WE’VE GOT YOU COVERED!

LEAPING FORWARD – WIRELESS

BROADBAND AND A NATIONAL DIGITAL

STRATEGY

November 30, 2009

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The Authors

The Authors are Michael Hennessy Senior Vice-President, Regulatory and Government Affairs and Ted

Woodhead Vice-President, Telecom Policy and Regulatory Affairs, TELUS Communications Company.

They have prepared LEAPING FORWARD – WIRELESS BROADBAND AND A NATIONAL DIGITAL

STRATEGY for discussion around Canada’s digital future at nextMEDIA Toronto, November 30 .

December 1, 2009 at The Design Exchange, Toronto.

Michael Hennessy has been involved in the communications industry in Canada for 25 years, originally

with the Canadian Radio-television and Telecommunications Commission, then Bell Mobility and prior to

joining TELUS as President of Canadian Cable Television Association. He has also been a member of

the Board of the Canadian Television Fund and is currently Chair of the Banff World Television Festival.

Ted Woodhead has been involved in the communications industry in Canada for 17 years. Prior to

joining TELUS in 2004, he was Director of Regulatory Affairs with Rogers Wireless and prior to that was

Director of Convergence Policy and Infrastructure Access with the Canadian Radio-television and

Telecommunications Commission. He is a member of the Law Society of Upper Canada and was called

to the Bar in 1989.

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Table of contents

1. Introduction ......................................................................................................................................... 4

2. The leap forward we took and how we are doing our part in advocating for a national digital

strategy ......................................................................................................................................................... 4

3. Networks enhance social, cultural and economic welfare .................................................................. 5

4. Mobile wireless broadband can help drive this future! ....................................................................... 7

5. Canada needs a national digital strategy ............................................................................................. 9

6. Principles for a national digital strategy .............................................................................................. 9

7. Broadband investment never stops ................................................................................................... 12

8. Spectrum capacity will be the next big barrier to growth ................................................................. 13

9. Coda ................................................................................................................................................... 16

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1. Introduction This paper is intended to provoke discussion about how to promote Canada’s

digital future through investment and innovation across all media platforms. The

opinions expressed however, seek not simply to “ensure” a place in that future

for wireless carriers, but to offer proposals for a national digital strategy that

would recognize the interrelationships and linkages between all parts of the

broadband ecosystem. Our comments use as a starting point, the importance of

the broadband networks as building blocks to support a digital media ecosystem.

In particular, this paper uses the recent launch of national 3G+ mobile broadband

networks by TELUS and Bell (a case study if you will) to illustrate the

opportunities that these networks present and how these networks can, if

properly leveraged and supported, meet broader social, cultural and economic

policy goals. These are the networks that will span Canada from coast to coast

and interconnect Canada with the world. These are the networks that Canadian

application developers and content creators will leverage and use to bring their

products and services not only to Canadians but also to the world. And these are

networks that will truly enable open consumer choice and increased innovation at

the edge of the network.

2. The leap forward we took and how we are doing our part

in advocating for a national digital strategy TELUS and its over 35,000 team members are proud and excited about our brand new “3G+” wireless network, which was launched nationwide last month. Over a billion dollars of investment has resulted in perhaps the largest and we think one of the most advanced wireless broadband networks in the world.

TELUS’ national 3G+ network is nothing short of revolutionary in terms of its reach and its openness. When the network was activated on November 5th, in one stroke Canada was propelled to global leadership in wireless telecommunications and a substantial percentage of the “digital divide” in broadband access was closed with wireless connectivity.

When TELUS was planning this next-generation wireless network – which provides Internet access that is as good as or better than the speed of many of the wired Internet connections in Canadian homes – we didn’t stop at large urban centres. We made the capital investment necessary to push this world-class network deep into rural and remote parts of this enormous country. So much so that 93 percent of the population and perhaps 40% of the locations in B.C. and Alberta that Industry Canada recently identified as unserved now have access to

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wireless broadband service. That’s 2,100 designated locations and hundreds of communities. And all built without a dollar of government money.

Even more compelling our network sent a strong signal to the market that the idea of walled-gardens as the model for wireless is passé. From the iPhone to the “Droid”, our wireless business will be driven from the edge of the network according to consumer demands and fuelled by the hundreds of thousands of applications now driving innovation, creativity and choice.

