A modest proposal re digital stratagy

1. WE’VE GOT YOU COVERED!
LEAPING FORWARD – WIRELESS
BROADBAND AND A NATIONAL DIGITAL
STRATEGY
November 30, 2009

2. The Authors
The Authors are Michael Hennessy Senior Vice-President, Regulatory and Government Affairs and Ted
Woodhead Vice-President, Telecom Policy and Regulatory Affairs, TELUS Communications Company.
They have prepared LEAPING FORWARD – WIRELESS BROADBAND AND A NATIONAL DIGITAL
STRATEGY for discussion around Canada’s digital future at nextMEDIA Toronto, November 30 .
December 1, 2009 at The Design Exchange, Toronto.
Michael Hennessy has been involved in the communications industry in Canada for 25 years, originally
with the Canadian Radio-television and Telecommunications Commission, then Bell Mobility and prior to
joining TELUS as President of Canadian Cable Television Association. He has also been a member of
the Board of the Canadian Television Fund and is currently Chair of the Banff World Television Festival.
Ted Woodhead has been involved in the communications industry in Canada for 17 years. Prior to
joining TELUS in 2004, he was Director of Regulatory Affairs with Rogers Wireless and prior to that was
Director of Convergence Policy and Infrastructure Access with the Canadian Radio-television and
Telecommunications Commission. He is a member of the Law Society of Upper Canada and was called
to the Bar in 1989.
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3. Table of contents
1. Introduction ......................................................................................................................................... 4
2. The leap forward we took and how we are doing our part in advocating for a national digital
strategy ......................................................................................................................................................... 4
3. Networks enhance social, cultural and economic welfare .................................................................. 5
4. Mobile wireless broadband can help drive this future! ....................................................................... 7
5. Canada needs a national digital strategy ............................................................................................. 9
6. Principles for a national digital strategy .............................................................................................. 9
7. Broadband investment never stops ................................................................................................... 12
8. Spectrum capacity will be the next big barrier to growth ................................................................. 13
9. Coda ................................................................................................................................................... 16
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4. 1. Introduction
This paper is intended to provoke discussion about how to promote Canada’s
digital future through investment and innovation across all media platforms. The
opinions expressed however, seek not simply to “ensure” a place in that future
for wireless carriers, but to offer proposals for a national digital strategy that
would recognize the interrelationships and linkages between all parts of the
broadband ecosystem. Our comments use as a starting point, the importance of
the broadband networks as building blocks to support a digital media ecosystem.
In particular, this paper uses the recent launch of national 3G+ mobile broadband
networks by TELUS and Bell (a case study if you will) to illustrate the
opportunities that these networks present and how these networks can, if
properly leveraged and supported, meet broader social, cultural and economic
policy goals. These are the networks that will span Canada from coast to coast
and interconnect Canada with the world. These are the networks that Canadian
application developers and content creators will leverage and use to bring their
products and services not only to Canadians but also to the world. And these are
networks that will truly enable open consumer choice and increased innovation at
the edge of the network.
2. The leap forward we took and how we are doing our part
in advocating for a national digital strategy
TELUS and its over 35,000 team members are proud and excited about our
brand new “3G+” wireless network, which was launched nationwide last month.
Over a billion dollars of investment has resulted in perhaps the largest and we
think one of the most advanced wireless broadband networks in the world.
TELUS’ national 3G+ network is nothing short of revolutionary in terms of its
reach and its openness. When the network was activated on November 5th, in
one stroke Canada was propelled to global leadership in wireless
telecommunications and a substantial percentage of the “digital divide” in
broadband access was closed with wireless connectivity.
When TELUS was planning this next-generation wireless network – which
provides Internet access that is as good as or better than the speed of many of
the wired Internet connections in Canadian homes – we didn’t stop at large urban
centres. We made the capital investment necessary to push this world-class
network deep into rural and remote parts of this enormous country. So much so
that 93 percent of the population and perhaps 40% of the locations in B.C. and
Alberta that Industry Canada recently identified as unserved now have access to
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5. wireless broadband service. That’s 2,100 designated locations and hundreds of
communities. And all built without a dollar of government money.
Even more compelling our network sent a strong signal to the market that the
idea of walled-gardens as the model for wireless is passé. From the iPhone to
the “Droid”, our wireless business will be driven from the edge of the network
according to consumer demands and fuelled by the hundreds of thousands of
applications now driving innovation, creativity and choice.
