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
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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
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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
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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
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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
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8. (U) Canada's incumbent telecom and cable broadband
infrastructure is controlled by a small number of companies.

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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
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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.