How daunting is the cost of rolling out ultrafast 5G telecom networks in Canada?
Consider this take on the multibillion-dollar challenge: An experienced telecom analyst predicts the spending needed to keep pace with the country’s three biggest 5G providers – Rogers Communications Inc., BCE Inc. and Telus Corp. – will eventually force the fourth player in this game, Shaw Communications Inc., into a merger with Rogers. And family-controlled Shaw is one of the country’s largest companies, with a $13.5-billion market capitalization.
What is undermining the rollout of 5G technology, networks that are essential to the country’s economic future? A federal Liberal government that seems more intent on lowering cellphone bills for consumers who cannot stop streaming Netflix, rather than ensuring the telecom industry has the capital needed to make massive investments in gear.
At a time when telecom companies around the world are expected to drop US$225-billion over the next two decades on 5G infrastructure, the federal government is engaged in yet another round of hand-wringing over wireless competition. In mid-February, the Canadian Radio-television and Telecommunications Commission (CRTC) will kick off hearings on wireless resellers, known in the industry as mobile virtual network operators, or MVNOs.
The regulator already showed its hand, publishing a report that stated the country’s incumbents – BCE, Telus and Rogers – should be forced to sell network access to resellers. The CRTC’s logic is this move would lower bills across the board, including in rural areas.
The prospect of MVNOs gaining access to the incumbents’ networks already has telecom executives promising to curtail future investment, including spending on 5G and links to remote communities that the CRTC wants to encourage. Rogers plans to drop $3-billion on gear this year, but last week, chief executive officer Joe Natale said: "If the regulatory environment is punitive from a fuelling-investment point of view, we will have to cut investment.”
The analyst who predicts a combination of misguided government policy and soaring costs could drive Calgary-based Shaw into the arms of Toronto-based Rogers, Drew McReynolds at RBC Dominion Securities Inc., said in a recent report that introduction of 5G networks “should have a substantially broader economic impact for Canada than any other previous generation of wireless, or even telecom technology.” He said a successful move to 5G should be the government’s top priority, rather than any consumer-focused push to lower cellphone bills by tilting the field in favour of resellers.
Resellers, by their nature, don’t spend a dime on building networks. They piggyback on the incumbents’ systems. New federal regulations that hobble the incumbents and hold back the rollout of next-generation gear, while boosting profits at MVNOs, “is simply bad public policy,” Mr. McReynolds said. He added: “Flipping the switch to a mandated MVNO model in 2020 could well be the wrong solution at the wrong time.”
The move to 5G networks will revolutionize the way business gets done; Mr. McReynolds compared what is coming in telecom to the building of Canada’s national railway networks in the 1800s, and the introduction of the internet in the 1990s. Other parts of the world, including China and several European countries, are already ahead of Canada in rolling out new networks. 5G networks will transform health care, education, transportation, entertainment and finance. The drive to deliver the next generation of services to Canadian consumers will reshape the telecom sector; Rogers may not end up buying Shaw, but further consolidation seems inevitable.
To the credit of federal regulators and past governments, Canada now boasts a competitive and reliable telecom sector. Shaw, with its Freedom-branded mobile offering, and Quebecor Inc. are formidable rivals to the incumbents. The recent introduction of consumer-friendly “unlimited" data plans shows old-fashioned market forces, rather than CRTC intervention, can lower monthly bills. It is time for government to focus on encouraging 5G investment by the country’s largest telecom players, rather than kneecapping incumbents by tilting the rules toward wireless resellers.