Wholesale HSA service not needed in Far North; LEOs will do: Northwestel

There’s no need for BCE Inc.’s Northwestel to introduce wholesale high-speed access (HSA) services in Canada’s Far North because the imminent entry and competitive threat of multiple low earth orbit (LEO) satellite services, most notably Space Exploration Technologies Corp.’s Starlink, is enough to transform the competitive landscape of broadband in the country’s most remote areas, the incumbent argued to the CRTC. “With the imminent entry of LEO-based providers like Starlink, we stand on the cusp of a fundamental change to the competitive dynamic in the Far North, which will ultimately benefit consumers and local communities,” Northwestel told the CRTC in an Oct. 6 intervention. Northwestel said the costs to implement a new wholesale HSA service in the Far North will outweigh any benefits because “the benefits are minimal at best for consumers.” The intervention is in response to the CRTC’s proceeding to improve telecommunications services in the North – although some stakeholders in the Far North took issue with the process itself. The area covered by the consultation includes the three territories, northern British Columbia and northern Alberta. The commission estimates about 132,800 residents in 96 communities are affected. Some areas are only accessible by airplane. This is the second phase of consultations. During the first round beginning in November 2020, residents told the commission they wanted greater diversity in service options.Those living in the North also complained about poor internet service. A total of 255 interventions were heard during the first round of consultations. Twenty-eight organizations were made parties to the first proceeding. Those submissions will be considered part of the record for phase two. Northwestel said the impact of LEOs is already being felt in the market because residents in its operating areas are already paying $129 deposits for Starlink’s service which is expected to commercially launch in its first fiscal quarter of 2023. In Fort Nelson, B.C., Starlink is already offering residential internet package offers at a significantly lower rate than Northwestel’s similar service offers. Northwestel provided the commission a price comparison for similar services which indicated that its customers are paying $50 to $100 more than Starlink customers. It also turned to its Part 1 application seeking the temporary ability to reduce its regulated terrestrial internet rates below the regulated price floor as evidence of Starlink’s competitive impact. OneWeb Ltd., Telesat Corp.’s Lightspeed, and Amazon Inc. all have plans to deploy LEO satellite systems. “The imminent entry of multiple LEO satellite providers, who will introduce additional competition at both the retail and wholesale levels, will transform the competitive landscape of broadband in the Far North," the incumbent wrote. " Whatever small consumer benefits pure resellers will have brought via a new wholesale HSA service will be dwarfed by the benefits that true competition, the competition between facilities-based operators who can compete on price, reach, quality and speeds, will bring to the market." Northwestel said the cost of creating a new wholesale HSA would be significant but filed its actual costs estimates to the CRTC in confidence. The cost would double if it would be required to create a wholesale HSA service for cable and fibre-to-the-premise (FTTP), according to the company. It added that the financial impact would be felt most largely on discretionary capital projects such as the introduction of one Gbps service, FTTP in-fill expansion, discretionary IT projects, and green energy initiatives. Northwestel argued a wholesale HSA service would bring little benefit because it would address only 69 per cent of the terrestrial communities' population. The company would have to charge high rates for the service or make retail price increases in order to recover its costs. In 2013 the commission subjected Northwestel to retail rate regulation of its services having found that it had “significant market power in the terrestrial retail Internet market.” Northwestel said a wholesale HSA service is unnecessary given that its terrestrial internet services are already subject to economic regulation and its market power will diminish with the entry of multiple LEO satellite providers. “But even assuming, for the sake of the argument, that we were to continue to have significant market power, then continued retail rate regulation of our terrestrial Internet services (which will persist for a while since forbearance is not being addressed through this proceeding) already nullifies it.” Northwestel added that the commission should not impose a mandated wholesale HSA service on top of its retail regulation because it “duplicates the costs of regulation while generating no additional benefits for northern consumers.” Wednesday, the CRTC granted Northwestel an additional $777,570 to build fibre access facilities in the Yukon communities of Nygren and Marshall Creek. The telecom filed an application with the CRTC showing that there was support from the regions for expanding the original fibre project. The new total for the funding of the project is $40.4 million. Northwestel proposed that the commission instead conduct a costs and benefits analysis to assess whether it is in the public interest to require Northwestel to introduce a mandated wholesale HSA service. It agreed with the commission’s preliminary view that the essentiality test framework should apply in the Far North, “given that it is based on economic principles that apply equally in Northwestel's operating territory as in the rest of Canada.” However, Northwestel noted that there are particular circumstances in the Far North that are relevant to regulation of the wholesale market. The test requires that three factors be meet to determine whether a wholesale service is essential: whether the facility is required as an input by competitors to provide telecommunications services