Rural areas need a single, open access, network
By Joe Hickey
IN A WORLD WHERE many causes are highly politicized, rural broadband access is a cause just about everyone can get behind. With it, Canada can improve rural access to education, healthcare, and economic growth. This is especially important in the wake of COVID-19, which put a glaring spotlight on the digital divide, and made it all the rage to support rural broadband access.
Even major urban telcos seem to be getting on board, with Rogers Communications promising a $1 billion rural broadband fund in its recent proposal to purchase Shaw Communications.
After waiting decades for urban telcos to provide better service, rural municipalities may be excited to see their needs on big companies’ radars. Unfortunately, the motives of big telcos aren’t as pure as they may appear. This will outline three self-serving reasons major telcos are suddenly interested in rural broadband – and what municipal leaders can do about it.
#1: Rural Canada serves as a “cash cow” for big telcos
We can not begin this discussion without reminding ourselves that big telcos are not non-profit organizations or government entities. They are for-profit corporations. As such, they prioritize investments based on a return to shareholders. Rural broadband investments don’t generate the same return that investments in urban markets would. Instead, they serve as “cash cows.”
Boston Consulting Group’s growth-share matrix identifies a cash cow as an investment with high relative market share (few competitors) and low growth. Low growth opportunities don’t require much reinvestment, so their revenue can be pumped into “star investments,” which offer high relative market share and high growth. For big telcos, urban networks are the star investments. They do have networks in rural markets, but there is no incentive to improve them. Those networks are the cash cows that enable growth in more profitable urban markets.
This helps us understand why urban telcos have rural networks in the first place – and lack any incentive to improve them. As a result, the rural broadband experience suffers. According to Competition Bureau Canada’s 2019 Broadband Study, most Canadian consumers were “generally happy” with their ISP and internet services, with “a significant exception” among consumers in more remote and rural areas, “who typically have fewer and less modern options” for service. The study found “while approximately 99% of Canadian homes in large population centres have access to the 50 Mbps and higher speed services associated with modern cable or fibre optic networks, only 37% of rural and remote homes have access to these connections.”
“They have to pretend to look after their rural markets to protect their cash cow.”
Despite the slower, outdated services, rural Canadians still pay just as much (or more) than their urban counterparts. Canadians are paying $79/month for just 5/1 Mbps on a DSL connection or 10/2 Mbps on a cable or wireless connection in some rural areas. These services are well below the CRTC objective of 50/10 Mbps. It’s no wonder that complaints about internet issues have increased 139.5% over the last five years, with common complaints about slow internet speeds or outages. (It’s worth noting that those complaints were measured in 2019 before Covid-19 made internet services all the more critical.)
In rural areas, giant telcos are reaping huge profits without having to deliver a quality service. They’re joining the rural broadband conversation now because they can’t afford to ignore it. They have to pretend to look after their rural markets to protect their cash cow.
#2: Big telcos want a monopoly, not competition
Remember that a “cash cow” investment requires a high market share, which can be understood as little or no competition. Big telcos want to preserve their monopoly and avoid any new competition. Of course, competition is almost always good for consumers. In any industry, competition drives companies to provide better services at fair prices or risk losing business to competitors.
Competition would require big telcos to invest billions into improving their rural networks while keeping prices the same or lower. It’s no wonder they’re actively blocking competitors from the market. When their attempts to block competition fail, they respond by cutting services and investments in rural Canada.
For example, when the CRTC ruled that incumbent providers had to reduce wholesale rates for smaller, independent ISPs, Bell responded by reducing broadband investments by 20%. Similarly, the CEO of Telus recently promised to cut $1 billion in spending and 5,000 jobs if the CRTC required it to share infrastructure with other network operators. Some of this infrastructure was paid for with subsidies from the Canadian government.
Big telcos make a show of investing in rural broadband, but when they’re held accountable to laws that enable competition, they pull their investments in protest. This plays out time and time again.
Let’s look back at that recent proposal from Rogers that promised $1 billion for rural broadband. This is a conditional promise. The company will only follow through if it is allowed to buy Shaw and increase its monopoly. If the deal isn’t approved, they can pull their so-called support and make it look like rural Canadians will suffer rather than benefit from measures that preserve competition.
If this all sounds a bit convoluted, it is! Big telcos are bending over backwards to position themselves as rural broadband advocates while actively working against rural Canadians’ best interests. Their commitment to being a monopoly with a cash cow will always outweigh any so-called commitment to rural customers’ needs.
#3: Open access networks are a threat to big telcos
As we consider options for rural broadband, it’s important to understand that competition must look different in remote areas than it does in urban centres. In a more populated area, there is a business case for multiple companies to come in and build their own networks. There are enough customers to support multiple investments like that.
“In rural Canada, however, there is only a business case to build a single network. There simply aren’t enough customers to justify more than one. Therefore, competition must be based not on multiple networks but on the presence of a single open-access network.”
In rural Canada, however, there is only a business case to build a single network. There simply aren’t enough customers to justify more than one. Therefore, competition must be based not on multiple networks but on the presence of a single open-access network. One common infrastructure, but with fair and equal access to all internet service providers.
For communities and consumers, the many benefits of open-access networks include:
- Revenue for rural municipalities – When municipalities build and own the network, leasing it out to service providers, they can generate millions of dollars in much-needed revenue for the community.
- Widespread access – When municipal leaders take part in planning a network, they can ensure everyone in the community gets access to fibre or fibre-backed wireless.
- Revenue with minimal maintenance – Municipalities can own networks and generate revenue without the burden of servicing customers as they lease out access to ISPs who will handle the retail aspect of selling and servicing broadband.
- Increased competition – Open-access networks invite new ISPs to enter the community, which leads to better services and local job creation.
- More choice – Urban customers are happy with internet services because they have more options. Similarly, having differentiated services versus a single, no-choice offering will result in a better experience and more satisfied rural Canadians.
As you can imagine, these open-access networks are a massive threat to an incumbent’s established monopoly. Big companies like Shaw are actively arguing against open-access networks. Again, we see that what’s best for rural Canada – open-access networks – isn’t what’s best for big telcos who want to preserve their ability to provide poor service at a high price.
Any supposed investment into rural broadband is far overshadowed by these companies’ ongoing efforts to stand in the way of actual improvements
for rural Canadians.
Hope and support for Canada’s rural leaders
Despite their token investments in rural Canada, we can’t wait for big telcos to offer the services rural municipalities need. It won’t happen. Instead, now is the time for rural leaders to stand up and advocate for their own community.
Joe Hickey’s (right) career has spanned 30 years, with roles in Canada, the U.S., India, and business in over 40 countries worldwide. He is the founder and CEO of systems integrator and ISP ROCK Networks Inc. Joe has a Bachelor of Mechanical Engineering from Memorial University of Newfoundland and an Executive MBA from the University of Toronto.
