to relative price changes, and other indicators of substitutability, including:
    1. the views, strategies, behaviours, and identity of buyers;
    2. a product’s end-use and physical characteristics;
    3. the switching costs associated with a product; and
    4. products’ price relationships and relative price levels.Footnote 22
  1. In the Broadband Study, the Bureau commissioned public opinion research to, among other goals, clarify Canadian consumers’ habits in purchasing broadband internet services.Footnote 23 The results of this research offered insight as to the “views, strategies behaviours and identity of buyers” indicating, among other things, how consumers considered a variety of factors when selecting an ISP, including but not limited to: price, monthly download / upload limit, download speed, brand, wait times for customer service, and reliability / down time.Footnote 24 The results of this research indicated that there may be distinct categories of customers who prioritized certain factors above others, and certain of these types of customers may be more likely to view only offerings of a particular form of internet services as substitutes (such as high speed services or internet services that are bundled with television services) but not others (such as lower speed services or stand-alone internet services). Footnote 25
  2. Accordingly, the CRTC may wish to consider whether different attributes of retail fixed internet services may impact whether all consumers view such services as substitutes. This may include considering retail fixed internet markets based on the access facilities over which the service is delivered, the speed tier of the service, the price tier of the service, or whether it is bundled with a different service (such as television). Similar to geographic market definition, it may be appropriate to analyse several different (or potentially different) product markets together for the purposes of market definition where competitive conditions are sufficiently similar in each market such that analyzing them together does not affect the assessment.Footnote 26
  3. At the wholesale level, the types of wholesale inputs that are viewed as substitutes may vary by technology and retail speed tier, among other factors. In particular, wholesale input(s) that are viewed as substitutable will likely vary depending on the geographic market (i.e., the retail buyer’s location). In order to compete for certain types of consumers (such as a consumer seeking the highest download speeds), an ISP may require a specific type of wholesale input (such as access service above a certain speed threshold) for which other wholesale inputs may not be substitutable. For other customers (such as a customer who prioritizes price above all), a range of wholesale inputs may be substitutes. The CRTC may wish to consider whether wholesale inputs offered over different access facilities, or which enable the offering of different retail speeds, may be in the same or separate wholesale product markets.
  4. Distinguishing markets by speed or technology also has international precedent within the Two-Platform Comparators. In Denmark, regulators defined different product markets based on high capacity infrastructure (including fibre and coaxial connections) and low capacity infrastructure (including copper and fixed wireless connections).Footnote 27 The Netherlands currently has regulated access to FTTP but not other technologies.Footnote 28 Regulators in Belgium considered multiple product market definitions, certain of which contained all technologies (including copper, coaxial and fibre facilities) and others that distinguished between cable and facilities typically provided by incumbent local exchange carriers (ILECs) (including both fibre and older technologies). Footnote 29 However, in both Hungary and Portugal, regulators treated copper, coaxial and fibre facilities technologies as being in the same relevant product market.Footnote 30,Footnote 31

3. Considerations for the evaluation of market power

  1. Market power can be measured using direct indicators and indirect indicators. Direct indicators, such as evidence of supra-competitive profitability or pricing, are not always conclusive or indeed possible to assess; practical difficulties can arise in defining the “competitive” price level and the appropriate measure of cost to which prices should be compared. In many cases the Bureau examines a number of indirect indicators, both qualitative and quantitative, in conducting its analysis of market power, such as structural characteristics of a market (including concentration measures and any barriers to entry), the extent of technological change, and customer or supplier countervailing power. More recently, the Competition Tribunal has also recognized that the ability to exclude – the ability to restrict the output of other actual or potential market participants, and thereby profitably influence price – can constitute market power.Footnote 32
  2. When assessing whether a firm holds market power the Bureau considers the body of relevant information and/or documents on the whole in order to determine the extent to which a firm has the ability to influence the market.Footnote 33 The exact nature of the analysis and the weight accorded to any particular piece of information or document will depend on the circumstances of the case. Theoretical models of market power are a useful consideration in this assessment but are not determinative. In addition, the Bureau notes that “market power” is not a binary outcome but rather can exist on a spectrum, with firms capable of possessing varying degrees of market power ranging from small to significant.
  3. The Bureau has consulted academic literature to identify indicators of market power that may be most useful in evaluating the extent to which market power may exist in the fixed internet services industry. This literature suggests that the Herfindahl-Hirschman Index (HHI), which is the sum of the square of each firm’s market share, may be one appropriate way to measure competition in the retail fixed internet market. For example; Distaso et al (2006), Bouckaert et al. (2010), and Gruber & Koutroumpis (2013), measure a variety HHI’s based on each firm’s subscriber share (“inter-firm”) and each technology’s subscriber share (“inter-platform”) as well as intra-platform HHIs (“intra-cable” and “intra-DSL”).Footnote 34,Footnote 35,Footnote 36 Bouckaert et al. (2010) note that a higher inter-platform HHI implies a lower degree of inter-platform competition while the intra-platform HHIs are intended to reflect the strength of access obligations, with more favourable access terms expected to result in more service-based intra-platform competition and correspondingly lower intra-platform HHIs.
  4. The benefit of these specialized HHIs is that they are easy to compute, can provide insight into the degree of competitive intensity across various modes of competition, and have the flexibility to be computed at a variety of geographic aggregations. Based on these academic approaches to measuring the state of competition, the CRTC may wish to construct similar measures to examine trends in concentration by firm and technology as well as within a technology for different geographic areas.
  5. The OECD has also published an issues paper highlighting methodologies to measure market competition that may be of consideration. This issues paper reviews common measures of competition including concentration metrics, dynamic indicators like entry and exit rates, and performance measures such as firm markups and profitability.Footnote 37
  6. Subject to data received as part of the May 4, 2023 request for disclosure and request for the issuance of a request for information, the Bureau may compute, where possible; measures of concentration, dynamic indicators of competition, and firm performance measures. These measures can be computed at both the provincial and CMA levels and, in some cases, may distinguish between speeds or technologies.
  7. The Bureau may also consider computing, where possible, average prices based on total revenue and total subscribers at both the provincial and CMA levels and may further distinguish between speeds or technologies. In addition to computing prices, the Bureau may also consider descriptive analyses that correlate prices with measures of competitive intensity.
  8. The Bureau will also seek to offer advice based on its analysis and findings.

