The Economics of Telecommunications in Canada: A Backgrounder
The School of Public Policy Publications Research Paper Volume 11:32, December 2018
28 Pages Posted: 19 Dec 2018
Date Written: December 10, 2018
The telecom sector in Canada attracts no small amount of attention from policymakers, most of it focusing on the prices and services paid by households and revolving around the question of whether telecom firms are taking advantage of consumers.
Overlooked amid these policy debates is how vital the telecom sector has become in the digital era to the health of all Canadian businesses. For example, it typically is among the top three or four sectors in terms of annual capital investment. Further, it annually generates over $50 billion in gross revenue, with a bit over half coming from sales to household consumers and just under half contributed by sales to the business sector. Telecom, like electricity, has become a crucial pipeline that powers virtually every business in the country, with all critical sectors either buying significant telecom services or benefiting from them indirectly. This is a reality that policy-makers may not yet have grasped. Given telecom’s importance, that could have troubling knock-on effects across the economy.
When it comes to the very things that policy-makers do seem more likely to show interest in, namely the prices, service and value that telecom companies provide to Canadian households, there in fact seems far less cause for concern. Consumers continue to find significant value in the internet and mobile services they are buying and are increasingly choosing higher quality services that involve higher costs and prices.
While the Big Three telecom firms are regularly scrutinized by regulators for evidence of exercise of market power, data suggest that the three firms’ abilities to earn profits over the last decade has not, in fact, changed markedly, despite the explosion in internet, satellite and mobile-data users.
All of this is occurring as the sector in Canada faces significant regulatory challenges along with those associated with serving large geographic areas with relatively low population densities. Other challenges include increasing costs (for example, salaries in the telecom sector have been growing at rates above the national average), along with the large capital requirements associated with high replacement rates that accompany a rapid rate of innovation necessary to remain competitive. It is interesting that the telecom sector is responsible for over five per cent of all industry capital expenditures in Canada. In summary, the services that the telecom sector provides are not only important for Canadian households, but are also critical for every other Canadian industry. One often overlooked fact is that virtually every other Canadian sector employs a significant value of telecom products as an input, thus making telecom a critical keystone of the Canadian economy.
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