Many governmental programs are a form of wealth redistribution. We tax those in the best position to pay in order to provide universal programs for citizens of all means. Think of it as a kinder, gentler, (democratically elected) Robin Hood.
Progressive tax systems involve a tax rate that increases (or progresses) as taxable income increases. It imposes a lower tax rate on lower-income earners and a progressively higher rate on those with higher incomes.
In the olden days – before telecom competition got underway 30 or so years ago – the CRTC administered such a redistribution of wealth that effectively provided subsidies to lower the price of telecom services for certain classes of users. Business customers paid more in order to lower residential service prices. Urban customers paid more in order to lower the price for rural. Long distance phone calling was seen as discretionary, so the surpluses enabled local services to be more attractively priced. In the industry, we called those surpluses “contribution”. Business service surpluses provided a contribution; the surplus in revenues over costs from urban services provided a contribution; long distance profits were considered a contribution; calling features like voice mail, conference calling, caller ID, touch tone, all provided a contribution. As an aside, touch tone tied up less equipment – and actually cost less to provide – than rotary dial, but it was originally considered a premium feature so it was expected to (you guessed it) provide a contribution.
The contribution pot was then used to fund services in high cost serving areas, helping to lower prices in rural and remote areas.
All of this could be centrally managed because we lived in a rate-regulated monopoly world. The CRTC would review capital programs and determine the reasonableness of the spending plans. Approvals were expressed as whether or not the Commission found the “Construction Program” to be reasonable – and it was often expressed in the form of a double negative (“we do not find the program to be unreasonable”). In a monopoly, rates of return were not guaranteed. Regulation was intended to provide opportunities to achieve certain rates of return. It was a very different era.
However, when competition was introduced, each of those markets with prices well above costs created arbitrage opportunities. It created challenges for central administration of a contribution fund. Local phone rates started to be rebalanced to remove many of the broader subsidy requirements. One might have thought the CRTC should exit the wealth redistribution business and leave it to the government to fund social subsidy programs out of the general tax system. The problem is, the government is somewhat addicted to having the CRTC operate an off-the-books alternate funding system. It isn’t just telecom revenues getting taxed to fund special programs. Recall, TV customers are the ones paying for the national public alert system. Most of us get those alert signals on our mobile devices, but it is the ever shrinking number of cable and IPTV subscribers who fund the system. It is all part of the CRTC’s wealth redistribution.
It was the CRTC’s Telecommunications in the Far North decision that inspired today’s post. That decision spawned a consultation to determine how to administer a subsidy for internet service in the north. As I mentioned a couple weeks ago, the first round of interventions are due February 18.
If it wasn’t obvious from my earlier blog post, I think the CRTC’s universal subsidy plan for the Far North is misguided and ill-conceived. In an Op-Ed, I referred to it as “The CRTC’s flawed Far North approach”. The Commission said that prices for internet service can be 50% higher in northern communities, but its universal subsidy plan ignores ability to pay as a consideration. Indeed, the ability to pay is ignored, not just for those receiving the subsidy, but also for those in the rest of Canada who will be paying more in order to fund the subsidy.
Median household incomes in the north are considerably higher than in the rest of Canada. However, Statistics Canada’s survey of household spending does not indicate that overall household expenditures in the territories are as disproportionate to those in the rest of Canada as the incomes, or the differences in internet prices.
The income distributions (using the 2021 Census) vary widely between the three territories (Yukon, Nunavut, NWT) and the country as a whole. Nationally, 17% of Canadians earn more than $80,000, but more than 36% of NWT residents earn more than $80,000; 27% in Nunavut and 28% in the Yukon. Nationally, 51% of Canadians earn less than $40,000. In NWT, that figure is 39%; 54% in Nunavut and 37% in Yukon.
The CRTC’s decision shrugs off use of an income-based subsidy because it is harder to do.
a subsidy that is based on household income would involve a long implementation process and would have a greater administrative burden and higher costs. Household incomes can change frequently and would need to be assessed routinely at an individual customer level. Determining eligibility based on household income would therefore require the ongoing collection of personal data and extensive cross-departmental collaboration because the Commission does not have access to, nor regulatory oversight over, Canadians’ personal income data. [paragraph 35]
It was indeed very difficult for the pioneering carriers (Rogers and TELUS) that launched these targeted subsidy programs, notably without any government funding. Those of us who were involved in the early days can recall the battles with various government departments trying to get them to assist with identifying eligible households. But, we have already cleared that challenge. We know how to do that. The CRTC ignored Northwestel’s launch of Connecting Families, a program targeting low-income households based on a system that already accesses income information while preserving personal privacy. Indeed, there is no mention of the program in the decision. I remember writing about the announcement which came during the oral phase of the CRTC’s Far North hearing.
What motivated the CRTC to ignore the existence of Connecting Families in its decision? If it wanted a broader application, it didn’t mention it. How can the decision talk about wanting to “improve affordability, especially for low-income households” but not mention the program that exists for precisely that group?
By deciding on a subsidy that will go to all service providers, and to all customers, we end up a regressive form of wealth redistribution. All customers in the far north will receive a subsidy, regardless of their financial need. All customers in the rest of Canada will fund that subsidy regardless of their financial ability to pay.
The absurdity continues in looking at the decision that all service providers, terrestrial and satellite, will participate. Starlink charges all customers in Canada $140 per month for service. The company is now among the largest internet service providers in rural and remote areas in Canada. Under the CRTC’s subsidy plan, Starlink customers in the Far North will actually pay less for their service than consumers in the south.
This makes no sense.
When there is so much effort underway to keep prices for telecom services down across the board, the CRTC’s Far North subsidy will work in opposition. The Commission’s Broadband Fund already duplicates funding programs from various federal, provincial and regional government departments.
We should be asking why the CRTC is trying to re-insert itself into the social welfare business.