in a relevant market; whether withdrawing mandated access would result in the lessening of competition; and whether or not it is feasible for competitors to duplicate the functionality of the facility. (A service may still be mandated even though it does not meet all three criteria of the test.) Northwestel argued the competition component would not be met because LEO satellite services are better positioned to offer differentiating services. Northwestel also argued that the duplication component of the test would not be met because, although traditional smaller broadband competitors cannot realistically duplicate its terrestrial facilities, LEO satellite services have “created a new generation of competitors for which efficient duplication is not only possible but is in progress. " Northwestel’s biggest competition in the marketplace, SSi Micro, said it is time the commission treats the company for what it is – “a dominant, incumbent local exchange carrier (ILEC) wholly owned by Bell Canada, Canada’s largest ILEC” – and introduce a framework that opens up local competition. “This framework must enable competitors to build based both on their own network construction and, where necessary, on economic resale of the incumbent’s transport and access facilities,” SSI Micro wrote in its intervention filed last week. SSi Micro also noted that a framework which supports the dominant position of Northwestel, hinders economic development opportunities for Indigenous people and Indigenous self-governance in areas that telecommunications can support. SSi urged the commission to urgently examine the technical capabilities of Northwestel’s Wholesale Connect and rapidly to review changes to the rates for the service (which was ruled out of scope of the current proceeding). Wholesale Connect allows competitors to transport telecommunications traffic across the portion of its network served by fibre or high-capacity microwave radio transport links. Competitors can use the service to connect their points of presence in various communities and provide telecommunications services, such as retail Internet and voice services, to their customers in those communities. SSi Micro said a framework that only supports LEO entrants providing only retail internet services will benefit just a small number of well-off residential and business customers in outlying areas with no access to fibre backbone connectivity. “The commission must resist attempts from the incumbent to seek relaxation of regulatory obligations which are already inadequate to support competitive entry on the pretext that LEO retail offerings will necessarily and critically undermine its market share,” SSi argued. “The commission should consider the market impact of possible wholesale LEO alternatives – but when they arrive, not in advance, and in light of the addressable market, and of the comparative strengths, economics and capacity of fibre networks where Northwestel remains dominant.” The commission also allowed SSi Micro to add the record of its December 2020 Part 1 application to the proceeding in which it asked the CRTC to order Northwestel to provide third-party internet access (TPIA) to its monopoly cable and fibre infrastructure and to impose interim TPIA wholesale rates before determining more permanent rates based on cost studies. Iristel Inc., which submitted an intervention on behalf of itself and its affiliate Ice Wireless, took issue with the lengthly process and instead urged the commission to make decision in the interim. “Iristel is concerned that, despite the size of the record that was generated in Phase I and after nearly two years that has passed, the Commission has not made any concrete determinations with respect to telecommunications in the Far North following that phase of the proceeding. Iristel is further alarmed that significant portions of Phase II are duplicative of Phase I of the proceeding,” it wrote. Iristel reiterated its points made in the first phase of the proceeding which urged the commission to order the northern incumbent to file an updated cost study for Wholesale Connect; make numerous technical and quality of service enhancements to Wholesale Connect; provide Ethernet and wavelength-based transport on tariffed terms and conditions, including, price, to competitors; and offer aggregated wholesale high HSA services pursuant to tariffs approved by the commission. In regard to network improvements, Iristel argued that it, and Ice Wireless, have suffered multiple service outages over the past few years due to problems with Northwestel’s network. Yukon is served by a single fibre transport route and, according to Iristel, any break along that route will cut off the entire territory. “Adding greater redundancy to Northwestel’s network must be a priority for any network improvement plan that is implemented as a result of this proceeding.” Iristel also took issue with what the CRTC decided to examine in its consultation. The rates that Northwestel charges for Wholesale Connect; the portability of the local service subsidy; issues related to the regulation of wholesale satellite transport services; and Northwestel’s carrier access tariff (CAT) rate were all left out of the scope of the commission’s proceeding. “Iristel believes that the failure of the commission to consider these matters in is an error that will undermine the effectiveness of its efforts to improve the state of telecommunications in the Far North and close the digital divide. It is not too late for the Commission to reverse itself and decide that the above-cited matters are within the scope,” the company wrote. Northwestel noted that it covers almost 40 per cent of Canada's land mass but serves only 0.3 per cent of the population. It added that it must generate its own power, at a high cost, at the large majority of its sites and ship equipment via cargo plane or by barge. The company suggested the CRTC introduce a subsidy to improve affordability. Northwestel took the stance that adopting an affordability standard would be complex because affordability is