How to keep up with World-leading Internet Technology: Rebuilding the Last Mile

Commentary, Disruption, Roland Renner

Canada can no longer be smug about its international ranking in the telecom sector.  Once highly touted as a world leader in high-speed Internet and access to online services, Canada has lost its world-leading position over several years, particularly with respect to the last mile. What we call the last mile connects households to wider infrastructure.

Portions of Canadian telecom infrastructure are underdeveloped. While we may have state-of-the-art infrastructure beyond the curve, Canadians are unable to tap into the full potential of high-speed development from an outdated last mile. Unlocking that potential can improve business and personal productivity, open the way to greater innovation and better services to Canadian homes, and help better integrate rural and remote communities.

The last mile is also commercially significant because it represents the last opportunity for incumbents to maintain dominant market power in a sector where they have had to face increasing competition over the years.

When they were monopoly service providers, incumbents initially installed the necessary infrastructure but they have until recently been reluctant to replace the old wires and cables with Fibre to the Home (FTTH), claiming there is no money in it.

Recently, facing new demand from customers who are watching video Over-The-Top (OTT) on the Internet, cablecos in a number of major markets have upgraded high-speed cable technology without replacing the last mile coaxial cable.  The telcos responded by first upgrading their existing technology and then installing FTTH to create more capacity than cable can offer. While such activity is welcomed progress, it is far from sufficient.

There is room in the market for more players in this sector.  Canada needs to encourage a competitive landscape for the development of this last mile in rural and remote districts, and in high-density urban neighbourhoods and single-family residential suburbs.  The incumbents should lose their sense of entitlement and move to compete with the best to provide the best.

Canada does not need to reinvent the wheel. Other countries around the world have had demonstrable success.  The Nordic countries started with municipal and electrical utility networks, often in remote communities.  Incumbents are now on board and are deploying FTTH.

South Korea, Japan and Taiwan have led the way with competitive markets, government co-ordinated planning and early commitment from the incumbents. In the United States, municipal networks reach approximately 1 per cent of the broadband market, mostly in smaller communities.  Major telco incumbents have committed to fibre upgrades in response to the higher speeds that cablecos can offer compared to the telcos’ DSL.

Australia has nationalized the last mile infrastructure while New Zealand has forced structural separation on to the incumbent carrier. 

The continuing duopoly in the last mile infrastructure is the last element of the Canadian telecommunications industry where competition is weak.  While we acknowledge the current deployments of FTTH and other technologies to increase household bandwidth, the opportunity to extend competition to the last mile should not be missed.  The cost per household is within reach, the potential competitors are in place, and we can bring the benefits of competition to the final segment of Canadian telecommunications networks. 

Every successful international example includes competition as a main reason for success.  Rural and remote customers who typically get upgraded last should particularly benefit from this development.  Competition brought benefits in every other sector of telecommunications.  The last mile should be no exception

Opportunities exist for third-party companies that install customer-owned fibre and for co-operative initiatives in building FTTH.  Local electrical utilities in Canada have not participated in this market.  Yet, we have seen from international examples that these utilities have a natural advantage as infrastructure builders with rights of way (ROW) into every household.  They should be encouraged to participate. 

To enhance competition, companies should have access to ROW, infrastructure and services.  This was an important factor in all of the leading FTTH countries.  The telecom companies have already undergone a similar process to interconnect with each other and to allow resale.  Making more adjustments to accommodate competition in the last mile should not be a problem.

For example, if the rules and regulations change to allow customer ownership of parts of the last mile out to the nearest pedestal in the neighbourhood, it would remove a large element of risk from the telecom companies, and deployment could proceed more quickly.  This is analogous to the change in ownership of inside wiring that occurred many years ago.

Policy-makers need to rethink existing policies and procedures as new wireless technologies emerge and help create opportunities for new configurations of wireless and fibre technologies to deliver services to rural Canada. 

Greater competition pushing the incumbents in last mile infrastructure is the best way to regain our leading position in telecommunications services.