Communications Monitoring Report 2015: Telecommunications sector overview

5.0 Telecommunications sector overview

Canada’s telecommunications industry consists of six sectors: local, long distance, Internet, wireless, data, and private line. Approximately 94% of telecommunications revenues were derived from services that are no longer price-regulated. Canada’s telecommunication market has been relatively resilient to external economic conditions compared to other communications services. In the midst of a recovering economy, revenues from telecommunications services expanded in each of the last five years by an average annual rate of 2.5%.

Telecommunications service revenues exclude revenues from the sale and rental of wireline telephone sets. Annual investment in plant and equipment only includes investments made by companies with annual revenues greater than $100 million.

In 2014, Canadian telecommunications revenues reached $45.9 billion, with the vast majority (92%) derived from the retail services and a smaller portion (8%) from the wholesale sector. Service providers supplied retail services to over 12 million households, one million businesses, and, through the wholesale market, 800 other telecommunications entities.

Large incumbent TSPs captured over 62% of industry revenues. Their main group of competitors, cable-based carriers, accounted for 31% of revenues and 8% of the total number of companies. Resellers comprised nearly 68% of service providers but only 3% of revenues. These enterprises generally acquire wholesale services from incumbent TSPs and/or cable-based carriers to provide telecommunications services to their own customers.

a) Revenues

Table 5.0.1 Telecommunications revenues (retail and wholesale) ($ billions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Wireline Retail 20.6 20.6 20.7 20.9 21.2 0.7 Annual growth (%) -1.9 0.3 0.2 1.2 1.3 Wholesale 3.1 3.0 2.9 2.8 2.7 -2.6 Annual growth (%) -0.3 -1.4 -3.6 -5.1 -0.3 Wireline total 23.6 23.6 23.6 23.7 23.9 0.3 Annual growth (%) -1.7 0.0 -0.3 0.4 1.1 Wireless Retail 17.5 18.4 19.5 20.2 20.9 4.6 Annual growth (%) 7.2 5.0 6.1 3.4 3.7 Wholesale 0.5 0.7 0.8 1.0 1.0 21.6 Annual growth (%) -12.9 51.3 17.1 13.5 9.0 Wireless total 18.0 19.1 20.4 21.2 22.0 5.1 Annual growth (%) 6.6 6.2 6.5 3.8 3.9 Retail total 38.1 39.0 40.2 41.1 42.1 2.5 Annual growth (%) 2.1 2.5 3.0 2.3 2.5 Wholesale total 3.5 3.7 3.7 3.7 3.8 1.8 Annual growth (%) -2.2 5.6 0.4 -1.0 2.1 Total 41.6 42.8 43.9 44.8 45.9 2.5 Annual growth (%) 1.7 2.7 2.8 2.0 2.4

Source: CRTC data collection

Revenues from telecommunications services are derived from sales to residential and business consumers (retail revenues) and to other carriers (wholesale revenues). The table displays retail and wholesale revenues for wireline and wireless services for the years 2010 to 2014. Estimates were made to capture revenues of service providers that did not provide data. In 2014, these estimates were less than 1% of total telecommunications revenues. Revenues derived from the sale and rental of local and access terminal equipment and other non-telecommunications revenues were excluded from wireline retail service revenues.

b) Forbearance

In 2014, approximately 94% of telecommunications revenues were from services that the Commission has determined are sufficiently competitive that tariff filings are no longer required.

Forbearance The Commission refrains from regulation when it finds that a service is subject to sufficient competition or where refraining is consistent with the Canadian telecommunications policy objectives. This is referred to as forbearance. Where a service is forborne it is generally relieved of the obligation of a Commission-approved tariff. Other aspects of the service may still be regulated.

Table 5.0.2 Percentage of telecommunications revenues generated by forborne services 2010 2011 2012 2013 2014 Local and access 73 76 77 78 79 Long distance 96 95 99 99 97 Internet 98 98 98 97 96 Data and private line 81 83 84 84 89 Wireless 100 100 100 100 100 Overall 92 93 93 94 94 Source: CRTC data collection

This table shows the percentage of telecommunications revenues by market sector that are not regulated by the CRTC from 2010 to 2014. With respect to the local and access market sector, ‘access’ refers to wireline services that provide telecommunications services access to the subscriber or the telecommunications network.

c) Canadian Ownership

Section 16 of the Telecommunications Act addresses the eligibility of Canadian carriers to operate as telecommunications common carriers. For the purposes of applying the provisions of section 16, the Commission has determined that, for the period between the date of release of the 2015 Communications Monitoring Report and the date of release of the 2016 edition, the total annual revenues from the provision of telecommunications services in Canada is $45.9 billion.

What does section 16 of the Telecommunications Act require? Subject to certain exceptions, section 16 requires that telecommunications companies that own or operate telecommunication transmission equipment and have Canadian telecommunications revenues greater than $4.6 billion (i.e. 10% of total Canadian telecommunications revenues) be Canadian owned and controlled.

d) Number, size, and type of companies

Figure 5.0.1 Percentage of telecommunications revenues, by type of provider of telecommunications service, 2014

Source: CRTC data collection

This graph displays the percentage of total revenues captured by type of provider of telecommunications services and the percentage of providers offering service. The incumbent TSP data displayed above includes revenues from all of their Canadian telecommunications operations, both inside and outside of their traditional operating territory.

Providers of telecommunications services provide diverse information and communications technology (ICT) services, ranging from voice and data telecommunications services to data storage and cloud computing, and other services encompassing both Canadian and non-Canadian activities. In 2014, 59% of the revenues from providers of telecommunications service were from telecommunications services to Canadians. The remaining 41% were from other ICT services, broadcasting distribution services, and non-telecommunications services such as floor space rental services and fleet operations.

The industry is dominated by 10 large companies that collectively, with their affiliates, accounted for 93% of Canadian telecommunications revenues in 2014. The remaining companies accounted for less than $3.3 billion of these revenues.

Figure 5.0.2 Percent of total telecommunications revenues by ownership groups

Source: CRTC data collection

Bell Canada, MTS Inc./Allstream Inc., Rogers, Shaw, and TELUS are Canada’s five largest providers of telecommunications services. Combined, including their affiliates, they accounted for more than 84% of total market revenues. The next five largest groups/entities - Bragg, Cogeco, Quebecor, Saskatchewan Telecommunications, and Telesat Canada—accounted for less than 9% of total market revenues. The remaining groups/entities captured 7%. The top 10 groups/entities are facilities-based service providers, meaning that they own and operate the transmission equipment required to provide telecommunications services. Of the remaining groups/entities, the vast majority are resellers.

Providers of telecommunication service are classified as either incumbent TSPs or alternative service providers. The alternative providers consist of resellers and other facilities-based service providers, which include cable-based carriers.

Incumbent TSPs are the traditional telephone companies. For monitoring purposes, this group of TSPs is further subdivided to identify their activities outside of their traditional or incumbent territory as follows: incumbent TSPs (excluding out-of-territory) and incumbent TSPs (out-of-territory). Additional details on the classifications of providers of telecommunications services can be found in Appendix 8.

The incumbent TSPs’ revenues, excluding their out-of-territory revenues, have increased 1.3% annually over the 2010 to 2014 period. Over the same period, revenues for alternative providers of telecommunications service, including the incumbent TSPs (out-of-territory), grew 3.9% annually. Overall the cable-based carriers have experienced the strongest growth in telecommunications revenues, which increased 3.8%, from $12.2 billion in 2010 to $14.2 billion in 2014.

Table 5.0.3 Total telecommunications revenues, by type of service provider ($ millions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Incumbent TSPs Large incumbent TSPs 26,755.2 27,205.0 27,478.5 27,818.4 28,424.3 1.5 Small incumbent TSPs 417.5 469.9 474.4 450.4 448.1 1.8 Subtotal 27,172.7 27,674.9 27,953.0 28,268.8 28,872.3 1.5 Less: out-of-territory 4,326.1 4,463.5 4,934.6 5,023.3 4,816.1 2.7 Incumbents (excl. out-of-territory) 22,846.6 23,211.3 23,018.4 23,245.4 24,056.2 1.3 Percent of total (%) 55 54 52 52 52 Alternative service providers Facilities-based carriers Incumbents (out-of-territory) 4,326.1 4,463.5 4,934.6 5,023.3 4,816.1 2.7 Cable-based carriers 12,233.7 12,722.1 13,260.2 13,785.5 14,204.1 3.8 Other carriers 716.3 866.8 1,161.5 1,226.0 1,247.3 14.9 Subtotal alternative carriers 17,276.1 18,052.5 19,356.2 20,034.9 20,267.5 4.1 Resellers 1,504.7 1,493.4 1,527.7 1,542.0 1,585.5 1.3 Total alternative providers 18,780.8 19,545.9 20,883.9 21,576.8 21,853.0 3.9 Percent of total (%) 45 46 48 48 48 Total 41,627.3 42,757.2 43,902.3 44,822.3 45,909.2 2.5

Source: CRTC data collection

This table displays telecommunications revenues by type of TSP for the years 2010 to 2014. It provides subtotals for the incumbent TSPs, excluding their out-of-territory revenues. The out-of-territory revenues are moved to the alternative providers of telecommunications services portion of the table. This adjustment acknowledges that incumbent TSPs are considered alternative TSPs for their out-of-territory operations.

e) Financial performance

There are a number of elements to consider in assessing a company’s financial performance or profitability. One of these is EBITDA as a percentage of total revenue (EBITDA margins).

Figure 5.0.3 Telecommunications revenues and EBITDA margins

Source: CRTC data collection

The EBITDA margins are calculated for TSPs that had telecommunications revenues greater than 80% of their total revenues. This table shows the total growth in telecommunications revenues from wireless and wireline services between 2013 and 2014. It also shows the EBITDA margins for wireless, wireline, and total telecommunications.

Non facilities-based providers (i.e., resellers) generally had lower EBITDA margins. On average, their EBITDA margins were approximately one seventh that of facilities-based service providers.

Large providers of telecommunications service with Canadian telecommunications revenues in excess of $100 million were generally more profitable than smaller providers of telecommunications service.

Figure 5.0.4 Percentage of revenues and EBITDA margins by size of entity, 2014

Source: CRTC data collection

The percentage of revenues and profitability are calculated for TSPs that had telecommunications revenues greater than 80% of their total revenues. These companies were subdivided into three telecommunications revenue ranges: $1-$10 million, $10-$100 million, and greater than $100 million. The collective EBITDA margin of companies with Canadian telecommunications revenues greater than 80% of their total revenues was 37.0%. As displayed above, companies with revenues in excess of $100 million displayed the highest EBITDA margin, 37.3%. Companies with telecommunications revenues between $10 million and $100 million collectively had a 12.0 % EBITDA margin and those between $1 and $10 million had a 21.8% margin.

f) Annual investment in plant and equipment

What are ‘access services’ and ‘network related capital expenditures’? ‘Access services’ refer to the facilities required to connect the subscriber to the network. Examples include local telephone lines and broadband access facilities. ‘Network related capital expenditures’ refer to expenditures on facilities that connect the access services facilities.

‘Annual investment in plant and equipment’ refers to the capital expenditures made to ‘replenish’ or upgrade the network of a provider of telecommunications services. In 2014, these providers spent $14.7 billion on capital expenditures of which 30% were for access services and 19% were network related. The remaining 52% related to spectrum and non-network activities such as billing and fleet operations.

