Yesterday, the CRTC issued 4 decisions that try to close out the final chapter on the much maligned deferral account.
The account was a concept established in 2002, with the creation of Canada’s transitional Price Cap regulatory regime. At the time, the idea was that the CRTC was concerned that embyonic competitors wouldn’t provide sufficient discipline for phone rates and, seemingly in contradiction, the CRTC did not want consumer prices to fall to a point that would discourage these new competitors from entering the fledgling local phone business.
So prices in urban areas were kept artificially high and the ‘extra’ money was put in an account – the deferral account – to be used for projects to be defined later. Over time, the accounts became pretty sizable and in 2006, the CRTC decided that it would freeze the plan and use the accumulated money to expand broadband, improve access for Canadians with disabilities, and refund what ever was left over (see the introductory paragraphs of Decision 2006-9 for a description of the history of the plan).
That was 4 and a half years ago. There have been court challenges and cabinet appeals and yesterday, the CRTC made its final determinations – ordering Bell to abandon a proposal to use mobile wireless technology and revert to DSL while generally approving the proposed plans from MTS Allstream and TELUS (that first had an adjustment approved for funding its service improvement plan).
The Commission’s rejection of Bell’s HSPA proposal is not surprising; I have alluded to signals a number of times over the past month or so, foreshadowing that the CRTC was not prepared to accept mobile wireless as a full substitute for urban grade broadband internet access.
What was surprising was the language that was used in paragraph 35 of 2010-637:
the Commission directs the Bell companies to provide broadband services using DSL technology to implement their broadband proposal. The variety of services provided must be comparable to those offered in urban areas, using the same DSL technology, in terms of their rates and terms and conditions.
This has no flexibility. Despite current provisioning in urban centres that has DSL among the tools used for broadband deployment – alongside fibre or other technologies – Bell has been ordered to used DSL as the only technology choice for the $300M to be spent over the next 4 years.
Contrast this order with the flexibility acknowledged to be considered for TELUS, in permitting them to select its own fibre backbone, despite the availability of Alberta SuperNet (paragraphs 25-26 of 2010-639):
The Commission has reviewed the costs provided by TCC and Axia, and concludes that there are some communities where it would be less costly for TCC to use SuperNet facilities than to build its own. However, the Commission considers that, for these communities, if TCC withdraws from its deferral accounts only the amount of the cost to use the SuperNet network, the company would withdraw the same amount as if it had chosen the least-cost option.
The Commission notes that the service provided to subscribers will be the same regardless of which facilities TCC uses, and will be equivalent to TCC’s broadband services provided in urban areas, thereby satisfying the Commission’s determination in the deferral account decisions. Further, while the Commission considers that it would be beneficial to avoid the duplication of facilities in certain approved communities, it concludes that the benefits associated with TCC having greater control over its end-to-end broadband network are significant.
Why wasn’t Bell given the same discretion? The CRTC could have denied the use of HSPA as a solution, but ordered Bell to provide a specific grade of service with a maximum level of funding from the deferral account without limiting the engineering degrees of freedom.
That was what is behind the dissenting opinion by Vice Chair Len Katz, filed with the Bell decision.
I submit that once the Commission has established the appropriate allocation of funding from the deferral accounts, the ILECs should be free to deploy new and innovative technologies as long as they meet the price, quality, reliability, service and access conditions imposed by the Commission.
Unfortunately, there will likely be yet another appeal, based on the lack of flexibility to allow Bell to use the technology that it chooses.
Just over 60,000 households will gain access to broadband over the next 4 years, from this $300M investment sourced from urban consumers being overcharged for local phone service. The funding works out to $5000 per household that gains the ability to connect (not signing up) – it is a remarkable level of subsidy compared to other broadband stimulus programs. If broadband adoption reaches levels seen in the rest of the country, it will work out to around $6000 per new subscriber.
It gets worse. Because of the lengthy process, smaller internet service providers already stepped into some of these markets, and 60% of the so-called unserved homes already have access to broadband service. So that means there are really just 20-25,000 homes getting access to broadband for our $300M.
For nearly five years, the deferral account has been promising broadband to some communities; the rollout plan (assuming no further procedural delays) will have some people waiting 4 more years for implementation.
That’s nearly 10 years from the time the CRTC first spoke of using our money to promote broadband expansion and refund the rest. Yesterday saw more than $300M dollars of our money committed by the CRTC to order Bell to expand broadband access to a fraction of a percent of Canadian households.
Do you think you got your money’s worth?
Yesterday’s decision from the CRTC provides fast temporary relief for the smaller ISPs; it may still leave the bigger telcos with indigestion.
