Territorial governments, companies, call for telecom competition in the North

An absence of facilities-based competition in Canada’s Arctic has left northern residents and businesses with overpriced and under-developed telecommunications infrastructure, groups, companies and territorial governments told CRTC commissioners this week at a hearing in Yellowknife, N.W.T. “The benefits of competition are well understood, and Yukon users have only been able to watch as the rest of the country and indeed the rest of the world have benefited from the opening of markets to provide many innovative services and options,” Lisa Badenhorst, senior economic development policy advisor with the Yukon government, told the commission Tuesday. “There is no convincing justification against implementation of a plan and specific timetable for the introduction of local competition.” Given low population density, high costs and the existing regulatory framework, Bell Canada Enterprises Inc. subsidiary Northwestel Inc. has effectively monopolized the northern local voice services market. This week’s two-day CRTC hearing was scheduled to review the company’s proposals to increase local northern telephone rates and federal subsidies that help the company serve remote locations. Service quality and the opening of northern competition were also on the agenda. Northwestel president and CEO, Paul Flaherty, argued against opening competition, saying that if it was permitted, new entrants would move into more profitable urban centres in the North like Yellowknife and Whitehorse while neglecting remote and rural areas. He said the move would drain Northwestel’s revenues from higher-density, profitable markets, which cross-subsidize services the company offers in remote areas. The company would need additional funding to remain viable in remote regions, he said, which would mean either higher service rates or increased subsidies from a federal funding mechanism called National Contribution Fund. “Absent substantial subsidies, both from the national fund and internal cross-subsidies from the larger centres, most services in most remote communications would not exist,” Flaherty said. “There isn’t an economic basis for even one service provider in most of these communities, let alone two or three.” SSi Micro Ltd., which provides northern broadband and voice-over-IP (VoIP) services via satellite, is arguing for the opening of competition. In hearings this week, the company pointed to the commission’s 2007 decision to regulate northern price caps as a characteristic of a competitive environment. “Northwestel is regulated as if there is competition, but we cannot enter as a local competitor because the very same regulatory regime stops us,” Jeff Philipp, SSi Micro founder and CEO, told the commission. He rejected Northwestel’s argument that opening competition would lead to a “donut effect”—in which new entrants would deplete its revenues in low-cost urban markets and affect its ability to cross-subsidize more costly services in remote areas—noting that SSi Micro currently offers broadband services in 56 different northern communities. Philipp said the company's VoIP customers must pay long distance rates for what should be local calls because regulations prevent the company from giving its customers a local 867 area code, a condition that he asked the commission to overturn. He also asked the commission to impose requirements that Northwestel allow competitors to interconnect local traffic through its networks, and that northern interconnection rates be made similar to those in the rest of the country – at least in “major markets.” The company rejected Northwestel’s submission that interconnection would be costly and difficult, noting that already existing northern cellular interconnections show it's possible. “There are no technical barriers to local competition in the north,” SSi Micro chief development officer, Dean Procter, told commissioners. “Cellular providers operate in the north with 867 telephone numbers and local interconnection ... It is a matter of regulatory silos that artificially prevent local competition.” All three territorial governments, representatives from Telus Communications Co., and local and national consumer advocacy groups such as the Utilities Consumers’ Group and the Public Interest Advocacy Centre, joined SSi Micro this week in its calls for the opening of competition. Northwestel has also asked the commission to approve $2 increases to its regulated residential and business local phone rates and an increase in its annual subsidies from the National Contribution Fund from $20.8 million to $25.6 million. Northwestel said residential rates have remained frozen for five years while inflationary pressures have inched costs up by as much as 10 per cent. Flaherty said the increasing use of VoIP had cut into the company’s revenues from toll traffic, or long distance, in Yellowknife and Whitehorse, which has already drained funds previously used to cross-subsidize services in remote communities. The additional national fund subsidies would be put towards a new “service improvement plan” that would aim to remove outdated radio system infrastructure in Northern B.C. and provide “enhanced calling features” in the 29 communities the company serves that do not already have access to those benefits, the company said. “These communities have told us that there is a social problem that needs to be addressed and when calling line ID is introduced, the problem is resolved,” Flaherty said. Len Katz, the CRTC vice-chair of telecom, agreed with the need for service improvements, but singled out Northwestel for the current state of northern telecom infrastructure. “Your income from operations has grown dramatically. It’s very profitable,” Katz told Flaherty during the first day of hearings. “Yet you’re not investing in the infrastructure that is the engine of all this.” In response, Flaherty on Wednesday rolled off a list of investments the company had made in recent years and said the company understands its regulatory responsibility to provide updated services to northern communities at reasonable rates and to listen to its customers’ needs. He also cited a $340 million “wish list” of improvements that other parties would like the company to make. “The company’s challenge now is, how do we balance these needs?” he said. “Given the economic constraints, the company makes significant annual investments to not only support the delivery of basic services, but also to introduce next generation services." The hearings concluded Wednesday and a decision is expected before January. nkyonka@thewirereport.ca

Territorial governments, companies, call for telecom competition in the North

News | October 5, 2011

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