Communications Monitoring Report 2018

Link directly to Telecommunications Overview Telecommunications Overview

The Telecommunications Overview provides a glimpse into various aspects of telecommunications in Canada. Section i: The competitive landscape provides a description of the entities supplying telecommunications services; Section ii: Telecommunications sectors provides revenue details for the six sectors (local and access, long distance, data, private line, fixed Internet and mobile); Section iii: Financial performance reports various metrics such as capital expenditures and earnings before interest, taxes, depreciation and amortization; Section iv: Retail revenue growth sources provides insight into the sources of revenue growth; Section v: Consumer voices highlights customer contacts and Section vi: Sector summaries provides summaries of the six sectors, with longer-form descriptions available in subsequent sections of the 2018 Communications Monitoring Report (for retail fixed Internet and retail mobile).

Unless otherwise noted, the first three sections deal with total revenues (retail plus wholesale), while Section vi: Sector summaries deals with retail revenues (except for the wholesale section).

Link directly to i. The competitive landscape i. The competitive landscape

Total Canadian telecommunications revenues reached $50.3 billion in 2017 as Canadians used ever-increasing amounts of data through both fixed Internet and mobile services (“data usage” includes the use of data for video streaming services such as Netflix and YouTube, as well as for audio streaming services such as Spotify and various radio applications via mobile devices or fixed Internet services).

Link directly to Infographic 4.1 Infographic 4.1

Service providers are divided in two broad categories: Incumbent telecommunications service providers (TSPs), i.e. the companies which provided local telecommunications services on a monopoly basis prior to the introduction of competition, and alternative service providers, which encompasses all other types of entities.

Alternative service providers include cable-based carriers, which are the former cable monopolies that currently also provide telecommunications services; other facilities-based service providers; and resellers, which are companies providing services primarily using other companies’ facilities.

Incumbent TSPs, along with cable-based carriers, own and operate the majority of the infrastructure used by other service providers.

Please see Table 4.9 in the appendix for more details.

Link directly to Infographic 4.2 Infographic 4.2

the five largest providers of telecommunications services accounted for 87% of total revenues in 2017

Grouping companies in order to include their affiliates, the five largest providers of telecommunications services accounted for 87% of total revenues in 2017. These company groups are Bell, Quebecor, Rogers, Shaw and TELUS, and are a mix of incumbent TSPs and cable-based carriers – though all are facilities-based service providers. The percentage of revenues represented by the top five changes slightly from year to year as revenues grow, but more significant changes are usually due to larger factors such as occasional ownership transfers. One recent example is the BCE’s acquisition of MTS in 2017, which contributed to the growth of the revenue share of Canada’s largest providers.

Generally, since 2013, the incumbent TSPs’ (large and small) share of revenues has been declining by about one percentage point per year, to 59% in 2017.

the largest incumbent TSPs represented only 1% of the number of telecommunications providers (…) [and] generated 58% of revenues

While the large incumbent TSPs represented only 1% of the number of telecommunications providers^{Footnote 1} in 2017, they generated 58% of revenues. The cable-based carriers made up 8% of the total number of companies and generated 34% of revenues. With relatively low barriers to entry, especially in the long distance sector, resellers comprised nearly 69% of service providers while generating only 4% of revenues.

Link directly to ii. Telecommunications sectors ii. Telecommunications sectors

In the Communications Monitoring Report, telecommunications services are divided into six sectors:

Eight companies offered services in all six telecommunications sectors, accounting for 86% of total telecommunications revenues in Canada

In 2017, eight companies offered services in all six telecommunications sectors, accounting for 86% of total telecommunications revenues in Canada. These large, facilities-based entities tend to offer a wider array of services than their smaller counterparts. At the other end of the spectrum, companies providing one to three services generally offered Internet access, local, or long distance phone services. These smaller entities, often resellers, represented 70% of the number of TSPs, but garnered 4% of telecommunications revenues in 2017.

Link directly to Revenues – Retail versus wholesale Revenues – Retail versus wholesale

Revenues from telecommunications services are derived from sales to residential and business consumers (retail) and to other carriers (wholesale).

Retail revenues accounted for 92% of total telecommunications revenues in 2017, a percentage that remained constant over the 2013-2017 period. 95% of mobile revenues were generated from retail services, compared to 89% for wireline, numbers that have remained virtually unchanged since 2013.

Link directly to Revenues – Forborne services Revenues – Forborne services

Over time, the Commission has refrained from regulation when it finds that a service is subject to sufficient competition or where refraining is consistent with the Canadian telecommunications policy objectives, as outlined in section 7 of the Telecommunications Act. This is referred to as forbearance. Where a service is forborne from regulation, the provider is generally relieved of the obligation to provide the service pursuant to a Commission-approved tariff. For example, the retails rates for mobile services are forborne from regulation, whereas the rates for wholesale high-speed access (HSA) services (i.e. fixed Internet access) are not. HSA rates are based on Commission-approved tariffs.