What is perhaps most remarkable was that this investment, in conjunction with a
dual network infrastructure build by Bell, was accomplished with private money in
the midst of a generational recession. There is a very important lesson here to
consider as Canada struggles to address broadband challenges going forward.
With a deficit heading towards $60 billion, there is no way the government will be
able to spend to build the network platforms we need to drive an innovation
agenda. If we don’t rely on and encourage private sector investment the next
generation of broadband networks will not be built.
Step 1 will be stimulating private sector investment in broadband, wireless and
wireline networks in any national digital strategy.
Step 2 is even more important and that is really understanding all along the
media value chain that technology has placed the consumer in charge,
Step 3 is recognizing that while there are no sustainable protections defined by
political borders for media businesses, broadband networked nations are
gateways to prosperity in a borderless media market. Where there is challenge,
there is also opportunity.
3. Networks enhance social, cultural and economic welfare
It always starts with a vision……
In the 1850’s, Sir Francis Hincks had a vision of a railroad linking all of British
North America. His vision, shared with others, culminated in the expansion of rail
networks across Canada, moving him to exclaim “railways are my politics”.
Between 1850 and 1860 rail lines expanded from 22 miles to 2,000 in both
Ontario and Quebec. This was the result of a grand vision – a vision not without
controversy – that hastened Canada’s industrialization through the development
of home markets and the opportunities that foreign markets provided for
Canadian goods and services, once we could quickly and efficiently deliver them.
Just as our 19th century economy relied and prospered on the steel ties that
bound a nation, it gave way to 20th century and complementary networks made
of asphalt and copper. These networks once constructed enabled the “whole”
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6. economy. They were not an end, in and of themselves. Rather they enabled
economic, social and cultural benefits as well. That is what made them the
defining elements of their time. These developments defined the “old world”
economy but there are lessons to be learned for the “new world” economy as
well.
The availability of near ubiquitous wireline networks have made basic
communications, broadband access to the Internet and the delivery of
entertainment and information a reality - a common staple -for the vast majority
of Canadians. Where those networks do not reach, Canada’s leadership role in
satellite and wireless have striven to fill the gaps and, in some respects, are
poised to be the game changers for the Canadian digital dream.
That said, while yesterday’s investments provided a foundation for these next
generation builds, we are only as good as the future billions of dollars in risk
capital all our enterprises will need to invest in networks, applications and
software development and the enablement of content available on any platform
and on demand.
It is our fundamental premise that continued investment in and availability of
advanced broadband infrastructure, particularly on a competitive basis, will be a
critical component of Canada’s economic, social and cultural welfare in the 21st
century. Building for this future will require billions of dollars of capital from
private firms. In terms of funding large scale visions, governments are frankly
incapable of financing the ongoing capital requirements of these next generation
networks because of fiscal conditions. In a Web2.0 or 3.0, or whatever Web dot
you like, people are the markets and private enterprise the bankers. This is as it
should be, because private enterprise can more efficiently and effectively raise
the capital and deploy it to make this next iteration of the digital future a reality.
That is not ideology, it is economics.
Investment in advanced broadband infrastructures will rely on continued private
sector investment. However, even as we now see the rollout of multiple
advanced wireless networks across Canada this year and next, continued
investment in fibre networks will still be required to meeting exploding demands
for bandwidth.
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7. 4. Mobile wireless broadband can help drive this future!
As noted above, TELUS’ launch of its competitive 3G+ High Speed Packet
Access (“HSPA”) network earlier this month brought the prospect of the broad
availability of always on, nearly ubiquitous mobile broadband to reality. Canada
now has 3 national advanced HSPA networks and more networks are planned to
launch in early 2010. That is an enormous addition to our advanced broadband
pool, and a very deep pool it will be.
New 3G + and later, LTE networks, will move from being considered a mere
complement to fixed broadband and the Internet overall, to an integral
component that will catalyze increased investment and innovation. This trend
would be consistent with the strategy embraced by TELUS beginning in 2000 to
invest in the future importance of mobile wireless and data.