Table 5.0.4 Telecommunications investments made in plant and equipment, by type of provider of telecommunications service ($ billions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Wireline Incumbent TSPs 4.4 4.6 4.7 4.9 4.8 -2.3 Annual growth (%) 5.1 5.4 2.0 4.2 -2.3 Alternative service providers Other facilities-based service providers (including cable-based carriers) 2.1 2.4 2.3 1.9 2.3 1.7 Annual growth (%) 40.2 13.7 -4.6 -17.0 18.7 Resellers 0.0 0.0 0.0 0.0 0.0 6.9 Annual growth (%) -35.5 33.6 48.8 1.4 -35.2 Subtotal 2.2 2.5 2.4 2.0 2.3 1.8 Annual growth (%) 38.7 13.9 -4.0 -16.7 17.6 Wireline total 6.6 7.1 7.1 6.9 7.1 2.1 Annual growth (%) 14.2 8.2 0.0 -2.8 3.4 Wireless 1.8 2.5 2.6 2.3 7.5 42.6 Annual growth (%) -18.9 35.2 4.9 -11.4 228.8 Wireline and wireless total 8.4 9.6 9.7 9.2 14.7 15.0 Annual growth (%) 4.9 14.1 1.2 -5.1 59.7

Source: CRTC data collection

This table shows the investments made by type of TSP for the period between 2010 and 2014. The data for the incumbent TSPs includes their out-of-territory operations. The table also excludes TSPs with revenues less than $100 million since these companies were not required to provide this data. The data above include expenditures made to acquire spectrum. In 2014, wireless capital expenditures increased significantly due to the sale of the 700 MHz spectrum held by Industry Canada.

Since 2010, incumbent TSPs have accounted for approximately 50% of the capital expenditures in the sector. Resellers had the least amount of capital expenditures since they use the transmission facilities of others.

A useful measure to compare annual capital expenditures is “capital intensity.” Under this measure, cable-based carriers and other facilities-based service providers spent on average 31 cents from every revenue dollar over the past two years on wireline facilities compared to 32 cents by the incumbent TSPs.

During the 2010 to 2013 period, wireless service providers had the lowest capital intensity. Over this period, their capital intensity was relatively constant at 12 cents or approximately one-third that of what the cable-based carriers and other facilities-based service provides spent on wireline facilities. In 2014, wireless capital expenditures increased significantly due to the sale of the 700 MHz spectrum held by Industry Canada.

Figure 5.0.5 Telecommunications capital expenditures as a percentage of revenues, by type of TSP

Source: CRTC data collection

Capital intensity is a measure of the degree or level a company spends on its plant and equipment. It is derived by dividing annual capital expenditures by annual revenues, expressed as a percentage.

This figure shows the capital intensity of TSPs for the period between 2010 and 2014. The data for the incumbent TSPs includes their out-of-territory operations, while that of alternative TSPs excludes the incumbent out-of-territory operations. TSPs with revenues less than $100 million are not included as these companies were not required to provide this data.

5.1 Telecommunications retail sectors

As noted in the previous section, Canada’s telecommunications industry consists of six sectors: local, long distance, Internet, wireless, data, and private line.

In 2014, Canadian retail telecommunications revenues were $42.1 billion, of which 50% were from wireline services. Of the wireline revenues, 57% were from residential services and 43% from business services. The top 5 incumbent TSPs and top 5 cable-based carriers captured 61% and 32% of retail telecommunications revenues, respectively. Collectively, these 10 companies captured 93% of all retail revenues. The remaining 7% of the revenues were garnered by a large number of resellers and other facilities-based service providers. The data suggests that companies which operated in scale and scope (multiple sectors) have clear competitive advantages relative to those who are less integrated.

In 2010, revenues from wireless services were $17.5 billion or 46% of total retail revenues. By 2014, mobile wireless service revenues increased to $20.9 billion or 50% of total retail revenues. This growth was driven in large part by increased subscriptions and heightened demand for wireless data services. Data revenues, excluding roaming and other services (e.g. interconnection), have experienced an average annual growth rate of 22.4% between 2010 and 2014.

Wireline revenues have increased at a much slower pace since 2010. Wireline service revenues increased from $20.6 billion in 2010, or 54% of retail telecommunications revenues, to $21.2 billion, or 50%, in 2014. This small expansion masks the fact that wireline voice services’ revenues have fallen by nearly $1.7 billion or 16%, since 2010. The number of local lines has also declined from 18.5 million lines in 2010 to 16.4 million lines in 2014. In contrast, wireline data services such as Internet, new data protocols, and data and private line services have experienced strong revenue growth.

In urban centres across Canada, with the exception of the northern territories, there were generally 2-3 local service providers, 3-9 Internet service providers, and 3-5 wireless service providers. In rural centres, there were generally 1-2 local service providers, 2-5 Internet service providers, and 3-5 wireless service providers.

On average, Canadians could expect to pay between $23 and $75 per service per month in urban centres and $23 and $82 in rural centres, depending on the service. Companies operating in multiple sectors generally offered discounts to customers for purchasing bundled services.

Telecommunications service revenues exclude revenues from the sale and rental of wireline telephone sets. Annual investment in plant and equipment only includes investments made by companies with annual revenues greater than $100 million.

a) Revenues

Table 5.1.1 Telecommunications retail revenues, by market sector ($ billions) 2010 2011 2012 2013 2014 CAGR(%) 2010-2014 Wireline Wireline

voice Local 8.3 8.1 7.8 7.7 7.4 -2.7 Annual growth (%) -2.6 -2.4 -3.5 -2.0 -2.8 Long distance 2.6 2.4 2.1 1.9 1.8 -9.7 Annual growth (%) -14.4 -8.6 -11.4 -8.7 -10.0 Subtotal 10.9 10.5 10.0 9.6 9.2 -4.2 Annual growth (%) -5.7 -3.9 -5.3 -3.5 -4.3 Non-voice Internet 6.4 6.8 7.2 7.7 8.4 6.9 Annual growth (%) 4.6 5.7 6.0 7.3 8.6 Newer data protocols 1.6 1.7 1.8 1.9 1.9 5.2 Annual growth (%) 5.9 10.4 5.6 2.3 2.8 Legacy data protocols, private line, and other 1.6 1.6 1.7 1.7 1.7 0.6 Annual growth (%) -5.5 -2.9 4.3 3.6 -2.4 Data protocols, private line and other subtotal 3.2 3.3 3.5 3.6 3.6 2.9 Annual growth (%) -0.2 3.6 5.0 2.9 0.3 Non-voice subtotal 9.6 10.1 10.7 11.3 12.0 5.6 Annual growth (%) 3.0 5.0 5.6 5.9 6.0 Total wireline 20.6 20.6 20.6 20.9 21.2 0.7 Annual growth (%) -1.9 0.3 0.1 1.4 1.3 Wireless 17.5 18.4 19.5 20.2 20.9 4.6 Annual growth (%) 7.2 5.0 6.1 3.4 3.7 Total 38.1 39.0 40.2 41.1 42.1 2.5 Annual growth (%) 2.1 2.4 2.9 2.4 2.5

Source: CRTC data collection

Telecommunications revenues come from a variety of sources. Revenues from wireline voice services come from local telephone and long distance services, while revenues from non-voice services come from Internet services, newer data protocols services (such as Ethernet and IP-VPN), and legacy data protocols services (such as ATM and X.25). Revenues for mobile wireless come from mobile voice and data services, and from the sale and rental of mobiles devices. This table presents a detailed breakdown of the retail revenues and annual growth rates for wireline and wireless services by market sector for the years 2010 to 2014. The CAGR for each market sector for the period of 2010 to 2014 is presented as well.

Wireline services are generally a household or a business service, whereas mobile wireless services are an individual or personal type of service.

Figure 5.1.1 Telecommunications wireline and wireless retail revenues

Source: CRTC data collection

This graph presents the retail wireline and mobile wireless revenues for the years 2010 to 2014. Over this period, aggregate revenues from wireline and wireless services have increased steadily. The line on the graph represents retail wireline revenues as a percentage of total retail telecommunications revenues.

In 2013, the most recent period for which telephone penetration data is available from Statistics Canada’s Survey of Household Spending, 78.9% of households had wireline service, 84.9% had wireless service, 14.4% had only wireline service and 20.4% had only wireless service.

Figure 5.1.2 Distribution of telecommunications retail revenues, by market sector

Source: CRTC data collection

These two figures show the distribution of retail telecommunications revenues by market sector for two periods, 2010 and 2014. Wireless data services are captured within the wireless market sector. Wireless services are capturing increasingly larger shares of the market, while the market share of long distance and local telephone services has declined.

b) Technology indicators

Technology has been a key driver of growth in the telecommunications industry. It has promoted network efficiencies, and service and product innovation, and facilitated competition. Revenues from legacy services have generally been declining as consumers switch to other services that provide greater functionality and flexibility.

What are the newer services and technologies? Newer services and technologies refer to services and technologies that are displacing traditional telephony services or reducing dependency on traditional telephony services.

Figure 5.1.3 Revenues of newer and legacy telecommunications services, by technology

Source: CRTC data collection

New technologies are changing the way Canadians access telecommunications services. This graph shows the annual change in revenues for new technologies such as wireless, Internet, and other services based on data protocols in each of the past three years. The graph also compares the annual revenue change for newer services and for legacy services such as local, legacy data and private line, and long distance services. Newer data protocols refer to services using protocols such as Ethernet and IP. Legacy data refers to services using protocols such as X.25 and frame relay.

Figure 5.1.4 Residential IP-based service revenues

Source: CRTC data collection

A fibre-optic cable is a cable containing one or more strands that carry light. The light is used as a medium to transmit data. A fibre-optic cable is excellent for transmission over longer distances and at higher bandwidths or capacity than wire cables. Number of homes passed refers to the number of homes that can have the telecommunications service using this technology.

Figure 5.1.5 Homes passed by fibre-optic cable, 2014

Source: CRTC data collection

Providers of telecommunications service are adopting fibre-based systems (i.e. FTTN and FTTP). This graph shows the number of premises that were either passed by fibre-based lines or that were passed by copper lines connected to a node that was served by a fibre-optic cable. The node connected by fibre-optic cable is the closet node to the premises. A node is a pedestal where connections are made.

Figure 5.1.6 Percentage of residential lines using fibre-optic cable, 2014

Source: CRTC data collection

TSPs are adopting fibre-based systems (FTTN and FTTP). This table shows the percentage of fibre-based lines as a percentage of total residential lines in 2014.

c) Competitive landscape

Facilities-based providers of telecommunications services accounted for 97% of the retail telecommunication revenues in 2014. Cable-based carriers and other facilities-based alternative providers of telecommunications services are the largest source of competition to the incumbent TSPs.

Total retail telecommunications revenues in 2014 were $42.1 billion. This chart shows the percentage share of the revenues captured by separate groups of providers of telecommunications service. For example, incumbent TSPs captured the largest share of the market, excluding their operations outside their traditional operating territory. Cable-based carriers and other facilities-based alternative providers of telecommunications service captured the next largest share, followed by incumbent TSPs (out-of-territory), and finally, resellers.

Figure 5.1.7 Total retail telecommunications revenue market share, by type of service provider, 2014

Source: CRTC data collection

Company characteristics Companies with services in five or more market sectors are generally large facilities-based companies with revenues greater than $100 million. Companies with services in two or fewer market sectors are generally resellers with revenues less than $10 million. Affiliated companies are included with their parent company.

Table 5.1.2 Number and percentage of retail telecommunications revenues generated by companies operating in multiple markets Number of market sectors Number of reporting groups or entities operating in these markets Percentage of telecom revenues generated in these markets 2011 2012 2013 2014 2011 2012 2013 2014 6 9 9 9 8 85 83 84# 84 5 13 16 12# 11 9 9 10 10 4 17 20 29# 25 2 2 3 2 3 31 42 33# 42 1 1 1 1 2 22 22 26# 22 2 2 1 1 1 34 49 44# 43 1 2 1 2

Source: CRTC data collection

This table shows the dominance of larger companies in the telecommunications market sectors. For example, although few companies operate in all six telecommunications market sectors (local, long distance, Internet, wireless, data, and private line), these companies captured almost 84% of total market revenues.

In the wireline telecommunications market sectors, alternative service providers made greater revenue gains in the residential market than in the business market. Contributing to this increase are the cable companies that upgraded their cable networks to provide telephony services to their residential television subscribers.

