Axia challenges Telus deferral accounts decision to cabinet

Axia SuperNet Ltd. has filed a petition with the federal cabinet requesting a review of the CRTC’s decision this year on Telus Corp.’s use of deferral account funds. The commission’s ruling last January might have ended a battle dating back to 2006—when it laid out rules regarding the use of deferral funds—but Axia is now hoping the government will intervene in a decision that company CEO Art Price says goes against the principles of competition and preventing network overbuilding. The deferral account funds are regulated telecom funds from a surcharge paid by phone customers in urban areas between 2002 and 2006. The CRTC has now ordered telcos use some of the funds for rural and remote broadband expansion. In 2008, the commission approved an application by Telus to expand broadband services in rural and remote communities in Alberta, British Columbia and Quebec using the funds. After court battles, Telus revised its proposal and the commission approved a $99.4 million drawdown from the deferral accounts for Telus to use in communities in Alberta and British Columbia in 2010. In 2008, Telus was directed to use whichever option was cheaper between the SuperNet and its own backbone where interconnection was available to the Alberta SuperNet—a broadband network created by the Alberta government and private companies to provide remote communities and public institutions with high-speed Internet access. A subsequent decision in 2010 allowed Telus to build its own facilities where it chose, but Telus is only allowed to use deferral account money for the amount it would have spent to use the SuperNet. Price said the government spent almost $200 million on the SuperNet project, and that private companies spent about the same. Bell Canada built the network in metropolitan areas, Axia built the overriding network connecting to rural regions, and more than 70 retailers linked from nodes to customers’ homes, he said. The SuperNet uses an open access model where all retail providers have equal access to the grid and Axia does not have to compete with them, he added. The concern is that Telus will use deferral account money intended for broadband expansion to rollout a network that will compete with SuperNet—what Axia calls “overbuilding.” “They should not be able to use this deferral account money to overbuild on SuperNet—to overbuild the fibre grid that’s there and that’s available to them on the same terms as everybody else,” Price said in an interview. “That’s what the appeal is about … The way they actually made the final decision, they left it open to Telus to overbuild if they chose to.” Price said part of the reason for the construction of the SuperNet was that Telus wouldn’t build out fibre to the communities that the network now reaches. He said Telus wouldn’t build its own network now if it had to spend its own money to do it. “Now they have this deferral account money, which they can’t use for anything else. It’s free money to Telus,” he said. Price said the deferral account funds are only available to incumbents and that independent ISPs connecting to the SuperNet are using their own capital to link community nodes to homes. In its decision this year, the CRTC said that “it would be desirable to avoid duplication of facilities to certain communities and to complement government initiatives” but maintained that its 2010 ruling was technologically neutral. The CRTC also stated that there are benefits to Telus having the management of a uniform network with end-to-end control and that the company can only withdraw from its deferral accounts an amount equal to what Axia would charge for the use of the SuperNet facilities. “he Commission notes that requiring to use SuperNet would not be consistent with a technologically neutral position.” Michael Hennessy, Telus’ vice-president of regulatory and government affairs, said by email that he has not seen the petition to cabinet but considers the issue an old one. Hennessy wrote that his company has a right to invest in broadband networks and that it’s in the public interest to do so. “We are a facilities-based carrier and it is ludicrous to be forced to use a government owned network, particularly when we are investing in modern infrastructure that only makes Alberta an even better place to do business,” he wrote. He added that the CRTC recognized Telus’ right to roll out uniform networks, and said that the restriction to not use more deferral account funds than what the company would have paid to use the SuperNet ensures that Telus spends money in a least-cost manner. “When did it become a crime in this country to build better and competing networks?” he wrote. Mark Beland, a representative from independent ISP MCSNet, Alberta’s largest fixed wireless provider, said allowing Telus to use the deferral account funds “distorts the market.” Based in St. Paul, Beland said his company has 13,000 rural subscribers, mostly in communities as opposed to remote areas. He said in an interview that Telus could cut into a community customer base that allows MCSNet to service outlying areas. “When you start to allow them to use these funds to subsidize their infrastructure there’s something that’s unfair about that,” Beland said. Ottawa technology consultant Bill St. Arnaud said the CRTC decision “reinforces the incumbents’ monopoly positions in rural and remote locations.” “If they have their own infrastructure, they can maintain complete control over the customer and who accesses the infrastructure—the competitors and so forth,” he said in an interview. Price said he doesn’t know how cabinet will treat the petition, but said Axia’s case gets to the heart of similar debates about net neutrality, usage-based billing and functional separation for incumbent ISPs. “The only reason exists is that the incumbents are competing with their own customers in the retail business,” he said. “The SuperNet model is the reverse of that. We separate the network from the retail and service layers so that we don’t compete with our customers and therefore we don’t have this big capping scheme that we’re trying to apply to a third party that’s competing with us.” Price said the framework that prevails in other sectors, where incumbents don’t compete with their wholesale customers, is needed. John Lawford, counsel with the Public Interest Advocacy Centre, said in an interview that he isn’t convinced cabinet will reverse the ruling. “I don’t think, at the end of the day, the Conservative party supports what SuperNet really is, which is a form of structural separation or at least functional separation for these guys,” he said. St. Arnaud said cabinet’s decision on the issue will hinge partly on who’s named as industry minister in the Conservative government’s new cabinet. But he said the government will likely “just boot it back to the CRTC.” The Alberta government’s influence with the federal cabinet could be a decisive factor if Telus is seen as “undermining” investment in the SuperNet, St. Arnaud said. Rogers Communications Inc. recently filed its own petition to cabinet over Bell Canada and Bell Aliant’s use of the deferral funds to roll out HSPA+ wireless broadband to 112 rural communities in Ontario and Quebec. mburgess@thewirereport.ca

Axia challenges Telus deferral accounts decision to cabinet

News | May 11, 2011

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