B. International comparators and the state of competition in Canada

  1. The consideration of whether a firm or group of firms possess market power is inherently a fact-specific exercise. However, considering Canada’s position against other countries may offer a useful starting point when evaluating the current state of different dimensions of competition for fixed internet services in Canada.
  2. As an initial exercise, the Bureau has gathered certain recent international comparisons of price and quality of service for consideration. The Bureau is also submitting a comparison of Canada’s fixed internet deployment as compared to other OECD countries for consideration. Generally, these comparisons indicate that Canada generally has high prices but also average to above-average network quality and a high proportion of fixed internet deployment.

1. International comparisons of fixed internet pricing

  1. The international price comparisons compiled by the Bureau generally suggest that Canadian prices for fixed internet plans are high relative to other countries, particularly for higher speed services. While making such international comparisons can be challenging, certain initial inferences can be made from recent studies, as outlined below.
  2. As recognized by the United States Federal Communications Commission (FCC), comparing fixed internet prices across countries can present a number of challenges:

    Comparing broadband prices across countries presents several challenges. One difficulty is that broadband product offerings are complex and vary widely across countries. Among other aspects, the plans may differ with respect to: (1) download and upload speeds; (2) types of technology used to deliver broadband services; (3) limitations on use, including limits on upload and download volumes; (4) contractual conditions; (5) additional services included; and (6) consequences of exceeding usage limits, with some plans reducing speeds, imposing surcharges, or shutting off service. In addition, broadband service is also frequently purchased as part of a discounted bundle of services, making it difficult to identify the price of the broadband service. Finally, differences across countries in the quality of networks deployed, cost factors (e.g., population density and topography), and demand factors (e.g., demographics and content quality), would be expected to affect pricing, all else equal.Footnote 38

  3. The Bureau notes that the concerns described by the FCC are important to consider when interpreting the methodologies used in price comparison studies. Notably, individual fixed internet service plans may vary across a number of features which can create a challenge when seeking to compare them. One approach to account for this is to use “baskets” that contain plans that are broadly comparable. While the use of “baskets” may allow comparison of broadly comparable plans in different countries, they may not offer information regarding factors beyond competition which may influence the price of fixed internet services. Certain studies address this challenge (as well as that of controlling for differences in plan features) through the use of econometric techniques that also control for observable factors (such as the quality of networks deployed). This process attempts to remove such effects so that any remaining difference in prices is only due to differences in competition.
  4. These challenges are addressed to varying extents and with a diversity of techniques and data in the cross-country comparisons of fixed internet pricing below. This diversity is useful to keep in mind when assessing these studies. Specifically, the confidence attached to a conclusion generally increases when different studies using different methodologies and data come to that same conclusion. In this case, different studies using different methodologies and data generally find that Canadian prices for fixed internet plans are relatively high within the groups of comparators studied.
  5. As noted above, and subject to data received as part of the May 4, 2023 request for disclosure and request for issuance of a request for information, the Bureau may compute, where possible, average prices based on total revenue and total subscribers. Measuring prices this way can help account for promotional discounting and non-advertised pricing – something that can be challenging to measure with the publicly available information that is frequently used in international price comparisons. Prices can be computed at both the provincial and CMA levels and may further distinguish between speeds or technologies. This may help us to understand price and perhaps service heterogeneity across urban and rural regions in Canada.
a) ISED/Wall Study
  1. Innovation, Science and Economic Development Canada (ISED) has commissioned a series of studies most recently conducted by Wall Communications, Inc. whose purpose is “to provide a detailed comparative price analysis of telecommunications services in Canada both regionally and relative to the United States and six other countries” (ISED/Wall Study).Footnote 39 The ISED/Wall study measures prices using the same methodology for the same set of service baskets for Canada and seven other countries: Australia, France, Germany, Italy, Japan, the United Kingdom and the United States.
  2. While the report indicates that Canadian prices declined in 2022 relative to 2021 in every basket, Canada generally has higher average prices than all other countries in a majority of these baskets. Of the seven fixed internet service baskets included in the study, which are primarily defined on the basis of download speed, Canadian fixed internet service prices compare favourably with Japan in lower-level basketsFootnote 40 but its prices are amongst the highest in higher speed basketsFootnote 41 with considerable price differences with respect to the European countries included in the survey. The study also highlights that Canadian prices are higher than in the United States for the four baskets which are offered in both countries.Footnote 42
b) FCC Study
  1. As noted above, the FCC also released an international price comparison as part of its 2022 Communications Marketplace Report (FCC Study). It is more complex than the ISED/Wall Study in that, instead of simply reporting the prices of representative plans within a given basket, the FCC Study reports the results of two separate analyses: a price index comparison and a hedonic price index comparison. The former calculates a weighted average price for a fixed collection of plans. The latter aims for a more “apples-to-apples” comparison through the use of econometric methods to remove the potential effects of country-level differences in cost, demographics and quality measures (e.g., download speeds). This hedonic price index analysis is intended to overcome a wider range of the aforementioned challenges to comparisons of fixed internet prices across countries.
  2. For the fixed internet price index comparisons, the FCC Study relies on a subset of 26 comparison countries and includes information about standalone and bundled services. Out of the 26 countries studied in 2022, Canada generally ranked among the most expensive. For example, in the price index comparison, Canada ranked next-to-last (25th) for standalone plans, shared plans (fixed internet bundled with video service) and overall.Footnote 43 Canada ranked 15th out of the 22 countries for which the FCC calculated a price per gigabit.Footnote 44 Canada’s ranking was the lowest amongst the five included Two-Platform Competitors (Hungary was not included) for all measures except the price per gigabit analysis, where it ranked higher than Portugal and the Netherlands.Footnote 45 In its hedonic price index, Canada generally ranked among the bottom countries across all of the models used, ranking 25th for three of the models used and 22nd for the final model.Footnote 46 Among the included Two-Platform Comparators, Canada was the lowest ranked country across all models.Footnote 47
  3. These rankings are comparable to those it received in the 2020 version of this report, with Canada ranking (of 26 included countries) 23rd for standalone plans, 22nd for bundled plans, and 22nd overall.Footnote 48 In 2020, Canada ranked 12th out of the 18 countries for which the FCC calculated a price per gigabit.Footnote 49 Canada’s ranking was the lowest amongst the five included Two-Platform Competitors (Hungary was not included) for all measures except the price per gigabit analysis, where it ranked higher than Portugal (the price per gigabit was not calculated for the Netherlands).Footnote 50 In its hedonic price index, Canada generally ranked among the bottom half of countries across all of the four models used, ranking 20th, 22nd, 20th, and 13th.Footnote 51 Among the included Two-Platform Comparators, Canada ranked last in one of the models and fourth or fifth in the others.Footnote 52

