SaskTels Submission Regarding the Digital Economy Consultation
Submitted by Saskatchewan Telecommunications (SaskTel) 2010–07–09 11:17:45 EDT
Theme(s): Digital Infrastructure, Growing the ICT Industry, Innovation Using Digital Technologies
2121 Saskatchewan Drive
Telephone: (306) 777–2223
Fax: (306) 565–6216 Electronic Fax: (306) 791–1457
Internet: Document Control
8 July 2010
Hon. Tony Clement
235 Queen Street
Re: Digital Economy Consultation
Please find attached SaskTel's submission regarding the Digital Economy Consultation.
In examining our submission I would ask you to note that we have focused on the various aspects of government policy and regulation which may impact the base infrastructure needs for citizens to participate in the digital economy.
In the attached submission, SaskTel contends that there is no need for government intervention in urban areas where market forces will meet the demands of the digital economy. In urban areas of Canada, competition is fierce and has resulted in extensive investment by the private sector. This competition can be guided by the existing rules of the Competition Act.
It has been recognized by numerous government committees, and by the private sector itself, that market forces do not function with the same effectiveness in rural areas. This inability of the market to accommodate the low population densities has led to the growing digital divide between rural and urban Canada.
SaskTel has extensive experience in serving the needs of its significant rural base.
SaskTel has over time attempted to maximize its investments in rural areas, while working within basic business principles. In a time of rapidly changing technology, investments which require payback periods of over a decade place an inordinate burden on a company such as SaskTel which is expected to provide service levels to its rural customers which will allow them to participate in the new economy.
SaskTel is suggesting that Federal government policy recognize the major differences between rural and urban markets. The application of this policy must be sustainable over the long term to ensure that the major creators of wealth in Canada, the rural people, are able to succeed and grow.
I thank you for your consideration in this matter. Should you have any specific questions regarding SaskTel's position, please contact Robert Hersche, Director of Regulatory Affairs at (306) 777–5346 or Robert Hersche
Vice President, Regulatory Affairs and Corporate Counsel
SaskTel, as a telephone company serving the Province of Saskatchewan for over 100 years, will focus its remarks to the Government of Canada's consultation on the Digital Economy within the context of building a world–class digital infrastructure.
Providing a state of the art telecommunications infrastructure within Saskatchewan has always been a critical goal for this province. Saskatchewan's wide territory and its dispersed population have continually made telecommunications a critical social and economic element in the success of its residents. Changes in technology and its impact on our daily lives have made a world–class communications infrastructure even more vital. As a result, SaskTel continues to support the direction of various initiatives such as the U.S. National Broadband Plan which states that:
SaskTel believes that the foundation of a robust Canadian digital economy remains intricately connected to encouraging investment in an infrastructure which will support the delivery of leading–edge services and applications. This will mean change, and rapid change, to meet the evolution of the new world digital economy. Relationships within the industry must change as ownership rules are adjusted, the roles of established institutions and how they interact with the industry must change, and new mechanisms must be established to support universal and affordable access to this infrastructure. Most importantly, there must be policy flexibility in the recognition that different regions of Canada may have different needs in gaining access to the digital economy. As an example, the differences between rural and urban areas of Canada require different approaches.
Within this framework, SaskTel will address the following:
- What are the appropriate roles of the public and private sector;
- What are the changes to the current rules and legislative frameworks that are required to incent growth and competition; and
- How should the government of Canada begin to address the growing digital divide between rural and urban residents.
2.0 Public and Private Sectors
Today Canada has one of the most substantial telecommunications infrastructures in the world, with numerous financially stable companies, extensive facilities–based competition and a robust market for telecommunications products. In urban areas this has been accomplished primarily through the use of market forces and private sector investment.
Saskatchewan has used a mixture of market forces and public sector involvement to ensure the appropriate investment and service for all residents. This model is based on the recognition of the different impact of market forces in different geographic regions — especially between rural and urban areas. Saskatchewan has maintained SaskTel as a Crown Corporation specifically because of the division between rural and urban. In urban areas where market forces function to provide competition, SaskTel is expected to compete fairly and provide appropriate financial returns from investments. In rural areas, it is recognized that different forces are at work and some investments must be made specifically for the public good. SaskTel believes that the Government of Canada must create consistent and ongoing policy instruments that recognize the differences between areas where market forces may function effectively and areas where they do not.
