Affordability of mobile phone bills has been at the centre of a heated public debate in Canada, catalyzing a policy dialogue that may be trending toward an over-emphasis on short-term affordability goals. That, however, would be out of balance with the long-term imperatives of network quality and digital innovation. Instead, to prepare for a future where Canada’s digital infrastructure benefits everyone, policy-makers must balance affordability with the need for quality, availability, investment, and innovation.

That’s the focus of a new report launched in December 2019 by BCG’s Centre for Canada’s Future. In the Balance: Future-Proofing Canada’s Digital Infrastructure to Unlock Benefits for All examines the importance of digital infrastructure investment for Canada’s economic growth and to enable the best outcomes for Canada’s digital infrastructure.

Canadians and Canadian businesses stand to benefit significantly from next-generation digital infrastructure, such as 5G and deep fibre. New consumer services, such as remote health care and augmented reality services, will improve Canadians’ quality of life and economic opportunities. An advanced digital infrastructure will also help businesses generate massive productivity improvements, accelerate industry 4.0, and allow innovators to develop and sell new solutions globally. All in all, if the coming digital revolution causes a step change in economic growth comparable to that from electricity or computers, it could add C$200 billion or more per year to Canada’s GDP by 2040. That’s roughly C$4,500 per Canadian.

These advances will require world-class digital infrastructure and, as a result, significant investment in Canada’s wireless networks and wireline broadband systems. Going forward, a stable policy environment and sustained incentives for private investment will be critical. Historically, Canadian regulators have successfully fostered strong private investment, which has brought high-quality connectivity to Canada. Canadian telecom companies have outpaced global peers on infrastructure investment – the average telecom investment per capita in Canada from 2005 to 2015 was C$255, compared with the Organisation of Economic Cooperation and Development (OECD) average of C$156.

Moreover, this investment has led to strong quality and availability in mobile and wireline networks relative to peers – Canada ranks 11th in the OECD in terms of high-speed fixed broadband, ahead of all G7 countries (with the possible exception of Japan), and 99 percent of Canadians were covered by advanced LTE networks in 2017. Canada also has the third-fastest mobile download speed globally. That said, digital infrastructure in Canada is not cheap – when compared with 29 other countries, wireless revenue as a percentage of the average full-time monthly wage is 0.92 percent, fourth-highest and 1.5 times the average.

Increasingly, the national conversation in Canada has centred on the affordability of mobile phone bills. While affordability is an important policy objective, the telecommunications services pricing debate is often portrayed as a binary choice between low costs for consumers and high profits for industry. Reality is more complicated. There is no perfect regulatory regime, and policy-makers must continuously balance trade-offs between affordability and quality, availability, investment and innovation.

Based on an assessment of a dozen case studies from global peer countries like Israel, France and Spain, policy interventions that only focus on affordability can have significant negative impacts on network investment and quality over the long term. These interventions can often be quick to implement, but correcting such policy moves can take years and, given the complexity of the digital-infrastructure business system, they can also have unintended consequences.

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Private investment in digital infrastructure in Canada is well over C$10 billion per year, an order of magnitude greater than public investment in digital infrastructure. Disruptive, regulation-driven downward pressure on revenues, such as a 25 percent drop in wireless prices and low mandated wireline wholesale rates, could lead to an investment gap of up to C$15 billion over the next five years. This is four times projected public funding across all levels of government, and governments are unlikely to fill this gap. This could damage digital innovation in Canada.

Canada already lags behind its peers in 5G deployment. A significant drop in investment could leave us even further behind. While Canadians stand to gain from greater affordability, they are also stakeholders in the future digital economy and could lose out on new services, goods produced more productively and jobs in digital innovation.

Based on the global case studies, there are some essential design principles that policy-makers should keep in mind. First, clarify the overarching objective of digital infrastructure – unlocking the future benefit of the digital economy is as important as low prices. Second, there is no perfect regulatory regime – small, measured policy moves that can be adjusted are less likely to harm the digital infrastructure business system in the long-term than big policy changes. Cautious policy moves are more likely to improve the current state and less likely to take years to undo. Finally, win-win policy levers exist and should be prioritized – it is possible for policy-makers to improve affordability without harming long-term investment. These policy levers could include targeted affordability programs for low-income segments or boosting digital innovation by offering companies targeted tax incentives in specific geographies.

Canada’s digital infrastructure is a strength and, on the cusp of a digital revolution, Canada cannot afford to hamper private investment. To future-proof Canada’s digital infrastructure and unlock its benefits for all, policy-makers must balance affordability with the need for quality, availability, investment, and innovation.

Photo: Shutterstock, by vectorfusionart.

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Vadim Gouterman
Vadim Gouterman is a managing director and partner in the Toronto office of Boston Consulting Group.
Lawrence Kuo
Lawrence Kuo is a managing director and partner in the Toronto office of Boston Consulting Group.

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