The CRTC public hearing on the Obligation to Serve and Universal Service Obligation continues today, with the action taking place in the CRTC’s usual home at the Conference Centre in Gatineau. Last week’s proceedings in Timmins was a northern economic stimulus program with a temporary surge in revenues for the local Walmart, since airlines decided that the witnesses and Commissioners really didn’t need their luggage.

But that is another story, perhaps better suited for a retirement bash (“remember that time we were in Timmins with no change of clothes?”).

The focus in these hearings so far has been on whether to set a national broadband objective – an aspirational target with no teeth – or to expand the current local phone subsidy regime in order to include subsidies for broadband for service in lower density population areas.

This week’s hearing agenda opens with an eclectic mix; witnesses today will include a major ILEC, a group of major cable companies, a group of smaller independent ISPs and a consumer group. The first phase wraps up on Tuesday with appearances by another mix of interests, including the Liberal Industry critic. The rebuttal phase opens on Wednesday.

I wonder if any of the groups will examine the level of broadband adoption in urban areas.

Last week, I wrote about the digital divide that exists between households of varying income.

The emphasis in these CRTC hearings has been on expanding the reach of wireline broadband to the 5% of Canadians in rural and remote regions that lack a terrestrial broadband choice. But, Statistics Canada data shows that there are far more lower income Canadians that have apparently chosen to put food on their table or buy winter boots for their kids, rather than buy a computer and subscribe to broadband. Where is their spokesperson?

The UK announced a plan in January to provide free laptop computers for low income families. I wrote about that kind of idea two years earlier:

Maybe Canada needs to look at targeting broadband subsidies based on income, regardless of where people live. There is a gap in the level of connectedness among lower income Canadians in urban markets as well. Maybe it is time to consider making PCs and broadband part of our social welfare system.

Should we only be looking at rural versus urban subsidy schemes, instead of targeting those who really need help regardless of where they live?

The UK communications industry regulator, Ofcom, has issued its latest media literacy bulletin [pdf, 383KB], including news of initiatives to increase digital literacy.

There is an article about an initiative called First Click, launched by the BBC, in partnership with the Post Office. It is described as “a major media literacy campaign to encourage those who have never used the internet to take the first steps to get online.”

The bulletin also describes a new social networking safety programme, Safe, for primary schools and a project called Fix the Web, that aims to use crowd sourcing to improve accessibility for visually impaired users.

Increased broadband penetration by stimulating demand. What a novel concept!

At the CRTC’s hearing in Timmins yesterday, one of the companies suggested imposing a tax on everyone’s internet access in order to fund phone company expansion into territories that are currently served only by competing independent service providers.

That wasn’t how it was characterized, of course. But here is how it went.

The CRTC’s Communications Monitoring Report was interpretted as saying that there are 700K households that have no broadband access. That number refers to households that aren’t within reach of DSL, cable or the fixed wireless access of reporting ISPs.

This proposal would have the CRTC to create a subsidy pool of $700M per year (for 10 years), that would be given only to incumbent phone companies to fund extending the reach of their networks. That is $1000 per year per potential new subscriber. (I use the term “potential” because, even in urban areas, we still don’t have 100% penetration.)

That is an eye-popping $10,000 per household transfer of wealth, without any consideration given to the ability to pay the tax or the need to receive the largesse.

And under the proposal, the $700M is going to be generated from a new tax on internet services – services that are currently exempt from funding universal phone service. It will work out to a tax of at least 1.7% – roughly 75 cents to a dollar per month – for those of us subscribing to mainstream broadband plans.

What impact will this have on broadband penetration among marginal income households in urban centres? We know that there is an enormous digital divide based on household income, as Statistics Canada reported in May: 94% of households in the top income quartile (over $85,000) have broadband service compared to only 56% penetration in the quarter of Canadians that have household  income less than $30,000. So, more than 10% of Canadians – 44% of those in the lowest income quartile – aren’t subscribing already.

I don’t see how broadband adoption will improve by raising prices.

In his opening remarks at the CRTC hearings in Timmins yesterday, CRTC Chair Konrad von Finckenstein described the current regime for basic services:

1. We required telephone companies to serve their existing customers as well as new customers requesting telephone service. This is known as the obligation to serve.
2. We developed a basic service objective, which is a minimum target for residential service that includes:
   • local service on an individual telephone line
   • access to low-speed Internet at local rate (i.e. dial-up Internet service)
   • operator and directory assistance services
   • access to the long-distance network
   • enhanced calling features, and
   • a copy of the current local telephone directory. 
3. We developed a regulatory regime whereby companies that provide local telephone service to residential customers in rural and remote areas receive a subsidy.

The current proceeding is looking at whether there are changes in order to this regime. In the opening volley, it was suggested that maybe rural rates should rise to more closely match costs. If higher rates for phone service in urban centres are affordable, why would these same prices be unaffordable in lower density areas?

Yes, that would lead to unhappy rural ratepayers who have been the beneficiaries of wealth transfer from urban markets for the past century. The current system skims pennies from a lot of us each month in order to reduce the prices for relatively fewer folks in rural areas. Those pennies add up to a material amount when distributed to folks who are eligible for the subsidy.

Is geography, without any regard for ability to pay, still the most appropriate criteria for being the beneficiary of such largesse?

Should the definition be expanded to include broadband? If so, what should be the standard?

The Chair posed an interesting question to the panels: what if the CRTC set a target for Canadian service providers? What would that look like?

As this gets prepared to be posted, word is coming out that the future is not clear for Australia’s ambitious $43B National Broadband Network vision. As I suggested yesterday, will more governments stop interfering with the supply of broadband and focus more on stimulating demand?

Too many people have focussed government attention on intervening in the supply of broadband facilities. Let’s face it, it is easier to look at a dozen or so suppliers to gather information and figure out who should receive a cheque to help direct their investment in broadband facilities.

On the other side of the equation, it is hard work to stimulate demand. But this is precisely where our efforts should be focussed, as was recommended by the Berkeley Research Group (the report I discussed on Friday).

A series of stories are coming out of Australia that reinforce the need to focus more attention on broadband demand, rather than supply.

Our friends down under are realizing that the $40B National Broadband Network needs to do more than just install infrastructure. An editorial is questioning the business case and another article indicates that many homes being offered free connections still aren’t signing up for service. In fact, a majority just don’t get it.

The preliminary indications are that the NBN could be a field of nightmares – what if you build it and nobody comes? The lesson is that infrastructure is a necessary, but insufficient prerequisite for a digital economy. At some point, we must turn our minds beyond the electrons.

According to CRTC figures, there are around 8 million Canadians who don’t have broadband. Consider that one in five Canadian households does not yet a computer. How many of these households are likely to suscribe to broadband?

As the CRTC begins its hearings in Timmins today, there will be some groups calling for the CRTC to continue to intervene in the supply of broadband infrastructure.

Improving broadband adoption doesn’t need government intervention in the plumbing end of the business. Service providers are investing plenty of money to make sure the pipes are in place.

What we need is help in getting more people to drink from the broadband faucet.