a subjective term – which the commission itself acknowledged in the consultation by noting that “what is affordable for one person, may not be for another. Alternatively, what a person may be able to afford can change over their lifetime.” Northwestel said the commission should address the affordability concern through a social assistance program in the form of a subsidy to be given to either certain groups of people or all residents in the Far North. “This would be consistent with the commission's actions in the past when it has determined that rates are just and reasonable but that action was still needed to address affordability, such as with the local service subsidy regime,” Northwestel wrote. “Such a practical approach would be simpler, faster, less administratively burdensome, and more flexible and responsive to the current reality for residents.” Telus Corp. argued to the commission the affordability of telecommunications services in the Far North cannot be determined by comparing rates to those available in southern Canada. Telus argued that other goods and services in the Far North are more expensive than the rest of Canada and the per capita household income in the Far North is also higher. Telus maintained that the federal and territorial governments are best positioned to address affordability concerns among low-income Canadians through targeted subsidies for consumers. At the same time, Telus called for the extension of the wholesale regime into the Far North, and argued that the CRTC has two choices in the proceeding. "The first is to apply its existing competitive framework to Northwestel, using the latitude it has already given itself to accommodate conditions in the Far North, allowing competition to regulate prices and set service levels. The second is to continue to take a piecemeal approach to regulating individual aspects of the Far North with a view to making services and rates close to those in southern Canada," the company wrote, and added that it "recommends the former." The Government of the Northwest Territories (GNWT) submitted that while it is supportive of the introduction of a wholesale-based HSA mandate alongside portable subsidies for consumers and targeted affordability programs , ultimately these measures are only the beginning of a more comprehensive approach to re-imagining connectivity in the Far North. These steps, the government submitted, are not a "complete programme for addressing the equality and equity gaps in telecommunications services faced by Indigenous peoples." The GNWT's intervention also pointed to the United Nations Declaration on the Rights of Indigenous Peoples, and argued that the CRTC's approach in the consultation "likely falls short of what can be accomplished." "The GNWT has therefore encouraged the CRTC to convene, in parallel to the current proceeding, a self-standing process on the CRTC’s role in implementing the Declaration principles both in respect of the Far North and across the rest of Canada," the submission argued, and called for the collection of better data on connectivity in the North. "The goal of Northern telecommunications policy must be more than simply to optimize how Northwestel is regulated," the GNWT wrote, while firmly calling for the opening up of the incumbent's infrastructure to competition from wholesale-based ISPs. "The model provides for more efficient use of scarce access facilities, particularly in an already-subsidized operating environment, while increasing local entrepreneurship and competitive entry opportunities," the government wrote, adding that the combination of a wholesale HSA regime with portable operating subsidies would keep the regime competitively neutral and result in more affordable retail rates. The Public Interest Advocacy Centre renewed its call for the creation of an "affordability standard" which would govern what qualifies as an affordable telecommunication service in the Far north. Like the GNWT, PIAC endorsed the creation of a new operating subsidy, and added that the subsidy should be paid out of a newly-reformed National Contribution Fund. The group also called on the CRTC to require Northwestel to pay out "automatic refunds" following outages in the Far North, and to further require the incumbent to establish a Modernization Plan for Northwestel to "deliver reliable services comparable to those available to Canadians in other regions." When it comes to Northwestel's preferred establishment of low-earth orbit satellites to increase connectivity and affordability in the region, the PIAC threw cold water on the idea. "Given the lack of clear and comprehensive evidence regarding the viability, costs and prices of the Internet service provided by the LEO satellite technology," the group wrote, "we recommend caution in placing significant reliance on these technologies as an alternative solution to address Internet accessibility and affordability issues in the Far North." Likewise the Competitive Network Operators of Canada, which advocates for wholesale-based ISPs, urged the commission not to rely on LEOs for its connectivity strategy in the region. "The Commission must not rely upon LEO satellite network technology as a magic bullet for solving the problems with the provision of telecommunication services in the Far North, including the extreme lack of competition," CNOC wrote. "Where Northwestel has wireline facilities," CNOC continued, "the Commission should instead rely upon the tried and tested model of wholesale HSA competition that has proven successful in the rest of Canada at providing consumers with access to affordable, innovative, and high-quality telecommunications services." – Reporting and editing by Jenna Cocullo at jcocullo@thewirereport.ca and Michael Lee-Murphy at mleemurphy@thewirereport.ca.

Wholesale HSA service not needed in Far North; LEOs will do: Northwestel

News | October 12, 2022

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Wholesale HSA service not needed in Far North; LEOs will do: Northwestel

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