What is perhaps most remarkable was that this investment, in conjunction with a dual network infrastructure build by Bell, was accomplished with private money in the midst of a generational recession. There is a very important lesson here to consider as Canada struggles to address broadband challenges going forward. With a deficit heading towards $60 billion, there is no way the government will be able to spend to build the network platforms we need to drive an innovation agenda. If we don’t rely on and encourage private sector investment the next generation of broadband networks will not be built.

Step 1 will be stimulating private sector investment in broadband, wireless and wireline networks in any national digital strategy.

Step 2 is even more important and that is really understanding all along the media value chain that technology has placed the consumer in charge,

Step 3 is recognizing that while there are no sustainable protections defined by political borders for media businesses, broadband networked nations are gateways to prosperity in a borderless media market. Where there is challenge, there is also opportunity.

3. Networks enhance social, cultural and economic welfare It always starts with a vision……

In the 1850’s, Sir Francis Hincks had a vision of a railroad linking all of British

North America. His vision, shared with others, culminated in the expansion of rail

networks across Canada, moving him to exclaim “railways are my politics”.

Between 1850 and 1860 rail lines expanded from 22 miles to 2,000 in both

Ontario and Quebec. This was the result of a grand vision – a vision not without

controversy – that hastened Canada’s industrialization through the development

of home markets and the opportunities that foreign markets provided for

Canadian goods and services, once we could quickly and efficiently deliver them.

Just as our 19th century economy relied and prospered on the steel ties that

bound a nation, it gave way to 20th century and complementary networks made

of asphalt and copper. These networks once constructed enabled the “whole”

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economy. They were not an end, in and of themselves. Rather they enabled

economic, social and cultural benefits as well. That is what made them the

defining elements of their time. These developments defined the “old world”

economy but there are lessons to be learned for the “new world” economy as

well.

The availability of near ubiquitous wireline networks have made basic

communications, broadband access to the Internet and the delivery of

entertainment and information a reality - a common staple -for the vast majority

of Canadians. Where those networks do not reach, Canada’s leadership role in

satellite and wireless have striven to fill the gaps and, in some respects, are

poised to be the game changers for the Canadian digital dream.

That said, while yesterday’s investments provided a foundation for these next

generation builds, we are only as good as the future billions of dollars in risk

capital all our enterprises will need to invest in networks, applications and

software development and the enablement of content available on any platform

and on demand.

It is our fundamental premise that continued investment in and availability of

advanced broadband infrastructure, particularly on a competitive basis, will be a

critical component of Canada’s economic, social and cultural welfare in the 21st

century. Building for this future will require billions of dollars of capital from

private firms. In terms of funding large scale visions, governments are frankly

incapable of financing the ongoing capital requirements of these next generation

networks because of fiscal conditions. In a Web2.0 or 3.0, or whatever Web dot

you like, people are the markets and private enterprise the bankers. This is as it

should be, because private enterprise can more efficiently and effectively raise

the capital and deploy it to make this next iteration of the digital future a reality.

That is not ideology, it is economics.

Investment in advanced broadband infrastructures will rely on continued private

sector investment. However, even as we now see the rollout of multiple

advanced wireless networks across Canada this year and next, continued

investment in fibre networks will still be required to meeting exploding demands

for bandwidth.

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4. Mobile wireless broadband can help drive this future! As noted above, TELUS’ launch of its competitive 3G+ High Speed Packet

Access (“HSPA”) network earlier this month brought the prospect of the broad

availability of always on, nearly ubiquitous mobile broadband to reality. Canada

now has 3 national advanced HSPA networks and more networks are planned to

launch in early 2010. That is an enormous addition to our advanced broadband

pool, and a very deep pool it will be.

New 3G + and later, LTE networks, will move from being considered a mere

complement to fixed broadband and the Internet overall, to an integral

component that will catalyze increased investment and innovation. This trend

would be consistent with the strategy embraced by TELUS beginning in 2000 to

invest in the future importance of mobile wireless and data.

