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CRTC Telecommunications Monitoring Report

Status of Competition in Canadian
Telecommunications Markets

Deployment/Accessibility of
Advanced Telecommunications
Infrastructure and Services

July 2006

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For additional copies of the report, please contact:

Documentation Centre
Canadian Radio-television and
Telecommunications Commission (CRTC)
Les Terrasses de la Chaudière
Central Building
1 Promenade du Portage
Gatineau, Quebec

Mailing Address:
CRTC
Ottawa, Ontario
Canada
K1A 0N2

Telephone: 1 819-997-2429
                 1 (877) 249-2782 (toll-free)
TDD:         1 (877) 909-2782 (toll-free)

This publication is available electronically: http://www.crtc.gc.ca

This publication can be made available in alternative format upon request.

Ce document est également disponible en français.

Catalogue No. BC92-57/2006E
ISBN # 0-662-43327-0

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Acknowledgements

The Canadian Radio-television and Telecommunications Commission (the Commission) wishes to thank all service providers that completed the CRTC data collection forms, without which this report would not have been possible. The Commission would also like to acknowledge the assistance provided by Industry Canada in the analysis of broadband deployment as it related to the rural communities in Canada and to Statistics Canada for the various supplementary data used in this report.

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Executive summary

The Canadian Radio-television and Telecommunications Commission (the Commission) has issued, pursuant to Order in Council P.C. 2000-1053, 26 June 2000, five annual monitoring reports on the status of competition in Canadian telecommunications markets and on the deployment and accessibility of advanced telecommunications infrastructure and services. As these reports had evolved to become a key component of the Commission's monitoring plan and were used by stakeholders as an invaluable source of information on the Canadian telecommunications industry, the Commission, in Monitoring the Canadian telecommunications industry, Telecom Public Notice CRTC 2005-15, 18 October 2005, announced that it would continue with its monitoring activities and the issuance of monitoring reports. This is the Commission's first monitoring report on the status of competition in Canadian telecommunications markets pursuant to that public notice.

In Forbearance from the regulation of retail local exchange services, Telecom Decision CRTC 2006-15, 6 April 2006, the Commission established a framework for forbearance from the regulation of incumbent local exchange services that will provide greater certainty and enable the Commission to reach expeditious determinations with respect to local forbearance applications. As part of this framework, the Commission defined 86 local forbearance regions (LFRs) for which market share statistics are provided in Appendix 4. The Commission also allowed for a measure of flexibility, in its decision to take into account differing market and geographic conditions. To that end, while the Commission has provided guidance on the LFRs outside of the census metropolitan areas (CMAs), the Commission is willing to entertain applications for local forbearance outside of a CMA, pursuant to the local forbearance framework, which identify a different LFR from those set out by the Commission.

Industry overview

Total telecommunications service revenues were $34.5 billion in 2005, an increase of $1.2 billion or 3.5% over the previous year. The vast majority of this increase is directly attributable to the revenue growth of high-speed Internet and wireless services and, to a lesser extent, the newer data services such as Ethernet and Internet protocol (IP)-based services. Traditional services such as long distance, circuit switched local service and legacy data services such as X.25 and ATM have either declined or displayed no revenue growth in 2005.

The competitors' share of total telecommunications revenues, both wireline and wireless, continued to increase and reached 35% or $12.2 billion in 2005. The competitors' market share consisted of the incumbent telephone companies' out-of-territory activities with 11%, facilities-based competitors with 19% and resellers with the remaining 5%.

The development and adoption of new technologies continues to impact the industry, not only by reducing costs, but also by introducing new ways of providing telecommunications services. This has resulted in the delivery of traditional services by non-traditional service providers, such as cable broadcasting distribution undertakings (BDUs) and utility companies. In the midst of these developments, Canada continued to have not only a very high wireline and wireless telephone penetration rate of 98.9 subscribers per 100 households but also a very high Internet subscription rate of 64 subscribers per 100 households. Moreover, 51% of all households subscribed to high-speed Internet service.

The major cable BDUs have evolved their Internet and distribution network infrastructure and have entered the local residential telephone market. These companies are major providers of high-speed Internet service, as they had approximately 54% of high-speed Internet subscribers, and in 2005, they started to provide local telephone service generally over a managed network utilizing voice over Internet protocol (VoIP).

The telecommunications industry's earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $11.5 billion to $12.4 billion, a $0.9 billion or 8% increase. The increase was mainly due to the wireless service providers, whose EBITDA increased from $3.7 billion in 2004 to $4.4 billion in 2005, a $0.7 billion or 19% increase.

Capital expenditures decreased from $5.7 billion in 2004 to $5.6 billion in 2005, a $0.1 billion or 1.8% decrease. Wireline service providers' capital expenditures declined from $4.6 billion in 2004 to $4.5 billion in 2005, a $0.1 billion or 2% decline. Wireless service providers' expenditures were relatively unchanged at $1.1 billion in 2005.

Local and access

The local and access sector is now the second the largest in the telecommunications market, accounting for 28% of total industry revenues. Local revenues and the number of lines increased slightly to approximately $9.8 billion and 20.8 million lines in 2005. Overall, the incumbents' share of retail local revenues declined from 94% in 2004 to 92% in 2005 while their share of local lines declined from 94% in 2004 to 90% in 2005.

In the residential market, the competitors' revenue share increased from 3% in 2004 to 5% in 2005. Competition was primarily confined to a limited number of LFRs. The Halifax LFR had the highest competitor presence in terms of lines at 35%. Overall, the competitors' share of residential lines exceeded 10% in 11 of the LFRs. These 11 LFRs represent 39% of all residential lines.

In the business market, competitors' revenue share increased from 12% in 2004 to 14% in 2005. In terms of lines, the Edmonton LFR had the highest competitor presence at 24.5%. Overall, the competitors' share of business lines exceeded 10% in 31 of the LFRs. These 31 LFRs represent 68% of all business lines.

Technological development and adoption have permitted cable BDUs to use their cable networks to offer telephone service. The cable BDUs are, therefore, not as dependant on the unbundled network components provided by the incumbents as other entrants in the local market.

Long distance

In the long distance market, revenues continued to decline, decreasing from $5.6 billion in 2004 to $5.1 billion in 2005, a $0.5 billion or 8.6% decline. The number of long distance minutes, however, continued to increase in 2005 increasing by 10.1% when compared to the previous year. The incumbents' share of long distance revenues declined from 67% in 2004 to 64% in 2005.

In the residential market, competitors had 28% of the long distance revenues of which the vast majority (82%) was related to resellers. In the business market, competitors had 44% of the revenues of which 20% was related to resellers.

Internet and broadband services

The Internet market continued to have strong growth and remained competitive. The Internet market was again one of the fastest growing markets in the industry. Internet revenues increased from $4.2 billion in 2004 to $4.5 billion in 2005, a $0.3 billion or 8.8% increase. The incumbent telephone companies had 43% of the retail Internet access revenues in 2005, while the cable BDUs had 42% and all other competitors, including the incumbents' out-of-territory operations, had the remaining 16%. The four largest Internet service providers (Bell Canada, TELUS Communications Company, Rogers Communications Inc. and Shaw Cablesystems Ltd.) and their affiliates accounted for 63% of the retail Internet revenues in 2005.

Broadband deployment continued to progress, with approximately 92% of Canadian households having access to broadband services. Ninety-eight percent of urban households can access broadband service versus 74% of the rural households up from 68% in 2004. In 2005, 64% of Canadian households had an Internet subscription. There were far more high-speed Internet households (51%) than there were households with dial-up subscriptions (13%).

Data and private line

In the data and private line market, total revenues decreased from $4.4 billion in 2004 to $4.1 billion in 2005, a $0.3 billion or 7.2% decrease. Data service revenues declined from $2.3 billion in 2004 to $2.2 billion in 2005, a $0.1 billion or 4.1% decline, and private line service revenues declined from $2.1 billion in 2004 to $1.9 billion in 2005, a $0.2 billion or 10.7% decline.

The competitors', including the incumbents' out-of-territory operations, share of the data and private line market, increased from 27% in 2004 to 31% in 2005. Aggressive pricing and reduced demand continued to be major contributors to the decline in private line service revenues. The industry is continuing to benefit from the revenue growth of the newer data services that meet customer requirements for increased speed, functionality and cost efficiency - these services now represent almost 50% of the data protocol revenues. These newer data services such as Ethernet and IP based virtual private network had revenue growth of 4% and 52%, respectively. This may, in part, account for some of the reduced demand for private lines and legacy data services such as X.25.

Wireless

The wireless market continued to display strong growth and remained competitive in 2005. Wireless revenues increased from $9.5 billion in 2004 to $11.0 billion in 2005, a $1.5 billion or 16.2% increase. This strong growth made the wireless market the largest sector in the telecommunications market, accounting for 32% of the industry's revenues. The number of wireless subscribers increased from 15.0 million subscribers in 2004 to 17.0 million in 2005, an increase of 2.0 million subscribers or 13.3%. Three major wireless service providers accounted for over 90% of the wireless market, with no provider dominating in terms of either revenues or subscribers. The average monthly revenues per subscriber increased from $48 in 2001 to $53 in 2005.

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Table of contents

1.0 Introduction
      1.1 Purpose of the report
      1.2 Data collection and outline of the report

2.0 Overview of regulation and the impact of competition on access to the PSTN
      2.1 Regulatory oversight of Canadian telecommunications markets
      2.2 The Commission and competition
      2.3 Access to the PSTN

3.0 Overview of the telecommunications service industry
      3.1 Market providers
      3.2 Industry evolution

4.0 Status of competition
      4.1 Financial review of markets
      4.2 Local and access
      4.3 Long distance
      4.4 Internet service and broadband availability
      4.5 Data and private line
      4.6 Wireless

Appendix 1 Data collection methodology and analysis
Appendix 2 Classification of Canadian telecommunications service providers
Appendix 3 Summary of Canadian telecommunications markets subject to Commission forbearance rulings
Appendix 4 Local market share by local forbearance regions - Residential and business markets
Appendix 5 Promising means for accelerated broadband deployment

List of tables

Table 2.3.1 Canadian penetration rates - Wireline and wireless subscribers
Table 2.3.2 Service improvement plans - Status

Table 3.1.1 Total telecommunications revenues by type of service provider
Table 3.1.2 Wireline telecommunications revenue market share by type of service provider

Table 4.1.1 Total telecommunications service revenues
Table 4.1.2 Segmented telecommunications service revenues
Table 4.1.3 EBITDA by type of provider
Table 4.1.4 Capital expenditures by type of provider
Table 4.1.5 Inter-carrier payments per revenue dollar by wireline market sector
Table 4.2.1 Total local and access revenues, and lines
Table 4.2.2 Local and access revenues by market segment
Table 4.2.3 Local lines by market segment
Table 4.2.4 Total retail revenues and lines
Table 4.2.5 Incumbent local retail market share by province (lines)
Table 4.2.6 Local residential revenues
Table 4.2.7 Local residential lines
Table 4.2.8 Local business revenues
Table 4.2.9 Local business lines
Table 4.2.10 Local wholesale revenues by major component
Table 4.2.11 Local wholesale revenues
Table 4.2.12 Local wholesale lines
Table 4.3.1 Total long distance revenues and minutes
Table 4.3.2 Long distance revenues by market segment
Table 4.3.3 Incumbent telephone companies' retail long distance revenue market share by region
Table 4.3.4 Residential long distance revenues
Table 4.3.5 Residential long distance minutes
Table 4.3.6 Business long distance revenues
Table 4.3.7 Business long distance minutes
Table 4.3.8 Wholesale long distance revenues
Table 4.4.1 Internet revenues
Table 4.4.2 Residential and business Internet access service revenues
Table 4.4.3 Internet access service revenues by type of provider
Table 4.4.4 Top four retail Internet companies' revenues
Table 4.4.5 Residential Internet access revenues by type of provider
Table 4.4.6 Business Internet access revenues by type of provider
Table 4.4.7 Residential Internet access revenues and market share by access technology
Table 4.4.8 Business Internet access revenues and market share by access technology
Table 4.4.9 Residential Internet subscribers by type of provider
Table 4.5.1 Data and private line revenues
Table 4.5.2 Data protocol and other revenues
Table 4.5.3 Data protocol retail and wholesale revenues by service category
Table 4.5.4 Revenue market share by data protocol service category
Table 4.5.5 Private line service retail and wholesale revenues by service category
Table 4.5.6 Private line - Short-haul and long-haul revenue market share
Table 4.6.1 Wireless and paging revenues and number of subscribers
Table 4.6.2 Wireless and paging revenues components
Table 4.6.3 Wireless subscriber market share by province
Table 4.6.4 Average monthly churn rates

Table A.5.1 Summary of provincial government broadband deployment initiatives and investments
Table A.5.2 Summary of programs for broadband deployment initiatives and investments

List of figures

Figure 2.3.1 TPI v. CPI

Figure 3.1.1 Total telecommunications revenue market share by type of service provider
Figure 3.1.2 Distribution of telecommunications revenues and number of service providers by type of service provider
Figure 3.1.3 Total business market wireline revenue distribution (excluding Internet) by customer size and type of provider
Figure 3.2.1 BDU and high-speed Internet subscriptions and availability as a percent of the number of Canadian households

