Launch of the TELUS Future Friendly Foundation by Province of British Columbia (CC BY-NC-ND 2.0) https://flic.kr/p/Q6bxZW

Launch of the TELUS Future Friendly Foundation by Province of British Columbia (CC BY-NC-ND 2.0) https://flic.kr/p/Q6bxZW

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Who Runs Canadian Telecom Policy Anyway?: Why the Telus Threats at the CRTC Will Backfire

The big headline story from the first week of the CRTC hearing into the wireless market was undoubtedly Telus CEO Darren Entwistle closing hours of testimony with a threat to slash investment and jobs if the Commission follows through with a mandated MVNO model. Entwistle told the CRTC:

There’s been a lot of conjecture related to disinvestment or reduced investment. It’s been a high topic related to what will happen as it pertains to MVNOs being introduced or another 25 percent price reduction being enforced, having already bettered the existing one that’s in place. And there are some views that this is just theatre perpetrated by the incumbents, in that if mandated MVNOs come to fruition or there’s an enforced second tier 25 percent reduction we will go on with status quo investing.

So one of the additional things I would like to file with you in confidence that I brought here today is a Board resolution at TELUS signed by all of our Board directors instructing management to pursue an investment reduction plan and a job reduction plan and a philanthropic giving reduction plan should these eventualities present themselves. And we’re discussing numbers where the reduction, and we’ll go public with it, but I’ll file with you the Board resolution, in the vicinity of a billion dollars of reduced investment over the next 5‑year. The reduced employment is in the zip code of 5,000 jobs over the next 5‑years.

In other words, in a bid to demonstrate that this was not theatre, Entwistle engaged in theatrics by pointing to a resolution from a board of which he is a member that supports his case.

Leaving aside the wisdom of a board identifying specific numbers for future reduced investment based on a non-existent policy, the comments leave the government and regulator in an obvious bind that does not help Telus, maintains a trend of telecom companies saying different things to business analysts and to regulators, and represents only the latest in a long line of investment and market threats from the company in the face of potential regulatory intervention.

First, the Entwistle comments unsurprisingly garnered considerable media attention, placing the regulator and government in a position where dropping the MVNO strategy that is seemingly the preferred choice of both becomes viewed as caving to threats from the telecom giants. Given the politics associated with the wireless strategy, no government will want to be seen as placing telecom threats above the interests of consumers, whose frustration with wireless pricing is well documented. The Telus threat forces the government’s hand and leaves little alternative but to act, even if the CRTC backtracks on the issue yet again. In fact, the comments were raised at the Canadian Heritage committee yesterday, with a Conservative MP commenting negatively on the lack of respect for the regulator.

The government’s willingness to act – battling the telcos is clearly good politics – is supported both by the strong evidentiary record of high prices stemming from an uncompetitive market and inconsistencies from Entwistle on this issue. For example, in a November 2019 quarterly call with business analysts, he was specifically asked:

Are there any regulatory impact related to how you think about the investment just tying it back to the last question [on government policy], there are some decisions that are coming down the road. I’m wondering whether that has any impact on how you think about the investment for the next couple of years. 

His response makes no mention of board resolutions:

The forward-looking CapEx guidance that we’re providing and the nominal CapEx number that we are articulating for 2020 and 2021 does not include or anticipate any diminution related to regulatory policy, regulatory intervention or government intervention…The only other comment I would make is that if we do get extremely onerous or interventionist activity by the government, we would rethink our investment policies as any prudent organization that would do in the face of a regulatory abnormality that is not economically conducive. But that’s not the driving force and that’s not what’s in the profile that I just articulated to you that combination of moderating CapEx and EBITDA growth and exposure to the emerging businesses on TI, health, AG Tech all underpinned by great cost efficiency supporting that free cash flow growth story and dividend accretion.

That’s a far more moderate statement compared to the theatrics at the CRTC last week and continues the longstanding trend of telecom companies saying one thing to business analysts and another to the regulator.

The other problem for Telus is that this is hardly the first time the company has engaged in these kinds of threats. For example, During the first net neutrality hearing in 2009 (the Internet traffic management practices hearing), Telus executives told the CRTC:

TELUS has invested and continues to invest enormous amounts in physical infrastructure so that its customers can access the Internet and other services faster and in more places than ever. But we will only invest where we can see either a return on that investment or a need to compete to protect our business. That’s why we are troubled by the statements of some parties that assume that all we need to do to keep up with traffic is to just keep investing with no guarantee of a return. Or, even more ludicrously, that if the Commission adopts even more wholesale arbitrage, then somehow facilities-based ISPs will be encouraged to invest more.