2.1 Urban Markets
In urban areas the density of customers will support the roll out of multiple service providers and the tremendous growth of competition which results in innovation, enhanced customer service and lower consumer prices. In these areas Canada has seen the growth of new fibre–based infrastructures and multiple fixed and mobile wireless networks.
Residents of urban markets have access to a wide range of services and speeds of delivery. Gigabit, 100 Mbps, 10 Mbps and 5 Mbps services abound for businesses and residents over an array of technologies. These services are growing at a tremendous rate and are comparable to any other country in the world.
The Government of Canada need not set specific targets for these urban areas. Any set governmental target will be exceeded without intervention. It is SaskTel's belief that in these markets, government's role can be minimal guided primarily by the existing regulation provided by the Competition Act.
Government bodies should not pick winners and losers within a competitive, urban marketplace. This marketplace must be open for investment (either foreign or domestic) and consumers should be the deciding factor in the economic viability of any given company.
2.2 Rural/Remote Markets
SaskTel defines rural/remote areas as being those towns or hamlets with less than 50 people, and areas of low density. It is this lack of density that defines rural areas and leads to the higher costs of providing service.
It has been widely recognized that market forces have not and will not result in either telephony or broadband services in rural areas which are reasonably similar in terms of affordability or performance to those available in urban areas. Thus unlike urban markets there are requirements for Government to supplement the abilities of the private sector to provide those essential services.
Traditionally the public sector has used what has been called the "Contribution regime" to ensure that the appropriate capital and maintenance dollars are available to ensure affordable services. This Contribution regime resulted in universal access to basic telephone service in Canada. This regime originally levied a fee of 4.5% of revenue on all telephone companies with revenues of over $10 M. In 2010, this fee has declined to 0.81% of revenues.
It is SaskTel's belief, along with other companies with a rural base such as MTS Allstream and NWTel, that policy instruments such as the Contribution Regime must be re–examined and strengthened to include broadband.
The Government of Canada's previous policy of one–time funding targeted to specific areas has not resulted in the continuous growth of broadband in rural areas. The timing and the targeting of these one–time capital programs do not build a framework that enables companies to plan, to replace, or to maintain a leading edge infrastructure on an ongoing basis. With the exception of the Broadband: Connecting Rural Canadians program, previous Government of Canada and many provincial programs across Canada, were based on the misplaced preconceptions that rural areas can support either a facilities–based competitive environment or that small (less than 500 people) communities could develop their own broadband services.
These misconceptions resulted in excessive costs and in many cases short–lived broadband services for residents. SaskTel would posit that any program to support rural markets should build on or extend existing telecommunications infrastructure. The nature of the rural market is that its customer base cannot support even one viable delivery network. Building on or extending existing networks will avoid duplication, reduce costs, provide extra economies of scale and result in a sustainable service if for no other reason than the existing network provider has already proven their ability to be successful.
SaskTel believes that Australia's $31B (U.S.) National Broadband Network fibre overbuild system is inherently inappropriate for Canada. In urban areas, the private sector is already building the world–class, leading edge infrastructure without government support if market forces are allowed to take hold. In rural areas building on existing infrastructure would significantly reduce the costs of gaining a rural fibre network.
As an example in SaskTel's recent rural upgrade at a cost of less than $52 M, 5Mbps broadband speeds were expanded to over 200 communities and 1.5Mbps were made available to the remainder of the rural population. Within this expenditure some 3000 km of additional fibre was laid. Of this $52 M in expenditures, some $22 M was provided by the Province of Saskatchewan, the balance by SaskTel. By building incrementally on existing infrastructure there was no need to expend billions of dollars to serve residents spread over 660,000 square kilometres of land mass. Yet without support from the Provincial government SaskTel would not be able to have made this upgrade.
SaskTel would suggest that it is only within the context of rural areas — where only one infrastructure can be supported at best, that the recommendation of the Standing Senate Committee's Plan for a Digital Canada is appropriate: "The government should pursue open access policies with respect to telecommunications infrastructure as a means of sustaining or improving competition in the telecommunications sector"2. This would develop competition in services where facilities–based competition would be unlikely.
3.0 Rules and Regulations
SaskTel will focus its comments on three areas — two of which fall within the sphere of Industry Canada (foreign ownership, spectrum) and the other falling under the jurisdiction of the CRTC under the Telecommunications Act.
Overall SaskTel believes that the rules within telecommunications must rest primarily on the operation of market forces, clearly creating a framework in order for companies to be able to make forward looking investment decisions and based on the principle of "exante" regulation, much like the Competition Act.
