Local subsidy regime should be scaled back, says Bell Aliant

The CRTC’s local subsidy regime to ensure that rural and remote areas have access to affordable basic services is “broken,” Bell Aliant told the commission Tuesday. “To be blunt, that regulatory mechanism is broken—resulting in large transfers of funds from Bell Aliant to others,” Bell Aliant's vice-president of legal, regulatory and government affairs, Denis Henry, said on day one of the commission’s obligation to serve hearing in Timmins, Ont. “Fortunately, we think the industry has evolved to the point where the commission has the opportunity to largely eliminate this subsidy mechanism, and in the process remove the inequities and increase a reliance on market forces. It is an opportunity that should be seized.” On Tuesday the CRTC opened a hearing to review access to basic telecommunications services and other issues such as the commission’s local service subsidy regime. In 2000, the commission established the regime to ensure that basic local residential phone services are offered at affordable rates in rural and remote areas. Under to the regime, revenues are collected from telecom providers to fund local service subsidies that are distributed to smaller phone companies, also known as incumbent local exchange carriers (ILECs). But the telecom industry is divided on whether the regime should be reviewed. Some ILECs argue the regime is necessary to provide affordable, basic services in high-cost areas, other players say the regime is founded on a methodology that is no longer valid and that the subsidy isn’t distributed equitably. Henry said at the hearing Tuesday the subsidy favours ILECs operating in Western Canada over those in Eastern Canada. “Bell Aliant serves almost half of all high cost lines, but only receives 22 per cent of the subsidies,” he said. “On a weighted average basis, Bell Aliant receives a $2.17 subsidy per high cost line while MTS , SaskTel and Telus receive $13.35 ... Western ILECs are receiving more than six times the subsidy per line as Bell Aliant, despite the fact that the average price is $2.55 or 20 per cent higher in the West. These numbers just don’t make sense.” MTS Allstream, SaskTel and Telus weren’t available Tuesday afternoon to respond to the comments. Bell Aliant suggested the commission remove price caps and eliminate subsidies in all areas except those with the highest service costs. Bell Aliant also took issue with the price caps laid out in the subsidy regime—noting that price caps vary per area served, leading to services that cost more in one region than in the next. “For example, in some of our territory, local prices are $22, while in other areas in the same province they are $36.20—and there are prices in between,” Henry said. “There is no reason why a standard maximum affordable level cannot and should not be implemented across the country. And that level could easily be $36—a rate already in effect and approved by the commission. If customers in certain regions of the country can afford $36, there is no reason to think that price is not affordable elsewhere.” Henry said the price caps should be increased to $36 over time. Mark Goldberg, head of telecom consultancy Mark H. Goldberg & Associates Inc., said in an interview that Bell’s arguments call into question the regime’s fairness. “If the reason we’re doing is for affordability reasons, is that really the CRTC’s job, or is that more the role of the folks who manage Canada’s social safety net?” he said. The commission is also looking into whether it should extend its telecom subsidy regime to cover broadband connectivity in rural and remote areas. MTS Allstream and SaskTel say they support expanding the subsidy regime, but Bell Canada and Telus argue there is sufficient broadband access and competition to serve remote areas. Bell Aliant said at the hearing that expanding the basic services definition to broadband would disrupt market forces now working effectively. “If we were faced with an obligation to expand or upgrade broadband, this would increase our capital spending requirement, even if the service were subsidized,” Henry said. “The result of diverting capital away from more urban areas would be to impair the company's ability to remain competitive in those areas, which in turn could put the company on a dangerous downward financial spiral and impair its ability to serve all customers, including the more rural ones who were the very object of the obligation.” Bell Aliant also argued that the commission doesn’t have the jurisdiction to mandate broadband as a basic service because it would require the company to build new facilities. But CRTC chairman Konrad von Finckenstein challenged point, saying: “This is news to me.” Bell Aliant told the commission it favours a technology-neutral approach to meet its service obligations, allowing it to use wireless broadband in place or wireline to serve customers. But von Finckenstein pressed the company, noting that wireline broadband offers higher monthly download caps and lower prices than wireless. Henry responded by saying satellite offers an affordable solution. Barrett Xplore Inc. is expanding its satellite network to offer 4G services and deliver speeds of up to 40 Mbps by next year. Speaking before the commission Tuesday, Barrett CEO John Maduri said regulation isn’t required to extend broadband coverage because its satellite service covers 100 per cent of the country. Maduri also said complete coverage of the country means the commission doesn’t have to establish a subsidy fund for access high-speed Internet services in unserved areas. “Barrett urges the commission not to include high-speed Internet access in the definition of basic service, not to try to define the service in static terms and not to create a new subsidy system,” Maduri said. “We believe that this commission can report good news to Canadians, that notwithstanding Canada’s size, and low population density, the soundness of our regulatory framework, together with incredible innovation and risk-taking from the private sector, means that all Canadians, by 2011, will have access to broadband. That job is done.” But CRTC commissioner Timothy Denton questioned Barrett’s argument, pointing out that coverage doesn’t necessarily equate with consumer adoption. Hearings will continue Wednesday in Timmins, Ont., with appearances from MTS Allstream and Sasktel. Telus is scheduled to appear Nov. 1 when the hearings move to Gatineau. kfournier@thewirereport.ca

Local subsidy regime should be scaled back, says Bell Aliant

News | October 26, 2010

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