When faced with reports of sky-high internet and wireless prices in Canada, big telecom companies such as Bell, Rogers and Telus generally go with one of two defenses.
First, they try to disprove, muddy or co-opt the findings. It’s a tough task for them because such studies are plentiful and happen with regularity. A case in point is another report this week from Finland’s ReWheel Research that again finds Canadian wireless prices to be among the highest in the world.
As a result, they often turn to their backup tactic, which is to point out that networks are expensive to deploy and maintain in a country as large as Canada. The implication is that consumers need to pay more to fund them, and that the big companies are the only ones that can deliver them.
But that’s not true either. Smaller providers are in fact building infrastructure too – and they often do it more efficiently, with better outcomes for Canadians.
Barry Field, executive director of Southwestern Integrated Fibre Technology (SWIFT), recently appeared before the federal government’s Standing Committee on Industry, Science and Technology and discussed exactly that.
SWIFT is a non-profit organization that dispenses grants to internet service providers to deploy a variety of connectivity technologies to under-served communities in southwestern Ontario. The organization doesn’t favour ISPs based on their size – it judges each grant application based on its merits, which includes how much investment the company is itself willing to put in.
With that methodology, Field said SWIFT has awarded about 20 per cent of its funding to national carriers such as Bell and Rogers and about 25 per cent to regional companies such as Cogeco. The bulk of its funding – 55 per cent – has gone to smaller companies such as TekSavvy, plus some ISPs “you’ve probably never heard of,” he told committee members.
Big carriers are obviously needed and part of the solution, he said, but the results with smaller companies have been especially good. As he explained:
“There wasn't any predefined allocation. That's just the way it worked out, and what that shows me is that the smaller players really stepped up to the plate and put very competitive proposals into the program. Doing it this way is a lot of work. It's much easier, quite frankly, just to give your money to one company and let it go away and try to solve the problem, but it's not as efficient. By allowing that competition and by allowing the smaller players to participate in the program, we've actually gotten better outcomes and we've certainly had more contribution from the private sector.”
Smaller ISPs are indeed efficient at deploying networks because they have to be. They run leaner operations with less waste and overhead. In Canada, they are usually privately owned and don’t disclose capital expenditure intensity – the percentage of revenue spent on networks – but figures from publicly traded medium-sized telecom challengers in Europe bear this out.
Fastweb, which competes against incumbent Telecom Italia in Italy, recently reported capex intensity of 25 per cent, for example. Masmovil, a smaller rival to Spain’s Telefonica/Movistar, was at 34 per cent last year while France-based Iliad recently posted capex intensity of 31 per cent.
Large companies may spend big in absolute dollars, but they often spend comparatively less. Bell, for example, is projecting capex intensity of 15 to 17 per cent this year. Prior to announcing its plan to acquire Shaw, Rogers was about the same. Part of the reason for that is they instead dole out much of their profits to shareholders as dividends, which they don’t like to talk about when sky-high prices come up.
TekSavvy, which recently won three new SWIFT contracts to connect a number of communities in southwestern Ontario with fibre, is on a trajectory similar to those European challengers. The company has a plan to invest $250 million over five years including to expand its existing fibre and LTE networks in the Chatham-Kent area, to serve more than 60,000 homes and businesses. We expect to continue to punch above our weight.
The caveat, of course, is the regulatory landscape. That plan is contingent on the CRTC enforcing its 2019 wholesale internet order, which would require Bell, Rogers and other big companies to lower the artificially inflated rates they charge smaller ISPs to access their networks. The order, which is currently on hold as the CRTC considers an appeal from the big companies, would also require them to repay the amounts they overcharged for years with their inflated rates.
In TekSavvy’s case, the amount owed surpasses tens of millions of dollars – a good chunk of which would go to that efficient network building. And it wouldn’t come at the expense of affordability either.
Everyone already knows TekSavvy and other smaller ISPs want to give customers good deals, because it’s in our DNA to do so. Unlike what the big companies want people to believe, it's not an either-or choice.