Opening Statement to the Notice of Consultation CRTC 2023-56

Remarks by Krista McWhinnie, Deputy Commissioner, Monopolistic Practices Directorate

CRTC hearing on the review of the wholesale high-speed access service framework

February 12, 2024

Gatineau, Quebec

(As prepared for delivery)

Good morning, Chairperson Eatrides, Vice-Chairperson Scott, Commissioner Desmond, Commissioner Naidoo, Commission staff, and audience members. My name is Krista McWhinnie, and I am a Deputy Commissioner with the Competition Bureau, overseeing our Monopolistic Practices Directorate.

Let me begin by introducing the members of our panel. To my right is:

• Matthew Strathearn: Senior Economist, Economic Analysis Directorate
• Ryan Jakubowski: Major Case Director and Strategic Policy Advisor, Policy, Planning and Advocacy Directorate
• Conor Parson: Senior Competition Law Officer, Monopolistic Practices Directorate
• Derek Leschinsky: Senior Counsel, Competition Bureau Legal Services

To my left is:

• Laura Sonley, Associate Deputy Commissioner, Mergers Directorate

The Competition Bureau is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses. The Competition Bureau is an evidence-based public agency that follows the facts and evidence in making its recommendations with respect to competition. We are not influenced by commercial interests, but by the public interest in protecting and promoting competition for Canadians.

The internet is essential for Canadians. It supports our daily lives, our economy, our culture, and our wellbeing. The pandemic has shown us how vital the internet is for working, learning, communicating, and accessing information and services. As more of our activities move online, Canadians need internet access to an even greater degree to participate and thrive in the economy and in society.

That is why we need to ensure that the market for internet services is competitive. Competition among internet providers is not only about price and service quality in the short-run, but also about building and improving internet networks in the long-run. The Bureau recognizes that both forms of competition are important, and each should be promoted. Concerns over physical and economic access to internet services are especially pressing as rising prices drive up the cost of living for Canadians and productivity growth continues to be weak. Internet is not a luxury, but a necessity. Paying more for internet means Canadians have less for other expenses.

The Bureau is therefore pleased to be here today participating in this important process concerning a vital service to Canadians. We know that the Commission recognizes the importance of sustainable competition, reasonable prices, and innovative services. We believe that our comments here today, and our submissions throughout this proceeding, are in line with the Commission’s policy objectives.  We share your goals of enhancing competition and working to ensure reliable and affordable telecommunications services of high quality are accessible to all Canadians, among other important objectives. The Bureau is also mindful that finding the balance between different goals is a difficult exercise that requires balancing risks.

One of the key issues in this hearing is determining how the wholesale access framework can more effectively promote broadband internet competition. To help inform this issue, the Bureau analyzed the performance of Wholesale-based Competitors and other marketplace trends in a granular manner. Wholesale-based Competitors and the wholesale access framework can play an important role in promoting competitive outcomes. We have now considered all of the evidence available on the record. Having done so, the Bureau recommends that the CRTC update its wholesale access framework to include effective access to wholesale inputs delivered over FTTP networks. This update will better position the wholesale access framework to support competitive outcomes, now and into the future.

We have four key points to make today in this respect.

First, that our analysis suggests that the lack of effective wholesale access to FTTP networks is contributing to the decline in the share of subscribers served by wholesale access.

Second, that our analysis suggests that this lack of effective wholesale FTTP access is limiting the competitive benefits of the wholesale access framework.

Third, that the framework’s current design is resulting in cable networks carrying an increasing majority of wholesale traffic, which may impact competitive incentives at the network level.

Fourth, that updating the wholesale access framework to ensure that effective wholesale access is available regardless of wireline technology type will better promote competition.

The Bureau believes that making this change will help to ensure that the wholesale access framework can lower prices and continue to deliver choice to consumers while also serving to better balance its impact across different network technology types.

Let me take each of these points in turn.

1. The lack of effective wholesale access to FTTP networks is contributing to the decline in the share of subscribers served by wholesale access.

Much of the information in this proceeding begins in 2018, picking up from when the information in the Bureau’s Broadband Study largely ends. As noted by many, the results of the Broadband Study painted a largely positive picture of the state of competition at the time.

The study recognized the important contributions to that competitive picture from both Facilities-based Competitors and Wholesale-based Competitors. One of the study’s key conclusions was that the wholesale access regime appeared to be fulfilling its promise to bring about greater consumer choice and increased levels of competition for Canadian consumers. The study also called for this competition to be preserved and leveraged going forward.

The Bureau sought to focus its analysis in this proceeding on evaluating whether the wholesale access framework has continued to deliver the benefits observed during the Broadband Study. In short, the results of this analysis suggest that the wholesale framework’s current technology-specific restrictions are diminishing its ability to enable competition over time.

