The Real Economy, Canada

New entrants are changing the face of Canada's telecom industry

Feb 23, 2022
#
Telecommunications Economics The Real Economy

Canadian consumers pay some of the highest internet connection fees around the globe, but a recent surge in spectrum licenses doled out to smaller telecom companies could mark the beginning of a shift for the industry's competitive landscape.

Canada's government dished out 1,495 licenses to 15 Canadian companies and raised approximately $9 billion in this summer’s spectrum license auction, more than double the $3.5 billion raised in 2019 for the sale of
104 licenses.

Historically, the auction has been dominated by Canada's largest telecom service providers: Rogers, Bell and Telus, known as the "big three." But in this most recent auction, 757 of the 1,495 licenses awarded went to small and regional providers across the country. What's more is that the licenses auctioned this year were higher frequency spectrum bands - 3,500 megahertz bands this year compared to 600 MHz bands in 2019. The higher the frequency, the better the spectrum is at penetrating dense urban areas and providing good signals in troublesome spaces such as elevators, subways and underground parking garages.

Between the sheer number of licenses awarded and their higher quality, this year's spectrum auction was undoubtedly one of the most important events in Canadian telecom history and critical to improving connectivity across the country. Smartphones and other Internet of Things devices have changed the way we live, and as more and more devices gain 5G capabilities coupled with our need for faster download speeds and undeterred signal strength, the auction for these coveted high-frequency licenses has become much more critical to carriers nationwide.

Canada challenges

It is nearly impossible to have any economies of scale in Canada's telecom space, due to low population density and Canada's vast geographical landscape. Combined with the Canadian government's business competition laws, this creates a perfect storm for the high-cost options Canadian consumers endure.

This landscape in the Canadian telecom market is far from new; 91 per cent of the Canadian wireless market is held by the big three, according to a 2019 report by the Canadian Radio-television and Telecommunications Commission. Telecommunications infrastructure is owned by five companies: Bell, Rogers, Shaw, Telus and Quebecor.

Although there has been gradual improvement based on new CRTC rules of allowing smaller incumbents to enter the market as mobile virtual network operators, these smaller players must still piggyback on the three major networks. This prevents the mobile virtual network operators from operating in a meaningful way in Canada.
As the population grows and technology advances, there will likely be more opportunities for smaller and regional telecom companies.

An uphill climb

One of those incumbents is Quebecor's Videotron; it plans to break significant ground in its expansion plans outside of the Quebec region, where it dominates versus the national leaders. Quebecor aims to expand into competitive markets in southern and eastern Ontario, Alberta, Manitoba and British Columbia.

For the other small service providers, having licenses in hand might lead to more leverage in developing more balanced partnerships with the big players, even if the barriers to entry like significant capital expenditures and access to network technology hinder their ability to use
it independently.

Ultimately, it's an uphill climb for the smaller players but one that consumers hope will bring about a positive change in their wallets. There are hurdles ahead that all carriers will face as they aim to build new infrastructure to deploy the licenses. Challenges regarding the purchase and use of network equipment have been pain points for many Canadian carriers in the past due to geopolitical tensions, leading to stalled buildouts for different spectrum bands. Moreover, consumers should also be aware that the expensive spectrum licenses and significant capital expenditures for carriers will ultimately result in more costs being passed on to them.

If there are meaningful price wars down the road as competition increases, it would benefit Canadian consumers who have often voiced concerns over continually rising prices by the three major carriers.

RSM contributors

  • Justin Krieger
    Justin Krieger
    Technology, Media and Telecommunications Senior Analyst
  • Yasir Riaz
    Director

The Real Economy blog

The Real Economy Blog was developed to provide timely economic insights about the middle market economy. It is offered as a complement to RSM’s macroeconomic thought leadership, including the quarterly The Real Economy Canada.

The voice of the middle market

Middle market organizations, which make up the “real economy,” are too big to be small and too small to be big. They have distinct challenges and opportunities around resources, labor, technology, innovation, regulation and more.