Intervention: Bell Canada

Document Name: 2015-134.224011.2397666.Intervention(1f#1%01!).html

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Intervention: Bell (Intervenor 286)

Document Name: 2015-134.224011.2397666.Intervention(1f#1%01!).html

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Intervention: Bell Canada

Document Name: 2015-134.224011.2395130.Intervention(1fc3#01!).doc
Bell Canada and its Affiliates
**** 2 of 92
TNC 2015-134 – Intervention
Abridged
Bell Canada and its Affiliates
**** 3 of 92
TNC 2015-134 – Intervention
Abridged
[image: image14.emf]Company Name **** 1 of 1
Subject
Telecom Notice of Consultation CRTC 2015-134,
Review of Basic Telecommunications Services
Intervention
of
Bell Canada and its Affiliates
14 July 2015
Table of Contents
****
2EXECUTIVE SUMMARY AND INTRODUCTION
2Broadband is competitive and nearly ubiquitous
2Deployment of broadband in remote areas
2The Commission could set an aspirational broadband target of at least 25 Mbps

2Commission funds for the deployment of broadband, if any, should be distributed through a competitive Request for Proposal (RFP) process2Summary of our broadband proposal

2Transitioning from voice to broadband
2Structure of our Intervention
2Key Findings and Recommendations
24.0
Question 4
24.1
Primary Role for Market Forces
24.2
Success of Market Forces in Canadian Broadband
24.3
Canada is a **** in Investment and Infrastructure Deployment
24.4
Canada has Vigorous Rivalry and Competitive Service Offerings
24.5
Canada is a **** in Usage
24.6
Government Support for Broadband Deployment in Rural and Remote Areas
21.0
Question 1
21.1
Canadians' Use of Broadband
21.2
Economic Impact of Broadband on Rural Communities
21.3

The Vast Majority of Internet Applications, including Advanced Internet Applications, can be Supported by a 5 Mbps Connection22.0

Question 2
22.1
Setting of a Minimum Broadband Target
22.2
Setting the Minimum Target Build for Subsidies
22.3
Setting Canada's Broadband Aspirational Target
23.0
Question 3
23.1
Broadband
23.1.1
Establishing a Technologically Neutral Target
23.1.2
Using a Competitive RFP Process
23.1.3
No Requirement for Commission to set Specific Pricing
23.2
Voice
23.2.1
The Current BSO for Voice and the Obligation to Serve for Voice
23.2.2
Modifications to the BSO
23.2.3
Pricing for local voice
25.0
Question 5
25.1
Broadband
25.2
Voice
26.0
Question 6
27.0
Question 7
27.1
Northwestel Territories and other Satellite Communities
28.0
Question 8
28.1
Proposed Changes to the BSO
28.2
Access to Low-Speed Internet At Local Rates (i.e., Dial-Up)
28.3
Equal Access
29.0
Question 9
210.0
Question 10
210.1
Changes to Contribution Payments and Rates in Bands E and F
211.0
Question 11
211.1
Changes to the Contribution Collection Regime
212.0
Question 12
213.0
Question 13
213.1
Overriding Principles
213.1.1
Complementary to, and not in lieu of, government and private investments
213.1.2
Competitive Allocation
213.1.3
Technological Neutrality
213.2
Structure of the Auction
213.2.1
Monthly Subsidy
213.2.2
Community Eligibility and Aggregation
213.2.3
Number of Winners for each Package
213.2.4
Role of Wholesale
213.2.5
Mandated Retail Rates
213.2.6
Reporting
APPENDICES
Appendix 1:

Broadband Market Performance in Canada: Implications for Policy by Dr. **** Eisenach of NERA Economic Consulting.

Appendix 2:

The Broadband USO Review: International comparisons of universal service regimes and broadband access, by **** + ****.

Appendix 3:

Transitioning Universal Service Support to Broadband in the United States: Providing Incumbents a Right-of-First-Refusal or Competitive Bidding, by **** Gillan.

Appendix 4:
A list of government broadband funding initiatives since 2002.
Appendix 5:

A legal analysis of the obligation to serve and the Commission's ability to order private entities to build facilities where none exist.

Appendix 6:
A detailed explanation of our proposals for reforms to the voice contribution fund mechanism
EXECUTIVE SUMMARY AND INTRODUCTION
1. Bell Canada, on its own behalf, and on behalf of its affiliates

, welcomes this opportunity to participate in this hearing and notes our support for the Commission's commitment to ensuring Canadians have access to the services they need to meaningfully participate in Canada's digital economy. As Canada's largest communications company, we are proud of our role as a leader in the provision of services employing Information Communications and Technology (ICT) and in deploying broadband across Canada, including in remote areas.

2. Broadband networks form the key underpinning of Canada's digital economy and their role is clearly important to Canadians. Facilities-based competition has resulted in Canadians having access to world class networks. In this respect, we are continuously investing in improving and expanding our networks. In fact, we have recently announced that we expect to invest $20 Billion in the nation's communications capabilities by the end of 2020, ensuring Canada remains competitive at a global level in next-generation broadband communications.

And our competitors, as well as governments, are continuously funding the deployment of broadband as well. It is therefore important for the regulatory framework to continue to support investment by private and governmental entities. In our view, broadband deployment must be supported through a combination of:

· Policies encouraging facilities-based competition;
· A light handed regulatory regime that incents, rather than discourages, investment in remote areas; and
· Targeted subsidies.
3. The following constitutes our comments to TNC 2015-134

. We have structured our submission in the form of answers to the questions the Commission asked. However, in order to obtain a quick understanding of our proposals, we have not structured this Executive Summary in that format. In addition, throughout the submission, we have highlighted our "Key Findings" and "Recommendations". A summary of all those recommendations and findings can be found at the end of this Executive Summary.

Broadband is competitive and nearly ubiquitous

4. Historically the Commission has taken "a hands-off" approach to the Internet and relied upon competition to meet Canadians' needs. This market driven approach has produced tangible results in terms of the availability of robust broadband networks built by facilities-based competitors. Only two countries in the G20 – Japan and **** Korea – boast a higher percentage than Canada of broadband connections exceeding 4 Mbps in download speed.

By 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more.

Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

5. We have commissioned a report by Dr. **** Eisenach of NERA Economic Consulting to examine the state of competition in Canada's broadband market. His report is attached as Appendix 1. This report demonstrates that Canada has world class broadband networks and services, in terms of both availability and quality. Broadband prices compare favourably to those in other jurisdictions and quality-adjusted prices have been falling. **** quality and affordable prices have led to leading broadband penetration and usage. Consistent with the Policy Direction, where ever market forces have been effective in ensuring Canadians have affordable access to basic telecommunications services, and indeed have made Canada a global broadband leader, regulatory intervention is inappropriate.

Deployment of broadband in remote areas

6. Due to our country's size and challenging geography, there remain a few rural and remote areas in which broadband services are not available today because there is simply no business case to build the necessary infrastructure to serve them.

7. To the extent the Commission deems it appropriate to establish an industry-funded subsidy regime, we submit that any subsidy should:

i. Only be available in circumstances where the Commission has determined that no government funding is or will become available to fund the deployment of broadband in the target community. This principle is consistent with the Commission's own commentary in its prelude to Q7 which notes that "[t]he Commission considered that [any Commission created funding]…mechanism should complement, and not replace, other investments from the private sector and governments, including public-private partnerships." Over the years, the federal and provincial governments have provided targeted funding to help expand broadband services. For example, the Federal Government announced several initiatives to enable or encourage Canadians' ability to participate in the digital economy, including its $305M Connecting Canadians program for the deployment of 5 Mbps broadband in unserved or underserved communities. The use of consolidated revenue funds is less distortionary than industry-specific taxes and should always be preferred. In our view, Canada can and should extend the deployment of this broadband infrastructure to rural and remote areas through government funding. Since 2006, the Government has raised approximately $12B from wireless spectrum auctions in the highly competitive wireless market. A portion of those proceeds could, in our view, be directed to subsidizing the roll-out of the necessary infrastructure.

ii. Only be used to extend broadband to Canada's most remote communities, namely those found in Bands G and H1 and only where broadband speeds of 5/1 Mbps are not available. In the case of Band G, these communities do not have year-round road access and are extremely costly to cover with broadband facilities. Band H1 contains some of the most difficult terrain in the country. By focusing on the most remote bands (Bands G and H1), any new Commission subsidy program can address the most difficult problem first and the various governments can continue to provide incentives and subsidies to close the gap, if any, for remaining areas (i.e., unserved or underserved areas in Bands A through F). Since, under section 46.5 of the Telecommunications Act (the Act) the Commission must first declare broadband to be a 'basic telecommunications service' if it wishes to create a broadband subsidy fund, if it intends to create such a fund, we submit it should only declare broadband to be a basic telecommunications service in Bands G and H1. This is analogous to the current basic service objective (BSO) for voice which only applies with respect to Incumbent Local Exchange Carriers (ILECs) local voice services in regulated areas, as further explained in our response to Q3. The attributes that define the BSO for voice do not apply to ILECs in forborne areas, nor do they apply to Competitive Local Exchange Carriers (CLECs) in any region.

iii. Not increase the size of the contribution fund, but rather fund any new broadband subsidy from a reallocation of funds from the existing local voice subsidy. As discussed in our answer to Q10, the voice subsidy fund today is inefficiently designed. It allocates funds for areas that do not require a subsidy, especially considering that almost all of the ILECs in these subsidized areas are charging lower rates than what the Commission has deemed affordable elsewhere in the country.

Should the Commission deem it necessary to assist in the deployment of broadband in Bands G and H1, a target speed of 5 Mbps is appropriate. However, funding of broadband in areas that are still unserved could be for 10 Mbps8. The Commission's technological review published in its 2014 Canadian Monitoring Report (CMR) demonstrates that the vast majority of Internet applications can be performed with a connection of 5 Mbps:

Figure 1
Commission Assessment of Bandwidth Requirements for Popular Internet Applications
[image: image1.jpg]
****-time
Requiredpu-tnmnnu mmlltmcy
Streaming
Dial—up
1231(st
5 00 Kbps
Average available bandwithh
1.5 Mbps 5Mbps 15Mbps

9. Figure 5.3.8 of the 2014 CMR shows that very low bandwidth is necessary for email, ranging from dial-up to 128 Kbps. Web-browsing and voice over Internet Protocol (VoIP) can be achieved with a good user experience with a bandwidth connection of 1.5 Mbps. And the vast majority of other applications can be performed with a connection 5 Mbps, including real-time gaming, videoconferencing and high definition (HD) video streaming. The results clearly demonstrate that all but the most intense online activities, such as the streaming of video in qualities greater than HD, can be achieved through a 5 Mbps connection. We submit that although of interest from an entertainment perspective, such applications and services are not necessary to meaningfully participate in the digital economy.

10. As such, in the event the Commission deems it necessary to implement a fund to assist in the deployment of broadband in Bands G and H1, we believe the Commission should only fund areas that are not currently capable of 5 Mbps download and 1 Mbps upload. This is consistent with the ongoing Federal Government's Connecting Canadians program which considers 5 Mbps as the threshold for the determination of whether or not a community is "served", “underserved” or "unserved" by sufficient broadband service.

11. Such a target is also consistent with international practices. Attached as Appendix 2 to our submission is an expert report we commissioned from **** + **** which examines the state of universal service and minimum broadband targets in 17 leading Organization for Economic Co-operation and Development (OECD) countries.

That review reveals that none of these countries had a minimum target higher than 4 Mbps.

12. We also commissioned a report by **** Gillan of Gillan Associates (and current board member of the Universal Service Administrative Company as appointed by the Chairman of the Federal Communications Commission (FCC)) called Transitioning Universal Service Support to Broadband in the United States: Providing Incumbents a Right-of-First-Refusal or Competitive Bidding to examine the structure of the universal service regime for broadband in the U.S. The study is attached as Appendix 3. Mr. Gillan explains that the FCC's universal service regime for broadband provides funding for the build-out of broadband to exchanges where no other provider is offering speeds of 4 Mbps download and 1 Mbps upload and such funding is provided to accommodate speeds of 10 Mbps download and 1 Mbps upload.

13. If the Commission believes the establishment of a fund is necessary for the deployment of broadband in Canada's most remote communities, we believe it would be prudent to fund deployment in a similar manner to the U.S. (i.e., at 10 Mbps download and 1 Mbps upload) in those areas of Bands G and H1 that do not have access to 5 Mbps or more (whereas the U.S. will only fund access in communities that do not have 4 Mbps or more). As discussed in our answer to Q7, an exception to this principle is warranted for satellite served communities, which instead should have a target of 5 Mbps download and 1 Mbps upload.

The Commission could set an aspirational broadband target of at least 25 Mbps

14. There is a difference between the setting of a minimum speed for funding purposes and establishing aspirational targets. Mr. Gillan explains that the FCC has defined broadband as consisting of 25 Mbps download and 3 Mbps upload. But, the FCC does not use that definition for universal service funds purposes. Rather, the 25/3 measure is an aspirational target. **** + **** note that many other countries have established aspirational targets – some of which are backed by Government subsidies (but not industry-funded regimes like our contribution regime).

15. **** + ****’s international review demonstrates that where aspirational targets are set, they are aggressive. In other words, aspirational targets should also be inspirational. Given the successful state of Canada's broadband networks, we believe the country is ripe for greater goals. As such, we submit that the Commission should set an aspirational target of at least 25 Mbps and continue to track the nation's progress with respect to this target.

16. Beyond setting the aspirational target, the Commission should also ensure that it adopts policies that actually assist industry to achieve those targets, such as allowing telecom service providers (TSPs) to access buildings to install new facilities, and removing wholesale obligations which undermine incumbents' incentives to invest. Of course, there is a role for the Federal Government as well. It can increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments. In fact, the latter can have such a significant impact on investment that we encourage the Commission, as part of its decision in this proceeding, to recommend that the Government do just that.

Commission funds for the deployment of broadband, if any, should be distributed through a competitive Request for Proposal (RFP) process17. We submit that the Commission should not rely on any imposed obligation to serve when it comes to broadband. This is consistent with international practice. As detailed by **** + ****, although almost all of the 17 countries surveyed had government sponsored programs to extend broadband, only four used an obligation to serve for broadband as a means of extending broadband. Further, those four set such obligations only at speeds that can reasonably be achieved through existing telephone networks. (Three countries with obligations of 1 Mbps download and 2 Mbps download in the case of Switzerland). Further, we submit that the Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today.

18. Equally important, lessons from recent U.S. experiments tell us that obligations to serve (which rely on cost models) often result in inefficient subsidies that ultimately subsidize lower speeds at a greater cost than what could otherwise be attained through a competitive bidding process. As noted by Mr. Gillan, in the U.S., the largest American telephone companies were offered subsidies pursuant to a cost model and a first right of refusal with respect to such funding (i.e., an approach similar in structure to an obligation to serve – albeit a voluntary one). At the same time, the FCC undertook an experiment in which it invited other ISPs to offer to build broadband (known as the Rural Broadband Experiment or RBE program) in some of these areas so that it could see what level of subsidy an auction regime would determine is needed to serve these areas. The net result of the RBE program is that the FCC was inundated with offers to build broadband at subsidies that were more than 50% lower than the cost model's results and for speeds that were higher than assumed by the model.

19. Clearly, the U.S. experiment demonstrates that auctioning is the most efficient and cost-effective solution. This is also supported by the Canadian experience and economic literature as further discussed in our Intervention. We accordingly recommend a multi-round competitive auction process (i.e., an RFP process) for any Commission subsidies for the funding of broadband in remote communities. Such an RFP process could also be tailored to the needs of satellite communities which may require assistance with transponder costs on an ongoing basis. A detailed description of a proposed RFP process is provided in our response to Q13.

Summary of our broadband proposal

20. In the event the Commission deems the establishment of a fund for the deployment of broadband in Bands G and H1 to be necessary, the Commission could:

· Establish a fund and broadband contribution regime to assist in ensuring access to basic broadband services in Bands G and H1, as further described in our response to Q10;

· Establish a minimum target for funding purposes in Bands G and H1 of 5 Mbps download;

· Establish a minimum target, for the purposes of subsidy, of 10 Mbps (such that funds are made available for the deployment of 10 Mbps in communities that are not currently served by at least 5 Mbps) and 5 Mbps for satellite communities;

· Establish a competitive RFP process for the distribution of broadband subsidy in Bands G and H1; and

· Establish a higher aspirational broadband target, such as 25 Mbps, and periodically report on the nation's progress in achieving this goal.

Transitioning from voice to broadband

21. As the Commission noted in its notice of consultation, Canadians are reducing their dependency on traditional wireline voice services. In fact, Canada has reached a tipping point where the majority of Canadians have found alternatives or abandoned traditional wireline voice services from ILECs. Given the changing competitive and technological environment for voice services, we recommend minor adjustments to the current BSO to eliminate the requirement to provide Equal Access and access to dial-up services. These services made sense in the old traditional (time-division multiplexing (TDM)) regime, but are no longer applicable in the new Internet Protocol (IP) world. Demand for Equal Access is extremely low given the multitude of alternatives available to consumers. In the age of broadband, access to dial up can no longer be seen as a requirement of the BSO.

22. ILECs also currently receive subsidy for the maintenance of voice services in high-cost serving areas (HCSAs) (Bands E and F) and extremely HCSAs (Bands G and H1). We believe the costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are therefore overstated. Although, in the most remote areas (Bands G and H1) it is likely that subsidies are still required, we believe there is no evidence to justify the requirement of subsidies for voice in the rest of the HCSAs (Bands E and F). However, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement and eliminate unjustified subsidies.

23. We accordingly recommend the Commission phase out subsidy for Bands E and F over a three-year transition period. Given the very high cost nature of the areas in Bands G and H1, the annual local voice service subsidy amounts in these bands should be maintained.

24. We also recommend the Commission grant ILECs the flexibility to raise residential primary exchange service (PES) rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest affordable level in the country, which is currently $37.29, over a three year transition period. To protect consumers, these rate increases would be limited to a maximum of $2.50 in any one year – ensuring that all rate increases to hit the $37.29 level would be complete by the third year. Assuming that the decision is released in 2016, we anticipate these increases taking place at the beginning of 2017, 2018 and 2019. No rate increase would be permitted beyond a level that would be needed to eliminate the subsidy in that rate band.

25. By 2019, this phasing out of subsidy will reduce the current national contribution fund annually by $75M. If the Commission deems it appropriate to establish a fund for the deployment of broadband in Canada's most remote communities (i.e., Bands G and H1), the Commission can redirect this money to fund those projects. In fact, as early as 2017, under our proposal explained in detail in Appendix 6, over $54.5M would be available to fund broadband (growing to $69M in 2018 and then $75M in 2019).

26. In addition, we believe that the contribution collection regime should also be revised to include Internet and paging revenues (which are currently excluded). Details on these changes are provided in our answer to Q11.

Structure of our Intervention

27. In order to assist the Commission and other parties, we have structured this intervention in the order of the questions listed in Appendix B of TNC 2015-134. Further, for each answer (except those that are very short) we have provided a brief summary of that answer before providing a more in depth answer to the question. Before answering the Commission's specific questions, it is necessary to understand the state of deployment of broadband in Canada, how competitive the market is, and how that competition has lead to nearly ubiquitous broadband access such that Canadians continue to be the most engaged users of broadband per capita in the world. Given that such a background addresses the Commission's Q4, we have moved our response to Q4 at the outset. All remaining questions have been answered in the order set out by the Commission.

28. Certain information contained in this submission and the related Appendix 6 is filed in confidence with the Commission pursuant to section 39 of the Telecommunications Act (the Act) and the directions provided by the Commission in the Broadcasting and Telecom Information Bulletin (BTIB) CRTC 2010-961. In particular, the information which we have provided in confidence represents competitively sensitive information which the Commission has indicated should be treated as confidential. Release of this information on the public record would provide existing or potential competitors with invaluable competitively-sensitive information that would not otherwise be available to them, and which would enable them to develop more effective business strategies. Release of such information could prejudice our competitive position resulting in material financial loss and cause us specific direct harm. An abridged version of this Intervention and Appendix 6 are being provided for the public record.

29. Attached as appendices to this intervention are:
Appendix 1:
Broadband Market Performance in Canada: Implications for Policy, by NERA Economic Consulting
Appendix 2:

The Broadband USO Review: International comparisons of universal service regimes and broadband access, by **** + ****Appendix 3:

Transitioning Universal Service Support to Broadband in the United States: Providing Incumbents a Right-of-First-Refusal or Competitive Bidding by Gillan AssociatesAppendix 4:

A list of government broadband funding initiatives since 2002
Appendix 5:

A legal analysis of the obligation to serve and the Commission's ability to order private entities to build facilities where none existAppendix 6:

A detailed explanation of our proposals for reforms to the voice contribution fund mechanism
Key Findings and Recommendations

30. As mentioned above, throughout the submission, we have highlighted our "Key Findings" and "Recommendations". For ease of reference, below is a list of all those recommendations and findings.

Key Findings
Key Finding 1A:

Email and Web-browsing (and the plethora of activities and socio-economic contributions that can be achieved through web browsing and email) are the services most necessary to meaningfully participate in the digital economy.

Key Finding 1B:

Ensuring that all Canadian households have access to a broadband service is much more important than ensuring households have access to very high broadband speeds.

Key Finding 1C:

Other than where there is no access to broadband at all, the lack of skilled labour in remote areas is a greater barrier to ICT adoption than a lack of high speed bandwidth.

Key Finding 1D:

Broadband speeds of 5 Mbps are sufficient to support the vast majority of online applications and services required by Canadians to meaningfully participate in the digital economy.

Key Finding 1E:

Even where Canadians have a very broad choice of technology, speed and provider, a significant number of these Canadians continue to choose broadband tiers close to 5 Mbps.

Key Finding 1F:

Using the most up-to-date Industry Canada estimates, there are less than 200,000 households in Canada without access to broadband service of at least 5 Mbps download.

Key Finding 2A:

The FCC has established a 25/3 Mbps aspirational target for broadband. For universal service funding, the FCC only subsidizes broadband builds to exchanges that do not have 4 Mbps/1 Mbps. When it subsidizes such builds, however, it requires the build to extend 10 Mbps/1 Mbps broadband service.

Key Finding 3A:

We have reached a tipping point where the majority of Canadians have found alternatives or abandoned ILECs' traditional wireline voice services. Less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC.

Key Finding 3B:

While The Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today, it does have the power under s.46.5 of the Act to create a fund to finance the build of broadband and to impose a contractual obligation to build on any TSP that volunteers to take advantage of such funding.

Key Finding 4A:

Canada is a leader in terms of broadband investment. Canadian ILECs and cablecos exceed their U.S. peers with respect to capital intensity, and Bell Canada and Telus in particular exceed ILEC peers in the U.S., UK, and ****.

Key Finding 4B:

As a result of investment and competition, by 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more. Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

Key Finding 4C:

Canada is third in the G20 – behind only Korea and Japan – in percentage of unique Internet connections that exceed 4 Mbps.

Key Finding 4D:

There have been significant shifts in high-speed Internet market share over time in Canada – a textbook indicator of highly competitive markets.

Key Finding 4E:
Canada compares favourably with other countries in terms of high-speed Internet pricing.
Key Finding 4F:

Compared to other OECD countries, Canada's prices fall below the price level predicted by its population density for both lower speed and usage services and higher speed and usage services.

Key Finding 4G:

Obstacles to broadband use and adoption in Canada are low enabling Canadian Internet users continue to be the "world's most engaged" broadband users.

Key Finding 4H:
Canada is a world leader in terms of broadband penetration levels.
Key Finding 4I:

Due to our country's size and challenging geography, there are rural and remote areas in which broadband services are not available today because there is no business case to build the necessary infrastructure to serve them.

Key Finding 4J:

There have been and continue to be several effective local, provincial, federal and territorial government broadband funding programs.

Key Finding 7A:

Northwestel has filed with the Commission two discrete proposals that would each enable all 58 terrestrially-served communities in Northwestel's serving area to receive broadband speeds exceeding 15/1 (which, if granted, would make it ineligible for funding in these communities under our proposal in the event the Commission deems a fund to be necessary).

Key Finding 13A:

Relying on an obligation to serve or a similar mechanism that relies on cost models for creating broadband subsidies is costly, time consuming and inefficient. Experiments conducted by the FCC have demonstrated that a competitive RFP process resulted in a significant number of bids, some of which were less than 50% of what would have been the FCC cost model's result, and with commitments to deliver higher speeds than required by the FCC.

Key Finding 13B:

The highest costs to expanding broadband in satellite communities are the ongoing operating expenses of paying for the backhaul of the satellite through leased capacity. As such, satellite bidders will likely require ongoing subsidies instead of on a one-time/build basis.

Key Finding 13C:
Governments rely on third party experts to help assist them in conducting auctions.
Key Finding 13D:

Wholesale access obligations would lower the business case in regions that are already challenging to deploy in to begin with. As bidders would have to factor in a decreased market penetration (in light of wholesale competition) it would correspondingly increase the cost of deployment and therefore increased required subsidies and industry contributions.

Recommendations
Recommendation 2.1:

In the event the Commission deems it necessary to establish a fund to facilitate the deployment of broadband, 5/1 should be recognized as a suitable minimum broadband speed to enable participation in the digital economy.

Recommendation 2.2:

In the event the Commission determines that a fund is necessary, the Commission should only fund broadband in underserved or unserved communities in Bands G and H1 (i.e., communities without speeds of at least 5 Mbps download and 1 Mbps upload) leaving governments and market forces to cover the remaining areas.

Recommendation 2.3:

When subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload, with the exception of satellite communities where it should only fund for 5 Mbps download and 1 Mbps upload.

Recommendation 2.4:

The Commission could establish a higher aspirational target speed and report on Canada's progress in achieving that target, similar to the U.S. aspirational target of 25/3.

Recommendation 2.5:

The Commission should recommend to the Federal Government that they increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments.

Recommendation 3.1:

Any funding for broadband should be technologically neutral. Any service capable of delivering the requisite characteristics of the minimum target should be permissible whether it is provided over digital subscriber line (DSL), cable, fibre to the node (FTTN), fibre to the home (FTTH), fixed wireless or satellite services.

Recommendation 3.2:

As an exception to the principle of technological neutrality, mobile wireless services should not be considered at this time for the purposes of determining whether a community is "served" or "unserved".

Recommendation 3.3:

If the Commission determines that a subsidy fund is needed, it should only mandate minimum target speeds and, if it determines it is necessary, require bidders to commit to providing service at rates comparable to competitive offerings offered in non-subsidy areas. As Canada benefits from high levels of competition in broadband, there is no need mandate specific terms or rates.

Recommendation 3.4:

In the event the Commission determines funding is required in Bands G and H1, it should define broadband as a "basic telecommunications service" only in Bands G and H1 in order to allow it to create a fund for building broadband in these areas under s.46.5 of the Act.

Recommendation 3.5:

Distribution of subsidies for broadband deployment should be done through an RFP competitive auction process rather than through a broadband obligation to serve.

Recommendation 4.1:

Government should always have the primary role in funding broadband deployment in remote areas and given the recent auction proceeds, there is government funding available. The Commission should only intervene to create its own fund for broadband to the extent it determines that the Government cannot be relied upon to assist in the deployment of broadband where there is no business case.

Recommendation 7.1:

Special consideration for satellite communities can be accommodated in light of ongoing transponder costs. These considerations should apply to both satellite communities in and outside Northwestel's territory.