Figure 4.1.1 Wireline and wireless annual revenue growth rates
Figure 4.1.2 Distribution of telecommunications revenues by market sector
Figure 4.1.3 Average monthly revenues per line/subscriber
Figure 4.1.4 Comparison of EBITDA by type of provider
Figure 4.1.5 Capital expenditures by type of provider (wireline v. wireless)
Figure 4.1.6 Capital expenditures as a percentage of revenues
Figure 4.1.7 Wireline EBITDA v. wireline CAPEX
Figure 4.2.1 Competitor market share (local lines) in most competitive LFRs
Figure 4.2.2 Local residential revenues by component
Figure 4.2.3 Local business revenue distribution by customer size and type of provider
Figure 4.2.4 Competitor local retail lines by type of facility
Figure 4.2.5 Competitor local residential and business lines by type of facility
Figure 4.3.1 Total long distance revenue market share by type of provider
Figure 4.3.2 Residential and business ARPM
Figure 4.3.3 Retail long distance revenue market share by type of provider
Figure 4.3.4 Residential long distance revenue market share by type of provider
Figure 4.3.5 Business long distance revenue market share by type of provider
Figure 4.3.6 Business long distance revenue distribution by customer size and type of provider
Figure 4.3.7 Wholesale long distance revenue market share by type of provider
Figure 4.4.1 Residential and business Internet access revenues market share by type of provider
Figure 4.4.2 Residential Internet access technology mix (2001 v. 2005)
Figure 4.4.3 Broadband availability
Figure 4.4.4 Broadband availability (urban v. rural)
Figure 4.4.5 Broadband availability v. subscriptions
Figure 4.4.6 Broadband access in OECD countries per 100 inhabitants
Figure 4.5.1 Data and private line revenue market share by type of provider
Figure 4.5.2 Data and private line revenues by customer size and type of provider
Figure 4.5.3 Data revenue market share by type of provider
Figure 4.5.4 Data protocol services - Revenue distribution by service category
Figure 4.5.5 Private line revenue market share by type of provider
Figure 4.5.6 Competitors' private line revenue share - Short-haul and long-haul
Figure 4.6.1 Wireless revenues, subscribers and revenues per subscriber (excluding paging)
Figure 4.6.2 Wireless revenue and subscriber growth rates (excluding paging)
Figure 4.6.3 Wireless and paging revenues by major component (excluding basic voice)
Figure 4.6.4 Percent of pre-paid and post-paid subscribers
Figure 4.6.5 Wireless service providers' subscriber market share
Figure 4.6.6 Wireless service providers' revenue market share

Figure A.5.1 Communities with and without broadband access

Map

Presence of wireless facilities-based service providers

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1.0 Introduction

1.1 Purpose of the report

The Canadian Radio-television and Telecommunications Commission (the Commission) issued its first monitoring report in 2001 pursuant to Order in Council P.C. 2000-1053, 26 June 2000. The Commission was required to submit annual reports for five years starting in 2001 to the Governor in Council on the status of competition in Canadian telecommunications markets and on the deployment and accessibility of broadband services and facilities across the country (the GIC Report).¹

The Commission has found the reports useful in fulfilling its mandate under the Telecommunications Act (the Act). The reports have become an invaluable source of information on the Canadian telecommunications industry and provide the Commission and stakeholders with an efficient and effective tool to assess the extent to which the Commission's regulatory frameworks and determinations are fulfilling the Canadian telecommunications policy objectives set out in section 7 of the Act.

In Monitoring the Canadian telecommunications industry, Telecom Public Notice CRTC 2005-15, 18 October 2005 (Public Notice 2005-15), the Commission announced that it would continue to publish annual monitoring reports and collect information related to Canadian telecommunications markets using the procedures outlined in Telecom Circulars 2003-1² and 2005-4.³ This is the Commission's first report following Public Notice 2005-15.

The information gathered as part of its data collection process enables the Commission to monitor (a) the state of competition, (b) the effect of the market on services to residential and business customers, and (c) the service providers' compliance with regulatory requirements.

The Commission is largely responsible for the implementation of the Act that came into force in 1993. Certain objectives of the Act, set out in section 7, are directly or indirectly tied to the notion that competition is in the public interest. For example, subsection 7(f) of the Act explicitly states that the Canadian telecommunications policy has as an objective "to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective."

The Commission collects information related to Canadian telecommunications markets in order to monitor the status of competition. As there is no single or simple way of assessing the state of competition in a market, the Commission examines various elements or factors, including among other things: (i) the market size and market share according to criteria, such as revenues and number of subscribers, lines and minutes; (ii) the number and description of service providers in the market; (iii) lists of available services, pricing levels and trends; and (iv) corporate financial conditions.

Specific elements of the monitoring exercise change over time to take into account new regulatory issues or market developments, such as new technologies, changes in the market structure or in domestic or international regulations or agreements, or the introduction of new or evolving services. Such changes serve to ensure that the monitoring reports continue to be useful tools for all stakeholders, including regulators, customers and industry players, both incumbents and competitors.

1.2 Data collection and outline of the report

Although there are various means for measuring competition, good quality data is critical if the monitoring process is to be accurate and useful. For the most part, the Commission uses its own data collection system in order to gather detailed and timely information.

This report is based on the responses to the Commission's data collection forms which have been issued annually since 2001 (referenced as CRTC data collection), internal analyses, data collected from other sources, including Statistics Canada, Industry Canada, and company-specific financial reports and information previously filed with the Commission.

Certain figures published in prior years' monitoring reports may be restated to be consistent with data displayed in this report. Other figures may change as a result of some service providers resubmitting prior years' data. In addition, certain data may be reclassified to better reflect the market segments or industry developments. All revised numbers are identified by means of a number sign (#).

This report is divided into a number of sections and appendices. An overview of regulation and the impact of competition on access to the public switched telephone network (PSTN) is provided in Section 2. Section 3 provides a review of telecommunications service providers. It also provides an overview of telecommunications revenues by type of service provider and a discussion of major industry or market developments. A review of financial information, including revenue, capital expenditures and other operational data for various sectors of the industry is contained in Section 4. It also examines the status of competition in each of the major market segments, including local and access, long distance, Internet and broadband, data and private line, and wireless.

A description of the data collection methodology is provided in Appendix 1. Appendix 2 discusses the classification of the telecommunications service providers. A summary of Canadian telecommunications markets subject to forbearance rulings is provided in Appendix 3. Appendix 4 provides local market share information by local forbearance regions (LFRs). A review of the status of promising means for broadband deployment in rural and remote areas of the country is contained in Appendix 5.

2.0 Overview of regulation and the impact of competition on access to the PSTN

2.1 Regulatory oversight of Canadian telecommunications markets

The Commission has the mandate pursuant to section 47 of the Act to exercise its powers and perform its duties with a view to implementing the telecommunications policy objectives set out in section 7 of the Act, and ensuring that rates Canadian carriers charge are just and reasonable and that, in relation to the provision of telecommunications services, Canadian carriers do not discriminate unjustly or accord any undue or unreasonable disadvantage.⁴ In addition to regulating the rates, terms and conditions under which telecommunications services are provided, the Commission has the power to forbear from regulating telecommunications services or classes of service where it finds, among other things, that there is sufficient competition to protect the interests of users.⁵

2.2 The Commission and competition

In exercising its statutory powers under the Act and predecessor legislation, the Commission has over the years gradually and in an orderly manner opened up monopoly-based markets to competition. The Commission also strives to ensure the provision of reliable and affordable services of high quality accessible to both urban and rural area customers, to foster facilities-based competition, to provide incumbents with incentives to increase efficiencies and be more innovative, and to adopt regulatory approaches that impose the minimum regulatory burden possible.

In Decision 94-19,⁶ the Commission established a three-step process by which it could determine whether a market is, or is likely to become competitive for the purpose of considering forbearance applications: (a) identify the relevant market; (b) determine whether the applicant has market power with respect to the relevant market; and (c) determine whether, and to what extent, forbearance should be granted.

As outlined in Appendix 3, over time the Commission has forborne from regulating a number of services including mobile services, retail Internet services, long distance and international services, various data and private line services, terminal equipment and inside wiring, satellite services and services provided by non-dominant carriers. In 2005, the Commission forbore from regulating approximately 1,000 additional interexchange private line routes⁷ for a total of approximately 3,000 forborne routes.

While the Commission has forborne, and continues to forbear, from regulating a growing number of services, the Commission continues to regulate certain telecommunications services where competition has not been found to be sufficient to protect the interests of users. In the case of large incumbents [including Aliant Telecom Inc. (Aliant Telecom), Bell Canada, MTS Allstream Inc. (MTS Allstream), Saskatchewan Telecommunications (SaskTel) and TELUS Communications Inc. (TCI) (now part of TELUS Communications Company (TCC))], these services include residential basic local services, business single and multi-line local services, local calling features and options, pay telephone, digital network access, local channels, and competitor services. Starting in 1998, the regulation of these services (for all of these companies except SaskTel) changed fundamentally, shifting away from an earnings-based to a price level-based form of regulation.⁸ The first price cap regime covered the period 1998 to 2002. In 2002, it was reviewed and modified.⁹ The new regime, which now also applies to SaskTel, came into effect in June 2002 and extends through to 2007.

Non-forborne telecommunications services provided by Société en commandite Télébec (Télébec) and TELUS Communications (Québec) Inc. (TCQ) (now part of TCC) were made subject to price cap regulation as of August 2002.¹⁰ In addition, non-forborne services provided by small incumbent telephone companies were made subject to a simplified form of price regulation effective in January 2002.¹¹

Regulatory streamlining initiatives

The Commission has put in place a range of mechanisms to ensure effective and efficient regulation. These include:

1. the CRTC Interconnection Steering Committee (CISC) process that provides a forum for interested parties, with the assistance of Commission staff, to resolve competition issues of a technological, operational or administrative nature;
    
2. third-party mediation or staff-assisted dispute resolution to encourage and promote bilateral negotiations;
    
3. expedited procedures¹² for resolving competitive issues that are factual in nature, and generally relate to established rules, and not to the creation of new ones. This process is an efficient and effective way of dealing with disputes. The expedited hearings generally result in decisions being issued within a week. As a result of the expedited process, applications are withdrawn as the parties resolve their issues with the assistance of Commission staff and the expedite becomes a staff assisted dispute resolution. Between 2004 and 2006, expedited procedures were used to resolve 16 competitive issues;
    
4. expedited processes for retail tariff filings. The Commission recognizes the need for timely disposition of tariff applications by incumbent companies for new or amended services. Initiatives were taken to streamline and expedite the processing of retail tariff filings¹³ and the processing of applications concerning the withdrawal of services for which new technologies are employed and for which there are replacement services.¹⁴ For the twelve-month period ending 31 March 2006, the average time for interim disposition of retail tariff filings was 9 business days; and
    
5. approval of confidential price ranges within which incumbents can offer certain services such as Bell's Digital Voice services and SaskTel's WebCall service. This permits the incumbents to respond to market forces by providing pricing flexibility and eliminating the need for regulatory approval of price changes within the range.

In Decision 2006-15,¹⁵ the Commission established a framework for forbearance from the regulation of incumbent local exchange services that will provide greater certainty and enable the Commission to reach expeditious determinations with respect to local forbearance applications.¹⁶ As part of this framework, the Commission defined 86 LFRs for which market share statistics are provided in Appendix 4.

2.3 Access to the PSTN

Penetration rates provide a useful indicator of consumer access to the PSTN. Penetration rates are measured by identifying the percent of households that subscribe to various local services that utilize or access the PSTN such as wireline local telephone service and wireless telephone service. Table 2.3.1 summarizes these results in the following categories: wireline, wireless, wireline and/or wireless and wireless only, covering the 2000 to 2005 period.¹⁷

The penetration rate of wireline and/or wireless services has remained relatively constant over the 2000 to 2004 period, at approximately 98.9% of households. Wireline penetration has gradually declined over this period from 97.7% to 96.2% of households. In contrast, wireless penetration increased 41.8% over this period, reaching 58.9% of households in 2004. The penetration rates in Table 2.3.1 indicate that 4.8% of Canadian households had only wireless service in 2005, up more than four-fold from 1.1 % in 2000.

Table 2.3.1
Canadian penetration rates
Wireline and wireless subscribers
(per 100 households)

Year	Wireline	Wireless	Wireline and/or wireless	Wireless (only)
2000	97.7	41.8	98.8	1.1
2001	97.4	47.6	98.6	1.2
2002	97.0	51.6	98.7	1.7
2003	96.3	53.9	98.8	2.5
2004	96.2	58.9	98.9	2.7
2005	n/a	n/a	n/a	4.8

Source: Statistics Canada
n/a: not available

Service improvement plans

To maintain a high level of telephone service that meets the basic service objective (BSO)¹⁸ as established by the Commission, and to continue to expand local telephone service in Canada, the incumbent local exchange carriers (ILECs) were directed to file service improvement plans (SIPs)¹⁹ for Commission approval. These SIPs outlined how, over a four-year period, the companies proposed to improve or upgrade telephone service, and to expand service in high-cost and non high-cost serving areas.²⁰ In some cases, SIPs were extended beyond four years due to the identification of additional households or delays in the roll-out of the plans.

