Federal cabinet says wholesale broadband rates could stifle investment but declines to overturn ruling

A man walks and texts on his smart phone in downtown Toronto.

Nathan Denette/The Canadian Press

The federal cabinet says the new, lower rates that Canada’s large phone and cable companies were ordered to charge smaller internet providers for access to their networks could stifle investment in telecom infrastructure.

However, cabinet declined to overturn the August, 2019, ruling that reduced wholesale broadband rates or send it back to Canada’s telecom regulator for reconsideration, saying it would be premature to do so because the Canadian Radio-television and Telecommunications Commission (CRTC) is already in the midst of reviewing its decision.

“We will continue to monitor the CRTC proceedings closely,” Navdeep Bains, Minister of Innovation, Science and Industry, said in a statement Saturday.

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Consumer advocates and smaller internet service providers (ISPs) criticized the decision, saying it would result in higher costs for internet users.

“The government has effectively told the CRTC that they expect the rates to go up because they’re worried about investment. But these increases will most certainly be passed along to customers,” Laura Tribe, executive director of OpenMedia, an organization advocating for widespread inexpensive internet access, said in a statement.

Large telecom firms are required to sell wholesale access to third-party operators such as TekSavvy Solutions Inc. and Distributel Communications Ltd., which then sell internet services to their own customers. The system is meant to increase competition in the internet market.

Last summer, the CRTC lowered the rates that the larger players are permitted to charge third-party operators and ordered them to make retroactive payments to compensate for the higher prices that have been charged since the commission set interim rates in 2016. The phone and cable companies said at the time that the retroactive payments would total $325-million, according to court documents.

The decision was stayed on appeals to the federal court by BCE Inc. and a group of five cable operators: Rogers Communications Inc., Shaw Communications Inc., Quebecor Inc.‘s Videotron Ltd., Cogeco Communications Inc. and Eastlink Inc.‘s owner Bragg Communications Inc. That case was heard in June and a decision is pending.

BCE and the cable companies, along with Telus Corp., also appealed to the CRTC, asking it to review its decision, and petitioned the federal cabinet. BCE wanted Ottawa to overturn the decision and reinstate the previous rates, while Telus and the cable companies requested that the decision be sent back to the CRTC for reconsideration.

Matt Stein, chief executive of Distributel and chairman of the Competitive Network Operators of Canada (CNOC), an industry group for independent ISPs, said the cabinet decision announced Saturday marks a bad day for internet consumers.

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“This is the kind of thing that causes rates to go up,” Mr. Stein said. “This creates new delay and new uncertainty, which unfortunately are the tried-and-true weapons of the big phone and big cable companies.”

Mr. Bains said the cabinet is concerned that the new rates could undermine network investments, especially in rural and remote areas, where it is needed most.

“Incentives for ongoing investment, particularly to foster enhanced connectivity for those who are unserved or underserved, are a critical objective of the overall policies governing telecommunications, including these wholesale rates,” Mr. Bains said.

“Given that the CRTC is already reviewing its decision, it is unnecessary to refer the decision back to the CRTC for reconsideration at this time,” he added.

However, Ms. Tribe said that if the government is really concerned about network investment, it should get going on its plan to dole out funding for projects aimed at bringing high-speed internet to rural and remote areas.

Maryam Monsef, Canada’s Minister of Rural Economic Development, said in June that the Universal Broadband Fund, which is expected to pay out up to $1-billion over 10 years, would start taking applications “in the coming days.”

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The phone and cable companies, meanwhile, welcomed the cabinet decision, saying they were pleased that the government has acknowledged their role in keeping Canadians connected during the COVID-19 pandemic.

Rogers spokesperson Andrew Garas said the rates set by the CRTC last summer do not reflect the cost of building and expanding broadband networks and would have an impact on investments, particularly in rural and remote areas, where the costs of building telecom infrastructure are higher.

BCE called it a “welcome recognition” that the rates set by the CRTC in August, 2019, were too low.

“We trust the CRTC’s review will reflect the government’s objective to drive network investment, especially in rural and remote regions, with wholesale rates that are fair and reasonable,” BCE spokesperson Marc Choma said in an e-mail.

Chethan Lakshman, vice-president of external affairs at Shaw Communications, said the company looks forward to working with the CRTC to create a new wholesale framework that “more appropriately balances” objectives such as network investment and affordability.

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