'Investment bogeyman': Will Big Three cut wireless investment if forced to open network access? – Financial Post

Canada’s Big Three wireless carriers say they’ll significantly axe investment if the federal telecom regulator forces them to sell wholesale access to their mobile networks, arguing this could hurt Canada’s position in the race to build next generation 5G networks.

Such warnings are a common refrain from the telecom industry whenever additional telecom regulation is on the table. This time, they come as the Canadian Radio-television and Telecommunications Commission considers opening up the industry to more competition under pressure from the Liberal government to cut cellphone bills by 25 per cent.

The regulator must decide whether to mandate resale access, a move that could usher in a host of new low-cost competitors called mobile virtual network operators. These can provide cheaper services since they don’t bear the costs of building entirely new networks — and they’d love to get a piece of the $27.1 billion Canadians spend on wireless services every year, 90 per cent of which goes to the Big Three providers BCE Inc., Rogers Communications Inc. and Telus Corp.

One week into the CRTC’s two-week public hearing on the state of wireless services in Canada, the battle lines have been drawn between wireless players that have already made big investments and hopeful entrants who argue it’s not feasible for each prospective competitor to start from scratch.

The CRTC’s preliminary view is that the new competition would benefit consumers more than it would hurt existing operators, especially since they’ve already invested extensively in recent years.

But the Big Three vehemently oppose the idea since it would hurt their ability to make money directly from customers after spending billions on infrastructure.

Telus chief executive Darren Entwistle said Telus will cut 5,000 jobs and $1 billion in investment over the next five years, along with a reduction in charitable spending, if the wireless resale is mandated. For those who suspect the cuts are an empty threat, Entwistle said this isn’t “theatre perpetrated by incumbents,” adding Telus’ board of directors signed a resolution instructing management to pursue the spending reduction plan should the CRTC mandate wireless reselling.

Bell chief executive Mirko Bibic said Bell’s annual capital spending would be “significantly less” than the $4 billion it currently spends if the CRTC mandates wholesale access.

By Bell’s calculations, overall industry investment will drop by $500 million annually should the rules go through.

Even regional operator Eastlink, owned by Halifax-based Bragg Communications Inc., said on Friday it has already cut $60 million from its capital budget due to the prospect of mandated wireless access and a separate decision that reduced rates for wholesale access to fixed internet connections.

Regional operators such as Eastlink, Shaw Communications Inc.’s Freedom Mobile and Quebecor Inc.’s Videotron oppose a widespread wireless resale model, as they’ve heavily invested in networks in the past three years.

That said, they’re not quite on the same team as the Big Three, which have argued against special provisions that allowed regional carriers to buy spectrum at a discount. They argue the CRTC should introduce rules that make it easier for regional operators to form seamless roaming and shared infrastructure agreements with the Big Three. But they stop short of advocating for mandated access across the board.

The CRTC has already mandated such access on the wired side of business. The Canadian Network Operators Consortium, an organization that represents independent internet providers that rely on buying wholesale network access from the bigger players, argued it should apply similar logic to the wireless industry in order to give Canadians better alternatives.

MVNOs still need to invest millions on equipment and operations, CNOC president Matt Stein told the commission.

As for the “investment bogeyman,” Stein argued the threat of pulling investments isn’t credible, adding the Big Three will still be earning revenue from resale to carriers.

The CRTC is evaluating a mountain of documents from economists with competing viewpoints on whether Canada’s wireless industry has a competition problem that needs to be solved. Different experts dispute whether the prices are higher here versus in peer countries.

Canadians have historically paid higher wireless rates than their peers around the world, but prices have dropped in the past year, particularly with the introduction of unlimited plans last summer in anticipation of regulatory pressure.

But it appears the government wants another 25 per cent drop from prices at the time they were elected, months after the biggest players made changes that put a big dent in data costs and data overage charges.

The hearings continue next week.

Financial Post

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