Competition Bureau Broadband Market Study Update

October 16, 2018

Introduction

In May 2018, the Competition Bureau (Bureau) commenced a market study to better understand the competitive dynamics of Canada’s broadband internet services industry (Study).

This document updates the Bureau’s Market Study Notice, and provides additional detail regarding the timing and scope of the Study. The document is organized into three sections. The first section summarizes the activities of the Study to date. The second section outlines the key research questions that the Bureau will investigate during the next phase of the Study. And the final section sets out the planned timing of the remainder of the Study.

Those with an interest in the Canadian broadband industry who have not yet spoken with the Bureau remain welcome to do so. Contact information is provided at the end of this document.

Progress of the Study to Date

The Bureau’s initial efforts in this Study have focused on stakeholder engagement. In total, the Bureau has completed introductory interviews with more than 20 interested parties, including broadband service providers, government bodies, consumer groups, and academics. The Bureau also invited written submissions in response to its Market Study Notice, and has received 19 submissions in response, totalling more than 950 pages of material. Sixteen stakeholders provided public versions of their written submissions, which are posted on the Bureau’s Market Study Portal.

The Bureau appreciates the depth of engagement in this Study to date. In addition to the significant effort required to prepare written submissions, many stakeholders have spent several hours preparing for and participating in interviews and information sessions with Bureau staff. The information and perspective that the Bureau has received to date will serve as an important input into the rest of the Study.

What’s Next for the Study?

Now that the initial round of stakeholder engagement is complete, the Bureau has turned its focus to the analysis phase of the Study. In this phase, the Bureau will perform the analyses necessary to further its assessment of competition in Canada’s broadband industry. This section of the document provides an overview of the research questions and planned analyses that will direct the Bureau’s efforts during this phase of the Study.

At this stage of the Study, the Bureau has not drawn any conclusions, and remains of an open mind. The research questions set out in this document are based on those from the Bureau’s Market Study Notice, but have been tailored to reflect the additional knowledge and perspective that the Bureau has gained to date through marketplace interviews and written submissions. The Bureau will continue to refine these questions as the Study progresses.

Continued Stakeholder Engagement

The Bureau is committed to ongoing stakeholder engagement as the Study progresses. A number of analyses set out in this document will involve further conversations with, and information from, market participants.^{Footnote 1} The Bureau expects to hold a number of follow-up interviews during Fall 2018 and Winter 2019 to better understand the information that it has received to date. These conversations will also allow the Bureau to integrate stakeholder perspectives as it moves through the analysis phase of the Study.

Some Caveats About the Planned Research and Analysis

Each of the research questions and analyses discussed in this document should be taken as preliminary, non-exhaustive, and subject to change. Further stakeholder engagement and greater appreciation of the marketplace are likely to bring about changes, or additional precision, to each of the research questions and analyses set out below. The Bureau is communicating these ideas for the purposes of transparency and enhanced collaboration with stakeholders, and this section of the document should not be taken as a conclusive, complete, or final list of the work that the Bureau will undertake.

Additionally, the Bureau’s ability to answer each of its research questions may depend on the availability of certain information and/or data. Even if the Bureau can access the necessary information and/or data to undertake its planned research, such analyses do not always yield definitive results that point to one single answer to a research question. Accordingly, stakeholders and observers should not expect that the Bureau will necessarily be able to conclusively answer each of its planned research questions.

Analytical Approach

The Bureau operates on the premise that competition is good for both businesses and consumers. Competitive markets deliver significant benefits to the economy. Competition makes the economy more efficient; drives innovation; gives small and medium businesses an equitable chance to participate in the economy; and provides consumers with competitive prices, product choice and the information needed to make purchasing decisions.

In undertaking its analysis, the Bureau will be guided by the principles of competition assessment. Analyses will be evidence-based, with an ultimate interest in economic outcomes, such as prices and levels of consumer choice, product quality, and innovation. The Bureau intends to use these analyses as a basis for making recommendations to regulators, where appropriate, aimed at promoting competition through a suitable balance of market forces and regulation.^{Footnote 2} This research will also inform the Bureau’s future work by increasing the Bureau’s knowledge and understanding of the competitive dynamics of the Canadian broadband industry specifically and the telecommunications industry more generally.

Planned Research Questions and Analytical Approaches

Research Question 1: Which factors influence consumer demand in this industry?

Description: Understanding consumer demand is important to any competition analysis. The Bureau intends to identify consumer behaviours and attitudes with a goal of better comprehending the preferences that consumers express in choosing a broadband provider.

Planned Analysis: The Bureau plans to undertake three principal types of analyses:

1. Behavioural Economics – the Bureau has retained a behavioural economist to help design and interpret the consumer-focused analyses in this Study. Behavioural economics extends traditional economic analysis by incorporating, among other things, psychological and cognitive factors that influence consumer choices.
2. Public Opinion Research – the Bureau intends to retain a market intelligence firm to conduct surveys and/or focus groups designed to better understand the factors that motivate consumers’ choices when selecting a broadband provider.
3. Informal Information Gathering – the Bureau will use its website and social media tools to survey Canadian internet users through an online web form. This research is designed to discover consumers’ current state of knowledge of the Canadian broadband industry.

The Bureau’s analysis of consumer perspectives may include both qualitative and quantitative dimensions, as appropriate. These analyses will assist the Bureau in understanding the value points that matter the most to consumers, and how preferences may differ between groups of consumers.

Research Question 2: What is the marketplace role of wireless- and third party fibre-based broadband suppliers, and how might this role change in the future?

