The great white north

As I wrote last December, the CRTC had harsh words for the state of Northwestel’s aging infrastructure in its review of regulatory framework for the north (Telecom Regulatory Policy CRTC 2011-771). In that Decision, the CRTC required Northwestel to file a network modernization plan.

Three months later, BCE moved to acquire Astral Media for about $3 billion. As part of the regulatory approval process, the CRTC requires tangible benefits to be proposed, as described in the public notice released earlier today:

Under the Commission’s tangible benefits policy, applicants are required to propose tangible benefits amounting to at least 10% of the value of the transaction for all conventional and specialty television assets and 6% of the value of the transaction for all radio assets.

The Commission, in applying its benefits test, has been consistent and rigorous in requiring that (1) expenditures proposed as tangible benefits be truly incremental; (2) such expenditures be directed to projects and initiatives that would not be undertaken or realized in the absence of the transaction; and (3) applicants demonstrate that expenditures proposed as tangible benefits flow predominantly to third parties, such as independent producers.

BCE has proposed a tangible benefits package valued at about $200M, which includes $40M allocated to funding parts of the Northwestel modernization program. I was initially surprised to see that BCE has proposed that allocation. After all, the network modernization plan would have been required regardless of whether Northwestel’s parent company, BCE, decided to purchase Astral Media.

This is why it is important to read the filings. It is one thing to develop a network modernization plan; it is something else to fund that plan and implement it.

48. This Modernization Plan is very aggressive, but it reflects Northwestel’s desire to deliver the most possible benefits to the residents of the North in as short a timeframe as possible. However, absent the Astral funding, this very ambitious and far reaching Modernization Plan cannot be achieved.

49. Approval of BCE’s proposed uses of the Astral public benefits funding is the subject of a separate regulatory proceeding currently before the Commission. Northwestel respectfully requests that the Commission carefully weigh the considerable public benefits that would be realized through the proposed use of $40 million of Astral pubic benefits funding as part of the Modernization Plan. The Company reiterates that the expansion and upgrading of telecommunications and broadcasting infrastructure in the far North is a very capital intensive undertaking which for many communities cannot be economically justified. Such circumstances demand bold vision and choices to realize that which would not otherwise be possible. The Company strongly urges the Commission to approve the Astral funding component of the Modernization Plan as contained in BCE’s public benefits filings.

The CRTC opened the north to competition (as I wrote here), which created interesting challenges for a market friendly resolution to funding Northwestel’s upgrades. Without its monopoly, Northwestel is less able to finance the uneconomic portions of its upgrade plans. On the other hand, in a multiple service-provider environment, how can the CRTC grant the benefits funding without distorting the competitive landscape?

I am still hoping that a major carrier will show the leadership to launch a program for low income households to acquire connected computers. Perhaps this can be a fallback tangible benefits program?

The CRTC hearing opens September 10.

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