Canada’s telecom regulator has sided with Quebecor Inc. QBR-B-T in a rate-setting decision over the prices it will pay to access Rogers Communications Inc.’s network, determining that the regional telecom’s offer will foster affordability and lower prices for retail mobile wireless services.
The ruling could set a precedent for other regional players hoping to strike deals with major carriers with the help of the Canadian Radio-television and Telecommunications Commission.
Notably, the CRTC said in its decision that “just and reasonable” rates could include those that don’t result in an immediate return for the incumbent providers – Rogers, BCE Inc.’s Bell Canada BCE-T, Telus Corp. T-T and SaskTel – or could even result in a temporary loss in one line of business while other lines remain profitable.
This particular CRTC decision sets the data rates that Quebecor Inc. will pay to Rogers RCI-B-T when offering services using Rogers’s wireless network across Canada. The regulator’s decision is being described by analysts as “directionally positive” for Quebecor, as the Montreal-based telecom provider eyes national expansion.
In a release Monday night, CRTC chair Vicky Eatrides said the decision was in line with the regulator’s policy of increasing cellphone competition in Canada. The access rates have not been not disclosed, but were considered with a goal of balancing the priorities of affordability and investment, she said.
“After a thorough analysis and detailed consideration of the two proposals, the CRTC chose the rate proposed by Quebecor,” Ms. Eatrides said in the release.
“We view the decision as directionally positive for Quebecor (and other eligible regional wireless operators like Cogeco),” given that the decision appears to establish access to the Rogers network at profitable levels, said Royal Bank of Canada analyst Drew McReynolds in a note to investors Tuesday.
Desjardins analyst Jérome Dubreuil said in a note Tuesday that he expects Rogers, Bell and Telus to face greater wireless competition after the CRTC’s rate decisions. The CRTC is also currently offering final arbitration between Quebecor and Bell, according to a letter dated July 13 that was posted to the regulator’s website.
“The CRTC’s decision suggests the regulator is not done pushing for additional competition despite recent price declines,” Mr. Dubreuil said.
In an e-mail, a Quebecor spokesperson said the decision will allow the company to offer plans that are affordable and competitive, and to extend Quebecor’s services across Canada.
Rogers spokesperson Cam Gordon did not comment on the ruling, saying only that the company is reviewing the CRTC’s decision.
Rogers had argued that a fair rate would be one that allowed it to cover its costs and earn a reasonable return. In its decision, the CRTC said it did not consider that “fair and reasonable rates” should necessarily produce an immediate return for the incumbent, and that it was acceptable for “an otherwise profitable enterprise to incur a modest or temporary loss.”
Telecom consultant Mark Goldberg suggested that this approach “does not seem sustainable” as it overlooks the impact on retail consumer prices: If a company loses money in one area, prices will be higher elsewhere, he says.
“Money for investment doesn’t magically appear,” Mr. Goldberg said. “If wholesale prices aren’t providing an appropriate financial return, I’m not convinced there has been consideration of the secondary and tertiary effects of this decision on investment in digital infrastructure.”
But the regulator, for its part, said the rates would not undermine Rogers’s ability to compete effectively in the retail market, that any unrecoverable costs to Rogers would be “minimal” and that the short duration of the agreement – seven years – would mitigate concerns about sustaining network investment.
The CRTC’s decision could also have further implications for other regulatory issues currently under consideration, said Bank of Nova Scotia analyst Maher Yaghi. He said Monday’s result suggests a “departure from the norm” in the way that the CRTC is making decisions about costs in order to establish wholesale models.
In a wholesale model, one telecom pays to “lease” a portion of another telecom’s network over which to offer their own services, such as home internet. The CRTC is currently reviewing the rates that independent players must pay to access incumbents’ high-speed internet networks, and considering whether it should require incumbents to negotiate access to their fibre networks.
“This could be an important departure for the CRTC in its future rate case decision,” said Mr. Yaghi in a note to investors Tuesday morning.
In 2021, the CRTC determined that incumbents would be required to share their networks with eligible regional providers who committed to building out their own infrastructure. Under this framework, regional players will have seven years from the date of the agreement to build their networks in that area.
The CRTC finalized its rules for that policy in May, giving companies 90 days, or until Aug. 7, to negotiate agreements. While the regulator left it up to the companies to settle rates, it also said it would provide final offer arbitration if the companies could not do so.
In a letter sent to the CRTC in April, representatives from Rogers and Quebecor asked the CRTC to initiate this arbitration. The process required each company to submit a proposed rate for the CRTC’s consideration.
On Monday, Quebecor’s Freedom Mobile launched its 5G network for some existing customers and implemented seamless handoff, which will prevent user calls from dropping as they travel from Freedom’s home network to those of its partners.
Irene Galea