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The federal competition watchdog says in a new report that rules forcing large internet providers to sell network access to smaller competitors have made Canada’s market for broadband services stronger.

Most Canadians still subscribe to one of their local telephone or cable companies for broadband service, but federal regulations have led to other, independent options. These smaller players, such as TekSavvy and Distributel, buy access to the large providers’ networks at regulated rates and sell the service to retail customers.

The Competition Bureau launched a study of the Canadian internet market in May, 2018, and its report, published Wednesday, paints “a largely positive picture.”

“The bureau’s research tends to indicate that this regime is working to deliver increased choice and competition to consumers," the report says, adding, “These marketplace alternatives exist, at least in part, as a result of industry regulation.” The report found that big providers continue to invest in their networks despite the wholesale rules, though the bureau said it found some evidence that the regulations harmed profitability in less populated places.

The Canadian Radio-television and Telecommunications Commission is holding a major hearing on the wireless market next year that will consider applying similar wholesale rules to the cellular industry and forcing the Big Three national carriers to resell their airtime to smaller players that do not build their own networks.

The Competition Bureau has requested extensive information from wireless providers and will participate in the CRTC hearing. Spokesman Jean-Philippe Lepage said he could not comment on whether the bureau’s internet market study could apply to the wireless hearing.

“The bureau will be providing an analysis with the goal of increasing the competitiveness of the wireless sector,” Mr. Lepage said. “As that work is ongoing, I am not able to speak to specific conclusions.”

More than one million Canadian households rely on smaller internet service providers (ISPs) for broadband service, the watchdog said, adding that those customers report higher satisfaction with their ISP than subscribers to traditional cable or telephone operators’ services. (In addition to requesting information from ISPs, the bureau used an online survey and focus groups, and surveyed more than 2,000 representative Canadian households.)

The report says the presence of smaller ISPs gives consumers more leverage when negotiating with incumbent providers and has also spurred the large telecoms to launch their own discount or “flanker” internet brands (for example, Rogers Communications Inc. offers cheaper, lower-speed options through Fido, its long-time wireless flanker brand).

But the report also cautions that striking the right regulatory balance is a “delicate matter,” one that requires the CRTC to set wholesale rates that still allow network owners to profit and continue to invest in their infrastructure.

It points out that the country’s large cable and telephone operators are still investing in their networks, “working to outdo each other in order to offer the highest speeds and most reliable networks.”

Telephone operators such as BCE Inc. and Telus Corp. have been upgrading their copper infrastructure by bringing fibre-optic cables directly to customers’ homes, a time-consuming and capital-intensive effort. Cable companies such as Rogers, Videotron Ltd. and Shaw Communications Inc. have also invested in fibre upgrades to improve speeds.

The bureau reviewed confidential business records as part of the study and said that, for some companies, certain investments became unprofitable because of wholesale regulation, which can happen when rates are too low and there aren’t enough customers to deliver a return on investment. It said this is a particular risk at the “fringes of a network,” where population density is low, making it harder to justify investments in rural and remote areas.

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