Wireline market sectors include: Local telephone market sector

Long distance market sector

Internet market sector

Data and private line market sector

Table 5.1.3 Wireline telecommunications revenue market share (%), by type of service provider, 2014 Residential Business Total Incumbent TSPs (excl. out-of-territory) 48.4 64.1 55.2 Alternative service providers Incumbent TSPs (out-of-territory) 0.1 11.7 5.1 Cable-based carriers and other facilities-based service providers 45.7 16.1 32.9 Resellers 5.8 8.1 6.8 Subtotal 51.6 35.9 44.8

Source: CRTC data collection

In this table, revenue market shares for wireline telecommunications services are split into residential and business sources for incumbent TSPs (excl. out-of-territory), as well as, alternative providers of telecommunications services, such as resellers, cable-based carriers and other facilities-based service providers, and incumbent TSPs (out-of-territory).

d) Contribution

In 2014, approximately 10% of residential telephone lines were in high-cost serving areas. As part of a commitment towards the social and economic objectives of the Telecommunications Act, TSPs, or groups of related TSPs, with at least $10 million in Canadian telecommunications service revenues, contributed $108 million towards the provision of residential telephone service in high-cost serving areas that met the basic service objective.

Figure 5.1.8 Subsidy paid to local exchange carriers and the revenue-percent charge

Sources: CRTC data collection and decisions

What is the basic service objective? The Commission established the basic service objective in 1999, which reflected the level of service available at that time to most Canadians. The basic service objective ensures that Canadians in all regions have access to affordable, high-quality telecommunications services. Currently, the basic service objective consists of the following: Individual line local touch-tone service;

Capability to connect to the Internet via low-speed data transmission at local rates;

Access to the long distance network, operator/directory assistance services, enhanced calling features and privacy protection features, emergency services, as well as voice message relay service; and

A printed copy of the current local telephone directory upon request.

e) Consumer voices

What is the CCTS? The CCTS is an independent organization dedicated to working with consumers and TSPs to resolve complaints relating to telecommunications services. The CCTS is responsible for complaints related to services for which the Commission no longer approves rates.

In 2014, the CRTC and the Commissioner for Complaints for Telecommunications Services Inc. (CCTS) had 44,000 communications with Canadians regarding telecommunications services. Of these, 62% were with the CRTC and 38% were with the CCTS. Wireless service issues were the most common (40%), followed by Internet issues (21%) and telemarketing issues (16%).

The underlying issues of these complaints were billing errors (33%), contract disputes/terms of service (15%), and service delivery/provision of service (12%).

Table 5.1.4 Number of telecommunications-related contacts received by the CRTC, by type of issue and service, 2014 Issue CRTC policies/ decisions Billing /rates Quality of service Provision of service Terms of service Other Total Contacts per 10,000 residential lines, subscribers or payphones Telemarketing 6,841 - - - - 80 6,921 6.3 Incumbent telephone companies 358 1,789 502 397 263 412 3,721 6.2 Wireless services 1,113 3,504 461 496 1,210 552 7,336 2.5 Internet services 3,402 590 528 499 150 693 5,862 5.0 Telecommunication services 858 439 75 177 62 276 1,887 1.7 Competitive local exchange carriers 68 286 124 106 67 81 732 1.5 Alternative providers of long distance service 30 118 37 26 38 24 273 0.2 VoIP services 102 156 121 97 23 22 521 0.5 Pay telephone services 20 23 3 4 1 11 62 7.3 Total 12,792 6,905 1,851 1,802 1,814 2,151 27,315

Source: CRTC data collection

Table 5.1.5 Summary of issues raised in telecommunications complaints handled by the CCTS (2013-2014) Issue Billing error Contract dispute Service delivery Credit management Total Wireless services 4,676 3,379 1,673 439 10,167 Internet access 1,440 723 1,048 104 3,315 Local telephone 1,158 680 834 90 2,762 Long distance 278 88 78 15 459 Directory assistance 5 – – – 5 Operator 5 – – – 5 White page directories – 1 3 – 4 Total 7,562 4,871 3,636 648 16,717

Source: CCTS annual reports

5.2 Wireline voice retail sector

The retail wireline voice sector includes both local and long distance telephone service provided by over 150 companies. Wireline voice service revenues and the number of local telephone lines continue to decline as Canadians use other services to meet their communications needs. In 2014, revenues from wireline voice services decreased $400 million, or 4.3%, from 9.5 billion in 2013; 51% of the decrease was attributable to local revenues and 49% was attributable to long distance revenues.

Two underlying trends are reducing Canadians’ reliance on traditional wireline telephone services. First, some Canadians are abandoning wireline telephone service in favour of wireless service. As discussed in section 2, the percentage of Canadian households with only wireless service has increased more than 8 fold over a ten-year period from 2.5% of Canadian households in 2003 to over 20% in 2013. In addition, over 67% of wireless subscribers use smartphones which provide far greater functionality in how and when they can communicate.

Second, access-independent Voice over Internet Protocol (VoIP) provides local telephone service that is similar to traditional telephone service at a fraction of the cost. Typically, this service requires broadband Internet. The number of Canadians subscribing to access-independent VoIP represents approximately 4% of all retail local telephone lines.

The retail wireline voice sector, which includes revenues from local telephone and long distance services, yielded $9.1 billion in 2014, 81% of which was from local telephone services and 19% from long distance services.

Local telephone service includes unlimited local calling within a specific geographic area, emergency calling (9-1-1), message relay services, access to long distance and dial-up Internet services. Optional add-on services or features include call display, call forwarding, and conference calling. The advent of IP opened the wireline voice market sector to additional TSPs.

Long distance service provides voice communications between two local calling areas. Whereas local service is a monthly subscription service, long distance service is generally billed on a per-minute usage basis.

a) Revenues

Table 5.2.1 Local and long distance retail revenues ($ millions) 2010 2011 2012 2013 2014 CAGR 2010-2014 Total retail local revenues 8,308 8,106 7,821 7,661 7,441 -2.7 Annual growth (%) -2.6 -2.4 -3.5 -2.0 -2.9 Less: Subsidy received 165 157 132 118 108 -10.1 Annual growth (%) -18.7 -4.8 -16.2 -10.6 -8.2 Net local service revenues 8,143 7,949 7,690 7,544 7,333 -2.6 Annual growth (%) -2.2 -2.4 -3.3 -1.9 -2.8 Percentage of total (%) 75.6 76.8 78.3 79.5 80.8 Long distance retail revenues 2,634 2,408 2,134 1,949 1,755 -9.7 Annual growth (%) -14.4 -8.6 -11.4 -8.7 -10.0 Local and long distance retail revenues 10,777 10,357 9,824 9,493 9,088 -4.2 Annual growth (%) -5.5 -3.9 -5.1 -3.4 -4.3

Source: CRTC data collection

Total retail local revenues include revenues from local telephone service provided to residential and business customers. It includes revenues from calling features such as call display, and call forwarding, as well as installation and repair, and excludes revenues from the sale and rental of telephone sets. Basic local telephone service with access to long distance service is part of the basic service objective. The obligation to serve and the basic service objective are regulatory measures imposed on incumbent local telephone companies. To this end, these companies receive a subsidy from a national contribution fund in which all telephone service providers are required to participate. These subsidies are excluded in the remaining tables and figures of this section.

Table 5.2.2 Residential local telephone and long distance service revenues, by type of TSP ($ millions) 2010 2011 2012 2013 2014 CAGR 2010-2014 Incumbent TSPs (excluding out-of-territory) Local 3,349 3,129 2,906 2,679# 2,545 -6.6 Annual growth % -5.6 -6.6 -7.1 -7.8 -5.0 Percentage of total 74.7 74.9 75.7 76.9 78.8 Long distance 1,136.2 1,050.9 931.4 801 687 -11.8 Annual growth % -11.8 -7.5 -11.4 -14.0 -14.2 Total 4,485 4,180 3,837 3,480 3,231 -7.9 Annual growth % -7.2 -6.8 -8.2 -9.3 -7.1 Incumbent TSPs (out-of-territory) Local 9 12 16 17# 14 13.1 Annual growth % -1.8 31.7 34.2 6.6 -13.1 Percentage of total 81.8 92.3 100.0 100.0 93.3 Long distance 2 1 1 1 0 -28.8 Annual growth % -16.4 -21.8 -38.1 -18.3 -34.9 Total 11 13 16 17 15 9.0 Annual growth % -4.5 23.0 26.7 5.3 -14.0 Alternative service providers (excluding cable-based carriers) Local 137 174 188 164 216 12.0 Annual growth % -9.2 27.5 7.8 -12.7 31.3 Percentage of total 27.7 34.5 40.1 43.7 55.0 Long distance 357 330 281 211 178 15.9 Annual growth % -24.7 -7.6 -14.9 -25.1 -15.7 Total 494 505 469 375 393 -5.6 Annual growth % -21.0 2.1 -7.0 -20.1 4.9 Cable-based carriers Local 1,252 1,285 1,307 1,388 1,399 2.8 Annual growth % 13.9 2.6 1.7 6.2 0.8 Percentage of total 84.4 85.2 86.2 87.4 88.5 Long distance 232 223 210 201 180 -6.3 Annual growth % -1.0 -3.9 -5.9 -4.3 -10.3 Total 1,484 1,508 1,517 1,589 1580 1.6 Annual growth % 11.3 1.6 0.6 4.8 -0.6 Total residential Local 4,746 4,600 4,417 4,248 4,174 -3.2 Annual growth % -1.2 -3.1 -4.0 -3.8 -1.8 Percentage of total 73.3 74.1 75.6 77.8 80.0 Long distance 1,728 1,606 1,424 1,213 1.045 -11.8 Annual growth % -13.6 -7.0 -11.4 -14.8 -13.9 Total 6,474 6,206 5,840 5,462 5,219 -5.2 Annual growth % -4.8 -4.1 -5.9 -6.5 -4.4

Source: CRTC data collection

This table displays revenues and annual revenue growth rates from residential local and long distance services, by type of provider, for the years 2010 to 2014. The annual growth rates indicate that residential revenues from both local and long distance services are in decline for all types of service providers except cable-based carriers and to a lesser extent the other alternative service providers. These carriers have increased their revenues from local telephone service and have the lowest decline in revenues from long distance services. Note that revenues from local telephone services are increasingly exceeding those from long distance service.

Table 5.2.3 Business local telephone and long distance revenues, by type of TSP ($ millions) 2010 2011 2012 2013 2014 CAGR 2010-2014 Incumbent TSPs (excluding out-of-territory) Local 2,934 2,813 2,664 2,597# 2,488 -4.0 Annual growth % -2.7 -4.1 -5.3 -2.5 -4.2 Percentage of total 83.9 85.1 85.6 85.1 83.9 Long distance 565 491 449 454 479 -4.0 Annual growth % -15.6 -13.1 -8.5 1.2 5.3 Total local 3,499 3,304 3,113 3,052 2,967 -4.0 Annual growth % -5.1 -5.6 -5.8 -2.0 -2.8 Incumbent TSPs (out-of-territory) Local 270 259 306 312 293 2.1 Annual growth % -12.6 -4.0 18.1 1.9 -5.4 Percentage of total 70.1 68.5 77.5 79.8 80.5 Long distance 115 119 89 79 71 -11.6 Annual growth % -28.2 2.7 -25.0 -10.8 -11.1 Total 385 378 395 391 364 -1.4 Annual growth % -18.0 -2.0 4.6 -1.0 -6.6 Alternative service providers (excluding cable-based carriers) Local 49 90 93 141 119 25.0 Annual growth % -17.0 83.7 3.0 52.7 -15.5 Percentage of total 26.2 43.5 46.5 49.8 52.2 Long distance 138 117 108 142 109 -5.8 Annual growth % -5.6 -15.1 -8.3 31.8 -23.3 Total 187 207 200 283 228 5.1 Annual growth % -8.9 10.7 -3.4 41.5 -19.4 Cable-based carriers Local 144 187 210 247 258 15.7 Annual growth % 3.9 29.9 12.3 17.5 4.5 Percentage of total 62.1 71.1 76.1 80.5 52.2 Long distance 88 76 66 60 52 -12.4 Annual growth % -12.2 -14.2 -13.2 -8.2 -13.9 Total 232 263 276 307 310 7.5 Annual growth % -2.9 13.2 5.0 11.4 0.9 Total business Local 3,397 3,350 3,273 3,295 3,159 -1.8 Annual growth % -3.6 -1.4 -2.3 0.7 -4.0 Percentage of total 62.1 71.1 76.1 80.5 81.6 Long distance 907 802 711 736 710 -5.9 Annual growth % -15.8 -11.5 -11.3 3.5 -3.5 Total 4,303 4,151 3,984 4,031 3,869 -2.6 Annual growth % -6.4 -3.5 -4.0 1.2 -4.0

Source: CRTC data collection

This table displays revenues and annual revenue growth rates from business local and long distance services, by type of provider, for the years 2010 to 2014. Similar to the residential market, the business market is in decline, but at a slower rate.