Recommendation 7.2:

The Commission should not implement an auction for satellite communities until the outcome of the Telesat C-band pricing proceeding (TNC 2015-133) is known.

Recommendation 8.1:

The BSO should be amended to eliminate the requirement to provide access to low-speed Internet (i.e., dial-up).

Recommendation 8.2:

Subject to transition outlined in Recommendation 8.3, the requirement for all LECs (including ILECs in regulated and forborne areas) to provide equal access should be eliminated.

Recommendation 8.3:

To allow for an orderly transition, all equal access obligations (both primary exchange carrier (PIC) requirements and dial-around obligations (i.e., 1010XXX)) for residential end-users should be eliminated by 1 January 2018. For business end-users, dial-around obligations would cease on the same date as residential end-users, but PIC obligations would continue until 1 January 2022.

Recommendation 10.1:

The costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are overstated. However, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement, as described under Recommendation 10.2.

Recommendation 10.2:

ILECs should be granted the flexibility to raise residential PES rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest Commission approved (i.e., by definition affordable) level in the country, $37.29 over a three year transition period. The maximum annual increase would be $2.50 per month. Rates would be permitted to rise until they reached $37.29 or the amount needed to eliminate the subsidy, whichever is lower. The permissible rate increase should be imputed for subsidy calculation purposes in each year, whether the ILEC implemented the increase or not.

Recommendation 10.3:

Given that the costs are inaccurate, the Commission should eliminate the local voice service subsidies in Bands E and F (with the exception of the subsidy that is being replaced by rate increases – which will be eliminated over a three year transition period).

Recommendation 10.4:

Given the very high cost nature of the areas in Bands G and H1, the annual local voice service subsidy amounts in these bands should continue to be calculated using the current formulas.

Recommendation 10.5:

As the local voice service subsidy amounts in Bands E and F are eliminated over the three-year transition period, the Commission could redirect the associated amounts each year towards subsidizing broadband in Bands G and H1. Based on the approved 2014 total subsidy amounts, we estimate the total amount that could be redirected to funding broadband services at approximately $75M by the third year of the transition period.

Recommendation 11.1:

Contribution eligible revenues (CERs) should be modified to include both retail paging service revenues and retail Internet service revenues.

Recommendation 11.2:

Assuming there is a broadband fund, funds for voice and broadband should be distributed on different bases. Specifically, voice funds should continue to be paid out to ILECs and the Canadian Administrator of VRS (CAV) in accordance with current practices. Broadband funds, however, should be paid out through a competitive auction model in accordance with the proposal we put forward in our response to Q13.

Recommendation 13.1:

Any auction design should ensure no subjective decision making in the award of winners once the criteria of the auction have been established.

Recommendation 13.2:

Any auction design should ensure technological neutrality preferring no one technical solution with the exception that, consistent with the Federal Government's Connecting Canadians program, mobile wireless (as opposed to fixed wireless) should not be considered when determining whether a community is "served" or "unserved", nor should it be an eligible solution as part of a bid.

Recommendation 13.3:

As a further exception to Recommendation 13.2, any auction should be designed to allow for a proper comparison between satellite-based solutions that require permanent subsidies and terrestrial-based solutions that only require onetime (or finite) upfront subsidies and may have special rules or exemptions pertaining to satellite-served communities.

Recommendation 13.4:

Any auction should be designed as a reverse auction allowing bidders to bid on the amount of subsidy they require to provide service in a community based on a monthly payment per household for 60 months for terrestrial communities and perhaps 36 months for satellite-served communities.

Recommendation 13.5:

Any auction should be designed to allow some form of grouping communities in Bands G and H1 together into a package so as to maximize network deployment efficiencies.

Recommendation 13.6:

Any auction should award bids to only one provider per community and the corresponding subsidy should not be portable to other ISPs even if another ISP later elects to serve customers in that area.

Recommendation 13.7:

There should be no regulatory requirement for the winner of any auction to wholesale access to its broadband service.

Recommendation 13.8:
**** bidders should have to report annually on their progress in rolling out service.
ANSWERS TO THE COMMISSION'S QUESTIONS
4.0
Question 4

Can market forces and government funding be relied on to ensure that all Canadians have access to basic telecommunications services? What are the roles of the private sector and the various levels of government (federal, provincial, territorial, and municipal) in ensuring that investment in telecommunications infrastructure results in the availability of modern telecommunications services to all Canadians?

Key Findings
Key Finding 4A:

Canada is a leader in terms of broadband investment. Canadian ILECs and cablecos exceed their U.S. peers with respect to capital intensity, and Bell Canada and Telus in particular exceed ILEC peers in the U.S., UK, and ****.

Key Finding 4B:

As a result of investment and competition, by 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more. Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

Key Finding 4C:

Canada is third in the G20 – behind only Korea and Japan – in percentage of unique Internet connections that exceed 4 Mbps.

Key Finding 4D:

There have been significant shifts in high-speed Internet market share over time in Canada – a textbook indicator of highly competitive markets.

Key Finding 4E:
Canada compares favourably with other countries in terms of high-speed Internet pricing.
Key Finding 4F:

Compared to other OECD countries, Canada's prices fall below the price level predicted by its population density for both lower speed and usage services and higher speed and usage services.

Key Finding 4G:

Obstacles to broadband use and adoption in Canada are low enabling Canadian Internet users continue to be the "world's most engaged" broadband users.

Key Finding 4H:
Canada is a world leader in terms of broadband penetration levels.
Key Finding 4I:

Due to our country's size and challenging geography, there are rural and remote areas in which broadband services are not available today because there is no business case to build the necessary infrastructure to serve them.

Key Finding 4J:

There have been and continue to be several effective local, provincial, federal and territorial government broadband funding programs.

Recommendations
Recommendation 4.1:

Government should always have the primary role in funding broadband deployment in remote areas and given the recent auction proceeds, there is government funding available. The Commission should only intervene to create its own fund for broadband to the extent it determines that the Government cannot be relied upon to assist in the deployment of broadband where there is no business case.

31. This section also addresses a recommendation found in the Answer to Q2:
Recommendation 2.2:

In the event the Commission determines that a fund is necessary, the Commission should only fund broadband in underserved or unserved communities in Bands G and H1 (i.e., communities without speeds of at least 5 Mbps download and 1 Mbps upload) leaving governments and market forces to cover the remaining areas.

4.1
Primary Role for Market Forces

32. Market forces can be relied upon to ensure that Canadians have access to broadband, except perhaps in the most rural and remote areas where broadband may not be available at all. Outside of these few rural and remote areas, market forces will continue to result in world-leading broadband networks from multiple facilities-based providers being made available to Canadians at affordable prices across a range of speeds/usage levels.

33. Of course, the Policy Direction requires the Commission to – and suggests that governments will – rely on market forces to the maximum extent feasible to achieve policy objectives. The role of Government and the Commission in these competitive areas should therefore be primarily to facilitate the expeditious deployment of telecommunications infrastructure by establishing policies which encourage facilities-based investments. This will allow market forces to continue to operate, as they have done effectively so far.

4.2
Success of Market Forces in Canadian Broadband

34. Competition in Canadian broadband markets today is fierce, with most Canadians able to choose from among several facilities-based competitors (typically the ILEC, a cableco, a satellite provider and multiple wireless providers). This competition has led to extensive deployment of advanced networks and vigorous rivalry across a full range of competitive service offerings. Today, 95% of Canadians have access to broadband at download speeds of 5 Mbps or higher through wireline or wireless networks built by Canada's facilities-based competitors. The result is that Canada leads the world in broadband adoption and usage.

4.3
Canada is a **** in Investment and Infrastructure Deployment

35. Canada has achieved its broadband success largely through high levels of capital investment made by facilities-based competitors willing to risk significant financial resources to keep pace with and surpass their market rivals. The wide presence of both ILEC and cableco broadband infrastructure has placed Canada in an envious position internationally, as many other industrialized nations have struggled to build even a single ubiquitous broadband network. Facilities-based competition has lead to strong competitive incentives to offer services that meet the needs of all potential customers.

36. As the Commission is aware, we are in the midst of a large, multi-year capital expenditure program to upgrade our wireline networks beginning with FTTN and now increasingly with fibre to the premises (FTTP) and in many cases with our new Gigabit Fibe product. Investments in next generation networks will continue to feature prominently in the $20B investment we have announced for the next five years.

These investments are driven by a virtuous cycle created by vigorous competition and a regulatory-framework that encourages facilities-based investments.

37. Figure 2, below, shows that Canada is already a leader internationally with respect to broadband investment. Canadian ILECs and cablecos exceed their U.S. peers with respect to capital intensity, and Bell Canada and Telus in particular exceed ILEC peers in the U.S., UK, and ****.

Figure 2
Capital Intensities of Wireline Service Providers
[image: image2.emf][image: image3.emf]

38. As a result of this investment and competition, by 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more.

Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

While this is the latest data available from the Commission, no doubt these figures have increased over the last two years and will continue to increase during the year spanned by this proceeding, as ILECs and others continue to build out fibre infrastructure, cablecos complete DOCSIS upgrades, long-term evolution (LTE) wireless networks expand, and satellite and fixed wireless networks increase speeds and coverage.

39. This competitive intensity is not restricted to Canada's largest cities. Amongst the earliest locations in our territory to be built out with FTTH were not just Quebec City, Fredericton, and St. John, but also Quispamsis, New Brunswick (population 17,886) in 2010.

The second city in Bell Canada (as opposed to the former Bell Aliant) territory in which we announced the construction of an FTTH network was ****, Ontario. We have now built FTTH covering over 74% of households in Atlantic Canada, to communities as small as Stephenville, Newfoundland (population 6,719), Shelburne, Nova Scotia (population 1,686), and ****, New Brunswick (population 2,208). We have also built FTTH in communities as remote as Saint-Félicien, Quebec (population 10,278) and Cobalt, Ontario (population 1,133). At the end of 2014, our FTTH and FTTN networks reached more than 7.5 million homes and businesses in our territory because of the competitiveness in Canada's broadband market.

40. It is therefore not surprising that Canada is third in the G20 – behind only Korea and Japan – in percentage of unique Internet connections that exceed 4 Mbps (in other words, that effectively meet the broadband speed target of 5 Mbps), as shown in Figure 3, below. Clearly, market forces are successfully making modern communications services available and compelling to Canadians.

Figure 3
Percentage of Connections Exceeding 4 Mbps ****
[image: image4.png]% of Unique IPs > 4 Mbps
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4.4
Canada has Vigorous Rivalry and Competitive Service Offerings

41. There is also extensive evidence of rivalrous behavior which demonstrates that market forces will protect the interests of all users. First, there have been significant shifts in market share over time – a textbook indicator of highly competitive markets. As Figure 4 below shows, amongst the primary facilities-based competitors in the Canadian broadband market there has been a constant battle for new subscribers. In particular, cableco share of net new additional subscribers fell from 80% to less than 50% in 2002 and then increased again to approximately 80% in 2008. At that point, ILECs began to battle back, with their share of net new additional subscribers increasing from approximately 20% to in excess of 90% in 2013. Of course, cablecos can now be expected to use all tools in their competitive arsenal to battle back themselves. New subscribers are at a premium, and all competitors have every incentive to serve the interests of all potential customers.

Figure 4
Residential Fixed Broadband Share of Incumbent and
Cable Net Additions (1999-2013)
[image: image5.emf]0102030405060708090100199920002001200220032004200520062007200820092010201120122013
Share of Net Additions (%)
IncumbentsCable Competitors

42. This dynamic is facilitated by the fact that the costs of switching for most consumers are low, as customer equipment is typically provided by the broadband provider, not purchased outright.

43. As you would expect, in addition to extensive network investment, one of the features of this battle has been falling quality-adjusted broadband prices (i.e., prices are lower considering both the rate and the amount of usage included in that rate). Quality-adjusted prices for broadband service at a level that approximately meets the Commission's current target (between 1.5 and 9 Mbps up to 2011 and between 4 and 15 Mbps up to 2014) have fallen between 35% and 43% since 2008.

44. We retained Dr. **** Eisenach to examine the state of competition in Canada's broadband market. His report is attached as Appendix 1. His report concludes that:

The evidence presented in this study demonstrates that the Canadian broadband market is characterized by vigorous competition among multiple types of providers, including cable, telco, wireless and fiber; that competitive networks are widely deployed, so that consumers have numerous choices of providers; that innovation is occurring at a rapid pace; and, that new firms are entering the market.

45. As a result of this competitive process, across the country, competitors offer a wide range of products and services to meet a full range of consumer demands. And this broadband pricing in Canada is in line with international peers. According to the recently released **** Report, for service between 4 and 15 Mbps Canada "compares favourably with the other surveyed countries." Our "average monthly price of $56.66 falls just above the average for the group of surveyed foreign jurisdictions of roughly $55.50. Overall Canada ranks fourth in the group, ahead of the U.S., **** and Japan." This is true even without controlling for our much lower population density, which increases the difficulty and cost of providing broadband services across our territory.

46. In his report Dr. Eisenach also assessed the performance of Canada’s broadband markets by comparison with other countries. Figure 5, reproduced below from Dr. Eisenach's report, shows that compared to other OECD countries, Canada (shown in red) falls below the price level predicted by its population density for both lower speed and usage services and higher speed and usage services.

Figure 5
Population Density vs. Fixed Broadband Prices

[image: image6.emf]CHLTURESPLUXISLNORIRLUSAAUSCANNZLSWENLDFRACZECHEITAPRTFINGRCJPNBELGBRPOLAUTDEUSVNISRDNKHUNESTSVKKORy = -0.047x + 44.778R² = 0.0974102030405060700100200300400500600

**** ($US PPP)Population Density (People/sq. km)

47. And continued technological evolution and the roll-out of new networks is making broadband markets even more competitive, a trend that will only accelerate in the coming years. **** in Canada and elsewhere, third parties are rolling out wired broadband networks to provide additional alternatives to consumers. Moreover, Xplornet already offers satellite broadband services in some of Canada's most remote communities and with ongoing improvements in satellite technology the capability of those services will increase as the price continues to decline.

48. Perhaps most importantly, our country has highly and increasingly competitive wireless markets that impose discipline on broadband pricing in wireline markets. At Bell, our LTE network provides maximum download speeds of up to 75 Mbps across its footprint, and in some areas up to 150 Mbps. As we launch LTE Advanced, it will provide peak download speeds of up to 220 Mbps. Our LTE network is already available to 91% of Canadians and will be available to 98% of Canadians following an expansion this year in small towns, rural communities, and remote locations in every region of the country including the ****.

Telus and Rogers also sell wireless services on LTE networks that extend to the vast majority of the population.

49. These networks, developed in response to intense competition in the Canadian wireless industry, mean Canada leads the world in wireless network quality. We are among the leaders in average 4G connection speed and percentage of 4G connections, as Figures 6 and 7 show.

Figure 6
Average 4G Download **** (kbps)
[image: image7.png]
New Zealand
Austra
Japan
a
Sweden
Canada
United States
Spain
United Kingdowm
Germany
Italy
****
Ch e
Poland
a
Russia
Mexico
Saudi Arabia
****
Braz
IndonesIa
**** Africa
Argentina
5"
o
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o
10
000
20,000
Figure 7
Percentage of 4G Connections
[image: image8.png]
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Japan
United States
Australia
Canada
Sweden
United Kingdowm
****
New Zealand
Spain
Germany
China
Saudi Arab
**** Africa
Italy
Russia
Mexico
Poland
****
Indonesia
Argentina

50. Canadians can increasingly participate in the digital life of the country using only a mobile device and wireless plan. But, the key point is not that they have chosen to do that, or that they should. Just the possibility that some consumers might adopt a wireless plan, in combination with public Wi-Fi from municipalities, libraries, schools, workplaces, and local businesses like coffee shops, bars, restaurants, and laundromats, to meet their broadband needs provides further assurance that wireline broadband service providers will continue to offer packages that appeal to those consumers.

4.5
Canada is a **** in Usage

51. The best measure of the success of Canada's telecommunications infrastructure is that Canadians are world leaders in the use of broadband. Because price, availability, and quality are not an obstacle to Canadians readily accessing and actively using broadband services, Canada is a global leader on metrics such as hours of usage, hours of video consumption, website visits, and total Internet traffic per user.

52. According to comScore's "2014 Digital Year in Review" report, Canadians continue to use the Internet as much as anyone in the world. As Dr. Eisenach describes:

It is also useful to look beyond aggregate measures of traffic to assess the ways in which consumers use online services. For example, comScore collects a variety of data on the level and types of Internet usage across countries. According to its most recent report, released in **** 2015, Canadian Internet users are among the "world's most engaged," ranking first in average monthly hours per visitor and average monthly web site visits per visitor, and third in average monthly pages per visitor… comScore data also show that Canadian users have rapidly expanded their use of online video, which increased by 36 percent during 2014, and that "Digital Video consumption in Canada is more common and engaged than in the U.S.," with Canadians ranking ahead of the U.S. in "both average time and overall penetration."53. This is shown in Figure 8, below.

Figure 8
Canadian Usage of Broadband
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HoursN imr FauesNisimr VisitsNisimr Hours of Video
(anaaa Russia 3115: (anaaa so (anaaa 1,475
us naiy 3527 us an us 1,179
naiy (anaaa 3235 UK
UK us 3,051 naiy
Russia UK 3,006 Russia
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54. With respect to total traffic per user, Canada also has a leading position – third in the world behind just Korea and the United States. This is shown below in Figure 9.

Figure 9
Consumer Internet and IP Traffic Per User
[image: image10.emf]67.356.641.740.135.724.721.819.818.316.716.216.215.014.014.013.513.213.111.411.46.56.43.1

01020304050607080South KoreaUnited StatesCanadaSwedenUnited KingdomJapanFranceNew ZealandChilePolandRussiaGermanyBrazilItalyAustraliaSpainMexicoArgentinaChinaSaudi ArabiaSouth AfricaIndonesiaIndiaGB/Month/User

Global Average = 17.2

Source: "Internet Users by Country (2014)," Internet Live Stats (available at http://www.internetlivestats.com/internet-users-by-country/) and "VNI Forecast Widget," CISCO (available at http://ciscovni.com/forecast-widget/advanced.html).

55. The fact that market forces in Canada have been sufficient to eliminate obstacles to broadband adoption is also illustrated by our leading broadband penetration levels. The household penetration of fixed broadband in Canada is ahead of countries such as the U.S., UK, ****, Germany, Norway, Sweden and Australia, as Figure 10 shows.

Figure 10
Fixed Broadband Household Penetration
[image: image11.emf]

56. Similarly, our broadband penetration by population (rather than household) continues to increase, significantly exceeds the OECD average, and is greater than in the U.S.

Figure 11
Fixed Broadband Population Penetration
[image: image12.emf]0510152025303540
(%)
CanadaUnited StatesOECD

Source: OECD Broadband Portal, "OECD historical (fixed) broadband penetration rates," Table 1.5.1 (accessible at http://www.oecd.org/sti/broadband/1.5-BBPenetrationHistorical-Data-2014-06.xls). Note: U.S. data for Q2 2014 is estimated.

4.6
Government Support for Broadband Deployment in Rural and Remote Areas

57. So far, market forces – the result of competition among facilities-based competitors – have been the catalyst for expanding the availability of modern broadband services throughout Canada. Nevertheless, due to our country's size and challenging geography, there are rural and remote areas in which broadband services are not available today because there is no business case to build the necessary infrastructure to serve them. Since making broadband services available even in these rural and remote areas is an important social policy objective, it is a necessary and appropriate role for government to provide programs and funding to fill in gaps in infrastructure deployment.

58. We submit that Government funding (i.e., general tax revenues and/or proceeds from spectrum auctions) should continue to be used to fund efficient, targeted subsidy programs. Private sector players should not always be expected to further subsidize the deployment of broadband.

59. Rather than relying on inefficient price subsidy mechanisms, over the years the federal and provincial governments have provided targeted funding to help expand broadband services. The use of consolidated revenue funds is less distortionary than industry-specific taxes and should always be preferred. As well, "bottom up" projects, designed and implemented with community involvement, are preferable to top-down programs. In this respect, governments can choose to prioritize projects based on their own criteria as elected officials. There have been and continue to be several local, provincial, federal and territorial government funding projects. For example, the Federal Government announced several initiatives to enable or encourage Canadians' ability to participate in the digital economy, including its $305M Connecting Canadians program. A table summarizing these programs is attached as Appendix 4.

60. In our view Canada can and should extend the deployment of this broadband infrastructure to rural and remote areas through government funding. Since 2006, the Government has raised approximately $12B from wireless spectrum auctions in the highly competitive wireless market. A portion of those proceeds could, in our view, be directed to subsidizing the roll-out of the necessary infrastructure.

61. To the extent the Commission deems it appropriate to establish an industry-funded subsidy regime, certain key parameters should apply: (i) the fund should only be used to extend broadband to the remotest of communities; (ii) the subsidy should only be available in circumstances where the Commission has determined that no government funding is or will become available to fund the deployment of broadband in the target community; and (iii) subsidy funding should come from a reallocation of funds from the existing voice subsidy; not from the imposition of a new incremental broadband tax on industry players that are already investing billions in the build out of world class broadband networks across the country.

62. We note, in this respect, that industry-funded subsidies can actually be harmful, well intended as they may be. For example, during the proceeding which last reviewed the obligation to serve (TNC 2010-43), **** Xplore Inc. said: "it was impossible for us to raise new capital to expand our network for a full year after the initial deferral account decision…" They can also create disincentives for future government subsidies.

63. It is with these concerns in mind that we have developed our proposal: a proposal which could be implemented by the Commission should it find as a fact that a limited industry subsidy is the only way in which modern broadband services will be extended to Canada's most remote communities, namely those found in Bands G and H1. In the case of Band G, these communities do not have year-round road access and are extremely costly to cover with broadband facilities. Band H1 contains some of the most difficult terrain in the country (as further explained in our response to Q7). As we note in our response to Q2, we believe that a significant portion of the households that will remain unserved following the Connecting Canadians program will reside in Bands G and H. By exempting other bands from Commission subsidies the new subsidy program will address the most difficult problem first and the various governments can continue to provide incentives and subsidies to close the gap for remaining areas. To that end, we note that the proceeds of spectrum auctions should help address the coverage issues in these areas.

1.0
Question 1

Canadians are using telecommunications services to fulfill many social, economic, and cultural needs in today's digital economy.

a)

Explain how telecommunications services are used to meet these needs. For example, uses may include e-commerce (i.e. the online purchase and trade of products or services), e-banking and/or telephone banking, e-health or telehealth services, telework, and distance education. Which of these uses of telecommunications services are the most important to ensure that Canadians meaningfully participate in the digital economy?

b)

Explain which telecommunications services are most important to support these needs and uses. What characteristics (e.g. capacity, mobility, high speed, and low latency) should these telecommunications services have?

c)

Identify and explain the barriers that limit or prevent Canadians from meaningfully participating in the digital economy (e.g. availability, quality, price, digital literacy, and concerns related to privacy and security). Identify which segments of the Canadian population are experiencing such barriers.

d)

Identify and explain any enablers that allow Canadians to meaningfully participate in the digital economy (e.g. connected devices and applications).

e)

As Canada's digital economy continues to grow and evolve during the next 5 to 10 years, which telecommunications services are Canadians expected to need to participate meaningfully? Specify how your responses to parts a) through d) above would change based on your answer.

Key Findings
Key Finding 1A:

Email and Web-browsing (and the plethora of activities and socio-economic contributions that can be achieved through web browsing and email) are the services most necessary to meaningfully participate in the digital economy.

Key Finding 1B:

Ensuring that all Canadian households have access to a broadband service is much more important than ensuring households have access to very high broadband speeds.

Key Finding 1C:

Other than where there is no access to broadband at all, the lack of skilled labour in remote areas is a greater barrier to ICT adoption than a lack of high speed bandwidth.

Key Finding 1D:

Broadband speeds of 5 Mbps are sufficient to support the vast majority of online applications and services required by Canadians to meaningfully participate in the digital economy.

Key Finding 1E:

Even where Canadians have a very broad choice of technology, speed and provider, a significant number of these Canadians continue to choose broadband tiers close to 5 Mbps.

Key Finding 1F:

Using the most up-to-date Industry Canada estimates, there are less than 200,000 households in Canada without access to broadband service of at least 5 Mbps download.

1.1
Canadians' Use of Broadband

64. Canadians use broadband for a wide range of activities touching upon all aspects of life. Statistics Canada lists the percentage of Internet users that engaged in certain types of activities on the Internet at least once in the past twelve months.

These survey results are set out below.
Table 1
Canadian Internet Use Survey

by Internet activity; Geography= Canada; Age group= Total, Internet users aged 16 years and over; Sex= **** sexes; Level of education= Total, level of education; Household income quartile= Total, household income quartiles Internet activity

Percentage of Surveyed Canadians that engaged in Activity 2012
1) EMAIL
E-mail
93.0
2) Web-Browsing
Visit or interact with government websites
62.7
Search for medical or health-related information
66.8
Formal education, training or school work
36.6
Travel information or making travel arrangements
66.4
Search for employment
35.6
Electronic banking (paying bills, viewing statements, transferring funds between accounts)
72.0
Research investments
26.5
**** or watch the news
70.6
Research community events
57.8
Window shop or browse for information on goods or services
76.6
**** goods or services (through auction sites)
23.3
Use social networking sites
67.0
Contribute content or participate in discussion groups (blogging, message boards, posting images)
24.0
3) Other Internet Applications
Use instant messenger
39.6
Play online games
34.9
Obtain or save music (free or paid downloads)
50.5
Obtain or save software (free or paid downloads)
38.2
Listen to the radio online
38.2
Download or watch television online
39.0
Download or watch movies or video clips online
54.2
Make telephone calls online
43.3
Top of Form

65. The first two categories, email and web-browsing, are clearly more important than the third category in terms of participation in the digital economy. Web browsing and email allow Canadians to bank, shop, file taxes, research health-related information, communicate with or receive communications from businesses, friends and family or even participate in social media. All of these activities and more can be done through email and web browsing.

66. The third "other" category of applications is arguably less important for meaningful participation in the digital economy. The watching of videos, listening to music or the playing of games online are highly desirable from a pure entertainment perspective but not as important as the ability to bank, do taxes, conduct research, or contribute content on the web.

67. Applications in the "other" category can also be bandwidth intensive: the greater the bandwidth, the greater the quality of the audio or video signal that will be attainable. However, to the extent such applications can be used to participate in the digital economy, we would argue that a customer that has the ability to watch standard definition (SD) video does not necessarily need access to HD video in order to participate in the digital economy, let alone super-HD (such as 4K).

68. We submit that although of interest from an entertainment perspective, high bandwidth applications and services are not necessary to participate in the digital economy. We note in this respect that linear video services have been available for decades but have never been classified as a basic service worthy of a Commission subsidy to build access to remote areas despite its cultural importance.

Similarly, one could argue that Canada has a rich video game industry, the world's third largest
and the largest producer per capita.

However, the very fact that there is such a rich and vibrant industry in Canada demonstrates that there is no problem to solve. One could also argue that video gaming is not necessary for participation in the digital economy, at least not as necessary as doing one's banking, taxes, research, shopping, or selling online through web browsing. As further discussed below, the facts support this conclusion.

1.2
Economic Impact of Broadband on Rural Communities

69. In a recent study by **** Ivus and **** Boland (Ivus & ****) examining the impact of broadband on employment and wages in Canada, Ivus & **** found that the deployment of broadband (which is defined as services with speeds above 1.5 Mbps) promoted growth in aggregate employment and average wages in rural regions across Canada (at least in service industries whereas no growth was observed in goods industries).

