Mark Goldberg


www.mhgoldberg.com






Should broadband be part of “basic service”

The CRTC has launched the second phase of its “Review of basic telecommunications services” consultation, with a study being conducted by Ekos Research.

Although the CRTC said in its public notice that it contracted Ekos “to conduct a study of Canadians’ usage of telecommunications services”, the questionnaire itself is called “Let’s Talk Broadband Internet”, perhaps leading the respondents toward a pre-ordained conclusion. When the respondent is asked “Which of these telecommunications services do you use most frequently?”and “Which of these telecommunications services do you expect to use most frequently 5 years from now?” underneath a bold banner (in all caps) saying “Let’s Talk Broadband Internet”, one might sense there could be a bias that leads the respondent to choose “Home Internet data service” as the response over the other choices “Home (i.e. landline) phone service” or “Mobile phone service (i.e. cellphone for voice, text or data)”. Note that the word “Internet” does not appear in the description of “Mobile phone service”. So for many non-technically inclined, there was not really an option, for example, to indicate an expectation to migrate to all mobile services in 5 years.

Survey bias aside, it is worthwhile looking at what is meant by defining what is included in “basic” services. As the CRTC indicates in the consultation document, there are several regulatory measures to provide Canadians with access to basic telecommunications services: the obligation to serve; the basic service objective; and, the local service subsidy regime.

In its description, the CRTC connects the obligation to serve and the basic service objective. This is an important bundling.

The obligation to serve requires the ILECs to provide telephone service to (i) existing customers, (ii) new customers requesting service where the ILECs have facilities, and (iii) new customers requesting service beyond the limits of the ILECs’ facilities.

The Commission established the basic service objective in 1999, which reflected the level of service available at that time to most Canadians. The basic service objective ensures that Canadians in all regions have access to affordable, high-quality telecommunications services. Currently, the basic service objective consists of the following:

  • individual line local touch-tone service;
  • capability to connect to the Internet via low-speed data transmission at local rates;
  • access to the long distance network, operator/directory assistance services, enhanced calling features and privacy protection features, emergency services, as well as voice message relay service; and
  • a printed copy of the current local telephone directory upon request.

I’m not sure anyone reading this blog post would see a need for a printed copy of a phone book, but you can always ask for one, perhaps most useful for Toronto and Montreal residents to use instead of buying a booster seat for visiting children.

It gets interesting when we look at the third regulatory measure, namely, the local service subsidy regime. In certain areas, the cost to provide service that meets the basic service objective exceeds the price. Most telecom service providers pay a fixed percentage of their revenues into a fund – known as the National Contribution Fund – to cover the shortfall. Note that the cost of video relay services are also covered by this fund. (In 2015, the percentage was set at 0.55% of revenues.)

Now, many people instinctively want to say that internet service has to be considered to be a basic telecommunications service. After all, how can one survive in a digital age without it. But, look beneath the emotional reaction to consider what it means to declare internet access as part of the basic service obligation.

Upon whom would an “obligation to serve” fall? After all, the incumbent local phone companies were not the first to offer broadband internet service in Canada. Should they be obligated to provide the service in unserved areas? Would they be the only ones eligible to be compensated out of the Contribution Fund? In many of these regions, there are niche internet service providers; what are the implications for their business plans if suddenly there is a subsidized ILEC obliged to extend its service?

The Government of Canada has poured hundred of millions of dollars into various rural and remote broadband service programs, such as Tuesday’s announced project in Newfoundland. Connected Canadians has been budgeted for $305M to extend broadband to 280,000 households, an average cost of about $1100 per household.

The current Contribution Fund subsidizes the cost of providing basic phone service (with no internet) for about one million phone lines – about 900,000 in the territory of major telcos and over 100,000 in smaller phone companies’ operating areas. The subsidy for those lines, as well as a couple million dollars for video relay services, came to a total of $113M in 2015, including $800,000 in administrative costs. Most of the readers of this post paid a non-tax deductible extra 0.55% on top of your phone bill to cover that donation to rural and remote customers.

Now, consider the hundreds of millions of dollars that has already been poured into rural and remote broadband and consider the kinds of additional ongoing subsidies that could be required, if broadband internet is added to the definition of basic service. Also, consider that internet services are currently exempt from paying into the National Contribution Fund. If internet service in high cost serving areas are going to be subsidized, would there be any reason why the majority of Canadian internet users (in lower cost urban centres) should not be funding that subsidy? Is this kind of internet tax one that Canadians would find to be acceptable?

As my frequent readers know, I am not a fan of subsidies based on geography rather than financial need. I have stated before that the CRTC should have started by looking at “who” doesn’t subscribe to broadband, not perpetuating and potentially extending the system of telecommunications subsidies based on “where” you are located, regardless of your ability to pay.

As I wrote last May, affordable broadband isn’t just a rural issue.

Incidentally, this isn’t the first time that the CRTC has looked at including broadband in the basic service objective. Back in 2010, the CRTC also asked for public input on that issue as well as exploring whether mobile service could be considered a substitute (see my post from that time: “Asking for help to define ‘basic service’“). As a result of its 2010 consultation, the CRTC elected to “continue to rely on market forces and targeted government funding” when it determined “that it would not be appropriate at this time to establish a funding mechanism to subsidize the deployment of broadband Internet access services.”

Do we want all Canadians to have a broadband connection at home? Of course. But with all of these considerations, should broadband be included in what the CRTC defines as “basic telecommunications services”?

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