3.1 Foreign Ownership
The Government of Canada is calling for comments on foreign ownership by July 30, 2010. SaskTel will make more extensive comments on foreign ownership within that process.
Overall SaskTel believes that opening telecommunications to more foreign capital may result in more competition, lower pricing and greater innovation especially in the urban markets of Canada. SaskTel believes however that it is unlikely that foreign companies will begin to invest and compete in rural areas. This will mean that in the absence of a levelling mechanism similar to the Contribution Fund, the digital divide in Canada will expand and grow.
SaskTel, as one of the smallest ILECs in Canada, is already successfully competing with substantially larger companies in its operating territory. Shaw is now four times larger than SaskTel. Should other, larger players wish to enter and compete in SaskTel's market the company will adapt and succeed if the Government of Canada ensures an equal playing field including:
- Requiring all companies to compete equally under the same rules — rules can no longer favour new entrants on the altar of competition. These new entrants will be larger and better capitalized than many existing firms. They will not need any special rules to provide them a head start;
- Making changes to the Telecommunications Act and the Broadcasting Act to allow greater foreign ownership of signal carriage. This will mean allowing greater ownership activity in Broadcast Distribution Undertakings such as the cable delivery of broadcasting signals and IP Television undertakings. By separating the carriage of content and the creation of content there will be no risk to Canadian cultural industries. There will also be no need to amalgamate the Broadcasting Act and Telecommunications Act, one of which embodies the need for Canadian content, the other focusing on carriage and distribution of that content; and,
- Ensuring that companies with an obligation to serve rural areas are compensated for that obligation. In the absence of incentives to invest in rural areas, capital for network infrastructure will continue to flow to the more competitive, lucrative urban markets leaving rural areas behind.
3.2 Competition: Increasing Acceptance of Regulation versus Market Forces
As a result of the Telecommunications Policy Review Report, the Federal Conservative Government provided a Policy Directive to the CRTC which stated that regulation should become more minimalistic and rely on market forces whenever possible. This resulted in a significant change in telecommunications regulation for a short period of time.
Despite the Policy Directive new forms of regulation are being contemplated — these regulations will again begin to stymie the investments needed to support a strong digital economy in Canada creating either uncertainty or favouring one class of provider over another. Two examples are:
3.2.1 Fibre to the Home (FTTH)
Recent rulings on the pricing of connections to the home and other "essential services" would indicate that companies may be forced to provide FTTH access to their competitors at cost plus a 15% contribution towards common costs. This will not allow builders to create a business case to expand fibre to the home in many locations. Despite damaging regulation, companies are likely to continue to expand in their fibre builds. However the scope and speed of that deployment will be slowed Canada–wide if the CRTC mandates resale of FTTH.
In urban areas where market forces support facilities–based competition, access to infrastructure by competitors of the builders must be at market rates allowing those who risk capital to recoup their investment without government intervention.
An example of light handed regulation that has expanded the speed and scope of developing new services is cellular. Cellular is presently forborne from the major forms of direct regulation. As a result competition has increased; prices to consumers have declined; and companies have continued to invest billions of dollars in new third generation technologies primarily in urban areas. As a result, Canada is one of the few countries with at least three separate, leading edge cellular networks.
There is no reason that the next generation of fibre, with capacities of hundreds of Mbps, should not be stimulated to grow in the same manner as the cellular network.
The Government of Canada's Policy Direction to the CRTC to rely on market forces where ever possible should remain the pillar of government involvement in telecommunications. In urban areas market forces, without undue restrictions, will result in increasing fibre and other facilities investment. In rural areas, where market forces do not operate as effectively, other rules and supports will need to be put in place.
SaskTel would suggest that there is a need for the Government of Canada to be more vigilant in ensuring that its agencies follow the Policy Direction.
3.2.2 New Media versus Traditional Broadcasting
Services over what is called New Media are rapidly becoming the life blood of the new digital economy. New Media is a principle driver of new fibre and cellular investment.
SaskTel recognizes that traditional broadcasting is in a state of flux. Traditional programming pushed to consumers via linear broadcasting is now being supplanted by technologies where the consumer has control (Internet, VOD, PVRs). This means that traditional advertising revenue streams are not as strong as they once were for linear television networks. As a result both the CRTC and broadcasters are looking for new revenue streams from telecommunications systems. Special broadcasting levies on broadcast distributors already equal over 8% of gross revenues, and the CRTC is now in the courts to obtain the power to impose further taxes on Internet Service Providers (ISPs), a telecommunications service, to create Canadian content.