This study was based on a broad sampling of communities (4,344 communities representing 76 economic regions (ERs)) with observations spanning from 1997 to 2011.

70. In assessing broadband availability, Ivus & **** note the high level of substitution between access technologies:

While the three technologies [DSL, Cable and Fixed Wireless] vary in bandwidth capacities and latency limitations, they all provide the minimum connectivity requirements for the majority of broadband applications and services. As such, DSL, Cable, and Wireless exhibit a strong degree of substitution. In fact, when measuring broadband coverage to track the progress of the Broadband Canada Program, Industry Canada's approach was to focus on the availability of any broadband service, regardless of technology. Our analysis is consistent with this approach.

71. Interestingly, Ivus and Boland's results, which found that broadband in rural regions had a positive impact on wages and employment, differed from a recent 2012 study conducted by **** Forman and others (Forman et al.) which studied the impacts of "advanced Internet applications" on local wages. **** et al. define "advanced Internet applications" as applications other than email and web-browsing. In their study, **** et al. found that investment in advanced Internet applications led to growth in wages in countries with high income, population, education and agglomeration of IT-intensive firms but no perceptible relationship between advanced Internet investments and wage growth in other counties, despite many having made substantial investments.

72. Ivus and Boland's study conversely showed some economic growth even in remote and sparsely populated areas. Ivus and **** hypothesize that this is due to the fact that the Canadian study they conducted included email and web-browsing whereas the **** et al. study focused solely on "advanced Internet applications":

Our results are qualitatively different from **** et al. (2012), where Internet investment was found to promote wage and employment growth in advanced urban areas and have no impact elsewhere. One possible explanation for this difference is that the type of Internet technology studied is different: **** et al. (2012) focused on advanced Internet applications while we focus on high-speed broadband Internet access, which provides improved access to both basic and advanced Internet services. Generally, benefit from advanced Internet applications requires a highly skilled labour force, which is predominantly concentrated in urban areas.

[Emphasis added]
73. We draw three conclusions from these economic studies:

i. First, email and web-browsing (and the plethora of activities and socio-economic contributions that can be achieved through web browsing and email) are the services most necessary to meaningfully participate in the digital economy;

ii. Second, ensuring that all Canadian households have access to a broadband service is much more important than ensuring households have access to very high broadband speeds; andiii. Third, other than where there is no access to broadband at all, the lack of skilled labour in remote areas is a greater barrier to ICT adoption than lack of broadband speed.

1.3

The Vast Majority of Internet Applications, including Advanced Internet Applications, can be Supported by a 5 Mbps Connection74. The Commission's current target of 5 Mbps is more than enough to support not only email and web-browsing, but the vast majority of Internet applications currently available to Canadians, including "advanced Internet applications". This conclusion is supported by the Commission's own analysis as reported in the latest CMR. As part of its 2014 CMR, the Commission reported on the bandwidth requirements of various services based on data gathered by Commission staff using a test environment that replicated how a typical consumer would use online streaming services. The results clearly demonstrate that all but the most intense online activities, such as video streaming of greater quality than HD, can be achieved through a 5 Mbps connection:

Figure 12
Commission Assessment of Bandwidth Requirements for Popular Internet Applications
[image: image13.jpg]
****-time
Requiredpu-tnmnnu mmlltmcy
Streaming
Dial—up
1231(st
5 00 Kbps
Average available bandwithh
1.5 Mbps 5Mbps 15Mbps

75. Figure 12 above (which is a reproduction of Figure 5.3.8 of the 2014 CMR) shows that very low bandwidth is necessary for email, ranging from dial-up to 128 Kbps. Web-browsing and VoIP can be achieved with a good user experience with a bandwidth connection of 1.5 Mbps. And the vast majority of other applications can be performed with a connection 5 Mbps, including real-time gaming, videoconferencing and HD video streaming.

76. This is also supported by the recommended network requirements of various over-the-top service providers. For example, Microsoft for its popular gaming console, the Xbox, recommends as a minimum requirement for the best connection experience for online gaming a minimum download speed of 3 Mbps and an upload speed of 0.5 Mbps; for SD video streaming a download speed of 1 Mbps; and for HD video streaming a download speed of 3.5 Mbps (upload is not applicable for video streaming).

What this means is that even with a 3 Mbps connection, assuming good latency and stable jitter, a customer can "frag" opponents online to their heart's content.

77. We accordingly conclude that broadband speeds of 5 Mbps are sufficient to support the vast majority of online activities. Although certain applications in the "other" category may increase bandwidth requirements over the coming years as video quality increases, we do not anticipate any significant shifts which would require the setting of a higher minimum for the next 5 to 10 years.

78. We note in this respect that even where Canadians have a very broad choice of technology, speed and provider, a wide spectrum of Canadians continue to choose broadband tiers close to 5 Mbps. As we have indicated in The Companies(CRTC)7May15-3, approximately # of our customers in Ontario and Quebec that have higher speeds available to them choose to remain on plans at or close to 5 Mbps or less.

79. We further submit that there are no significant barriers to Internet use in Canada. If price, availability or quality were a significant issue, one would expect to see usage statistics that place Canada at or near the bottom of key usage metrics. However, as further detailed in our response to Q4, the opposite is true. Whether it be access to appropriate broadband networks, education in the use of ICT or the availability of Canada-specific apps or online services, Canadians have, for the most part, access to all the enablers they need to meaningfully participate in the digital economy as evidenced by the fact that Canadians lead the world in terms of broadband usage.

80. Nevertheless, although the vast majority of Canadians are very well served by providers with world class networks, there continue to be remote areas in Canada which are unserved by any broadband networks. As such, the real broadband challenge is the extension of robust broadband network infrastructure to remote unserved or underserved communities. It is this context that should be the focus of any regulatory framework while at the same time allowing market forces to operate in markets that are demonstrably competitive.

# Filed in confidence with the CRTC

81. The Commission has identified there are 1.2 million unserved and underserved Canadian households at sustained 5 Mbps download and 1Mbps upload speeds. We understand this figure was arrived at by using existing 2013 Internet coverage hexagon information along with other information submitted to the Commission as part of its 2014 CMR data collection, in order to qualify households at actual target speeds for Internet 5 Mbps down and 1 Mbps up to arrive at this 1.2 million figure.

82. Industry Canada used the same existing 2013 Internet coverage hexagon information and worked in consultation with ISPs through the summer of 2014 to reflect network operators' up to date footprint coverage information. Our understanding is that this updated hexagon information is not reflected in the Commission's 1.2 million households figure. It is also our understanding that Industry Canada applied a "pessimistic" or conservative view of underserved in the hexagon coverage map information by allowing for such factors as inadequate backhaul facilities or estimated poor fixed wireless performance as a consequence of foliage or terrain issues, thus likely slightly inflating unserved or underserved numbers. Industry Canada has also focused solely on the 5 Mbps download speed for determining broadband coverage gaps.

83. Based on this recent assessment, Industry Canada determined that 523K households remained unserved or underserved, compared to the Commission's estimate of 1.2 million households.

84. In terms of addressing the lack of access in remote areas, the Federal Government announced several initiatives through Digital Canada 150 to enable or encourage Canadians' ability to participate in the digital economy (the Connecting Canadians program). The program was launched with an objective of using $305M of government funding to deploy broadband to 280K of the 523K households. In order to distribute these funds, the government launched a RFP. This program auction has been so successful that the Government of Canada announced that it exceeded its target of 280k households by an additional 76K households, thereby increasing the program to 356K households without increasing the $305M budget. Accordingly, based on Industry Canada's recent estimates, approximately 167K households will remain to unserved or underserved after completion of the program. Of course, the remaining 167K households are likely the most costly to serve.

2.0
Question 2

The Commission's current target speeds for broadband Internet access service are a minimum of 5 Mbps download and 1 Mbps upload, based on uses that consumers should reasonably expect to make of the Internet. Are these target speeds sufficient to meet the minimum needs of Canadians today? If not, what should the new targets be and what time frame would be reasonable to achieve these new targets?

Key Findings
Key Finding 2A:

The FCC has established a 25/3 Mbps aspirational target for broadband. For universal service funding, the FCC only subsidizes broadband builds to exchanges that do not have 4 Mbps/1 Mbps. When it subsidizes such builds, however, it requires the build to extend 10 Mbps/1 Mbps broadband service.

Recommendations
Recommendation 2.1:

In the event the Commission deems it necessary to establish a fund to facilitate the deployment of broadband, 5/1 should be recognized as a suitable minimum broadband speed to enable participation in the digital economy.

Recommendation 2.2:

In the event the Commission determines that a fund is necessary, the Commission should only fund broadband in underserved or unserved communities in Bands G and H1 (i.e., communities without speeds of at least 5 Mbps download and 1 Mbps upload) leaving governments and market forces to cover the remaining areas.

Recommendation 2.3:

When subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload, with the exception of satellite communities where it should only fund for 5 Mbps download and 1 Mbps upload.

Recommendation 2.4:

The Commission could establish a higher aspirational target speed and report on Canada's progress in achieving that target, similar to the U.S. aspirational target of 25/3.

Recommendation 2.5:

The Commission should recommend to the Federal Government that they increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments.

2.1
Setting of a Minimum Broadband Target

85. As is apparent from our Key Findings in response to Q1, 5 Mbps broadband service is clearly sufficient to meet the minimum needs of Canadians today and in the near future. Email and web-browsing are the most important services to Canadians' participation in the digital economy. Moreover, as demonstrated by the Commission's technology resource centre's results published in the 2014 CMR, the vast majority of Internet applications, even those well beyond the minimum necessary to participate in the digital economy, can be achieved through a 5 Mbps connection. For these reasons, we believe that a target of 5 Mbps download and 1 Mbps upload could be established for the purposes of funding the deployment of broadband in Bands G and H1, if deemed necessary.

2.2
Setting the Minimum Target Build for Subsidies

86. We also believe there is a difference between the minimum target for considering whether a community is served, underserved or unserved and the speed subsidized in areas that are considered to be unserved. Given that access to 5 Mbps download (and 1 Mbps Upload) is enough to participate in the digital economy, we submit that there is no reason to set a higher level for considering whether a community is "served". However, when granting subsidies, it may be sensible to fund builds that exceed 5 Mbps, but only in areas where broadband services of 5 Mbps and up are not already available.

87. This is effectively the model currently established in the U.S. Attached as Appendix 3 is a report by **** Gillan of Gillan Associates regarding the transitioning of voice subsidies as part of Universal Service to Broadband support in the U.S. In this report, Mr. Gillan explains that the FCC's Universal Service regime for broadband provides funding for the build out of broadband to exchanges where no other provider is offering speeds of 4 Mbps download and 1 Mbps upload and such funding is provided to accommodate speeds of 10 Mbps down/1 Mbps up. As further discussed below, the FCC has defined broadband as consisting 25 Mbps download and 3 Mbps upload. But the FCC does not use that definition for Universal Service Fund (USF) purposes. Rather, the 25/3 measure is an aspirational target.

As a separate matter, the FCC is also required to annually report to Congress "regarding the availability of 'advanced telecommunications capability' to all Americans," in what can be considered a "report card" on broadband deployment. In this context, the FCC recently changed its definition of "broadband" to 25 Mbps/3 Mbps, although neither the speeds used to determine whether service is already available (4 Mbps/1 Mbps), nor obligations of the recipient (10 Mbps/1 Mbps), under the Connect America Fund were affected.

88. We see logic in the FCC approach and believe that Canada could take a similar stance. In short, if the Commission creates a broadband fund, it should only fund broadband in communities in Bands G and H1 that do not have access to broadband (i.e., defined for funding purposes as speeds of 5 Mbps download and 1 Mbps upload). However, when subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload (except for satellite which should be set at 5/1 for the reasons set out in our answer to Q7).

89. While adopting the American approach, we note that implementing this policy will actually exceed the American approach in two areas. First, under our proposal, the minimum target for funding purposes would be set at 5 Mbps download instead of the U.S.'s 4 Mbps. Second, we note that the U.S. treats "extremely high costs serving areas (HCSAs)" differently by exempting these areas from eligibility for the fund. These excluded exchanges will be addressed by a $100M Remote Area Fund (RAF). However, as noted by Mr. Gillan:

To prepare the [Connect America Fund] CAF Offers, the FCC created the Connect America Cost Model ("CAM"). The CAM identifies a "statewide" listing of specific unserved census blocks in exchange for a six-year offer of support. The CAM is a complex model that estimates the cost of a green-field build of a fiber-to-the-premises (FTTP) network. The specific census blocks included within a statewide offer do not include areas that the FCC considers "extremely high-cost." These "extremely high-cost" census blocks are a by-product of the annual CAF budget of $1.8 billion for price cap areas. To stay within this budget, the CAM sequentially excludes from CAF Offers the highest-cost census blocks until the total of all the CAF Offers fits within the budget. As a result, the $1.8 billion annual budget is not sufficient to cover all customer locations even in the areas served by the price-cap ILECs, with the final CAM analysis estimating that nearly 625,000 locations are within "extremely high-cost" areas that will remain unserved.

[Emphasis added]

90. In short, at this point in time, the FCC's broadband subsidy regime does not have an active plan to bring broadband to all Americans. We recommend if the Commission decides to create a fund, it should focus on such extremely HCSAs first as the means of balancing government and market-based funding with any new subsidy.

2.3
Setting Canada's Broadband Aspirational Target

91. There is also a difference between: (i) a minimum target, which should be established to close gaps that are necessary to participate in the digital economy in circumstances where government funding is not available and market forces have not responded to demand, and (ii) an aspirational target which we as a nation should generally strive to achieve. The latter can impact our actions by ensuring that we create policies that support broadband expansion as further discussed below. But the aspirational targets should not be confused with the minimum target for funding purposes.

92. In terms of establishing these targets, it is useful to examine the policies adopted by other nations. Attached as Appendix 2 is a report by **** + **** which provides an international comparison of universal service regimes across 17 different OECD countries, focusing in particular on whether these regimes have expanded the scope of universal voice service to broadband services.

Copied below is Table 2 of this report which provides actual versus aspirational broadband targets:
Table 2
Actual versus Aspirational Broadband Speeds
Country
Mandated minimum speeds under broadband USO
Policy minimum speeds (non-USO: e.g. through tendering or Government-led deployment)
Aspirational broadband targets (non-USO)
Australia
N/A
4 Mbps download / 1 Mbps upload in rural areas
NBN – 25 Mbps download, and 50 Mbps to 90% of fixed line premises
12 Mbps in rural areas
Belgium
1 Mbps
N/A
1 Gbps by 2020
Finland
1 Mbps
N/A

Government expects more than 99% of the population to be within 2km of an optical fibre or cable network permitting connections of 100 Mbps by the end of 2015 ****

N/A
N/A
Government intends to use mixed technologies for speeds of >30 Mbps
Germany
N/A
1 Mbps

The government now concentrates its efforts on fast broadband, to cover 100% of households with 50 Mbps by 2020 Japan

N/A
N/A

In 2010, the government implemented a policy to deliver ultra-high speed broadband (30 Mbps or more) to 100% of households by 2015 (the ‘Hikari-no-michi’ policy). The policy now seeks to deliver speeds of 100 Mbps.

New Zealand
N/A
1 Mbps
UltraFast Broadband: 100Mbps downlink / 50 Mbps uplink speed by 2019
Rural Broadband Initiative: 5Mbps downlink /500 Kbps uplink by 2015
Spain
1 Mbps
N/A
100 Mbps by 2020
Switzerland
2 Mbps / 200 Kbps
N/A
N/A
United Kingdom
N/A
2 Mbps

The government’s definition of “superfast broadband” is >24 Mbps. The policy’s aim is to have superfast broadband coverage in 95% of UK homes and businesses by 2017 United States of America

N/A

4 Mbps download/1 Mbps upload in rural areas, but in areas where 4/1 Mbps is not available, finances 10/1 Mbps FCC benchmark for 2015 is 25 Mbps/3 Mbps

93. Of the 17 OECD countries reviewed in this report, no country has a minimum broadband target higher than 4 Mbps (although, as mentioned above, the U.S. will fund areas that do not have 4 Mbps with speeds of 10 Mbps or above).

94. Aspirational targets are conversely and appropriately set much higher than the minimum targets and vary greatly from country to country with the highest aspirational targets being set at 100 Mbps in Japan, Finland and New Zealand. Others countries have tended to establish aspirational targets between 25 (such as the U.S. and the UK) and 50 Mbps (such as Germany and Australia).

95. Some of these targets have important caveats associated with them. Finland, for example, considers households "served" if they find themselves within 2 km of an optical and cable network permitting connections of 100 Mbps, but they make the homeowners responsible for the funding of their connection (i.e., the last mile) and only a small percentage of residents have done so. We also note in this respect that in addition to its broad aspirational target of 25 Mbps, the U.S. has also established as part of its National Broadband Plan a milestone goal such that at least 100 million homes should have affordable access to 100 Mbps / 50 Mbps by 2020. Similarly, Australia has set different aspirational targets based on geography and technology. It has established targets of 12 Mbps in rural areas, 25 Mbps in other areas regardless of technology and 50 Mbps to 90% of fixed line premises.

96. Where aspirational targets are set, they are aggressive. In other words, aspirational targets should also be inspirational. But those targets are also established based on achievable and realistic goals and such goals may be tempered by geographic and/or technological thresholds and limitations.

97. With this important context, we believe, similar to the U.S. model, that the current target of 5 Mbps download is appropriate as a minimum target for determining whether or not a community is "served" or "unserved" for funding purposes. We also believe, with the exception of satellite-served communities, that funding could be used for the deployment of 10 Mbps in areas that are currently unserved by speeds of at least 5 Mbps.

98. With regards to the aspirational target, we believe it is important both to look to the future and at the same time be realistic. For example, an aspirational target of 100 Mbps across all communities may not be realistic for the Canadian context. But establishing separate targets for terrestrial communities vs. satellite-served communities and perhaps for non-HCSAs vs. HCSAs (or extremely HCSAs) may be appropriate. In our view, an aspirational target of 25 Mbps, similar to the U.S., would be appropriate with some necessary exemptions for satellite-served communities.

99. Beyond setting the aspirational target, the Commission should also ensure that it adopts policies that actually assist industry to achieve those targets. For example, the Commission should ensure it implements policies that encourage facilities-based competition by, among other things, ensuring TSPs can install facilities in new Multi Dwelling Units (MDUs) and other buildings (as the Commission has recently done in decisions such as Decision 2014-42), and by (as explained by Dr. Eisenach) ensuring it does not impose wholesale obligations that undermine the incentives to invest in both the wireline and wireless sectors. At the municipal level, governments should be encouraged to work cooperatively with all TSPs to enable access to support structures and other civil infrastructure needed for network builds (as the City of Toronto has recently done in respect of our Gigabit Fibe project).

Of course there is a role for the Federal Government as well. It should increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments. In fact, the latter can have such a significant impact on investment that we encourage the Commission, as part of its decision in this proceeding, to recommend that the Government do just that, similar to how the Commission recommended that the Government remove the wireless roaming cap at paragraph 191 of Telecom Decision CRTC 2015-177.

3.0
Question 3

Which services should be considered by the Commission as basic telecommunications services necessary for Canadians to be able to meaningfully participate in the digital economy? Explain why.

a)

Explain whether the underlying technology (e.g. cable, digital subscriber line, fibre, fixed wireless, mobile wireless, and satellite technology) should be a factor in defining whether a telecommunications service should be considered a basic service.

b)

Identify, with supporting rationale, the terms, conditions, and service characteristics under which basic telecommunications services should be provided. Should any obligations be placed on the provider(s) of these services? If so, what obligations and on which service provider(s)?

c)

What should be the prices for basic telecommunications services and how should these prices be determined? Provide rationale to support your answer.

Key Findings
Key Finding 3A:

We have reached a tipping point where the majority of Canadians have found alternatives or abandoned ILECs' traditional wireline voice services. Less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC.

Key Finding 3B:

While The Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today, it does have the power under s.46.5 of the Act to create a fund to finance the build of broadband and to impose a contractual obligation to build on any TSP that volunteers to take advantage of such funding.

Recommendations
Recommendation 3.1:

Any funding for broadband should be technologically neutral. Any service capable of delivering the requisite characteristics of the minimum target should be permissible whether it is provided over DSL, cable, FTTN, FTTH, fixed wireless or satellite services.

Recommendation 3.2:

As an exception to the principle of technological neutrality, mobile wireless services should not be considered at this time for the purposes of determining whether a community is "served" or "unserved".

Recommendation 3.3:

If the Commission determines that a subsidy fund is needed, it should only mandate minimum target speeds and, if it determines it is necessary, require bidders to commit to providing service at rates comparable to competitive offerings offered in non-subsidy areas. As Canada benefits from high levels of competition in broadband, there is no need mandate specific terms or rates.

Recommendation 3.4:

In the event the Commission determines funding is required in Bands G and H1, it should define broadband as a "basic telecommunications service" only in Bands G and H1 in order to allow it to create a fund for building broadband in these areas under s.46.5 of the Act.

Recommendation 3.5:

Distribution of subsidies for broadband deployment should be done through an RFP competitive auction process rather than through a broadband obligation to serve.

3.1
Broadband
3.1.1
Establishing a Technologically Neutral Target

100. The underlying technology used to deploy broadband should not be a determinative factor of whether or not the service meets the target used for funding purposes, to the extent there is any. On its face, any service capable of delivering the requisite characteristics of (namely, 5 Mbps download speeds and 1 Mbps upload speeds) should be permissible whether it is provided over DSL, cable, FTTN, FTTH, fixed wireless or satellite services. Ultimately, the retail provider will choose the most appropriate technology, or combination of technologies based on local conditions such as geography, and cost.

101. An exception to this principle is that we do not consider that mobile wireless data services should be taken into consideration when considering whether a community is "served" or "unserved" by broadband. Such a determination should be limited to fixed services. Excluding mobile wireless also has the benefit of being consistent with the Government's approach for Connecting Canadians. Our understanding is that the Government excluded mobile wireless when assessing whether a community is "served" or "unserved".

3.1.2
Using a Competitive RFP Process

102. The Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today. The ILEC obligation to serve for telephone services that was originally found at common law, and later superseded by the Act, is rooted in the historical public utility notion of "practical monopoly", a notion that is no longer applicable in today's competitive environment. A detailed analysis of the Commission's legal authority is set out at Appendix 5.

103. However, the Commission does have the power to create a fund to finance the build of broadband and to impose a contractual obligation to build on any TSP that volunteers to take advantage of such funding in the event it determines that such a fund is needed. Under section 46.5 of the Act, the Commission must first declare broadband to be a 'basic telecommunications service' if it wishes to create a broadband subsidy. If it intends to create such a fund, we submit it should only declare broadband to be a basic telecommunications service in Bands G and H1. This is analogous to the current BSO for voice which only applies with respect to ILEC's local voice services in regulated areas, as further explained below. The attributes that define the BSO for voice do not apply to ILECs in forborne areas, nor do they apply to CLECs in any region.

104. Even if the Commission possessed the authority to impose an obligation to serve, we believe that proceeding through a broadband obligation to serve is not the right public policy decision for Canadians. In our answer to Q13 below, we discuss the drawbacks of using cost models (which are required when setting an obligation to serve) as opposed to an auction model whereby all TSPs who wish to build can bid for the subsidy. We also examine some pointed lessons from recent U.S. experience in this respect.

105. Without repeating all those findings here, we note that establishing a broadband obligation to serve would deny communities the benefits afforded from competitive auctions and ultimately cost Canadians (and the industry funding the contribution regime) more. This is consistent with Industry Canada's experience with its Connecting Canadians program whereby the RFP process resulted in Industry Canada's program exceeding its anticipated household target by over 76k households without any increase in funding.

106. We also note that an international comparison demonstrates that very few countries have implemented a broadband obligation to serve. The following table reproduced from the **** + **** report attached as Appendix 2, demonstrates that of the 17 OECD countries that have been reviewed, only 4 have implemented broadband as part of a Universal Service Obligation (USO) and those that have mandated relatively low speeds:

Table 3
Scope of USOs and USFs
Country
Universal Service Obligation (USO)
Universal Service Fund (USF)
Voice
B/band
Industry funding mechanism
Voice
B/band
Australia
(
(
(
(
(
Belgium
(
( (1 Mbps)
(
(
(
Denmark
(
(
(
(
(
Finland
(
( (1 Mbps)
(
(
(
****
(
(
(
(
(
Germany
(
(
(
(
(
Italy
(
(
(
(
(
Japan
(
(
(
(
(
The Netherlands
(
(
(
(
(
New Zealand
(
(
(
(
( (5 Mbps)
**** Africa
(
(
(
(
( (no target speed)
**** Korea
(
(
(
(
(
Spain
(
((1 Mbps)
(
(
(
Sweden
(
(
(
(
(
Switzerland
(
( (2 Mbps/
200 kbps)
(
(
(
United Kingdom
(
(
(
(
(
USA (Federal Connect America Fund)
(
(
(
(
( (10 Mbps/1 Mbps is funded BUT only in areas that do not have an existing 4 Mbps/1 Mbps)

107. Of these countries, only Belgium, Finland and Spain have established broadband obligations to serve of 1 Mbps whereas Switzerland implemented a broadband obligation to serve of 2 Mbps. These speeds are likely achievable through existing telephone infrastructure of those countries' incumbent providers. No country has adopted an obligation to build next generation infrastructure and, in any event, experience clearly demonstrates that requiring competitors to compete for subsidies through an RFP process results in better networks for less cost. We accordingly submit that the distribution of subsidies for broadband deployment should be done through an RFP process rather than through a broadband obligation to serve.

3.1.3
No Requirement for Commission to set Specific Pricing

108. Broadband services benefit from a wide breadth of competition leading to consumer choice and lower prices and, as further described in response to Q4, vibrant competition has led to world class networks and plans. To the extent the Commission deems it necessary to establish a fund in order to assist in the deployment of broadband in Bands G and H1, there is no need for the Commission to also address terms or conditions associated with the service, other than setting the minimum bandwidth requirements. Imposing terms and rates would be contrary to the Policy Direction and lead to a "vanilla broadband" product, standardized amongst all ISPs, rather than benefit from the robust competition that already exists. If the Commission is of the view that certain terms or rates may not be just and reasonable, should the Commission desire some certainty with respect to rates in areas to be served pursuant to subsidies, the Commission could require bidders to commit to offer services at rates comparable to competitive offerings offered in non-subsidy areas. Such a solution would provide competitors the flexibility to differentiate themselves and also provide some certainty to the Commission that rates are just and reasonable.

3.2
Voice
3.2.1
The Current BSO for Voice and the Obligation to Serve for Voice

109. Historically, the leading telecommunications service has been wireline telephony. Throughout the 20th century, it has been central to the telecommunications needs of Canadians and the primary focus of the Commission's (and predecessor entities') regulatory framework. For most of that span, the ILEC was understood to be the primary, if not the only, provider of wireline telephony. The Commission accordingly required ILECs to fulfill a telephony-centered BSO consisting of:

· Individual line local service with touch-tone dialing, provided by a digital switch with capability to connect via low speed data transmission to the Internet at local rates;

· Enhanced calling features, including access to emergency services, Voice Message Relay service, and privacy protection features;

· Access to operator and directory assistance services;
· Access to the long distance network; and
· A copy of a current local telephone directory.

