Vadim Gouterman and Lawrence Kuo are managing directors and partners in the Toronto office of Boston Consulting Group (BCG), and Keith Halliday directs BCG’s Centre for Canada’s Future. BCG provides strategic advice to clients in Canada that include telecommunications companies, digital innovators and other private and public sector organizations.
Canada is on the cusp of a digital revolution that holds great potential.
Citizens look forward to fresh innovation in remote health care, autonomous vehicles and augmented reality. Businesses foresee massive productivity improvements from next-generation Internet of Things, spatial computing, artificial intelligence and other Industry 4.0 innovations. Canada’s innovators have the potential to develop new solutions and sell them globally.
Yet Canadians can only reap these benefits if we have world-class digital infrastructure. This means steady investment in expanding fibre footprints and the latest wireless technologies, all deployed widely on quality networks at reasonable prices. Historically, Canada’s telecom industry and regulators have delivered connectivity that performs well compared with peer countries.
We have grown increasingly concerned that Canadian policy may be about to change direction, prioritizing short-term savings on consumers’ monthly bills over the tens of billions in investment needed to enable the digital revolution. The tenor of public discussion in Canada, whether in surveys, media articles or on social media, confirms to us how strongly the current of opinion is flowing in this direction. This is a worrying influence as the Canadian Radio-television and Telecommunications Commission reviews the country’s wireless regulation and the newly elected federal government sets its new direction.
Before we discuss the issues, let’s review some of the key facts.
First, Canada’s digital infrastructure stacks up well globally. In terms of high-speed fixed broadband, Canada was 11th in the Organization of Economic Co-operation and Development and ahead of all Group of Seven countries with the possible exception of Japan. On wireless, 99 per cent of Canadians were covered by advanced LTE networks in 2017 and our 4G availability exceeded that of France, Germany and the Britain.
Second, the capital expenditure needed to deliver this is significant. In 2018, the total for Canada was approximately $12-billion, almost all from the private sector. Investment per capita averaged $255 in Canada from 2005 to 2015, compared with the OECD average of $156.
Third, our digital infrastructure is not cheap, but neither is it the outlier sometimes reported in the media. We looked at average wireless revenue for every user as a percentage of the average full-time monthly wage for 29 countries. Canada was fourth highest at 0.92 per cent, 1.5 times the average. However, prices have trended down steadily and unlimited data plans were introduced earlier this year.
The pricing debate is often depicted as a binary choice between low monthly bills for consumers versus high profits for industry. The reality is more complicated. Individual Canadians are also stakeholders in the digital revolution. They benefit from new consumer services, goods produced more productively and jobs in digital innovation.
Consider this thought exercise. Suppose advanced digital infrastructure enabled the digital revolution mentioned above to boost productivity growth by an amount similar to past innovation waves, such as electricity or computers. An Australian government report looked at 19 studies of such events, and the median productivity boost was 0.28 per cent. It doesn’t sound like much, but by 2040, that would expand our economy by approximately $200-billion a year. That’s more than $4,000 for every Canadian.
There is no perfect regulatory regime. Policy objectives vary over time, and there are always trade-offs between multiple objectives, such as affordability, quality or encouraging investment. However, it is improbable that we could cut industry revenue by a fifth or a quarter, as some have suggested, without endangering future investment. Our preliminary analysis, looking at the dynamics of the Canadian market, as well as the experience of countries such as Israel and France, suggests that this kind of policy move could create an investment gap of up to $15-billion over the next five years.
On the cusp of 5G, this could be very damaging.
It is legitimate to periodically rebalance the relative priorities of regulation. The aim, however, should be to move cautiously and strike a balance that doesn’t hobble our future economic growth.
Policy changes can be quick to implement, but take years to undo.
In a space where both the digital upside and the risk of unintended consequences are large, we suggest that Canadian policy makers borrow a line from the medical profession: “First, do no harm.”