Broadband Deployment in Canada

UNCLAS SECTION 01 OF 02 OTTAWA 000300 STATE FOR E, EB/DCT, WHA/EX, WHA/CAN STATE FOR EEB/CAP/BA (FINTON) COMMERCE FOR ITA/OTEC (BENNETT) STATE PASS FCC (TANNER) SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON ECPS CA SUBJECT: Broadband Deployment in Canada Ref: SECSTATE 27310 SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY ¶1. (SBU) Summary: Canada moved quickly to achieve extensive, cross-country broadband deployment early this decade and leads the G7 in national connectivity rates. This achievement is particularly impressive given the size and geography of Canada and it showcases the government's commitment to broadband access. However, Canada's continued expansion and adaptation of broadband technologies is hindered by the competitive structure of the Canadian market, characterized by a limited number of carriage providers, low population density, and barriers to investment. End summary Extent of broadband deployment in Canada -------------- ¶2. (U) According to 2006 Government of Canada data, broadband service is available to 93 percent of Canadian households; 75 percent of Canadians have a home computer; and 60 percent of households are broadband subscribers. Approximately 87 percent of households in Canada have a choice between telephone- or cable-based broadband. The evolution of Canada's broadband penetration -------------- --- ¶3. (U) Canada has a low population density - approximately 2.05 people per square mile - and most of Canada's 30 million people live within 100 miles of the United States border. Most of this population is easily reached by telephone or cable infrastructure. However, Canada's relatively small population density outside of the major cities of Toronto, Montreal, and Vancouver, provides weak commercial incentives for telecommunications investment. Consequently, the Government of Canada embarked on an aggressive strategy to stimulate broadband expansion in the country in the late 1990s. ¶4. (U) The Canadian strategy combined regulatory and market-based initiatives, set out in broad strokes in the 2001 Report of the National Broadband Task Force. Government spending was loaded at the front end of the initiative and gradually reduced to a few programs to assist incremental expansion in underserved areas. ¶5. (U) Canada also brought the private sector on board through regulatory incentives and licensing schemes such as: making certain telecommunications licenses conditional on broadband investment; a two-percent levy for connectivity improvement paid by satellite TV license holders; and the condition that spectrum license holders must also provide WiMAx mobile broadband service. Incentives for internet deployment in stimulus packages -------------- -------------- ¶6. (U) Since most of the government initiatives took place between 2001 and 2007 (and 93 percent household coverage was achieved by 2006),there has been little recent government spending on broadband infrastructure. While Canada's 2009 federal budget included various types of science and technology supports, there was no appreciable targeting of broadband expansion. In July of 2008, an interagency group of Canadian officials told visiting FCC Commissioner Copps that they were pleased with Canada's progress and had no plans for additional, significant initiatives to expand broadband availability. Deployment of broadband to rural and underserved areas -------------- -------------- ¶7. (U) The Canadian regions of Yukon, Nunavut and Northwest Territories comprise 41 percent of Canada's land mass, but only 0.4 percent of its population. The land is rugged and difficult to Qpercent of its population. The land is rugged and difficult to service with infrastructure of any kind. As a result, comprehensive broadband penetration in Canada's far north and other remote areas has not been realized. Nevertheless, the government predicts that the access gap will close as technology improves and fixed wireless and satellite services become less expensive. Limitations arising from the Canadian market structure -------------- -------------- ¶8. (U) Canada's incumbent telecom and cable broadband infrastructure is controlled by a small number of companies. OTTAWA 00000300 002 OF 002 Although access to the 'last mile' of networks and to telephone broadband equipment is being slowly de-regulated, Canada's small population and large size make it a costly market to service. As well, federal restrictions on foreign ownership of telecommunications (and satellite) industries shrink the pool of potential new competitors in the marketplace even further. ¶9. (U) While Canada's broadband deployment is impressive for so large a country, Canada lags behind its OECD counterparts in service and price. The average broadband connection in Canada is about 7 mbps, below the OECD average of 9 mbps. According to the OECD, Canada also fares poorly in internet cost versus speed, ranking 27 out of 30 for average monthly broadband charges. Canada also imposes download caps on subscribers. Typical limits on Canadian internet connections are 60 GB per month, with higher-end plans offering around 100 GB. ¶10. (U) Local-loop unbundling is a practice that allows smaller ISPs to rent out portions of a large phone company's network and then attach their own equipment to provide customers with internet access. While Canada's regulations permit local-loop unbundling, its telecommunications firms have tended to erect barriers that limit practical access by smaller firms to the main network. ¶11. (U) As wireless technologies play a more important role in internet connectivity, Canada's relatively expensive and underdeveloped wireless services have also become more of an impediment. For example, Apple's iPhone was introduced in Canada one year later than in the US and UK, and there is only one company able to provide necessary GSM support service. Canada's mobile data costs are among the highest in the world and the World Economic Forum dropped Canada's 'network readiness' status from 5th place in 2005 to 13th place in 2008. Future prospects and US commercial opportunities -------------- --- ¶12. (SBU) Comment: The government's official strategy is to increase reliance on market forces "to the maximum extent feasible" in order to promote competition while maintaining advanced services for customers. Canada has promised a gradual transition to deregulation of networks and telephone-based broadband equipment once equivalent commercial alternatives are sufficiently available. However, the hands-on regulatory environment that helped Canada rapidly expand its broadband deployment may now impede growth and adaptation in the sector. Given the factors limiting competition, it is by no means certain whether affordable consumer access to new technology and next-generation networks can be sustained without significant government intervention. The government is currently re-assessing its role in telecommunications and is leaning towards stronger deregulation, including consideration of permitting foreign investment in telecommunications carriers. End comment.