110. We believe that wireline local voice service should continue to be treated as a basic service, though alternative technologies (such as fixed wireless, or mobile wireless in forborne exchanges) should continue to be allowed to satisfy the applicable voice obligation. With Canadians rapidly decreasing their reliance on traditional wireline telephony, moving instead to IP-based and wireless alternatives and recognizing that the ILEC's historical incumbency has all but disappeared, it makes sense to modernize the BSO by removing some of its antiquated components.

111. The latest CMR shows that since 2009, wireline retail voice market sector revenues have declined by 4.7% annually. The Commission attributes this revenue decline to changes in the way Canadians communicate including:

· the migration of households from wireline services to mobile wireless services; and

· the use of Internet-based services (which generally have a greater negative impact on long distance services), such as:

· social networking (e.g., Facebook, Twitter, and Pinterest);
· emails and texting;
· computer-to-computer communications (e.g., Skype); and,
· access-independent VoIP services.

112. Canadians are consistently reducing their dependency on wireline residential and business voice services. For instance, the number of managed-network wireline voice lines decreased from 18.6 million lines in 2009 to 15.9 million lines in 2013, a 3.8% drop annually since 2009. In addition, according to the latest Statistics Canada's Survey of Household Spending, the percentage of households subscribing to wireline telephone service has declined from 86.5% of households in 2011 to 79.6% in 2013.

113. Even in the ****, customers are moving away from traditional phone services. Between 2009 and 2014, the number of network access service (NAS) for Northwestel has shrunk by over #.

114. Canadians have also been switching from ILEC wireline voice to other wireline voice service providers. As of December 2013, over 30% of households were subscribing to local telephone service from a cable-based carrier.

In addition, as the Commission noted in TNC 2015-134, over 20% of Canadian households rely on mobile wireless services.

This means that less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC. We have clearly reached a tipping point where the majority of Canadians have found alternatives or abandoned ILECs' traditional wireline voice services.

115. All these facts demonstrate that the ILECs' primary exchange service (PES) (i.e., traditional wireline home phone) is not as necessary or "basic" a telecommunication service as it once was. While we consider that wireline voice services should still be considered a basic telecommunications service, we foresee a time when voice will become just one of a myriad of applications accessed over broadband – eventually making a voice-centric BSO obsolete.

3.2.2
Modifications to the BSO

116. Local voice obligations can be placed in three broad categories, as illustrated in Table 3.2 below, though there is overlap between them.

# Filed in confidence with the CRTC.
Table 4
Local Voice Obligations
Required of all providers
Required of ILECs in forborne exchanges
Required of ILECs in
regulated exchanges
9-1-1
9-1-1
9-1-1
Message Relay Service
Message Relay Service
Message Relay Service
Privacy Protections
Privacy Protections
Privacy Protections
Equal Access*
Equal Access
Equal Access
Unlimited Local Calling
Unlimited Local Calling
Stand-Alone **** Cap
Tariffed Rates
Access to Low-Speed Internet at Local Rates
Operator Assistance
Copy of Directory
* Equal Access is not required of Type II (wireless) CLECs or Type IV (small) CLECs.

117. These various obligations were initially introduced at a time where local voice services were analog and wireline only. Over time, some of these obligations were relaxed or re-formulated to take into account technological developments. For instance, mobile wireless technology is now permitted for ILECs to provide stand-alone PES in forborne exchanges. Similarly, wireless CLECs and small Type 4 CLECs no longer need to support Equal Access. Along the same vein, while all voice providers must enable 9-1-1, the exact form of the 9-1-1 requirement varies between fixed wireline, nomadic wireline and mobile wireless providers.

118. As ILECs, like the rest of the industry, increasingly provide IP-based services and abandon analog wireline infrastructure, we submit that voice obligations must be adapted to reflect tomorrow's, if not today's, IP world.

119. Broadly speaking, the Commission must consider whether it is necessary for IP-based solutions to recreate all traditional analog wireline functionality without any variation. In many cases, importing certain traditional (TDM) concepts into IP is proving inefficient and expensive.

As a result, the Commission has accepted that IP versions of TDM services may differ slightly from their predecessors but still provide customers with adequate functionalities. A good example is voice over FTTH. Comparing FTTH and TDM PES yields a few, minor differences, which have not prevented customers from taking up the newer FTTH product.

Other traditional requirements, such as dial-up, have become obsolete and of little use to Canadians. The Commission's forward-looking approach to voice obligations should thus both reflect the particular characteristics of IP and the evolving expectations of Canadians about their local voice service.

120. Accordingly, we are proposing the elimination of Equal Access and dial-up from the existing BSO, as further discussed in our response to Q8.

3.2.3
Pricing for local voice

121. The Policy Direction requires that the Commission rely on market forces to the maximum extent feasible. Already, the majority of residential exchanges have been forborne pursuant, in part, to subsection 34(2) of the Act, in recognition of the fact that competition from facilities-based providers and wireless substitution are sufficient to protect the interest of users. When less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC, it is clear that the price of local voice services can and should be governed by competitive market forces.

122. In answer to Q10 below, we set out our proposal for some limited rate increases for voice services in some regulated areas.

5.0
Question 5

What should be the Commission's role in ensuring the availability of basic telecommunications services to all Canadians? What action, if any, should the Commission take where Canadians do not have access to telecommunications services that are considered to be basic services?

5.1
Broadband

123. As indicated in greater detail in other sections, in the event the Commission deems it necessary to establish a fund to support the deployment of broadband, we submit the Commission could:

· Establish a fund and broadband contribution regime to assist in ensuring access to basic broadband services in Bands G and H1 as further described in our response to Q10.

· Establish a minimum target for funding purposes in Bands G and H1 of 5 Mbps download.

· Establish a minimum target, for the purposes of subsidy, of 10 Mbps (such that funds are made available for the deployment of 10 Mbps in communities that are not currently served by at least 5 Mbps) and 5 Mbps for satellite communities.

· Establish a competitive RFP process for the distribution of broadband subsidy in Bands G and H1.

· Establish a higher aspirational broadband target, such as 25 Mbps, and periodically report on the nation's progress in achieving this goal.

5.2
Voice

124. Voice services are already ubiquitous in Canada with many competitive alternatives. In fact, as the Commission indicated and as further addressed in our response to Q3 above, demand for wireline voice services is on the decline. Accordingly, no further actions need be taken other than the amendments we have proposed in our response to Q8 and Q3.

6.0
Question 6

In Telecom Regulatory Policy 2011-291, the Commission stated that it would closely monitor developments in the industry regarding the achievement of its broadband Internet target speeds to determine whether regulatory intervention may be needed. What action, if any, should the Commission take in cases where its target speeds will not be achieved by the end of 2015?

125. As the current target was not an obligation on any specific carrier, no intervention is required with regard to any specific carrier. However, in the event the Commission deems it necessary to establish a fund to assist in the deployment of broadband in Bands G and H1, we believe the Commission should set a minimum target speed of 5 Mbps for funding purposes in Bands G and H1 as further described in response to Q3, Q5, Q10 and Q13.

7.0
Question 7

In Telecom Regulatory Policy 2013-711, the Commission stated its intention to establish a mechanism, as required, in Northwestel's operating territory to support the provision of modern telecommunications services. Such a mechanism would fund capital infrastructure investment in transport facilities (e.g. fibre, microwave, and satellite), as well as the cost of maintaining and enhancing these facilities. The Commission considered that this mechanism should complement, and not replace, other investments from the private sector and governments, including public-private partnerships.

a)

Explain, with supporting rationale, whether there is a need for the Commission to establish such a mechanism in Northwestel's operating territory. As well, explain whether there is a need for such a mechanism in other regions of Canada.

b)

What impact would the establishment of such a mechanism have on private sector investment and government programs to fund the provision of modern telecommunications services?

Key Findings
Key Finding 7A:

Northwestel has filed with the Commission two discrete proposals that would each enable all 58 terrestrially-served communities in Northwestel's serving area to receive broadband speeds exceeding 15/1 (which, if granted, would make it ineligible for funding in these communities under our proposal in the event the Commission deems a fund to be necessary).

Recommendations
Recommendation 7.1:

Special consideration for satellite communities can be accommodated in light of ongoing transponder costs. These considerations should apply to both satellite communities in and outside Northwestel's territory.

Recommendation 7.2:

The Commission should not implement an auction for satellite communities until the outcome of the Telesat C-band pricing proceeding (TNC 2015-133) is known.

126. This section also addresses a recommendation found in the Answer to Q2:
Recommendation 2.3:

When subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload, with the exception of satellite communities where it should only fund for 5 Mbps download and 1 Mbps upload.

7.1
Northwestel Territories and other Satellite Communities

127. We believe that there is a demonstrated need for a mechanism to support investment in transport facilities in Northwestel's operating territory, as the costs for satellite capacity are a major barrier in being able to provide broadband services that meet the Commission's target speeds. As was noted by the Commission in the proceeding leading to TRP 2013-711, the cost of satellite transponder capacity has been the limiting factor associated with the provision of affordable Internet services in communities that rely on satellite backhaul transport:

122. The Commission notes that both Northwestel and SSi stated that it is technically feasible to offer broadband Internet service at the Commission's target speeds in satellite-served communities, but that the cost of satellite transport is the biggest impediment to affordable broadband Internet services. The evidence in this proceeding demonstrates that rates in satellite-served communities for residential broadband Internet access are generally much higher than rates in terrestrially served communities. Further, most parties in this proceeding identified transport infrastructure as an important issue in the **** to ensure access to affordable broadband Internet service at the Commission's target speeds and to other telecommunications services.

123. The Commission considers that transport infrastructure in the ****, particularly in satellite-served communities, needs to be addressed. The Commission also considers that, without its intervention, the digital divide within Northwestel's territory (i.e. terrestrially versus satellite-served communities) will likely not be resolved.

128. To address these matters, the Commission stated its intention to "establish a mechanism, as required, to support the provision of modern telecommunications services in Northwestel's operating territory that are responsive to the economic and social needs of Canadians in the ****. Such a mechanism would fund capital infrastructure investment in transport facilities (e.g., fibre, microwave, and satellite), as well as the cost of maintaining and enhancing these facilities to ensure that they support evolving telecommunications services, such as broadband Internet".

129. Northwestel has proposed two discrete mechanisms to the Commission that would enable all 58 terrestrially-served communities in Northwestel's serving area to receive broadband speeds of 15/1. As such, if one of these mechanisms is approved, Northwestel will be able to provide broadband service to all 58 of its terrestrially-served communities at speeds far exceeding the Commission's targets, without the need for any subsidy. Of course, if these proposals are rejected, some of these 58 terrestrially-served communities may remain underserved and require government or other assistance for future developments.

130. With respect to the 38 communities that are served by satellite, the Commission has the ability to create a mechanism that would assist in providing transport facilities for these communities. To this end, we have provided a detailed and comprehensive proposal for how existing contribution funds may be redirected to support improved broadband services in unserved and underserved areas across the country in response to Q13 with special treatment for satellite communities if the Commission determines it should create such a fund. We believe that this proposal addresses northern considerations, including those related to the high costs of satellite transport. To the extent the Commission deems a fund to be necessary, we believe that the regime outlined in response to Q10 and Q13 for the broadband fund can work equally well for satellite communities in Northwestel territories (be they served by Northwestel or competitors such as SSI Micro) or outside Northwestel territories.

131. For satellite communities, if creating a fund, we submit that the Commission should only fund broadband speeds of 5 Mbps download and 1 Mbps upload. In terrestrial communities, the purpose of building for 10 Mbps is to build for future demand since it is cost efficient to build that extra capacity at the same time as constructing the facilities. Since 5/1 is sufficient for Canadians to participate in the digital economy today and for the near future, and since in satellite communities the ISP would be leasing capacity for a short period (e.g., three years), the logic for building for 10 Mbps does not apply.

132. We believe that funding to support satellite communities should not be awarded until the outcome of the TNC 2015-133 is known. As part of the Satellite Inquiry, the Inquiry **** found Telesat to be the dominant provider of C-band fixed satellite services, which are currently relied upon by service providers to deliver telecommunications services to many satellite communities in Canada.

The TNC 2015-133 proceeding is currently being held to assess the continued appropriateness of the price ceiling that currently applies to Telesat's C-band services and to determine whether it would be appropriate to implement other regulatory measures with respect to Telesat's C-band services. In light of the potential changes that the outcome of the TNC 2015-133 proceeding may have on the rates for the C-band services commonly relied upon by service providers to deliver telecommunications services in satellite communities, we do not believe that it would be appropriate to hold auctions for satellite communities until the outcome of that proceeding has been determined. Without being able to properly assess the costs to provide service, including the costs associated with satellite capacity, service providers would be prevented from formulating precise and competitive bids. Providers would be forced to make assumptions based on the current rates for C-band capacity, potentially resulting in the less efficient use of subsidy resources.

8.0
Question 8
What changes, if any, should be made to the obligation to serve and the BSO?
Recommendations
Recommendation 8.1:

The BSO should be amended to eliminate the requirement to provide access to low-speed Internet (i.e., dial-up).

Recommendation 8.2:

Subject to transition outlined in Recommendation 8.3, the requirement for all LECs (including ILECs in regulated and forborne areas) to provide equal access should be eliminated.

Recommendation 8.3:

To allow for an orderly transition, all equal access obligations (both PIC requirements and dial-around obligations (i.e., 1010XXX)) for residential end-users should be eliminated by 1 January 2018. For business end-users, dial-around obligations would cease on the same date as residential end-users, but PIC obligations would continue until 1 January 2022.

8.1
Proposed Changes to the BSO

133. In this response, we propose a few changes in order to modernize the BSO and PES requirements and make them more reflective of today's IP-based environment. However, we do not propose any change to the obligations regarding accessibility (telephones with teletypewriter (TTY) and message relay service (MRS)), privacy protections, enhanced features, operator and directory services. Further we support the provision of video relay service (VRS) through the voice contribution fund.

134. Our proposed changes relate to obligations that have grown obsolete and lost their importance to Canadians: these are access to dial-up (from the date of the decision) and access to the long-distance provider of choice (Equal Access) by 2018 (2022 in the case of business voice).

135. To help illustrate our proposal, we repeat Table [3.2], which we used in our response to Q3, and which presents existing voice obligations. The obligations we propose be removed or relaxed are highlighted in strikethrough red italics in the table below: the elimination of Equal Access and dial-up.

Table 8.1
Local Voice Obligations
Required of all providers
Required of ILECs in forborne exchanges
Required of ILECs in regulated exchanges
9-1-1
9-1-1
9-1-1
Message Relay Service
Message Relay Service
Message Relay Service
Privacy Protections
Privacy Protections
Privacy Protections
Equal Access*
Equal Access
Equal Access
Unlimited Local Calling
Unlimited Local Calling
Stand-Alone **** Cap
Tariffed Rates
Access to Low-Speed Internet at Local Rates
Operator Assistance
Copy of Directory
* Equal Access is not required of Type II (wireless) CLECs or Type IV (small) CLECs.
8.2
Access to Low-Speed Internet At Local Rates (i.e., Dial-Up)

136. A current component of the BSO is that ILECs, as part of their PES service, must enable access to low-speed Internet at local rates. This is not the provision of a narrowband service, merely the enablement over the PES line of dial-up Internet access.

137. Dial-up is obsolete. According to the 2014 CMR, there were only 123K dial-up subscribers in 2013 (which represent only 1% of all Internet subscribers), a number that is precipitously falling every year.

With typical download speeds of up to only 64 Kbps,

narrowband falls well short of the Commission's broadband targets, and dial-up only access is considered unserved under Industry Canada's Connecting Canadians strategy. The expected benefits of maintaining dial-up access are thus minimal.

138. Dial-up access is also redundant in an IP environment. While we have enabled it over FTTH in order to meet our regulatory obligations, we are unaware of any demand for dial-up where FTTH access is available. As well, dial-up is not available today on wireless devices (i.e., standard wireless devices do not have the required encoders to handle analog traffic such as dial-up). In order to make use of fixed wireless (which is permitted in regulated exchanges), a dial-up solution would need to be developed solely for compliance, even though there would be no demand for dial-up – today's wireless devices support broadband, not narrowband.

8.3
Equal Access

139. The other requirement that we believe should be eliminated is Equal Access. Equal Access is no longer an important enabler of long-distance competition. **** distance competition is firmly established between wireline and wireless facilities-based competitors who typically offer a variety of affordable long-distance plans to complement their local voice and broadband services. Competition is well-entrenched, with the Commission identifying over 150 long-distance providers in Canada over wireline alone.

140. ****-distance is also a declining sector of the telecommunications industry. According to the CMR, industry wireline toll revenues fell 39% between 2009 and 2013, and we expect the trend to have continued in 2014. ****-distance revenues have shrunk to account for only 5% of the overall telecommunications pie.

In addition, within the dynamic long-distance sector, reliance on Equal Access by end-users is small and decreasing.

141. Looking first from the end-user perspective, the number of wireline local subscribers who have pre-selected a long-distance provider different from their local voice provider is declining. In Quebec and Ontario, only # of our residential wireline local voice subscribers in 2014 were PICed to a competing interexchange carrier (IXC). We expect that this percentage is similar, if not even higher, than that experienced by wireline CLEC competitors. Of course, none of the 20% of households that are wireless-only are making use of Equal Access as this feature is not enabled by wireless CLECs or other wireless service providers.

142. We also note a precipitous decline in the number of Bell wireline local subscribers requesting to be PICed to a competing IXC. In 2014, only # residential local Bell subscribers asked to be PICed to another IXC.

143. At the supply level, the number of active Equal Access IXCs in our territory has been declining, standing now at #, down from # in 2011. Our toll origination minutes have also been declining, nearly halving between 2011 and 2014.

# Filed in confidence with the CRTC.

144. Even with the disappearance of mandated Equal Access, a number of options will continue to exist for customers who wish to place toll calls without using the long distance service of their local provider.

Table 8.2
Toll Calling Options That Do Not Require Equal Access
Option
Description
Voice Applications

A number of computer and mobile device applications allow users to engage in chat, sometimes video chat, via the Internet.

By far the best-known of these is Skype, which allows users to communicate by voice using a microphone, video by using a webcam, and instant messaging over the Internet. Skype-to-Skype calls to other users are free of charge, while calls to wireline telephones and mobile phones (when carried over traditional telephone networks) are charged to the user. Direct Skype-to-Skype traffic is estimated to account for nearly 40% of international calls in 2014.

While traditional toll has seen a decline of revenues over the years,
Skype's popularity has increased.

In Canada, beyond its direct Skype-to-Skype service, Skype offers a variety of toll calling plans, including a low subscription plan to make unlimited calls to anyone located throughout Canada and the U.S.

Over the top VoIP

Over the top VoIP (OTT VoIP) is widely available anywhere a broadband Internet connection exists. OTT VoIP services typically utilize a broadband Internet connection to enable consumers to make voice calls over their traditional home phone.

In 2013, there were nearly one million residential OTT VoIP lines in Canada.

While OTT VoIP providers often bundle their local and long distance services, they can also offer stand-alone long distance plans. In light of the large number of OTT VoIP providers, there are now Internet sites dedicated to helping Canadian consumers compare the services of different providers.

Calling cards

To initiate a call, calling card users typically either dial a toll free number or a local access number, before dialing the number of their choice. Customers with a speed dial option on their phones frequently utilize this option to pre-dial the access number.

Calling cards are offered by a large number of suppliers throughout Canada at numerous retail outlets at prices comparable to many of the plans offered by integrated carriers. For example, Yak charges the same per minute charge for its calling card that it does for its direct dialed long distance service (i.e., its long distance service enabled through Equal Access).

Instant Messaging and Social Media Chat Sites

Instant Messaging and Chat sites offered through Social Media can be accessed from any device that has access to Instant Messaging or Social Media sites. These services provide end-users with the capability to virtually talk to anyone around the world in real time at no incremental charge. The use of these options has increased significantly over the years.

145. These various options have been acknowledged by the Commission as providing sufficient toll alternatives when customers are served via wireless technology.

They can just as well constrain any perceived ability of ILECs or CLECs to exercise market power in the wireline context.

146. Given the relatively few customers that make use of Equal Access and the readily available alternatives that will continue to exist for those customers, retail toll competition will not be impaired if our proposal is approved.

147. The limited benefits and customer take-up of Equal Access compare poorly to the costs and inefficiencies resulting from its implementation on growth technologies. The Commission has already concluded, in TRP 2012-24, that the introduction of Equal Access over mobile wireless was not in the public interest in light of its negative costs/benefits relation:

The Commission is of the view that, in order to support equal access, wireless carriers would be required to make significant investments in their networks and that such costs are unlikely to be recouped from long distance service providers given insufficient demand. The Commission also considers that, due to technical impediments when roaming occurs, equal access in a fully functional manner may not be practical. Accordingly, the Commission considers that a wireless carrier should not be required to support equal access to qualify as a Type II CLEC.

148. **** Type IV CLECs are also relieved of the obligation to provide Equal Access, notably due to its cost of implementation as the Commission noted that these carriers "…have no opportunity to recover any costs associated with implementing equal access" and that "…it is unlikely that a cost-effective solution to provisioning equal access can be developed for these carriers at this time."149. Equal Access is also a costly and inefficient network concept in an IP environment. Equal Access functionalities were developed to work with TDM architecture and, as the TDM network reaches the end of its life, will become more difficult to continue to support. As the Commission recognized in TRP 2012-24, Equal Access is very difficult to provide over mobile wireless networks, and this was a factor in the Commission's decision to waive Equal Access for wireless CLECs.

150. Additionally, Equal Access is not generally available in VoIP soft switches, driving custom development and making it costly and more difficult to support as IP networks evolve. Equal Access was designed to work on our legacy toll switches, which have been manufacturer discontinued for a while. As we transition to IP, these older toll switches will need to be disconnected at some point. It simply does not make sense to have to invest millions to recreate the Equal Access service (and all the support systems) for the IP environment. It is a significant barrier as we try to migrate to IP. Demand is not there to justify new investments in today's long distance competitive world and it is not appropriate to deter efficient or innovative upgrades due to a regulatory requirement which makes no sense in today's environment.

151. We realize, however, that a period of adjustment both for end-users and IXC providers can be appropriate. We thus propose that "access to a long-distance network of the customer's choice" be removed from the PES requirements and that Equal Access also cease to be mandated at wholesale as of a sunset date to be set by the Commission. For residential subscribers, we submit that 1 January 2018 would be a reasonable date to eliminate Equal Access, both in terms of PICing IXCs (i.e., 1+ dialing) and dial-around functionality (i.e., 1010XXX dialing). Assuming that the Commission's decision in the current proceeding would be issued in the latter half of 2016, this would give consumers and toll providers more than one year to adjust their plans. This should be sufficient for residential customers who are typically on month-to-month arrangements.

152. For business end-users, with respect to the ability to be PICed to an IXC, we propose a date of 1 January 2022 for eliminating this obligation. Assuming again a Commission decision late in 2016, this gives businesses five years to adjust their long-distance plans. This longer period for business end-users may be required in light of the presence of long-term PIC contracts. However we expect that contracts for IXC services rarely exceed five years, thus allowing both customers and providers to exit and/or amend their arrangement before the 2022 sunset date.

153. For business subscribers, we also propose a date of 1 January 2018 to eliminate dial-around functionality. ****-term contract issues are irrelevant in the case of dial around.

154. Finally we note that Equal Access, or the separation of local and long-distance subscriptions, may of course continue past these sunset dates but on a forborne basis, as providers seek to satisfy the needs of their customer base.

9.0
Question 9

Should broadband Internet service be defined as a basic telecommunications service? What other services, if any, should be defined as basic telecommunications services?

155. See our answers to Q2, Q3, Q4 and Q8.
10.0
Question 10

What changes, if any, should be made to the existing local service subsidy regime? What resulting changes, if any, would be required to the existing regulatory frameworks (e.g. price cap regimes)?

Recommendations
Recommendation 10.1:

The costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are overstated. However, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement, as described in Recommendation 10.2.

Recommendation 10.2:

ILECs should be granted the flexibility to raise residential PES rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest Commission approved (i.e., by definition affordable) level in the country, $37.29 over a three year transition period. The maximum annual increase would be $2.50 per month. Rates would be permitted to rise until they reached $37.29 or the amount needed to eliminate the subsidy, whichever is lower. The permissible rate increase should be imputed for subsidy calculation purposes in each year, whether the ILEC implemented the increase or not.

Recommendation 10.3:

Given that the costs are inaccurate, the Commission should eliminate the local voice service subsidies in Bands E and F (with the exception of the subsidy that is being replaced by rate increases – which will be eliminated over a three year transition period).

Recommendation 10.4:

Given the very high cost nature of the areas in Bands G and H1, the annual local voice service subsidy amounts in these bands should continue to be calculated using the current formulas.

Recommendation 10.5:

As the local voice service subsidy amounts in Bands E and F are eliminated over the three-year transition period, the Commission could redirect the associated amounts each year towards subsidizing broadband in Bands G and H1. Based on the approved 2014 total subsidy amounts, we estimate the total amount that could be redirected to funding broadband services at approximately $75M by the third year of the transition period.

10.1
Changes to Contribution Payments and Rates in Bands E and F

156. ILECs currently receive subsidy for the maintenance of voice services in the regulated portions of HCSAs (Bands E and F) and extremely HCSAs (Bands G and H1). For reasons explained in detail in Appendix 6, we believe the costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are overstated. Although in the most remote areas (Bands G and H1) it is highly likely that subsidies are still required, we believe there is no evidence to justify the requirement of subsidies for voice in the rest of the HCSAs (Bands E and F). However, as explained in Appendix 6, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement and eliminate unjustified subsidies.

157. We accordingly recommend that the Commission phase out the local voice subsidy for Bands E and F over a three-year transition period. Given the very high cost of continuing to provide voice service in Bands G and H1, the annual local voice service subsidy amounts in these bands should be maintained.

158. We also recommend that the Commission grant ILECs the flexibility to raise residential PES rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest affordable level in the country, which is currently $37.29 over a period of three years, or by the amount needed to eliminate the subsidy requirement, whichever is lower. By definition, the Commission has already determined that $37.29 is a just and reasonable rate. As such, the rates in Bands E and F should be allowed to rise to that level as the subsidy is eliminated.

159. As of 1 **** 2015, the retail rate used in the subsidy calculations

in Bands E and F for those ILECs that collected subsidies in 2014 and still have a subsidy requirement for 2015 range from $30.86 to $32.14 per NAS per month.

To protect consumers, we propose that the monthly per NAS rate increases be limited to a maximum of $2.50 in any one year – ensuring that all rate increases that are implemented to get to the $37.29 level would be completed by the third year (since all the imputed rates in bands where the amount of subsidy needed per NAS per month is in excess of $2.50 are above $30).

Assuming that the decision is released in 2016, we anticipate these increases taking place at the beginning of 2017, 2018 and 2019. Furthermore, under our proposal, no rate increase would be permitted beyond a level that would be needed to eliminate the subsidy in that rate band, even if the rate used for subsidy calculations in that band is below $37.29. Such flexibility will reduce reliance on subsidies while ensuring that the rates in these areas remain just and reasonable. We note that these rate increases are consistent with other rate increases permitted by the Commission including most recently in TRP 2011-291.

160. By 2019, this phasing out of subsidy will reduce the current national contribution fund (NCF) annually by approximately $75M.