TELUS strategic focus on data and wireless
$6.0B Revenue $9.7B
Wireless
Wireline LD Wireline 40%
23% LD
Wireless 7%
18% 28% 70%
Wireless
Data Wireline Data
Wireline Local Local 8%
10% Wireline
49% 23%
Data
22%
20001
20091
1 12 months ending June 30, 2000 and June 30, 2009, respectively
The telephone monopoly is rapidly becoming part of history
TELUS' national HSPA network is capable of delivering theoretical peak data
download speeds of 21Mbits/s this year and peak speeds are expected to double
that in the next year. Unlike some providers, TELUS and Bell made the capital
investments necessary to push our two world-class 3G+ networks deep into rural
and remote parts of Canada. To put this into context, TELUS reached 40% of
the areas covered under the Broadband Canada: Connecting Rural Canadians
program with the flip of a switch. 2100 locations and hundreds of communities
in British Columbia, Alberta and eastern Quebec that previously had no access to
broadband Internet are now able to access the Internet at speeds that are as
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8. good as the speed of the typical wired Internet connection in urban Canadian
homes. In all, over 93% of Canadians are within the coverage area of these new
wireless broadband networks. This is a step change in meeting the policy goal of
bridging the digital divide and it was achieved without a dollar of government
money.
TELUS vs Rogers - HSPA west coverage
* Based on Rogers’ Sept. 14, 2009 public announcement of HSPA+ coverage within the cities indicated (using associated census metropolitan
areas).
** Based on coverage maps made publicly available by Rogers on Oct. 23, 2009.
Coverage areas are approximate as of October 2009. Actual coverage and network service can vary and are subject to change
It is not a boast to state that these are impressive achievements bringing next
generation broadband to previously unlikely places like Masset, Bella Coola and
Quesnel, British Columbia. There is little dispute that the growth of the use of
information and communications technologies (“ICTs”) has irrevocably altered
our society and the global economy in the post-war era. Broadband will
irrevocably alter our economies as well and in digital media broadly defined. But
the appetite for bandwidth seems insatiable and the changes wrought to
traditional industries are as dramatic as the opportunities are for the new. The
question is then, “Are we going to seize and leverage these opportunities?”
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9. 5. Canada needs a national digital strategy
What is needed is the Government’s attention on the importance and need for
policies that allow all Canadians the opportunity to exploit this broadband future -
today. Now that we have built and continue to build out the underlying
broadband infrastructure, leveraging the capabilities of those networks and the
development of a broadband economy should form part of a larger industrial
strategy. That industrial strategy for Canada would include:
incentives for continued investment
policies that promote consumer access and choice; and
ensuring that application providers, software developers and content
creators across the value chain can reach markets.
6. Principles for a national digital strategy
Given the above context, we argue that it is time, in fact past time, to seriously
move on developing a national digital strategy that will not only ensure ubiquitous
access by Canadians to broadband, but also develop the necessary frameworks
and mechanisms by which targeted investments can be made to propel
Canada’s digital economy forward. To that end, we submit 10 principles that we
believe should guide the discussion and debate.
1. Canada needs to trust the market to build our broadband future
Government cannot afford to build the next generation broadband
infrastructure for the future, it has to trust the market to do that
Consumer demand is sovereign and rejects regulated models for
consumption including many of the limits that currently operate in
the traditional broadcast space
Carriers will build platforms because competition demands it. That
TELUS just built a world class wireless network without asking for
stimulus dollars is proof positive of that fact
2. Government can find smart ways to support a digital media
strategy without large expenditures funded by taxpayer dollars
The government could direct billions of new dollars of investment
into a digital strategy if it redirected the next spectrum auction
revenues for that purpose
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10. The principle behind stimulus is to invest not only in stimulating
platform deployment but to promote creation from software to
stories along the media value chain
Stimulus from auction revenues, where required, needs to be
considered in a more focused and targeted way: accelerated capital
cost allowances for builders; education and training grants;
investment in new business vs. subsidy to support failing media
models.
