Rural Broadband: CRTC Decision 2010-805

With the number of articles I've written recently on CRTC actions you might imagine that I follow them quite closely. In actuality I don't. Typically I peruse the major online news media and trade publications on a regular basis, and if I notice an article related to Canadian telecommunications (an interest of mine) I may then skim it for any potentially interesting content. If it's interesting enough I may search for related material, and if it looks worth commenting on I will go to the source -- the CRTC documents -- to see what they're up to. (The CRTC does have a what's new page but I don't read it and, as far as I can see, they don't supply an RSS feed.)

It was in this fashion that I came across CRTC Decision 2010-805 on rural broadband last week. Although this is an important topic in its own right, it isn't one that especially interests me; it was something else about the decision that caught my eye since it said something about how the CRTC operates.

I'll come to that in a moment, but first let's briefly look at what the decision itself is about. Much of rural Canada is (using CRTC parlance) in high-cost serving areas (HCSA). The density is low, the wires are long and even wireless captures fewer customers per tower. Once you leave towns and cities, and are not on a major transportation corridor, not only do you often not have access to broadband service or cable, you are also very often without cell phone service. This is quite a challenge to any objective to extend broadband services to these areas. In light of this, and a pool of over $300M that was slated be rebated to overcharged Bell Canada customers, the CRTC would like to see this used to extend broadband service to 112 rural communities in Ontario and Quebec.

9.      In Telecom Decision 2010-637, the Commission indicated that the Bell companies’ original proposal to use HSPA wireless technology to provide broadband services in the approved communities (the original proposal) did not satisfy the Commission's requirements as set out in the deferral account decisions. Specifically, the Commission indicated that the original proposal did not offer features comparable to broadband service in urban areas such as (i) a variety of service options, including various speeds and usage caps, (ii) an option for a greater than 2 gigabyte (GB) monthly usage allowance, and (iii) an insurance option that would provide an extra 40 GBs of usage for $5 per month. The Commission also considered that the original proposal would not represent the use of least-cost technology. The Commission therefore approved the use of wireline DSL technology and fixed the amount of funds available for broadband expansion at $306.3 million to serve all of the approved communities.

This is in fact our money (if you're a Bell Canada telephony customer in these provinces) since it should never have gone to Bell Canada in the first place. However that doesn't terribly concern me since, while it sounds like a lot of money, that $306.3M is only about $15 per person or perhaps $40 per average household. Despite the modest amount of money involved, it does worry me that the CRTC would use their power over the telcos to decide that money (our money) should be used to further a broader policy objective. This ought to be a political policy decision rather than a regulatory directive to Bell Canada to invest it elsewhere. Even if we concede that the initiative is worthy of this use of our money, it is still only a fraction of what it will cost to truly extend broadband throughout rural Canada.

Mr. Garneau's remarks before the commission are important mainly because significant broadband policy, from the regulator or from Parliament, would require hundreds of millions of dollars, possibly billions, from the federal government...MTS Allstream, a Winnipeg-based service provider, suggested during the hearing last week that this could cost upwards of $7-billion.
...
“If telecom providers are permitted to pick and choose customers and areas they want to serve, all efforts to achieve universal, affordable broadband are doomed,” said John Lawford, counsel with the Public Interest Advocacy Centre, an Ottawa-based consumer advocacy group.

The carriers will, quite reasonably, target service for areas and customers where there is profit to be made. Where it isn't profitable or insufficiently profitable in comparison to making the same investment elsewhere, it is good business to not invest in rural broadband. If the government decides, for policy reasons, that rural broadband is desirable, it should be funded from the public purse -- the general tax base -- like any other program. That is, the government pays the carriers to deploy rural broadband. These types of programs can easily turn into a morass if not handled properly, as evidenced by the corruption-plagued USF (universal service fund) in the US. We don't want to repeat that here.

By now you are thinking that this is what caught my interest about CRTC Decision 2010-805, but it isn't. Instead it is an inconsistency between this decision and an earlier one on high-speed wholesale: CRTC Decision 2010-632, which I wrote an article on, and another on the comments of one of the commissioners. Here is the passage of that earlier decision that I found contradictory to the present one:

Competition drives innovation and provides consumers with a choice of service providers and service characteristics. The Commission notes that ILECs and cable carriers are offering their retail Internet services at increasingly higher speeds. The Commission considers that, at present, retail Internet service competition results primarily from services provisioned using wireline facilities. Other retail Internet services, such as those offered using wireless and satellite facilities, are not generally substitutes for wireline facilities at this time.