Table 5.2.4 Long distance retail revenues by type of provider and size ($ millions) Service provider 2010 2011 2012 2013 2014 CAGR 2010-2014 Telecom revenues over $100 million Incumbent TSPs 1,768 1,598 1,444 1,311 1,216 -8.9 Annual growth % na -9.6 -9.7 -9.2 -7.2 Percentage of total 67.1 66.4 67.7 67.3 69.6 Cable-based TSPs 367 345 272 257 228 -11.2 Annual growth % na -6.0 -21.3 -5.3 -11.5 Percentage of total 13.9 14.3 12.7 13.2 13.0 Other TSPs 102 78 68 56 45 -18.6 Annual growth % na -23.2 -13.1 -17.0 -20.9 Percentage of total 3.9 3.2 3.2 2.9 2.5 Subtotal 2,237 2,021 1,783 1,624 1,488 -9.7 Annual growth % na -9.6 -11.8 -8.9 -8.4 Percent of total (%) 84.9 83.9 83.6 83.3 85.1 Telecom revenues between $100 million and 10 million 300 292 268 251 197 -10.0 Annual growth % na -2.4 -8.4 -6.3 -21.6 Percentage of total 11.4 12.1 12.5 12.9 11.2 Telecom revenues below $10 million 99 95 83 74 64 -10.3 Annual growth % na -3.6 -12.6 -10.9 -13.9 Percentage of total 3.7 3.9% 3.9 3.8 3.6 Total 2,634 2,408 2,134 1,949 1,749 -9.7 Annual growth % -5.5 -8.6 -11.4 -8.7 -10.3

Source: CRTC data collection

This table displays long distance revenues and annual revenue growth, by type of service provider and size, as measured by their total Canadian telecommunications revenues. As a group, TSPs with telecommunications revenues less than $100 million captured less than 15% of the revenues from long distance services. These smaller service providers generally operate in relatively small niche markets catering to the needs of specific consumers.

b) Subscriber data

Local telephone service subscriber data is represented by the number of telephone lines, while minutes are used for long distance.

This section categorizes local telephone lines into two types: managed and non-managed. A managed line refers to telephone service which uses a local service provider’s network, and the provider has control over call quality. A non-managed line refers to telephone service that is provided using the public Internet, with the local service provider having less control over the quality of service. This type of local service is referred to as access–independent VoIP.

Table 5.2.5 Number of retail managed and non-managed local telephone lines (thousands) 2010 2011 2012 2013 2014 CAGR 2010-2014 Managed local telephone lines Local telephone lines 18,210 17,869 16,866 16,251 # 15,710 -3.6 Annual growth % -1.9 -1.9 -5.6 -3.6 -3.3 Percent of total 98.6 97.8 95.1 93.9 95.8 Non-managed local telephone lines Access independent lines 255 404 861 670# 694 28.4 Annual growth % 28.2 58.4 112.8 20.1 3.5 Percent of total 1.4 2.2 4.9 6.1 4.2 Managed and non-managed local telephone lines Total 18,466 18,274 17,726 16,921# 16,403 -2.9 Annual growth % -1.6 -1.0 -3.0 -4.6 -3.1

Source: CRTC data collection

The number of local telephone lines is in decline. The decline is partially offset by the increase in the number of non-managed lines Access-independent VoIP (as provided by magicJack, Ooma and others) has grown from 1.4% of wireline connections in 2010 to 6% in 2014 (primarily in the residential market) as customers migrate to lower-cost, IP-based services. The # symbol denotes a change in the data from what was published in the previous Communications Monitoring Report. (refer to Appendix 1 for details)

The number of managed local telephone lines has decreased 13.7% from 18.2 million lines in 2010 to 15.7 million lines in 2014; whereas the number of non-managed local lines has increased 172% from 255 thousand in 2010 to 694 thousand in 2014. However, the total number of telephone lines remained in a state of decline.

As set out in section 2 of this report, Statistics Canada’s Survey of Household Spending indicates that the percentage of households subscribing to wireline telephone service has declined from 89.1% in 2010 to 79.9% in 2013, a reduction of approximately 380,000 households. In addition, the survey indicated that the number of households with two or more lines has been declining as well.

Table 5.2.6 Residential and business local telephone lines by type of TSP (thousands) 2010 2011 2012 2013 2014 CAGR 2010-2014 Incumbent TSPs (excluding out-of-territory) Residential 8,142 7,543 6,942 6,389 5,943 -7.6 Annual growth % -7.7 -7.4 -8.0 -8.0 -7.0 Business 4,721 4,598 4,445 4,255 4,065 -3.7 Annual growth % -5.0 -2.6 -3.3 -4.3 -4.5 Total 12,863 12,141 11,387 10,644 10,008 -6.1 Annual growth % -6.7 -5.6 -6.2 -6.5 -6.0 Incumbent TSPs (out-of-territory) Residential 27 34 33 53 38 9.2 Annual growth % -6.1 26.7 -3.5 62.8 -28.4 Business 638 752 639 635 605 -1.3 Annual growth % 3.3 17.9 -15.0 -0.6 -4.8 Total 665 786 672 688 642 -0.8 Annual growth % 2.9 18.2 -14.5 2.5 -6.6 Alternative TSPs (excluding cable-based carriers) Residential 510 646 723 482 711 8.6 Annual growth % 12.9 26.6 11.9 -33.3 47.4 Business 178 225 264 261 224 5.9 Annual growth % 1.1 26.1 17.4 -1.2 -14.0 Total 689 871 987 743 935 7.9 Annual growth % 9.6 26.5 13.3 -24.7 25.8 Cable-based carriers Residential 3,947 4,061 4,258 4,314 4,247 1.8 Annual growth % 15.2 2.9 4.8 1.3 -1.6 Business 303 414 422 531 571 17.2 Annual growth % 8.9 36.9 1.9 25.8 7.4 Total 4,250 4,476 4,681 4,846 4,818 3.2 Annual growth % 14.8 5.3 4.6 3.5 -0.6 Total retail Residential 12,626 12,284 11,956 11,238 10,939 -3.5 Annual growth % -0.8 -2.7 -2.7 -6.0 -2.7 Business 5,840 5,989 5,770 5,683 5,465 -1.6 Annual growth % -3.3 2.6 -3.7 -1.5 -3.8 Total 18,466 18,274 17,726 16,921 16,403 -2.9 Annual growth % -1.6 -1.0 -3.0 -4.5 -3.1

Source: CRTC data collection

This table presents the number of residential and business telephone lines, by type of service provider, and their respective annual growth rates. The total number of telephone lines has declined in both the residential and business markets. However, the number of residential telephone lines have declined more quickly than those of business.

The use of VoIP services in the residential and business markets varies significantly. On the one hand, cable-based carriers provide local telephone service – mostly to residential customers – over their managed network using access-dependent VoIP technology. They leverage existing cable infrastructure to provide local telephone service via their cable networks to their consumers. As a result, these carriers are the largest competitor to the traditional telephone companies in the residential market. Over 39% of households subscribe to local telephone service from a cable-based carrier.

Figure 5.2.1 Retail VoIP local lines, access-dependent and access-independent, by market (2014)

Source: CRTC data collection

In 2014, there were 3.9 million access-dependent lines, compared to 0.7 million access-independent VoIP connections.

c) Performance indicators

Table 5.2.7 Local and long distance retail monthly revenues ($) per line 2010 2011 2012 2013 2014 CAGR 2010-2014 Residential 42.56 41.52 40.16 39.25 39.22 -2.0 Annual growth % -3.4 -2.5 -3.3 -2.3 -0.1 Business 60.37 58.49 56.46 58.66 57.84 -1.1 Annual growth % -2.9 -3.1 -3.5 3.9 -1.4

Source: CRTC data collection

Monthly revenues per line Monthly revenue per line is calculated by (i) dividing the annual service revenues by the average number of local lines in the year, and then (ii) dividing the result by 12. The average number of lines is determined by dividing the sum of the number of lines at the beginning of the year and at the end of the year by two.

Table 5.2.8 Long distance retail monthly revenues ($) per line 2010 2011 2012 2013 2014 CAGR 2010-2014 Residential 11.36 10.74 9.79 8.72 7.85 -8.8 Annual growth % na -5.4 -8.9 -10.9 -9.9 Business 12.72 11.30 10.08 10.71 10.63 -4.4 Annual growth % na -11.2 -10.8 6.3 -0.7

Source: CRTC data collection

Table 5.2.9 Local telephone service monthly revenues ($) per line, by type of TSP 2010 2011 2012 2013 2014 CAGR 2010-2014 Residential local service Incumbent TSPs (excluding out-of-territory) 32.91 33.25 33.44 33.41 34.39 1.1 Annual growth % 2.2 1.0 0.6 -0.1 2.7 Incumbent TSPs (out-of-territory) 26.75 32.09 39.22 46.20 26.48 -0.3 Annual growth % -0.9 20.0 22.2 17.8 -18.2 Alternative TSPs (excluding cable-based carriers) 23.70 25.14 22.90 22.72 30.12 6.2 Annual growth % -6.7 6.1 -8.9 -0.8 32.6 Cable-based carriers 28.31 26.74 26.18 26.99 27.24 -1.0 Annual growth % -2.0 -5.5 -2.1 3.1 0.9 Total residential 31.21 30.78 30.37 30.53 31.37 0.1 Annual growth % 0.3 -1.4 -1.3 0.5 2.8 Business local service Incumbent TSPs (excluding out-of-territory) 50.47 50.32 49.10 49.72 49.84 -0.3 Annual growth % 2.8 -0.3 -2.4 1.3 0.2 Incumbent TSPs (out-of-territory) 35.82 31.06 36.66 40.76 39.40 2.4 Annual growth % -14.3 -13.3 18.0 11.2 -2.8 Alternative TSPs (excluding cable-based carriers) 22.97 37.13 31.54 44.86 41.02 15.6 Annual growth % -29.4 61.6 -15.1 42.2 -8.6 Cable-based carriers 41.33 43.48 41.86 43.16 39.04 -1.4 Annual growth % 0.0 5.2 -3.7 3.1 -9.6 Total business 47.65 47.19 46.38 47.96 47.23 -0.2 Annual growth % 0.1 -1.0 -1.7 3.4 -1.5

Source: CRTC data collection

Average monthly revenues per line have been essentially constant from 2010 to 2014 for both the residential and business markets. However, there were relatively large differences in these revenues among the different types of TSPs.

