Canadian telco Rogers hit the headlines last week after the prolonged nationwide failure of their network, affecting 11mn mobile customers and slightly under 3mn customers of their cable and internet products. Rogers customers were unable to call emergency services and other Canadians were also impacted. Some bank ATMs were frozen and the paralysis of Canada’s national INTERAC payments service stopped many retailers from processing debit card transactions. Measures of the duration of the outage vary, but it is fair to conclude there was almost no service for at least a 15-hour period, with Cloudflare reporting a near total loss of traffic from Rogers’ autonomous system (AS) at 08:45 UTC on Friday followed by only occasional small bursts of traffic until a more sustained recovery began at 00:15 UTC on Saturday morning.
Rogers President and CEO Tony Staffieri promised to credit customers for the service lost during an apologetic statement issued on Saturday.
We know how much our customers rely on our networks and I sincerely apologize. We’re particularly troubled that some customers could not reach emergency services and we are addressing the issue as an urgent priority.
We will proactively credit all customers automatically for yesterday’s outage. This credit will be automatically applied to your account and no action is required from you.
You can never be sure how well promises like these will be kept, and Rogers may still make some peculiar determinations about the length of time people lost their service or about categories of customers that will not receive a full credit. Nevertheless, it is possible to estimate the cost of the outage by extrapolating from the company’s reported revenues. If no customers were able to make calls or messages, if no inbound services were effectively terminated on Rogers’ network, and if Rogers reimburses customers the proportionate fees for 15 hours’ of lost access (and not for a longer or a shorter period than the time they could not make or receive calls) then we can take historic examples of service revenues and simply pro rate to determine the value of 15 hours’ lost service. Service revenues for Rogers’ wireless and cable offerings totaled CAD10,178mn (USD7,875mn) for the financial year ending December 31, 2021. With 8,760 hours in a typical year, this would mean a 15-hour outage is worth CAD17.4mn (13.5mn). Unaudited results for the first quarter of 2022 showed combined wireless and cable service revenues of CAD2,753mn (USD2,130mn), leading to a slightly higher estimate of CAD19.1mn (USD14.8mn) for the cost of a 15-hour outage.
A loss like this is hardly negligible, but Rogers generated a net income of CAD1,558mn (USD1,205mn) last year, so even an outage as severe as this will cause little more than a 1 percent knock to the company’s profitability. The greater risk to Rogers is that public anger will lead government authorities to make decisions which are less favorable to their business. Rogers is one of three Canadian telcos that have a combined market share of 90 percent, so there is always pressure from lobbyists and activists who want to see increased competition. Some of their arguments are too simplistic to merit much attention. Whilst it is correct to observe that Canadians pay relatively high telecoms prices, allowances need to be made for the cost of delivering connectivity across a country which is the second largest by area and also has one of the lowest population densities.
A number of blowhards have used the Rogers outage as an excuse to simultaneously demand a greater number of retail telcos competing with each other, lower prices for consumers, stricter financial penalties when there is a network outage, and increased capital expenditure on networks, even though these goals conflict with each other. However, the average member of the public is not an economist, and there will be increased pressure on Canada’s Competition Bureau to continue blocking a proposed CAD20bn deal to merge Rogers and Shaw Communications, the fourth-largest Canadian mobile operator with approximately 5 percent of the market. The two telcos say a merger would generate cost savings of CAD1bn, a far greater amount than the cost of Rogers’ outage. Widespread anger at Rogers will make it easier for officials at the Competition Bureau to keep rejecting proposals from Rogers and Shaw about how they might divest parts of their business to address anti-trust concerns.
The story of net neutrality in the USA or more recent attempts to reverse net neutrality in the EU demonstrate that the public does not need to understand how communications businesses work or the full implications of a policy decision to know how they feel about those policies. Any serious examination of public support for net neutrality in USA would find that the average American is incapable of explaining how net neutrality affects prices they pay or the amounts spent on network investment but they still know they love net neutrality because they hate the US businesses that oppose net neutrality. A similar mood is currently being harnessed in Europe, except this time the goal is to persuade the average European of the need to repeal parts of net neutrality by highlighting how much they hate the US businesses that support net neutrality. Linking Shaw’s network assets to Rogers’ operational depth and purchasing power would likely improve competition in the West of Canada, where rival operator TELUS is most dominant, but few members of the public will appreciate this. Last week’s massive outage will encourage antipathy to Rogers and to any objectives pursued by their management.
Canadians suffers more from crony capitalism than many of their peers. There is a high concentration of wealth and power in a relatively small number of business dynasties which actively seek to maintain close relationships with whomever is running the Ottawa government. Transparency International scores perceptions of corruption in each country and Canada’s current score of 74 has declined 10 points since 2012. Public concerns about crony capitalism sharpened after Prime Minister Justin Trudeau and former Minister of Finance Bill Morneau awarded a 2020 government contract to a charity with little pertinent track record but plenty of ties to both of their families. Trudeau’s reputation had already been damaged in 2019 when Canada’s ethics commissioner found the Prime Minister breached conflict of interest rules by pressuring the Attorney General to drop bribery charges against SNC-Lavalin, a major conglomerate and employer of thousands of voters in places considered crucial to the election prospects of Trudeau’s Liberal Party. The Attorney General resigned in protest, leading to a political scandal. Trudeau and the Liberals remain in power after making concessions to obtain the support of the rival National Democratic Party, whose political manifesto is unusually hostile to telcos when compared to most major parties in economically advanced democracies.
None of the chicanery and deal-making that occurs at the top echelons of Canadian society inspires confidence that government and big businesses can be trusted to serve the interests of ordinary Canadians. Rogers, which is named after the family that has 97.5 percent of voting shares in the company, is an especially obvious target for Canadians who resent the way wealth and power is distributed in their country. The company has attracted plenty of negative attention because of fighting within the Rogers family over the management of the telco. Current President and CEO Tony Staffieri dramatically lost his job in October 2021 when Edward Rogers, Chairman of the company, tried to sack the former CEO whilst promoting Staffieri from CFO to CEO but failed to obtain the support of other family members. Edward Rogers also briefly lost his position as Chairman before prevailing in a legal battle with his mother and two of his sisters. Staffieri then returned and was confirmed as the new permanent CEO in January 2022.
It would be understandable if a telco risk professional looked at mistakes made with a Border Gateway Protocol (BGP) update and how it cascaded across Rogers’ network before concluding the outage would lead to an approximate 1 percent reduction in revenues for the year. It would also be understandable if the same professional expressed concerns that reduced consumer confidence could negatively impact churn and future sales. But to calibrate the full implications of a major public relations disaster like this you need to account for not just the public mood but how it interacts with government decisions. With that in mind, it is likely that the cost of this outage is the billion-dollar opportunity lost if worsening public sentiment derails any prospect of Rogers’ deal with Shaw.