3. Spectrum auctions should be fair and open to ensure to ensure that the $2
billion dollar overpayments in the last AWS auction are not repeated again
Flawed auction design led to massive overpayments of $2 billion
that could otherwise have been spent by bidders on building
networks
Not a dollar of the total $4.2 billion auction proceeds went into
stimulating digital media or digital economy initiatives but got lost
forever in the federal government’s treasury
$4.2 billion would have closed the digital divide for a decade
In the TELUS case, $400 million of private capital was diverted
(nearly twice as much as was dedicated by the Government to
broadband stimulus)
TELUS’ overpayments of $400 million, delayed or permanently
reduced the opportunity to build next generation fibre networks in
Western Canada for the near future
4. Canada and the world are our markets; we cannot be inward looking
The Internet is a gateway to world markets and young Canadian
entrepreneurs often only need venture capital to create new
business opportunities
Wireless applications will be one of the biggest opportunities and
applications will know no borders
We need to reassess whether foreign ownership rules and cultural
protections are still appropriate or if these undermine innovation
and increase the cost of capital
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11. Canadian innovation can succeed at home and on the world stage
if properly incubated and nurtured
5. Digital content is not limited to narratives/stories but is also software and
applications that enable the creation, distribution and sharing of content
online
Even where broadly available, many Canadians don’t adopt ICTs
and do not benefit from the opportunities broadband presents
Digital literacy, education, training and skills development are
critical elements in building a broadband society
6. Governments are ill equipped to shape new media or to sustain markets
that don’t exist, but government can stimulate investment and innovation
Technology and consumer demand are now the principal factors in
reshaping markets
Media products are discretionary and demand ultimately dictates
success not social engineering
The Internet allows success in long tail and niche markets more so
than protected broadcast markets
Focusing on propping up failing firms in traditional media comes at
the expense of those with the more viable business strategies
7. Canadians must have the opportunities to access, communicate, interact,
create and transact over open broadband networks
Open networks maximize innovation and investment opportunities
Innovation is increasingly driven from the edge of networks and
demand gravitates to edge applications
Investment in application development is critical to both economic
and cultural opportunities
Consumers are agnostic to the networks that deliver the
applications or content – but they want both world class networks
and the applications and content they can deliver – whenever and
wherever they want them
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12. Walled-gardens are anachronistic in an Internet space but
managed networks using IP-based technologies still have a place
for some consumers and businesses that need to exploit their
intellectual property
8. Copyright is not an absolute; it must be balanced against fair use
Copyright legislation may be a necessary framework for guidance,
but it cannot prevent piracy
Balanced copyright can legitimize fair use and the right to create
managed opportunities to exploit and monetize content in tandem
with open network environments
9. Intellectual property is the currency of an information economy just as
much as access to broadband is a prerequisite to participation
Economic growth or economic dependency will be directly
correlated with our ability to develop, protect, exploit and profit from
intellectual property
There will always remain opportunities for creators and distributors
to profit in the mass media space from managed on-demand IP-
based services on multiple platforms in order to monetize
production
Monetization of content is critical to ensuring a supply of high value
content.
10. The consumer and public are already shaping markets and we need to
follow their direction to succeed
7. Broadband investment never stops
The transformation from a voice-centric traditional telephone company to a full service
communications enterprise offering wireline, wireless, satellite, IPTV and other services
in all market segments is neither a costless nor risk free exercise. In fact, it has been
very costly and risky for TELUS’ shareholders. The investment of billions of dollars of
capital, e.g. more than $2B in 2009 alone, has given TELUS the distinction of being the
highest capital intensity telecom operator in North America. These investments have
been made without government assistance or contribution but with private capital and
will provide distribution channels and network platforms on which application and
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13. content providers can create and innovate for years to come. Policy makers should
acknowledge and encourage these investments made in the midst of a global economic
crisis and recession and ensure that regulation and taxation are employed as tools only
where necessary and in the least intrusive manner feasible in order to further similar
investment behaviour. To do otherwise would interfere with the ability to recover these
investments over a reasonable period of time and would have the unintended but
disasterous consequence of creating disincentives to invest.
8. Spectrum capacity will be the next big barrier to growth
TELUS has observed consistent and significant improvement in wireless data use and
associated revenue increases from the use of wireless data over the last 5 years. We
expect this trend to continue in coming quarters and years as mobile wireless
broadband is embraced by more Canadians, both urban and rural. New devices and
Internet keys designed for the mobile broadband environment, along with a burgeoning
list of applications designed to meet every conceivable need of consumers and
businesses will drive continued investment and innovation in the broadband ecosystem.
Wireless data revenue
$229M
$181M
$116M
BlackBerry
Q3-07 Q3-08 Q3-09
Tour
27% annualized data growth driven by continued
smartphone adoption and to be enhanced by iPhone launch
Globally, this trend is confirmed and interestingly, but not surprisingly, video content
plays a growing and significant role in the transformation of mobile broadband wireless
usage. This forecast of the importance of data, but most importantly of video data, in
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14. global mobile data growth should provide ample impetus for the public policy apparatus
to take notice and act. As O2's CTO, Derek McManus, said:
The introduction of world-class smartphones, in combination with a wide variety
of data applications, has brought about a dramatic change in customer behaviour
and created an exponential demand on mobile data networks. Data on our
network has increased 20-fold in the last year alone, and to put this in context,
watching a YouTube video on a smart phone can use the same capacity on the
network as sending 500,000 text messages simultaneously.