Table 5.2.10 Long distance retail revenues ($) per minute, by type of TSP 2010 2011 2012 2013 2014 CAGR 2010- 2014 Residential long distance service Incumbent TSPs (excluding out-of-territory) 0.092 0.089 0.088 0.087 0.084 -2.1 Annual growth % -8.4 -2.3 -2.0 -1.5 -2.7 Incumbent TSPs (out-of-territory) 0.082 0.084 0.072 0.081 0.071 -3.6 Annual growth % 14.1 2.9 -13.8 12.0 -12.0 Non-cable, alternative TSPs 0.058 0.049 0.051 0.047 0.043 -6.9 Annual growth % -2.2 -16.3 4.0 -6.9 -7.1 Cable-based carriers 0.044 0.043 0.042 0.043 0.043 -0.8 Annual growth % -4.9 -3.1 -2.4 2.4 -0.3 Total residential 0.072 0.068 0.067 0.066 0.067 -1.9 Annual growth % -5.8 -6.6 -0.8 -1.6 1.1 Business long distance service Incumbent TSPs (excluding out-of-territory) 0.059 0.061 0.049 0.050 0.050 -4.0 Annual growth % -11.7 2.6 -18.8 1.5 0.1 Incumbent TSPs (out-of-territory) 0.043 0.062 0.032 0.026 0.023 -14.0 Annual growth % -24.0 12.1 -14.7 -18.7 -8.7 Non-cable, alternative TSPs 0.051 0.036 0.038 0.044# 0.040 -5.9 Annual growth % -1.7 -20.2 3.6 15.8 -8.8 Cable-based carriers 0.028 0.027 0.025 0.024 0.025 -2.8 Annual growth % -1.7 -20.2 3.6 -2.5 2.9 Total business 0.046 0.044 0.040 0.043 0.041 -2.8 Annual growth % -11.0 -4.7 -10.0 8.6 -4.7

Source: CRTC data collection

This table shows the average long distance revenues per minute for the residential and business markets by type of service provider. On average, residential consumers pay more for long distance service than business customers. In both cases, long distance prices have been trending downward. In 2014, Canadians paid 6.7 cents per minute compared to 4.1 cents by business customers. Cable-based carriers generally had the lowest price per minute in both the residential and business markets.

d) Price

Basic local telephone service includes unlimited calling within a geographic area, 9-1-1 services, and message relay services, as well as access to long distance services. Approximately 13% of households subscribing to wireline local service subscribe to basic service, while the remaining 87% subscribe to additional local features, which may be bundled with such other services as Internet, television, or wireless. The figures below display the price of basic local telephone service on a stand-alone basis in a number of urban and rural centres.

Urban centres

The bar charts below display the range of monthly prices of basic local service in 24 major urban centres in Canada. The blue bar displays the lowest price, and the red bar displays the difference between the lowest and the highest price. The number at the top reflects the highest price, while the number in brackets along the horizontal represents the number of providers within the urban centre.

Figure 5.2.2 Price of basic local telephone service ($/month) and number of companies providing this service in major urban centresurban centres

Source: CRTC data collection

The price of basic local service varied across the major urban centres from $22 per month in Saskatoon and Regina to $32 in Whitehorse and Yellowknife and $34 in Toronto. In some cases, service providers did not provide the price of basic local telephone service. These companies provided the price for the service that came closest to the definition. Access-independent VoIP, not included above, is available in many major urban centres.

Rural communities

Figure 5.2.3 Price of basic local telephone service ($/month) and number of companies providing this service in rural communities, by province and territory

Source: CRTC data collection

This bar chart displays the range of monthly price of basic local telephone service in fifty-four rural communities in Canada. The blue bar displays the lowest price and the red bar displays the difference between the low price and the high price. The number at the top of the bar is the high price. The number appearing in parentheses along the horizontal axis after the name of each province and territory indicates the range in the number of basic local telephone service providers in each rural centre or community responding to the survey. The price of basic local telephone service in rural communities varied, from lows of between $21 to $36 per month to highs of between $27 and $41 per month. In some cases, service providers did not provide basic local telephone service. These companies provided the price for the service that came closest to the definition of basic local telephone service as defined in the survey.

Which communities were included? Fifty-four rural communities were selected to assess the price of Internet access service in rural communities. These communities met the following criteria: the community was not part of one of the census metropolitan areas of the twenty-four urban centres;

the community had a population density of fewer than 400 people per square kilometre, or its population centre had fewer than 1,000 people;

the number of communities selected in each province/territory was proportional to the population of the province/territory; and

the communities were not clustered together Appendix 9 contains the list of rural communities.

e) Type of local facilities

Leased lines are lines acquired from facilities-based carriers. Resold lines connect directly from the underlying facilities-based carrier’s network to a customer.

Figure 5.2.4 Alternative TSP and cable-based carriers local retail lines, by type of facility

Source: CRTC data collection

Figure 5.2.5 Alternative TSP and cable-based carriers local residential and business retail lines, by type of facility, 2014

Source: CRTC data collection

These pie charts compare retail line ownership percentages for the residential and business markets for alternative TSPs. The higher proportion of owned lines in the residential market than in the business market can be attributed to the cable companies.

f) Competitive landscape

Table 5.2.11 Incumbent TSP (excluding out-of-territory) provincial retail local market share, by line (%) Province 2010 2011 2012 2013 2014 British Columbia 67.3 65.2 60.9 61.4 59.7 Alberta 68.2 66.8 64.6 63.6 63.4 Saskatchewan 93.0 92.5 90.9 89.7 89.0 Manitoba 83.7 80.2 77.4 76.1 77.4 Ontario 70.2 67.6 66.4 64.8 65.1 Quebec 62.8 58.0 55.5 53.9 52.5 New Brunswick 85.1 83.1 81.6 72.5 74.3 Nova Scotia 67.8 65.1 65.8 65.6 65.9 Prince Edward Island 74.7 71.7 71.3 71.5 70.8 Newfoundland and Labrador 89.4 90.9 81.2 83.8 76.8 Yukon n/a n/a n/a 99.8 99.0 Northwest Territories n/a n/a n/a 99.9 97.7 Nunavut n/a n/a n/a 100.0 99.7 Canada 69.8 66.9 64.8 63.6 63.6

Source: CRTC data collection

Traditionally, Canada’s telecommunications market has been dominated by a handful of large incumbent TSPs. Over time, previously closed markets have opened to competition, largely from the cable-based companies. This table shows the percentage of local retail lines providing service by the incumbent TSPs between 2010 and 2014. Since 2010, the retail local market share of the incumbent TSPs has been declining in each province.

Table 5.2.12 Incumbent TSP (excluding out-of-territory) residential and business local retail line market share (%), by area Province Major centre or area Residential lines Business lines 2013 2014 2013 2014 British Columbia Vancouver 56.2 53.6 60.6 61.0 Victoria 44.6 43.1 61.9 57.9 Remaining areas 65.9 63.4 75.3 73.7 Alberta Calgary 48.8 46.8 59.0 56.6 Edmonton 54.6 53.1 63.5 61.6 Remaining areas 77.4 78.4 87.6 89.5 Saskatchewan Saskatoon 71.6 69.8 91.9 89.9 Regina 81.4 79.1 97.0 95.1 Remaining areas 95.6 95.0 98.9 99.0 Manitoba Winnipeg 53.3 54.2 87.4 88.3 Remaining areas 91.9 95.2 92.7 98.8 Ontario Toronto 53.6 50.3 70.5 75.4 Ottawa-Gatineau 56.7 49.5 86.8 87.1 Hamilton 54.5 47.6 68.8 76.9 London 53.5 50.2 71.4 75.8 Kitchener-Waterloo 50.8 48.5 73.3 73.6 St. Catharines-Niagara 57.9 56.1 70.7 79.1 Windsor 59.8 53.2 61.5 67.3 Oshawa 50.8 49.9 82.9 87.6 Remaining areas 73.8 72.7 79.7 84.7 Quebec Montréal 43.1 41.9 68.9 68.2 Québec 36.8 34.1 60.9 67.6 Remaining areas 60.0 55.5 66.6 67.5 New Brunswick Fredericton 67.5 65.6 98.3 98.4 Remaining areas 60.0 62.4 98.5 97.4 Nova Scotia Halifax 50.9 52.7 74.0 74.4 Remaining areas 67.5 66.2 82.4 83.9 Prince Edward Island Charlottetown 54.7 56.1 78.8 75.7 Remaining areas 80.1 78.3 78.0 76.5 Newfoundland and Labrador St. John’s 65.8 64.3 98.2 96.8 Remaining areas 86.7 71.4 94.4 94.1 Yukon Whitehorse 100.0 99.5 99.7 98.3 Remaining areas 100.0 99.8 99.5 99.3 Northwest Territories Yellowknife 100.0 99.2 99.9 94.8 Remaining areas 100.0 99.9 99.9 98.6 Nunavut Iqaluit 100.0 100.0 100.0 100.0 Remaining areas 100.0 99.7 100.0 99.7

Source: CRTC data collection

This table shows the percentage of residential and business local retail lines providing service from the incumbent TSPs in Canada’s major urban centres and in the remaining areas of the province or territory in 2013 and 2014. Major urban centre boundaries are defined using Statistics Canada’s census metropolitan area and census agglomeration definitions. In most areas the incumbent TSP’s residential line share is lower than their business line share, reflecting, in part, competition from the cable-based companies. Note that the incumbent TSP share of residential lines in Victoria, Calgary, Ottawa-Gatineau, Hamilton, Kitchener-Waterloo, Oshawa, Montréal, and Québec has dropped to below 50%.

Table 5.2.13 Large incumbent TSPs’ retail long distance revenue market share (%), by region Region 2010 2011 2012 2013 2014 B.C., Alberta 68 74 75 74 81 Saskatchewan 83 92 92 92 94 Manitoba 78 84 83 81 83 Ontario, Quebec 61 71 70 69 80 Atlantic 81 83 83 86 88 The North 97 97 97 98 99

Source: CRTC data collection

Traditionally, large incumbent TSPs were the sole providers of long distance services in Canada. With the introduction of long distance competition in 1992, other service providers entered the market. This table shows the percentage of retail long distance revenues captured by the large incumbent TSPs. The North includes Yukon, the Northwest Territories, and Nunavut.

g) Pay telephone service

Figure 5.2.6 Large incumbent TSPs’ payphone revenues and quantities

Number of payphones and retail revenue per payphone Coin-operated payphones as a percentage of total payphones

Source: CRTC data collection

The number of payphones owned and operated by the large incumbent TSPs has declined steadily between 2012 and 2014. Per-payphone revenues have also been declining. Approximately 12% of payphones are equipped with Teletype capability. In 2014, no payphones were equipped with Internet capability.

Figure 5.2.7 Number of payphones per 1,000 households



Source: CRTC data collection

5.3 Retail Internet sector and broadband availability

In 2014, Internet service revenues increased 8.6% from $7.7 to $8.4 billion; 80% of these revenues ($6.7 billion) came from residential sources and 20% ($1.7 billion) came from business sources.

What is “fixed wireless?” “Fixed wireless” refers to the use of radio spectrum to provide communications services to subscribers. The connection to the subscriber is from a tower located in the area to the premises of the subscriber.

These services were provided by approximately 525 ISPs consisting of traditional telephone and cable companies, fixed-wireless service providers, and resellers. The revenue market share for Internet access for the top 5 companies has declined from 75% in 2013 to 74% in 2014. The share of the cable-based carriers has declined to 49% in 2014, down from 51% in 2013, while the Incumbent TSPs (excluding out-of-territory) have increased from 37% to 38%.

As noted in Section 2 of the report, Canadian households spent an average of $38.91 per month on Internet access service in 2014. The ARPU for residential high-speed access subscribers has increased, from $44.87 in 2013 to $47.86 in 2014, a 6.7% increase. It has increased at an average annual rate of 6.1% since 2010.

Ninety-six percent of Canadian households can access a download speed of 5 Mbps, which is sufficient for streaming higher quality audio and video content. The vast majority of Canadians (94%) can access these speeds using either landline or fixed-wireless facilities and an additional 1.5% may get access via satellite facilities. Seventy-seven percent of Canadian households subscribe to these services.

Fibre-to-the-premises (FTTP) While incumbent TSPs rely mainly on their copper wire local telephone network, they have been making significant use of FTTP. Cable-based carriers have made less use of this technology.

At the same time, Canadians are demanding more bandwidth from broadband service providers. The average monthly amount downloaded by residential subscribers increased 49% between 2013 and 2014 to 66.5 GB per month, and an average of 46% annually over the last 5 years, indicating that Canadians are likely using more video content and other high-bandwidth consuming services. Uploads have also increased 43% in 2014, reaching 8.6 GB per month.

There were approximately 283 facilities-based providers. These mainly consist of incumbents and cable-based carriers, utilizing DSL, fibre and cable modem facilities, and satellite and fixed wireless-based providers. Fixed wireless is major source of broadband Internet connectivity in rural areas, where 31% of households have access available to them via fixed-wireless services but not fibre, cable, or DSL. While rural Canadians have access to services provided by satellite, capacity limitations restrict practical availability to approximately 1.5% of Canadian households.

Digital subscriber line (DSL) - Bringing new services to older facilities Incumbent TSPs rely mainly on their copper wire local telephone network using DSL, or fibre-to-the-node (a pedestal in the neighbourhood). In the latter arrangement, copper wires complete the connection to the subscriber. Deploying fibre to a pedestal decreases the distance that the signals must travel though the copper wires to reach the subscriber. This makes possible faster Internet service and the delivery of television (IPTV).

