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Telecoms must up network investments to meet growing demand for mobile data: report

TORONTO — While Canada’s largest telecom company is set to slash spending on its fibre network expansion, industry stakeholders say phone carriers will need to boost their network investments amid forecasts that data consumption could double by 2027.
Those in the telecom industry say companies will need to up their network investments as a new report forecasts data consumption in Canada could double by 2027.Lights on an internet switch illuminate a network cable in Ottawa, Thursday February 10, 2011. THE CANADIAN PRESS/Adrian Wyld

TORONTO — While Canada’s largest telecom company is set to slash spending on its fibre network expansion, industry stakeholders say phone carriers will need to boost their network investments amid forecasts that data consumption could double by 2027.

The findings by PwC's Canadian Telecom Outlook, presented Tuesday at the Canadian Telecom Summit in Toronto, indicate Canadian providers will need to increase their capital expenditures for 5G and fibre networks by two per cent per year to meet growing demand for mobile data use.

“Telecoms must make heavy investments in the cost of infrastructure that enables them to serve customers across all of these networks,” said John Simcoe, partner and national media and telecom leader for PwC Canada.

He cautioned the projections were calculated before the CRTC released a much awaited partial decision on Monday amid its ongoing review of third-party access to fibre networks.

That decision allows independent internet providers to use large telephone companies' fibre networks in Ontario and Quebec. It is meant to stimulate competition for internet services in the two provinces, where the CRTC said independent internet providers now serve 47 per cent fewer customers than they did two years ago.

The ruling requires BCE Inc. and Telus Corp. to provide competitors with access to their fibre-to-the-home networks within six months.

But BCE subsidiary Bell Canada responded by announcing it would cut network investment plans by more than $1 billion in 2024-25, including a minimum of $500 million next year. It noted this comes on top of Bell having already decreased its 2023 spending plans by $100 million in anticipation of the CRTC's decision.

Telus has not indicated how it might respond. However, during a panel discussion Tuesday afternoon at the conference, its vice-president of telecom policy and chief regulatory legal counsel Stephen Schmidt said the decision is "part of a 25-year trajectory of the CRTC doing things that no other regulator on earth is left doing."

"Time has moved on for peer regulators and they're focusing on privacy, on 6G, on AI, on digital markets, but the commission is a quarter-century into doing something that's a quarter-century old," said Schmidt.

"The big worry on that is the extent to which it crowds out other meritorious issues and other meritorious groups from sitting at the centre of its focus … but that will never be possible if we have another 25 years of wireline proceedings."

Beyond regulatory pressures, Simcoe said Canada’s telecom industry is facing multiple challenges todeliver on 5G and fibre commitments. Those include the current environment of high interest rates and capital costs, labour and material shortages, and the effect of increased severe weather on infrastructure.

“How far can you bend the industry before it starts to break and you're starting to see investments cut back and you're starting to see jobs cut back?” added PwC’s Sam O’Halloran during the group's presentation to conference attendees.

Robert Ghiz, president and CEO of the Canadian Telecommunications Association, said the industry needs Ottawa to foster a regulatory environment that encourages investment and competition between the companies that build networks.

"If they don't have a regulatory environment that encourages that, well then the investment will go somewhere else," he said in an interview at the telecom conference.

A separate PwC report commissioned by the association, released Monday, found Canada’s six largest telecoms spent $13.3 billion in capital expenditures on their wireless and broadband networks in 2022. Over the past five years, the Canadian telecom sector has invested an annual average of $12.1 billion on networkinfrastructure, representing approximately 18.6 per cent of average revenues.

While Ghiz acknowledged the CRTC is trying to strike a balance between promoting investment and lowering consumer costs, he said the big carriers want to see "stability."

"From my perspective, investment is the most important component to that," he said.

"Obviously, there's lots of reviews that are going on at the CRTC and my members have their own opinions on that, but what I can say is a commonality amongst my members is an incentive to invest, and that's really what it comes down to."

The CRTC said its move is meant to stabilize the market in areas where it will make a significant impact on consumer choice and affordability, in line with Industry Minister François-Philippe Champagne's direction earlier this year.

A spokeswoman for Champagne said on Tuesday the minister is reviewing the CRTC's decision.

“The minister has been clear through his policy directive — our government’s top priority is to offer the best prices for Canadian consumers through a competitive telecommunications market,” said Audrey Champoux in a statement.

RBC Capital Markets analyst Drew McReynolds said the impact of the CRTC's interim decision would be "manageable" for incumbent carriers when considering mitigating factors such as capital expense reductions.

But he took aim at the regional nature of the move.

"We do understand the general swinging of the pendulum by the CRTC towards creating larger internet and wireless wholesale markets in Canada as a means to increase competition," he said in an analyst note.

"However, arbitrarily applying the interim wholesale internet access framework to Ontario and Quebec and not other (fibre to the home) regions is simply perplexing to us."

No decisions have been made yet as to whether there will be a similar move affecting internet services in other provinces, the regulator said Monday.

Its broader review into the rates that smaller competitors pay the major telecoms for network access remains ongoing, with the next public hearing set for Feb. 12, 2024.

Monday's step should have been a lifeline for small internet service providers, but it came so late that "most have already sunk," said Matt Hatfield, executive director of OpenMedia, an advocacy organization that promotes internet accessibility.

"Fibre internet is the high-speed internet gold standard Canadians now demand, and the CRTC’s indifference to that reality has led to most small ISP players being edged out or absorbed by telecom giants over the last few years," Hatfield said in a statement.

"That means higher internet prices and less innovation for Canadians in our essential service telecom sector, despite the fact that we already pay some of the highest prices in the world."

This report by The Canadian Press was first published Nov. 7, 2023.

Companies in this story: (TSX:BCE, TSX:T)

Sammy Hudes, The Canadian Press