Since 2013, approximately 96% of telecommunications revenues have been generated from forborne services. In 2017, the percentage of revenues derived from forborne services ranged from a low of 83% in local and access to a high of 100% in mobile.

Link directly to Revenues – Canadian ownership Revenues – Canadian ownership

Section 16 of the Telecommunications Act addresses the eligibility of Canadian companies to operate as telecommunications common carriers.

Annual revenues from the provision of telecommunications services in Canada was $50.3 billion

Subject to certain exceptions, section 16 requires that telecommunications companies that own or operate telecommunications transmission equipment and have Canadian telecommunications revenues greater than $5 billion (i.e. 10% of total Canadian telecommunications revenues) be Canadian-owned and controlled.

For the purposes of applying the provisions of section 16, the Commission has determined that total annual revenues from the provision of telecommunications services in Canada was $50.3 billion in 2017.

Link directly to Revenues – Contribution Revenues – Contribution

The total amount of subsidies paid to local exchange carriers (LECs) was $98 million in 2017, down from $105 million (7.1%) in 2016.

This subsidy represents revenue contributions toward the provision of residential telephone service in high-cost serving areas (HCSAs) by TSPs, or groups of related TSPs, that have a minimum of $10 million in annual Canadian telecommunications revenues. HCSAs are areas where the cost of providing service is substantially higher than other parts of an incumbent LEC’s territory. HCSAs are often remote areas or rural areas. In 2017, 32 companies received subsidies (unchanged from 2016).

In Telecom Regulatory Policy 2016-496, the Commission stated that in order to help meet the new universal service objective, it would begin to shift the focus of its regulatory frameworks from wireline voice services to broadband Internet access services.

Link directly to iii. Financial performance iii. Financial performance

Link directly to Capital expenditures and capital intensity Capital expenditures and capital intensity

TSPs with over $100 million in revenues spent $12.1 billion on capital expenditures

Capital expenditures, or CAPEX, are major investments made primarily to maintain or upgrade telecommunications networks. In 2017, TSPs with over $100 million in revenues spent $12.1 billion on capital expenditures, $9.7 billion of which was spent on wireline networks.

While wireline capital expenditures grew at an annual rate of 9% over the 2013-2017 period, the large incumbent TSPs’ share of CAPEX declined from 71% in 2013 to 60% in 2017, as the cable-based carriers’ share correspondingly increased from 28% in 2013 to 38% in 2017.

Capital intensity (the ratio of capital expenditures to revenues) was on the rise for the incumbent TSPs and cable-based carriers, going from about 30% in 2013 to 45% in 2017. In contrast, mobile providers were in the 10% range over the 2013-2017 period.

At 40%, capital intensity for telecommunications in 2017 was second only to utilities

At 40%, capital intensity for telecommunications in 2017 was second only to utilities at 79.2% (and well above the all-industries average of 6.6%) due to the requirement to maintain and upgrade extensive network infrastructure.

Link directly to Earnings before interest, taxes, depreciation and amortization (EBITDA) Earnings before interest, taxes, depreciation and amortization (EBITDA)

EBITDA margins (EBITDA as a percentage of total telecommunications revenues) are instrumental in assessing the financial performance of a company or group of companies. Margins are calculated for TSPs with at least 80% of their total revenues represented by telecommunications services.

Over the 2014-2017 period, margins for mobile services were consistently above those for wireline, with the difference widening slightly to 10% as mobile margins reached 41% in 2017.

Over the 2014-2017 period, EBITDA margins were quite stable at 45% for the cable-based carriers and 38% for the incumbents.

Link directly to Investment in spectrum Investment in spectrum

Annual investments in spectrum from 2013 to 2016 were $0.28 billion, $5.26 billion, $2.96 billion, and $0.15 billion, respectively (to reduce regulatory burden, only TSPs with revenues over $100 million were surveyed). The amounts reported in 2013 reflect investments made mainly by satellite carriers. Investments made from 2014 to 2016 reflect investments made by mobile carriers to acquire AWS-3 (advanced wireless services), 700 megahertz (MHz), and 2500 MHz spectrum.

Link directly to iv. Retail revenue growth sources iv. Retail revenue growth sources

Canadian telecommunications revenues reached $50.3 billion in 2017, growing by 3.2%

Total Canadian telecommunications revenues reached $50.3 billion in 2017, growing by 3.2%, slightly faster than the five-year average annual growth rate of 2.9%. Total retail telecommunications revenues, which represent the vast majority of the telecommunications revenues, totaled $46.3 billion in 2017, growing 3.6% from 2016 to 2017, and 3.0% annually on average from 2013 to 2017.

