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Structural factors that facilitate our digital divide
There are significant structural problems that impede competition in the telecom business.
The many manifestations of the “digital divide” in Canada are well-documented. Most commonly understood in terms of who has access to the internet and who does not, current efforts by the federal government to close this gap are focused on establishing reliable broadband internet connections to the home through the CRTC’s Broadband Fund. Beyond basic access - which is typically more of a rural issue - the price of the internet can be prohibitive, causing people to forgo essentials like food in order to maintain access to our increasingly digital society.
Recently, Prime Minister Trudeau pledged to connect 98% of Canadians to high-speed internet by 2026. This is an important first step to improve the country’s connectivity. But despite the Competition Bureau recently concluding that Canadians benefit from rules forcing large internet providers to sell access to competitors, the structural design of our internet system may inhibit robust competition. Definitively bridging our country’s digital divide means that we must also focus on understanding the forces that affect the affordability of the internet.
Canada has many “digital divides” because of how much it costs to deploy networks in different places. We also have a telecom oligopoly that doesn’t bother to build more digital infrastructure to under-serviced areas that lack a compelling business case. There are two forces driving this apparent disinterest: the first is that since the early 2000s, Canada’s system allows companies to compete on both physical facilities and digital systems, meaning that one company can compete on laying the cables and on providing services over those cables; and the second is that the CRTC ruled that existing providers must open up partial use of their networks in the mid 90s. At the time, this decision was generally seen as a good move, because it would be unfair - if not unrealistic - not to share connection points to existing broadband infrastructure. However, this shared access also facilitates an inordinate amount of data-sharing regarding the physical infrastructure access of independent providers back to the dominant firm sharing the connection with them. While this is by no means a privacy concern, it leaves independent providers vulnerable to being *slightly* underpriced out of the market.
This mandate to share also means that when the dominant firms *do* make these physical infrastructure improvements, third parties can benefit without incurring the expense themselves; further weakening the business case to do so. These policy imbalances are contributing to Canada’s digital underdevelopment.
The main Internet Service Providers (ISPs) are: Bell, Shaw, Telus, and Rogers. While Canada’s internet infrastructure has been cobbled together across phone, cable, and fibre lines over time, it is not just the cost of the infrastructure and the time required to build it that has left so many - about 6% of Canadians - disconnected. The inaction of large telecommunications companies that are aggressively protecting their own interests while also potentially undercutting independent ISPs keeps internet prices unnecessarily high. On top of that tension, it’s simply not “worth it” for private firms to invest in broadband infrastructure in rural and remote areas.
Recently, the legal team at TekSavvy sent the Competition Bureau a letter regarding what they allege is anti-competitive behaviour from Bell and Rogers. Their claim points to the structures that prevent healthy competition in internet markets; namely that the incumbents charge independent ISPs inflated wholesale internet rates while simultaneously undercutting them with Virgin and Fido “flanker” brands. These brands are borrowed by the large telecoms in order to sell discount rates under the guise of being a totally distinct company. I believe Telus does this with Koodo. Similarly, “Freedom” started in 2009 as Wind Mobile, before being purchased and rebranded by Shaw in 2016.
This “borrowing” of discount brands creates the illusion of competition while the information shared when an independent service provider interconnects with the network enables the leveraging of that information to potentially undercut competitors.
This structural limitation persists through policy decisions. While the Liberal government has been directing the CRTC to increase competition, the CRTC supported the large telecommunications firm’s refusal to provide information to the Competition Bureau when it tried to conduct a parallel investigation in 2019. That said, consumers may be turning on the big firms, regardless of their lack of choice. Some of the telecoms were tapping into wage subsidies during the pandemic, and a couple increased prices. The City of Toronto recently approved a plan to build a public internet network that would be cheaper than Bell or Rogers. The city will explore building and owning fibre-optic conduits designed to service poor, racialized neighbourhoods that have low uptakes of existing internet service.
*I don’t have a magic solution to address this design factor. I’ve just found it intriguing to think about as we talk about building more broadband in the country.
Looking ahead, we must centre rural and Indigenous communities when anticipating future digital infrastructure investments. For instance, Canada’s eventual adoption of 5G should privilege these under-served communities in a more intentional way.
In 2016, the federal government and the CRTC declared broadband internet a basic essential service across the country. The fact that not every person in Canada can access the internet from home is a serious issue in our increasingly digital society. But the digital divide will not be dissolved by only introducing new broadband infrastructure. The subsequent affordability gap is exacerbated by complex competition issues that are borne out of the structural evolution of our broadband system. At the end of the day, this is as simple as a sharing issue: the existing infrastructure could be shared much more effectively. We must also reconsider whether it is still appropriate to permit sellers to compete on both facilities and services in currently disconnected geographies, as this functions to exacerbate and perpetuate the digital divide.
Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program.