In that decision, CRTC said that wireless was not a suitable alternative for wired broadband service, cable or DSL. This was a point of contention in 2010-805, where Bell Canada pushed for HSPA+ (wireless) service as the appropriate technology to extend broadband for those 112 communities. The CRTC agreed! Not only did they agree, they further departed from their earlier decision by requiring third-party ISPs access to that technology using GAS.

11.  Bell Canada indicated that it would also file a tariff to provide access to wholesale HSPA+ wireless broadband services under similar terms of service characteristics as the Bell companies’ existing Gateway Access Service (GAS),[5] in order to allow competitive providers the ability to offer retail broadband services to end-users.[6]

The reasoning presented by the CRTC in 2010-805 does not make clear why wireless is appropriate for these rural communities and for GAS and, further, they make no reference to 2010-632. This is quite interesting. What it really exemplifies to me is the CRTC latitude to make poorly-reasoned and inconsistent decisions without any political consequences. The situation is very different in the US where FCC decisions are frequently and vociferously criticized by members of Congress and even other branches of the government, and their rulings often end up in federal court. It is not surprising that the FCC employs many lawyers to carefully argue their decisions on the basis of legal statutes.

Unlike is another recent decision, this time the cable companies were very critical of Bell Canada proposal to use HSPA+ for rural broadband.

13.  Barrett, EastLink, RCI, and Videotron opposed the revised proposal. These parties submitted that, while they supported the principle of technological neutrality, the Bell companies should deploy a wireline DSL solution as originally directed by the Commission.

14.  RCI and Videotron submitted that HSPA services are now, or are expected to be, available from Bell Canada, RCI, and Videotron in most of the approved communities. As such, they argued that it would be inconsistent with the deferral account decisions to approve the revised proposal in order to fund broadband service where such services are already offered.

15.  Barrett also argued that the Bell companies should be required to provide access to individual components of the wholesale HSPA+ service, rather than the proposed aggregated solution.

16.  EastLink and Videotron argued that approving the revised proposal would result in the subsidization of Bell Canada’s mobile voice service. They indicated that it would be inconsistent with the Policy Direction[7] to distort the competitive market for mobile voice services in the approved communities by funding a technology that could provide both voice and data services.

17.  Barrett, RCI, and Videotron submitted that the revised proposal does not adhere to other principles in the deferral account decisions, as it does not represent the use of least-cost technology to deploy broadband services. These parties argued that alternative broadband service providers could provide a comparable service at significantly less cost than Bell Canada, and submitted that if the Commission approves the revised proposal, it should allow for competitive bidding to see whether other companies could provide the HSPA+ service at less cost.

I suspect they are right to level these criticisms. It does seem unfair that Bell Canada can, with money that ought to be rebated to customer, fund the deployment of network equipment that competes with cable and mobile services from other carriers. It is also interesting that Commissioner Katz, a former executive of Rogers, wrote a dissenting opinion in CRTC Decision 2010-637 to argue in favour of wireless for these rural communities, which was subsequently accepted in 2010-805.

I fail to see the logic in limiting the Bell companies' ability to use alternative technologies that meet or exceed the requirements imposed in the deferral account decisions.

Although I applaud Commissioner Katz's view that the CRTC should focus on service objectives and not specific technologies, I believe the cable companies have a valid argument that DSL could be just as cost-effective for these rural communities. For both DSL and HSPA+ there is a need to back-haul the traffic, from either the central office or tower, respectively, to their core network. Locally, the copper already exists, so the primary economic comparison is between DSLAMs and HSPA+ base stations (towers). Unfortunately, as is routine in these matters, Bell Canada's network costing figures are confidential. All we know is that the CRTC reviewed the submitted material, but not how persuasive it was or if it bore any resemblance to the true costs.

23.  With respect to the proposals to allow for competitive bidding in order to ensure the use of least-cost technology, the Commission notes that it rejected this idea both in Telecom Decisions 2006-9 and 2007-50, since it would add a significant layer of complexity, delay the implementation of broadband expansion, and result in substantial administrative and regulatory burden. The Commission considers that these reasons continue to be valid.

24.  In light of all of the above, the Commission finds that Bell Canada’s HSPA+ wireless broadband proposal is consistent with its determinations in the deferral account decisions. The Commission therefore approves the revised proposal.

Once again we see the capriciousness of an opaque regulator in our telecommunications market. We all need to keep a close eye on the CRTC and similar regulatory bodies if we are to ever see an end to invasive and poorly-justified distortions of the free market. This should worry everyone, including those individuals and companies that benefitted from these recent decisions; today's winners could easily become the losers in CRTC's next decision.