As such, if the Commission deems it appropriate to establish a fund for the deployment of broadband in Canada's most remote communities (i.e., Bands G and H1), the Commission could redirect $75M from voice to fund those projects. Under our proposal, all subsidies would be eliminated in the first year – except for the portion of rate increases that are delayed as a result of the three year transition to raise rates.

161. To illustrate our proposal, we estimate that raising rates in Bands E and F to $37.29 (or to a level that eliminates the subsidy, whichever is lower) will result in total rate increases of approximately $36.5M. Thus, we propose that while $75M in subsidies are to be eliminated for ILECs serving those bands, ILECs would recover $36.5M in rate increases, leaving an actual reduction of $38.5M. We thus divide the reduction of subsidy into two components: the $38.5M subsidy reduction and the $36.5M rate increase. We further propose that the $38.5M subsidy reduction should be effective in the first year (2017). The $36.5M rate increases would be phased in over three years to protect consumers. As such, we estimate that rate increases of $2.50 a year (until the permitted maximum is reached) will result in total rate increases of $16M in 2017, $14.5M in 2018 and $6M in 2019.

Therefore, the money available to fund broadband would be $54.5M (i.e., $38.5M plus the $16M as a result of the initial rate increase) in 2017, $69M (i.e., adding the $14.5M rate increase to the $54.5M figure) in 2018 and the full $75M by 2019.

11.0
Question 11

What changes, if any, should be made to the contribution collection mechanism? Your response should address, with supporting rationale, which TSPs should be required to contribute to the NCF, which revenues should be contribution-eligible and which revenues, if any, should be excluded from the calculation of contribution-eligible revenues.

Recommendations
Recommendation 11.1:

Contribution eligible revenues (CERs) should be modified to include both retail paging service revenues and retail Internet service revenues.

Recommendation 11.2:

Assuming there is a broadband fund, funds for voice and broadband should be distributed on different bases. Specifically, voice funds should continue to be paid out to ILECs and the Canadian Administrator of VRS (CAV) in accordance with current practices. Broadband funds, however, should be paid out through a competitive auction model in accordance with the proposal we put forward in our response to Q13.

11.1
Changes to the Contribution Collection Regime

162. We do not believe that any changes are needed to the TSPs required to contribute, as the scope of TSPs specified in Decision 2000-745, remains appropriate. In that decision, the Commission concluded that:

all telecommunications service providers, such as ILECs, APLDS, CLECs, resellers, WSPs, international licensees, satellite service providers, Internet service providers (if a telecommunications service is provided), payphone providers, data and private line service providers are required to contribute based upon their total Canadian Telecommunications Service Revenues (CTSR), less certain deductions.

163. In making this determination, the Commission noted that "applying contribution against the broadest possible range of telecommunications service providers would spread the contribution burden across various sectors of the marketplace" and that "this approach would be competitively equitable, result in a lower revenue-percentage charge being applied to each service, and be more administratively efficient by eliminating the need for a detailed review and classification of all telecommunications services." In order to limit the administrative burden associated with collecting contribution from TSPs with small Canadian Telecommunications Service Revenues (CTSRs), the Commission set a minimum revenue threshold at $10M. Accordingly, all TSPs with a minimum CTSR of $10M are required to contribute to the NCF. We submit that these considerations remain appropriate and that no changes should be made to the scope of TSPs who should be required to contribute to the fund.

164. While the current scope of contributors continues to be appropriate, we believe that changes should be made to the collection mechanism with respect to the revenues that are contribution-eligible to better align the funds used to support the purposes of each component of the fund. Currently, the Commission allows certain deductions from TSPs’ CTSRs when calculating their CERs as appropriate to fund voice services. These deductions consists of the following:

-
Contribution payments received from the NCF;
-
Inter-carrier payments;
-
Retail Internet service revenues;
-
Retail paging service revenues;
-
Terminal equipment revenues; and
-

Non-contribution-eligible revenues eliminated from those bundles to which both contribution-eligible and non-eligible revenue are attributed.

165. We continue to support deductions for: contribution payments received from the NCF, inter-carrier payments, terminal equipment, and non-contribution-eligible revenues eliminated from those bundles to which both contribution-eligible and non-eligible revenue are attributed. In Decision 2000-745 the Commission determined that:

1) a deduction should be given for revenues received from the NCF so as not to require a TSP to pay contribution on subsidy amounts;

2) inter-carrier payments should be deducted to avoid double counting of revenues;

3) revenues from terminal equipment should be deducted as such equipment is also provided by non-TSPs, and it would not be competitively equitable to require TSPs providing such equipment to pay contribution, while non-TSPs would not; and 4) bundles require special consideration to properly account for revenues attributed to the combined sale of contribution-eligible and non-eligible services.

166. We believe that these deductions remain appropriate. However, two deductions should be removed in our view (and counted in contribution calculations): retail paging service revenues and retail Internet service revenues.

167. The Commission has historically exempted retail paging service revenues from eligibility in light of the nature of the service, existing policies with respect to their contribution exempt status and administrative complications. Retail paging services, such as text messaging, have evolved in an immeasurable manner in recent years, such that these services are now used by consumers largely as a substitute to traditional voice communication. In light of this dramatic shift in the nature of these services, it is our view that retail paging services should be properly viewed as an extension of retail voice services for the purposes of contribution, and their associated revenues included as part of TSP CERs.

168. With respect to retail Internet service revenues, we propose that they also be included. Given the nature of broadband services today – and how they have been used as a replacement for traditional voice services, we submit this exemption is no longer appropriate. Further, if the Commission does decide to create a broadband fund, clearly, broadband revenues should be included in the CER calculation to align the beneficiaries with the funds that are taxed to pay into the fund.

169. Consistent with our answers to other questions, and assuming the Commission elects to create a broadband fund, payments of contribution should be separated into those related to voice and those related to broadband.

12.0
Question 12

Should some or all services that are considered to be basic telecommunications services be subsidized? Explain, with supporting details, which services should be subsidized and under what circumstances.

170. See our response to Q10 for our proposal regarding how a broadband fund could be implemented should the Commission determine that such a fund is required for Bands G and H1 as well as how to reform the current local voice service subsidy regime in order to support this new basic service and fund.

13.0
Question 13

If there is a need to establish a new funding mechanism to support the provision of modern telecommunications services, describe how this mechanism would operate. Your response should address the mechanism described in Telecom Regulatory Policy 2013-711 for transport services and/or any other mechanism necessary to support modern telecommunications services across Canada. Your response should also address, but not necessarily be limited to, the following questions:

a)
What types of infrastructure and/or services should be funded?
b)
In which regions of Canada should funding be provided?
c)

Which service providers should be eligible to receive funding, and how should eligibility for funding be determined (e.g. only one service provider per area, all service providers that meet certain conditions, wireless service providers, or service providers that win a competitive bidding process)?

d)

How should the amount of funding be determined (e.g. based on costs to provide service or a competitive bidding process)?

e)

What is the appropriate mechanism for distributing funding? For example, should this funding be (i) paid to the service provider based on revenues and costs, or (ii) awarded based on a competitive bidding process?

f)

Should any infrastructure that is funded be available on a wholesale basis and, if so, under what terms and conditions?

g)
Should the Commission set a maximum retail rate for any telecommunications service that is subsidized?
h)

Should this mechanism replace the existing residential local wireline service subsidy? If so, explain how the existing subsidy should be eliminated, including details on any transition period. In addition, explain whether the small ILECs and/or Northwestel should be subject to any special considerations or modifications for this transition period.

Key Findings
Key Finding 13A:

Relying on an obligation to serve or a similar mechanism that relies on cost models for creating broadband subsidies is costly, time consuming and inefficient. Experiments conducted by the FCC have demonstrated that a competitive RFP process resulted in a significant number of bids, some of which were less than 50% of what would have been the FCC cost model's result, and with commitments to deliver higher speeds than required by the FCC.

Key Finding 13B:

The highest costs to expanding broadband in satellite communities are the ongoing operating expenses of paying for the backhaul of the satellite through leased capacity. As such, satellite bidders will likely require ongoing subsidies instead of on a one-time/build basis.

Key Finding 13C:
Governments rely on third party experts to help assist them in conducting auctions.
Key Finding 13D:

Wholesale access obligations would lower the business case in regions that are already challenging to deploy in to begin with. As bidders would have to factor in a decreased market penetration (in light of wholesale competition) it would correspondingly increase the cost of deployment and therefore increased required subsidies and industry contributions.

Recommendations
Recommendation 13.1:

Any auction design should ensure no subjective decision making in the award of winners once the criteria of the auction have been established.

Recommendation 13.2:

Any auction design should ensure technological neutrality preferring no one technical solution with the exception that, consistent with the Federal Government's Connecting Canadians program, mobile wireless (as opposed to fixed wireless) should not be considered when determining whether a community is "served" or "unserved", nor should it be an eligible solution as part of a bid.

Recommendation 13.3:

As a further exception to Recommendation 13.2, any auction should be designed to allow for a proper comparison between satellite-based solutions that require permanent subsidies and terrestrial-based solutions that only require onetime (or finite) upfront subsidies and may have special rules or exemptions pertaining to satellite-served communities.

Recommendation 13.4:

Any auction should be designed as a reverse auction allowing bidders to bid on the amount of subsidy they require to provide service in a community based on a monthly payment per household for 60 months for terrestrial communities and perhaps 36 months for satellite-served communities.

Recommendation 13.5:

Any auction should be designed to allow some form of grouping communities in Bands G and H1 together into a package so as to maximize network deployment efficiencies.

Recommendation 13.6:

Any auction should award bids to only one provider per community and the corresponding subsidy should not be portable to other ISPs even if another ISP later elects to serve customers in that area.

Recommendation 13.7:

There should be no regulatory requirement for the winner of any auction to wholesale access to its broadband service.

Recommendation 13.8:
**** bidders should have to report annually on their progress in rolling out service.
13.1
Overriding Principles

171. We submit that there are three fundamental principles that should underlie the structure of any Commission created broadband fund. Specifically, the fund should be designed:

(i)
To be complementary to, and not in lieu of, other investments from the private sector and governments;
(ii)

To be competitively allocated through a reverse auction in which the lowest bid wins the subsidy in all cases without the use of subjective, non-monetary criteria: this will minimize the total amount of funds to be allocated; and(iii)

To allow for a technology neutral provision of broadband services to the maximum extent feasible.
172. In this section, we explain our rationale for each of these principles.
13.1.1 Complementary to, and not in lieu of, government and private investments

173. We welcome the Commission's continuing recognition that any funding mechanism "should complement, and not replace, other investments from the private sector and governments, including public-private partnerships." As we have addressed in greater detail in response to Q4, Q7 and Q10, we believe the appropriate means of balancing these competing sources of funding and/or incentives for development of broadband (if the Commission believes any such Commission-established funding is required) is to establish a subsidy regime only for Bands G and H1. By focusing on the most remote bands (Bands G and H1), any new Commission subsidy program can address the most difficult problem first and the various governments can continue to provide incentives and subsidies to close the gap, if any, for remaining areas (i.e., unserved or underserved areas in Bands A through F).

174. The Commission should further make it clear in its announcement of such funding that it is meant to be complementary to government and private funding. It should also recommend, in its announcement of this new fund as well as in subsequent monitoring report, that the governments continue to work towards assisting in the deployment of broadband where there is no business case as well as continue to provide and expand upon incentives for broadband deployment such as the items mentioned in our answer to Q2.

13.1.2
Competitive Allocation

175. It is important to design the fund in a manner that will result in the lowest subsidy being needed for the building of broadband.

176. We submit that a competitive bidding process (i.e., auction) will minimize the funds required.

177. Actual case studies demonstrate that auctions result in lower subsidies than using cost models. The evidence for this can be found in recent U.S. experiments. As explained by Gillan in Appendix 3, the FCC has created a detailed cost model establishing the cost of building broadband service across the U.S. in areas where the largest ILECs (called **** Cap ILECs such as AT&T or Verizon) have telephony plant but where no ISP is providing Internet service at least at 4 Mbps download / 1Mbps upload. The model itself was very expensive to build (costing in excess of $5 million) and took several years to construct. At the end of that process, the model determined the cost for building broadband in these communities and the amount of subsidy required for the ILECs to agree to build those communities. The ILECs were then given a Right of First Refusal (RoFR) to build broadband everywhere in their ILEC territory within a state for the amount of subsidy as determined by the model.

178. At the same time, the FCC undertook an experiment in which it invited other ISPs to offer to build broadband in some of these areas (the Rural Broadband Experiment or RBE program) so that it could see what level of subsidy an auction regime would determine is needed to serve these areas. The net results of the RBE programs is that the FCC was inundated with offers to build broadband by other ISPs for subsidies that were more than 50% lower than the cost model's results and for speeds that were higher than assumed by the model. As Mr. Gillan noted:

Most importantly to the purpose of this report, the FCC's limited experience with the Rural Broadband Experiments indicates that a competitive bidding process can produce results that are superior to a right-of-first-refusal system, at least for certain areas.

Although public information concerning the terms of specific bids is limited, the FCC did disclose that:
*

All of the rural broadband experiment proposals sought an amount of support at or below model-calculated levels;

and
*

High-performance network bidders (Category 1 – i.e., areas that bidders were required to build to 100 Mbps download and 25 Mbps upload) collectively requested $69 million in annual support for census blocks that would have received $149 million in model-based support as part of the CAF offer (i.e., offers which required ILECs to only build to 10 Mbps download and 1 Mbps upload).

The fact that competitive bidders were able to propose networks far more capable than required by the FCC, at costs so much lower (less than half) than the CAM calculated, demonstrates that competitive bidding can be more efficient than a right-of-first-refusal regime and its requisite cost model.

179. Economic literature supports these real world findings. **** (1999) described the benefits of distributing subsidy funds through a market-based competitive process – such as an auction – in order to minimize the amount of subsidy funds:

Competitive bidding offers an alternative method of assigning a "value" to universal service, by eliciting the valuations placed on the universal service obligation by the firms themselves. Rivalry among the bidders would be more effective means of ensuring that universal service payments are minimized than any amount of litigation over cost estimates. At the same time, since the bids would represent voluntary actions by the firms, they would also serve to discipline the regulator, and ensure that the regulator does not use its coercive power over the incumbent to "procure" universal service for a "price" that is too low. By setting a correct value on universal service, an auction can allow the regulator to have confidence that its universal service policy can be sustained, and, at the same time, that prices will be realigned in such a way as to promote efficient competitive entry and investment. Auctions represent a market mechanism for dealing with universal service, one that does away with traditional cost-of-service regulation. This is particularly important if one thinks of universal service as a policy to be maintained well into the future, since it would otherwise be necessary to maintain cost-of-service regulation indefinitely.

[Emphasis added]

180. After reviewing the use of auctions for funding basic telecommunication services (in mostly developing countries), Wallsten (2008) finds that properly designed auctions can effectively reduce subsidy expenditures:

The second lesson is that reverse auctions can be implemented successfully. When done properly, they may reduce expenditures on universal service. That is, the auctions create a market where none existed and use that market to reveal the expected costs of providing telecommunications services.

181. Moreover, there is nothing exotic about using auctions. Many countries, including Canada, have implemented auctions as part of their procurement process. Auctions have been effectively used to allocate billions of dollars in spectrum licences, oil and gas leases and Government financial instruments.

182. As for using auctions for broadband, **** + **** explain in Appendix 2, that auctions are used by governments and regulators throughout the world. As highlighted throughout our submission, Industry Canada recently used auctions to allocate the funds to build broadband to over 300,000 homes through its Connecting Canadians program. For all these reasons, we submit that the Commission should also use auctions in the event it deems a fund to be necessary.

183. Under our proposal, bidders would be required to build facilities capable of serving customers at 10 Mbps (with the exception of satellite communities) in areas that are not already considered "served" using a minimum target of 5 Mbps. The lowest bid at the end of the auction would win (hence the notion of a reverse auction). The key is that the methodology for determining the winner must be clearly established at the outset and competitively allocated without the use of subjective measures. Such an objective mechanism will facilitate true competition in bids.

184. As noted by Wallsten (2008), the elements of an auction for funding basic telecommunication service are straightforward:

The government defines say, a region, and asks for bids to provide service. Firms submit bids of how much the government would have to pay them to provide service in that region. The firm that asks for the smallest subsidy, all else being equal, wins the reverse auction and thus agrees to provide service in exchange for the subsidy it bid.

13.1.3
Technological Neutrality

185. The Policy Direction emphasizes the need for the Commission to strive for technological neutrality. Firms should be able to determine which communities they want to serve using the technology they believe provides the most effective means of meeting the broadband service requirements being auctioned, and then submit a bid for the amount of subsidy they require for each household served. With some limited exceptions noted below, we believe that the Commission should not favour any one technological solution over any other. In the end, all the Commission should concern itself with is whether broadband is being delivered with the lowest possible amount of subsidy.

186. To be clear, as long as the solution meets service or pricing requirements associated with it, a TSP should be eligible to bid for that solution. This approach is similar to what the Commission decided in the case of the broadband deferral account builds. Ultimately, the Commission allowed us to utilize a fixed wireless solution instead of a wireline DSL solution, provided that we ensured our retail offer matched the quality and rates of our DSL offers:

The Commission considers that, consistent with the principle of technological neutrality, the Bell companies should be able to deploy the technology of their choice as long as its broadband service meets the required criteria…The Commission further considers that Bell Canada's revised proposal, which makes use of HSPA+ wireless technology instead of wireline DSL technology, would also achieve the stated objective, as it would provide broadband service comparable with, or superior to, urban broadband service.

187. No subjective judgment should be exercised by the Commission preferring one technical solution over the other as such an approach undermines the objective nature of the reverse auction, with the exception that, consistent with the Federal Government's Connecting Canadians program, mobile wireless (as opposed to fixed wireless) should not be considered when determining whether a community is "served" or "unserved", nor should it be an eligible solution as part of a bid.

188. It must be recognized that the cost structure of different types of network elements may be significantly different, such that direct comparison may be difficult. In the case of any terrestrial solution, be it wireline (e.g., FTTH, cable, FTTN, ATM DSL) or fixed wireless (e.g., fixed wireless LTE), the biggest impediment to building out broadband is likely to be the upfront capital costs to connect that community and the houses within it. As such, we support an auction that provides for onetime funding (allocated over five years as discussed below) that is not eligible for renewal. In that manner, TSPs can bid their technological solution with a clearly defined ask for subsidy for a pre-set time period. In doing so, the Commission can be agnostic to the technological solution chosen and simply focus on the lowest cost bid.

189. The one exception to this general approach is satellite and we therefore propose a limited exception to our technological neutrality rule. As discussed in answer to Q7, satellite can be a very cost effective solution for backhaul even in cases where the TSP is able to deploy terrestrial local access facilities in the community itself – as Northwestel has done in 38 of its 96 communities. As recognized by Commissioner **** in her capacity as an inquiry officer into satellite communities, the biggest costs to expanding broadband in these communities is often not the cost of building the access plant or even the satellite receivers; instead the highest costs are the ongoing operating expenses of paying for the backhaul of the satellite through leased capacity.

From a subsidy perspective, this means that subsidies for satellite solutions will often need to be ongoing as compared to the onetime capital costs associated with terrestrial solutions.

190. This raises the problem of how to compare onetime costs for capital expenditures (CAPEX) based terrestrial solutions (e.g., building microwave to a community) to ongoing costs for satellite operating expenditures (OPEX) based solutions for the same community (e.g., if ISP 1 bids a terrestrial solution assuming a five-year subsidy as compared to ISP 2 that bids a satellite solution for that same community with the expectation that its subsidy would need to be renewed at the end of the five-year period). Clearly, onetime charges have the benefit that in the long run they may be cheaper. But, in the short term, satellite solutions for non-terrestrial communities would, in many if not most cases, win a head-to-head comparison with other technologies. Further, if no distinction is made, some bidders will bid on satellite solutions claiming they will only require onetime funding, when the reality is that additional funding will inevitably be sought once the initial funding expires because of the recurring nature of the expense associated with leasing satellite capacity.

As a result, depending on the length of time considered for the subsidy, it may be difficult to properly compare the two alternatives at the same time using a market-based approach such as an auction.

191. Due to these differences between terrestrial and satellite, the auction parameters will have to be designed to adjust for the differences in cost structures. One potential approach is to identify which areas should be served using terrestrial-based technology and which should be served using satellite-based technology. Under this scenario – the Commission would make an initial determination where it would solicit comments on classifying whether a community should be assigned to the satellite or terrestrial category. But if an ISP wanted to propose building a terrestrial solution to a satellite community, it would have to make the case as to why this was the cost effective long-term solution – and the Commission would make the decision whether to classify the community as satellite or terrestrial. We anticipate that rarely would a satellite community switch to a terrestrial classification (or vice versa) – but the process would allow for that outcome. Once this classification was complete, then terrestrial-based service areas could be auctioned in the same auction; likewise all satellite-based service areas could be auctioned in a separate auction. This satellite-specific auction could have shorter subsidy periods (for example three years) to account for the fact that new technological changes are expected in the near future which may affect the levels of service and associated costs that are available in satellite communities.

192. Another potential approach to this same problem is to allow the bidders to determine which areas they want to serve and which technology to use, and then auction all service areas together. Then within the auction, there could be an external weighting to reflect the fact that terrestrial solutions have a long-term benefit as compared to satellite from a costing perspective. These, as well as other alternatives can be considered in a process to determine the auction rules, similar to what Industry Canada does in the spectrum auction process.

13.2
Structure of the Auction

193. In this section, we provide some suggestions as to how an auction could be structured. The purpose of this is not necessarily to provide a comprehensive proposal but rather to demonstrate that a properly thought-out and run auction can be very successful. In some situations, such as the problem we discussed above regarding comparing satellite to terrestrial communities, we offer some options for the Commission's consideration.

194. We note in this respect that there are a number of firms experienced in supporting Government agencies with the development and implementation of auctions.

With well defined service parameters and conditions, an effective auction can be conducted. For example, in the recent 2500 MHz auction, Industry Canada effectively allocated 318 spectrum licences across Canada using a complex multiple round auction format. It is our understanding that Industry Canada relied on outside consultants to design and run the auction. If it believed it would be beneficial, the Commission could do the same for the creation of an auction process.

13.2.1
Monthly Subsidy

195. An initial question is the nature of the subsidy. As mentioned above, similar to Industry Canada, we support bids that compare the onetime capital costs to build (except in the case of a satellite bid as discussed above). However, we note that in the case of Connecting Canadians, Industry Canada limited the subsidy to only capital expenditures – stating that in most cases it would only fund up to 50% of the capital expenditures of the project. We submit that the Commission need not be so prescriptive. Perhaps, the overall most efficient bidder is a company that requires a higher subsidy for CAPEX but has a lower OPEX and thus requires an overall lower subsidy. To that end, the bid should be a reverse auction for the total amount of subsidy required – regardless of the nature of the costs.

196. We submit that the most efficient method is to have the bidders bid for the total amount of subsidy they require to provide service in a community based on a monthly payment per household. The subsidy would be a monthly payment regardless of whether it is used for CAPEX or OPEX.

197. We submit that five years for terrestrial communities (and perhaps three years for satellite-served communities) is an appropriate time period for receiving a subsidy to build out broadband.

13.2.2
Community Eligibility and Aggregation

198. As mentioned above, only communities in Bands G and H1 should be eligible for bidding – and then only if they don't already have access to broadband at 5 Mbps download and 1 Mbps upload.

199. For defining geographic areas, a census population centre where the provision of in-home broadband Internet access service with a minimum of 5 Mbps download and 1 Mbps upload is not available should be the basis of the bid.

For simplicity, we recommend relying upon the hexagons prepared by Industry Canada for Connecting Canadians which are divided into 25 km2 hexagons and indicate where facilities-based ISPs are located for the purpose of identifying high-speed Internet availability.

200. In order to facilitate the attainment of economies of density and scale (to the extent that they exist), and continuous coverage, the Commission may wish to allow bidders to aggregate communities. One possible method to do this is to allow for package bidding. Package bidding allows bidders to aggregate similar (and perhaps adjacent), service areas and allow for the optimization of network deployment. This in turn should reduce the amount of subsidy required as efficiencies in network deployment should also reduce costs.

201. Another possible model is to have standardized packages. Under this approach, before conducting the auction, the Commission would call for proposals to package together communities. If a bidder wanted to package together, for example, 10 communities, it would propose that they be treated as a package. If any other bidder objected – for example another bidder proposed that only six of those communities should be packaged together – then the Commission would select the lowest collection of communities as a package (in this case six communities). In that manner, the packaging could never result in a potential bidder not bidding because it was not prepared to serve all the communities in the package.

13.2.3
Number of Winners for each Package

202. The Commission must ensure that only one bidder is subsidized to provide service in a given area (the community or aggregated collection of communities). In TRP 2011-291, the Commission determined that the purpose of subsidies is to assist the entity with the obligation to serve (which applies to telephony services). Although, in the case of broadband, the Commission cannot impose an obligation to serve on any entity, a bidder is agreeing contractually to accept the obligation to provide service if it is successful. In such a case, only that bidder should be funded for that area. In other words, there should be no notion of a portable subsidy – whereby multiple ISPs can receive subsidy within the same area simply by having the customer switch providers.

13.2.4
Role of Wholesale

203. While we recognize that the Commission has historically required wholesale access as a condition of receiving subsidies, there should be no obligation to provide wholesale access services under this program. Mandating wholesale access creates two fundamental problems: (i) it acts as a disincentive for potential bidders; and (ii) it drives up the costs of the subsidy.

204. Clearly, an ISP that bids knowing that there is no wholesale obligation will be able to seek a subsidy that assumes a higher level of retail penetration than if wholesale access is mandated. As such, the ISP can be expected to bid for a lower level of subsidy. In contrast, where there is a wholesale obligation, an ISP will have to assume that it will lose retail market share – and thereby retail market revenues to a wholesale competitor. Unless one believes that the wholesale competitor will actually grow the market (a dubious proposition), then the impact of mandating wholesale can only be to reduce the profitability (and therefore increase the required subsidy) for the bidder. As such, if the Commission mandates wholesale obligations as part of this regime, the Commission will be requiring the industry to pay a higher contribution – and by extension – subsidize competition. The goal of this program should be to bring access to all Canadians, not to subsidize competition.

13.2.5
Mandated Retail Rates

205. Retail rates should not be regulated. We note that in the case of the deferral account, the Commission did not set maximum retail rates nor should such rates be set in the case of areas which receive broadband subsidy funds.

The service would have to be defined to include a download speed (i.e., 5 Mbps) as well as some level of usage that is appropriate for the speed chosen.

206. As discussed above in our answer to Q3, there is no need for the Commission to also address terms or conditions associated with the service, other than setting the minimum bandwidth requirements. Should the Commission desire some certainty with respect to rates in areas to be served pursuant to subsidies, the Commission could require bidders to commit to offer services at rates comparable to competitive offerings offered in non-subsidy areas. Such a solution would provide competitors the flexibility to differentiate themselves and also provide some certainty to the Commission that rates are just and reasonable.

13.2.6
Reporting

207. In order to ensure that the winning bidder delivers the service as described, the winning ISP should be required to provide annual updates similar to how Northwestel reports on its Modernization Plan or how ILECs have reported on their deferral account broadband builds.

*** End of Document ***
� EMBED Word.Document.8 \s ���

� Specifically, Bell Canada is filing on behalf of Bell Aliant Regional Communications, Limited Partnership (which effective 1 July 2015 was wound-up into Bell Canada, and is now operated as a division of Bell Canada), Bell Canada, Bell Mobility Inc., Câblevision du Nord du Québec inc. (CVQ), DMTS, KMTS, NorthernTel, Limited Partnership, Northwestel Inc., Ontera and Télébec, Société en commandite.

