An account deferred too long

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?