Telecom Regulatory Policy CRTC 2010-632: Wholesale high-speed access services proceeding, is designed to preserve a delicate balance that ensures “that the retail Internet service market is sufficiently competitive to protect the interests of users.”
In effect, the CRTC has found that the current retail marketplace is enhanced by the presence of the smaller players, providing price competition and service innovation beyond that of the major telephone companies and cable companies. That has been the situation to date that has allowed retail internet services to avoid price regulation. The decision was predicated on the view that two facilities-based service providers, the phone company and cable company, are not sufficient; the CRTC was not persuaded that mobile wireless companies and satellite services are yet able to serve to discipline the marketplace.
The Commission notes, for example, that current prices for wireless- and satellite-based retail Internet services generally significantly exceed wireline retail Internet service prices for comparable service and that speed issues can occur as those systems’ capacities are approached.
But make no mistake, this is not going to be the long term situation. The CRTC is not setting the mandated wholesale regime in place for all time:
The Commission notes, however, that it expects that as technologies and retail Internet service markets evolve, retail Internet services provisioned using wireless and satellite facilities are likely to become substitutes for those provisioned using wireline facilities.
This is likely a 5-year lifeline to the smaller ISPs, because the alternative technologies will need to establish a measurable share of the market (say, 5-10%), followed by a proceeding that provides a CRTC endorsement of the proposition that these facilities-based competitors are able to provide sufficient discipline to ensure consumer benefits.
In the meantime, competitors will be compensating the phone companies with an additional 10% margin, an amount found by the CRTC to be sufficient to satisfy the increased shareholder risks associated with deploying fibre infrastructure.
The dissenting view of Commissioner Denton says that the CRTC should have gone further, a sentiment captured in the official reaction from Teksavvy. However, aspects of the Policy Direction, specifically the requirement to rely on market forces to the maximum extent feasible, would likely not have survived a challenge on this point - appeals mean delays.
For smaller ISPs, that would prevent the fast, temporary relief associated with this decision. The heartburn medication for smaller ISPs may be giving stomach upset to others. Ask your doctor.
Later today, the CRTC will be releasing its decision on its Notice of Consultation 2009-261, Proceeding to consider the appropriateness of mandating certain wholesale high-speed access services, as I discussed briefly last week. The file has been open for a year and a half, triggered initially by the CRTC as a follow-up to a wholesale DSL access service decision.
The proceeding was expanded by combining the issue with a request in March 2009 by Cybersurf to gain access to a mandated central office-based ADSL access service and cable head-end network access service.
There are some who have said that the decision will determine the viability of broadband competition. Will independent ISPs be able to compete if the CRTC does not rule in their favour. On the other side, the incumbent telephone companies have argued that the decision may determine the viability of fibre to the home investments in some communities.
Later today, we will see how the Commission adjudicated between these strongly expressed warnings.
Will Canada move to mandate more wholesale access to broadband facilities? Will the CRTC treat the residential market differently from the business services market?
How will the parties respond?
The CRTC gave advance notice that next week will be busy for observers of the Canadian communications sector.
At 4:00 pm (following the close of the the Toronto Stock Exchange), on Monday, August 30, the CRTC will be releasing its Regulatory Policy regarding wholesale high-speed access services – the long awaited outcome from Telecom Notice of Consultation CRTC 2009-261). This will determine whether the smaller ISPs will gain access to matching the highest available broadband speeds when connecting via the telephone companies’ Gateway Access Service (GAS); the extent of permitted levels of mark-ups on GAS; and, whether the competitors can access telephone company next generation networks when there is co-location at the individual central offices.
The following day, on Tuesday, August 31 (again, when the markets close at 4pm), the CRTC will be issuing its decisions related to the disposal of the funds remaining in Bell Canada, Bell Aliant, Telus and MTS Allstream’s deferral accounts – the follow-up filings arising Telecom Decision CRTC 2008-1.
For more than two and a half years, the deferral account proceedings have been overhanging the rural broadband marketplace. While the intent had been to accelerate the roll-out of broadband service in rural Canada, the effect of the process has served to inhibit investment by smaller ISPs that have not known whether the major telcos would be entering some markets using public funding subsidies.
The biggest question is how the CRTC will deal with Bell Canada’s proposal to use HSPA mobile technology as its subsidized rural broadband solution. As I wrote exactly one month ago, the CRTC has just asked the public to comment on whether “wireless services (e.g. Wi-Fi, 3G networks or satellite) can be substitutes for landline services to connect to the Internet.” If the CRTC approves Bell’s proposal, then it seems to be pre-determining the outcome of its current consultation (which is scheduled to close on Friday).
The summer will be winding down with a flurry of activity from the CRTC – be sure to visit this site next week for our perspectives.
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