There were approximately 242 companies providing services solely through the use of resale facilities provided by the incumbent TPSs and the cable-based carriers. These providers have become an increasingly important source of competition in the industry. Residential high-speed Internet subscriptions through wholesale DSL and cable-based services have more than doubled since 2010.

Industry churn rates varied in 2014. For residential high-speed access subscriptions, the rate is up slightly over last year, going from 1.75% to 1.79%, while for business subscriptions, the rate is down, from 1.67% to 1.37%.

Unless otherwise noted, broadband availability figures exclude wireless mobile technology. Satellite access services in this section refer to direct-to-home satellite, and does not refer to the technology used to connect the community to the Internet.

Broadband target In Telecom Regulatory Policy 2011-291, the Commission set a target that all Canadians should have access to broadband speeds of at least 5 megabits per second (Mbps) downstream and 1 Mbps upstream, through a variety of technologies, by the end of 2015. As of December 31, 2014 it is estimated that this service was available to 96% of Canadian households, using a variety of technologies including LTE and satellite.

a) Revenues

Table 5.3.1 Retail Internet service revenues ($ millions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Residential Dial-up access 96 69 43 32 22 -30.7 High-speed access 4,442 4,853 5,325 5,906 6,508 10.0 Residential total 4,538 4,923 5,369 5,938 6,530 9.5 Annual growth (%) 5.9 8.5 9.1 10.6 10.0 Business Access 1,125 1,142 1,138 1,171 1,248 2.6 Transport 77 52 65 71 72 -1.4 Business total 1,202 1,194 1,202 1,243 1,320 2.4 Annual growth (%) 10.7 -0.6 0.7 3.4 6.2 Applications, equipment, and other Internet-related services 686 674 625 544 540 -5.8 Annual growth (%) -11.0 -1.8 -7.3 -13.0 -0.8 Total 6,426 6,791 7,196 7,724 8,390 6.9 Annual growth (%) 4.6 5.7 6.0 7.3 8.6

Source: CRTC data collection

This table presents an overview of revenues from residential and business Internet access services as well as other related services. Residential Internet access service revenues have increased more quickly than business access and transport service revenues, 9.5% vs. 2.4%, respectively, over the 2010 to 2014 period. Revenues from applications, equipment and other services have been declining over time. These services are provided to both residential and business customers, but are not shown separately in this table. Due to changes in company reporting, business transport service revenues in 2011 are not comparable to those in other years.

The types of Internet services available vary according to the download speed of the Internet connection. The lowest download speed is dial-up, at 64 Kbps. High-speed, which refers to any download speed greater than 256 Kbps. Broadband is defined as any service with a 1.5 Mbps download speed or greater. “Business transport” refers to the transfer of Internet traffic between networks. This is generally used by large business customers.

Table 5.3.2 Residential Internet service revenues, by type of service ($ millions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Incumbent TSPs (excluding out-of-territory) Dial-up 64 46 30 20 13 -32.8 High-speed 1,588 1,732 1,860 2,136 2,428 11.2 Total 1,652 1,778 1,890 2,155 2,441 10.3 Annual growth (%) 3.4 7.7 6.3 14.0 13.3 Cable-based carriers Dial-up 1 1 0 0 0 -42.1 High-speed 2,572 2,811 3,065 3,293 3,477 7.8 Total 2,573 2,811 3,065 3,293 3,477 7.8 Annual growth (%) 6.3 9.2 9.1 7.4 5.6 Alternative service providers (excluding cable-based carriers) Dial-up 31 23 12 12 9 -26.7 High-speed 282 310 400 477 603 20.9 Total 313 332 413 490 612 18.2 Annual growth (%) 17.4 6.3 24.0 18.6 25.0 Total of the above Dial-up 96 69 43 32 22 -30.7 High-speed 4,442 4,853 5,325 5,906 6,508 10.0 Residential total 4,538 4,923 5,369 5,938 6,530 9.5 Annual growth (%) 5.9 8.5 9.1 10.6 10.0

Source: CRTC data collection

Table 5.3.3 Business Internet service revenues, by type of service ($ millions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Internet access Incumbent TSPs (excluding out-of-territory) 478 481 499 501 507 1.5 Cable-based carriers 284 309 273 306 350 5.4 Total 762 790 772 807 857 3.0 Annual growth (%) 13.5 3.7 -2.3 4.5 6.1 Alternative service providers (excluding cable-based carriers) Incumbent TSPs (out-of-territory) 81 81 81 79 84 0.8 Remaining alternative service providers 282 272 285 285 307 2.1 Total 364 353 366 364 391 1.8 Annual growth (%) 4.5 -3.1 3.7 -0.4 7.4 Internet access total 1,125 1,142 1,138 1,171 1,248 2.6 Annual growth (%) 10.4 1.5 -0.4 3.0 6.5 Transport 77 52 65 71 72 -1.4 Annual growth (%) 15.2 -32.4 25.0 10.4 1.3 Total business Internet service revenues 1,202 1,194 1,202 1,243 1,320 2.4 Annual growth (%) 10.7 -0.6 0.7 3.4 6.2

Source: CRTC data collection

Over the 2010 to 2014 period, the business Internet market has increased by 2.4% annually. Of the various providers, cable-based carriers have the highest annual growth rate (5.4%).

b) Subscriber data

Table 5.3.4 Residential Internet service subscribers, by type of service provider (thousands) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Incumbent TSPs (excluding out-of-territory) Dial-up 210 137 97 70 53 -29.1 Annual growth (%) -26.6 -34.9 -28.8 -27.9 -24.3 Share of total dial-up (%) 57.3 55.5 53.2 57.1 56.8 High-speed 3,762 3,874 4,014 4,172 4,375 3.8 Annual growth (%) 2.4 3.0 3.6 3.9 4.9 Share of total high-speed (%) 37.6 37.2 37.1 37.5 37.9 Total 3,972 4,011 4,111 4,242 4,428 2.8 Annual growth (%) 0.3 1.0 2.5 3.2 4.4 Share of total (%) 38.3 37.6 37.4 37.7 38.1 Cable-based carriers Dial-up 10 7 6 2 1 -39.5 Annual growth (%) -23.0 -28.9 -14.6 -69.2 -28.1 Share of total dial-up (%) 2.8 3.0 3.5 1.6 1.5 High-speed 5,642 5,839 5,925 5,931 5,952 1.3 Annual growth (%) 5.3 3.5 1.5 0.1 0.4 Share of total high-speed (%) 56.4 56.0 54.8 53.3 51.6 Total 5,653 5,846 5,932 5,933 5,954 1.3 Annual growth (%) 5.2 3.4 1.5 0.0 0.4 Share of total (%) 54.5 54.8 54.0 52.7 51.2 Other service providers Dial-up 146 102 79 51 39 -28.2 Annual growth (%) -21.7 -30.1 -22.3 -36.1 -23.3 Share of total dial-up (%) 39.9 41.5 43.4 41.3 41.7 High-speed 604 712 870 1,025 1,210 19.0 Annual growth (%) 10.8 18.0 22.1 17.8 18.0 Share of total high-speed (%) 6.0 6.8 8.1 9.2 10.5 Total 750 815 950 1,076 1,249 13.6 Annual growth (%) 2.5 8.6 16.6 13.3 16.1 Share of total (%) 7.2 7.6 8.6 9.6 10.7 Total of the above Dial-up 366 246 183 123 93 -29.1 Annual growth (%) -24.6 -32.8 -25.7 -32.9 -24.0 Share of total (%) 3.5 2.3 1.7 1.1 0.8 High-speed 10,008 10,426 10,809 11,128 11,537 3.8 Annual growth (%) 4.5 4.2 3.7 2.9 3.7 Share of total (%) 96.5 97.7 98.3 98.9 99.2 Grand total of dial-up and high-speed 10,375 10,672 10,992 11,251 11,631 2.8 Annual growth (%) 3.1 2.9 3.0 2.3 3.4

Source: CRTC data collection

Residential Internet service subscribers receive Internet service from a variety of service providers. This table shows the number of Internet subscribers and the annual growth rates by type of provider for the period from 2010 to 2014. Overall, the annual growth in the number of Internet service subscribers remained relatively stable, at approximately 3%. When compared to Statistics Canada’s annual population growth rates, the rate of Internet service subscriber growth was approximately three times that of population growth.

Table 5.3.5 Number of business Internet access subscriptions, by type of service provider (thousands) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Dial-up 84 72 61 54 47 -13.5 Annual growth (%) -26.0 -13.5 -15.2 -11.8 -13.5 High-speed Incumbent TSPs

(excluding out-of-territory) 447 452 444 470 487 2.2 Annual growth (%) 3.6 1.3 -1.8 5.8 3.6 Share of total high-speed (%) 55.2 52.8 50.4 48.6 0.0 Cable-based carriers 199 232 268 310 347 14.9 Annual growth (%) 13.3 16.6 15.1 15.8 12.2 Share of total high-speed (%) 24.6 27.1 30.4 32.0 0.0 Incumbent TSPs (out-of-territory) 11 19 19 17 18 12.6 Annual growth (%) -8.2 76.5 -3.9 -8.0 3.0 Share of total high-speed (%) 1.4 2.3 2.1 1.8 0.0 Alternative service providers (excluding cable-based carriers and incumbent TSPs (out-of-territory) 152 152 150 170 179 4.2 Annual growth (%) -3.8 -0.2 -1.1 13.1 5.4 Share of total high-speed (%) 18.8 17.7 17.1 17.6 0.0 Total high-speed 809 856 881 967 1,031 6.2 Annual growth (%) 4.1 5.8 2.8 9.8 6.6

Source: CRTC data collection

Figure 5.3.1 High-speed residential Internet service subscribers, by GB download capacity

Source: CRTC data collection

c) Performance indicators

Table 5.3.6 Residential Internet service one-month average revenue, by advertised download speed ($) Advertised download speed 2010 2011 2012 2013 2014 Lite and wideband up to 256 Kbps 25.18 33.86 35.97 35.36 36.00 Wideband 300 to 1400 Kbps 28.87 33.03 35.83 35.49 33.80 Broadband 1.5 to 4 Mbps 33.57 32.87 41.87 31.45 48.05 5 to 9 Mbps 42.23 40.97 44.05 46.10 46.87 10 to 15 Mbps 39.67 42.11 40.62 48.17 48.52 16 Mbps and higher 53.71 51.63 46.83 59.87 54.06 16 to 49 Mbps 51.66 50.76 44.85 58.69 51.96 50 Mbps and higher 75.80 78.06 59.69 66.05 60.90 Total sample 38.96 39.80 43.80 49.64 50.06

Source: CRTC data collection

In general, the average price for high-speed Internet service has been increasing. While some categories have seen price declines, these declines have been offset by movement towards larger, faster packages. All data excludes revenues from modem rentals.

The one-month average revenue by downstream speed was calculated by dividing the total one-month revenue in each speed tier provided by the service providers by the total number of subscribers to the service in each speed tier in that month. The month used was December or the closest available month.

Table 5.3.7 Weighted-average upload/download limits (GBs) of residential Internet service plans, by advertised download speed Advertised download speed 2010 2011 2012 2013 2014 Lite and wideband up to 256 Kbps - - - - - Wideband 300 to 1400 Kbps 7.20 14.90 17.89 25.42 27.25 Broadband 1.5 to 4 Mbps 24.69 69.06 94.93 68.22 52.20 5 to 9 Mbps 49.07 80.81 76.78 48.46 53.36 10 to 15 Mbps 74.55 74.22 106.74 99.84 101.79 16 Mbps and higher 116.90 179.58 160.23 168.94 183.37 16 to 49 Mbps 112.27 176.98 131.50 142.14 159.15 50 Mbps and higher 165.33 236.54 364.80 362.86 283.10 Total sample 48.14 81.11 103.48 99.24 118.27

Source: CRTC data collection

Except for the 2013 year, the amount of gigabytes downloadable in the average package has been going up, as Canadians subscribe to larger Internet packages.