The current technology restrictions apply to both types of network operator. But ILECs have a larger proportion of FTTP connections than cable operators. So, the impact of these restrictions is more pronounced on ILEC networks.

In its October analysis, the Bureau found that the proportion of subscribers served using wholesale inputs on ILEC networks declined nationally, in every region, and in nearly every Census Metropolitan Area analyzed.

In contrast, the Bureau observed a national trend of ILECs having gained retail subscribers at the same time as their wholesale end-users have fallen. This leads us to rule out a cause specific to ILECs. Likewise, we observed a national trend of Wholesale-based Competitors having gained subscribers on cable networks. This leads us to rule out a cause specific to Wholesale-based Competitors. Taken together, the Bureau believes that this decline has been principally caused by the lack of effective wholesale access to FTTP networks, rather than a declining demand for internet delivered over ILEC networks or for internet provided by Wholesale-based Competitors.

2. The lack of effective wholesale FTTP access is limiting the competitive benefits of the wholesale access framework.

The Bureau’s analysis indicates that consumers have shifted towards faster speed services in recent years, and the proportion of subscribers who purchase speeds that are widely available on FTTN connections has diminished.

More importantly, while FTTP connections are frequently discussed in the context of faster speed services, these connections are one of, and sometimes the only, means of physical access to a customer regardless of their desired speed. The impact of this limitation on physical access is that the wholesale access framework’s ability to influence competitive outcomes for consumers varies with the network technologies available at a consumer’s address. While this may be more common when considering ILEC networks, it is equally true when considering areas where cable companies have deployed FTTP networks. Households that have only FTTP connections are not effectively reached by the wholesale access framework.

The Bureau understands that there is debate about whether FTTN connections are being decommissioned in areas where FTTP connections have been built. We do not have any clear evidence on this point. But we expect there to be increasing problems if incumbents are required to operate legacy networks for use principally by Wholesale-based Competitors. Incumbents would have reduced incentives to maintain a high quality of wholesale service on these networks.

Taken together, the evidence suggests that the current wholesale framework is acting as a less effective constraint on market power than it used to. This worsening trend is likely to continue into the future unless the framework is updated.

3. The framework’s technology-specific restrictions are resulting in cable networks carrying an increasing majority of wholesale traffic, which may impact competitive incentives at the network level.

The Bureau’s analysis demonstrates that over time, cable networks have taken on an increasing majority of high-speed as well as low-speed wholesale traffic.

The Bureau believes that this trend towards cable networks serving an increasing share of wholesale traffic can negatively impact competition. Especially if FTTN connections become scarcer, leaving cable as the only wholesale option for more households.

The Bureau recognizes that wholesale access can negatively impact investment incentives. From the record of this proceeding, the Bureau understands that cable providers are contemplating alternative network investments to FTTP in the near term. Maintaining a wholesale framework on certain technologies but not others may alter the incentives for network operators to invest in different technologies. It may also result in the wholesale access framework having a larger impact on the investment incentives of one type of network operator than on the other.

4. Eliminating these technology-specific restrictions will better promote competition.

The Bureau believes that the CRTC should update its wholesale access framework to include effective access to wholesale inputs delivered over FTTP connections. This will provide Wholesale-based Competitors with access to an increasingly important network while also serving to reduce asymmetry between incumbent Facilities-based Competitors that can distort competition.

The Bureau believes that effective FTTP wholesale access can better foster competition for several reasons.

• First, we expect it will better position the wholesale access framework to support competitive outcomes, now and into the future.
• Second, a renewed wholesale sector would help to restore the balance we observed in our Broadband Study by better promoting price and service competition.
• Third, to the extent that it makes more overlapping wholesale products available, it may also increase incentives for network operators to compete with each other, including for wholesale customers.
• Finally, it can avoid impacting the incentives for network operators to make specific types of investments to improve their networks, thereby better enabling market forces to determine the most efficient way to make the important large-scale investments to improve Canada’s wireline networks.

By effective wholesale access to FTTP networks, we mean terms of access that (1) facilitate the competitive benefits of wholesale access that we observed during the Broadband Study and (2) encourage both incumbent and non-incumbent Facilities-based Competitors to invest in their networks.

We acknowledge that other intervenors have raised important questions about the design of wholesale access to FTTP. As we have not analyzed these issues specifically, we cannot offer a conclusive view on the likely effectiveness of different access designs and limitations. However, we would be pleased to share our opinion on relevant considerations to the extent the Commission is interested. And, as we suggested in our October submission, tracking additional indicators of short and long run competition will enable the CRTC to better monitor the success of the wholesale access framework.

The Bureau thanks the Commission for the opportunity to participate in these proceedings. We will endeavour to answer any questions you may have in a clear and concise manner.