New media is rapidly changing how people communicate, are entertained and work. It is also changing so fast that there is no set of regulations which can guarantee what or how people participate in this New media. There is also little evidence that new media content is not flourishing on its own. The Government of Canada should ensure a light handed approach to this change with the exception of specific matters such as copyright, child exploitation and other legal safeguards which are necessary in a democratic society. The Government should not hold back new digital media by taxing it in order to support older traditional models of broadcasting such as linear television or new media content creators. In many cases this will mean that new innovative services will move off–shore rather than operate in the Canadian environment.
There is no need to change the Broadcasting Act, but there is a need in the Government's digital economy plan to encourage innovation by allowing entrepreneurs to know what the framework is and will be for New Media. There can be neither complicated licensing schemes nor debate over whether these new services are subject to the Broadcasting Act if Canada is to forge ahead in this area of the digital economy.
New Media will continue to grow with the market. There is no reason to create uncertainty through continuous hearings on whether to regulate New Media or how to measure New Media in preparation for regulation.
3.2.3 Access to Spectrum
The growth of wireless devices is expanding exponentially. These devices, regardless of their intended purpose, require access to spectrum. Currently the private sector has access to less than 25 percent of the available spectrum for these devices. This percentage must continue to grow.
At the 2010 Spectrum Roundtable, there were a number of issues raised worthy of being placed within a strategy for the Digital Economy. In order of importance SaskTel would like to suggest that:
- Industry Canada should create a schedule of what and when spectrum will be made available. This schedule should be forward looking with the auction timelines strictly adhered to. This will allow companies to plan both their finances and their new services.
- Any company, once allocated a spectrum licence, must be assured of long term access to that spectrum in order to operate its business. Once allocated however there must be an easier mechanism for companies to buy and sell the spectrum allocated to it. Although spectrum is a finite good, as is land, companies must be given the equivalent of property rights to that spectrum.
- Fees and auction proceeds from spectrum should be directed to the support of the digital economy. This could be done in a multitude of ways. At the Government's direction, these proceeds could be put into a fund to ensure that Canadians living in rural areas are able to participate in the digital economy; it could be used to support increased knowledge on how to use the new tools of this economy especially in the small business sector; or, it could be used to stimulate demand for digital services. If these fees and auction proceeds are to be taken from the industry it should be used to support the objectives of this sector and not be used as a tax to feed general revenues. In this we note the recommendation of the Senate's Digital Plan for Canada that: "the government should use all the proceeds from spectrum auctions to provide high–speed Internet (Broadband) access for rural and remote areas."3
- Spectrum auctions should be based strictly on market forces. There should be no special set asides for new entrants or other use of other methodologies to choose winners and losers in a competitive environment. In the recent AWS auction, SaskTel was designated as one of the "new entrants" in the provision of wireless market on the basis that SaskTel controlled such a small portion of the Canadian market. SaskTel believes that no specific company should be given those special designations. As indicated previously, SaskTel is willing to compete fairly with any company even with the anticipated expansion of foreign ownership rules. In addition, SaskTel believes that with the expansion of foreign ownership rules "new entrants" will be well capitalized and do not need a special leg up.
- Lastly, SaskTel believes there is no reason to create a new bureaucracy to manage spectrum. Industry Canada has the expertise to create policy and deal with spectrum management. Most importantly Industry Canada has a presence across the country with the ability to understand regional requirements in terms of disputes regarding towers or other spectrum related issues. This expertise should not be abandoned.
4.0 Rural and Remote Areas: Need for Innovative Agenda for Rural Inclusion in Digital Economy
The forces of the marketplace are not always consistent with the needs and aspirations of the population as a whole. The competitive marketplace has a number of advantages — consumer choice and increased efficiencies to name but two. However, as mentioned earlier, under a telecommunications system guided solely by market principles, we believe that the market will become polarized. High density urban residents will experience reduced rates, increased service quality, and significant advances in the application of new technologies. Residents of rural and remote regions will be the last in Canada to attract the investment needed for the development of new technologies as competitors continue to focus on urban areas. These rural residents will experience rising rates and decreasing services. As the Report of the Standing Committee on Industry, Science and Technology explained in their report on the Foreign Ownership rules and Regulations in the Telecommunications Sector:
Rural residents, like their urban counterparts, have come to rely on telecommunications–based interactions at every level of their personal and working lives. Broadband services are instrumental tools for accessing information, goods and services and for getting things done at a distance. They are at the core of today's social, cultural and economic life. Residents in these regions cannot afford the true cost of bringing these telecommunications services to their homes. No single service provider can afford to make the necessary investments in infrastructure required to support rural and northern demands while remaining economically sound.
