
GATINEAU – Expanding the basic service objective to include broadband would have substantial negative financial impacts on their businesses, a group of small independent ISPs told the CRTC on Monday during the fourth day of hearings into the obligation to serve and other telecom matters.
This is the second week of the hearing, which moved back to Gatineau after three days in Timmins, Ont.
David Buffet, president of Radiant Communications Corp., said that creating a new subsidy regime to fund broadband expansion would turn a slight profit the company generated in 2009 to a net loss. Revenue last year amounted to about $30 million, resulting in a net profit of only $74,000. This would be in jeopardy with Any new obligations, he noted.
“Based on the assumption that the rules for a broadband contribution fund would parallel those of the current contribution fund and on Radiant’s most recent annual financial results, using the current 0.73% revenue charge applicable to voice…would result in a contribution tax of $98,051 leading to a financial loss for Radiant and possible job losses,” he said. “However, payments at this contribution rate would never sustain the kind of national broadband subsidy program envisioned by MTS Allstream and the other participants in this proceeding advocating in favour of such a fund.”
During the first week of the hearing held in Timmins, MTS proposed a higher much contribution rate that would be levied on telecommunications service providers (TSPs) to create a national fund of approximately $7 billion. The independent ISPs believe this would represent near irreparable harm to them.
Chris Tacit, the lawyer representing the small firms, noted that saddling the industry with yet another levy to fund broadband everywhere won’t work. “Burdening non-incumbent TSPs with a portion of the enormous cost required to subsidized access to those services in areas where it is not provided will simply cause many non-incumbent ISPs to exit the market leading to a significant lessening of competition in the provision of the very services that the commission wants to promote,” he told commissioners.
The small ISPs joined the likes of Barrett Xplore and others in arguing against a new broadband basic service objective.
Earlier Monday, Telus Corp. argued that there is no need for additional levies to fund the rollout of broadband to areas not currently served. The market will do the job, Michael Hennessey, senior of VP of regulation affairs told the CRTC panel during the first session of the day. He noted that next year will see the launch of new satellites and continued rollout of wireless networks – and this will get the job done for the 5% of Canadians who live in rural and remote areas with no access to broadband.

“In a competitive marketplace where broadband services will be delivered using a variety of technologies, a broadband obligation is unnecessary and will distort the business plans and deter investment by those building today,” he said.
The cable companies – Cogeco Cable Inc., Rogers Communications Inc., Shaw Communications and Videotron Ltd. – presented later in the day, arguing that in no uncertain terms should the commission create a new regulatory requirement to fund the rollout of broadband.
“A new regulatory regime for delivering broadband would create unnecessary risks of duplication and inefficiency. Depending on which proposal is considered, a broadband program could impose significant costs on the industry, and ultimately consumers,” they told the Commission in a joint presentation. “Market forces will continue to ensure that broadband services are widely available.”
Market player initiatives as well as government programs have made terrestrial broadband services such as DSL and cable available to 95% of Canadian households. “Mobile and satellite-based services will extend coverage to all households,” they said.
Double double, no donut thank you
There has been considerable discussion during the first three days of the hearing about the donut effect – where customers in the core of the exchange (the hole) see competitive offerings and those on the periphery (the actual donut) who don’t. The cable companies don’t buy this argument in the least as a concept to limit competitive entry in the small ILEC territories.
Under questioning from commissioner Candace Molnar, Dennis Beland, director of regulatory affairs at Videotron, reminded the commission that the costs to build out the small ILECs network are already sunk and were from a service improvement plan (SIP) or through rate of return regulation. That their asking for special treatment for an area over which they hold a virtual monopoly is just wrong.
“Since [initial network builds], they’ve added services, they’re adding value, they’re providing bundles, revenues are much higher than they were when there was just one service and somehow they’re complaining about that state of affairs,” Beland said. “A regional monopoly where you just keeping adding services, keep adding revenue and the costs are sunk. We don’t buy that that is a significant burden. I think they portray that as a burden to you in order to get you to sign on to things like exclusive access to subsidies for them alone. But we don’t see it as a significant burden.”
Kick the obligation to serve
Telus argued for significant limitations regarding the obligation to serve. The company said that it should be eliminated in markets where the Commission has forborne from regulating local telephony and that it should be restricted to areas that have yet to be forborne. But if it is to remain in place, then modifications to the rule need to be made.
The ILEC suggests that the obligation to serve should no longer apply in the case of subdivisions and multi-dwelling units.
Under questioning from CRTC chair Konrad von Finckenstein on the donut effect – where customers outside the core of an exchange are under served – Hennessey clarified Telus’ position with respect to the people located in the ring of the donut.
“We think that the appropriate measure is to create an ex-ante rule that specifically excludes new subdivisions and multi-dwellings from that obligation to serve requirement,” he said. “And the reason we said that is because often there are marketing agreements in condominiums where most of the customers may be locked up before we’ve even stepped in there and have to go an overbuild a whole community may make no economic sense.”