AG finds flaws in rural connectivity funding, spectrum auction process

OTTAWA — The federal government has been lagging behind on rural broadband deployment despite “significant investments” by the public and private sectors, according to a report by Canada’s auditor general tabled in Parliament Tuesday. But while the report singles out the lack of a national broadband strategy as the biggest problem that has inhibited rural broadband development in Canada — something the Liberal government recently signalled it’s working on — the report dives deep into Innovation, Science and Economic Development Canada’s (ISED) Connect to Innovate funding program, raising a number of red flags with the process. The report said the program suffered from a number of design flaws, such as a lack of transparency and not weighting the criteria used to select projects, which made the process difficult for some applicants and didn’t ensure Ottawa got the best bang for its buck when deciding on projects. “As a result of a number of weaknesses in the design of the program, it did not ensure maximum broadband expansion for the public money spent,” assistant auditor general Jerome Berthelette said Tuesday. The report said the program did not include a way of “mitigating the risk of government funds displacing private-sector investment.” That’s despite that a key principle of the program being to “avoid displacing private-sector investment and to intervene only in instances where a business case did not exist.” Philippe Le Goff, the audit team’s principal, told reporters at a technical briefing Tuesday that it’s difficult to estimate how much the public purse displaced private sector funding, but he’s sure it happened. “In certain cases, we have been told that a telco, for example, was planning to expand or deploy broadband in a specific region in two, three years, but because the program was there, at this present time, they decided to apply to the project and got the funds. But initially they were ready to go by themselves,” he said, although he wouldn’t provide further details. The report criticized the funding decision process for being unable to determine which projects might have proceeded without –- or with less -– public funding. It suggested reverse-auctions –- a process where the government proposes projects and then awards the lowest bidder –- as a potential a way for ISED to minimize government spending on each project. Connect to Innovate was launched in 2016 as a five-year program with $500 million in funding for some 300 rural communities, and according to the audit, it had 892 applications of funding requests totalling about $4.4 billion. The report criticized the program’s funding selection process for being too secretive and not giving applicants enough detailed information ahead of time. "Projects were less likely to be funded if they did not align with provincial and territorial priorities. However, these priorities were not made public," it said. Funding eligibility for last-mile projects under the program was based on maps divided into hexagons showing connectivity, where hexagons containing no households with access to speeds of 5 Mbps were made eligible. But the report was critical of the hexagon model. It said the "lack of access to detailed data" for applicants may have made it harder for some to apply, and that "a map showing complete and detailed connectivity information in rural and remote areas would have been more useful." The audit said the department had delays in signing funding agreements, which hampered local internet service providers (ISPs) from making decisions because it left them in the dark on key parts about the process to access third-party backbone infrastructure, including details such as dates, location, capacity and the price. "As of 30 June 2018, nine months after the department announced the first project to receive funding, only three contracts had been signed," it said. Berthelette was also critical that despite many calls over the years for the government to create a national broadband strategy, Ottawa “only agreed to take that step a few weeks ago in late October – after we had concluded our audit.” The audit period ended June 30, 2018, and looked back at ISED funding programming as early as 2013. The audit looked at both ISED and the CRTC, and said while both monitored the state of connectivity in Canada, each failed to "share enough detailed information publicly." While CRTC was part of the audit, at the time it was still in the middle of setting up its own $750-million fund to deploy rural broadband, so Tuesday’s report largely focuses on ISED. The report also warned small ISPs are struggling to obtain “high-quality spectrum” that would improve rural broadband deployment because of how ISED auctions spectrum – often in geographic areas that are too big for smaller service providers to bid on, and added that the license deployment conditions sometimes led to unused licensed spectrum in rural areas. On top of that, it said the secondary market for unused spectrum functions poorly, partly because there is “little business incentive” to make unused spectrum available for subordinate licensing available in rural areas. The report calls for ISED to review its spectrum auction process. Industry Minister Navdeep Bains responded to the report at a Tuesday news conference by saying Ottawa is “leading the charge” on improving access by working on a new broadband strategy with the provinces. The Liberal government announced late October that it plans to create a new national broadband strategy with buy-in from the provinces, although Ontario and Saskatchewan have not explicitly agreed to the new initiative. Bains also defended the Connect to Innovate program by saying it has been a good value for money investment. He said the program is helping bring internet to more than 900 rural and remote communities, roughly triple the 300 initially planned. Auditor General Michael Ferguson did not present the reports to media Tuesday due to health reasons, but Le Goff said that the panel review of Canada’s communications laws, and movement on a national broadband strategy, are encouraging signs. – With reporting by Kyle Duggan at kduggan@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca.

AG finds flaws in rural connectivity funding, spectrum auction process

News | November 20, 2018

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AG finds flaws in rural connectivity funding, spectrum auction process

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