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In terms of retail revenues, the sources of revenue growth in 2017, and over the 2013-2017 period, were the fixed Internet and mobile sectors, which grew by 7.7% and 5.3%, respectively, in 2017. These sectors accounted for 77% of retail revenues in 2017, compared to 68% in 2013.

Link directly to Sources of retail revenue growth – Fixed Internet and mobile Sources of retail revenue growth – Fixed Internet and mobile

Fixed Internet revenues continued to grow as Canadians subscribed to Internet services that contained more data in their monthly allowance.

Average mobile revenue per subscriber increased

In 2017, fixed Internet and mobile revenue growth exceeded subscriber growth. Average mobile revenue per subscriber increased from $59.97 in 2013 to $65.33 in 2017 as subscribers used (and paid for) more data, while average residential fixed Internet revenue per subscriber increased from $44.50 in 2013 to $58.49 in 2017.

Additional data and descriptions for fixed Internet and mobile can be found in vi Sector summaries.

Link directly to v. Consumer voices v. Consumer voices

the CCTS logged 35,000 communications

In 2016-2017, CRTC Client Services and the Commission for Complaints for Telecom-television Services (CCTS) logged 35,000 communications with Canadians regarding telecommunications services. Of these, 48% were with the CRTC and 52% were with the CCTS. Common reasons for contacting the CRTC in 2017 were related to mobile services (25%), Internet services (22%) and telemarketing (22%). Mobile service billing errors were the subject of 46% of complaints received by the CCTS in 2016-2017, followed by Internet access issues (31%) and local telephone issues (20%).

What is the CCTS? The CCTS is an independent organization dedicated to resolving customer complaints about telecommunications and television services. Its structure and mandate were approved by the CRTC. The CCTS handles complaints about most telecommunications services provided to individuals and small businesses, including home telephone, mobile, Internet, and VoIP services. The CCTS is also responsible for administering the Wireless Code. Additional information on the CCTS can be found at www.ccts-cprst.ca

Link directly to vi. Sector summaries vi. Sector summaries

Link directly to Retail mobile sector Retail mobile sector

With revenues of $24.5 billion, and a 5.3% growth rate compared to 2016, mobile wireless remained the largest sector, representing over 52% of all retail telecommunications revenues in 2017.

In 2017, LTE was available to 99% of Canadians

Mobile subscribers reached 31.7 million in 2017, with mobile networks covering approximately one-fifth of Canada’s geographic land mass and reaching 99% of Canadians. In 2017, advanced wireless networks such as long-term evolution – advanced (LTE-A) delivered higher speeds than previous generation networks. LTE-A was available to approximately 92% of Canadians, compared to 83% in 2016. In 2017, LTE was available to 99% of Canadians, compared to 98.5% in 2016.

Average monthly data usage per data subscriber was over 2.0 GB, compared to 0.96 GB in 2014. From 2016 to 2017, there was a 30% increase in data usage.

Alberta recorded the highest monthly ARPU at $73.60, while the lowest ARPU was in Quebec, at $56.07

In 2017, the average revenue per user (ARPU) reached $65.33 per month, compared to $59.97 in 2013. In 2017, Alberta recorded the highest monthly ARPU at $73.60, while the lowest ARPU was in Quebec, at $56.07.

The mobile sector continued to be dominated by the three largest mobile service providers (“the Top 3”), and increasingly so. In 2017, these entities accounted for 92% of retail mobile revenues, compared to 90% in 2015 and 91% in 2016. The Top 3 held the majority revenue share in each province/territory except for Saskatchewan, where the other providers captured 62% of the sector, a decrease from 68% in 2013. The Top 3 consists of the Bell Group^{Footnote 3}, Rogers and TELUS.

More data on mobile and other telecommunications services can be found in Open Data.

Link directly to Retail fixed Internet sector Retail fixed Internet sector

More Canadians (86%) are subscribing to Internet services

More Canadians (86%) are subscribing to Internet services. Canadians continue to use more data, subscribe to faster, larger packages and allocate more money to Internet access services.

In 2017, fixed Internet was the fastest-growing sector, with revenues growing by 7.7% and subscriptions growing by 3.9%. From 2013 to 2017, fixed Internet grew by an average annual rate of 9.2%.

Residential subscribers reached 12.8 million, a 3.9% increase from 2016

In 2017, Internet services were provided by a variety of Internet service providers (ISPs), including incumbent TSPs and cable-based carriers, fixed wireless service providers, and resellers. Residential subscribers reached 12.8 million, a 3.9% increase from 2016 and approximately three times higher than the population growth rate. Cable-based carriers and incumbent TSPs accounted for the majority of subscribers (87%) while other entities accounted for (13%) up from 10% in 2013.