Revenue $9.7B$6.0B

2009120001

Wireless18%

Wireline Local

49%

Wireline LD

23%

Data10%

28% 70%

Wireline

Data

22%

Data8%

WirelessWireline

Local

23%

7%LD

1 12 months ending June 30, 2000 and June 30, 2009, respectively

Wireless

40%

TELUS strategic focus on data and wireless

The telephone monopoly is rapidly becoming part of history

Wireline

TELUS' national HSPA network is capable of delivering theoretical peak data

download speeds of 21Mbits/s this year and peak speeds are expected to double

that in the next year. Unlike some providers, TELUS and Bell made the capital

investments necessary to push our two world-class 3G+ networks deep into rural

and remote parts of Canada. To put this into context, TELUS reached 40% of

the areas covered under the Broadband Canada: Connecting Rural Canadians

program with the flip of a switch. 2100 locations and hundreds of communities

in British Columbia, Alberta and eastern Quebec that previously had no access to

broadband Internet are now able to access the Internet at speeds that are as

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good as the speed of the typical wired Internet connection in urban Canadian

homes. In all, over 93% of Canadians are within the coverage area of these new

wireless broadband networks. This is a step change in meeting the policy goal of

bridging the digital divide and it was achieved without a dollar of government

money.

TELUS vs Rogers - HSPA west coverage

* Based on Rogers’ Sept. 14, 2009 public announcement of HSPA+ coverage within the cities indicated (using associated census metropolitan

areas).

** Based on coverage maps made publicly available by Rogers on Oct. 23, 2009.

Coverage areas are approximate as of October 2009. Actual coverage and network service can vary and are subject to change

It is not a boast to state that these are impressive achievements bringing next

generation broadband to previously unlikely places like Masset, Bella Coola and

Quesnel, British Columbia. There is little dispute that the growth of the use of

information and communications technologies (“ICTs”) has irrevocably altered

our society and the global economy in the post-war era. Broadband will

irrevocably alter our economies as well and in digital media broadly defined. But

the appetite for bandwidth seems insatiable and the changes wrought to

traditional industries are as dramatic as the opportunities are for the new. The

question is then, “Are we going to seize and leverage these opportunities?”

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5. Canada needs a national digital strategy What is needed is the Government’s attention on the importance and need for

policies that allow all Canadians the opportunity to exploit this broadband future -

today. Now that we have built and continue to build out the underlying

broadband infrastructure, leveraging the capabilities of those networks and the

development of a broadband economy should form part of a larger industrial

strategy. That industrial strategy for Canada would include:

incentives for continued investment

policies that promote consumer access and choice; and

ensuring that application providers, software developers and content

creators across the value chain can reach markets.

6. Principles for a national digital strategy Given the above context, we argue that it is time, in fact past time, to seriously

move on developing a national digital strategy that will not only ensure ubiquitous

access by Canadians to broadband, but also develop the necessary frameworks

and mechanisms by which targeted investments can be made to propel

Canada’s digital economy forward. To that end, we submit 10 principles that we

believe should guide the discussion and debate.

1. Canada needs to trust the market to build our broadband future

Government cannot afford to build the next generation broadband

infrastructure for the future, it has to trust the market to do that

Consumer demand is sovereign and rejects regulated models for

consumption including many of the limits that currently operate in

the traditional broadcast space

Carriers will build platforms because competition demands it. That

TELUS just built a world class wireless network without asking for

stimulus dollars is proof positive of that fact

2. Government can find smart ways to support a digital media

strategy without large expenditures funded by taxpayer dollars

The government could direct billions of new dollars of investment

into a digital strategy if it redirected the next spectrum auction

revenues for that purpose

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The principle behind stimulus is to invest not only in stimulating

platform deployment but to promote creation from software to

stories along the media value chain

Stimulus from auction revenues, where required, needs to be

considered in a more focused and targeted way: accelerated capital

cost allowances for builders; education and training grants;

investment in new business vs. subsidy to support failing media

models.

3. Spectrum auctions should be fair and open to ensure to ensure that the $2

billion dollar overpayments in the last AWS auction are not repeated again

Flawed auction design led to massive overpayments of $2 billion

that could otherwise have been spent by bidders on building

networks

Not a dollar of the total $4.2 billion auction proceeds went into

stimulating digital media or digital economy initiatives but got lost

forever in the federal government’s treasury

$4.2 billion would have closed the digital divide for a decade

In the TELUS case, $400 million of private capital was diverted

(nearly twice as much as was dedicated by the Government to

broadband stimulus)

