2024 is coming to a close and in addition to our best wishes for the Holiday Season and 2025, we would like to share a few thoughts on challenges and opportunities in Canadian telecommunications going forward.
Wholesale Rates for High-Speed Access (HSA) Services
First off, regarding HSA services, CRTC seems to have hit the jackpot with its decision on its new wholesale HSA framework (CRTC 2024-180) enabling Rogers, Bell and TELUS to use wholesale HSA service outside of their incumbent territories. Everyone hates it, except for TELUS which wants to complete its bundle of consumer services using the networks of its competitors such as Bell and the cable guys in other instances. Different views are expressed on how to protect competition and investment. While final wholesale HSA rates are still outstanding (interim rates were published in October 2024) and should be set in 2025, numerous petitions, review and vary as well as a November 2024 Governor-in-Council (GIC) directive to reassess this key element of the CRTC framework create significant uncertainty. The future CRTC decisions on this matter could reshape the competitive rivalry in the Canadian Internet market in the short to medium term with possibly very different outcomes on pricing and consumer benefits. This battle is not over and done.
As a side note, the evolution of the framework for wholesale HSA services could also impact how Canadian MNOs view the prospects of FWA services. US MNOs have gained significant market share and customer success with their relatively low cost FWA offerings. 5G FWA has also significantly increased competitive rivalry, a key benefit for consumers. The Canadian market has a very different structure with network access/sharing agreements in place and, as of now, mandated wholesale of wireline broadband services, but not for wireless. A CRTC decision to eliminate wholesale opportunities for the top 3 carriers (Rogers, Bell and TELUS) could bring increased focus on 5G FWA initiatives, especially as Canadian MNOs are relatively spectrum rich. How 5G FWA can be implemented in the context of mobile network sharing and access agreements is potentially a wrinkle in this opportunity.
Broadband Fund
CRTC has also revamped the Broadband Fund (Telecom Regulatory Policy CRTC 2024-328) and an additional call for applications is expected to be launched. There is a significant focus on providing better broadband services in indigenous areas and some measures such as the 10% holdback have been eliminated for funding projects of less than $5M. This brought a strongly worded dissent from a few Commissioners. CRTC has also nixed the suggestion of using a reverse auction, as was done successfully in Ontario leading to lower subsidies to providing broadband access service.
CRTC also signalled its intention to move forward with a further consultation on funding projects focused on network resiliency, as broadband access fulfilling the (fairly low) 50/10 targets is now available to a very large segment of population outside of northern and indigenous areas.
Mobile Services
Competition appears to be going strong despite recurring Bay Street analysts requests to tone it down a notch. Reductions in the number of newcomers to the country, if it does happen at a significant level, may impact some MNOs more than others for next year and likely a few after that. This calls for increased focus on generating new sources of revenues. We bring back the FWA opportunity mentioned above as a potential new source of revenues. There are of course other approaches such as monetizing portions of one’s network including towers, an area where Canada has up to now traveled a different road than most countries. The Rogers private equity deal – based on a “non-binding term sheet” – for its backhaul network is interesting. When announced, the deal was expected to close before year-end. As of December 24, there has been no update.
We also note that it has now been almost two years since a moratorium on most commercial mobile spectrum transfers was put in place by ISED and an upcoming consultation to review the rules surrounding said spectrum transfers was announced. Did we miss it? Were we asleep at the wheel? No, it is still outstanding. A clear impediment to investment, if we ever saw one, especially for anyone other than the top 3 or 4 MNOs. So the moratorium effectively becomes policy, absent the public consultation.
On the question of new services, ISED indicated in its June 2024 Consultation on supplemental coverage by satellite that it wanted these services in operation starting on April 1, 2025. So, we would expect a decision soon following the closing of the Consultation. Of course, an election in the short term may totally upend these plans. So far, while there is much interest and hype, these services are not necessarily perceived as a sure bet for a new major source of revenues, but maybe they could become a nice increment. Or maybe not, depending on how Apple plays it and how consumers respond. How many would be willing to pay a few incremental dollars per month to secure such a service remains an open question. Between 20% to 30% are often penetration rates discussed. Nevertheless, it does look like most MNOs would need to participate in some way in this market segment due to competitive pressure.
We also expect ISED to eventually launch more consultations on a future mmWave spectrum auction, much later than originally expected following the June 2022 kick-off consultation. How much spectrum and on what terms, including the treatment of incumbent spectrum licensees, are the many key decisions that still need to be discussed or made public.
Investment Outside of Canada
Cogeco was the only major Canadian operator investing in the US in recent years via its acquisitions of regional cable operators. It recently integrated its US and Canada operations in 2024 to improve efficiency and lower costs.
Bell has now joined them with its deal to acquire US fiber operator Ziply and positioning itself as one of the largest North American fiber operators, an interesting twist for a company named Bell Canada. It is a fact that the US market lags Canada in terms of fiber penetration. It is also a fact that the US market also lags in terms of completing fiber deployment in many rural areas and that the $42B BEAD program, in addition to many other subsidy programs, are a once in a lifetime broadband funding opportunity which Bell/Ziply may decide to focus on.
Considering diminishing returns expected in Canada, we may see other Canadian operators increase their focus on investment outside of the country, as actually they once did a few decades ago.
There is no shortage of challenges for Canadian telecom service providers in 2025. As a friendly reminder, LYA brings expertise and experience in supporting telecom operators in Canada and in the US ranging from business strategy and valuation, spectrum matters, broadband subsidy support, expert evidence, and other activities. Please get in touch and we look forward to hearing from you.