2. International comparisons of fixed internet quality

  1. Similar to international pricing comparisons, international comparisons of fixed internet quality can be challenging and may not capture all information necessary to make an “apples-to-apples” comparison. For example, these comparisons only report outcomes and do not reflect country-specific differences which could influence network deployment and network quality.
a) FCC Study
  1. The FCC Study also contains a comparison of certain indicators of network quality, namely mean download speed, mean upload speed and mean latency. This comparison includes 36 countries, including Canada and all of the Two-Platform Comparators. The FCC Report includes data for these variables for the years 2017 to 2021, while the 2020 version of the FCC report includes data for the years 2015 to 2019. The FCC Report (and its 2020 version) suggest that as a general trend most countries’ download and upload speeds are increasing while latency is decreasing. Like most other countries, Canada’s absolute values for these variables has improved significantly in this time horizon. However, its rank relative to these other countries is considered below.
  2. In 2021, Canada’s fixed internet download speed is above-average, ranking 10th with a value of 173.8 Mbps.Footnote 53 This ranking is fairly consistent with Canada’s position in the previous four years, where it ranged between 7th and 13th.Footnote 54 However, it is worth noting that its ranking has increased materially since 2015 and 2016 where it ranked 23rd and 17th, respectively.Footnote 55 Amongst the Two-Platform Comparators in 2021, Canada is in the middle-of-the-pack, ranking below Denmark (4th), Hungary (6th) and the United States (9th) but above the Netherlands (17th) Portugal (18th) and Belgium (25th).Footnote 56
  3. In 2021, Canada’s fixed internet upload speed is average, ranking 17th with a value of 77.6 Mbps.Footnote 57 This ranking is fairly consistent with its position throughout the time horizon, ranging from as low as 23rd in 2016 to as high as 16th in 2019 and 2020.Footnote 58 Amongst the Two-Platform Comparators in 2021, Canada is in the middle-of-the-pack, ranking below Denmark (5th), Hungary (14th) and the Netherlands (16th), but above the United States (18th), Portugal (19th) and Belgium (33rd).Footnote 59
  4. In 2021, Canada’s fixed internet mean latency is slightly below-average, ranking 20th with a value of 18.7 milliseconds.Footnote 60 This ranking is fairly consistent with its position throughout the time horizon, ranging from as low as 22nd in 2015 to as high as 18th in 2019.Footnote 61 Amongst the Two-Platform Comparators in 2021, Canada is second-last, ranking below Denmark (3rd), the Netherlands (6th), Portugal (7th), Hungary (14th), and Belgium (16th) but above the United States (29th).Footnote 62
b) OECD Fixed Internet Data
  1. The Bureau has compiled OECD data to offer insight on Canadian fixed internet deployment, and consistent with the Bureau’s approach above, compares it over time with the broader sample (in this case all 37 OECD member-states) and to the Two-Platform Comparators. While these comparator countries were selected for their present-day comparability with Canada (and may not have been ideal comparators as at the beginning of the dataset), together with the OECD as a whole, they offer a useful starting point for assessing how Canada’s fixed internet deployment compares on an international scale.

Figure 1: Canada’s fixed internet penetration (subscribers per 100 inhabitants by quarter) by selected access facilities over time compared to the OECD average and the average of the Two-Platform Comparators Footnote 63

Comparison of the number of fixed internet subscribers per 100 inhabitants between Canada, the average of the Two-Platform Comparator countries, and the OECD average for selected access facilities from the second quarter of 2010 to the fourth quarter of 2021.

  • Description for Figure 1
    Figure 1: Fixed Internet Subscribers per 100 Inhabitants by Select Access Facilities (Quarterly)
    Date Fibre Cable + Fibre Total
      Canada 2-Platform Comparator Average OECD Average Canada 2-Platform Comparator Average OECD Average Canada 2-Platform Comparator Average OECD Average
    Q2-2010 0 1.02 2.49 16.47 12 8.92 30.6 27.81 22.59
    Q2-2011 0 1.28 2.74 16.97 12.74 9.48 31.15 28.64 23.36
    Q2-2012 0.13 1.57 2.95 17.41 13.42 9.92 31.81 29.33 24
    Q2-2013 0.17 1.79 3.16 17.8 14.03 10.33 32.37 29.8 24.57
    Q2-2014 0.4 2.06 3.33 18.13 14.74 10.73 32.84 30.32 25
    Q2-2015 0.54 2.34 3.53 18.48 15.45 11.14 33.09 30.7 25.34
    Q2-2016 0.56 2.68 3.73 19.02 16.19 11.59 33.66 31.31 25.85
    Q2-2017 0.67 3.15 3.96 18.82 17.04 11.96 34.16 31.87 26.21
    Q2-2018 1.11 3.37 4.19 19.85 17.65 12.38 34.46 32.5 26.66
    Q2-2019 1.3 3.94 4.44 20.2 18.52 12.74 34.9 33.03 27
    Q2-2020 1.67 4.33 4.71 20.64 19.21 13.27 35.47 33.84 27.41
    Q2-2021 1.91 4.74 5.01 20.94 19.82 13.84 35.9 34.54 27.95
    Q2-2022 2.71 5.26 5.39 22.1 20.63 14.56 36.73 35.08 28.45
    Q4-2009 2.94 5.68 5.77 22.5 21.4 15.17 37.25 35.75 28.98
    Q4-2010 3.7 6.14 6.16 23.2 22.18 15.81 37.07 36.19 29.36
    Q4-2011 4 6.66 6.57 23.86 23.02 16.33 37.65 36.64 29.77
    Q4-2012 4.68 7.19 6.97 24.64 23.88 16.94 38.1 37.13 30.2
    Q4-2013 5.02 7.79 7.41 25.19 24.73 17.58 38.64 37.59 30.63
    Q4-2014 5.59 8.4 7.89 25.86 25.56 18.26 38.97 38.06 31.01
    Q4-2015 5.92 9.02 8.39 26.34 26.44 18.95 39.57 38.52 31.44
    Q4-2016 7.06 9.57 8.91 27.62 27.14 19.62 40.27 38.76 31.79
    Q4-2017 7.57 10.26 9.46 28.34 28.12 20.49 40.87 39.36 32.54
    Q4-2018 8.9 10.97 10.14 29.65 28.96 21.38 40.94 39.8 33.2
    Q4-2019 9.51 11.79 11.11 30.68 29.76 22.26 41.72 40.32 33.86
    Q4-2020 10.48 12.69 11.74 31.54 30.83 23.09 41.97 40.71 34.31
    Q4-2021 11 13.63 12.45 32.23 31.88 23.78 42.39 41.5 34.69

Source: Compiled from OECD, “Fixed broadband subscriptions per 100 inhabitants, June 2022”.

Table 1: Canada’s ranking amongst the OECD and the Two-Platform Comparators for different indicators of fixed internet penetration over time Footnote 64
     Q4-2009  Q2-2016 Q2-2022
 Total Canada rank OECD (of 37) 9 10 10
Canada rank 2-plats (of 7) 3 3 5
 Cable + Fiber Canada rank OECD (of 37) 3 8 8
Canada rank 2-plats (of 7) 1 4 3
Fiber Canada rank OECD (of 37) 36 23 22
Canada rank 2-plats (of 7) 7 6 5

Source: Compiled from OECD, “Fixed broadband subscriptions per 100 inhabitants, June 2022”.

  1. Based on the most recent data to second quarter of 2022, Canada’s total fixed internet subscriptions per 100 population is above the OECD and 2-Platform Comparator averages. Canada ranks 10th out of the 37 OECD countries and would be in the middle tier of the 2-Platform Comparators. Canada’s ranking within the OECD has been steady at either 9th or 10th since 2009.
  2. Canada and the 2-Platform Comparators began the roll-out of fibre facilities relatively later than the rest of the OECD countries that had smaller legacy cable facilities. Canada began increasing its fiber rollout since 2016 and as of 2022 is now situated amongst the mid-tier of the OECD countries.
  3. Canada’s combined cable and fibre subscriptions have been above the OECD and 2-Platform Comparator averages over the 2009-2022 period, with Canada currently ranking 8th of the 37 OECD countries and in the mid-tier of the Two-Platform Comparators.
  4. Additional figures demonstrating Canada’s fixed internet penetration across these metrics as compared to the Two-Platform Comparators can be found in Appendix A.

VI. Comments on questions regarding the wholesale HSA framework

A. Should a workable configuration be found, disaggregated access may offer competitive benefits

  1. The Bureau understands that in advance of this consultation, the CRTC issued a decision which noted concerns with the implementation of disaggregated wholesale HSA services and its future viability.Footnote 65 While the Bureau understands that there may be technical and other challenges associated with the implementation of disaggregated access, if these challenges can be overcome, then it would likely offer additional competitive benefits as compared to an aggregated access model in areas where competitive transport options exist.
  2. First, a disaggregated access model can have benefits for both wholesale and facilities-based competition. For wholesale-based competition, competitors would be able to avail themselves of competitive options for transport. As compared to the current aggregated model, this could allow for Wholesale-Based Competitors to obtain greater control over their cost structure and realize additional economies of scale by bargaining for lower transport costs as their capacity requirements increase. This would also reduce Wholesale-Based Competitors’ dependency on the rates set by the CRTC, and any changes to these rates. Disaggregated access could also incentivize additional facilities-based competition by encouraging additional deployment of transport facilities to serve this wholesale traffic, including in areas where such options do not currently exist.
  3. Second, a disaggregated access model reduces the reliance of Wholesale-Based Competitors on the Facilities-Based Competitors whose networks they use to serve end-users. As noted in the Broadband Study, to ensure the best competitive outcomes, reliance of one competitor on another should be minimized wherever possible.Footnote 66 This reduced reliance may also reduce exclusionary incentives for Facilities-Based Competitors.Footnote 67 By reducing the portion of the costs that are within the knowledge of the Facilities-Based Competitor(s) that the Wholesale-Based Competitor is competing with, it may limit the incentive for these Facilities-Based Competitors to engage in this conduct.
  4. While disaggregated access could facilitate competition, its success is premised on the current availability of competitive transport options or the ability of wholesale traffic to incentivize the creation of such options within a timely manner. The Bureau understands that concern exists as to the availability of such transport services and that the CRTC is intending to examine this issue in a separate proceeding.Footnote 68
  5. In addition to risks regarding the availability of competitive transport options, a full-scale shift to a disaggregated access framework may increase the barriers to entry and expansion faced by Wholesale-Based Competitors in covering a comparable breadth of geography and technologies as under the current aggregated access framework. Disaggregated access will result in Wholesale-Based Competitors maintaining a larger number of points of interconnection as compared to the aggregated access framework, which means facing a larger number of entry decisions. Sunk costs (for example the costs of construction of transport facilities or transaction costs associated with leasing them) may act as a barrier to certain of these entry decisions, such as in offering service in additional geographies or connecting to a second Facilities-Based Competitor’s network in a given geographic area. This may impact less densely populated geographic regions in particular, where there may be insufficient prospective customers to justify these investments. This dynamic could result in Wholesale-Based Competitors maintaining a smaller presence in certain geographic areas or offering a smaller range of services.
  6. Accordingly, the Commission may wish to balance the benefits and costs of each form of access framework by:
    1. Mandating both aggregated and disaggregated access on a simultaneous basis, as described in the Commission’s preliminary view; or
    2. Mandating aggregated and disaggregated access in different geographic areas depending on the area’s characteristics.
  1. Mandating simultaneous access to aggregated and disaggregated access could hypothetically allow the disadvantages of each to be avoided. However, the Bureau notes that maintaining two separate access frameworks may increase administrative complexity for market participants and could result in increased regulatory costs. Additionally, uptake of disaggregated access in a simultaneous access framework would require setting wholesale rates which incentivize use of this framework, which could present challenges when setting rates. Absent such an incentive, maintaining a disaggregated access option would likely be of little effect. It is worthwhile to note that the use of simultaneous frameworks for different forms of wholesale access also has international precedent. In Belgium, regulators have mandated simultaneous virtual access on both a local and central basis,Footnote 69,Footnote 70 though central access is used considerably more often than local access.Footnote 71
  2. Mandating aggregated or disaggregated access in distinct geographic regions could allow the CRTC to tailor its wholesale HSA framework to the competitive dynamics of a particular region. Such a framework could offer additional competitive benefits in the areas where there are sufficient wholesale subscribers or economies of scale for Wholesale-Based Competitors to risk the investment required (such as densely populated urban areas). However, similar to the above, the Bureau notes that tailoring its wholesale HSA access framework in this way could increase administrative complexity for market participants and could result in increased regulatory costs. In particular, such a framework may require determining multiple wholesale costs for different geographic areas for each Facilities-Based Competitor. Differentiated forms of wholesale access in different geographic regions has international precedent; Belgium,Footnote 72 Hungary,Footnote 73 Portugal,Footnote 74 and the United StatesFootnote 75 impose varying wholesale obligations in different geographic regions (though not directly analogous to the frameworks discussed here).

