Ottawa’s policy flip-flopping is killing Canadian telcos

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Dvai Ghose is the principal at Ghose Investment Corp. His clients include Telus Communications Inc. He is the former head of global research and strategic development for Canaccord Genuity Group.

The current Canadian telecom landscape is a battlefield, with fierce competition, eroding prices and market saturation. Add high debt leverage – and for BCE, an outsized dividend – and you have a perfect storm. What is less discussed is how regulatory inconsistency has been a wrecking ball to telco planning.

Traditionally, Canadian regulators have favoured network builders who operate their own infrastructure over resellers who pay to use the infrastructure of others. The rationale is that this encourages investment in infrastructure. While investment levels have been relatively high as a result, there used to only be three wireless and two wireline carriers per market. To the ire of consumers, prices were often higher than other markets. (Europe took the opposite approach, allowing widespread network resale – resulting in lower prices but also reduced investment.)

So, to address consumer discontent, Canadian regulators did an about-face toward resale, even as other markets were moving in the opposite direction to incentivize investment.

In 2021, the CRTC mandated wireless resale, forcing Bell, Telus and Rogers to allow smaller carriers to resell their mobile networks. That same year, Rogers bid for Shaw and changed the landscape forever. To get approval, Rogers gave massive concessions, including selling Shaw’s Freedom Mobile to Quebecor and giving Quebecor and Freedom attractive resale deals. In February, 2023, Industry Minister François-Philippe Champagne instructed the CRTC to create a regulatory framework for fibre-to-the-home resale – resale of high-speed residential internet. The CRTC complied by mandating that Bell and Telus facilitate resale.

But here is where the current uncertainty begins.

The CRTC concluded that if the aim is to reduce internet prices, all carriers should be allowed to be resellers for FTTH – including Bell, Rogers and Telus, as long as they were reselling in markets where they weren’t incumbents. Surely this was desirable as it meant that Bell, Telus, Rogers, Quebecor and Cogeco could all resell outside their home markets, leading to as many as five providers for each market.

Bizarrely, Mr. Champagne asked the CRTC to reconsider, arguing that such large resellers would negatively affect smaller resellers and curtail investment.

The investment argument is somewhat irrelevant as Telus and Bell have completed the vast majority of their FTTH builds – more than 11 million homes in aggregate. The competitive argument is also spurious. If Bell, Telus and Rogers are prevented from reselling each other’s networks, the only viable resellers would be Quebecor and Cogeco.

Such a policy could be seen to unduly favour two Quebec-based companies at the expense of opportunities for Western Canadian-based Telus in Central Canada and Ontario-based Rogers in Quebec.

Despite Mr. Champagne’s opposition, the CRTC reaffirmed its position in January that big telcos can be resellers. Will the independent regulator prevail, or will the Minister override its decision?

The implications are significant. Partly in protest against the CRTC’s position, Bell has decided to redeploy investment from Canada to the U.S. as evidenced by its $7-billion acquisition of Ziply, a northwest U.S. internet provider.

On an earnings call earlier this month, BCE chief executive officer Mirko Bibic said what originally began as a 2021 plan to deploy home-fiber to nine million homes will now involve fewer than 8.3 million homes. “This decrease in our fiber buildout is a direct result of the CRTC’s refusal to ban Telus and other large carriers from reselling the FTTP network we’ve built,” he said.

While the CRTC’s approach would allow Bell to resell internet in Telus’s home markets in the West, the opportunity is nearly three times smaller than Telus’s opportunity to resell Bell in Central and Eastern Canada. This is likely the reason behind Bell’s opposition.

Telus took a different approach. It supported the CRTC’s decision and launched internet resale in Ontario and Quebec on Bell’s network.

But both Bell and Telus’s responses were based on the original CRTC decision and may not have been executed if the rules were changed, as Mr. Champagne is demanding. This uncertainty also does not favour Quebecor or Cogeco. Obviously, they would prefer Mr. Champagne’s solution, as would the struggling and very vocal independent resellers who would prefer less competition under this regime.

In a stunning display of regulatory whiplash, Canadian decision-makers have engineered a telecom twilight zone. Within months, we’ve lurched from facilities-based competition to resale, only to suggest the goal is actually an absurd middle ground where just two resellers get to play while other major carriers are barred from reselling. If Mr. Champagne’s override stands, he’ll have achieved an unfortunate feat: creating a “competitive” framework that actively reduces competition and investment.