HillNotes

Wireless telecommunications services offer numerous economic and social benefits to consumers, including increased connectivity and productivity, lower costs and improved safety. However, these services are not equally available to all Canadians at a comparable price.

The digital divide

This so-called “digital divide” is particularly pronounced between rural and urban residents. It has become an increasingly significant public policy concern, given the importance of broadband and mobile telephony in today’s world.

Canadians pay some of the highest fees in the developed world for wireless telecommunications services, which are primarily related to mobile telephony and wireless Internet access. Canadian wireless service providers earn revenues that are among the world’s highest per user.

At the same time, the Canadian market has a low penetration rate compared with other developed countries. For example, according to 2009 data, although 99% of the population has access to wireless telephone service, only 77% of Canadians subscribe to it.

Observers suggest this low penetration rate stems from a lack of competition, which affects price and contract terms. As a result, several panels have suggested that Canada should have additional competition in wireless services.

For telecommunications, Canada’s rural areas provide many hurdles: low population densities, complex terrain and challenging weather. These challenges create both lower average revenues and increased costs for service providers. As a result, rural consumers typically have less access to wireless telecommunications services, and they pay more for those services than their urban counterparts.

In addition, Canada’s population distribution (2.3 Mb, 68 pages) is a factor. While the North has 41% of the land mass, it is home to just 0.3% of Canadians. By contrast, 41% of Canadians occupy the five most populous census metropolitan areas, which represent just 0.3% of the land mass.

For service providers, the reality is that rural wireless service provides a much lower return on investment than urban service, so they have more incentive to establish operations in big cities.

Competition and its effects

The federal government’s 2008 auction of spectrum licences for advanced wireless services brought several new, low-price players, such as Wind, Mobilicity and Public Mobile, into the mobile communications market. Consequently, the large, established telecommunications companies, such as Bell and Rogers, now offer low-cost versions of their existing wireless services to compete with new entrants.

However, all these lower-priced services are available only in urban areas, or key urban corridors. Therefore, it would appear that at present, increased competition has provided lower prices for urban residents, but has done little or nothing to reduce prices for rural Canadians. In this way, the new market regime may have further increased the digital divide between urban and rural Canadians.

Though the federal government can use policy tools, such as spectrum auctions, tax schemes and legislation, to help ensure a fair and competitive telecommunications marketplace, it does not directly regulate or supervise the telecommunications industry. Parliament gave this job to the Canadian Radio-television and Telecommunications Commission (CRTC).

The CRTC has deemed that the market for wireless services is sufficiently competitive. Therefore, it does not regulate the rates, quality of service or business practices of wireless service providers; this approach is known as forbearance.

The transition to digital television will free up valuable spectrum in the 700-MHz range that can be used by wireless providers. The federal government is currently working on terms and conditions for a new spectrum auction; these terms could include a spectrum set-aside for new entrants, to promote competition or incentives to make services available in underserved areas.

Public policy options

Several public policy options exist to address the problem of reduced and/or costlier wireless service availability in rural areas. Governments can:

• give rural consumers a subsidy to bridge the difference in service fees with urban customers (as is done in several U.S. jurisdictions);
• subsidize service providers for each rural area in which they establish wireless services; and/or
• finance (in whole or in partnership with providers) the cost of wireless infrastructure investment, thereby allowing providers to reach rural users at reasonable cost.