B. Considerations regarding aggregated access to FTTP

  1. The Bureau does not take a position on the issue of mandating aggregated access to FTTP facilities at this time, but has highlighted certain considerations as to how such a decision may impact competition. In commenting on the current aggregated access framework, the Bureau understands that it remains the primary (or only) framework used by Wholesale-Based Competitors today.

1. Aggregated access framework and an apparent decline in contestability

  1. In the years following the CRTC’s previous wholesale wireline review, the availability of FTTP facilities has grown significantly.
  2. The CRTC’s monitoring data indicates that the percentage of households who have a FTTP internet service available has grown from 35.1% in 2017 to 54% in 2021.Footnote 76 The Bureau understands that such increased deployment of FTTP services has arrived through both deployment of FTTP at newly built locations that did not previously have copper facilities (or “greenfield” deployment) as well as installation of FTTP at locations that previously had copper facilities (or “brownfield” deployment). The Bureau understands that brownfield deployment of FTTP can involve the decommissioning of the copper facilities that previously served that location.Footnote 77 Both the brownfield decommissioning of existing copper access facilities and the greenfield deployment of new FTTP facilities reduce the ability of Wholesale-Based Competitors to compete for the customer at a particular location. While in certain instances the decommissioning of a copper facility by one network operator may still permit a Wholesale-Based Competitor to service that customer via a second network operator, its ability to offer that customer choice will be decreased compared to its prior ability to do so. FTTP deployments (typically greenfield deployments) where both network operators deploy FTTP facilities may eliminate the ability of a Wholesale-Based Competitor to compete for a particular customer entirely.
  3. In addition to a changing proportion of physical connections, the preferences of consumers appear to have evolved in recent years. Canadians not only increasingly have FTTP facilities offered at their homes, but they are also increasingly purchasing internet services that use these facilities.Footnote 78 In addition to using FTTP facilities, Canadians are also subscribing to faster speeds. The weighted-average residential Internet service download speed compiled by the CRTC has grown from 66.7 Mbps in 2017 to 258.8 Mbps in 2021,Footnote 79 a speed which is achievable only via cable facilities under the current aggregated access framework.Footnote 80
  4. As noted previously, the Broadband Study’s consumer analysis identified multiple categories of fixed internet consumers. Speed was a material factor for certain of these consumer categories, and for one type of consumer identified in this analysis it was their primary concern.Footnote 81 Since 2015, the range of speeds available to Canadians has changed materially, with Facilities-Based Competitors launching speeds in certain locations well in excess of those capable under the current aggregated access framework.Footnote 82 The Bureau considers that with the increasing range of speeds available to consumers via FTTP, Wholesale-Based Competitors may be less able to compete for “speed-seekers” or other consumers who highly value having access to higher download and upload speeds.
  5. Both the decreasing availability of copper access facilities and changing consumer preferences appear to decrease the size of the contestable market for Wholesale-Based Competitors. This bears on the Commission’s decision in two ways:
    1. Wholesale-Based Competitors may be less able to directly compete for certain customers; and
    2. Wholesale-Based Competitors may be less able to achieve economies of scale associated with their operations as a result of this declining contestable market, which could impact their ability to compete for customers beyond those whose contestability is directly impacted by FTTP deployments.
  1. Accordingly, the Bureau considers that the increased rollout of FTTP facilities since 2015 may have led to a reduction of the ability of Wholesale-Based Competitors to contest certain markets and market segments.
  2. Subject to data received as part of the May 4, 2023 request for disclosure and request for issuance of a request for information, the Bureau may measure, where possible; the prevalence of FTTP internet services and higher speed internet services (i.e., those with maximum download speeds of over 150 Mbps) across provinces and CMAs over time.

2. Aggregated access to FTTP may increase short-term price competition and choice

  1. As noted in the Broadband Study, competition brought about by the wholesale access regime delivers choice and lower prices to consumers. The Broadband Study noted that the impact of Wholesale-Based Competitors may span beyond their immediate customers, through Wholesale-Based Competitors acting as an alternative for other customers and these customers using their presence to negotiate lower prices and better terms from other competitors in the marketplace.Footnote 83
  2. Currently, the Bureau understands that Wholesale-Based Competitors effectively do not have the ability to compete for customers via FTTP facilities. The Bureau anticipates that shifting to an aggregated access model for FTTP facilities may increase price competition and consumer choice in the short-term by increasing the markets and market segments that Wholesale-Based Competitors are able to impact in a manner similar to that described in the Broadband Study.

3. Aggregated access to FTTP may negatively impact dynamic competition

  1. The Bureau notes that this apparent decline in the ability of Wholesale-Based Competitors to compete for certain customers appears to be a direct consequence of ongoing dynamic competition between Facilities-Based Competitors which has led to increased deployment of FTTP facilities.
  2. In the Broadband Study, the Bureau recognized the important role played by Facilities-Based Competitors and their investments in new technologies, as well as the potential for wholesale regulation to have a negative effect on investment decisions.Footnote 84 The Broadband Study noted that wholesale regulation can have a negative impact on investment incentives and that investment incentives remain relevant beyond the initial deployment of a network, stating:

    Maintaining and ensuring quality services for Canadians is not something that should be taken lightly. Even once a network is established, there is an ongoing need for investment by network owners to ensure that the network grows and changes in response to changing consumer demands.Footnote 85

  3. Accordingly, the Bureau notes that increasing or modifying wholesale regulation (such as through mandating aggregated access to FTTP facilities) could have a negative impact on investment incentives. Such impacted incentives could reach beyond just the incumbent Facilities-Based Competitors and could potentially impact investments undertaken by independent fibre-optic Facilities-Based Competitors who operate in certain areas of Canada.Footnote 86
  4. However, it is important to recognize that the degree to which investment incentives are impacted can depend significantly on the circumstances and the design of any access obligation. The magnitude and impact of the effect of mandating aggregated access to FTTP on investment incentives may depend on a variety of factors, including but not limited to: the magnitude of the remaining FTTP facility deployment, the amount of any public assistance provided to incentivize such deployment,Footnote 87 the ongoing investments required to grow and change existing facilities in response to consumer demands, and the precise wholesale rates set by the CRTC for aggregated access to FTTP. On this last point, the Bureau highlighted the competitive implications associated with selecting wholesale rates in the Broadband Study:

    There is wide debate in the industry regarding whether or not wholesale rates are set at appropriate levels. Facilities-based competitors claim that wholesale-based competitors gain access to networks at rates that are below the actual costs of the facilities-based competitor, which has significant negative effects on investment incentives. At the same time, some wholesale-based competitors point to examples where a facilities-based competitor has set retail prices at levels that are less than the regulated fees that a wholesale-based competitor would have to pay in order to offer those same services to that customer. This is a 'Goldilocks' problem—set rates too low, and facilities-based competitors are less likely to invest; set rates too high, and wholesale-based competitors are not able to bring pricing discipline to the marketplace.Footnote 88

  5. In light of the foregoing, should the CRTC mandate access to FTTP facilities on an aggregated basis the Bureau recommends that the CRTC continue its practice of including rate components designed to maintain investment incentives.