Canadians are increasingly subscribing to faster Internet services. Subscriptions to services with download speeds slower than 16 Mbps represented 68% of the total in 2013 compared to 35% in 2017, while subscriptions to services including speeds of 50 Mbps and higher increased from just 5% of residential high-speed subscriptions in 2013 to 39% in 2017.

Canadians are also using more data

Canadians are also using more data. The average monthly data amounts downloaded by residential subscribers increased by 36% annually from 2013 to 2017, and by 31% from 2016 to 2017 to 153GB per month. Average upload amounts also increased by 14.8% in 2017, reaching 13GB per month.

Fibre deployment continued in 2017, increasing the availability of fibre to the home to 35% of households from 28% in 2016. These deployments were mainly in large urban areas.

Link directly to Retail wireline voice sector Retail wireline voice sector

Link directly to Infographic 4.11 Infographic 4.11

In 2017, the retail wireline voice sector reported $7.5 billion in revenues, with approximately a 6% annual decline since 2013. Local revenues (excluding contribution) accounted for 85% of retail wireline revenues in 2017. Long distance revenues were $1.1 billion, declining by an average annual rate of 14% since 2013.

From 2013 to 2017, residential wireline voice revenues per line decreased by $2.97 to $36.28 per month, while business revenues decreased by $6.28 to $52.38 per month.

The incumbent carriers accounted for approximately 63% of retail wireline revenues in the residential sector and 81% in the business sector, dropping slightly since 2013 as the revenue shares for the cable-based providers increased over the same period.

Access-independent VoIP has failed to show subscriber growth in recent years

While the introduction of access-independent VoIP services^{Footnote 4} has opened the wireline voice sector to non-traditional providers, access-independent VoIP has failed to show subscriber growth in recent years. There were approximately 600,000 subscribers to access-independent VoIP in 2017, representing 4% of retail local telephone lines. This percentage has remained constant since 2013.

There were approximately 45,000 payphones in 2017, generating an average of $430 in annual revenues per unit, compared to 85,000 payphones generating $560 per unit in 2013. The number of payphones dropped by 12,000 or 21% in 2017 from 2016, while the average revenue per phone increased by $45 or approximately 12%.

Link directly to Retail data and private line sector Retail data and private line sector

Link directly to Infographic 4.12 Infographic 4.12

Data and private line services refers to services sold by TSPs to business customers for the transmission of data, video and voice traffic. These services provide private, highly secure communications channels between locations. Data and private line revenues have been in decline since 2014.

Data services are packet-based services that intelligently switch data through carrier networks. They make use of newer data protocols such as Ethernet and Internet Protocol (IP), or legacy data protocols such as X.25, asynchronous transfer mode (ATM), and frame relay to transmit data^{Footnote 5} . Legacy services make up less than 1% of revenues. The Other subcategory includes network management and networking equipment.

Private line services provide non-switched, dedicated communications connections between two or more points to transport data, video and/or voice traffic.

Although incumbent TSPs accounted for only approximately 15% of the entities providing data and private line services, they captured 65% of retail revenues.

Link directly to Wholesale Wholesale

Link directly to Infographic 4.13 Infographic 4.13

Wholesale services are services provided by one TSP to another, usually when the latter doesn’t have facilities of its own.

the wholesale telecommunications sector was worth $4 billion

In 2017, the wholesale telecommunications sector was worth $4 billion, of which 32% was for the provision of mobile services and 68% for wireline services. Wholesale mobile services are an increasingly important part of the telecommunications landscape. From 2013 to 2017, wholesale mobile revenues increased at an average annual rate of 7.6%, compared to a decrease of 0.1% for wholesale wireline revenues.

Independent ISPs frequently depend on access services offered by the incumbent TSPs and the cable-based carriers to connect to their customers. Over the years, sales of cable-based access services, known as third-party Internet access (TPIA) services, to independent ISPs have increased.

Wholesale voice revenues declined, on average, by 3.0% annually from 2013 to 2017, whereas wireline non-voice revenues increased, on average, by 1.8% annually during the same period

Wholesale voice revenues declined, on average, by 3.0% annually from 2013 to 2017, whereas wireline non-voice revenues increased, on average, by 1.8% annually during the same period.

With 70% of wholesale revenues, the incumbent TSPs had the largest share of the wholesale sector, which they have maintained since 2013 – although their share has decreased slightly, due in part to ownership changes. The majority of wholesale revenues come from mobile roaming.

Link directly to vi. Sector summaries Appendix