� �HYPERLINK "http://www.bce.ca/news-and-media/releases/show/BCE-reports-first-quarter-2015-results"�http://www.bce.ca/news-and-media/releases/show/BCE-reports-first-quarter-2015-results�.

� Telecom Notice of Consultation CRTC 2015-134, Review of basic telecommunications services, issued 9 **** 2015.

� Akamai, The State of the Internet Report Q4 2014, Volume 7, No. 4, available at:��HYPERLINK "http://www.akamai.com/stateoftheinternet/"�http://www.akamai.com/stateoftheinternet/�.

� 2014 Communications Monitoring Report, Table 5.3.12.
� Ibid.

� **** A. Eisenach, Broadband Market Performance in Canada: Implications for Policy, NERA Economic Consulting, July 2015, Appendix 1.

� CRTC Monitoring Report 2014, Figure 5.3.8 Popular Internet applications – Bandwidth requirements.

� **** + ****, 'The Broadband USO Review: International comparisons of universal service regimes and broadband access' (July 2015), Appendix 2.

� BTIB 2010-961, Procedures for filing confidential information and requesting its disclosure in Commission proceedings, dated 23 December 2010, as amended in BTIB 2010-961-1, dated 26 October 2012 to reflect the directives in Telecom Regulatory Policy CRTC 2012-592, Confidentiality of information used to establish wholesale service rates.

� Telecom Notice of Consultation CRTC 2015-133, Review of Telesat Canada's price ceiling for C-band fixed satellite services, issued 9 **** 2015.

� BCE, **** Release, "BCE reports first quarter 2015 results", 30 **** 2015.
� ****, Figures 2.3.4 and 2.3.5.
� 2014 Communications Monitoring Report, Table 5.3.12.
� Ibid.

� Bell Aliant, **** Release, "FibreOP™ services poised to expand across NB - more customers able to experience ultimate broadband experience", issued 8 February 2010.

� Akamai, The State of the Internet Report Q1 2015, Volume 8, No. 1, available at:��HYPERLINK "http://www.stateoftheinternet.com/resources-report-state-of-the-internet.html"�http://www.stateoftheinternet.com/resources-report-state-of-the-internet.html�. Note that Akamai does not provide data for two G20 members: Saudi Arabia and the European Union.

� ****, Figure 2.3.2
� ****, Tables 2.1.3 and 2.1.4 (change in Level 2 pricing between 2008 and 2014).
� Eisenach, Appendix 1, p. 35.
� **** Report at 5.3.
� Ibid.

� Nera Consulting, Appendix 1, at Figure 16 (SOURCE: NERA Economic Consulting based on data from OECD Broadband Portal, “Fixed Broadband Basket High 3: 33 GB/60 hours per month. 15 Mbit/s and above,” (available at: http://dx.doi.org/10.1787/888932799722). Notes: [1] **** is for the OECD High 3 category which includes broadband services at 15 Mbps or higher with a monthly data cap of 33 GB. [2] Broadband prices are from **** 2012 and population density figures are from 2013. [3] The data point for Mexico is not shown for scaling reasons.).

� See �HYPERLINK "http://network.bell.ca/en/lte/"�http://network.bell.ca/en/lte/�.

� BCE, **** Release, "Bell accelerates expansion of 4G LTE wireless service to small communities across Canada", issued 25 February 2015.

� As of 31 **** 2015, the Rogers’ LTE network reached 87% of Canadians. See Rogers, Q1 2015 Earnings Release, page 14 found at: �HYPERLINK "http://netstorage-ion.rogers.com/downloads/IR/pdf/quarterly-results/Rogers-2015-Q1-Results-Release.pdf"�http://netstorage-ion.rogers.com/downloads/IR/pdf/quarterly-results/Rogers-2015-Q1-Results-Release.pdf�.

� CISCO VNI 2014 data, available at:��HYPERLINK "http://www.cisco.com/assets/sol/sp/vni/forecast_highlights_mobile/index.html%23~Country"�http://www.cisco.com/assets/sol/sp/vni/forecast_highlights_mobile/index.html#~Country�.

� Ibid.
� NERA Economic Consulting, Appendix 1, at page 22.

� Canada Digital Future in Focus 2015: The 2014 Digital Year in Review & Predictions for the year ahead. See �HYPERLINK "http://mkc.int.bell.ca/V5/download.aspx?b=1&col=CIS&id=45916"�http://mkc.int.bell.ca/V5/download.aspx?b=1&col=CIS&id=45916�.

� NERA Economic Consulting, Appendix 1, Figure 12.
� ****, Figure 2.2.2.
� NERA Economic Consulting, Appendix 1, Figure 9.

� Telecom Notice of Consultation CRTC 2010-43, Proceeding to review access to basic telecommunications services and other matters, issued 28 January 2010.

� TNC 2010-43, Transcript Reference - Volume 1, paragraph 923.

� Based on data from Statistics Canada, Canadian Internet use survey, Internet use, by age group, Internet activity, sex, level of education and household income, ��HYPERLINK "http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&id=03580153"�http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&id=03580153�.

� The Broadcasting Act has no obligation to build facilities where non-exist.

� �HYPERLINK "http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/biz-categories-technology/canadas-video-game-industry-ranks-no-3-worldwide/article9875545/"�http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/biz-categories-technology/canadas-video-game-industry-ranks-no-3-worldwide/article9875545/�.

� For more information, see the Electronic Software Association Canada's Fact Sheet: �HYPERLINK "http://theesa.ca/wp-content/uploads/2014/11/ESAC-Essential-Facts-2014.pdf"�http://theesa.ca/wp-content/uploads/2014/11/ESAC-Essential-Facts-2014.pdf�.

� **** Ivus and **** Boland, The Employment and Wage Impact of Broadband Deployment in Canada, Canadian Journal of Economics (2015) available at: �HYPERLINK "http://works.bepress.com/olena_ivus/6/"�http://works.bepress.com/olena_ivus/6/�.

� Ibid, page 2.
� Ibid. page 14.

� **** et al., The Internet and Local Wages: A Puzzle, American Economic Review 2012, 102(1): paragraphs 556 to 575.

� Ibid. paragraphs 557 and 558.

� Ivus & ****, page 28. They also add that another explanation "is that Internet infrastructure capabilities in the 1995-2000 period studied in **** et al. (2012), were less than those deployed in subsequent years. In **** et al. (2012), at most 30% of firms were using advanced Internet applications in the year 2000. In our study, by contrast, broadband Internet services are more widespread; the fraction of communities with zero broadband coverage was 47% in 2005 and 10% in 2012. Furthermore, all of the firms sampled in **** et al. (2012) are large (i.e., 100+ employees), since very few small firms deployed advanced Internet applications at that time. Our sample, on the other hand, includes firms of all sizes, the vast majority of which are small".

� CRTC Monitoring Report 2014, Figure 5.3.8 Popular Internet applications – Bandwidth requirements.

� �HYPERLINK "http://support.xbox.com/en-US/xbox-360/networking/slow-performance-solution"�http://support.xbox.com/en-US/xbox-360/networking/slow-performance-solution�.

� Based on Bell Canada numbers, including territories formerly served by Bell Aliant in Ontario and Quebec. In determining this we have included plans of up to 8 Mbps in our assessment of what constitutes plans "at or close to 5 Mbps" as per the Commission’s request in The Companies(CRTC)7May15-3.

� Online, searchable maps have been created by Industry Canada showing high-speed Internet availability across the country. The maps are divided into 25 Km2 hexagons and indicate where facilities-based ISPs are located for the purpose of identifying high-speed Internet availability and program eligibility for Connecting Canadians: �HYPERLINK "http://www.ic.gc.ca/eic/site/028.nsf/eng/50012.html"�http://www.ic.gc.ca/eic/site/028.nsf/eng/50012.html�.

� Derived from the maps used by Industry Canada available at: �HYPERLINK "http://www.ic.gc.ca/eic/site/028.nsf/eng/50016.html" \l "Maps"�http://www.ic.gc.ca/eic/site/028.nsf/eng/50016.html#Maps�.

� Gillan, Appendix 3, page 3.
� Gillan, Appendix 3, page 5.

� **** + ****, The Broadband USO Review: International comparisons of universal service regimes and broadband access (July 2015) Appendix 2.

� **** + ****, Appendix 2, Table 2 at pages 7-8.

� Telecom Decision CRTC 2014-42, Bell Canada – Request for access to Plaza Corporation's **** Harbour Club multi-dwelling unit building project, issued 5 February 2014.

� BCE, **** Release, "Bell Gigabit Fibe bringing the fastest Internet to Toronto residents with a billion-dollar+ network investment, creation of 2,400 direct jobs" (25 **** 2015).

� **** + ****, Appendix 2, Table 1.
� An upload speed is indicated only if it is part of the USO.

� Note: This column indicates only that there is a mechanism in place for universal service funding. The fund may not be active because the USO provider has not made a claim. If the fund is active this will be indicated with a tick or cross in the “Voice” or “Broadband” column under “Universal Service Fund”.

� "In 2013, approximately 94% of telecommunications revenues were from services that the Commission has determined are sufficiently competitive that tariff filings are no longer required". 2014 CRTC Communications Monitoring Report, page 135.

� 2014 CRTC Monitoring Report, page 154.
� 2014 Monitoring Report, page 160.
� TNC 2015-134, paragraph 8.

� For instance VoIP soft switches are not designed by manufacturers to support Equal Access. The customized functionality must be developed and added.

� Refer to CRTC 6716 Item 2350 – Fibre to the **** and Fibre to the Business and CRTC 21491 Item 280 – Fibre to the **** (FTTH) for specific exceptions to the end-customer's service where their local service is provided over FTTH instead of TDM.

� Telecom Regulatory Policy CRTC 2013-711, Northwestel Inc. – Regulatory Framework, Modernization Plan, and related matters, issued 18 December 2013.

� TNC 2015-133, at paragraph 8.
� Not quite a decade ago, in 2005 there were over 1.5M dial-up subscribers. 2010 CMR, Table 5.3.2.
� 2014 CMR, Appendix 5.
� CMR, page 154.
� Table 5.1.1
� In 2013, Table 5.1.2 of CMR.

� We understand that Fido, which did support Equal Access, has ceased offering it following Telecom Order CRTC 2012-521, Fido Solutions Inc. – Withdrawal of equal access and destandardization of casual calling arrangements.

� Such as WhatsApp, textPlus, Facetime, Facebook Messenger, Viber, Line, Tango, Google Hangouts, Samsung's ChatOn and, of course, Skype.

� �HYPERLINK "http://blogs.wsj.com/digits/2014/01/15/skypes-incredible-rise-in-one-image/"�http://blogs.wsj.com/digits/2014/01/15/skypes-incredible-rise-in-one-image/�.

� 2014 CMR, page 154.
� �HYPERLINK "https://en.wikipedia.org/wiki/Skype"�https://en.wikipedia.org/wiki/Skype�.
� �HYPERLINK "http://www.skype.com/en/rates/"�http://www.skype.com/en/rates/�.
� 2014 CMR, Figure 5.2.1.

� See for example �HYPERLINK "http://www.whichvoip.com/voip/canada_voip.htm"�http://www.whichvoip.com/voip/canada_voip.htm�.

� �HYPERLINK "http://www.yak.ca/yak-travel-card"�http://www.yak.ca/yak-travel-card�.

� Telecom Regulatory Policy, CRTC 2012-24, Network interconnection for voice services, issued 19 January 2012, paragraph 90.

� TRP 2012-24, paragraph 91.

� Telecom Decision CRTC 2006-58, Canadian Cable Telecommunications Association – Part VII application re the application of some competitive local exchange carrier (CLEC) obligations to certain CLECs, paragraph 106.

� This is the rate for Telebec’s regulated residential PES in sub-bands E2-e and E2-f.
� Officially the imputed average rates as explained in Appendix 6.

� We note that while Bell Aliant also has a subsidy requirement in Bands E and F within the Bell Aliant Ontario and Quebec serving areas which was calculated using imputed rates that are slightly below $30, the subsidy requirement in each of those bands is only $0.03 per NAS per month.

� As already noted, in the case of Bell Aliant in Bands E and F within its Ontario and Quebec serving area, there is still a subsidy requirement estimated for 2015 and the imputed rate levels used to calculate those subsidy amounts are below $30 per NAS per month. However, the amount of subsidy needed is only $0.03 per NAS per month in each of those bands, and therefore the increase needed to eliminate those subsidy amounts is only $0.03 per NAS per month in each band.

� Telecom Regulatory Policy CRTC 2011-291, Obligation to serve and other matters, issued 3 May 2011.

� As detailed in Appendix 6, we estimate that the amount of contribution paid in Bands E and F (for both ILECs and SILECs) for the last year for which final subsidies are known (2014) was $75M. Under the existing regime, this number could change each year as result of impacts of inflation and forbearance applications. Nonetheless, for the sake of simplicity, we believe the Commission can assume that the savings from eliminating subsidies in Bands E and F will total $75M annually.

� See Appendix 6 for calculation details.
� Decision CRTC 2000-745, Changes to the contribution regime, issued 30 November 2000.
� Ibid., paragraph 88.
� Ibid., paragraph 87.

� As defined at Line D.7 in Part B of Telecom Circular CRTC 2007-15, The Canadian revenue-based contribution regime, issued 8 **** 2007.

� As stated in the Commission's question 7.

� The limited budget for the Rural Broadband Experiments, combined with the limited public information concerning the bids, makes it difficult to draw conclusions of broad application. It should also be noted that RBE proposals could choose which census blocks they would serve, while the CAF Offers required that all the census blocks within the funded range as an obligation the incumbent would have to accept if it accepted the CAF offer.

� December CAF Order at paragraph 85.
� Ibid. at paragraph 85 footnote 193.
� Mr. Gillan, Appendix 3, page 13.

� ****, D. (1999). "Auctions for Universal Service Obligations." Telecommunications Policy, 23:645-674, page 647 (emphasis added).

� Wallsten, S. (2008). "Reverse Auctions and Universal Telecommunications Service: Lessons from Global Experience." Federal Communications Law Journal, 61: 373-394, page 393. Other economists have made similar findings. Laffont and Tirole (2002) note that given the extent of asymmetric information between the regulator and firms, auctions are a superior market-based method to determine universal service subsidies:

The use of proxy models to compute universal service support is a prescriptive approach. That is, the subsidy is set by the regulator rather than by market forces. In view of the difficulties involved in estimating the true cost of universal service, it is worth considering alternative support mechanisms in which this cost is elicited from the market participants through an auction mechanism. (Laffont, J-J. and J. Tirole, (2002), Competition in Telecommunications, The MIT ****, page 243.) The notion of using auctions to minimize the level of subsidy to fund basic telecommunications services was raised by Milgrom (1996):

The first calls for the use of an auction in which bidders name the price they require to accept a universal service obligation in a service area. This means that the selected suppliers stand ready to offer a prescribed basic service package at a prescribed "affordable price." The advantage of this option is that competition among would-be universal service providers could drive down the necessary level of subsidies. Also, once auctions are conducted there would be no further need for cost studies to determine appropriate levels of subsidy to a monopoly telephone supplier. (Milgrom, P., "Procuring Universal Service: Putting Auction Theory to Work," Le Prix ****: The **** Prizes, 1996, **** Foundation, 1997, 382-392.)� Wallsten, S. (2008). "Reverse Auctions and Universal Telecommunications Service: Lessons from Global Experience." Federal Communications Law Journal, 61: 373-394, page 392.

� Telecom Decision CRTC 2010-805, Bell Canada – Application to review and vary certain determinations in Telecom Decision 2010-637 concerning the use of high-speed packet access wireless technology and the deferral account balance, issued 29 October 2010, at paragraph 19.

� See, Satellite Inquiry Report, October 2014, at paragraph 87.

� A perfect example of this is occurred in the funding associated with providing broadband service to Nunavut. The Federal Government's Broadband for Rural and Northern Development **** Program (BRAND) was launched in **** 2002 as a three-year $105M initiative was to promote Internet Capital investment by matching capital funds. One of the key criteria of the program was that "The BRAND program also requires that projects be sustainable based on a one-time contribution from the BRAND program. Bidders must propose a sustainable service that fits the intent of this program." (Nunavut Broadband Development Corporation Request for Proposal Closing Date **** 21, 2003 Version 1.0 page 15). Northwestel bid on this program understanding that the investment would need to be sustainable. However the funding under BRAND was awarded to a party that was able to re-access the program for additional funds. In 2009, Mr. **** of SSI Micro was quoted in Up **** September 2009 as saying "Last **** I threatened to shut [the network] down if the federal government didn't smarten up. Eight months into it we started losing money because we weren't getting any contribution for satellite subsidy." The article continued "…Now with $21-million in new federal bandwidth funding starting to flow, things appear to be back on track." (See Up Here Business, **** 2009, Issue 264, "Internet or Internot" �HYPERLINK "https://www.ssimicro.com/sites/default/files/news-articles/UH-2009-09-09.pdf"�https://www.ssimicro.com/sites/default/files/news-articles/UH-2009-09-09.pdf�).

� Industry Canada, Framework for Spectrum Auctions in Canada, **** 2011 available at: �HYPERLINK "http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01626.html"�http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01626.html�. See Section 5 on Auction Process Overview.

� For example, **** Auctions which has designed and implemented auctions for several regulators and countries, including Industry Canada with respect to its 700 Mhz and 2500 Mhz spectrum auctions: �HYPERLINK "https://www.powerauctions.com/"�https://www.powerauctions.com/�.

� Industry Canada took a similar approach for Connecting Canadians, using 2011 Census household counts data overlaid into the hexagon mapping information. See �HYPERLINK "http://www12.statcan.gc.ca/census-recensement/2011/dp-pd/prof/index.cfm?Lang=E"�http://www12.statcan.gc.ca/census-recensement/2011/dp-pd/prof/index.cfm?Lang=E�.

� Even when using a fixed wireless solution, the Commission did not regulate the retail rate but instead required Bell to match its urban rates. At paragraph 10 of Decision 2010-805, the Commission summarized Bell Canada's proposal in this regard as "Bell Canada indicated that its HSPA+ wireless technology proposal (the revised proposal) would address the requirements identified by the Commission in Telecom Decision 2010-637, such that the approved communities in Ontario and Quebec would have access to a broadband service that was comparable, or in some cases superior, to what is available in urban areas." An associated footnote further explained "the features available with the revised proposal include (i) various retail service options (i.e. speeds and usage caps), (ii) monthly usage allowances greater than 2 GBs, and (iii) an insurance option providing an extra 40 GBs of usage for $5 per month." The Commission approved this approach at paragraph 20 of that same decision stating "the Commission considers that Bell Canada's commitment to maintain comparability as urban broadband service improves, as well as to make an appropriate wholesale service available, will ensure that consumers in the approved communities have access to high-quality broadband services over the long-term."[image: image15.emf]Company Name **** 1 of 1

Subject
_1498401260.doc
Company Name
**** 1 of 1
Subject

Intervention: Bell (Intervenor 286)

Document Name: 2015-134.224011.2395130.Intervention(1fc3#01!).doc
Bell Canada and its Affiliates
**** 2 of 92
TNC 2015-134 – Intervention
Abridged
Bell Canada and its Affiliates
**** 3 of 92
TNC 2015-134 – Intervention
Abridged
[image: image14.emf]Company Name **** 1 of 1
Subject
Telecom Notice of Consultation CRTC 2015-134,
Review of Basic Telecommunications Services
Intervention
of
Bell Canada and its Affiliates
14 July 2015
Table of Contents
****
2EXECUTIVE SUMMARY AND INTRODUCTION
2Broadband is competitive and nearly ubiquitous
2Deployment of broadband in remote areas
2The Commission could set an aspirational broadband target of at least 25 Mbps

2Commission funds for the deployment of broadband, if any, should be distributed through a competitive Request for Proposal (RFP) process2Summary of our broadband proposal

2Transitioning from voice to broadband
2Structure of our Intervention
2Key Findings and Recommendations
24.0
Question 4
24.1
Primary Role for Market Forces
24.2
Success of Market Forces in Canadian Broadband
24.3
Canada is a **** in Investment and Infrastructure Deployment
24.4
Canada has Vigorous Rivalry and Competitive Service Offerings
24.5
Canada is a **** in Usage
24.6
Government Support for Broadband Deployment in Rural and Remote Areas
21.0
Question 1
21.1
Canadians' Use of Broadband
21.2
Economic Impact of Broadband on Rural Communities
21.3

The Vast Majority of Internet Applications, including Advanced Internet Applications, can be Supported by a 5 Mbps Connection22.0

Question 2
22.1
Setting of a Minimum Broadband Target
22.2
Setting the Minimum Target Build for Subsidies
22.3
Setting Canada's Broadband Aspirational Target
23.0
Question 3
23.1
Broadband
23.1.1
Establishing a Technologically Neutral Target
23.1.2
Using a Competitive RFP Process
23.1.3
No Requirement for Commission to set Specific Pricing
23.2
Voice
23.2.1
The Current BSO for Voice and the Obligation to Serve for Voice
23.2.2
Modifications to the BSO
23.2.3
Pricing for local voice
25.0
Question 5
25.1
Broadband
25.2
Voice
26.0
Question 6
27.0
Question 7
27.1
Northwestel Territories and other Satellite Communities
28.0
Question 8
28.1
Proposed Changes to the BSO
28.2
Access to Low-Speed Internet At Local Rates (i.e., Dial-Up)
28.3
Equal Access
29.0
Question 9
210.0
Question 10
210.1
Changes to Contribution Payments and Rates in Bands E and F
211.0
Question 11
211.1
Changes to the Contribution Collection Regime
212.0
Question 12
213.0
Question 13
213.1
Overriding Principles
213.1.1
Complementary to, and not in lieu of, government and private investments
213.1.2
Competitive Allocation
213.1.3
Technological Neutrality
213.2
Structure of the Auction
213.2.1
Monthly Subsidy
213.2.2
Community Eligibility and Aggregation
213.2.3
Number of Winners for each Package
213.2.4
Role of Wholesale
213.2.5
Mandated Retail Rates
213.2.6
Reporting
APPENDICES
Appendix 1:

Broadband Market Performance in Canada: Implications for Policy by Dr. **** Eisenach of NERA Economic Consulting.

Appendix 2:

The Broadband USO Review: International comparisons of universal service regimes and broadband access, by **** + ****.

Appendix 3:

Transitioning Universal Service Support to Broadband in the United States: Providing Incumbents a Right-of-First-Refusal or Competitive Bidding, by **** Gillan.

Appendix 4:
A list of government broadband funding initiatives since 2002.
Appendix 5:

A legal analysis of the obligation to serve and the Commission's ability to order private entities to build facilities where none exist.

Appendix 6:
A detailed explanation of our proposals for reforms to the voice contribution fund mechanism
EXECUTIVE SUMMARY AND INTRODUCTION
1. Bell Canada, on its own behalf, and on behalf of its affiliates

, welcomes this opportunity to participate in this hearing and notes our support for the Commission's commitment to ensuring Canadians have access to the services they need to meaningfully participate in Canada's digital economy. As Canada's largest communications company, we are proud of our role as a leader in the provision of services employing Information Communications and Technology (ICT) and in deploying broadband across Canada, including in remote areas.

2. Broadband networks form the key underpinning of Canada's digital economy and their role is clearly important to Canadians. Facilities-based competition has resulted in Canadians having access to world class networks. In this respect, we are continuously investing in improving and expanding our networks. In fact, we have recently announced that we expect to invest $20 Billion in the nation's communications capabilities by the end of 2020, ensuring Canada remains competitive at a global level in next-generation broadband communications.

And our competitors, as well as governments, are continuously funding the deployment of broadband as well. It is therefore important for the regulatory framework to continue to support investment by private and governmental entities. In our view, broadband deployment must be supported through a combination of:

· Policies encouraging facilities-based competition;
· A light handed regulatory regime that incents, rather than discourages, investment in remote areas; and
· Targeted subsidies.
3. The following constitutes our comments to TNC 2015-134

. We have structured our submission in the form of answers to the questions the Commission asked. However, in order to obtain a quick understanding of our proposals, we have not structured this Executive Summary in that format. In addition, throughout the submission, we have highlighted our "Key Findings" and "Recommendations". A summary of all those recommendations and findings can be found at the end of this Executive Summary.

Broadband is competitive and nearly ubiquitous

4. Historically the Commission has taken "a hands-off" approach to the Internet and relied upon competition to meet Canadians' needs. This market driven approach has produced tangible results in terms of the availability of robust broadband networks built by facilities-based competitors. Only two countries in the G20 – Japan and **** Korea – boast a higher percentage than Canada of broadband connections exceeding 4 Mbps in download speed.

By 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more.

Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

5. We have commissioned a report by Dr. **** Eisenach of NERA Economic Consulting to examine the state of competition in Canada's broadband market. His report is attached as Appendix 1. This report demonstrates that Canada has world class broadband networks and services, in terms of both availability and quality. Broadband prices compare favourably to those in other jurisdictions and quality-adjusted prices have been falling. **** quality and affordable prices have led to leading broadband penetration and usage. Consistent with the Policy Direction, where ever market forces have been effective in ensuring Canadians have affordable access to basic telecommunications services, and indeed have made Canada a global broadband leader, regulatory intervention is inappropriate.

Deployment of broadband in remote areas

6. Due to our country's size and challenging geography, there remain a few rural and remote areas in which broadband services are not available today because there is simply no business case to build the necessary infrastructure to serve them.

7. To the extent the Commission deems it appropriate to establish an industry-funded subsidy regime, we submit that any subsidy should:

i. Only be available in circumstances where the Commission has determined that no government funding is or will become available to fund the deployment of broadband in the target community. This principle is consistent with the Commission's own commentary in its prelude to Q7 which notes that "[t]he Commission considered that [any Commission created funding]…mechanism should complement, and not replace, other investments from the private sector and governments, including public-private partnerships." Over the years, the federal and provincial governments have provided targeted funding to help expand broadband services. For example, the Federal Government announced several initiatives to enable or encourage Canadians' ability to participate in the digital economy, including its $305M Connecting Canadians program for the deployment of 5 Mbps broadband in unserved or underserved communities. The use of consolidated revenue funds is less distortionary than industry-specific taxes and should always be preferred. In our view, Canada can and should extend the deployment of this broadband infrastructure to rural and remote areas through government funding. Since 2006, the Government has raised approximately $12B from wireless spectrum auctions in the highly competitive wireless market. A portion of those proceeds could, in our view, be directed to subsidizing the roll-out of the necessary infrastructure.

ii. Only be used to extend broadband to Canada's most remote communities, namely those found in Bands G and H1 and only where broadband speeds of 5/1 Mbps are not available. In the case of Band G, these communities do not have year-round road access and are extremely costly to cover with broadband facilities. Band H1 contains some of the most difficult terrain in the country. By focusing on the most remote bands (Bands G and H1), any new Commission subsidy program can address the most difficult problem first and the various governments can continue to provide incentives and subsidies to close the gap, if any, for remaining areas (i.e., unserved or underserved areas in Bands A through F). Since, under section 46.5 of the Telecommunications Act (the Act) the Commission must first declare broadband to be a 'basic telecommunications service' if it wishes to create a broadband subsidy fund, if it intends to create such a fund, we submit it should only declare broadband to be a basic telecommunications service in Bands G and H1. This is analogous to the current basic service objective (BSO) for voice which only applies with respect to Incumbent Local Exchange Carriers (ILECs) local voice services in regulated areas, as further explained in our response to Q3. The attributes that define the BSO for voice do not apply to ILECs in forborne areas, nor do they apply to Competitive Local Exchange Carriers (CLECs) in any region.

iii. Not increase the size of the contribution fund, but rather fund any new broadband subsidy from a reallocation of funds from the existing local voice subsidy. As discussed in our answer to Q10, the voice subsidy fund today is inefficiently designed. It allocates funds for areas that do not require a subsidy, especially considering that almost all of the ILECs in these subsidized areas are charging lower rates than what the Commission has deemed affordable elsewhere in the country.