4. Aggregated access to FTTP and International Comparators

  1. Of the six Two-Platform Comparators, three of these countries (Belgium,Footnote 89 Denmark,Footnote 90 and HungaryFootnote 91) currently regulate access to FTTP via central access in all or part of their country. Portugal has also recently announced a draft decision that would mandate access to fibre facilities (including central access) in certain areas of its country.Footnote 92

C. Choice of wholesale rate setting methodology can impact competition

  1. The Bureau notes that the CRTC has sought tariffs in this matter on the basis of Phase II costing, though it notes that the costing principles adopted in this review will be informed by the outcomes of the proceeding initiated by Telecom Notice of Consultation 2020-131.Footnote 93
  2. As noted above, the Bureau offered comments on the impact of the various methodologies on efficiency in its Rate Setting Methodology Intervention. The Bureau ultimately determined that from an economic efficiency perspective, there is no perfect rate-setting methodology,Footnote 94 but that there were positive and negatives to each.
  3. For Phase II costing, the Bureau found that the advantages included, among others, that as it combined a cost-based approach with certain actual costs incurred, it represented a middle ground between promoting competition and compensating network owners.Footnote 95 The Bureau noted that as a cost-based approach, one of its disadvantages was that it could provide an economic incentive for network owners to engage in exclusionary marketplace conduct, among others.Footnote 96

D. Differences in wholesale requirements between network types can impact competition

  1. Asymmetric wholesale-access requirements can disincentivize competition between network owners at the wholesale access level. Under the current framework for aggregated access services (with the limitations set out in CRTC 2015-326), ILECs are required to sell access to a much narrower set of speeds as compared to cable network operators.Footnote 97
  2. The Bureau considers that this asymmetric access can incentivize Wholesale-Based Competitors who are seeking to offer higher speed services to only sign-up customers on a cable company’s network. This asymmetry can also decrease the competitive incentives for network operators to compete for wholesale customers, as ILECs may have limited incentives to offer faster speeds to Wholesale-Based Competitors than they are mandated to, and cable companies may have decreased incentives to deal with Wholesale-Based Competitors on terms any better than those which they are mandated to for such speeds.

VII. Comments on additional measures to increase competition for fixed internet

  1. While broader than the wholesale HSA framework, the Bureau has identified certain matters which may be negatively impacting competition for fixed internet services, and which may impact the ability of the wholesale HSA framework to achieve the CRTC’s policy goals.

A. Interplay between internet and television services and the impact on wholesale competition

  1. Wholesale-Based Competitors’ ability to effectively compete for certain customers may depend on more than the terms on which they purchase wholesale internet inputs.
  2. In its Broadband Study, the Bureau found that nearly two thirds of those who participated in its public opinion research bundled at least one other service along with their internet services.Footnote 98 For those surveyed who purchased bundles, internet service was bundled with television service and/or home phone service most of the time.Footnote 99
  3. The Broadband Study noted that historically, a small proportion of Wholesale-Based Competitors have offered television services,Footnote 100 though it appears that a growing number of Wholesale-Based Competitors have begun offering television services in the years following the Broadband Study. However, it remains to be seen whether these new services have enabled these firms to effectively compete for customers seeking to purchase television services.
  4. The Bureau understands that historically the CRTC has not licenced broadcast distribution undertakings that distribute content via the internet,Footnote 101 and that the practical implications of this have been that firms supplying television services typically also provide a customer’s internet. The Bureau notes that this may create barriers for Wholesale-Based Competitors to compete for a customer’s internet services, as the attractiveness of their television offering may dictate whether they can compete for a customer’s fixed internet services. Should they lack sufficiently attractive television offering (or a television offering at all), customers who would otherwise have wished to purchase fixed internet from a Wholesale-Based Competitor may be required or incentivized to purchase fixed internet services from their preferred television provider. This dynamic is equally true for independent Facilities-Based Competitors.
  5. While the Broadband Study noted that Canadians indicated a strong preference toward purchasing telecommunications and broadcasting services in a bundle,Footnote 102 the Bureau highlights this as one factor which may be impacting the tendency to bundle conventional television and internet services and has potential implications for the CRTC realizing its policy objectives regarding wholesale HSA services.
  6. The Bureau understands that the CRTC recently announced its Regulatory Plan to modernize Canada’s broadcasting system, which is intended to include, among others, a consultation on the CRTC’s approach to licensing and “local markets access and competition.”Footnote 103 This may be the appropriate forum for further consideration of this topic.

B. Additional measures that may reduce switching costs

  1. The Bureau submits that there are measures not directly related to the wholesale HSA framework that may bear on the CRTC’s goal of increasing competition for retail internet services.
  2. Switching costs are costs that a consumer must incur in order to switch providers. Higher switching costs may decrease the likelihood that a consumer would switch to a product or service that they would otherwise prefer. In the Broadband Study, the Bureau conducted public opinion research on a variety of topics which included consumer switching behaviours. The results of this research identified that a majority of fixed internet subscribers had thought about switching internet providers in the previous two years but only a fairly small proportion actually made the switch.Footnote 104 This research also surveyed those who had recently switched or considered doing so, and found that the main barriers described were equipment hassles and disconnection time.Footnote 105 The Bureau has identified certain measures used in other jurisdictions designed to decrease such switching costs that may be of consideration.
  3. The Broadband Study found that the leading impediment to switching internet providers was the hassle of swapping equipment, including returning equipment to the former ISP.Footnote 106 One way to minimize such a switching cost is for consumers to own their own equipment. The Bureau understands that a common practice in Canada for many ISPs is for both the modem and router (or the combined gateway) to be rented. The CRTC may wish to consider the European Union’s example in providing consumers with the right to use the terminal equipment of their choosing.Footnote 107 This right is intended to include both the modem and router,Footnote 108 though member countries may specify objective technical justifications in order to deviate from this definition.Footnote 109 A number of EU countries, including Finland, the Netherlands, Lithuania, and Germany have subsequently elected to mandate that consumers are free to use both their own routers and modems across all networks,Footnote 110 and Belgium is considering doing so.Footnote 111 This type of measure could reduce the switching costs observed by consumers and also reduce the dependency of Wholesale-Based Competitors on Facilities-Based Competitors to approve equipment.Footnote 112
  4. The Broadband Study found that the second largest factor that impeded customer switching was the downtime between disconnection and reconnection, causing consumers to go without internet services.Footnote 113 One way to reduce such switching costs is to set rules regarding the amount of downtime that is permissible when a consumer switches suppliers. The United Kingdom has recently implemented a program which seeks to accomplish this. Called its “One Touch Switch” process, it contains measures that, among other things, ensure that ISPs will compensate customers if they are left without internet for more than one business day.Footnote 114 Such a program could reduce this perceived switching cost by offering consumers greater confidence in the amount of downtime associated in switching and offering suppliers greater incentives to meet the set timelines.