In the 2014 hearing on wireless competition, Telus again argued regulation would lead to less investment:

The current Canadian mandatory roaming regime is already more interventionist than regimes in other countries. In the United States, roaming is subject to commercially negotiated rates. In Europe, roaming, where mandated, is typically of limited duration to support network deployment, confined to entrants, confined to particular network technologies and subject to commercial rates. Canada is now an outlier when compared to its peers. Indefinite access to roaming plus regulated roaming rates based on an arbitrary formula will predictably depress investment and negatively affect the quality of Canadian mobile networks.

In its 2019 petition to the government on wholesale Internet rates, Telus stated:

Regulatory uncertainty raises the cost of capital for facilities based carriers who invest in broadband infrastructure, without any risk sharing on behalf of the resellers who purchase access at harmfully low rates. The result is decreased investment in broadband infrastructure, as capital-intensive projects are put on hold, and access to capital markets is compromised

This tactic is not limited to investment threats. In the 2013 hearing on developing a wireless code, the CRTC was considering real-time notifications when certain caps were reached so that consumers would have the choice of avoiding exorbitant overage fees. Telus warned that new regulation could lead to the elimination of low-cost plans:

we urge you to be sensitive to the possibility of unintended consequences from intrusive regulation, especially requirements that would conflict with consumer preferences and require significant systems development work. For example, as Brent discussed, a mandate on all carriers to provide real-time voice notifications could result in carriers moving en masse to unlimited nationwide plans, if they conclude that the cost and complexity of systems compliance would just be too high.

That might sound good for consumers at first blush, but would certainly lead to higher prices at the low-cost entry level of our rate plans, because it would no longer be possible to offer lower priced, limited usage plans to consumers who do not need unlimited nationwide calling. There are certain customer segments, some of them have been mentioned today, that simply do not need an unlimited voice plan, such as teenagers, who communicate primarily by texting, or people who keep a phone mainly for emergency purposes. Such low-cost, consumer-friendly plans would, in effect, be regulated out of the market.

Several years later, in a 2016 hearing on differential pricing plans it warned the CRTC that mandated unlimited data plans would lead to fewer Canadians using the Internet:

If we were to force all customers to purchase flat-rate, unlimited data plans, we would expect two things to occur. First, since everybody would pay the same amount regardless of how much data they use, we would see comparatively light users subsidize comparatively heavy users. Second, since cheaper data plans would be eliminated, fewer people would likely use the internet overall, and to the extent that the number of customers declined, we would be left with fewer users over whom to spread the fixed costs of our network and we would be forced to increase prices accordingly. Simply put, eliminating data caps or, more accurately, forcing all users onto flat-rate, unlimited data plans, would only leave the heaviest internet users better off.

Telus has shown little reluctance to battle the government over the years. Indeed, earlier this month, it said it was moving ahead with using Huawei equipment despite the fact that the government has not made a decision on the issue yet. The company may think talking tough to regulators advances its cause, but last week’s appearance may have only increased the likelihood of a mandated MVNO approach.

20 Comments

  1. Telus is a giant, blood-sucking leach with no regard for customers. Not to leave anyone out, ditto for the rest of the always-whining cell phone providers ripping off their subscribers. Good luck to the people that have to use them.

  2. That Telus feels that they are big and influential enough to wield such threats is exactly indicative of the problem that needs solving, by MVNOs as one solution.

    This should make the CRTC double-down on their efforts and approve MVNOs in order to shrink Telus’ perceived market power and give out some of that piece of the pie that they have to others and even the size of the pieces out.

  3. The crtc is a dinosaur that has over stepped it’s authority. Because of crtc rulings we have the most costly mobile and internet services

  4. It feels like a petition with 10k signatures or so on it telling Telus that they’ll switch carriers if they carry out on their threat, may get them to change their tune. Or at least provide even more PR against their threat.

  5. If they had mentioned having to cut executive and board member bonuses and skip salary bumps rather than only threatening to cut bottom end jobs and future investment in infrastructure that they outright state is the thing their business requires to do business at all… I might be willing to concede that MNVOs present an actual threat to their business rather than just the bottom line.

  6. Albert Baker says:

    An idle threat. We all know that if they were to follow through, they would fall behind in the technology needed to bring in, and keep customers. They are not about to do that. They make too much money off of all of us.

  7. Tristyn Russelo says:

    Imagine you buy a Bugatti Veyron, half paid cash half paid on loan. Then the government forces you to cut a key for all of your neighbours and they only have to pay you gas money….

    • What?

      I’m totally not understanding how this analogy relates to this blog posting.

      • Some companies pay for comments on blogs. The other half are ludicrous ancaps who do not understand how the real world works.

        He’s basically thing to say Telus built the networks so it’s not right to make them host MVNOs. He’s wrong, since they now have a huge stale monopoly which is killing investment in Canada.

        • Except he’s wrong. Telus didn’t build (or at least fund) the networks. Canadians did, through the government mandated telephone monopolies of the last hundred years.

