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.

According to the CRTC’s list of decisions upcoming this week, there are going to be some interesting releases later today – likely clearing the way for the Obligation to Serve proceeding that opens in Timmins tomorrow.

The CRTC will be ruling on two applications to review and vary decisions related to broadband services:

• One of these applications deals with usage based billing for the wholesale Gateway Access Service tariff. The main issue is whether the incumbent telephone companies should have to have every retail customer on a usage based billing plan prior to being allowed to charge any wholesale clients on this basis;
• The other application deals with the deferral account decision where the CRTC ordered Bell to use a specific technology (DSL) for rural broadband, rather than specifying the desired service characteristics and allowing Bell the flexibility to implement the technology of its own choice.

There is also a decision due out on a dispute between Bell / Bell Aliant and the City of Thunder Bay over access to city roads for telecommunications rights of way. It is an issue that rarely becomes discussed in municipal election campaigns, because telecommunications is generally a federal matter. Since today is municipal election day in Ontario, it is worth discussing this issue – too late to affect any of the results.

Municipalities rightly are concerned about the impact that construction has on their roadways and it would be reasonable for them to set standards for the telecom industry in respect of traffic disruption and repair requirements. However, it seems counterproductive for municipalities to be anything less that supportive of investment in infrastructure by the communications sector.

Shouldn’t we be looking for city hall to find ways to make it easier for new transmission lines to be deployed – the more, the faster, the better?

All these decisions and more – the opening of the Timmins hearings. Should be lots to discuss. Follow me on Twitter for some of the play-by-play.

A new report from Berkeley Research Group has found that Canadian consumers are among the world’s most intensive and sophisticated users of Internet services. In addition, the report [pdf, 700KB] says that Canada’s mobile networks and usage of such networks are among the most sophisticated in the developed world.

The authors of the report are Leonard Waverman, Dean, Haskayne School of Business, University of Calgary and Kalyan Dasgupta, Principal, Berkeley Research Group. They found that Canadian businesses have been slower to adopt information and communication technologies than their counterparts in other countries.

… despite Canadians being among the most intensive users of the Internet anywhere, Internet-based retail lags in Canada compared to countries such as the U.K., even though broadband penetration in Canada is higher and average user speeds are also higher. Thus the primary “problem” in Canada would appear to be a wider business failure to sufficiently invest in or make use of technology that transforms business processes rather than a failure by the providers of telecommunications and broadband networks to provide affordable and high-quality services.

The report says that the inordinate focus on networks and networks alone is damaging “a much more important debate about the wider digital economy in Canada.”

The report considers the weak performance of Canada in electronic retailing, pointing out that getting Canadian electronic commerce to the level of U.K. electronic commerce doesn’t require faster broadband networks (given that broadband networks in the U.K. are slower than ours). So why did a 2008 study find that half of Canadian online users never make online purchases, compared with just one fifth in the U.K. and one eight in the US?

The report quotes Blair Levin, the recently departed head of the FCC’s National Broadband Plan for the United States:

As the leaders of the team that prepared the National Broadband Plan that was presented to Congress in March, we have seen that the public debate on broadband focuses too much on how our networks compare with those in other countries. Instead, the discussion should focus on how to use those networks here in America and rethink how we deliver key services.

We need to spend more time understanding issues impacting the demand side of the equation. How do we help consumers and businesses make better use of the infrastructure we have?