The National Contribution Fund remains one of the central regulatory mechanisms in ensuring quality service at affordable pricing in rural and remote areas of Canada. The focus of competition remains in the urban areas. This is true even in a predominantly rural province such as Saskatchewan. SaskTel, like so many telecommunications carriers in Canada, must balance a number of conflicting demands including the maintenance of an urban infrastructure necessary to compete in high density areas and providing its owner with adequate financial returns. Within a competitive environment spread throughout most urban environments, uneconomical investments in deep rural and northern regions require external stimulus and ongoing support. The National Contribution Fund must be strengthened to provide that support.
SaskTel believes that it is incumbent on the CRTC to maintain and strengthen the National Contribution Fund for basic telecommunications services. This Fund is essential for the continued provision of services for rural and northern areas where market forces alone will not provide affordable and quality services.
There continue to be multiple claims that rural access to broadband will be solved by either access to satellite or cellular.
In terms of cellular, as Keith Stevens from Execulink described it:
The National Broadband Task Force in the U.S. also looked at satellite as the solution to all:
Overall there will be no one technology which solves the broadband challenges in rural areas. Broadband for rural areas must be sustainable, reliable, affordable and have sufficiently robust speeds for all to participate should they wish to do so. As MTS Allstream described it:
Today to meet these definitions we need targets of 5 Mbps for rural areas and there is little doubt that in future this will increase to 10 Mbps by 2017.
Access to broadband is essential in rural areas if residents are to participate in the economic and social fabric of Canada.
Saskatchewan has built a plan to provide a minimum of 1.5 Mbps of access to all residents. We are in the lead for the moment. Saskatchewan and Canada must now look at mechanisms to ensure that our infrastructure stays abreast of change. One off programs such as the current $225 M Federal Broadband program are inadequate.
Advanced communications networks are a key component of sustainable economic growth and social development — this is especially true to ensure that our rural and northern areas can continue to make significant contributions to the growth of Saskatchewan.
There is a need to look at broadband infrastructure in a more comprehensive manner with the following elements:
- It must be comprehensive and look to long term growth;
- Ensure a strong telecommunications sector which is able to continue to make the massive investments needed in new infrastructure;
- Must recognize that facilities–based competition does not work well in rural and remote areas, and that the basic service available to all Canadians should include broadband; and,
- A policy position must recognize that investment in advanced communications and broadband is never done — this infrastructure is constantly in need of change and upgrading.
Broadband services are instrumental tools for accessing information, goods and services and for getting things done at a distance. They are at the core of today's social, cultural and economic life.
However, residents in these regions cannot pay the true cost of bringing these telecommunications services to their homes and place of business. SaskTel or other telecommunications providers cannot afford to make the necessary investments in infrastructure required to support rural and northern demands while remaining economically sound.
SaskTel believes that universal access to broadband must be a national goal.
SaskTel is suggesting that broadband capacity become part of the existing high–cost contribution system or Universal Service system.
SaskTel believes that there is no reason to set speed targets for urban areas but rather market forces will drive targets well beyond current expectations. In order to meet Canada's goals for all citizens to participate in the digital economy there must be a focus on those that create significant wealth for Canada — rural residents.
1 U.S. National Broadband Plan, executive summary, page XI.
2 The Standing Senate Committee on Transport and Communication: Plan for a Digital Canada, 2010 June, page 61.
3 The Standing Senate Committee on Transport and Communication: Plan for a Digital Canada, 2010 June, page 60.
4 Report of the Standing Committee on Industry, Science and Technology: Foreign Ownership rules and Regulations in the Telecommunications Sector, June 2010, page 32.
5 TRANSCRIPT OF PROCEEDINGS BEFORE THE CANADIAN RADIO–TELEVISION AND TELECOMMUNICATIONS COMMISSION SUBJECT; Proceeding to consider the appropriateness of mandating certain wholesale high–speed access services, 4 June 2010, paragraph 8396–8398.
6 National Broadband Plan: Connecting America, page 137.
7 Comments of MTS Allstream, Telecom Notice of Consultation CRTC 2010–43 — Proceeding to review access to basic Telecommunications Services and other matters, 26 April 2010, Paragraph ES4.