Attention to the north

The CRTC has decided that “additional regulatory oversight is required” for Northwestel, in the wake of the Commission’s review of its regulatory framework.

The Decision is unusually harsh in its tone, with such statements as:

The Commission is concerned that Northwestel’s shareholders have benefited from the price cap regulatory framework to a far greater extent than its customers. Since 2007, Northwestel has received over $20 million in annual subsidy for the provision of service in remote communities and its annual income from operations has nearly doubled to $69.3 million in 2010. Despite this, the company has failed to make the necessary investments in its network. Northwestel’s infrastructure is aging and services comparable to those provided in the rest of Canada are unavailable in many remote communities. The Commission is also concerned that this situation has likely affected the quality, reliability, and choice of services available to customers, as evidenced by a number of outages in various communities and the lack of service options.

As a result, the CRTC is going to be putting Northwestel through what can best be described as a performance improvement plan. The first part of that process appears to be the first telephone company construction program review that I can remember in about 20 years. Gather round, kids. The old man is going to tell tales of when he was younger.

Back in the olden days, telephone companies submitted their capital program for regulatory review. Since companies’ rates were based on an allowed rate of return on their capital assets, the regulator wanted to be assured that the spending was appropriate. The public would be represented by various interest groups who would pore through mountains of paper and cross-examine technologists on why various lines of spending were necessary. Afterwards, the CRTC would make a change here and there and issue a finding phrased in the double negative: “we are unable to find the program to be unreasonable.” I use to enjoy the process, and there were a few restaurants in Vancouver and Ottawa that benefited from my participation in the old Bell and BC Tel review meetings.

In paragraphs 39-42 of today’s Decision, the CRTC has launched precisely this kind of review for Northwestel:

… additional regulatory oversight is required in the short term to allow for a more holistic review of Northwestel’s regulatory framework. Consistent with that determination and in order to address its concerns with Northwestel’s aging infrastructure, the Commission finds it appropriate to include an examination of Northwestel’s network modernization plan as part of that review.

I’ll have more on competitive aspects of today’s ruling later.

The CRTC has sent a strong message. The Policy Direction tells the CRTC “when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.”

The measures in today’s Decision reflect a belief that light touch regulation has been unable to deliver telecommunications services of a quality consistent with the policy objectives set out in the Telecommunications Act.  Northwestel is on probation, under a heavy regulatory regime and while simultaneously facing new competition.

How will Northwestel respond? How long will it take for the company to redeem itself?