VIII. Updates to wholesale regulation should be considered before considering retail regulation

  1. The Bureau submits that a shift from regulating the fixed internet industry at the wholesale level to the retail level is not a decision that should be taken lightly.
  2. The Bureau’s stated approach to balancing competition and regulation is that regulation should be used only where market forces will not achieve policy objectives and, even then, only to the extent necessary to address those objectives.Footnote 115 Consistent with this, the Bureau generally advises that regulation should be cast narrowly to preserve the greatest possible amount of market-based competition.Footnote 116
  3. The Bureau submits that wholesale access regulation is preferable to broad retail regulation for that purpose as it preserves a greater amount of market-based competition. Moreover, the Bureau previously assessed Canada’s wholesale access regime and found that it was then succeeding in meeting its objective of increasing competition. In the Broadband Study, the Bureau came to four key conclusions:

    First, wholesale-based competitors, who use the access regime to serve customers, currently provide services to more than 1,000,000 Canadian households. Second, consumers who are served by wholesale-based competitors report higher satisfaction with their provider than those who use traditional providers. Third, wholesale-based competitors act as a competitive alternative for countless other households, who use their presence to negotiate lower prices and other inducements from other competitors. And finally, several facilities-based competitors, who provide services using their own underlying physical networks, have recently launched flanker brands, at least in part as a competitive response to wholesale-based competitors. In these respects, the wholesale access regime appears to be fulfilling its promise to bring about greater consumer choice and increased levels of competition for Canadian consumers.Footnote 117

  4. Much has changed in the years following the Broadband Study, as noted by the CRTC in the Notice of Consultation. In that regard, the Bureau believes that it is positive that the CRTC is reviewing its wholesale access framework to ensure that it reflects current market conditions. The Bureau submits that the CRTC should first consider whether updates to its wholesale access framework may be sufficient to achieve its policy objectives before considering a broad shift to retail regulation.

IX. Conclusion

  1. The Bureau is pleased to respond to the CRTC’s Notice of Consultation. The CRTC’s decisions in this proceeding concern a vital service and will be of great importance for both Canada’s economy and its consumers.
  2. The wholesale HSA framework supports competition by reducing the barriers to entry for firms to compete with network operators. The Bureau applauds the CRTC’s decision to review this framework and ensure that it continues to effectively support competition and to consider whether changes to the framework may better enable it to realize this aim.
  3. The Bureau submits that in addition to considering changes to the wholesale HSA framework, the CRTC may wish to consider other measures designed to increase overall competition for fixed internet services. While not directly related to the terms of the wholesale HSA framework, by serving to decrease barriers to switching, they may increase the ability of all ISPs (including Wholesale-Based Competitors) to compete for customers.
  4. The Bureau is ready to support the design and development of more detailed proposals in future stages of this proceeding, or in follow-on proceedings as appropriate. To this end, the Bureau intends to study the responses provided by other interveners in considering this issue. The Bureau may also evaluate the efficacy of rules used in wholesale access frameworks used in Two-Platform Comparators.
  5. The designated representative of the Commissioner for this proceeding is:

Conor Parson
Senior Competition Law Officer
Competition Bureau
15th Floor, 50 Victoria Street
Gatineau, Quebec K1A 0C9

Appendix A: Comparison of Canada’s fixed internet deployment to the Two-Platform Comparators

Figure 1: All-technology fixed internet penetration (subscribers per 100 inhabitants by quarter) compared to the Two-Platform Comparators Footnote 118

Comparison of the total number of fixed internet subscribers per 100 inhabitants between Belgium, Canada, Denmark, Hungary, the Netherlands, Portugal, and the United States from the second quarter of 2010 to the fourth quarter of 2021.

  • Description for Figure 1
    Figure 1: Total Number of Fixed Internet Subscribers per 100 Inhabitants (Quarterly)
    Date Belgium Canada Denmark Hungary Netherlands Portugal United States
    Q2-2010 29.03 30.6 37.67 18.76 37.09 18.29 26.04
    Q2-2011 30.15 31.15 38.28 19.64 37.82 19.36 26.61
    Q2-2012 30.96 31.81 38.76 20.58 38.09 20.27 27.29
    Q2-2013 31.66 32.37 38.7 21.35 38.47 20.66 27.95
    Q2-2014 32.11 32.84 39.24 21.98 38.93 21.34 28.31
    Q2-2015 32.61 33.09 39.15 22.28 39.38 21.93 28.83
    Q2-2016 33.24 33.66 39.67 23 39.71 22.77 29.44
    Q2-2017 33.93 34.16 40.45 23.46 40 23.47 29.91
    Q2-2018 34.31 34.46 41.09 24.27 40.43 24.56 30.35
    Q2-2019 34.55 34.9 41.73 25.04 40.79 25.73 30.34
    Q2-2020 35.79 35.47 42.17 26.16 40.62 27.48 30.84
    Q2-2021 36.27 35.9 42.58 26.89 41.21 28.86 31.44
    Q2-2022 36.55 36.73 42.88 27.62 41.27 30.34 31.85
    Q4-2009 37.24 37.25 43.35 28.1 41.92 31.47 32.43
    Q4-2010 37.69 37.07 42.95 28.68 42.41 32.69 32.71
    Q4-2011 38.13 37.65 43.54 29.3 42.47 33.56 32.88
    Q4-2012 38.5 38.1 43.56 30.21 42.55 34.71 33.27
    Q4-2013 38.78 38.64 43.9 30.65 43.03 35.63 33.58
    Q4-2014 39.41 38.97 43.76 31.5 42.98 36.8 33.91
    Q4-2015 39.75 39.57 44 32.16 43.13 37.61 34.47
    Q4-2016 39.96 40.27 43.62 32.64 43 38.57 34.78
    Q4-2017 40.64 40.87 44.21 32.82 43.1 39.45 35.93
    Q4-2018 41.01 40.94 44.22 33.49 43.14 40.41 36.51
    Q4-2019 41.48 41.72 44.6 33.98 43.42 41.09 37.37
    Q4-2020 41.68 41.97 44.65 34.83 43.29 41.93 37.86
    Q4-2021 43.27 42.39 45.06 35.4 44.34 42.61 38.33

Source: Compiled from OECD, “Fixed broadband subscriptions per 100 inhabitants, June 2022”.