The SIP programs in high-cost serving areas are funded from the National Contribution Fund.²¹ Under the contribution regime, all telecommunications service providers that exceed a certain revenue threshold are required to contribute to the fund. SIP programs in non high-cost serving areas are funded from the ILECs' deferral accounts.²²

Table 2.3.2 provides the cumulative results of the SIP program since 2002. During this time, the Commission has reviewed and approved SIPs from the large and small ILECs involving 25,674 unserved and 38,976 underserved²³ premises in 2,978 communities. SIPs have improved the level of local service. The impact of the SIPs is demonstrated by the fact that 22,959 households or 89% of households identified as unserved and 37,985 households or 98% of households identified as underserved were receiving local service by the end of 2005 that met basic service objectives as set out by the Commission.

Table 2.3.2
Service improvement plans - Status

	2002	2003	2004	2005
Unserved premises	19,680	26,620	26,486	25,674
Underserved premises	34,700	38,995	39,027	38,976
Total number of SIP communities	1,626	3,218	3,248	2,978
Previously unserved premises (service provided by SIPs)	742	5,402	12,877	22,959
Previously underserved premises (now with basic service)	14,219	20,961	34,200	37,985
Number of communities with service provided or improved to basic service under SIPs	221	865	1,703	2,499
Percent of unserved premises now with service	3.8%	20.3%	48.6%	89.4%
Percent of underserved premises improved to BSO	41.0%	53.8%	87.6%	97.5%

Source: ILECs' approved SIP filings for 2005 and previous years.

Telephone price index and the consumer price index

In Figure 2.3.1, the telephone price index (TPI) which reflects the price changes experienced by a household for a basket of telephone services is compared to the consumer price index (CPI) for the period 2001 to 2005. The basket of telephone services reflects a weighted average of consumer expenditures on basic local service, other local services (such as options and features), and long distance, installation and repair services. They do not, however, include wireless or Internet service expenditures.²⁴

Throughout the 2001 to 2005 period, the TPI remained below the CPI. In 2001, the rates for basic residential local service increased in most urban and rural areas, consistent with the first price cap regime established by the Commission's 1998 price cap decision²⁵ which applied to the large ILECs (except for SaskTel, Télébec and TCQ) and generally limited price increases to the rate of inflation less a productivity factor of 4.5%.

Figure 2.3.1
TPI v. CPI

Since 2001, increases in the TPI were less than in the CPI and the difference between these two indices has consistently widened. In 2002, the price cap regime was modified with various changes made to the service baskets and to the pricing constraints applicable to residential and local exchange and option services.²⁶ Under this regime, residential consumers, on average, would not see a rate increase for basic local services unless inflation exceeded the productivity factor of 3.5%. From 2003 to 2005, the ILECs did not increase basic residential local rates.

3.0 Overview of the telecommunications service industry

3.1 Market providers

The telecommunications service industry consists of companies ranging in size from the large national facilities-based, full service providers to the small regional, non facilities-based niche service providers such as the small Internet service providers (ISPs). The industry provides service to over 2.3 million business establishments²⁷ that range in size from the large multi-national companies to the small entrepreneurial companies operating in both the urban and rural regions of Canada and to over 12.5 million Canadian households.

This report encompasses not only telecommunications companies that are primarily involved in the provision of telephone services but also other service providers, such as utility companies and cable broadcasting distribution undertakings (cable BDUs), that provide telecommunications services such as Internet access or other telecommunications services.

The Commission maintains registration lists²⁸ of service providers that either operate or propose to operate in the Canadian telecommunications industry. Excluding the competitive pay telephone service providers, in 2005, these lists contained approximately 1,100 service providers which provided a multitude of services including local and access, long distance, Internet and broadband, data and private line, and wireless services.

To assess the state of competition in the telecommunications markets, the following classifications and sub-classifications of telecommunications service providers was adopted for this report:

1) Incumbents

a) Large incumbents
b) Small incumbents

2) Competitors

a) Competitors (ILEC out-of-territory)
b) Competitors (other) which may be further categorized as:

(i) Facilities-based competitive service providers
    . cable BDUs
    . utility companies
    . other facilities-based providers
(ii) Resellers

Appendix 2 provides additional details on the classification of the telecommunications service providers.

Each of the reporting service providers was assigned to one of the above-noted categories. Certain categories of competitive service providers were combined, as disaggregated reporting could have resulted in disclosure of confidential information. Also, certain figures and percentage growth calculations may not reconcile due to rounding.

Wireless service providers are not identified separately under this classification structure. They are, however, categorized based on their affiliation with the other service providers. For example, the incumbent telephone companies' wireless affiliates are categorized as incumbent and those affiliated with cable BDUs are categorized as cable BDUs.

The incumbent carriers' out-of-territory activities are generally identified within the various sections of this report as competitors (ILEC out-of-territory). However, in cases where this is not possible, the incumbent carriers' out-of-territory activities are included with the incumbents and are noted as incumbents (including ILEC out-of-territory).

Telecommunications service providers and the markets

Total retail telecommunications revenues in 2005 were approximately $31.6 billion, up 7.5% from 2004. Of these revenues, $10.9 billion or 35% related to wireless services and $20.7 billion or 65% related to wireline services. Of these wireline revenues, approximately $10.9 billion or 53% related to residential services and $9.8 billion or 47% to business.²⁹

As displayed in Figure 3.1.1, the incumbents had approximately 65% of the total wireline and wireless revenues in 2005. When operating outside of their traditional operating territory, they captured an additional 11% of the telecommunications revenues, whereas, the facilities-based competitors had approximately 19% and the resellers had 5%.

Figure 3.1.1
Total telecommunications revenue market share by type of service provider
(2005)

As displayed in Figure 3.1.2, approximately 71% of the service providers are resellers, representing the single largest group of telecommunications service providers who operate or propose to operate in the Canadian telecommunications industry. Although the resellers represent 71% of the service providers, as a group they captured only approximately 5% of the revenues in 2005.

The large incumbents, excluding their out-of-territory operations, representing approximately 2% of the total number of service providers, captured approximately 65% of the revenues making them the largest group with respect to revenues.

The cable BDUs were the second largest group, both in terms of number of service providers and revenues, accounting for 10% of the number of service providers and 19% of the revenues. Over 86% of the cable BDUs' revenues were related to Internet and wireless services.

Figure 3.1.2
Distribution of telecommunications revenues and number of service providers by type of service provider

A summary of total telecommunications service revenues in aggregate and by type of service provider for the five-year period 2001 to 2005 is provided in Table 3.1.1 below.³⁰ As this table demonstrates, excluding their out-of-territory operations, the incumbents' share of the industry's total telecommunications revenues decreased from 70% in 2003 to 65% in 2005.

Table 3.1.1
Total telecommunications revenues by type of service provider
($ millions)

	2001	2002	2003	2004	2005
Incumbents
Large (incl. out-of-territory)	24,541.0	23,560.4	23,483.9	25,410.2	25,617.3
Small (incl. out-of-territory)	281.9	319.5	311.9	369.0	367.7
Sub-total	24,822.9	23,879.9	23,795.8	25,779.2	25,985.0
Percent of total	79%	76%	75%	77%	75%
Less: ILECs    (out-of-territory)	n/a	n/a	1,679.9	3,168.1	3,721.6
Total incumbents	n/a	n/a	22,115.9	22,611.1	22,263.4
Percent of total	n/a	n/a	70%	68%	65%
Competitors
Facilities-based service providers
Cable BDUs	2,448.4	3,009.2	3,432.9	4,875.8	6,554.5
Utility companies	31.2	104.5	132.3	95.5	68.5
Other facilities-based	3,391.3	3,247.3	3,141.5	1,001.8	84.0
Total facilities-based	5,870.9	6,361.0	6,706.7	5,973.1	6,707.0
Resellers	709.2	1,217.6	1,315.2	1,558.6	1,788.5
Total facilities-based and resellers	6,580.1	7,578.6	8,021.9	7,531.8	8,495.5
Percent of total	21%	24%	25%	23%	25%
ILECs (out-of-territory)	n/a	n/a	1,679.9	3,168.1	3,721.6
Total competitors	n/a	n/a	9,701.8	10,699.8	12,217.1
Percent of total	n/a	n/a	30%	32%	35%
Total	31,403.0	31,458.5	31,817.7	33,311.0	34,480.5

Source: CRTC data collection
n/a: not available

With respect to wireline services, as displayed in Table 3.1.2, the incumbents had between 70% and 75% of the revenues in the residential, business and wholesale markets. When operating outside their traditional operating territory, the incumbents focused on the business and wholesale markets where they captured 16% and 20% of the revenues, respectively.

Table 3.1.2
Wireline telecommunications revenue market share by type of service provider (2005)
(percent)

	Retail			Wholesale	Total
	Residential	Business	Total
Incumbents	75.4	69.7	72.7	70.3	72.4
Competitors
ILECs out-of-territory	0.2	15.8	7.5	19.7	9.0
Competitors (other)
Facilities-based	16.1	6.9	11.8	7.9	11.3
Resellers	8.3	7.6	8.0	2.1	7.3
Subtotal	24.4	14.5	19.8	10.0	18.6
Total	24.6	30.3	27.3	29.7	27.6

Source: CRTC data collection

Figure 3.1.3 provides a comparison of the incumbents', including their out-of-territory operations, and competitors', both facilities-based and resellers, share of the total local, long distance, and data and private line revenues in the small, medium, large and very large business market segments³¹ in 2005.

Figure 3.1.3
Total business market wireline revenue distribution (excluding Internet) by customer size and type of provider
(2005)

3.2 Industry evolution

Convergence of telecommunications and broadcasting

The telecommunications service industry is a beneficiary of technological developments. These developments have resulted in advanced telecommunications networks which are efficient and offer innovative and advanced telecommunications services. These developments provide a platform for convergence in the provision of telecommunications services and video distribution.

Of the cable industry's total revenues derived from BDU services and wireline telecommunications services, approximately 24% was derived from telecommunications services (mostly Internet services). With respect to telecommunications service providers that offer DSL BDU services, a very small percentage of their revenues were derived from BDU operations.

The potential of convergence from an access facilities perspective is displayed in Figure 3.2.1.

Figure 3.2.1
BDU and high-speed Internet subscriptions and availability as a percent of the number of Canadian households
(2005)

The cable BDU availability bar in Figure 3.2.1 indicates that 95% of households were located within cable BDU serving areas. In addition, 89% of households were located within areas where cable BDUs can provide broadband service. This represents the potential telecommunications market for the cable BDUs as their cable distribution network provides them with the access facilities or connections to the households to provide telecommunications services. In addition, as displayed by the cable BDU subscription bar, these companies already distributed broadcasting services to 66% of the households and, as displayed by the high-speed Internet subscription bar, provided Internet service to 28% of households.

As displayed by the broadband availability bar in Figure 3.2.1, cable BDUs' broadband availability was essentially the same as that of the incumbents, as approximately 87% of households were able to obtain broadband service either by cable modem or by DSL, whereas approximately 3% of households were able to obtain broadband service but had no choice of technology (i.e., cable modem or DSL). Accordingly, the incumbents and the cable BDUs are increasingly in a position to compete in each other's respective markets.

Industry developments

The Canadian telecommunications industry continues to restructure as companies streamline or consolidate their operating structure to be more responsive to the evolving competitive markets. On 1 July 2005, Rogers acquired Call-Net Enterprises Inc. (Call-Net). More recently in 2006, Bell Canada Enterprises (BCE) announced the creation of a local telephone income trust consisting of the rural operations of Bell Canada. The trust, currently named Bell Communications, was subsequently expanded to include the operations of Télébec, NorthernTel, Limited Partnership and Aliant Telecom; while the wireless operations of these companies were combined with those of Bell Mobility. As well, in 2006, both TCI and TELE-MOBILE Company (TMC) ceased to operate as Canadian carriers. TCC began operating as the ILEC in the operating territory of the former TCI and as the wireless service provider in the territories in which TMC had operated.

4.0 Status of competition

4.1 Financial review of markets

Highlights

• Telecommunications industry service revenues increased from $33.3 billion in 2004 to $34.5 billion in 2005, a $1.2 billion or 3.5% increase. Wireline revenues decreased from $23.9 billion in 2004 to $23.5 billion in 2005, a 1.6% decrease; whereas wireless revenues increased from $9.5 billion in 2004 to $11.0 billion in 2005, a 16.2% increase.
• Telecommunications industry capital expenditures decreased from $5.7 billion in 2004 to $5.6 billion in 2005, a 1.8% decline.
• Telecommunications industry earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $11.5 billion 2004 to $12.4 billion in 2005, a 7.9% increase.

Part A - Telecommunications revenues

Overview - Market segment revenues

Telecommunications revenues include revenues from both wireline and wireless service offerings. Wireline service revenues include local and access, long distance, data and private line and Internet service revenues, but exclude revenues from terminal equipment sales and rentals. Wireless service revenues include mobile and paging service revenues, as well as the terminal equipment revenues generated within this market segment.

As shown below in Table 4.1.1, wireline revenues decreased $0.4 billion or 1.6% from $23.9 billion in 2004 to $23.5 billion in 2005.

Table 4.1.1
Total telecommunications service revenues³²
($ billions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Wireline
Retail	21.3	20.6	20.6	21.0	20.7	-1.5%	-0.8%
Wholesale	3.8	3.8	3.2	2.9	2.8	-2.0%	-7.5%
Subtotal	25.2	24.4	23.8	23.9	23.5	-1.6%	-1.7%
Wireless	6.4	7.1	8.0	9.5	11.0	16.2%	14.5%
Total	31.6	31.5	31.9	33.3	34.5	3.5%	2.2%

Source: CRTC data collection
Note: CAGR refers to cumulative annual growth rate

This 1.6% decline in wireline revenues was more than offset by wireless growth, which continued to be strong at 16.2%. Wireless revenues increased from $9.5 billion in 2004 to $11.0 billion in 2005. Wireline revenues have declined since 2002. In contrast, wireless revenue growth has been strong since 2001, at approximately 15%, dipping in 2002 to 10% and recovering in 2003 and increasing to 16.2% in 2005.

Figure 4.1.1
Wireline and wireless annual revenue growth rates (%)

Table 4.1.2 below illustrates that the long distance and data and private line revenues continued their downward revenue trend in 2005. Long distance revenues declined $0.5 billion or 8.6% in 2005, mostly due to declining prices. Declining prices and reduced demand in the private line market resulted in a decrease in data and private line revenues of $0.3 billion, or 7.2%. Internet revenues increased from $4.2 billion to $4.5 billion, a 8.8% increase. The local and access revenues increased slightly from $9.7 billion in 2004 to $9.8 billion in 2005, a 0.7% increase. Despite the decline in total wireline revenues, these revenues continued to account for the majority (68%) of telecommunications revenues in 2005.

Table 4.1.2
Segmented telecommunications service revenues
($ billions)

	2002	2003	2004	2005	Growth 2004-2005	CAGR 2002-2005
Wireline
Local and access	10.0	9.7	9.7	9.8	0.7%	-0.8%
Long distance	6.5	5.9	5.6	5.1	-8.6%	-7.9%
Internet	3.3	3.7	4.2	4.5	8.8%	11.3%
Data and private line	4.5	4.5	4.4	4.1	-7.2%	-3.4%
Total wireline	24.4	23.8	23.9	23.5	-1.6%	-1.2%
Wireless	7.1	8.0	9.5	11.0	16.2%	15.7%
Total industry	31.5	31.9	33.3	34.5	3.5%	3.1%

Source: CRTC data collection

Figure 4.1.2 compares the distribution of telecommunications revenues by market sector in 2001 to 2005. Over this five-year period, Internet and wireless revenues as a percent of total revenues increased significantly. When combined, the revenues from these two market sectors accounted for 45% of total telecommunications revenues in 2005 compared to 28% in 2001. Conversely, the revenues from the remaining three sectors, local and access, long distance, and data and private line, as a percent of total telecommunications revenues, declined to 55% in 2005 from 72% in 2001.

Figure 4.1.2
Distribution of telecommunications revenues by market sector

Figure 4.1.3 below shows that the average monthly wireline revenue per line which remained relatively stable since 2001, declined from $98 in 2004 to $96 in 2005. Monthly wireless revenue per subscriber, however, steadily increased from $48 in 2001 to $53 in 2005. The local and access portion of the monthly revenue per line in 2005 for wireline service providers was roughly 42% of the total monthly revenue per line.

Figure 4.1.3
Average monthly revenues per line/subscriber

Part B - Key financial indicators³³

The following section provides a broader indication of the state of the Canadian telecommunications industry through the study of key indicators such as EBITDA and capital expenditures. Due to the difficulty of determining these financial indicators for the out-of-territory operations of the incumbents, the financial results of the incumbents include their out-of-territory operations.

a) EBITDA

As shown in Table 4.1.3 below, the EBITDA for the industry as a whole increased from $11.5 billion in 2004 to $12.4 billion in 2005. Wireline competitors' (other) EBITDA increased from $0.1 billion in 2004 to $0.7 billion in 2005. However, wireline incumbents, including their out-of-territory operations, decreased by $0.4 billion to $7.3 billion in 2005.

Table 4.1.3
EBITDA by type of provider
($ billions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Wireline
Incumbents	8.9	8.7	7.2	7.7	7.3	-5.3%	-4.8%
Competitors (other)
Facilities-based competitors	#	#	#	#	0.5
Resellers	#	#	#	#	0.2
Subtotal	0.3	0.7	0.6	0.1	0.7	562.7%	24.9%
Wireline subtotal	9.2	9.4	7.8	7.8	8.0	2.7%	-3.4%
Wireless	1.3	2.2	3.1	3.7	4.4	18.9%	35.6%
Total	10.5	11.6	10.9	11.5	12.4	7.9%	4.3%

Source: CRTC data collection

Wireless service providers experienced continued growth in EBITDA in 2005. These providers registered an 18.9% increase in EBITDA from $3.7 billion in 2004 to $4.4 billion in 2005, increasing their share of the industry EBITDA from 32% in 2004 to 35% in 2005.

Figure 4.1.4
Comparison of EBITDA by type of provider

b) Telecommunications expenditures

The main cost components of provisioning telecommunications services are capital expenditures related to the building of a service provider's own facilities and inter-carrier expenses related to acquiring access to the facilities of other service providers.

i) Capital expenditures

Capital expenditures in the Canadian telecommunications industry for the period 2001 to 2005 are displayed below in Table 4.1.4, by type of provider. Total capital expenditures in the Canadian telecommunications industry were $5.6 billion in 2005, a 1.8% decrease from $5.7 billion in 2004.

Table 4.1.4
Capital expenditures by type of provider
($ billions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Wireline
Incumbents	5.0	4.0	3.2	4.2	3.8	-8.6%	-6.4%
Competitors (other)
Facilities-based competitors	n/a	n/a	n/a	n/a	0.6
Resellers	n/a	n/a	n/a	n/a	0.1
Subtotal	1.4	0.7	0.7	0.4	0.7	64.8%	-17.2%
Wireline subtotal	6.4	4.7	3.9	4.6	4.5	-2.2%	-8.4%
Wireless	1.5	1.6	1.3	1.1	1.1	0.1%	-7.4%
Total	7.9	6.3	5.2	5.7	5.6	-1.8%	-8.2%

Source: CRTC data collection
n/a: not available

Wireless capital expenditures, excluding spectrum, remained relatively unchanged at $1.1 billion in 2005. Spectrum related capital expenditures in 2005 were minimal at less than $10 million.

Wireline capital expenditures representing 80% of the industry's expenditures, decreased from $4.6 billion in 2004 to $4.5 billion in 2005, a decrease of $0.1 billion. The decline in capital expenditures of $0.4 billion by the incumbents was partly offset by the increase in capital expenditures of the facilities-based competitors and resellers. Wireline capital expenditures averaged approximately $4.4 billion since 2002, while wireless capital expenditures have trended downward since 2002, declining from $1.6 billion in 2002 to $1.1 billion in 2005. Most of the decline in wireless capital expenditure can be attributed to sharing agreements and roaming arrangements among the wireless service providers which tend to minimize the need for expanding their networks.

Figure 4.1.5
Capital expenditures by type of provider
(wireline v. wireless)

Capital intensity

As shown below in Figure 4.1.6, the capital expenditures as a percentage of revenues for wireless service providers, wireline incumbents, including their out-of-territory operations, and facilities-based wireline competitors, shifted significantly over the past five years. While wireline incumbents' capital expenditures as a percentage of revenues were relatively constant at 20% since 2002, they declined to 16% in 2005. The facilities-based competitors' capital expenditures as a percentage of revenues declined from 22% in 2002 to 11% in 2003 and subsequently increased to 21% in 2005. Wireless providers showed a significant decrease in their capital expenditures as a percentage of revenues over the past four years, dropping from 31% in 2001 to 10% in 2005. Increased coverage through sharing agreements and roaming arrangements which reduced the need for capital expenditures and the growth in wireless revenues accounted for most of the decrease.

Figure 4.1.6
Capital expenditures as a percentage of revenues

Based on the most recently available data,³⁴ an international comparison of capital expenditures as a percentage of revenues for 2003 indicates that at 17%, Canada's capital expenditures as a percentage of revenues was higher than that of the United States and United Kingdom which were at 12% and 13% respectively. However, when compared to Australia, Canada's capital expenditures as a percentage of revenues were below that of Australia at 21%.

Figure 4.1.7 below compares EBITDA and capital expenditures (CAPEX) for incumbents, including their out-of-territory operations, and facilities-based competitors (other) for the years 2004 and 2005. The data shows that in each year, the incumbents' EBITDA far exceeded their capital expenditures, indicating that the incumbents were generally able to rely on internally-generated funds to finance their expenditures. This has not generally been the case with facilities-based competitors. Although capital expenditures were minimal for facilities-based competitors, their EBITDA was not sufficient to cover these expenditures for both 2004 and 2005.

Figure 4.1.7
Wireline EBITDA v. wireline CAPEX

ii) Inter-carrier payments

Inter-carrier expenses, excluding settlement, represent approximately 20% of total wireline operating expenses.³⁵ Table 4.1.5 below displays inter-carrier payments, excluding settlement, as a percentage of revenues for incumbents, including their out-of-territory operations, and competitors in the wireline industry by market sector. In 2005, both facilities-based competitors and resellers had significantly higher inter-carrier payments per revenue dollar in each segment.

Table 4.1.5
Inter-carrier payments per revenue dollar by wireline market sector³⁶
(2005)

	Incumbents (incl. out-of-territory)	Competitors
		Facilities-based	Resellers
Local	2.6%	31.4%	64.8%
Long distance	21.3%	50.3%	41.4%
Internet	4.6%	7.3%	17.8%
Data and private line	15.5%	37.8%	41.0%

Source: CRTC data collection

The higher inter-carrier payments as a percentage of revenues in the long distance market by all the service providers is generally a reflection of (a) the extent of their networks to carry the traffic, and (b) their various unlimited or flat rate calling plans, as some of these payments are usage based.

c) Service bundling

Over the past number of years, telecommunications service providers have increasingly relied on the packaging or bundling of various services to maintain or increase their revenues. For example, those providing local service are increasingly bundling long distance service with their local service offering. Some service providers, such as the wireless providers, offer family plans. For example, in 2005, 20% of wireless subscribers had family plans.³⁷

Service providers that offer the full spectrum of telecommunications services are well positioned to take advantage of the benefits of bundling services. Smaller companies that are not full service providers who want to realize the benefits of bundling are required to enter into agreements with other service providers to complement their service offerings. In 2005, approximately 10% of residential accounts consisted of a bundle of services that included two or more of the following services; local, Internet, cable TV, and wireless.³⁸

4.2 Local and access

Highlights

• In 2005, total local and access revenues, and lines both increased slightly to $9.8 billion and to 20.8 million lines, respectively.
• Retail revenues increased slightly to $8.6 billion, of which the competitors held 8.4%, up from 6.5% in 2004.
• The number of retail lines increased slightly to 19.3 million lines, of which the competitors held 9.7%, up from 6.4% in 2004.

Sector description

a) Description of services

The local and access sector is comprised of services relating to access and connectivity with the public switched telephone network (PSTN) including services used both by retail and wholesale customers.

Local wireline telephone service has traditionally included a managed access from a local exchange carrier (LEC) to the customer, a connection to the PSTN and a telephone number. Utilizing a telephone set or other terminal equipment, the customer may place unlimited calls within a local calling area for a basic monthly fee.

In Decision 2005-28,³⁹ the Commission determined that local voice over Internet protocol (VoIP) services, defined as local voice communication services using Internet Protocol (IP) that use telephone numbers that conform to the North American Numbering Plan and that provide universal access to and/or from the PSTN, are in the same relevant market as switched-circuit local exchange services. As such, local VoIP services have been included in determining local and access sector results for 2005.

Local VoIP services include managed access services (access dependent) such as those provided by cable BDUs and access independent Internet telephony services. Computer-to-computer communication which does not access the PSTN is not considered to be local VoIP service.

Local service also includes other services such as automated call answering services, business Centrex, integrated services digital network (ISDN) services, and other user services such as inside wiring, installation and repair, teleconferencing, and miscellaneous local services.

Local and access revenues also include the sale of local services on a wholesale basis and with the introduction of local competition, has included revenues from access service for interconnection between carriers and other service providers, including switching and aggregation, and unbundled network components.

Contribution revenues, which are received by LECs based on the number of residential lines they provide in high-cost serving areas (HCSAs) and the extent to which they are priced below cost, are also included in local and access revenues. While contribution revenues are included in the overall sector revenues reported in Table 4.2.1, they are excluded from the remaining tables in the local and access section of this report.

Revenues from the sale of wireline terminal equipment, such as telephone handsets and private branch exchange (PBX) switching equipment, are also excluded from the local and access revenues covered in this report.

b) Markets and observations for 2005

Table 4.2.1 provides results for total local and access revenues, and lines for the period 2001 to 2005.

Table 4.2.1
Total local and access revenues, and lines

	2001	2002	2003	2004		2005	Growth 2004-2005	CAGR 2001-2005
Total local and access revenues ($ millions)	11,203	10,003	9,699	9,695		9,762	0.7%	-3.4%
Less: Contribution revenues ($ millions)	1,002	250	247	240		251	4.6%	-29.3%
Local and access service revenues ($ millions)	10,021	9,724	9,452	9,455		9,511	0.6%	-1.3%
Lines (thousands)	21,126	20,622	20,612	20,563	#	20,780	1.1%	-0.4%

Source: CRTC data collection

Total local and access revenues in Table 4.2.1 include revenues from local and access monthly rates and non-recurring service charges, contribution, and local pay telephone services. Local lines in Table 4.2.1 include local pay telephones, as well as lines provided on a wholesale basis to affiliated companies and third party providers of telecommunications services, and official telephone service (OTS) lines. OTS lines are non-revenue generating lines provisioned by a LEC for internal operational use. OTS lines have been included in Table 4.2.1 in order to indicate the overall size of the PSTN. However, in order to present an appropriate competitive analysis, all other tables and figures in this section, unless otherwise noted, exclude OTS lines, as well as pay telephone lines and revenues, and contribution revenues.

Between 2004 and 2005, total local and access revenues, and lines both increased slightly to $9.8 billion and 20.8 million lines, respectively.

i) Local competition

The use of IP for voice communications became more prevalent in 2005. Whereas telecommunications service providers are already operating, or transitioning, legacy networks to cost-effective IP-based networks, retail consumers are now benefiting from the choice of services made available by VoIP-enabled technology. In particular:

• cable BDUs have introduced telephone service by utilizing their existing distribution networks (cable telephony); and
• the availability of services facilitated by a broadband Internet service, which allows a user to interconnect with the PSTN, using the standard North American Numbering Plan (Internet telephony).

Local VoIP services are capable of reproducing the functionality of traditional local service and operate over either a managed access (access dependent) or a non-managed access (access independent). Similar to traditional local service, local VoIP services offered by cable BDUs are provided over a managed access connection between the subscriber and the service provider. Local VoIP services provided over a broadband Internet access are considered access independent because the customer selects the broadband provider and the local VoIP service provider independently.

In 2005, the cable BDUs aggressively entered the residential market and were a significant contributor to the growth in competitor market share.

ii) Continued consumption of telephone number resources

The number of in-service central office (CO) codes continues to increase annually.⁴⁰ In addition to telephone number resources used to support the growth of existing and new services, other factors contributing to this consumption include past CO code assignment practices and overall number utilization rates.

In certain area codes, this consumption will eventually exhaust all available CO codes. The typical resolution is the area-code overlay, where additional area codes are added to the same geographic area as the nearly exhausted area code. An effect of implementing an area-code overlay is the requirement for customers to utilize 10-digit dialling when placing local calls to telephone numbers in the geographic area of the affected area code. In 2006, due to new code overlays in parts of Ontario and Quebec, customers will be required to dial 10 digits when making local calls. Also in 2006, 10-digit dialling will be required in area codes 613 and 819 in order to extend the life of both these area codes.

c) Sector participants

The large incumbents operate in most areas of the country, both in their original operating territories, and in other regions either directly or through affiliate operations. Small incumbents operate in limited areas of Ontario, Quebec, and British Columbia, and include both municipally-owned, and public- and privately-held carriers. Other participants include facilities-based service providers operating as competitive LECs, including cable BDUs that deliver services using their own infrastructure. Lastly, are the resellers of PSTN services, purchased from the incumbent carriers or from facilities-based service providers.

There has been a limited amount of competitor penetration in the local and access sector since the introduction of local competition in 1998. Competitors have typically been facilities-based service providers and resellers. More recently, some ILECs have expanded outside of their traditional serving territories, either organically or through acquisition, thereby providing competition either directly or through affiliate companies. Small incumbents are also increasingly operating outside of their traditional territories or acquiring other small incumbents, as seen with the acquisition of People's Communications Inc. by Amtelecom Income Fund. In this report, competitive services provided by incumbents outside of their traditional operating territories are referred to as competitors (ILEC out-of-territory).

d) Regulatory framework

Local telephone service in the territories of the large ILECs, excluding the territories of SaskTel, Northwestel, Télébec and TCC's operations in Quebec, was opened to facilities-based competition in 1998. The Commission continues to regulate local services provided by ILECs, as well as the interconnection services provided by all LECs. Prior to the introduction of local competition, ILECs were subject to a rate-of-return regulatory framework, under which local service prices were set on a revenue requirement basis using a rate of return approved by the Commission.⁴¹

With the introduction of competition in local services, price cap regulation of the ILECs Utility segment was introduced. Price cap regulation uses a formula composed of three basic elements: inflation index, productivity offset and exogenous factors, to determine on an annual basis, the maximum allowable prices for different regulated services such as basic residential local services and single or multi-line business local services.

Price cap regulation provides ILECs with stronger incentives to increase productivity, operate more efficiently and be more innovative in the provision of services.

e) Regulatory developments

In Decision 2005-28, the Commission set out details of the regulatory regime applicable to the provision of local VoIP services which determines, among other things, that:

• local VoIP service providers not operating as Canadian carriers are to register with the Commission as resellers;
• local VoIP services are contribution-eligible; and
• local VoIP services are part of the same relevant market as circuit-switched services.

In Decision 2006-14,⁴² among other things, the Commission opened the territories of all small ILECs to local competition.

Local exchange service is one of the last major telecommunications markets that continues to be regulated in Canada. Decision 2006-15⁴³ set out criteria that large incumbents must meet for forbearance from regulation of residential or business local exchange service within a defined geographic area. These areas, constructed using geographic elements administered by Statistics Canada, are referred to as local forbearance regions (LFRs). The geographic area of Canada (with the exception of the operating territories of Northwestel and the small ILECs) is divided into 86 LFRs. Prior to being granted forbearance, the incumbent must demonstrate, among other criteria, that their market share within an LFR is 75% or less. As set out in the decision, Appendix 4 to this report provides a table displaying residential and business market line-share as of 31 December 2005 for incumbents, competitors (ILEC out-of-territory) and competitors (other) by LFR.

Market segments

Table 4.2.2 presents a summary of local and access revenues (exclusive of contribution, terminal equipment and pay telephone) segmented on a residential, business and wholesale basis for the period 2001 to 2005. Table 4.2.3 provides the number of local lines that correspond to these market segments.

Table 4.2.2
Local and access revenues by market segment
($ millions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Residential	5,060	5,140	5,132	5,099	5,086	-0.3%	0.1%
Business	3,946	3,544	3,398	3,402	3,472	2.1%	-3.1%
Wholesale	740	893	755	822	828	0.7%	2.8%
Total	9,746	9,577	9,285	9,323	9,386	0.7%	-0.9%

Source: CRTC data collection

Table 4.2.3
Local lines by market segment
(thousands)

	2001		2002		2003		2004		2005	Growth 2004-2005	CAGR 2001-2005
Residential	12,920		12,913		12,886		12,891		12,900	0.1%	0.0%
Business	7,013	#	6,476	#	6,404	#	6,318	#	6,364	0.7%	-2.4%
Wholesale	474		521		611		617		788	27.7%	13.5%
Total	20,407	#	19,910	#	19,901	#	19,826	#	20,052	1.1%	-0.4%

Source: CRTC data collection

In 2005, local and access revenues increased slightly to $9.4 billion. While revenues for the residential segment declined marginally, the business and wholesale segments experienced revenue growth of 2.1% and 0.7%, respectively.

Over the same period, the total number of local lines increased by just over 1% to 20.1 million lines, with the number of lines within the residential and business segments each increasing slightly, and the wholesale segment increasing by 27.7% to 0.8 million lines.

a) Local retail market

Retail segment results (aggregated residential and business revenues and lines) are a measure of the addressable residential and business end-user market. Factors that impact the result within the retail segment may include competitive and technological developments, as well as overall national economic health. Table 4.2.4 provides retail revenues and lines for the period 2001 to 2005.

Table 4.2.4
Total retail revenues and lines

	2001		2002		2003		2004		2005	Growth 2004-2005	CAGR 2001-2005
Revenues ($ millions)	9,006		8,684		8,530		8,501		8,558	0.7%	-1.3%
Lines (thousands)	19,933	#	19,389	#	19,290	#	19,209	#	19,264	0.3%	-0.8%

Source: CRTC data collection

In 2005, retail revenues held by competitors increased by 31.5%⁴⁴ to $723 million, representing 8.4% of all retail revenue, up from 6.5% in 2004. In 2005, the number of retail lines provided by competitors increased by 51.1% to 1.9 million lines. The number of competitor-provided retail lines provisioned using some component of wholesale services also grew as is discussed in the section entitled Local wholesale market.

Table 4.2.5 shows the share of local retail lines held by the incumbents, excluding Northwestel, in their incumbent operating territories for each province. Within the provinces, the incumbents held 90.3% of local retail lines.

Table 4.2.5
Incumbent local retail market share by province (lines)

Province	2005
British Columbia	91.9%
Alberta	87.1%
Saskatchewan	99.9%
Manitoba	96.7%
Ontario	88.6%
Quebec	90.9%
New Brunswick	99.1%
Nova Scotia	82.1%
Prince Edward Island	87.3%
Newfoundland and Labrador	96.1%

Source: CRTC data collection

Figure 4.2.1 provides further detail on retail market share, disaggregated by residential and business segments, measured in terms of the number of local lines held by competitors.

The 86 LFRs contain just over 98% of all local retail lines in Canada.⁴⁵ As displayed in Figure 4.2.1, there were 11 LFRs within the local residential market with 10% or greater competitor market share. The addressable residential market within these 11 LFRs represented 39% of all local residential lines. Similarly, within the local business market, there were 31 LFRs with 10% or greater competitor market share that represented an addressable market of 68% of all business lines.

Figure 4.2.1
Competitor market share (local lines) in most competitive LFRs⁴⁶

Residential

Source: CRTC data collection

Business

b) Local residential market

Local residential service is composed of three primary components: basic local service, optional service features, and ancillary services such as connection and inside wiring. Figure 4.2.2 shows that the distribution of local residential revenues amongst these three components has remained essentially unchanged over the last several years, with basic local service representing 72% of local residential revenues in 2005.

Figure 4.2.2
Local residential revenues by component

Table 4.2.6 and Table 4.2.7 present local residential revenues and lines, respectively, for the period 2001 to 2005.

Table 4.2.6
Local residential revenues
($ millions)

	2001	2002	2003	2004		2005	Growth 2004-2005	CAGR 2001-2005
Incumbents	5,038	5,082	5,035	4,955	#	4,837	-2.4%	-1.0%
Competitors (ILEC out-of-territory)	n/a	n/a	0	2	#	3	50.0%	n/a
Competitors (other)	22	58	97	142		246	73.2%	82.9%
Total	5,060	5,140	5,132	5,099		5,086	-0.3%	0.1%

Source: CRTC data collection
n/a: not available

In 2005, local residential revenues declined slightly to just under $5.1 billion, while over the same period, the number of local residential lines were essentially unchanged at 12.9 million lines.

As shown in Table 4.2.6, local residential revenues held by incumbents decreased by 2.4% to $4.8 billion in 2005, while competitors' local residential revenues increased by 72.9% to $249 million. The share of local residential revenues held by competitors grew to 4.9% in 2005, up from 2.8% in 2004.

Table 4.2.7
Local residential lines
(thousands)

	2001	2002	2003	2004		2005	Growth 2004-2005	CAGR 2001-2005
Incumbents	12,846	12,729	12,627	12,463	#	11,924	-4.3%	-1.8%
Competitors (ILEC out-of-territory)	n/a	n/a	1	10	#	13	30.0%	n/a
Competitors (other)	74	184	258	418		963	130.4%	89.9%
Total	12,920	12,913	12,886	12,891		12,900	0.1%	0.0%

Source: CRTC data collection
n/a: not available

As shown in Table 4.2.7, the number of local residential lines held by incumbents decreased by 4.3% to 11.9 million lines in 2005, while the number of competitors' lines grew by 128.0% to just under 1.0 million lines. The share of local residential lines held by competitors more than doubled from 3.3% in 2004 to 7.6% in 2005.

In 2005, the dramatic increase in the number of competitor-provided residential lines was due primarily to the launch of residential telephone service by a number of large cable BDUs. Although competitors who began offering residential service prior to 2005 experienced strong organic growth, cable telephony and access-independent local VoIP services accounted for 59% and 11%, respectively, of the increase in competitor-provided residential lines.

Local residential revenues and lines provided by competitors (ILEC out-of-territory) remained negligible in 2005 as they continued to focus on the business and wholesale market segments.

Over the past several years, the number of Canadian households has grown consistently,⁴⁷ yet the number of residential telephone lines remained almost unchanged in 2005. A number of demographic and technology factors may be contributing to this, including the growth of wireless subscriptions and wireless-only households, and the elimination of secondary telephone lines as the use of facsimile declined and consumers migrated to broadband Internet.

c) Local business market

Table 4.2.8 and Table 4.2.9 present local business revenues and lines, respectively, for the period 2001 to 2005.

Table 4.2.8
Local business revenues
($ millions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Incumbents	3,736	3,258	3,036	2,996	2,998	0.1%	-5.4%
Competitors (ILEC out-of-territory)	n/a	n/a	92	298	316	6.0%	n/a
Competitors (other)	210	286	270	108	158	46.3%	-6.9%
Total	3,946	3,544	3,398	3,402	3,472	2.1%	-3.1%

Source: CRTC data collection
n/a: not available

In 2005, local business revenues increased by 2.1% to $3.5 billion, while over the same period, the number of local business lines increased slightly to 6.4 million lines.

As shown in Table 4.2.8, local business revenues held by the incumbents was essentially unchanged in 2005 at $3.0 billion, while over the same period, competitors' revenues increased by 16.7% to just under $0.5 billion, or 13.7% of total business revenues.

Table 4.2.9
Local business lines
(thousands)

	2001		2002		2003		2004		2005	Growth 2004-2005	CAGR 2001-2005
Incumbents	6,451	#	5,784	#	5,688	#	5,512	#	5,476	-0.7%	-4.0%
Competitors (ILEC out-of-territory)	n/a		119		146	#	542	#	573	5.7%	n/a
Competitors (other)	563	#	574	#	570	#	264	#	315	19.3%	-13.5%
Total	7,013	#	6,476	#	6,404	#	6,318	#	6,364	0.7%	-2.4%

Source: CRTC data collection
n/a: not available

As shown in Table 4.2.9, local business lines held by the incumbents decreased slightly in 2005 to just under 5.5 million lines, while the number of competitors' business lines increased by 10.2% to 0.9 million lines, or 14.0% of total business lines.

Figure 4.2.3 presents the revenue-share held by incumbents and competitors in the business segment disaggregated by small, medium, large and very large customers. In 2005, the incumbents (including their out-of-territory operations) held the majority of available revenues in each of the four categories.

Figure 4.2.3
Local business revenue distribution by customer size and type of provider
(2005)

d) Local wholesale market

The wholesale market segment includes access services and facilities used by competitive service providers for the purposes of interconnecting their respective networks and connecting to their retail customers. Additionally, a service which is resold by a service provider to their end-customer is included within the local wholesale segment. The major components of wholesale services include:

• interconnection, including switching and aggregation, transit and bill-and-keep trunk settlement;
• unbundled network components such as loops used by competitors to extend services over "the last mile" to their customers; and
• PSTN access, such as ISDN, Centrex and basic local service used by resellers and other competitors to provide local service in exchanges where they do not have facilities, or have facilities but are not operating as a CLEC.

Table 4.2.10 provides a breakdown of local wholesale revenues by component, for the 2001 to 2005 period.

Table 4.2.10
Local wholesale revenues by major component
($ millions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Interconnection	315	354	287	333	322	-3.3%	0.6%
Centrex	120	163	134	123	107	-13.0%	-2.8%
PSTN access	129	146	128	136	123	-9.8%	-1.2%
Unbundled loops	31	53	61	84	110	30.8%	37.2%
Basic local	55	84	89	83	114	37.5%	20.0%
Other user charges	90	93	56	62	53	-14.9%	-12.4%
Total	740	893	755	822	829	0.9%	2.9%

Source: CRTC data collection

In 2005, local wholesale revenues increased slightly to $829 million. Substantial increases in unbundled loop and basic local access revenues were partially offset by declines in Centrex, interconnection, PSTN access and other user revenues.

When a competitor cannot reach a retail customer by utilizing self-provisioned facilities, there are two alternatives it can employ:

• leased facilities, such as unbundled loops or loop-equivalent facilities leased from a facilities-based telecommunications service provider, used to connect the retail customer to the competitors' network. As with owned facilities, dial-tone is provided by the competitors' network; or
• resold services, such as Centrex or its equivalents, leased from a LEC and resold to the end-customer without touching the competitors' network.

Figure 4.2.4 illustrates the quantities of competitor retail lines provisioned utilizing either owned (self-provisioned), leased or resold facilities.

In 2005, approximately 75% of the competitor-provided retail lines were provisioned using owned or leased facilities. More significantly, of the 630 thousand retail lines added by the competitors in 2005, owned and leased facilities represented 62% and 23%, respectively, of these incremental lines.

Figure 4.2.4
Competitor local retail lines by type of facility

As shown in Figure 4.2.5, within the residential segment, 46% of competitor-provided local residential lines were provisioned via their own facilities, followed by lines provisioned using unbundled loops leased from the incumbents, at 40%. In 2005, revenues realized by the incumbents for the supply of local loops to competitors increased by 30.8% to $110 million, due primarily to growth of competitor-provided local residential service provisioned with leased local loops.

Figure 4.2.5
Competitor local residential and business lines by type of facility
(2005)

Within the business segment, there is no single dominant means that competitors use to provide service. Collectively, 63% of the competitors' business lines are provided via owned or leased facilities.

In 2005, the wholesale segment showed growth of both revenues and lines. As reported in Table 4.2.11, local wholesale revenues held by the incumbents decreased by 2.0% to $698 million in 2005, while competitors' revenues increased by 18.2% to $130 million, representing 15.7% of local wholesale revenues.

Table 4.2.11
Local wholesale revenues
($ millions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Incumbents	713	836	617	712	698	-2.0%	-0.5%
Competitors (ILEC out-of-territory)	n/a	n/a	70	93	104	11.8%	n/a
Competitors (other)	27	57	68	17	26	52.9%	-0.9%
Total	740	893	755	822	828	0.7%	2.8%

Source: CRTC data collection
n/a: not available

Over the same period, as shown in Table 4.2.12, local wholesale lines held by the incumbents decreased by 2.2% to 444 thousand lines, while the number of competitors' lines more than doubled to 344 thousand lines, representing 43.7% of local wholesale lines.

Table 4.2.12
Local wholesale lines
(thousands)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Incumbents	368	376	408	454	444	-2.2%	4.8%
Competitors (ILEC out-of-territory)	n/a	43	11	129	303	134.9%	n/a
Competitors (other)	106	102	192	34	41	20.6%	-21.1%
Total	474	521	611	617	788	27.7%	13.5%

Source: CRTC data collection
n/a: not available

4.3 Long distance

Highlights

• Long distance revenues continued to decline, decreasing from $5.6 billion in 2004 to $5.1 billion in 2005, an 8.6% decline.
• Long distance minutes continued to grow, increasing from 59.2 billion minutes in 2004 to 65.2 billion in 2005, a 10.1% increase.
• Average revenue per minute (ARPM) continued to drop, from $0.094 in 2004 to $0.078 in 2005, a reduction of 17.0%.
• The incumbents' share of long distance revenues dropped from 67% in 2004 to 64% in 2005, representing a $0.5 billion or 11.5% decline in their revenues.

Sector description

a) Description of services

Retail long distance services encompass wireline voice traffic to locations outside of the local service calling area. Wireline long distance services are sold in a variety of ways such as a standard per-minute charge, a monthly subscription plan, calling cards, or as part of a bundle with other services.

Wholesale long distance refers to services provided under connection arrangements between facilities-based carriers to transit traffic on behalf of other service providers, as well as the sale of wholesale bulk minutes to resellers of long distance services.

b) Markets and observations

Long distance revenues include retail revenues from long distance services sold to residential and business customers,⁴⁸ wholesale revenues for long distance traffic sold to other service providers for the purposes of resale, and settlement revenues paid to carriers for the transport of traffic outside a service provider's operating territory. Long distance minutes include both retail and wholesale minutes, but exclude minutes associated with domestic and international settlement revenues.

Table 4.3.1 provides long distance revenues and minutes for the period 2001 to 2005. During this period, long distance revenues declined at annual rates between a low of 2.5% in 2002 and a high of 8.6% in 2003, resulting in an average annual decline of 6.6%. Minutes, however, increased during this period between a low of 1.8% in 2003 and a high of 10.1% in 2005, resulting in an average annual growth rate of 5.3%.

Table 4.3.1
Total long distance revenues and minutes

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2004-2005
Revenues ($ millions)	6,700	6,534	5,944	5,588	5,109	-8.6%	-6.6%
Minutes (millions)	52,977	54,835	55,820	59,175	65,175	10.1%	5.3%

Source: CRTC data collection

The long distance share of total telecommunications revenues dropped from 17% in 2004 to 15% in 2005, while total telecommunications revenues increased by 3.5%.

In 2005, there was increased competition from pre-paid card and dial-around service providers, as well as from incumbents operating outside their traditional territory, cable BDUs and companies offering long distance services via IP-based technologies.

The effects of competition in the long distance market continue to be evident primarily in terms of declining prices and the growing number and variety of long distance plans offered by multiple companies. Long distance customers benefited from lower prices as the ARPM has declined by $0.048 or 38% since 2001.

c) Sector participants

The sector participants primarily include the large ILECs, facilities-based competitive carriers that provide both local and switched long distance services, and a variety of resellers. The majority of the large incumbents also provide long distance service outside their traditional operating territories either directly or through affiliates. Incumbents, when providing services within their traditional operating territories, are referred to as incumbents and when providing services outside of their usual territories, are referred to as competitors (ILEC out-of-territory). The remaining competitors generally consist of (a) facilities-based service providers which include cable BDUs and (b) resellers that purchase long distance minutes from facilities-based carriers on a wholesale basis.

As displayed in Figure 4.3.1, the incumbents accounted for 64% of the revenues in 2005, followed by resellers at 16% and the facilities-based service providers at 9%. Both the incumbents and the facilities-based competitors lost approximately 3% revenue market share in 2005 while resellers gained 5%. The incumbents' 3% market share loss represents approximately $0.5 billion.

Figure 4.3.1
Total long distance revenue market share by type of provider

2004

2005

d) Regulatory framework

Competition in the long distance market began in 1990 with the resale of certain switched long distance services (Decision 90-3).⁴⁹ In 1992, the market was further opened to include facilities-based carriers (Decision 92-12).⁵⁰ The Commission has forborne from regulating the long distance market through a series of decisions that addressed various service providers and market segments (Decision 94-19, Decision 95-19,⁵¹ Decision 97-10,⁵² Decision 97-19,⁵³ Order 99-1202⁵⁴). Pursuant to Decision 97-19, the Commission forbore from regulating the incumbents' long distance service rates, with the exception of Northwestel, and imposed certain conditions on the incumbents, most notably price ceilings applying to each basic long distance rate schedule.

While the Commission has forborne from regulating the long distance market, it continues to regulate access tandem and direct connect rates, which determine the competitive long distance carrier's cost to interconnect with a LEC's facilities. Access tandem and direct connect rates were updated in 2006, resulting in modifications to the rates paid by long distance service providers to the ILECs for originating and terminating long distance traffic.⁵⁵

Market segments

Table 4.3.2 presents a summary of the residential, business and wholesale long distance revenues for the period 2001 to 2005.

Table 4.3.2
Long distance revenues by market segment
($ millions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Retail
Residential	3,007	3,038	3,013	2,857	2,681	-6.2%	-2.8%
Business	2,081	1,970	1,777	1,790	1,570	-12.3%	-6.8%
Total retail	5,088	5,008	4,790	4,647	4,251	-8.5%	-4.4%
Wholesale	1,612	1,526	1,154	941	858	-8.8%	-14.6%
Total	6,700	6,534	5,944	5,588	5,109	-8.6%	-6.6%

Source: CRTC data collection

In 2005, long distance revenues declined by 8.6%, to $5.1 billion. The largest reduction was within the business market where revenues declined by 12.3%.

Retail long distance

Retail long distance accounted for 83% of total long distance revenues in 2005, unchanged from 2004. Retail revenues continued to decline, decreasing from $4.6 billion in 2004 to $4.3 billion in 2005, an 8.5% reduction, as:

• residential revenues decreased by 6.2% in 2005 to $2.7 billion; and
• business revenues decreased by 12.3% to $1.6 billion.

Figure 4.3.2 shows that retail ARPM generally declined in 2005:

• in the residential market, the incumbents' and competitors' (resellers and facilities-based) ARPM declined by 8% and 29% respectively, with an increase of 12% for the ILEC out-of-territory; and
• business ARPM, already significantly below the residential ARPM, declined by about 14% for all competitors and the incumbents.

Figure 4.3.2
Residential and business ARPM

Figure 4.3.3 depicts retail revenue market share in 2004 and 2005. The incumbents' retail long distance revenue market share declined from 69% in 2004 to 66% in 2005. Resellers, however, increased their revenue market share from 12% to 18%, while the facilities-based competitors lost 3% from 12% to 9%. The incumbents' 3% market share loss represents $406 million or 12.7% of their revenues.

Figure 4.3.3
Retail long distance revenue market share by type of provider⁵⁶

2004

2005

Table 4.3.3⁵⁷ provides the major incumbent telephone companies' retail long distance revenue market shares for the 2003 to 2005 period.

Table 4.3.3
Incumbent telephone companies' retail long distance
revenue market share by region

Region	Percent
	2003	2004	2005
BC, Alberta	72%	69%	70%
Saskatchewan	82%	84%	84%
Manitoba	76%	84%	86%
Ontario, Quebec	66%	65%	62%
Atlantic	75%	78%	77%

Source: CRTC data collection

Retail long distance - Residential market

Tables 4.3.4 and 4.3.5 display residential long distance revenues and minutes respectively, for the 2003 to 2005 period. Residential long distance revenues in 2005 were $2.7 billion, decreasing 6.2% or $176 million from the previous year. Incumbent revenues decreased 9.9% or $213 million in 2005, while revenues from the facilities-based competitors and resellers increased by 4.5% or $32 million.

Table 4.3.4
Residential long distance revenues
($ millions)

	2003	2004	2005	Growth 2004-2005	CAGR 2003-2005
Incumbents	2,300	2,135	1,922	-9.9%	-8.6%
Competitors (ILEC out-of-territory)	1	2	6	187.1%	135.5%
Competitors (resellers and facilities-based)	712	721	753	4.5%	2.9%
Total	3,012	2,857	2,681	-6.2%	-5.7%

Source: CRTC data collection

Table 4.3.5
Residential long distance minutes
(millions)

	2003	2004	2005	Growth 2004-2005	CAGR 2003-2005
Incumbents	16,295	15,383	15,100	-1.8%	-3.7%
Competitors (ILEC out-of-territory)	5	26	68	156.1%	268.0%
Competitors (resellers and facilities-based)	6,061	7,592	11,127	46.6%	35.5%
Total	22,361	23,001	26,295	14.3%	8.4%

Source: CRTC data collection

In 2005, residential long distance minutes increased by 14.3% to 26.3 billion minutes. The increase in residential long distance minutes was due to growth in reseller and facilities-based traffic.

The residential long distance revenue market share is shown in Figure 4.3.4. Both the incumbents and facilities-based competitors lost revenue market share. The incumbents' revenue market share declined from 75% in 2004 to 72% in 2005, while the facilities-based competitors declined from 9% to 5%. Resellers, however, increased their revenue market share from 16% in 2004 to 23% in 2005.

Figure 4.3.4
Residential long distance revenue market share by type of provider

2004

2005

Retail long distance - Business market

Tables 4.3.6 and 4.3.7 display the business long distance revenues and minutes respectively, for the 2003 to 2005 period. In 2005, business long distance revenues declined by 12.3% to $1.6 billion, while minutes increased by 3.6% to 21.8 billion, resulting in a reduction in the business ARPM from $0.085 in 2004 to $0.072 in 2005.

Table 4.3.6
Business long distance revenues
($ millions)

	2003	2004	2005	Growth 2004-2005	CAGR 2003-2005
Incumbents	977	1,067	873	-18.1%	-5.5%
Competitors (ILEC out-of-territory)	62	332	295	-11.3%	118.1%
Competitors (resellers and facilities-based)	738	390	402	3.0%	-26.2%
Total	1,777	1,790	1,570	-12.3%	-6.0%

Source: CRTC data collection

Table 4.3.7
Business long distance minutes
(millions)

	2003	2004	2005	Growth 2004-2005	CAGR 2003-2005
Incumbents	11,247	10,585	10,208	-3.6%	-4.7%
Competitors (ILEC out-of-territory)	951	5,584	5,674	1.6%	144.3%
Competitors (resellers and facilities-based)	10,334	4,882	5,918	21.2%	-24.3%
Total	22,532	21,051	21,800	3.6%	-1.6%

Source: CRTC data collection

As displayed in Table 4.3.6, the incumbents' business long distance revenues declined $194 million or 18.1% in 2005, while the competitors' revenues declined $26 million or 3.6%. The incumbents' minutes decreased 377 million or 3.6% while the competitors' minutes increased 1,125 million or 10.8%.

The incumbents have generally focused their out-of-territory activities on the business market rather than the residential market. In the business market, they captured approximately 19% of the business revenues compared to a negligible share of the residential revenues. Due to their declining revenues, the incumbents' market share decreased from 60% in 2004 to 56% in 2005, as shown in Figure 4.3.5.

Figure 4.3.5
Business long distance revenue market share by type of provider

2004

2005

Resellers had a greater share of residential long distance revenues (23%) than of business long distance revenues (9%). This may be attributed to the lower margins inherent in a reseller's operations which limit its ability to compete on price in the business market.

Competitors (facilities-based) and resellers had approximately 20% of the small, medium and large long distance business markets and 10% of the very large business market, as displayed in Figure 4.3.6. The incumbents, including their out-of-territory operations, had approximately 75% or more of the long distance revenues in each of these segments. Resellers generally had a greater share of the small and medium customers than of the large and very large customers.

Figure 4.3.6⁵⁸
Business long distance revenue distribution by customer size and type of provider
(2005)

Wholesale long distance

Table 4.3.8 displays wholesale long distance revenues for the 2003 to 2005 period. In 2005, the incumbents' wholesale long distance revenues decreased by 11.5%, accounting for the largest portion of the 8.8% wholesale decline. The decline in wholesale long distance revenues may be attributed to consolidation activities in the industry, as well as to the newer technologies such as VoIP that have a downward pressure on wholesale prices.

Table 4.3.8
Wholesale long distance revenues
($ millions)

	2003	2004	2005	Growth 2004-2005	CAGR 2003-2005
Incumbents	686	530	469	-11.5%	-17.3%
Competitors (ILEC out-of-territory)	130	270	270	0.0%	44.2%
Competitors (resellers and facilities-based)	337	141	118	-15.9%	-40.8%
Total	1,154	941	858	-8.8%	-138.0%

Source: CRTC data collection

Figure 4.3.7 displays the wholesale revenue market share for 2004 and 2005 by type of provider. The incumbents' share of long distance wholesale revenues decreased from 56% in 2004 to 54% in 2005.

Figure 4.3.7
Wholesale long distance revenue market share by type of provider

2004

2005

4.4 Internet service and broadband availability

Highlights

• Internet revenues increased 8.8% from $4.2 billion in 2004 to $4.5 billion in 2005, making it one of the fastest growing segments of the Canadian telecommunications services industry.
• The number of households with Internet access subscriptions reached 8.0 million in 2005, representing 64% of all Canadian households. The number of households with high-speed Internet access reached 6.4 million households or 51% of all Canadian households, up from 43% in the previous year.
• Dial-up subscriptions continued to decrease, declining 23% in 2005. As a percent of total subscriptions, dial-up subscriptions declined from 27% in 2004 to 20% in 2005.
• Approximately 98% of households in urban areas and 74% of households in rural areas were within the broadband footprint in 2005.

Sector description

a) Description of services

Internet-related telecommunications services can be divided into three broad market segments: Internet access, Internet transport and Internet applications.

Internet access is the provision of an IP connection to an end-user which allows the end-user to exchange applications traffic with Internet hosts and other end-users. Internet access service consists of three major components:

• A data connection between a modem at the end-user location (such as a residential dwelling) and the ISP;
• ISP facilities, which include:
  • Routers, to switch traffic between ISP end-users and the Internet at large;
  • Servers, to provide ISP services provided in-house, such as e-mail; and
  • Network management elements; and
• A connection from the ISP to the Internet.

Internet access services are provisioned at a variety of speeds. Low-speed, or narrowband access services, operate at speeds of up to 64 kilobits per second (kbps), and are typically provided over dial-up access lines. High-speed access services, including wideband (up to 1.5 megabits per second (mbps)) and broadband (faster than 1.5 mbps), are for the most part delivered over DSL, coaxial cable and, particularly to businesses, fibre optic cables. Satellite and terrestrial wireless technologies are also used to provide high-speed access services.

Internet transport service is the provision of Internet connectivity to ISPs, and some larger business customers. Internet transport capacity is provided over Internet backbone facilities that carry aggregated traffic across domestic and international intercity links between Internet traffic switches or routers. In addition, it provides partial control over the movement of the customer's Internet traffic. In some cases, peering arrangements between Internet backbone service providers substitute for the outright purchase of Internet transport by one ISP from another. Consequently, separate accounting of all Internet transport services is not available.

Internet applications include a growing number of services which piggyback on the Internet connectivity services. They include e-mail, Web surfing and hosting, and instant messaging, among others. Typically, many of the Internet application services are bundled together with Internet access services. However, ISPs and other telecommunications companies participate in emerging stand-alone business Internet applications markets which include services such as premium Web hosting, Internet data centres and off-site data storage, security and firewall services, among others.

b) Markets and observations for 2005

Internet-related telecommunications revenues in Canada were $4.5 billion in 2005, representing an increase of 8.8% over the previous year. Based on Table 4.4.1, retail Internet access services accounted for approximately 80% of the total Internet revenues in 2005. The annual growth, however, in retail access revenues has been declining from 55% in 2001 to 9.4% in 2005.

Table 4.4.1
Internet revenues⁵⁹
($ millions)

	2001	2002	2003		2004		2005	Growth 2004-2005	CAGR 2001-2005
Retail Internet access services	2,000	2,537	3,037	#	3,340	#	3,652	9.4%	16.2%
Internet transport, applications and other	660	748	651	#	825	#	878	6.4%	7.4%
Total Internet revenues	2,660	3,285	3,689		4,165		4,530	8.8%	14.2%

Source: CRTC data collection

c) Sector participants

There are four principal groups of participants providing retail Internet access and transport services in Canada:

• incumbent local exchange carriers (incumbents) who own the vast majority of the copper twisted pair access links to homes and businesses: these service providers provide Internet access mainly by dial-up, DSL, fibre and/or satellite, and more recently, in some cases, by fixed wireless.
• cable BDUs who own the coaxial-based television distribution networks serving homes and, to a lesser extent, businesses: these companies mainly provide access by cable modem or by fibre, and more recently, in some cases, by fixed wireless.
• competitive facilities-based telecommunications service providers who provide service via dial-up, DSL, fibre and/or satellite, as well as ISPs who utilize license exempt spectrum in rural areas, and municipal and utility company-affiliated service providers.
• non facilities-based ISPs such as AOL Canada, Cybersurf Inc., Inter.net Canada and Uniserve focus primarily on the provision of Internet access services. They primarily use wholesale DSL data services of the incumbents, although there was limited use of third party Internet access (TPIA) provided by cable BDUs.

In addition, satellite service providers offer wholesale satellite services to ISPs in order to serve their end-users. For example, in 2004, Telesat Canada launched the Anik F2 satellite, and in 2005 was providing wholesale satellite services to ISPs for purposes of providing end-user access to the Internet. In addition to Internet access services, some facilities-based service providers, including the incumbents, cable BDUs, and competitors, also provide Internet transport services.

Municipal and hydro utility service providers supply Internet access, and have also started to provide WiFi-based services. For example, the city of Fredericton, New Brunswick has been providing WiFi Internet access throughout the downtown area of Fredericton.

Early in 2006, Rogers Communications Inc. and Bell Canada introduced a portable Internet offering in several Canadian cities that utilises the wireless spectrum of Inukshuk Internet and non-line-of-sight technology. Although the service is not mobile, it is portable.

ISPs are categorized based on the description of service providers in section 3. The telephone companies' activities within their traditional territories are categorized as incumbent and their out-of-territory activities are categorized as competitors (ILEC out-of-territory). Although cable BDUs are incumbents with respect to their cable distribution activities, they are categorized as competitors (cable BDUs). The remaining service providers are referred to as competitors (other).

d) Regulatory framework

While both low-speed and high-speed retail Internet access services have been forborne from regulation under the Act, the Commission regulates the provision of wholesale Internet access services. In the case of the incumbents, the underlying facilities and services required by service providers are subject to price regulation and generally fall within the Competitor Services basket of services under the current price cap regime. Cable BDUs have also been required to provide TPIA to their underlying facilities.

In 1999, in its consideration of an appropriate framework for new media,⁶⁰ the Commission found that while some Internet applications fell under the definition of "program" and "broadcasting" under the Broadcasting Act, regulation was not necessary to achieve the objectives under that act.

Regulatory developments in the past year

To foster competition in the retail Internet access services market, in 2005, the Commission mandated the creation of certain tariff wholesale services (also referred to as Competitor Services) that are required by ISPs to provide high-speed Internet access. These include wholesale services provided by Bell Canada,⁶¹ Cablevision du Nord de Québec inc.,⁶² Télébec,⁶³ TCC,⁶⁴ MTS Allstream,⁶⁵ Shaw Cablesystems Ltd.,⁶⁶ and SaskTel.⁶⁷

In Order 2005-144,⁶⁸ the Commission granted interim approval to Bell Canada's application to remove from its General Tariff on Gateway Access Service (GAS) and High-Speed Access (HSA), the requirement that an end-customer must subscribe to a primary exchange service (PES). This configuration, often termed "naked DSL", permits an ISP to provide high-speed Internet service utilising DSL facilities without the need for the end-user to subscribe to local telephone service over the same access line. In Order 2005-415,⁶⁹ the Commission ordered Bell Canada to reduce the unbundled loop rate by 50% for lines to be used in conjunction with wholesale DSL service in this configuration, thereby reducing costs to ISPs.

In 2002, in order to avoid a negative impact on local competition, the Commission required each ILEC that was subject to the price cap regime to create a deferral account.⁷⁰ In Decision 2006-9,⁷¹ the Commission established the guidelines for, among other things, the disposition of funds remaining in the deferral accounts. These funds were to be made available for, among other things, the expansion of broadband service in rural and remote communities. Pursuant to Decision 2006-9, the ILECs are to propose a list of communities for the expansion of broadband service which are unlikely to receive such services from any service provider in the near future.

Market segments

Table 4.4.2 provides a market segment breakdown of revenues for the retail Internet access service market. Since 2002, residential Internet access revenues have accounted for over 75% of the retail market.

The annual growth rate for residential Internet access revenues has consistently declined since 2001, from a 50% growth rate to 11% in 2005. Similarly, the annual growth rate for business Internet access revenues has also consistently declined but at a faster pace, declining from 69% in 2001 to 6% in 2005.

Nevertheless, the average annual growth rate for both segments combined was 16% over the 2001 to 2005 period, making the retail Internet access service market one of the fastest growing segments in the telecommunications industry.

Table 4.4.2
Residential and business Internet access service revenues
($ millions)

	2001	2002	2003		2004		2005	Growth 2004-2005	CAGR 2001-2005
Residential	1,461.9	1,943.0	2,279.5		2,523.6		2,790.5	10.6%	17.5%
Percent of total	73.1%	76.6%	75.0%		75.6%		76.4%
Business	537.6	593.8	757.9	#	816.2	#	861.6	5.6%	12.5%
Percent of total	26.9%	23.4%	25.0%		24.4%		23.6%
Total revenues	1,999.5	2,536.8	3,037.4	#	3,339.8	#	3,652.1	9.4%	16.3%

Source: CRTC data collection

Table 4.4.3 provides a breakdown of retail Internet access revenues by type of provider. These figures show that the incumbents and the cable BDUs are the major players with revenue market shares of 43% and 42%, respectively, in 2005, up from 43% and 39%, respectively in 2004. The market share of the competitors (other) declined from 15% in 2004 to 12% in 2005. This decline can be attributed to the consolidation within the industry and to the decline in dial-up subscriptions discussed below.

Table 4.4.3
Internet access service revenues by type of provider
($ millions)

	2003		2004		2005	Growth 2004-2005	CAGR 2003-2005
Incumbents	1,219.0		1,432.4		1,554.0	8.5%	12.9%
Market share	40.1%		42.9%		42.6%
Competitors
Cable BDUs	1,108.2		1,284.6		1,520.1	18.3%	17.1%
Market share	36.5%		38.5%		41.6%
ILECs out-of-territory	35.1		114.5	#	134.9	17.8%	96.1%
Market share	1.2%		3.4%		3.7%
Other	675.2	#	508.3	#	443.1	-12.8%	-19.0%
Market share	22.2%		15.2%		12.1%
Competitors Total	1,818.5	#	1,907.4	#	2,098.1	10.0%	7.4%
Market share	59.9%		57.1%		57.4%
Total	3,037.4	#	3,339.8	#	3,652.1	9.4%	9.7%

Source: CRTC data collection

As shown in Table 4.4.4, the four largest Internet access service providers⁷² and their affiliates continue to, not only dominate the market but steadily increase their market share of the retail Internet access market, growing from 44% in 2001 to 63% in 2005.

Table 4.4.4
Top four retail Internet companies' revenues
($ millions)

	2001	2002	2003		2004		2005	Growth 2004-2005	CAGR 2001-2005
Four largest companies	875.3	1,289.9	1,641.0		1,970.6	#	2,312.5	17.4%	27.5%
Market share	43.8%	50.8%	54.0%		59.0%		63.3%
Others	1,124.2	1,246.9	1,396.4	#	1,369.3	#	1,339.6	-2.2%	4.5%
Market share	56.2%	49.2%	46.0%		41.0%		36.7%
Total	1,999.5	2,536.8	3,037.4	#	3,339.8	#	3,652.1	9.4%	16.3%

Source: CRTC data collection

a) Residential Internet access market

Table 4.4.5 illustrates residential Internet access revenues by type of provider for the period 2001 to 2005. Incumbents have minimal out-of-territory operations with respect to the residential Internet access market. As shown in Table 4.4.5, competitors (other) have been losing market share to the incumbents and cable BDUs. As shown in Figure 4.4.1, the incumbents and the cable BDUs had approximately 91% of the residential Internet access revenues in 2005.

Table 4.4.5
Residential Internet access revenues by type of provider
($ millions)

	2001	2002	2003	2004	2005	Growth 2004-2005	CAGR 2001-2005
Incumbents	551.5	780.0	892.0	1,041.8	1,158.4	11.2%	20.4%
Market share	37.7%	40.1%	39.1%	41.3%	41.5%
Competitors
Cable BDUs	570.8	846.2	1,049.3	1,218.5	1,392.7	14.3%	25.0%
Market share	39.0%	43.6%	46.0%	48.3%	49.9%
ILECs out-of-territory	-	-	-	9.0	10.1	12.7%
Market share				0.4%	0.4%
Other	339.6	316.9	338.2	254.3	229.2	-9.9%	-9.4%
Market share	23.2%	16.3%	14.8%	10.1%	8.2%
Competitors Total	910.4	1,163.0	1,387.5	1,481.8	1,632.1	10.1%	15.7%
Market share	62.3%	59.9%	60.9%	58.7%	58.5%
Total	1,461.9	1,943.0	2,279.5	2,523.6	2,790.5	10.6%	17.5%

Source: CRTC data collection

The decline in the competitors' (other) residential market share is largely explained by the fact that these competitors have a very small share of the growing residential high-speed access market as shown in Table 4.4.9. Table 4.4.9 indicates that over the 2001 to 2005 period, the competitors (other) had between 1.2% and 4.4% of the high-speed Internet subscribers. When compared to their dial-up subscriptions, the competitors (other) had 2.5 times as many dial-up subscribers as high-speed subscribers.

b) Business Internet access market

As reflected in Table 4.4.6, competitors' (other) market share declined in the business segment of the retail Internet access market from 31% in 2004 to 25% in 2005. Although the competitors (other) had the biggest share of the business Internet segment in terms of revenues after the incumbents who had 48%, their market share has been declining annually. The competitors (ILEC out-of-territory) had approximately 15% of these revenues in 2005. Unlike the residential Internet access market, cable BDUs had 15% of the business Internet access revenues versus 50% of the residential Internet access revenues.

Table 4.4.6
Business Internet access revenues by type of provider
($ millions)

	2003		2004		2005	Growth 2004-2005	CAGR 2003-2005
Incumbents	327.0		390.6		395.6	1.3%	10.0%
Market share	43.1%		47.9%		45.9%
Competitors
Cable BDUs	58.9		66.1		127.3	92.7%	47.0%
Market share	7.8%		8.1%		14.8%
ILECs out-of-territory	35.1		105.5	#	124.7	18.3%	88.6%
Market share	4.6%		12.9%		14.5%
Other	337.0	#	254.0	#	213.9	-15.8%	-20.3%
Market share	44.5%		31.1%		24.8%
Competitors Total	431.0	#	425.6	#	466.0	9.5%	4.0%
Market share	56.9%		52.1%		54.1%
Total	757.9	#	816.2	#	861.6	5.6%	6.6%

Source: CRTC data collection

Figure 4.4.1 shows the Internet access revenue market share for the residential and business segments by type of provider in 2005. It should be noted that competitors (other) and competitors (ILEC out of-territory) have a far larger share of the business Internet revenues than of the residential Internet revenues. Conversely, the cable BDUs have a far larger share of the residential Internet access revenues than of the business Internet access revenues.

Figure 4.4.1
Residential and business Internet access revenues market share by type of provider
(2005)

Types and sources of facilities and services used by competitors

Tables 4.4.7 and 4.4.8 show the residential and business Internet access revenues by access technology for the 2003 to 2005 period. During this period, there continues to be a shift from dial-up facilities in both the residential and business Internet access markets to high-speed Internet facilities utilizing both DSL and cable modem.

Competitive ISPs rely predominantly on incumbent facilities and services and, to a much lesser extent, on cable company TPIA services to provide Internet connectivity to end-users. Competitive ISPs also rely on other telecommunications facilities, such as satellite, for Internet access and transport facilities.

Table 4.4.7
Residential Internet access revenues and market share by access technology

	2003		2004		2005		Growth 2004-2005	CAGR 2003-2005
	Revenues ($M)	Share*	Revenues ($M)	Share*	Revenues ($M)	Share*
Incumbents
Dial-up	249	44.4%	228	52.7%	192	53.2%	-15.8%	-12.1%
High-speed	643	37.4%	813	38.9%	966	39.8%	18.8%	22.6%
Total	892	39.1%	1,041	41.3%	1,158	41.5%	11.2%	14.0%
Competitors
Cable BDUs
Dial-up	10	1.7%	6	1.4%	13	3.5%	107.7%	14.4%
High-speed	1,040	60.5%	1,212	58.0%	1,380	56.8%	13.8%	15.2%
Total	1,050	46.0%	1,218	48.3%	1,393	49.9%	14.3%	15.2%
ILECs out-of-territory
Dial-up	0	0.0%	9	2.1%	10	2.8%	12.0%
High-speed	0	0.0%	0	0.0%	0	0.0%	0.0%
Total	0	0.0%	9	0.4%	10	0.4%	12.7%
Other
Dial-up	302	53.9%	190	43.8%	147	40.5%	-22.7%	-30.4%
High-speed	36	2.1%	65	3.1%	83	3.4%	27.7%	51.9%
Total	338	14.8%	255	10.1%	230	8.2%	-9.9%	-17.7%
Competitors Total
Dial-up	312	55.6%	205	47.3%	169	46.8%	-17.3%	-26.3%
High-speed	1,075	62.6%	1,277	61.1%	1,463	60.2%	14.5%	16.6%
Total	1,387	60.9%	1,482	58.7%	1,632	58.5%	10.1%	8.5%
Total
Dial-up	561	24.6%	433	17.2%	362	13.0%	-16.5%	-19.7%
High-speed	1,719	75.4%	2,090	82.8%	2,429	87.0%	16.2%	18.9%
Total	2,280		2,523		2,791		10.6%	10.6%

Source: CRTC data collection
Notes:
(a) Access mode share shows access mode's share of total revenues in same category.
(b) Access mode share for residential dial-up, for example, shows residential dial-up's share of total residential revenues.
(c) High-speed includes the remaining technologies, including cable modem, DSL and fixed wireless.

Table 4.4.8
Business Internet access revenues and market share by access technology

		Revenues ($ millions)
		Dial-up	DSL	Cable	Fibre		Other		Total
2003	Incumbents	56	170	0	93		7		327
	Competitors
	Cable BDUs	0	0	44	15		0		59
	ILEC out-of-territory	20	6	0	9		0		35
	Other	45	111	0	138	#	44		337	#
	Competitors Total	65	117	44	161	#	44		431	#
	Total	121	288	44	254	#	51		758	#
	Technology mode percent of total	16%	38%	6%	33%		7%		100%
2004	Incumbents	55	211	1	124		1		391
	Competitors
	Cable BDUs	1	1	57	6		1		66
	ILEC out-of-territory	7	18	0	54	#	26	#	105	#
	Other	64	54	0	99	#	37	#	254	#
	Competitors Total	71	73	57	159	#	64	#	426	#
	Total	126	284	58	283	#	65	#	816	#
	Technology mode percent of total	15%	35%	7%	35%		8%		100%
2005	Incumbents	43	237	2	101		13		396
	Competitors
	Cable BDUs	1	13	73	36		4		127
	ILEC out-of-territory	11	24	0	89		1		125
	Other	45	66	0	72		31		214
	Competitors Total	57	103	73	197		36		466
	Total	100	340	75	298		49		862
	Technology mode percent of total	12%	39%	9%	35%		6%		100%
	Revenue growth 2004-2005	-20.3%	19.7%	28.9%	5.2%		-25.3%		5.6%
	CAGR 2003-2005	-9.0%	8.7%	30.3%	8.3%		-2.7%		6.6%

Source: CRTC data collection
Notes:
(a) Access mode share shows access mode's share of total revenues in same category.
(b) Access mode share for residential dial-up, for example, shows residential dial-up's share of total residential revenues.
(c) Other includes the remaining technologies such as, but not limited to, ISDN, fixed wireless and satellite.

Internet subscribers

The number of Internet access connections is generally measured on the basis of the number of end-user subscriptions. This, however, is not the case with business Internet access subscriptions which support multiple users. Consequently, the following data on subscriptions focuses solely on the residential segment of the market.

As Table 4.4.9 indicates, as of year-end 2005, there were roughly 8 million residential Internet access subscriptions, or 64% of all Canadian households. Households with high-speed Internet access reached 6.4 million households, or 51% of all Canadian households, up from 43% in the previous year.

Table 4.4.9
Residential Internet subscribers by type of provider

	2001		2002		2003		2004		2005		Growth 2004-2005	CAGR 2001-2005
	Sub-scri-bers /1000	Share*	Sub-scri-bers /1000	Share*	Sub-scri-bers /1000	Share*	Sub-scri-bers /1000	Share*	Sub-scri-bers /1000	Share*
Incumbents
Dial-up	1,524	48.4%	1,392	46.1%	1,123	44.9%	1,010	49.8%	765	48.8%	-24.2%	-15.8%
High-speed	903	35.3%	1,400	39.7%	1,859	41.2%	2,268	41.9%	2,676	41.6%	18.0%	31.2%
Total	2,427	42.5%	2,792	42.7%	2,982	42.5%	3,277	44.0%	3,441	43.0%	5.0%	9.1%
Competitors (cable BDUs)