Should the Commission deem it necessary to assist in the deployment of broadband in Bands G and H1, a target speed of 5 Mbps is appropriate. However, funding of broadband in areas that are still unserved could be for 10 Mbps8. The Commission's technological review published in its 2014 Canadian Monitoring Report (CMR) demonstrates that the vast majority of Internet applications can be performed with a connection of 5 Mbps:

Figure 1
Commission Assessment of Bandwidth Requirements for Popular Internet Applications
[image: image1.jpg]
****-time
Requiredpu-tnmnnu mmlltmcy
Streaming
Dial—up
1231(st
5 00 Kbps
Average available bandwithh
1.5 Mbps 5Mbps 15Mbps

9. Figure 5.3.8 of the 2014 CMR shows that very low bandwidth is necessary for email, ranging from dial-up to 128 Kbps. Web-browsing and voice over Internet Protocol (VoIP) can be achieved with a good user experience with a bandwidth connection of 1.5 Mbps. And the vast majority of other applications can be performed with a connection 5 Mbps, including real-time gaming, videoconferencing and high definition (HD) video streaming. The results clearly demonstrate that all but the most intense online activities, such as the streaming of video in qualities greater than HD, can be achieved through a 5 Mbps connection. We submit that although of interest from an entertainment perspective, such applications and services are not necessary to meaningfully participate in the digital economy.

10. As such, in the event the Commission deems it necessary to implement a fund to assist in the deployment of broadband in Bands G and H1, we believe the Commission should only fund areas that are not currently capable of 5 Mbps download and 1 Mbps upload. This is consistent with the ongoing Federal Government's Connecting Canadians program which considers 5 Mbps as the threshold for the determination of whether or not a community is "served", “underserved” or "unserved" by sufficient broadband service.

11. Such a target is also consistent with international practices. Attached as Appendix 2 to our submission is an expert report we commissioned from **** + **** which examines the state of universal service and minimum broadband targets in 17 leading Organization for Economic Co-operation and Development (OECD) countries.

That review reveals that none of these countries had a minimum target higher than 4 Mbps.

12. We also commissioned a report by **** Gillan of Gillan Associates (and current board member of the Universal Service Administrative Company as appointed by the Chairman of the Federal Communications Commission (FCC)) called Transitioning Universal Service Support to Broadband in the United States: Providing Incumbents a Right-of-First-Refusal or Competitive Bidding to examine the structure of the universal service regime for broadband in the U.S. The study is attached as Appendix 3. Mr. Gillan explains that the FCC's universal service regime for broadband provides funding for the build-out of broadband to exchanges where no other provider is offering speeds of 4 Mbps download and 1 Mbps upload and such funding is provided to accommodate speeds of 10 Mbps download and 1 Mbps upload.

13. If the Commission believes the establishment of a fund is necessary for the deployment of broadband in Canada's most remote communities, we believe it would be prudent to fund deployment in a similar manner to the U.S. (i.e., at 10 Mbps download and 1 Mbps upload) in those areas of Bands G and H1 that do not have access to 5 Mbps or more (whereas the U.S. will only fund access in communities that do not have 4 Mbps or more). As discussed in our answer to Q7, an exception to this principle is warranted for satellite served communities, which instead should have a target of 5 Mbps download and 1 Mbps upload.

The Commission could set an aspirational broadband target of at least 25 Mbps

14. There is a difference between the setting of a minimum speed for funding purposes and establishing aspirational targets. Mr. Gillan explains that the FCC has defined broadband as consisting of 25 Mbps download and 3 Mbps upload. But, the FCC does not use that definition for universal service funds purposes. Rather, the 25/3 measure is an aspirational target. **** + **** note that many other countries have established aspirational targets – some of which are backed by Government subsidies (but not industry-funded regimes like our contribution regime).

15. **** + ****’s international review demonstrates that where aspirational targets are set, they are aggressive. In other words, aspirational targets should also be inspirational. Given the successful state of Canada's broadband networks, we believe the country is ripe for greater goals. As such, we submit that the Commission should set an aspirational target of at least 25 Mbps and continue to track the nation's progress with respect to this target.

16. Beyond setting the aspirational target, the Commission should also ensure that it adopts policies that actually assist industry to achieve those targets, such as allowing telecom service providers (TSPs) to access buildings to install new facilities, and removing wholesale obligations which undermine incumbents' incentives to invest. Of course, there is a role for the Federal Government as well. It can increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments. In fact, the latter can have such a significant impact on investment that we encourage the Commission, as part of its decision in this proceeding, to recommend that the Government do just that.

Commission funds for the deployment of broadband, if any, should be distributed through a competitive Request for Proposal (RFP) process17. We submit that the Commission should not rely on any imposed obligation to serve when it comes to broadband. This is consistent with international practice. As detailed by **** + ****, although almost all of the 17 countries surveyed had government sponsored programs to extend broadband, only four used an obligation to serve for broadband as a means of extending broadband. Further, those four set such obligations only at speeds that can reasonably be achieved through existing telephone networks. (Three countries with obligations of 1 Mbps download and 2 Mbps download in the case of Switzerland). Further, we submit that the Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today.

18. Equally important, lessons from recent U.S. experiments tell us that obligations to serve (which rely on cost models) often result in inefficient subsidies that ultimately subsidize lower speeds at a greater cost than what could otherwise be attained through a competitive bidding process. As noted by Mr. Gillan, in the U.S., the largest American telephone companies were offered subsidies pursuant to a cost model and a first right of refusal with respect to such funding (i.e., an approach similar in structure to an obligation to serve – albeit a voluntary one). At the same time, the FCC undertook an experiment in which it invited other ISPs to offer to build broadband (known as the Rural Broadband Experiment or RBE program) in some of these areas so that it could see what level of subsidy an auction regime would determine is needed to serve these areas. The net result of the RBE program is that the FCC was inundated with offers to build broadband at subsidies that were more than 50% lower than the cost model's results and for speeds that were higher than assumed by the model.

19. Clearly, the U.S. experiment demonstrates that auctioning is the most efficient and cost-effective solution. This is also supported by the Canadian experience and economic literature as further discussed in our Intervention. We accordingly recommend a multi-round competitive auction process (i.e., an RFP process) for any Commission subsidies for the funding of broadband in remote communities. Such an RFP process could also be tailored to the needs of satellite communities which may require assistance with transponder costs on an ongoing basis. A detailed description of a proposed RFP process is provided in our response to Q13.

Summary of our broadband proposal

20. In the event the Commission deems the establishment of a fund for the deployment of broadband in Bands G and H1 to be necessary, the Commission could:

· Establish a fund and broadband contribution regime to assist in ensuring access to basic broadband services in Bands G and H1, as further described in our response to Q10;

· Establish a minimum target for funding purposes in Bands G and H1 of 5 Mbps download;

· Establish a minimum target, for the purposes of subsidy, of 10 Mbps (such that funds are made available for the deployment of 10 Mbps in communities that are not currently served by at least 5 Mbps) and 5 Mbps for satellite communities;

· Establish a competitive RFP process for the distribution of broadband subsidy in Bands G and H1; and

· Establish a higher aspirational broadband target, such as 25 Mbps, and periodically report on the nation's progress in achieving this goal.

Transitioning from voice to broadband

21. As the Commission noted in its notice of consultation, Canadians are reducing their dependency on traditional wireline voice services. In fact, Canada has reached a tipping point where the majority of Canadians have found alternatives or abandoned traditional wireline voice services from ILECs. Given the changing competitive and technological environment for voice services, we recommend minor adjustments to the current BSO to eliminate the requirement to provide Equal Access and access to dial-up services. These services made sense in the old traditional (time-division multiplexing (TDM)) regime, but are no longer applicable in the new Internet Protocol (IP) world. Demand for Equal Access is extremely low given the multitude of alternatives available to consumers. In the age of broadband, access to dial up can no longer be seen as a requirement of the BSO.

22. ILECs also currently receive subsidy for the maintenance of voice services in high-cost serving areas (HCSAs) (Bands E and F) and extremely HCSAs (Bands G and H1). We believe the costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are therefore overstated. Although, in the most remote areas (Bands G and H1) it is likely that subsidies are still required, we believe there is no evidence to justify the requirement of subsidies for voice in the rest of the HCSAs (Bands E and F). However, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement and eliminate unjustified subsidies.

23. We accordingly recommend the Commission phase out subsidy for Bands E and F over a three-year transition period. Given the very high cost nature of the areas in Bands G and H1, the annual local voice service subsidy amounts in these bands should be maintained.

24. We also recommend the Commission grant ILECs the flexibility to raise residential primary exchange service (PES) rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest affordable level in the country, which is currently $37.29, over a three year transition period. To protect consumers, these rate increases would be limited to a maximum of $2.50 in any one year – ensuring that all rate increases to hit the $37.29 level would be complete by the third year. Assuming that the decision is released in 2016, we anticipate these increases taking place at the beginning of 2017, 2018 and 2019. No rate increase would be permitted beyond a level that would be needed to eliminate the subsidy in that rate band.

25. By 2019, this phasing out of subsidy will reduce the current national contribution fund annually by $75M. If the Commission deems it appropriate to establish a fund for the deployment of broadband in Canada's most remote communities (i.e., Bands G and H1), the Commission can redirect this money to fund those projects. In fact, as early as 2017, under our proposal explained in detail in Appendix 6, over $54.5M would be available to fund broadband (growing to $69M in 2018 and then $75M in 2019).

26. In addition, we believe that the contribution collection regime should also be revised to include Internet and paging revenues (which are currently excluded). Details on these changes are provided in our answer to Q11.

Structure of our Intervention

27. In order to assist the Commission and other parties, we have structured this intervention in the order of the questions listed in Appendix B of TNC 2015-134. Further, for each answer (except those that are very short) we have provided a brief summary of that answer before providing a more in depth answer to the question. Before answering the Commission's specific questions, it is necessary to understand the state of deployment of broadband in Canada, how competitive the market is, and how that competition has lead to nearly ubiquitous broadband access such that Canadians continue to be the most engaged users of broadband per capita in the world. Given that such a background addresses the Commission's Q4, we have moved our response to Q4 at the outset. All remaining questions have been answered in the order set out by the Commission.

28. Certain information contained in this submission and the related Appendix 6 is filed in confidence with the Commission pursuant to section 39 of the Telecommunications Act (the Act) and the directions provided by the Commission in the Broadcasting and Telecom Information Bulletin (BTIB) CRTC 2010-961. In particular, the information which we have provided in confidence represents competitively sensitive information which the Commission has indicated should be treated as confidential. Release of this information on the public record would provide existing or potential competitors with invaluable competitively-sensitive information that would not otherwise be available to them, and which would enable them to develop more effective business strategies. Release of such information could prejudice our competitive position resulting in material financial loss and cause us specific direct harm. An abridged version of this Intervention and Appendix 6 are being provided for the public record.

29. Attached as appendices to this intervention are:
Appendix 1:
Broadband Market Performance in Canada: Implications for Policy, by NERA Economic Consulting
Appendix 2:

The Broadband USO Review: International comparisons of universal service regimes and broadband access, by **** + ****Appendix 3:

Transitioning Universal Service Support to Broadband in the United States: Providing Incumbents a Right-of-First-Refusal or Competitive Bidding by Gillan AssociatesAppendix 4:

A list of government broadband funding initiatives since 2002
Appendix 5:

A legal analysis of the obligation to serve and the Commission's ability to order private entities to build facilities where none existAppendix 6:

A detailed explanation of our proposals for reforms to the voice contribution fund mechanism
Key Findings and Recommendations

30. As mentioned above, throughout the submission, we have highlighted our "Key Findings" and "Recommendations". For ease of reference, below is a list of all those recommendations and findings.

Key Findings
Key Finding 1A:

Email and Web-browsing (and the plethora of activities and socio-economic contributions that can be achieved through web browsing and email) are the services most necessary to meaningfully participate in the digital economy.

Key Finding 1B:

Ensuring that all Canadian households have access to a broadband service is much more important than ensuring households have access to very high broadband speeds.

Key Finding 1C:

Other than where there is no access to broadband at all, the lack of skilled labour in remote areas is a greater barrier to ICT adoption than a lack of high speed bandwidth.

Key Finding 1D:

Broadband speeds of 5 Mbps are sufficient to support the vast majority of online applications and services required by Canadians to meaningfully participate in the digital economy.

Key Finding 1E:

Even where Canadians have a very broad choice of technology, speed and provider, a significant number of these Canadians continue to choose broadband tiers close to 5 Mbps.

Key Finding 1F:

Using the most up-to-date Industry Canada estimates, there are less than 200,000 households in Canada without access to broadband service of at least 5 Mbps download.

Key Finding 2A:

The FCC has established a 25/3 Mbps aspirational target for broadband. For universal service funding, the FCC only subsidizes broadband builds to exchanges that do not have 4 Mbps/1 Mbps. When it subsidizes such builds, however, it requires the build to extend 10 Mbps/1 Mbps broadband service.

Key Finding 3A:

We have reached a tipping point where the majority of Canadians have found alternatives or abandoned ILECs' traditional wireline voice services. Less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC.

Key Finding 3B:

While The Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today, it does have the power under s.46.5 of the Act to create a fund to finance the build of broadband and to impose a contractual obligation to build on any TSP that volunteers to take advantage of such funding.

Key Finding 4A:

Canada is a leader in terms of broadband investment. Canadian ILECs and cablecos exceed their U.S. peers with respect to capital intensity, and Bell Canada and Telus in particular exceed ILEC peers in the U.S., UK, and ****.

Key Finding 4B:

As a result of investment and competition, by 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more. Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

Key Finding 4C:

Canada is third in the G20 – behind only Korea and Japan – in percentage of unique Internet connections that exceed 4 Mbps.

Key Finding 4D:

There have been significant shifts in high-speed Internet market share over time in Canada – a textbook indicator of highly competitive markets.

Key Finding 4E:
Canada compares favourably with other countries in terms of high-speed Internet pricing.
Key Finding 4F:

Compared to other OECD countries, Canada's prices fall below the price level predicted by its population density for both lower speed and usage services and higher speed and usage services.

Key Finding 4G:

Obstacles to broadband use and adoption in Canada are low enabling Canadian Internet users continue to be the "world's most engaged" broadband users.

Key Finding 4H:
Canada is a world leader in terms of broadband penetration levels.
Key Finding 4I:

Due to our country's size and challenging geography, there are rural and remote areas in which broadband services are not available today because there is no business case to build the necessary infrastructure to serve them.

Key Finding 4J:

There have been and continue to be several effective local, provincial, federal and territorial government broadband funding programs.

Key Finding 7A:

Northwestel has filed with the Commission two discrete proposals that would each enable all 58 terrestrially-served communities in Northwestel's serving area to receive broadband speeds exceeding 15/1 (which, if granted, would make it ineligible for funding in these communities under our proposal in the event the Commission deems a fund to be necessary).

Key Finding 13A:

Relying on an obligation to serve or a similar mechanism that relies on cost models for creating broadband subsidies is costly, time consuming and inefficient. Experiments conducted by the FCC have demonstrated that a competitive RFP process resulted in a significant number of bids, some of which were less than 50% of what would have been the FCC cost model's result, and with commitments to deliver higher speeds than required by the FCC.

Key Finding 13B:

The highest costs to expanding broadband in satellite communities are the ongoing operating expenses of paying for the backhaul of the satellite through leased capacity. As such, satellite bidders will likely require ongoing subsidies instead of on a one-time/build basis.

Key Finding 13C:
Governments rely on third party experts to help assist them in conducting auctions.
Key Finding 13D:

Wholesale access obligations would lower the business case in regions that are already challenging to deploy in to begin with. As bidders would have to factor in a decreased market penetration (in light of wholesale competition) it would correspondingly increase the cost of deployment and therefore increased required subsidies and industry contributions.

Recommendations
Recommendation 2.1:

In the event the Commission deems it necessary to establish a fund to facilitate the deployment of broadband, 5/1 should be recognized as a suitable minimum broadband speed to enable participation in the digital economy.

Recommendation 2.2:

In the event the Commission determines that a fund is necessary, the Commission should only fund broadband in underserved or unserved communities in Bands G and H1 (i.e., communities without speeds of at least 5 Mbps download and 1 Mbps upload) leaving governments and market forces to cover the remaining areas.

Recommendation 2.3:

When subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload, with the exception of satellite communities where it should only fund for 5 Mbps download and 1 Mbps upload.

Recommendation 2.4:

The Commission could establish a higher aspirational target speed and report on Canada's progress in achieving that target, similar to the U.S. aspirational target of 25/3.

Recommendation 2.5:

The Commission should recommend to the Federal Government that they increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments.

Recommendation 3.1:

Any funding for broadband should be technologically neutral. Any service capable of delivering the requisite characteristics of the minimum target should be permissible whether it is provided over digital subscriber line (DSL), cable, fibre to the node (FTTN), fibre to the home (FTTH), fixed wireless or satellite services.

Recommendation 3.2:

As an exception to the principle of technological neutrality, mobile wireless services should not be considered at this time for the purposes of determining whether a community is "served" or "unserved".

Recommendation 3.3:

If the Commission determines that a subsidy fund is needed, it should only mandate minimum target speeds and, if it determines it is necessary, require bidders to commit to providing service at rates comparable to competitive offerings offered in non-subsidy areas. As Canada benefits from high levels of competition in broadband, there is no need mandate specific terms or rates.

Recommendation 3.4:

In the event the Commission determines funding is required in Bands G and H1, it should define broadband as a "basic telecommunications service" only in Bands G and H1 in order to allow it to create a fund for building broadband in these areas under s.46.5 of the Act.

Recommendation 3.5:

Distribution of subsidies for broadband deployment should be done through an RFP competitive auction process rather than through a broadband obligation to serve.

Recommendation 4.1:

Government should always have the primary role in funding broadband deployment in remote areas and given the recent auction proceeds, there is government funding available. The Commission should only intervene to create its own fund for broadband to the extent it determines that the Government cannot be relied upon to assist in the deployment of broadband where there is no business case.

Recommendation 7.1:

Special consideration for satellite communities can be accommodated in light of ongoing transponder costs. These considerations should apply to both satellite communities in and outside Northwestel's territory.

Recommendation 7.2:

The Commission should not implement an auction for satellite communities until the outcome of the Telesat C-band pricing proceeding (TNC 2015-133) is known.

Recommendation 8.1:

The BSO should be amended to eliminate the requirement to provide access to low-speed Internet (i.e., dial-up).

Recommendation 8.2:

Subject to transition outlined in Recommendation 8.3, the requirement for all LECs (including ILECs in regulated and forborne areas) to provide equal access should be eliminated.

Recommendation 8.3:

To allow for an orderly transition, all equal access obligations (both primary exchange carrier (PIC) requirements and dial-around obligations (i.e., 1010XXX)) for residential end-users should be eliminated by 1 January 2018. For business end-users, dial-around obligations would cease on the same date as residential end-users, but PIC obligations would continue until 1 January 2022.

Recommendation 10.1:

The costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are overstated. However, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement, as described under Recommendation 10.2.

Recommendation 10.2:

ILECs should be granted the flexibility to raise residential PES rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest Commission approved (i.e., by definition affordable) level in the country, $37.29 over a three year transition period. The maximum annual increase would be $2.50 per month. Rates would be permitted to rise until they reached $37.29 or the amount needed to eliminate the subsidy, whichever is lower. The permissible rate increase should be imputed for subsidy calculation purposes in each year, whether the ILEC implemented the increase or not.

Recommendation 10.3:

Given that the costs are inaccurate, the Commission should eliminate the local voice service subsidies in Bands E and F (with the exception of the subsidy that is being replaced by rate increases – which will be eliminated over a three year transition period).

Recommendation 10.4:

Given the very high cost nature of the areas in Bands G and H1, the annual local voice service subsidy amounts in these bands should continue to be calculated using the current formulas.

Recommendation 10.5:

As the local voice service subsidy amounts in Bands E and F are eliminated over the three-year transition period, the Commission could redirect the associated amounts each year towards subsidizing broadband in Bands G and H1. Based on the approved 2014 total subsidy amounts, we estimate the total amount that could be redirected to funding broadband services at approximately $75M by the third year of the transition period.

Recommendation 11.1:

Contribution eligible revenues (CERs) should be modified to include both retail paging service revenues and retail Internet service revenues.

Recommendation 11.2:

Assuming there is a broadband fund, funds for voice and broadband should be distributed on different bases. Specifically, voice funds should continue to be paid out to ILECs and the Canadian Administrator of VRS (CAV) in accordance with current practices. Broadband funds, however, should be paid out through a competitive auction model in accordance with the proposal we put forward in our response to Q13.

Recommendation 13.1:

Any auction design should ensure no subjective decision making in the award of winners once the criteria of the auction have been established.

Recommendation 13.2:

Any auction design should ensure technological neutrality preferring no one technical solution with the exception that, consistent with the Federal Government's Connecting Canadians program, mobile wireless (as opposed to fixed wireless) should not be considered when determining whether a community is "served" or "unserved", nor should it be an eligible solution as part of a bid.

Recommendation 13.3:

As a further exception to Recommendation 13.2, any auction should be designed to allow for a proper comparison between satellite-based solutions that require permanent subsidies and terrestrial-based solutions that only require onetime (or finite) upfront subsidies and may have special rules or exemptions pertaining to satellite-served communities.

Recommendation 13.4:

Any auction should be designed as a reverse auction allowing bidders to bid on the amount of subsidy they require to provide service in a community based on a monthly payment per household for 60 months for terrestrial communities and perhaps 36 months for satellite-served communities.

Recommendation 13.5:

Any auction should be designed to allow some form of grouping communities in Bands G and H1 together into a package so as to maximize network deployment efficiencies.

Recommendation 13.6:

Any auction should award bids to only one provider per community and the corresponding subsidy should not be portable to other ISPs even if another ISP later elects to serve customers in that area.

Recommendation 13.7:

There should be no regulatory requirement for the winner of any auction to wholesale access to its broadband service.

Recommendation 13.8:
**** bidders should have to report annually on their progress in rolling out service.
ANSWERS TO THE COMMISSION'S QUESTIONS
4.0
Question 4

Can market forces and government funding be relied on to ensure that all Canadians have access to basic telecommunications services? What are the roles of the private sector and the various levels of government (federal, provincial, territorial, and municipal) in ensuring that investment in telecommunications infrastructure results in the availability of modern telecommunications services to all Canadians?

Key Findings
Key Finding 4A:

Canada is a leader in terms of broadband investment. Canadian ILECs and cablecos exceed their U.S. peers with respect to capital intensity, and Bell Canada and Telus in particular exceed ILEC peers in the U.S., UK, and ****.

Key Finding 4B:

As a result of investment and competition, by 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more. Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

Key Finding 4C:

Canada is third in the G20 – behind only Korea and Japan – in percentage of unique Internet connections that exceed 4 Mbps.

Key Finding 4D:

There have been significant shifts in high-speed Internet market share over time in Canada – a textbook indicator of highly competitive markets.

Key Finding 4E:
Canada compares favourably with other countries in terms of high-speed Internet pricing.
Key Finding 4F:

Compared to other OECD countries, Canada's prices fall below the price level predicted by its population density for both lower speed and usage services and higher speed and usage services.

Key Finding 4G:

Obstacles to broadband use and adoption in Canada are low enabling Canadian Internet users continue to be the "world's most engaged" broadband users.

Key Finding 4H:
Canada is a world leader in terms of broadband penetration levels.
Key Finding 4I:

Due to our country's size and challenging geography, there are rural and remote areas in which broadband services are not available today because there is no business case to build the necessary infrastructure to serve them.

Key Finding 4J:

There have been and continue to be several effective local, provincial, federal and territorial government broadband funding programs.

Recommendations
Recommendation 4.1:

Government should always have the primary role in funding broadband deployment in remote areas and given the recent auction proceeds, there is government funding available. The Commission should only intervene to create its own fund for broadband to the extent it determines that the Government cannot be relied upon to assist in the deployment of broadband where there is no business case.

31. This section also addresses a recommendation found in the Answer to Q2:
Recommendation 2.2:

In the event the Commission determines that a fund is necessary, the Commission should only fund broadband in underserved or unserved communities in Bands G and H1 (i.e., communities without speeds of at least 5 Mbps download and 1 Mbps upload) leaving governments and market forces to cover the remaining areas.

4.1
Primary Role for Market Forces

32. Market forces can be relied upon to ensure that Canadians have access to broadband, except perhaps in the most rural and remote areas where broadband may not be available at all. Outside of these few rural and remote areas, market forces will continue to result in world-leading broadband networks from multiple facilities-based providers being made available to Canadians at affordable prices across a range of speeds/usage levels.

33. Of course, the Policy Direction requires the Commission to – and suggests that governments will – rely on market forces to the maximum extent feasible to achieve policy objectives. The role of Government and the Commission in these competitive areas should therefore be primarily to facilitate the expeditious deployment of telecommunications infrastructure by establishing policies which encourage facilities-based investments. This will allow market forces to continue to operate, as they have done effectively so far.

4.2
Success of Market Forces in Canadian Broadband

34. Competition in Canadian broadband markets today is fierce, with most Canadians able to choose from among several facilities-based competitors (typically the ILEC, a cableco, a satellite provider and multiple wireless providers). This competition has led to extensive deployment of advanced networks and vigorous rivalry across a full range of competitive service offerings. Today, 95% of Canadians have access to broadband at download speeds of 5 Mbps or higher through wireline or wireless networks built by Canada's facilities-based competitors. The result is that Canada leads the world in broadband adoption and usage.

4.3
Canada is a **** in Investment and Infrastructure Deployment

35. Canada has achieved its broadband success largely through high levels of capital investment made by facilities-based competitors willing to risk significant financial resources to keep pace with and surpass their market rivals. The wide presence of both ILEC and cableco broadband infrastructure has placed Canada in an envious position internationally, as many other industrialized nations have struggled to build even a single ubiquitous broadband network. Facilities-based competition has lead to strong competitive incentives to offer services that meet the needs of all potential customers.

36. As the Commission is aware, we are in the midst of a large, multi-year capital expenditure program to upgrade our wireline networks beginning with FTTN and now increasingly with fibre to the premises (FTTP) and in many cases with our new Gigabit Fibe product. Investments in next generation networks will continue to feature prominently in the $20B investment we have announced for the next five years.

These investments are driven by a virtuous cycle created by vigorous competition and a regulatory-framework that encourages facilities-based investments.

37. Figure 2, below, shows that Canada is already a leader internationally with respect to broadband investment. Canadian ILECs and cablecos exceed their U.S. peers with respect to capital intensity, and Bell Canada and Telus in particular exceed ILEC peers in the U.S., UK, and ****.