          As good of an idea as that might have seemed at the time, it’s led to a marketplace where it’s impossible for anyone else to get started.

          It’s like planting a tree, letting it grow for a hundred years until it shades a few hundred square feet then planting a seedling under it’s canopy and telling it to grow without any of sunlight that the 100 year old tree has been growing under for a hundred years.

          IMHO, based on the fact that Canadians really own the networks, at this point, I think Canadians would be better served by a not-for-profit taking over all of the networks, running them at cost and leasing access to them out (i.e. TPIA/MVNO-style) to any company that wants to use them to provide a service to Canadians.

          Let’s let services and service be what companies compete on, not access because as I said, some have had 100 years to build access. Others have not.

    • FuckYou Trystain says:

      Imaginesomeone bought you a Bugatti Veyron, and you keep it on the expectation that you can just charge people $1,000 every time they looked at it.. then, DA GUBBAMINT forces you to actually let people ride in it, while paying for mileage.

      OH NOES!!

  8. I’m all for fair market and lower prices, but this policy from the CRTC is overreaching.

  9. Once the Starlink network is active these traditional companies will be the MVNO’s begging for space.

  10. Telus is also offering shut tons of severance packages to their employees. They’ve been cutting thousands of positions a year with packages and thousands more with hiring freezes and attrition.

  11. Not a good sign when the CEO has forgotten why they’re in business. Does he really think that the market won’t react to 5000 job cuts and pulling philanthropic giving? Either he thinks he’s god, or he can’t see further than a month into the future. If telus stops investing in technology, someone else will. There won’t be a telus in 10 years if they drive it into the ground.

  12. TELUS is probably shooting themselves in the foot by threatening the government. As someone said it before, the government is now more likely to approve MVNO just so it shows it doesn’t cave to telcos. Having said that, remember that nowhere in the world, in no industry, and at no point in time excessive regulatory behaviour helped the people. It only helped the rich get richer.
    It is true that in net terms, Canadians pay more for wireless services than for example Europeans do. But in an apples to apples comparison look at how the Canadian government is taxing these services through excessive regulation. Just one example, the wireless spectrum is significantly more expensive in Canada than pretty much anywhere else in the world. The spectrum auction system is skewed against the 3 big players and in favour of the likes of Shaw and Videotron.
    Investment in each wireless technology is extremely expensive as it needs to deliver major uplift to the entire network of any player. With 5G around the corner, who in their right mind will not adjust their investment strategy based on the ability to recover that investment. This is not what someone talked about before, monopoly type investment. It is multi billion dollars investment that need to make financial sense before 6G comes knocking on the door asking for another uplift.
    In my opinion, best is if the government limits the amount of regulation and let’s the market function freely. If the MVNOs want in, they can choose to pay for network access or build their own. Most likely they will end up with a mixture of own investment in urban centers and ride on someone else’s network outside. That will benefit us, as more of our monthly fees will turn into network investment. And the likes of TELUS, BELL, Rogers will compete to get the MVNO business.

    • TELUS (all in uppper-case) *has* to be an employee.

      The rest of the garbage spewed confirms it.

      I am sure MVNOs in Canada would love to pay a “fair” price[1] for access, but the oligopoly in Canada are not willing to provide access at fair prices because they don’t want to introduce any real competition into the market.

      MVNOs build their own networks? How could they possibly do that now, in this day and age, 100 years behind the incumbants who have had monopoly markets to build their networks. And having predatory incumbents crushing them all the way along. It’s impossible.

      [1] Like they do in the US, where the facilities-based providers negotiated a fair price for MVNOs without government regulation. But in the US there is real competition and not an oligopoly in wireless.

  13. As a subscriber, I hate the high prices. That’s why I *always* call and ask for a better deal than posted rates. And I will switch if I don’t get the price I want. I’ve done it with mobile, internet, and TV.

    As a shareholder, I don’t like the idea that I take on the risk associated with the deployment of whatever new generation (5G, 6G, 7G…) of equipment and someone else gets to use it without the same level of risk.

    If MVNOs are allowed, the policy should figure out some way to simulate that risk for the MVNO and alleviate it for the carriers while still allowing affordable wholesale access for the MVNO. Maybe some sort of upfront payment put in escrow which would be paid out if certain criteria occur.

  14. They should just “break them” up into smaller companies, then have those companies compete already.

    While there at it they should also split them so cable, internet and cell service have to be seperate segregated market areas due to conflicts of interest.

    As well as pass strong explicity laws so they specifically cant just merge again in Canada. You know like many of the “baby bells” did in the states.

    Thats a far better option. It gives stock holders and investors options to consider instead on unilaterally passing “x” regulation which may or may not just blow back on Canada consumers again in the future.

    Its the consolidation of market power and its resulting lobbying power thats creating the consistant issues. Not the investors, consumers, or technology.

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