Figure 2: Fibre penetration (subscribers per 100 inhabitants by quarter) compared to the Two-Platform Comparators Footnote 119

Comparison of the total number of fibre internet subscribers per 100 inhabitants between Belgium, Canada, Denmark, Hungary, the Netherlands, Portugal, and the United States from the second quarter of  2010 to the fourth quarter of 2021.

  • Description for Figure 2
    Figure 2: Number of Fibre Subscriptions per 100 inhabitants (Quarterly)
    Date Belgium Canada Denmark Hungary Netherlands Portugal United States
    Q2-2010 0.01 0 2.49 1.2 0.81 0.29 1.3
    Q2-2011 0.01 0 2.7 1.82 0.95 0.74 1.45
    Q2-2012 0.01 0.13 3.09 2.38 1.11 1.23 1.61
    Q2-2013 0.02 0.17 3.38 2.62 1.29 1.65 1.77
    Q2-2014 0.03 0.4 3.91 2.66 1.63 2.24 1.89
    Q2-2015 0.03 0.54 4.39 2.91 1.81 2.91 2.02
    Q2-2016 0.03 0.56 4.84 3.22 2.38 3.45 2.14
    Q2-2017 0.03 0.67 6.63 3.33 2.73 3.9 2.31
    Q2-2018 0.02 1.11 6.71 3.47 3.2 4.39 2.45
    Q2-2019 0.03 1.3 8.69 3.74 3.46 5.11 2.63
    Q2-2020 0.06 1.67 9.1 3.98 4.03 5.98 2.85
    Q2-2021 0.07 1.91 9.49 4.18 4.7 6.95 3.04
    Q2-2022 0.08 2.71 10 4.5 5.64 8.07 3.27
    Q4-2009 0.1 2.94 10.65 4.85 5.85 9.15 3.47
    Q4-2010 0.11 3.7 11 5.28 6.17 10.55 3.73
    Q4-2011 0.13 4 11.7 5.73 6.5 11.89 3.99
    Q4-2012 0.15 4.68 12.24 6.26 6.78 13.41 4.3
    Q4-2013 0.22 5.02 13.06 6.77 7.15 14.96 4.61
    Q4-2014 0.28 5.59 13.69 7.44 7.43 16.64 4.9
    Q4-2015 0.39 5.92 14.57 8.01 7.68 18.12 5.32
    Q4-2016 0.42 7.06 15.29 8.69 7.99 19.52 5.51
    Q4-2017 0.52 7.57 16.58 9.41 8.52 20.72 5.8
    Q4-2018 0.67 8.9 17.5 10.2 9.21 22.25 5.98
    Q4-2019 0.9 9.51 17.65 11.02 10.22 23.7 7.26
    Q4-2020 1.21 10.48 19.75 12.18 10.8 25.13 7.11
    Q4-2021 1.67 11 21.18 12.84 12.08 26.38 7.62

Source: Compiled from OECD, “Fixed broadband subscriptions per 100 inhabitants, June 2022”.

Figure 3: Combined fibre and cable penetration (subscribers per 100 inhabitants by quarter) compared to the Two-Platform Comparators Footnote 120

Comparison of the combined number of cable and fibre internet subscribers per 100 inhabitants between Belgium, Canada, Denmark, Hungary, the Netherlands, Portugal, and the United States from the second quarter of  2010 to the fourth quarter of 2021.

  • Description for Figure 3
    Figure 3: Combined Number of Cable and Fibre Subscriptions per 100 inhabitants (Quarterly)
    Date Belgium Canada Denmark Hungary Netherlands Portugal United States
    Q2-2010 12.35 16.47 12.44 9.59 15.03 7.49 15.11
    Q2-2011 13.25 16.97 12.72 10.51 15.78 8.44 15.74
    Q2-2012 13.89 17.41 13.17 11.35 16.52 9.36 16.25
    Q2-2013 14.57 17.8 13.53 11.95 17.29 9.98 16.84
    Q2-2014 15.12 18.13 14.25 12.58 18.36 10.79 17.36
    Q2-2015 15.65 18.48 15.03 13.19 19.33 11.57 17.94
    Q2-2016 16.21 19.02 15.74 13.92 20.23 12.47 18.58
    Q2-2017 16.85 18.82 18.01 14.38 20.87 13.02 19.1
    Q2-2018 17.51 19.85 18.22 15.08 21.88 13.69 19.52
    Q2-2019 17.89 20.2 20.45 15.82 22.67 14.61 19.7
    Q2-2020 18.37 20.64 20.98 16.52 23.36 15.66 20.36
    Q2-2021 18.51 20.94 21.5 17.07 23.94 16.89 21.01
    Q2-2022 18.7 22.1 22.36 17.87 24.68 18.31 21.88
    Q4-2009 19.08 22.5 23.27 18.56 25.24 19.62 22.62
    Q4-2010 19.4 23.2 23.85 19.31 25.8 21.38 23.32
    Q4-2011 19.78 23.86 25.13 20.14 26.22 23 23.81
    Q4-2012 20.16 24.64 26.05 21.04 26.62 24.74 24.65
    Q4-2013 20.32 25.19 27.29 21.85 27.31 26.33 25.26
    Q4-2014 20.76 25.86 28.06 22.92 27.58 28.12 25.96
    Q4-2015 21.15 26.34 29.23 23.72 27.96 29.64 26.97
    Q4-2016 21.37 27.62 29.87 24.66 28.23 31.15 27.58
    Q4-2017 22 28.34 31.61 25 28.81 32.42 28.88
    Q4-2018 22.34 29.65 32.7 25.94 29.29 33.94 29.55
    Q4-2019 22.85 30.68 32.98 26.77 30.24 35.32 30.43
    Q4-2020 23.28 31.54 35.14 28.07 30.58 36.75 31.18
    Q4-2021 24.4 32.23 36.6 28.87 31.73 37.95 31.74

Source: Compiled from OECD, “Fixed broadband subscriptions per 100 inhabitants, June 2022”.