Description: The Bureau’s initial Market Study Notice focused on broadband services delivered through traditional phone and cable networks. Several market participants, however, have urged the Bureau to consider the marketplace impacts of service providers who deliver broadband services through other means, including fixed wireless and satellite technologies, as well as third party fibre optic networks.^{Footnote 3},^{Footnote 4}

Planned Analysis: Several non-traditional broadband service providers have reached out directly to the Bureau in connection with the Study. The Bureau will engage with these providers, as well as other market participants, to better understand their services, and how they contribute to the competitive landscape in the Canadian broadband industry. The Bureau will continue to monitor industry developments, and will undertake research to better understand the attributes, and competitive impacts, of these non-traditional service offerings, both now and into the future.^{Footnote 5}

Research Question 3: How does rivalry between facilities-based providers affect marketplace outcomes?

Description: Several facilities-based providers^{Footnote 6} claim that the main competitive force in the marketplace is rivalry among facilities-based networks.^{Footnote 7} These providers describe a fundamental pressure to offer the highest speeds and greatest capacity levels to their users, and state that such advances typically require large investments to upgrade and expand their networks. In their view, this form of competition places downward pressure on pricing in order to attract sufficient customers to offset their large investments in network speed, capacity, and quality.

Planned Analysis: The Bureau will evaluate the history of competition among networks in Canada, with a focus on the underlying rationale for historical investments made by facilities-based providers to upgrade and expand their networks. The Bureau will also examine how next-generation networks, such as 5G wireless technologies, may affect broadband service offerings in the future.

Research Question 4: How does the existing regulatory landscape affect facilities-based providers’ incentive to upgrade and maintain their networks?

Description: Facilities-based providers argue, based on economic studies, that their incentive to provide and maintain high quality networks is reduced when they cannot capture the full economic benefit of those networks.^{Footnote 8} Significantly, four facilities-based providers jointly commissioned a report by an external consultant that tracks the regulatory experience and resulting marketplace outcomes in Canada with those in foreign jurisdictions, and makes recommendations on how to optimize regulations to ensure that Canadians are served by robust networks.^{Footnote 9}

Planned Analysis: The Bureau will critically evaluate the effects that regulation may have on investment incentives, and how these effects may vary under differing regulatory treatment of both facilities-based and wholesale-based providers. As part of this analysis, the Bureau plans to undertake its own comparative research of foreign laws and regulations and their effects on marketplace outcomes. In doing so, the Bureau intends to reach out directly to telecommunications regulators and antitrust agencies in a number of foreign jurisdictions.

Research Question 5: How do wholesale-based providers affect marketplace outcomes?

Description: Several wholesale-based providers^{Footnote 10} assert that they have been able to attract customers through low prices, innovative product offerings, and high levels of customer service.^{Footnote 11} However, some facilities-based providers claim that wholesale-based providers have generally limited their service offerings to target certain niche audiences, like price sensitive consumers.^{Footnote 12}

Planned Analysis: The Bureau intends to describe the structure of Canada’s broadband internet services industry and the competitive influence that wholesale-based providers bring to bear. In particular, at least part of this analysis will ask whether wholesale-based providers affect the marketplace generally, or whether their influence is restricted to certain types of consumers.

One way that the Bureau can analyze competitive outcomes is through quantitative analysis of marketplace data. To the extent that sufficient data are available, quantitative analysis can assist the Bureau in understanding the nature and effect of competition on pricing, consumer choice, and other strategic variables that are valued by consumers. Another method of understanding the drivers of competition is to examine business records, which allows the Bureau to better understand why certain competitors have taken specific decisions in the past regarding competitive positioning and marketing. The Bureau will continue to identify appropriate methods to assess the marketplace effect of wholesale-based providers as the Study progresses.

Research Question 6: How does the existing regulatory landscape affect wholesale-based providers’ ability to compete effectively?

Description: Several wholesale-based providers claim that their competitive influence is limited by gaps in the regulatory landscape that add complexity to their day-to-day operations or otherwise make it difficult to compete.^{Footnote 13} These providers report an array of operational issues, such as those associated with scheduling and performing installations, which they suggest could be alleviated through greater regulatory supervision and/or enforcement. They also express higher-level concerns regarding information sharing between the wholesale and retail arms of facilities-based providers, and the recent regulatory decision to phase out aggregated wholesale access in favour of disaggregated access.

Planned Analysis: The Bureau intends to evaluate the claims of wholesale-based providers in the context of existing regulatory decisions and, where appropriate, the CRTC’s competitor quality of service regime.^{Footnote 14} The Bureau hopes for further engagement by both facilities-based and wholesale-based providers to better understand these issues and their impacts on competition.

Timing for the Remainder of the Study

Throughout Fall 2018 and Winter 2019, the Bureau will focus on executing the analyses set out in this document. This will involve continued stakeholder engagement to inform and refine these analyses, and further research undertaken by the Bureau. The Bureau expects to arrive at preliminary analytical results in Spring 2019, and intends to confidentially discuss those preliminary results with industry stakeholders in May 2019. This will allow the Bureau to solicit feedback to its preliminary results in advance of drawing final conclusions and recommendations in the Study.

The Bureau expects to publish the results of the Study in a public report. The specific form and timing of this report will be determined as the Study progresses; however, the Bureau is targeting publication no later than June 2019.

It’s not too late to Get Involved

Those with an interest in the Canadian broadband industry who have not yet spoken with the Bureau remain welcome to do so. The main contact for this study is: