As the last remaining large wholesaler, TekSavvy faces tough market conditions

As the last remaining large wholesaler, TekSavvy faces tough market conditions

As the last remaining large wholesaler, TekSavvy faces tough market conditions

Andy Kaplan-Myrth, TekSavvy’s head of regulatory affairs.Blair Gable/Blair Gable Photography

In one hand, Santa Claus grips a bulging sack full of gifts – labels show they’re headed to Bell, Rogers and Telus. In the other hand, he holds a crumbling lump of coal. The tag reads: “To Canadian consumers.”

TekSavvy Solutions Inc. has never shied from making political statements about the telecommunications industry. The aforementioned cartoon accompanying the internet service provider’s Christmas blog post, a satirical poem titled The Telecom Nightmare Before Christmasis yet another example.

While it’s all done with a touch of humor, the post illustrates the grim state that TekSavvy, now one of the few remaining large internet wholesalers in Canada, finds itself in as it prepares to celebrate its 25th anniversary. It also underscores how difficult the fight has been for the country’s independent internet service providers.

“I don’t think there’s any way to sugarcoat this: It’s been a hard year for TekSavvy,” said Andy Kaplan-Myrth, the company’s head of regulatory affairs. “TekSavvy is in a really difficult position right now.”

As an internet wholesaler, TekSavvy purchases space on the networks of incumbents such as Bell and Rogers and resells services to consumers. But a series of recent regulatory decisions and a push by incumbents to expand their fiber-optic networks have made doing so profitably a challenge.

TekSavvy has been losing customers to incumbents for years and had to raise its prices during the pandemic in order to stop losing money. Higher internet wholesale prices meant the company had to step away from a spectrum bid last year and has not been able to expand its modest physical network as planned. For now, Mr. Kaplan-Myrth said, the company is “continuing as a going concern.”

CRTC decision pave way for increased competition and cheaper cellphone bills

The industry is still divided on how facilities-based providers – telecoms that have their own infrastructure – and wholesalers should co-exist. Some argue that wholesalers should only fill specialized gaps not served by incumbents. Others assert they play a greater role putting downward price pressure on the giants. The subject was at the center of heated debate during the recent Competition Tribunal hearings for Rogers Communications Inc.’s RCI-BT takeover of Shaw Communications Inc. SJR-BT.

But independent providers say telecom policy has increasingly leaned toward supporting larger companies that built their own infrastructure; as a result, companies that don’t have their own networks are facing increasingly difficult circumstances.

Despite the clean business outlook, TekSavvy has doubled down on what it sees as its playing roles: a consumer advocate and lastly a large wholesaler challenging the incumbents. Mr. Kaplan-Myrth said the company has two reasons to be optimistic: the appointment of a new CRTC chair and the finalization of an upcoming policy directive from Innovation, Science and Economic Development Canada.

“Don’t think we are defeated,” he said. “What keeps us going is that we know we’re doing the right thing.”

A few years ago, things were looking up for TekSavvy. In 2016, the CRTC slashed the rates wholesalers would be required to pay incumbents to sell services through their networks. TekSavvy chief executive Marc Gaudrault said the company would use the savings to start building out its own fiber-optic network in the Chatham-Kent region of Southern Ontario. In 2019, the CRTC lowered rates further.

But in a contentious 2021 ruling, the CRTC reversed its own 2019 decision, raising prices back to 2016 levels and making it more difficult for wholesalers to turn a profit. It said the 2019 rates included a series of errors and that it would be “irresponsible” to implement them. Tek Savvy appealed the decision and is still waiting for a hearing date.

Consumer advocates and small-provider organizations such as the Competitive Network Operators of Canada argue that the higher rates have directly resulted in a series of acquisitions by large incumbents. In 2022, Bell Canada acquired independent telecoms EBOX and Distributel, and Quebecor Inc. QBR-BT bought VMedia. It’s unclear whether TekSavvy itself has received any offers.

CRTC chair Ian Scott acknowledged in a November address to the Canadian Telecom Summit that the marketplace has evolved since the framework was developed in a way that “wasn’t fully anticipated” and that the CRTC was working to “fix it.”

However, it’s unlikely that the CRTC will change its mind again. Mark Goldberg, a telecommunications consultant, said he is not expecting a change to Ottawa’s preference for facilities-based competition, an approach that stretches back three decades or more.

“Canada continues to need billions of dollars annually in private-sector investment to extend the reach of networks into unserved areas,” Mr. Goldberg said. “Among the more successful independent ISPs are those that aren’t simply offering cheaper services but offering added value.”

Offering added value could mean offering bundles with mobile service. But for TekSavvy, branching out like that became even harder this year.

Just as they do with the internet, wholesalers can buy space on incumbents’ mobile networks to offer their own cell service. Last year, the CRTC said incumbents would be required to sell space on their networks for seven years to resellers that met specific criteria, which it laid out this October. TekSavvy does not qualify under the new framework, limiting its ability to secure favorable prices and expand its mobile offerings.

Its situation is further complicated by the fees it would be required to pay to connect to incumbents’ fiber-optic networks. To offer a similar internet service, Mr. Kaplan-Myrth said, TekSavvy would have to charge double the price. As a result, he said, the company has lost most of its customers for wholesale products over the Bell network.

“When Bell offers you a cheaper price to switch to fiber for a faster speed, with the TV and the phone,” he said, “what rational consumer doesn’t take that deal?”

Despite the challenges, Mr. Kaplan-Myrth said the company will continue to offer customers independent, competitive alternatives for internet service. And it is hoped that the two new developments will bring good news.

Innovation, Science and Economic Development Canada is expected to release a final draft of its new policy directive, which has asked the CRTC to take steps toward enhancing competition in Canada. As part of the policy direction, it directed the regulator to “have more timely and improved wholesale rates available” and improve its hybrid mobile virtual network operator model – two things that could work in TekSavvy’s favour.

And in December, Heritage Canada announced the long-awaited appointment of the CRTC’s new leader. Independent and small telecoms are happy to see lawyer and former Competition Bureau commissioner Vicky Eatrides in the job, saying her background suggests the government is prioritizing competition. Ms. Eatrides will take over Jan. 5.

“I don’t think that anything is certain here, but it feels like a move in the right direction,” Mr. Kaplan-Myrth said.