Building a World–Class Digital Infrastructure
The telecommunications industry is in the midst of a major shift towards next generation networks (NGN), which provide dramatic improvements in speed, functionality and integration of services using the flexible Internet Protocol (IP). Advances in wireless technology are driving the deployment of ubiquitous wireless broadband networks, which support new mobile devices that have a myriad of uses. Broadband networks are a critical component of the digital economy, enabling a range of new applications that include social media, video conferencing, new e–health applications and smart electrical grids.
However, in a number of key respects, the fundamental economics of the industry have not changed. Telecommunications service provision is still subject to strong economies of scope and scale and the large up–front sunk costs can act as barriers to entry. The costs of upgrading equipment, digging trenches, and erecting poles can be immense, especially in a country as geographically challenging as Canada. As a result, the industry is often characterized by competition between a relatively small number of large firms that are capable of absorbing these significant fixed costs. For example, the Canadian residential broadband market has largely settled into regionalized competition between the incumbent telephone company and local cable provider.
Convergence and competition between duelling network platforms has driven continued investment in network infrastructure. In 2008, the private sector devoted over $12 billion to capital expenditures, and the capital intensity of Canadian service providers is in line with global peers. Residential broadband providers have launched services with advertised download speeds of up to 50 and 100 megabits per second (Mbps) in certain markets, and several wireless providers have recently launched high–speed packet access plus (HSPA+) networks across the country with theoretical maximum speeds reaching 21 Mbps. Although network development is generally driven by private sector investment, Canadian governments (federal, provincial and territorial) also play an important role. Government of Canada initiatives include programs to expand broadband access in rural and remote areas and funding for Canada's Advanced Research and Innovation Network (CANARIE). (CANARIE's ultra–high speed optical backbone network supports leading–edge research and is used by thousands of scientists and other researchers across Canada.
Despite these continued investments, concerns have been raised that Canada is lagging its peers. Canada compares well in measures of broadband penetration and traditional telephone service pricing, but tends to rank less favourably in other respects. For example, Canada ranks in the middle of the pack in average or median real–world download speeds according to sources such as Akamai and Speedtest. That being said, international comparisons should be treated with caution.top of page
Promoting Competition and Investment
The twin issues of facilitating both investment and competition are foundational challenges in telecommunications policy. Policy–makers and regulators must ensure that there is a sufficient level of competition and consumer choice amongst a variety of services, while at the same time facilitating an environment that is conducive to continued network investment. Next generation networks require very large up–front capital investments. Ensuring that sufficient competition is in place to drive innovative service delivery at reasonable prices is a key concern given the level of industry concentration inherent to telecommunications markets, where economies of scale and scope are so fundamental.
Government of Canada policy has been to enable competition and promote private investment through market forces and streamlined regulation, in combination with targeted initiatives. The 2006 Policy Direction requires the telecommunications regulator, the Canadian Radio–television and Telecommunications Commission (CRTC) to rely on market forces to the maximum extent feasible and to regulate only where necessary in achieving Canada's telecommunications objectives. As steward of the spectrum resource, the Minister of Industry has established the policy objective to maximize the economic and social benefits Canadians derive from spectrum and issued management guidelines that call for reliance on market forces and minimal administrative burden among other things.
Since implementing the Policy Direction, the Government of Canada has taken additional concrete steps to maximize reliance on market forces by, for example, accelerating the deregulation of local telephone service. On December 10, 2009, the Government of Canada asked the CRTC to re–examine a wholesale regulatory decision on matching broadband speeds to ensure that the regulatory regime is coherent, cohesive and is not unnecessarily impeding investment while ensuring consumer choice. The Minister of Industry has also taken measures to strengthen competition in wireless services. The 2008 Advanced Wireless Services (AWS) auction included a set–aside of spectrum exclusively for new entrants to bid on, in conjunction with provisions for tower sharing and mandated roaming.
Market–led network–based competition continues to push investment in next generation infrastructure in Canada. Consistent with past government policy, it is expected that the private sector will drive future investment and innovation. However, the needs of consumers and businesses are constantly evolving and other industrialized countries are deploying advanced networks, which enable orders of magnitude increases in upload and download speeds. In a number of cases, countries have set targets for next generation network speeds and coverage. The basic question is whether domestic progress is fast enough for Canadians to be at the forefront of developments in the global digital economy. To that end, the Government of Canada is committed to more thorough analysis on how much progress is likely to be made under the status quo and where there may be persistent gaps.
Another key question is whether the right frameworks are in place to encourage competition and investment and the right pace of progress. Foreign ownership restrictions have been identified as a priority area of concern in the past and will receive renewed government scrutiny. Over the past decade, several independent review bodies have recommended that the government loosen or eliminate these restrictions, citing benefits such as increased access to capital, faster technological transfer, along with more competitive prices and choices for consumers. In the recent Speech from the Throne, the Government of Canada has committed to "open Canada's doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries, giving Canadian firms access to the funds and expertise they need." The government has moved to address the first of these commitments, in tabling legislation to amend the Telecommunications Act for satellites as part of the Jobs and Economic Growth Act. In the coming months, the Minister of Industry will indicate the steps to be taken in regard to pursuing further liberalization in this sector.
The CRTC has been active on a number of infrastructure–related fronts. In October 2009, the CRTC established a comprehensive framework concerning Internet traffic management issues, sometimes referred to as "net neutrality" The framework is premised on the principles of transparency, innovation, clarity and competitive neutrality. It attempts to balance the freedom of Canadians to use the Internet for various purposes with the legitimate interests of service providers to manage the traffic on their networks. The CRTC concluded a review of its existing wholesale framework in 2008 and launched a proceeding in May 2009 to investigate whether large cable and telephone companies should be required to provide competitors with additional wholesale broadband configurations. The proceeding was expanded following the Government of Canada's December 2009 order on speed matching and will examine how the wholesale framework should apply on a forward–looking basis to new types of Internet access infrastructure.
Other impediments to investment and competition may include difficult access to passive infrastructure for deploying fibre optics, such as rights–of–way, ducts and support structures. Passive infrastructure development such as digging trenches for ducts often represents a large portion of the costs in deploying fibre. Facilitating access through collaborative efforts by various stakeholders, including provincial and municipal governments, presents a significant opportunity to reduce deployment costs.
Access to Spectrum
Spectrum is continuously being used in new ways by a broad range of players including commercial telecommunications service providers, broadcasters, first responders/public safety organizations, the scientific community and government. The demand for spectrum is expected to increase due to the explosive growth predicted in wireless broadband usage.
Ensuring that radio spectrum is used efficiently and made available in a timely fashion is critical for growth and innovation in the wireless sector, and for users in the economy as a whole. Access to spectrum will continue to drive the emergence and adoption of new wireless devices, services and applications. To support interoperability and economies of scale for equipment, Canadian commercial spectrum is aligned with the United States and is generally harmonized on a regional or global basis. The challenge of effectively managing spectrum is exacerbated by an increasing number of competing interests, rapidly evolving technology, and the high and growing demand for wireless broadband. In order to meet these demands, Industry Canada intends to provide access to additional spectrum through re–purposing the 2500 MHz band to allow flexible use, including mobile broadband services, and making available the 700 MHz band for next generation wireless as the analogue broadcast services are transitioned to digital television in 2011. Consultations are also planned for the 70, 80, 90 GHz bands and the 1.4 GHz band for broadband use.
Providing timely access to spectrum will be key to ensuring network capacity is in place to meet wireless broadband demand growth. In view of international trends and rapidly growing demand, Industry Canada will inventory spectrum use with a view to better understand where opportunities exist for more intensive use or reallocation. For example, Industry Canada will investigate the use of television white spaces — portions of bands unused in certain geographical areas — to deploy new low power technologies. White space technologies would help meet the growing demand for spectrum and encourage innovation in applications development in Canada. Industry Canada will continue to investigate options to remove regulatory obstacles to the efficient functioning of markets, to facilitate secondary markets for spectrum authorizations, and to develop a fee structure that could incent a more efficient use of spectrum. In addition, to improve predictability and transparency regarding spectrum management priorities, Industry Canada will publish a timetable for upcoming auctions and consultations.
Rural and Remote Areas
Meeting the needs of consumers and businesses in rural and remote areas presents unique challenges. Advanced service deployment tends to trail that of urban areas, as the business case for deploying networks in these sparsely populated regions is far more difficult. A range of technologies can be employed and there is often greater reliance on terrestrial wireless and satellite solutions for rural and remote communities. Governments internationally have taken a variety of approaches to address this issue including direct funding, regulatory mandates and promoting market forces. The application and impact of measures such as universal service obligations is also being discussed in many countries given the evolution of technology and competition. The approach of the Government of Canada has been to fund broadband directly through funding initiatives, rather than through cross subsidization through a universal fund approach. The CRTC is currently examining these and related issues as part of its proceeding launched January 28, 2010.
Concerning broadband funding initiatives, federal, provincial and territorial governments have made significant contributions to targeted initiatives such as promoting high capacity fibre access to anchor institutions such as hospitals and schools, providing fibre backbone capacity, and extending a basic level of high speed service to all households. The recently launched Broadband Canada: Connecting Rural Canadians program (hereafter referred to as Broadband Canada) is an example of the latter. Given the huge importance of access to high speed networks, governments will likely have an ongoing role to ensure that Canadians in rural areas are not left behind. In doing so, Canada must ensure that citizens and communities have more than just basic broadband, but the speeds and capacity needed for economic growth.
Having good data is critical to accurately assessing the existing state of affairs and ongoing progress in meeting Canadian objectives. However, certain information gaps persist, particularly with respect to the deployment of advanced networks in Canada. This makes it difficult to accurately identify the extent of coverage and assess whether existing frameworks are effective. Industry Canada will examine the means to enhance statistical data collection. Network operators will also have an important role to play by indicating what additional information can be collected cost effectively.top of page
Ensuring a state–of–the–art network infrastructure to promote innovation, attract investments and support world–class health care, research and education will be key to making Canada a leader in the global digital economy. All Canadians should have access to high–speed networks as digitally savvy citizens, consumers, workers, entrepreneurs and artists — to connect them to the potential that the digital economy offers. With major investments by the private sector, Broadband Canada and other government investments, Canada is on its way to connecting all Canadians. However, reaching this goal will take the concerted efforts of all stakeholders — individuals, businesses and governments.
- What speeds and other service characteristics are needed by users (e.g., consumers, businesses, public sector bodies and communities) and how should Canada set goals for next generation networks?
- What steps must be taken to meet these goals? Are the current regulatory and legislative frameworks conducive to incenting investment and competition? What are the appropriate roles of stakeholders in the public and private sectors?
- What steps should be taken to ensure there is sufficient radio spectrum available to support advanced infrastructure development?
- How best can we ensure that rural and remote communities are not left behind in terms of access to advanced networks and what are the priority areas for attention in these regions?