The weighted-average upload/download limit was calculated for each downstream speed tier based on the number of subscribers to plans with upload/download limits.

Table 5.3.8 Residential Internet service upload speed (Kbps) by advertised download speed and average advertised download speed Advertised download speed 2010 2011 2012 2013 2014 Lite and wideband up to 256 Kbps 209 178 168 136 162 Wideband 300 to 1400 Kbps 352 314 313 291 283 Broadband 1.5 to 4 Mbps 584 666 651 768 746 5 to 9 Mbps 870 855 1,118 809 937 10 to 15 Mbps 797 876 2,519 2,407 2,225 16 Mbps and higher 1,735 2,693 4,291 6,656 6,797 16 to 49 Mbps 1,661 2,662 2,912 4,133 4,676 50 Mbps and higher 2,529 3,667 13,199 19,890 13,701 Total sample 769 961 2,009 3,031 3,676 Weighted-average download speed 7,060 8,238 12,610 15,465 21,242

Source: CRTC data collection

The weighted-average upload speed was calculated for each advertised download speed tier based on the number of subscribers to the plan. Weighted-average download speed was calculated based upon the number of subscribers to each plan for all plans.

d) Price

Approximately 77% of households subscribed to a 5 Mbps download or higher broadband Internet service in 2014, up from 71% in 2013. Urban households generally paid lower prices and had a greater number of Internet service providers to choose from than rural households.

Service providers were asked to report the price of the least expensive service they offered that provides a download speed of at least 5 Mbps. Some service providers only offered options that are greater than 5 Mbps, and these were included in the following tables.

Urban centres

Figure 5.3.2 Price of residential broadband (5 Mbps) Internet access service and number of companies providing this service in urban centres, 2014

Source: CRTC data collection

This bar chart displays the range in the monthly price of 5 Mbps Internet service in twenty-four urban centres in Canada. The blue bar displays the lowest price, and the red bar displays the difference between the lowest and highest prices. The number at the top of each bar is the highest price. The number appearing in parentheses along the horizontal axis after the name of each urban centre represents the number of ISPs in that urban centre. Satellite service is excluded, but is available in all areas for $65 per month. The price of 5 Mbps Internet service varied from lows between $25 to $63 per month, and highs between $50 and $76 per month, except for services offered in Iqaluit. Subscribers in Iqaluit paid $180 per month for non-satellite Internet service.

Subscribers living in provincial urban centres generally had a choice of between three and nine providers, while those living in territorial urban centres had a more limited selection.

Data caps that limit the amount that can be downloaded per month were a differentiating feature among the service providers. Low Internet users would generally benefit from these caps, while heavy users would not. Of the 19 service providers,

eight offered unlimited service;

ten had data caps, which ranged from 10 to 300 GB; and

one had data caps that varied by urban centre, and in one urban centre no caps were imposed by that ISP.

Rural communities

As displayed in the Figure 5.3.3, the price of 5 Mbps Internet service was generally higher in rural communities than in urban centres, except in New Brunswick.

The price of 5 Mbps Internet service in rural communities varied from lows of between $27 and $65 per month, and highs of between $65 and $100 per month.

Internet service subscribers living in rural communities generally had fewer service providers to choose from than subscribers living in urban centres. Rural subscribers usually had a choice of between two and four service providers except in Ontario and Quebec.

Which communities were included? Fifty-four rural communities were selected to assess the price of Internet access service in rural communities. These communities met the following criteria: the community was not part of one of the census metropolitan areas of the twenty-four urban centres;

the community had a population density of fewer than 400 people per square kilometre, or its population centre had fewer than 1,000 people;

the number of communities selected in each province/territory was proportional to the population of the province/territory; and

the communities were not clustered together Appendix 9 contains the list of rural communities.

Figure 5.3.3 Price comparison of residential broadband (5 Mbps) Internet access service and number of companies providing this service in urban and rural communities, 2014

Source: CRTC data collection

This bar chart displays the range in the monthly price of broadband (5 Mbps) Internet access service in fifty-four rural communities in Canada. The blue bar displays the lowest price, and the red bar displays the difference between the lowest and highest prices. The number at the top of each bar is the highest price. The number appearing in parentheses along the horizontal axis after the name of each province and territory represents the range in the number of service providers among the communities or centres. For example, “BC rural (2/4)” means that the number of service providers among the rural communities in British Columbia included in the survey varied between 2 and 4. Satellite service is excluded in urban areas, but is available in all areas for $65 per month.

e) Consumer trends

In 2010, 49.1% of the ISPs’ Internet high-speed residential access service revenues were from plans with download speeds between 5 and 9 Mbps. Plans with lower speeds yielded 25.4% of their revenues, while plans with higher speeds captured 25.5%. Four years later, the 5 to 9 Mbps plans no longer yield the highest percentage of revenues having declined to 25.2%, while revenues from lower-speed plans declined to 5.1%, and revenues from higher-speed plans increased to 69.7%.

Table 5.3.9 Residential Internet service one-month revenue distribution (%), by advertised download speed Advertised download speed 2010 2011 2012 2013 2014 Lite and wideband up to 256 Kbps 0.2 0.3 0.3 0.2 0.1 Wideband 300 to 1400 Kbps 4.3 3.6 2.4 2.1 1.3 Broadband 1.5 to 4 Mbps 20.9 20.3 17.4 4.6 3.6 5 to 9 Mbps 49.1 47.0 41.6 30.5 25.2 10 to 15 Mbps 22.8 16.5 9.3 24.8 24.8 16 Mbps and higher 2.7 12.3 29.1 37.8 45.0 16 to 49 Mbps 2.4 11.8 24.1 31.1 33.1 50 Mbps and higher 0.3 0.6 5.0 6.7 11.9 Total sample 350.0 375.7 427.6 494.9 517.8

Source: CRTC data collection

All data excludes terminal rental revenues. All services are listed without regard to upload speed. 80.0% of high-speed revenues are from a service that meets the Commission target of 5 Mbps download and 1 Mbps upload, compared to 94.9% from services with at least 5 Mbps download and any upload.

In 2014, Canadians continued to subscribe to higher-speed Internet access services than in 2010. In 2010 the most common plans were those with download speeds of 5 to 9 Mbps, representing 45.3% of all subscriptions. Plans with lower speeds attracted 30.3% of all subscriptions, and plans with higher speeds represented 24.4% of subscriptions. Four years later, the 5 to 9 Mbps plans are no longer the most popular. The percentage of subscribers to these plans declined to 26.9%. Interestingly, in 2014 the percentage of subscribers to lower-speed plans less than 5 Mbps declined to 5.8%, while the percentage of subscribers to higher-speed plans greater than 9 Mbps grew to 67.2% since 2010.

Table 5.3.10 Residential Internet service one-month subscriber distribution (%), by advertised download speed Advertised download speed 2010 2011 2012 2013 2014 Lite and wideband up to 256 Kbps 0.3 0.4 0.3 0.3 0.2 Wideband 300 to 1400 Kbps 5.8 4.3 2.9 2.7 1.9 Broadband 1.5 to 4 Mbps 24.2 24.6 18.2 7.3 3.7 5 to 9 Mbps 45.3 45.6 41.3 32.8 26.9 10 to 15 Mbps 22.4 15.6 10.1 25.6 25.6 16 Mbps and higher 2.0 9.5 27.2 31.4 41.6 16 to 49 Mbps 1.8 9.2 23.5 26.3 31.9 50 Mbps and higher 0.2 0.3 3.6 5.0 9.8 Total sample 8,983.1 9,440.3 9,761.1 9,970.1 10,345.1

Source: CRTC data collection

This table indicated that, over time, faster speeds attract more subscriptions. 79.2% of high-speed subscribers take a service that meets the Commission target of 5 Mbps download and 1 Mbps upload, compared to 94.2% that take a service with at least 5 Mbps download and any upload. Eighty-one percent of Canadian households subscribe to some form of high-speed service.

f) Competitive landscape

Figure 5.3.4 Broadband subscriptions ‒ Incumbent TSPs vs. cable-based carriers

Source: CRTC data collection

Figure 5.3.5 Internet access service revenue shares, by market and by type of service provider, 2014

Source: CRTC data collection

Figure 5.3.6 Business Internet access service revenues by access technology, 2010 vs. 2014

What is meant by “satellite?” Satellites can provide Internet access service. Connections are established between an Earth station on the ground (using equipment such as satellite dishes) and a satellite in space. Satellites can support various frequency bands (C-, Ku-, and Ka-band). Satellite Internet service delivered using the C-band requires a large satellite dish and is typically used to serve a community. Ka-band, and to a lesser degree Ku-band, satellite Internet access can be offered using a small satellite dish located at the customer’s premises. Only direct-to-home services are counted as satellite in this section.

Source: CRTC data collection

Business Internet access revenue is derived from services providing using a variety of access technologies. The “Other” segment in the charts refers to other technologies, such as fixed-wireless and satellite technologies.

Figure 5.3.7 Residential Internet access service subscriptions by access technology, 2010 vs. 2014

Source: CRTC data collection

Canadians can access broadband using either wireline or wireless facilities. These facilities support evolving services, which make new experiences possible for Canadians, ranging from television and radio, to new and highly interactive services and programs offering greater consumer control and choice. Connected consumers can engage with the digital world with their devices at the time and place of their choice.

The rest of this section examines the availability of broadband Internet access services, the capacity requirements that must be met for participation in the digital environment, as well as the impacts of these requirements on consumer behaviour. It also looks at certain technologies as they relate to Canada’s broadcasting and telecommunications sectors.

g) Capacity requirements

This section examines the extent to which Canadians have access to broadband Internet service and the associated capacity requirements.

Fixed and mobile broadband services [i.e. Evolved High-Speed Packet Access (HSPA+) and Long Term Evolution (LTE)] are available to over 99% of households in Canada. Canadians are accessing the growing volumes of content, whether audio, video, or data, that are being made available online. Spurring this development is the adoption by Canadians of advanced handheld devices (e.g. smartphones, tablets).

There were approximately 525 Internet service providers in operation across Canada providing broadband access using a combination of DSL, cable modem, fibre-optic, satellite, and fixed-wireless facilities. These services are available to 97% of Canadian households not including satellite, and with satellite they are available to 99%.

Wireless service providers also provided broadband service. As displayed in the ‘Wireless retail market sector’ section of this report, 67% of wireless service subscribers in 2014 had advanced handheld devices capable of accessing the digital world.

3G refers to third-generation wireless technology SD refers to standard definition HD refers to high definition

Figure 5.3.8 Popular Internet applications – Bandwidth requirements

Source: CRTC Technology Resource Centre

Bit rates

Figures 5.3.9 and 5.3.10 illustrate the Internet access speed requirements for a number of commonly accessed online services on both wireline and mobile networks. These figures provide detail regarding average upload and download data rates required by each service. Some services do not allow for manual selection of the quality and/or speed setting, but rather adjust their quality automatically. See Appendix 10 for more details.

Figure 5.3.9 Average data rate (speeds) of select services over a wireline broadband Internet connection, 2014

Source: CRTC Technology Resource Centre

Figure 5.3.10 Average data rate of select services over a mobile broadband Internet connection, 2014

Source: CRTC Technology Resource Centre

Data Caps

Figures 5.3.11 and 5.3.12 illustrate the number of hours each service can be used before reaching the limit of the various usage caps based on the information from the previous tables. Figure 5.3.11 shows typical wireline broadband monthly usage caps, while Figure 5.3.12 shows typical mobile broadband monthly usage caps.

Figure 5.3.11 Number of usage hours before typical wireline monthly broadband capacity thresholds are reached, by service, 2014

Source: CRTC Technology Resource Centre

Figure 5.3.12 Number of usage hours before typical mobile monthly broadband capacity thresholds are reached, by service, 2014

Source: CRTC Technology Resource Centre

Although some services offer manual control over the quality of streaming (and thereby control of data consumption), other services attempt to maintain the highest quality possible, which may result in higher data consumption. There are various ways to monitor data usage. For both wireline and wireless broadband connections, service providers typically provide usage-tracking tools and automatic alerts that can inform consumers when they’re nearing their limit. For those without access to such tools, third party applications may be utilised.