TELUS’ overpayments of $400 million, delayed or permanently

reduced the opportunity to build next generation fibre networks in

Western Canada for the near future

4. Canada and the world are our markets; we cannot be inward looking

The Internet is a gateway to world markets and young Canadian

entrepreneurs often only need venture capital to create new

business opportunities

Wireless applications will be one of the biggest opportunities and

applications will know no borders

We need to reassess whether foreign ownership rules and cultural

protections are still appropriate or if these undermine innovation

and increase the cost of capital

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Canadian innovation can succeed at home and on the world stage

if properly incubated and nurtured

5. Digital content is not limited to narratives/stories but is also software and

applications that enable the creation, distribution and sharing of content

online

Even where broadly available, many Canadians don’t adopt ICTs

and do not benefit from the opportunities broadband presents

Digital literacy, education, training and skills development are

critical elements in building a broadband society

6. Governments are ill equipped to shape new media or to sustain markets

that don’t exist, but government can stimulate investment and innovation

Technology and consumer demand are now the principal factors in

reshaping markets

Media products are discretionary and demand ultimately dictates

success not social engineering

The Internet allows success in long tail and niche markets more so

than protected broadcast markets

Focusing on propping up failing firms in traditional media comes at

the expense of those with the more viable business strategies

7. Canadians must have the opportunities to access, communicate, interact,

create and transact over open broadband networks

Open networks maximize innovation and investment opportunities

Innovation is increasingly driven from the edge of networks and

demand gravitates to edge applications

Investment in application development is critical to both economic

and cultural opportunities

Consumers are agnostic to the networks that deliver the

applications or content – but they want both world class networks

and the applications and content they can deliver – whenever and

wherever they want them

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Walled-gardens are anachronistic in an Internet space but

managed networks using IP-based technologies still have a place

for some consumers and businesses that need to exploit their

intellectual property

8. Copyright is not an absolute; it must be balanced against fair use

Copyright legislation may be a necessary framework for guidance,

but it cannot prevent piracy

Balanced copyright can legitimize fair use and the right to create

managed opportunities to exploit and monetize content in tandem

with open network environments

9. Intellectual property is the currency of an information economy just as

much as access to broadband is a prerequisite to participation

Economic growth or economic dependency will be directly

correlated with our ability to develop, protect, exploit and profit from

intellectual property

There will always remain opportunities for creators and distributors

to profit in the mass media space from managed on-demand IP-

based services on multiple platforms in order to monetize

production

Monetization of content is critical to ensuring a supply of high value

content.

10. The consumer and public are already shaping markets and we need to

follow their direction to succeed

7. Broadband investment never stops The transformation from a voice-centric traditional telephone company to a full service

communications enterprise offering wireline, wireless, satellite, IPTV and other services

in all market segments is neither a costless nor risk free exercise. In fact, it has been

very costly and risky for TELUS’ shareholders. The investment of billions of dollars of

capital, e.g. more than $2B in 2009 alone, has given TELUS the distinction of being the

highest capital intensity telecom operator in North America. These investments have

been made without government assistance or contribution but with private capital and

will provide distribution channels and network platforms on which application and

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content providers can create and innovate for years to come. Policy makers should

acknowledge and encourage these investments made in the midst of a global economic

crisis and recession and ensure that regulation and taxation are employed as tools only

where necessary and in the least intrusive manner feasible in order to further similar

investment behaviour. To do otherwise would interfere with the ability to recover these

investments over a reasonable period of time and would have the unintended but

disasterous consequence of creating disincentives to invest.

8. Spectrum capacity will be the next big barrier to growth TELUS has observed consistent and significant improvement in wireless data use and

associated revenue increases from the use of wireless data over the last 5 years. We

expect this trend to continue in coming quarters and years as mobile wireless

broadband is embraced by more Canadians, both urban and rural. New devices and

Internet keys designed for the mobile broadband environment, along with a burgeoning

list of applications designed to meet every conceivable need of consumers and

businesses will drive continued investment and innovation in the broadband ecosystem.

27% annualized data growth driven by continued

smartphone adoption and to be enhanced by iPhone launch

Q3-08

$181M

Wireless data revenue

Q3-09

$229M

$116M

Q3-07BlackBerry

Tour

Globally, this trend is confirmed and interestingly, but not surprisingly, video content

plays a growing and significant role in the transformation of mobile broadband wireless

usage. This forecast of the importance of data, but most importantly of video data, in

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global mobile data growth should provide ample impetus for the public policy apparatus

to take notice and act. As O2's CTO, Derek McManus, said:

The introduction of world-class smartphones, in combination with a wide variety

of data applications, has brought about a dramatic change in customer behaviour

and created an exponential demand on mobile data networks. Data on our

network has increased 20-fold in the last year alone, and to put this in context,

watching a YouTube video on a smart phone can use the same capacity on the

network as sending 500,000 text messages simultaneously.