For mobile network providers, the Internet has required an increase in network capacity
and will continue to do so for the foreseeable future and beyond. As illustrated by the
chart below, the global growth in mobile data traffic is quite staggering.
Global Mobile Data Traffic Growth
Video will account for 64% of mobile traffic by 2013
131% CAGR 2008 - 2013
19%
10%
64%
7%
Source: Cisco Visual Networking Index – Forecast, 2008-2013
For network providers this is both a blessing and a curse. Increased mobile data use
expands the usefulness and revenues associated with the use of the devices and the
networks they ride on beyond basic voice. However, it also is the canary in the coal
mine because of the spectrum and backhaul capacity required to handle exponential
traffic growth, particularly video. Wireless also remains constrained by the laws of
physics which is near to immutable – spectrum shortage and availability! Spectrum is
the real estate upon which mobile broadband will be delivered. Radio spectrum is a
scarce public resource. Spectrum is more rapidly consumed when consumers and
businesses adopt more and more data applications. As we move inevitably toward a
converged mobile broadband data world, policy makers will need to find ways to make
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15. available more spectrum, in quicker cycles, and in ways that don’t distort the market-
based value of the resource, like auction set asides and arbitrary spectrum caps do, but
also in ways that don’t negatively impact the creation of the applications, content and
services that will be developed by creators and innovators. The new reality for wireless
services is a need for even more spectrum and greater scale, as a prerequisite for next
generation broadband demand.
The scale and scope of this problem can be illustrated in the following chart that shows
that approximately 149,000 terabytes of data will flow across TELUS’ network and by
2018 will consume more than TELUS’ available spectrum capacity. By way of
comparison to demonstrate the speed at which capacity is consumed, in 1993 it is
estimated that total Internet traffic amounted to 100 terabytes. In June of 2008, Cisco
estimated Internet traffic at 160 terabytes/second (for those who need to know, this is in
the order of 5 Zettabytes for the year. Oh, and 1 Zettabyte = 1 billion terabytes). While
total Internet traffic will continue to increase, wireless broadband Internet traffic will
make up an increasing share of it.
The projected data growth will pose challenges for TELUS
The graph above amply illustrates the problem. There will, in the very near future, be a
need to provide more spectrum to operators in order to service the burgeoning
opportunities for applications and content over mobile wireless broadband networks.
For network operators, the planned auctions of spectrum at 700 MHz and at 2.5/2.6
GHz will provide, in the short term, an opportunity to ensure that adequate spectral
resources are available, provided they are made available through an open auction
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16. process that does not employ market distorting set aside frameworks or spectrum caps
designed to manipulate outcomes.
Beyond that however, the auction of spectrum will provide to public policy makers an
opportunity to apportion funding, not otherwise available given current economic
circumstances, to make public investments in furthering a national digital strategy that
would increase Canada’s social, cultural and economic welfare by encouraging the
creation, adoption and use of ICTs and, in particular, application and content creation.
TELUS called for precisely this use of funds garnered from the recent AWS auction that
netted the Canadian treasury some $4.2B. These are areas (Canadian application and
content creation and innovation) are fertile ground for a properly conceived and
executed national digital strategy that would have an enduring impact on investment
and innovation in Canada. The billions of dollars that will be raised through upcoming
and future auctions should be invested, at least in part, back into the digital economy in
order to support application and content creation, broadband expansion, the digital TV
transition and the stimulation of Canadian new media opportunities.
We welcome and encourage the debate. Perhaps these 10 principles can serve as a
catalyst to realizing a vision and action plan for launching an ambitious national digital
strategy that will serve to enhance and sustain Canadians for years to come. The
wireless broadband example provides a window into a rapidly growing and
transformative shift in consumer preference. It serves as a signal that mobile wireless
broadband is moving from being a complementary lesser cousin of traditional wireline
broadband to a significant component in a converged broadband environment.
9. Coda
Will Canada be ready? Will Canada move quickly to recognize the linkages and
interrelationships in the whole converged broadband ecosystem? Will Canada invest in
the future? Who will champion this vital initiative? Who will have the vision and be the
champion? Who will be this century’s Sir Francis Hincks? Will Canada have a national
digital strategy that will keep pace with and exploit the world class network
developments and achievements that are occurring as we consider these fundamental
questions, or will others pass us in the fast lane while we ponder?
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