Due to the limited number of measurement samples and the wide variety of network configurations and equipment, the reported average bandwidth and capacity used is for illustrative purposes only and results obtained may vary in different settings.

h) Key indicators

Broadband Calculation Broadband availability is calculated by utilising information provided by ISPs. Locations are considered serviced if their dissemination block representative point falls within broadband coverage. Data may not take into account capacity issues, or issues with regard to line-of-sight. Information does not take into account upload speeds. Inclusion of a 1 mbps upload speed requirement into the 5 Mbps category will affect results.

Table 5.3.11 Key telecommunications availability indicators Platform Availability (% of households) 2010 2011 2012 2013 2014 Mobile broadband 3G/3G equivalent 98 99 99 99 99 HSPA+ 96 99 99 99 99 LTE n/a 45 72 81 93 Wireline broadband DSL 85 86 87 82 82 Cable modem 81 82 82 82 82 Fixed wireless 82 86 50 63 68 IPTV 22 34 45 56 65 Digital satellite National National National National National

Source: CRTC data collection

Not all broadband technologies are available in all parts of the country. This table lists the various types of mobile and wireline broadband technologies [as well as IPTV and digital satellite technologies], and shows the percentage of households nationally, for the years from 2010 to 2014, that were able to access such technologies. The decline in the availability of fixed wireless services in 2012 and of DSL in 2013 was due to the deactivation of the Inukshuk network and the deployment of fibre technology, respectively.

Figure 5.3.13 Broadband availability (percentage of households)

Sources: Industry Canada and CRTC data collection

Figure 5.3.14 Broadband availability vs. broadband subscriptions by province/territory, 2014

Sources: Industry Canada and CRTC data collection

The availability and take-up rates of broadband services vary from province to province. The provinces of New Brunswick and Saskatchewan have arrangements to provide broadband service via satellite at terms and conditions similar to those for wireline service. In the province of Prince Edward Island, HSPA+ is available to households without access to other means of broadband service at terms and conditions equivalent to those for wireline service. These arrangements have been taken into account in the “fixed broadband availability” bars in the graph. These data exclude satellite broadband service for availability, but they are included for subscriptions. HSPA+ shows the contribution that including HSPA+ technology would have on availability.

Figure 5.3.15 Broadband, 5 Mbps availability (percentage of households), 2014

Source: CRTC Data collection

Broadband download speeds of at least 5 Mbps are available to Canadian households on a variety of platforms. This bar graph shows the availability rates of broadband access through DSL, cable modem, fixed-wireless, fibre, and mobile technologies, as well as the availability rate of all technologies at this speed. Satellite service is excluded; however, it would add approximately 1.5% to the availability of 5 Mbps broadband services.

i) Broadband availability

Figure 5.3.16 Broadband availability by speed (percentage of households)

Sources: Industry Canada and CRTC data collection

The availability of broadband service at higher speeds has been expanding in Canada. This graph excludes satellite and mobile technologies.

Table 5.3.12 Broadband availability nationwide, by speed and number of platforms (percentage of households), 2014 Number of platforms 1.5 Mbps and higher 5.0 Mbps and higher 10.0 Mbps and higher 16.0 Mbps and higher 25.0 Mbps and higher 30.0 Mbps and higher 50.0 Mbps and higher 100 Mbps and higher 1 3 6 19 20 21 23 50 63 2 10 10 56 59 56 54 29 9 3 34 43 10 5 5 5 0 0 4 53 38 0 0 0 0 0 0 99 96 85 84 82 81 79 71

Sources: Industry Canada and CRTC data collection

This table shows the percentage of households nationwide that have access to broadband technologies at varying speeds, and over four platforms: DSL/Fibre, cable modem, fixed-wireless, and mobile (HSPA+ and LTE). At one end of the availability spectrum, broadband platforms at speeds of at least 5 Mbps are available to 96% of Canadian households. At the other end of the spectrum, two broadband platforms at a speed of more than 100 Mbps are available to 9% of Canadian households. The effects of line bonding (using more than one line to provide service) on DSL were not considered. This mainly affects speeds above 50 Mbps. The total at the bottom of each column indicates the percentage of Canadian households that can access the speeds noted for each column. This table excludes satellite technologies.

Table 5.3.13 Broadband availability, by speed and province/territory (percentage of households), 2014 Province/territory 1.5-4.9 Mbps 1.5-4.9 Mbps with HSPA+ 5-9.9 Mbps 5-9.9 Mbps with LTE 10-15.9 Mbps 16-24.9 Mbps 25 Mbps or higher British Columbia 96 98 93 96 91 90 88 Alberta 99 99 98 99 86 85 81 Saskatchewan 99 99 88 88 74 60 58 Manitoba 98 99 95 95 77 69 69 Ontario 98 99 97 99 87 86 86 Quebec 96 99 94 96 85 83 81 New Brunswick 99 99 90 95 83 83 83 Nova Scotia 99 99 87 95 84 83 81 Prince Edward Island 99 99 77 99 62 60 53 Newfoundland and Labrador 85 97 82 90 71 71 63 Yukon 99 99 96 96 69 62 60 Northwest Territories 97 97 91 91 76 50 42 Nunavut 99 99 33 33 0 0 0

Sources: Industry Canada and CRTC data collection

Not all regions of the country have similar access to broadband technologies. This table shows the regional availability of broadband technology, by province and territory, in 2014. Since satellite is a service with a national footprint, it is excluded from this table.

Figure 5.3.17 Broadband availability – Urban vs. rural (percentage of households), 2014

Sources: Industry Canada and CRTC data collection

Broadband technology availability differs between Canada’s urban and rural areas, particularly in terms of technologies that offer faster download speeds. This table shows the percentage of Canadian households in large, medium, and small population centres, as well as in rural areas, that can access various broadband services. Small population centres are areas that have a population of between 1,000 and 29,000. Medium population centres have a population of between 30,000 and 99,999. Large population centres have populations greater than 100,000. Rural areas have a population of less than 1,000, or fewer than 400 people per square kilometre. The HSPA+ and LTE bars show the additional contribution that inclusion of these technologies would make to the respective categories. Satellite is excluded.

Table 5.3.14 Adoption of various video technologies in Canada Adoption (%) 2010 2011 2012 2013 2014 Internet TV Anglophones 31 34 38 42 47 Francophones 26 33 34 39 42 Internet video on cell/smartphone Anglophones 9 12 14 23 38 Francophones 4 8 8 16 27 Internet use on tablet Anglophones n/a n/a 23 33 44 Francophones n/a n/a 14 25 37 Internet video on tablet Anglophones n/a 6 12 20 26 Francophones n/a 3 7 16 25

Source: MTM 2010-2014 (Respondents: Canadians 18+)

This table shows the rates of adoption and growth rates of various video technologies among Canadian consumers. Over the past years, the popularity of video and television streaming to personal electronic devices has grown greatly.

5.4 Data and private line retail sector

Data and private line services refer to those services sold by TSPs to business customers for the transmission of data, video, and/or voice traffic. These communications channels provide private, highly secure communications between locations.

Canadian businesses were served by approximately 191 entities offering data and private line services in 2014. Of these, incumbent telecommunications service providers (incumbent TSPs or incumbent providers) accounted for approximately 15%, and alternative service providers, such as cable-based carriers, utility telcos, and resellers, accounted for the remaining 85%.

Data services are packet-based services that intelligently switch data through carrier networks. They make use of (a) new data protocols such as Ethernet and IP, or (b) legacy protocols such as X.25, asynchronous transfer mode (ATM), and frame relay to transmit data.

These services are provided by both in-territory incumbent TSPs and their competition, with competitors having around 43% of the total market, including network management and equipment.Notable is the increase over time in the activity of cable-based carriers in the newer protocol space.

Private line services provide a non-switched dedicated communications connection between two or more points to transport data, video, and/or voice traffic. These services include high-capacity digital transmission services and digital data systems, as well as voice-grade and other analog systems. Transmission facilities include copper wire and fibre-optic cable. Private line services make use of transmission facilities such as OC-3 fibre optic lines, DS-1 copper facilities, etc.

In the private line space, the market is dominated by the in-territory operations of the incumbent TSPs. Of the alternative service providers, independent operators are the largest provider category.

a) Revenues

Table 5.4.1 Data and private line retail revenues ($ millions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Data Data protocols 1,740 1,833 1,893 1,917 1,952 2.9 Annual growth (%) -0.2 5.3 3.3 1.2 1.8 Other 654 732 796 832 857 7.0 Annual growth (%) 5.1 11.9 8.7 4.6 3.0 Total data protocols and other 2,394 2,565 2,689 2,749 2,809 4.1 Annual growth (%) 1.2 7.1 4.9 2.2 2.2 Private line 807 751 793 834 784 -0.7 Annual growth (%) -4.2 -7.0 5.6 5.2 -6.0 Total data and private line 3,201 3,316 3,482 3,583 3,593 2.9 Annual growth (%) -0.2 3.6 5.0 2.9 0.3

Source: CRTC data collection

This table shows retail data and private line revenues for the years from 2010 to 2014. Data services were classified into one of two categories: (a) services making use of data protocols such as Ethernet and IP, X.25, ATM, and frame relay; or (b) other services such as network management and networking equipment.

Table 5.4.2 Retail data service revenues, by classification of data protocol used ($ millions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 New protocols Ethernet 451.4 478.6 482.7 483.0 464.7 0.7 Annual growth (%) -6.4 6.0 0.9 0.1 -3.8 IP 995.9 1,124.4 1,189.7 1,217.9 1,284.1 6.6 Annual growth (%) 14.4 12.9 5.8 2.4 5.4 Other protocols 118.9 125.9 154.0 167.3 170.9 9.5 Annual growth (%) -5.9 5.7 22.3 8.6 2.2 Total new protocols 1,566.2 1,728.9 1,826.4 1,868.1 1,919.8 5.2 Annual growth (%) 5.9 10.4 5.6 2.3 2.8 Legacy protocols 173.6 103.6 67.1 48.9 32.4 -34.3 Annual growth (%) -34.3 -40.3 -35.3 -27.1 -22.1 Total data protocols 1,740.0 1,832.5 1,893.4 1,917.0 1,952.1 2.9 Annual growth (%) -0.2 5.3 3.3 1.2 1.8

Source: CRTC data collection

This table shows the retail data service revenues realized by service providers. The data services were classified as services making use of (a) new data protocols such as Ethernet and IP or (b) legacy protocols such as X.25, ATM, and frame relay. The table charts growth in these revenues over the period from 2010 to 2014.

Table 5.4.3 Private line retail revenues, by type of service provider ($ millions) 2010 2011 2012 2013 2014 CAGR (%) 2010-2014 Incumbent TSPs (excluding out-of-territory) 681 625 610 641 593 -3.4 Annual growth (%) 4.9 -8.2 -2.4 5.0 -7.5 Alternative service providers Incumbent TSPs (out-of-territory) 53 45 41 42 41 -6.5 Annual growth (%) -52.9 -15.7 -8.0 1.6 -2.9 Cable-based carriers 34 48 49 54 61 15.3 Annual growth (%) -25.3 39.7 2.3 9.7 12.9 Alternative service providers (excluding cable-based carriers) 38 33 92 97 90 23.5 Annual growth (%) 12.2 -14.8 183.2 5.4 -7.8 Total alternative service providers 126 125 183 193 191 11.0 Annual growth (%) -34.8 -0.3 45.6 5.7 -1.0 Total private line 807 751 793 834 784 -0.7 Annual growth (%) -4.2 -7.0 5.6 5.2 -6.0

Source: CRTC data collection

b) Competitive landscape

Although incumbent TSPs accounted for only approximately 15% of the entities providing data and private line services, they captured 74% of retail revenues. The remaining 85% of entities providing these services, consisting of cable-based carriers, other carriers, and resellers, accounted for 26% of retail revenues.

Figure 5.4.1 Retail data and private line revenue market share (%), by type of service provider

Source: CRTC data collection

Figure 5.4.2 Retail data service revenue market share (%), by type of service provider

Source: CRTC data collection

Table 5.4.4 Retail data service revenue mar