Will Canadian Telecoms Carry Out Threat To Stop Internet Investment?

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TORONTO — Experts are casting doubt that some major Canadian firms will follow through on threats to stop expanding their broadband networks after the CRTC lowered proposed rates to be charged to smaller rivals accessing their services.

The broadcast regulator's decision isn't significant enough to lower the profitability of big telecommunication companies to a point where they change how they spend on network infrastructure building, said Maher Yaghi, an analyst at Desjardins Securities.

"We have not seen, in Canada, telcos retract from making major investments based on CRTC decisions,'' he noted.

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The Telus logo on a building in downtown Toronto. Telus is among the large Canadian telcos ordered to offer access to their networks for sale to independent internet providers. (Photo: Roberto Machado Noa/LightRocket via Getty Images)

In early October, the Canadian Radio-television and Telecommunications Commission announced interim rates that Bell, Rogers, Telus, SaskTel, Shaw, Cogeco, MTS and Videotron must charge independent service providers (ISPs) to gain access to their faster networks.

For the most part, these rates were lower than those the companies proposed, and in some cases, by up to 89 per cent, the CRTC said.

Bell Canada hopes the CRTC will set final prices at a rate that will allow large companies with ongoing infrastructure projects to continue to fund them, said BCE Inc.'s chief executive officer George Cope.

If the CRTC's final rates are too low, "those type of investments can be curtailed,'' he told analysts during a recent conference call.

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BCE chief executive officer George Cope. (Photo: The Canadian Press)

Bell invests roughly $3.7 billion in capital annually, spokeswoman Jacqueline Michelis said in an email.

Telus has voiced similar concerns. Spokesman Richard Gilhooley said the telco, which invested about $2.85 billion in new infrastructure this year, can only continue to make such enhancements in a regulatory environment that affords it the ability to make that money back over time.

For its part, the CRTC said its interim rates are "just and reasonable,'' and accounted for investment and enabling of competition.

Yaghi noted that smaller rivals that gain access to bigger networks would have to pass on the savings to consumers by lowering their price offerings to become more competitive and snag more market share.

It would take a lot of growth to concern the large companies, he added, estimating that the market share of all ISPs together doesn't break double digits. Drew McReynolds, an analyst at RBC Dominion Securities, offered a more generous estimate of 15 per cent in a recent note.

The bigger concern for the major telcos, argued Yaghi, is halting their infrastructure spending while their competitors continue to expand.

"After a while, you find yourself in a very uncompetitive market compared to your biggest competitor,'' he said.

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CRTC chair Jean-Pierre Blais. (Photo: The Canadian Press)

Currently, enough competition exists between major telcos that the CRTC's interim rates shouldn't impact their level of investment over the next six months to a year, said Jeff Fan, an analyst at Scotia Capital Inc.

But past the short-term outlook, he added, the argument becomes a bit more nuanced and the CRTC must find the right balance.

"There's a point where you push too hard when investment will start to come down. Unless you know exactly where that is as a regulator, you're maybe taking a chance,'' he said.

More clarity on how the rates will impact investment will come once the CRTC, which is continuing to consult with industry players, releases final prices sometime in the first half of next year.

The final rates will be based on a full review and assessment of relevant cost inputs and costing methodologies, said CRTC spokeswoman Celine Legault in an email.

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