For mobile network providers, the Internet has required an increase in network capacity

and will continue to do so for the foreseeable future and beyond. As illustrated by the

chart below, the global growth in mobile data traffic is quite staggering.

Global Mobile Data Traffic GrowthVideo will account for 64% of mobile traffic by 2013

131% CAGR 2008 - 2013

Source: Cisco Visual Networking Index – Forecast, 2008-2013

64%

10%

19%

7%

For network providers this is both a blessing and a curse. Increased mobile data use

expands the usefulness and revenues associated with the use of the devices and the

networks they ride on beyond basic voice. However, it also is the canary in the coal

mine because of the spectrum and backhaul capacity required to handle exponential

traffic growth, particularly video. Wireless also remains constrained by the laws of

physics which is near to immutable – spectrum shortage and availability! Spectrum is

the real estate upon which mobile broadband will be delivered. Radio spectrum is a

scarce public resource. Spectrum is more rapidly consumed when consumers and

businesses adopt more and more data applications. As we move inevitably toward a

converged mobile broadband data world, policy makers will need to find ways to make

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available more spectrum, in quicker cycles, and in ways that don’t distort the market-

based value of the resource, like auction set asides and arbitrary spectrum caps do, but

also in ways that don’t negatively impact the creation of the applications, content and

services that will be developed by creators and innovators. The new reality for wireless

services is a need for even more spectrum and greater scale, as a prerequisite for next

generation broadband demand.

The scale and scope of this problem can be illustrated in the following chart that shows

that approximately 149,000 terabytes of data will flow across TELUS’ network and by

2018 will consume more than TELUS’ available spectrum capacity. By way of

comparison to demonstrate the speed at which capacity is consumed, in 1993 it is

estimated that total Internet traffic amounted to 100 terabytes. In June of 2008, Cisco

estimated Internet traffic at 160 terabytes/second (for those who need to know, this is in

the order of 5 Zettabytes for the year. Oh, and 1 Zettabyte = 1 billion terabytes). While

total Internet traffic will continue to increase, wireless broadband Internet traffic will

make up an increasing share of it.

The projected data growth will pose challenges for TELUS

The graph above amply illustrates the problem. There will, in the very near future, be a

need to provide more spectrum to operators in order to service the burgeoning

opportunities for applications and content over mobile wireless broadband networks.

For network operators, the planned auctions of spectrum at 700 MHz and at 2.5/2.6

GHz will provide, in the short term, an opportunity to ensure that adequate spectral

resources are available, provided they are made available through an open auction

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process that does not employ market distorting set aside frameworks or spectrum caps

designed to manipulate outcomes.

Beyond that however, the auction of spectrum will provide to public policy makers an

opportunity to apportion funding, not otherwise available given current economic

circumstances, to make public investments in furthering a national digital strategy that

would increase Canada’s social, cultural and economic welfare by encouraging the

creation, adoption and use of ICTs and, in particular, application and content creation.

TELUS called for precisely this use of funds garnered from the recent AWS auction that

netted the Canadian treasury some $4.2B. These are areas (Canadian application and

content creation and innovation) are fertile ground for a properly conceived and

executed national digital strategy that would have an enduring impact on investment

and innovation in Canada. The billions of dollars that will be raised through upcoming

and future auctions should be invested, at least in part, back into the digital economy in

order to support application and content creation, broadband expansion, the digital TV

transition and the stimulation of Canadian new media opportunities.

We welcome and encourage the debate. Perhaps these 10 principles can serve as a

catalyst to realizing a vision and action plan for launching an ambitious national digital

strategy that will serve to enhance and sustain Canadians for years to come. The

wireless broadband example provides a window into a rapidly growing and

transformative shift in consumer preference. It serves as a signal that mobile wireless

broadband is moving from being a complementary lesser cousin of traditional wireline

broadband to a significant component in a converged broadband environment.

9. Coda Will Canada be ready? Will Canada move quickly to recognize the linkages and

interrelationships in the whole converged broadband ecosystem? Will Canada invest in

the future? Who will champion this vital initiative? Who will have the vision and be the

champion? Who will be this century’s Sir Francis Hincks? Will Canada have a national

digital strategy that will keep pace with and exploit the world class network

developments and achievements that are occurring as we consider these fundamental

questions, or will others pass us in the fast lane while we ponder?