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  • Ted Woodhead

Canada's advantage in having an advanced and robust digital infrastructure

Last month, the European Commission initiated a consultation seeking input on how to improve the availability and performance of Europe's digital infrastructure. The document titled, "How to master Europe's digital infrastructure needs?" starts out on firm ground with a general statement with which few, if any, would disagree, "A cutting-edge digital network infrastructure is the foundation for a flourishing digital economy and society". The European Commission goes further to say, "The future competitiveness of all sectors of Europe’s economy depends on these advanced digital network infrastructures and services, as they form the basis for global GDP growth between EUR 1 and 2 trillion and the digital and green transition of our society and economy. There is, according to many sources, a strong link between the increased deployment of fixed and mobile broadband and economic development. Demand for connectivity is essential to stimulate the economy. Higher speeds and new generations of mobile networks have a positive impact on GDP. Demand for connectivity is essential to stimulate the economy. With the current demographic trends, European competitiveness needs to rely on productivity-boosting technologies, and digital infrastructure and services are key. So, assuming all of that to be true as I do, where does Europe stand in realizing those macroeconomic benefits?

Well, it appears not that well. The European Commission begins with the rather bleak assessment that, "The connectivity infrastructure of the Union is not yet ready to address the current and future challenges of the data-driven society and economy and the future needs of all end-users". The European Commission finds that, "On the supply side, the 2023 Report on the state of the Digital Decade underlines in particular limited fibre coverage (56% of all households, 41% of households in rural areas) and delays in the deployment of 5G standalone networks in the EU. Current trends concerning the trajectories for the digital infrastructure targets laid out in the Digital Decade Policy Programme 2030 are a cause for concern. As regards fibre coverage, progress beyond 80% by 2028 does not seem likely, putting the achievement of the 2030 target of 100% in doubt. In comparison to the 56% fibre coverage in the EU in 2022, the US, which has traditionally relied on cable, had 48.8%, while Japan and South Korea each reached 99.7%, due to clear strategies in favour of fibre. Canada is clearly outperforming Europe and it would appear the United States since the telephone companies have reported anywhere from 80+ to 90+ percentage completion of fibre availability across their networks, meaning that the vast majority of Canadians have fibre available to them whether they subscribe to gigabit speeds or not. An impressive competitive advantage. Similarly, Canadian wireless carriers have launched 5G standalone core networks.

The European Commission found that only 14% of EU subscribers take Gigabit speeds and only 55% have subscribed to at least 100 Mbps fixed Internet service. Meanwhile in Canada in 2022 the CRTC reports that 76.9% of subscribers take 50+ Mbps service and the average download speed is 331.1 Mbps and 58.1% subscribe to 100 Mbps or faster. 17% of subscriptions to service profiles of 1Gbps or faster. Again, Canada's long standing policies of encouraging the deployment of fibre-based digital infrastructure are working admirably and Canadians are embracing it at unprecedented levels and at levels far outstripping the EU as a whole. An impressive competitive advantage. The European Commission predicts that EUR 148 billion will be needed to catch up and achieve the objective. That seems unlikely to happen. Even the EU seems to acknowledge that the capacity of its electronic communications sector to undertake these investments "...raises concerns for its capacity to find funding for the substantial investments that are needed to catch up with the technological shift. Where to lay the blame then? Well The average revenue per user (ARPU) of electronic communications operators in the EU is relatively low compared to other economies such as the US, Japan or South Korea. This has led to declining Return on Capital Employed (ROCE). The capital expenditure (Capex) per capita in the EU is also lower. In 2022, it stood at EUR 109.1 compared to EUR 270.8 in Japan, EUR 240.3 in the US and EUR 113.5 in South Korea. During the last decade stocks of European electronic communications networks and services providers have underperformed in both global electronic communications indices and European stock markets. European providers of electronic communications networks and services also face low enterprise value/EBITDA multiples, suggesting lack of market confidence in the potential for sustainable long-term growth in revenues. Not a rosy outlook, but it gets worse. The EU writes "that another element hindering the attractiveness of the European electronic communications market for large investors is its fragmentation and hence the lack of assets with sufficient scale". There is a lesson for Canada here, to the extent you adjust any regulatory frameworks don't emulate the failed policies of the Europe but look rather to jurisdictions that perform as well or better than Canada. Hint: there aren't many of them.

The story is much the same with mobile. Canada outperforms Europe there as well. Coverage by 5G mobile stands at 41% while in Canada on the same baseline it is 91.3% and LTE-A is 97.8%. These advantages will be key differentiators to exploit if we seriously aspire to resolving our serious underperformance in productivity.

It was with this context in mind that I listened to a variety of MPs last week at Industry Committee badgering and berating the CEOs of the three largest Canadian communications companies with trivialities and populist banalities. One MP seemed flabbergasted that in Windsor, Ontario from time to time his Wife's mobile device is detected by a Detroit wireless tower and she is mistakenly billed for roaming in the United States (as a person who grew up along the Niagara River, I assure you this happens there too). However, he simply wouldn't accept that all you have to do is call in and they will be reversed. He must be extremely frustrated when fishing in the Detroit River (do not do this) to catch an American fish and not a Canadian one (why are they allowed to swim back and forth across the border like that?). Another MP seemed incapable of understanding what ARPU is or of accepting it is not synonymous with price. They seemed most concerned about recently announced job losses and capital investment reductions but wouldn't acknowledge that most of these were related to competitive intensity, unfavourable and unhelpful regulatory decisions. Rather than viewing these as canaries in the coal mine these MPs seem intent on pushing for reforms that would take us back to the 1990s and squander all of the gains and advantages we have. So, when those MPs decide on how to answer the study they are supposedly undertaking, they should reflect on the successes that Canadians enjoy from the extensive and world class digital infrastructure we have and not slavishly follow their party lines or recite the worn political messages they have been given. Canadians deserve better.


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