Figure 2
Capital Intensities of Wireline Service Providers
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38. As a result of this investment and competition, by 2013, 95% of Canadians already had access to broadband of 5 Mbps or more and 81% to broadband of 25 Mbps or more.

Moreover, approximately 92% of Canadians with access to 5 Mbps broadband in 2013 had access from two or more platforms and approximately 81% had access from three or more platforms.

While this is the latest data available from the Commission, no doubt these figures have increased over the last two years and will continue to increase during the year spanned by this proceeding, as ILECs and others continue to build out fibre infrastructure, cablecos complete DOCSIS upgrades, long-term evolution (LTE) wireless networks expand, and satellite and fixed wireless networks increase speeds and coverage.

39. This competitive intensity is not restricted to Canada's largest cities. Amongst the earliest locations in our territory to be built out with FTTH were not just Quebec City, Fredericton, and St. John, but also Quispamsis, New Brunswick (population 17,886) in 2010.

The second city in Bell Canada (as opposed to the former Bell Aliant) territory in which we announced the construction of an FTTH network was ****, Ontario. We have now built FTTH covering over 74% of households in Atlantic Canada, to communities as small as Stephenville, Newfoundland (population 6,719), Shelburne, Nova Scotia (population 1,686), and ****, New Brunswick (population 2,208). We have also built FTTH in communities as remote as Saint-Félicien, Quebec (population 10,278) and Cobalt, Ontario (population 1,133). At the end of 2014, our FTTH and FTTN networks reached more than 7.5 million homes and businesses in our territory because of the competitiveness in Canada's broadband market.

40. It is therefore not surprising that Canada is third in the G20 – behind only Korea and Japan – in percentage of unique Internet connections that exceed 4 Mbps (in other words, that effectively meet the broadband speed target of 5 Mbps), as shown in Figure 3, below. Clearly, market forces are successfully making modern communications services available and compelling to Canadians.

Figure 3
Percentage of Connections Exceeding 4 Mbps ****
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4.4
Canada has Vigorous Rivalry and Competitive Service Offerings

41. There is also extensive evidence of rivalrous behavior which demonstrates that market forces will protect the interests of all users. First, there have been significant shifts in market share over time – a textbook indicator of highly competitive markets. As Figure 4 below shows, amongst the primary facilities-based competitors in the Canadian broadband market there has been a constant battle for new subscribers. In particular, cableco share of net new additional subscribers fell from 80% to less than 50% in 2002 and then increased again to approximately 80% in 2008. At that point, ILECs began to battle back, with their share of net new additional subscribers increasing from approximately 20% to in excess of 90% in 2013. Of course, cablecos can now be expected to use all tools in their competitive arsenal to battle back themselves. New subscribers are at a premium, and all competitors have every incentive to serve the interests of all potential customers.

Figure 4
Residential Fixed Broadband Share of Incumbent and
Cable Net Additions (1999-2013)
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Share of Net Additions (%)
IncumbentsCable Competitors

42. This dynamic is facilitated by the fact that the costs of switching for most consumers are low, as customer equipment is typically provided by the broadband provider, not purchased outright.

43. As you would expect, in addition to extensive network investment, one of the features of this battle has been falling quality-adjusted broadband prices (i.e., prices are lower considering both the rate and the amount of usage included in that rate). Quality-adjusted prices for broadband service at a level that approximately meets the Commission's current target (between 1.5 and 9 Mbps up to 2011 and between 4 and 15 Mbps up to 2014) have fallen between 35% and 43% since 2008.

44. We retained Dr. **** Eisenach to examine the state of competition in Canada's broadband market. His report is attached as Appendix 1. His report concludes that:

The evidence presented in this study demonstrates that the Canadian broadband market is characterized by vigorous competition among multiple types of providers, including cable, telco, wireless and fiber; that competitive networks are widely deployed, so that consumers have numerous choices of providers; that innovation is occurring at a rapid pace; and, that new firms are entering the market.

45. As a result of this competitive process, across the country, competitors offer a wide range of products and services to meet a full range of consumer demands. And this broadband pricing in Canada is in line with international peers. According to the recently released **** Report, for service between 4 and 15 Mbps Canada "compares favourably with the other surveyed countries." Our "average monthly price of $56.66 falls just above the average for the group of surveyed foreign jurisdictions of roughly $55.50. Overall Canada ranks fourth in the group, ahead of the U.S., **** and Japan." This is true even without controlling for our much lower population density, which increases the difficulty and cost of providing broadband services across our territory.

46. In his report Dr. Eisenach also assessed the performance of Canada’s broadband markets by comparison with other countries. Figure 5, reproduced below from Dr. Eisenach's report, shows that compared to other OECD countries, Canada (shown in red) falls below the price level predicted by its population density for both lower speed and usage services and higher speed and usage services.

Figure 5
Population Density vs. Fixed Broadband Prices

[image: image6.emf]CHLTURESPLUXISLNORIRLUSAAUSCANNZLSWENLDFRACZECHEITAPRTFINGRCJPNBELGBRPOLAUTDEUSVNISRDNKHUNESTSVKKORy = -0.047x + 44.778R² = 0.0974102030405060700100200300400500600

**** ($US PPP)Population Density (People/sq. km)

47. And continued technological evolution and the roll-out of new networks is making broadband markets even more competitive, a trend that will only accelerate in the coming years. **** in Canada and elsewhere, third parties are rolling out wired broadband networks to provide additional alternatives to consumers. Moreover, Xplornet already offers satellite broadband services in some of Canada's most remote communities and with ongoing improvements in satellite technology the capability of those services will increase as the price continues to decline.

48. Perhaps most importantly, our country has highly and increasingly competitive wireless markets that impose discipline on broadband pricing in wireline markets. At Bell, our LTE network provides maximum download speeds of up to 75 Mbps across its footprint, and in some areas up to 150 Mbps. As we launch LTE Advanced, it will provide peak download speeds of up to 220 Mbps. Our LTE network is already available to 91% of Canadians and will be available to 98% of Canadians following an expansion this year in small towns, rural communities, and remote locations in every region of the country including the ****.

Telus and Rogers also sell wireless services on LTE networks that extend to the vast majority of the population.

49. These networks, developed in response to intense competition in the Canadian wireless industry, mean Canada leads the world in wireless network quality. We are among the leaders in average 4G connection speed and percentage of 4G connections, as Figures 6 and 7 show.

Figure 6
Average 4G Download **** (kbps)
[image: image7.png]
New Zealand
Austra
Japan
a
Sweden
Canada
United States
Spain
United Kingdowm
Germany
Italy
****
Ch e
Poland
a
Russia
Mexico
Saudi Arabia
****
Braz
IndonesIa
**** Africa
Argentina
5"
o
o
o
10
000
20,000
Figure 7
Percentage of 4G Connections
[image: image8.png]
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Japan
United States
Australia
Canada
Sweden
United Kingdowm
****
New Zealand
Spain
Germany
China
Saudi Arab
**** Africa
Italy
Russia
Mexico
Poland
****
Indonesia
Argentina

50. Canadians can increasingly participate in the digital life of the country using only a mobile device and wireless plan. But, the key point is not that they have chosen to do that, or that they should. Just the possibility that some consumers might adopt a wireless plan, in combination with public Wi-Fi from municipalities, libraries, schools, workplaces, and local businesses like coffee shops, bars, restaurants, and laundromats, to meet their broadband needs provides further assurance that wireline broadband service providers will continue to offer packages that appeal to those consumers.

4.5
Canada is a **** in Usage

51. The best measure of the success of Canada's telecommunications infrastructure is that Canadians are world leaders in the use of broadband. Because price, availability, and quality are not an obstacle to Canadians readily accessing and actively using broadband services, Canada is a global leader on metrics such as hours of usage, hours of video consumption, website visits, and total Internet traffic per user.

52. According to comScore's "2014 Digital Year in Review" report, Canadians continue to use the Internet as much as anyone in the world. As Dr. Eisenach describes:

It is also useful to look beyond aggregate measures of traffic to assess the ways in which consumers use online services. For example, comScore collects a variety of data on the level and types of Internet usage across countries. According to its most recent report, released in **** 2015, Canadian Internet users are among the "world's most engaged," ranking first in average monthly hours per visitor and average monthly web site visits per visitor, and third in average monthly pages per visitor… comScore data also show that Canadian users have rapidly expanded their use of online video, which increased by 36 percent during 2014, and that "Digital Video consumption in Canada is more common and engaged than in the U.S.," with Canadians ranking ahead of the U.S. in "both average time and overall penetration."53. This is shown in Figure 8, below.

Figure 8
Canadian Usage of Broadband
[image: image9.png]Average M .1me Average Mommy Average Mommy Average Mommy
HoursN imr FauesNisimr VisitsNisimr Hours of Video
(anaaa Russia 3115: (anaaa so (anaaa 1,475
us naiy 3527 us an us 1,179
naiy (anaaa 3235 UK
UK us 3,051 naiy
Russia UK 3,006 Russia
lrazfl Pram: 2315 Pram:
Pram: eemany 2,372 eemany
eemany lrazfl 2:39 china
WmdwTd: WmdwTd: 2.13» max“
china china 2,132 WmdwTd:
[span Aagan Aagan

54. With respect to total traffic per user, Canada also has a leading position – third in the world behind just Korea and the United States. This is shown below in Figure 9.

Figure 9
Consumer Internet and IP Traffic Per User
[image: image10.emf]67.356.641.740.135.724.721.819.818.316.716.216.215.014.014.013.513.213.111.411.46.56.43.1

01020304050607080South KoreaUnited StatesCanadaSwedenUnited KingdomJapanFranceNew ZealandChilePolandRussiaGermanyBrazilItalyAustraliaSpainMexicoArgentinaChinaSaudi ArabiaSouth AfricaIndonesiaIndiaGB/Month/User

Global Average = 17.2

Source: "Internet Users by Country (2014)," Internet Live Stats (available at http://www.internetlivestats.com/internet-users-by-country/) and "VNI Forecast Widget," CISCO (available at http://ciscovni.com/forecast-widget/advanced.html).

55. The fact that market forces in Canada have been sufficient to eliminate obstacles to broadband adoption is also illustrated by our leading broadband penetration levels. The household penetration of fixed broadband in Canada is ahead of countries such as the U.S., UK, ****, Germany, Norway, Sweden and Australia, as Figure 10 shows.

Figure 10
Fixed Broadband Household Penetration
[image: image11.emf]

56. Similarly, our broadband penetration by population (rather than household) continues to increase, significantly exceeds the OECD average, and is greater than in the U.S.

Figure 11
Fixed Broadband Population Penetration
[image: image12.emf]0510152025303540
(%)
CanadaUnited StatesOECD

Source: OECD Broadband Portal, "OECD historical (fixed) broadband penetration rates," Table 1.5.1 (accessible at http://www.oecd.org/sti/broadband/1.5-BBPenetrationHistorical-Data-2014-06.xls). Note: U.S. data for Q2 2014 is estimated.

4.6
Government Support for Broadband Deployment in Rural and Remote Areas

57. So far, market forces – the result of competition among facilities-based competitors – have been the catalyst for expanding the availability of modern broadband services throughout Canada. Nevertheless, due to our country's size and challenging geography, there are rural and remote areas in which broadband services are not available today because there is no business case to build the necessary infrastructure to serve them. Since making broadband services available even in these rural and remote areas is an important social policy objective, it is a necessary and appropriate role for government to provide programs and funding to fill in gaps in infrastructure deployment.

58. We submit that Government funding (i.e., general tax revenues and/or proceeds from spectrum auctions) should continue to be used to fund efficient, targeted subsidy programs. Private sector players should not always be expected to further subsidize the deployment of broadband.

59. Rather than relying on inefficient price subsidy mechanisms, over the years the federal and provincial governments have provided targeted funding to help expand broadband services. The use of consolidated revenue funds is less distortionary than industry-specific taxes and should always be preferred. As well, "bottom up" projects, designed and implemented with community involvement, are preferable to top-down programs. In this respect, governments can choose to prioritize projects based on their own criteria as elected officials. There have been and continue to be several local, provincial, federal and territorial government funding projects. For example, the Federal Government announced several initiatives to enable or encourage Canadians' ability to participate in the digital economy, including its $305M Connecting Canadians program. A table summarizing these programs is attached as Appendix 4.

60. In our view Canada can and should extend the deployment of this broadband infrastructure to rural and remote areas through government funding. Since 2006, the Government has raised approximately $12B from wireless spectrum auctions in the highly competitive wireless market. A portion of those proceeds could, in our view, be directed to subsidizing the roll-out of the necessary infrastructure.

61. To the extent the Commission deems it appropriate to establish an industry-funded subsidy regime, certain key parameters should apply: (i) the fund should only be used to extend broadband to the remotest of communities; (ii) the subsidy should only be available in circumstances where the Commission has determined that no government funding is or will become available to fund the deployment of broadband in the target community; and (iii) subsidy funding should come from a reallocation of funds from the existing voice subsidy; not from the imposition of a new incremental broadband tax on industry players that are already investing billions in the build out of world class broadband networks across the country.

62. We note, in this respect, that industry-funded subsidies can actually be harmful, well intended as they may be. For example, during the proceeding which last reviewed the obligation to serve (TNC 2010-43), **** Xplore Inc. said: "it was impossible for us to raise new capital to expand our network for a full year after the initial deferral account decision…" They can also create disincentives for future government subsidies.

63. It is with these concerns in mind that we have developed our proposal: a proposal which could be implemented by the Commission should it find as a fact that a limited industry subsidy is the only way in which modern broadband services will be extended to Canada's most remote communities, namely those found in Bands G and H1. In the case of Band G, these communities do not have year-round road access and are extremely costly to cover with broadband facilities. Band H1 contains some of the most difficult terrain in the country (as further explained in our response to Q7). As we note in our response to Q2, we believe that a significant portion of the households that will remain unserved following the Connecting Canadians program will reside in Bands G and H. By exempting other bands from Commission subsidies the new subsidy program will address the most difficult problem first and the various governments can continue to provide incentives and subsidies to close the gap for remaining areas. To that end, we note that the proceeds of spectrum auctions should help address the coverage issues in these areas.

1.0
Question 1

Canadians are using telecommunications services to fulfill many social, economic, and cultural needs in today's digital economy.

a)

Explain how telecommunications services are used to meet these needs. For example, uses may include e-commerce (i.e. the online purchase and trade of products or services), e-banking and/or telephone banking, e-health or telehealth services, telework, and distance education. Which of these uses of telecommunications services are the most important to ensure that Canadians meaningfully participate in the digital economy?

b)

Explain which telecommunications services are most important to support these needs and uses. What characteristics (e.g. capacity, mobility, high speed, and low latency) should these telecommunications services have?

c)

Identify and explain the barriers that limit or prevent Canadians from meaningfully participating in the digital economy (e.g. availability, quality, price, digital literacy, and concerns related to privacy and security). Identify which segments of the Canadian population are experiencing such barriers.

d)

Identify and explain any enablers that allow Canadians to meaningfully participate in the digital economy (e.g. connected devices and applications).

e)

As Canada's digital economy continues to grow and evolve during the next 5 to 10 years, which telecommunications services are Canadians expected to need to participate meaningfully? Specify how your responses to parts a) through d) above would change based on your answer.

Key Findings
Key Finding 1A:

Email and Web-browsing (and the plethora of activities and socio-economic contributions that can be achieved through web browsing and email) are the services most necessary to meaningfully participate in the digital economy.

Key Finding 1B:

Ensuring that all Canadian households have access to a broadband service is much more important than ensuring households have access to very high broadband speeds.

Key Finding 1C:

Other than where there is no access to broadband at all, the lack of skilled labour in remote areas is a greater barrier to ICT adoption than a lack of high speed bandwidth.

Key Finding 1D:

Broadband speeds of 5 Mbps are sufficient to support the vast majority of online applications and services required by Canadians to meaningfully participate in the digital economy.

Key Finding 1E:

Even where Canadians have a very broad choice of technology, speed and provider, a significant number of these Canadians continue to choose broadband tiers close to 5 Mbps.

Key Finding 1F:

Using the most up-to-date Industry Canada estimates, there are less than 200,000 households in Canada without access to broadband service of at least 5 Mbps download.

1.1
Canadians' Use of Broadband

64. Canadians use broadband for a wide range of activities touching upon all aspects of life. Statistics Canada lists the percentage of Internet users that engaged in certain types of activities on the Internet at least once in the past twelve months.

These survey results are set out below.
Table 1
Canadian Internet Use Survey

by Internet activity; Geography= Canada; Age group= Total, Internet users aged 16 years and over; Sex= **** sexes; Level of education= Total, level of education; Household income quartile= Total, household income quartiles Internet activity

Percentage of Surveyed Canadians that engaged in Activity 2012
1) EMAIL
E-mail
93.0
2) Web-Browsing
Visit or interact with government websites
62.7
Search for medical or health-related information
66.8
Formal education, training or school work
36.6
Travel information or making travel arrangements
66.4
Search for employment
35.6
Electronic banking (paying bills, viewing statements, transferring funds between accounts)
72.0
Research investments
26.5
**** or watch the news
70.6
Research community events
57.8
Window shop or browse for information on goods or services
76.6
**** goods or services (through auction sites)
23.3
Use social networking sites
67.0
Contribute content or participate in discussion groups (blogging, message boards, posting images)
24.0
3) Other Internet Applications
Use instant messenger
39.6
Play online games
34.9
Obtain or save music (free or paid downloads)
50.5
Obtain or save software (free or paid downloads)
38.2
Listen to the radio online
38.2
Download or watch television online
39.0
Download or watch movies or video clips online
54.2
Make telephone calls online
43.3
Top of Form

65. The first two categories, email and web-browsing, are clearly more important than the third category in terms of participation in the digital economy. Web browsing and email allow Canadians to bank, shop, file taxes, research health-related information, communicate with or receive communications from businesses, friends and family or even participate in social media. All of these activities and more can be done through email and web browsing.

66. The third "other" category of applications is arguably less important for meaningful participation in the digital economy. The watching of videos, listening to music or the playing of games online are highly desirable from a pure entertainment perspective but not as important as the ability to bank, do taxes, conduct research, or contribute content on the web.

67. Applications in the "other" category can also be bandwidth intensive: the greater the bandwidth, the greater the quality of the audio or video signal that will be attainable. However, to the extent such applications can be used to participate in the digital economy, we would argue that a customer that has the ability to watch standard definition (SD) video does not necessarily need access to HD video in order to participate in the digital economy, let alone super-HD (such as 4K).

68. We submit that although of interest from an entertainment perspective, high bandwidth applications and services are not necessary to participate in the digital economy. We note in this respect that linear video services have been available for decades but have never been classified as a basic service worthy of a Commission subsidy to build access to remote areas despite its cultural importance.

Similarly, one could argue that Canada has a rich video game industry, the world's third largest
and the largest producer per capita.

However, the very fact that there is such a rich and vibrant industry in Canada demonstrates that there is no problem to solve. One could also argue that video gaming is not necessary for participation in the digital economy, at least not as necessary as doing one's banking, taxes, research, shopping, or selling online through web browsing. As further discussed below, the facts support this conclusion.

1.2
Economic Impact of Broadband on Rural Communities

69. In a recent study by **** Ivus and **** Boland (Ivus & ****) examining the impact of broadband on employment and wages in Canada, Ivus & **** found that the deployment of broadband (which is defined as services with speeds above 1.5 Mbps) promoted growth in aggregate employment and average wages in rural regions across Canada (at least in service industries whereas no growth was observed in goods industries).

This study was based on a broad sampling of communities (4,344 communities representing 76 economic regions (ERs)) with observations spanning from 1997 to 2011.

70. In assessing broadband availability, Ivus & **** note the high level of substitution between access technologies:

While the three technologies [DSL, Cable and Fixed Wireless] vary in bandwidth capacities and latency limitations, they all provide the minimum connectivity requirements for the majority of broadband applications and services. As such, DSL, Cable, and Wireless exhibit a strong degree of substitution. In fact, when measuring broadband coverage to track the progress of the Broadband Canada Program, Industry Canada's approach was to focus on the availability of any broadband service, regardless of technology. Our analysis is consistent with this approach.

71. Interestingly, Ivus and Boland's results, which found that broadband in rural regions had a positive impact on wages and employment, differed from a recent 2012 study conducted by **** Forman and others (Forman et al.) which studied the impacts of "advanced Internet applications" on local wages. **** et al. define "advanced Internet applications" as applications other than email and web-browsing. In their study, **** et al. found that investment in advanced Internet applications led to growth in wages in countries with high income, population, education and agglomeration of IT-intensive firms but no perceptible relationship between advanced Internet investments and wage growth in other counties, despite many having made substantial investments.

72. Ivus and Boland's study conversely showed some economic growth even in remote and sparsely populated areas. Ivus and **** hypothesize that this is due to the fact that the Canadian study they conducted included email and web-browsing whereas the **** et al. study focused solely on "advanced Internet applications":

Our results are qualitatively different from **** et al. (2012), where Internet investment was found to promote wage and employment growth in advanced urban areas and have no impact elsewhere. One possible explanation for this difference is that the type of Internet technology studied is different: **** et al. (2012) focused on advanced Internet applications while we focus on high-speed broadband Internet access, which provides improved access to both basic and advanced Internet services. Generally, benefit from advanced Internet applications requires a highly skilled labour force, which is predominantly concentrated in urban areas.

[Emphasis added]
73. We draw three conclusions from these economic studies:

i. First, email and web-browsing (and the plethora of activities and socio-economic contributions that can be achieved through web browsing and email) are the services most necessary to meaningfully participate in the digital economy;

ii. Second, ensuring that all Canadian households have access to a broadband service is much more important than ensuring households have access to very high broadband speeds; andiii. Third, other than where there is no access to broadband at all, the lack of skilled labour in remote areas is a greater barrier to ICT adoption than lack of broadband speed.

1.3

The Vast Majority of Internet Applications, including Advanced Internet Applications, can be Supported by a 5 Mbps Connection74. The Commission's current target of 5 Mbps is more than enough to support not only email and web-browsing, but the vast majority of Internet applications currently available to Canadians, including "advanced Internet applications". This conclusion is supported by the Commission's own analysis as reported in the latest CMR. As part of its 2014 CMR, the Commission reported on the bandwidth requirements of various services based on data gathered by Commission staff using a test environment that replicated how a typical consumer would use online streaming services. The results clearly demonstrate that all but the most intense online activities, such as video streaming of greater quality than HD, can be achieved through a 5 Mbps connection:

Figure 12
Commission Assessment of Bandwidth Requirements for Popular Internet Applications
[image: image13.jpg]
****-time
Requiredpu-tnmnnu mmlltmcy
Streaming
Dial—up
1231(st
5 00 Kbps
Average available bandwithh
1.5 Mbps 5Mbps 15Mbps

75. Figure 12 above (which is a reproduction of Figure 5.3.8 of the 2014 CMR) shows that very low bandwidth is necessary for email, ranging from dial-up to 128 Kbps. Web-browsing and VoIP can be achieved with a good user experience with a bandwidth connection of 1.5 Mbps. And the vast majority of other applications can be performed with a connection 5 Mbps, including real-time gaming, videoconferencing and HD video streaming.

76. This is also supported by the recommended network requirements of various over-the-top service providers. For example, Microsoft for its popular gaming console, the Xbox, recommends as a minimum requirement for the best connection experience for online gaming a minimum download speed of 3 Mbps and an upload speed of 0.5 Mbps; for SD video streaming a download speed of 1 Mbps; and for HD video streaming a download speed of 3.5 Mbps (upload is not applicable for video streaming).

What this means is that even with a 3 Mbps connection, assuming good latency and stable jitter, a customer can "frag" opponents online to their heart's content.

77. We accordingly conclude that broadband speeds of 5 Mbps are sufficient to support the vast majority of online activities. Although certain applications in the "other" category may increase bandwidth requirements over the coming years as video quality increases, we do not anticipate any significant shifts which would require the setting of a higher minimum for the next 5 to 10 years.

78. We note in this respect that even where Canadians have a very broad choice of technology, speed and provider, a wide spectrum of Canadians continue to choose broadband tiers close to 5 Mbps. As we have indicated in The Companies(CRTC)7May15-3, approximately # of our customers in Ontario and Quebec that have higher speeds available to them choose to remain on plans at or close to 5 Mbps or less.

79. We further submit that there are no significant barriers to Internet use in Canada. If price, availability or quality were a significant issue, one would expect to see usage statistics that place Canada at or near the bottom of key usage metrics. However, as further detailed in our response to Q4, the opposite is true. Whether it be access to appropriate broadband networks, education in the use of ICT or the availability of Canada-specific apps or online services, Canadians have, for the most part, access to all the enablers they need to meaningfully participate in the digital economy as evidenced by the fact that Canadians lead the world in terms of broadband usage.

80. Nevertheless, although the vast majority of Canadians are very well served by providers with world class networks, there continue to be remote areas in Canada which are unserved by any broadband networks. As such, the real broadband challenge is the extension of robust broadband network infrastructure to remote unserved or underserved communities. It is this context that should be the focus of any regulatory framework while at the same time allowing market forces to operate in markets that are demonstrably competitive.

# Filed in confidence with the CRTC

81. The Commission has identified there are 1.2 million unserved and underserved Canadian households at sustained 5 Mbps download and 1Mbps upload speeds. We understand this figure was arrived at by using existing 2013 Internet coverage hexagon information along with other information submitted to the Commission as part of its 2014 CMR data collection, in order to qualify households at actual target speeds for Internet 5 Mbps down and 1 Mbps up to arrive at this 1.2 million figure.

82. Industry Canada used the same existing 2013 Internet coverage hexagon information and worked in consultation with ISPs through the summer of 2014 to reflect network operators' up to date footprint coverage information. Our understanding is that this updated hexagon information is not reflected in the Commission's 1.2 million households figure. It is also our understanding that Industry Canada applied a "pessimistic" or conservative view of underserved in the hexagon coverage map information by allowing for such factors as inadequate backhaul facilities or estimated poor fixed wireless performance as a consequence of foliage or terrain issues, thus likely slightly inflating unserved or underserved numbers. Industry Canada has also focused solely on the 5 Mbps download speed for determining broadband coverage gaps.

83. Based on this recent assessment, Industry Canada determined that 523K households remained unserved or underserved, compared to the Commission's estimate of 1.2 million households.

84. In terms of addressing the lack of access in remote areas, the Federal Government announced several initiatives through Digital Canada 150 to enable or encourage Canadians' ability to participate in the digital economy (the Connecting Canadians program). The program was launched with an objective of using $305M of government funding to deploy broadband to 280K of the 523K households. In order to distribute these funds, the government launched a RFP. This program auction has been so successful that the Government of Canada announced that it exceeded its target of 280k households by an additional 76K households, thereby increasing the program to 356K households without increasing the $305M budget. Accordingly, based on Industry Canada's recent estimates, approximately 167K households will remain to unserved or underserved after completion of the program. Of course, the remaining 167K households are likely the most costly to serve.

2.0
Question 2

The Commission's current target speeds for broadband Internet access service are a minimum of 5 Mbps download and 1 Mbps upload, based on uses that consumers should reasonably expect to make of the Internet. Are these target speeds sufficient to meet the minimum needs of Canadians today? If not, what should the new targets be and what time frame would be reasonable to achieve these new targets?

Key Findings
Key Finding 2A:

The FCC has established a 25/3 Mbps aspirational target for broadband. For universal service funding, the FCC only subsidizes broadband builds to exchanges that do not have 4 Mbps/1 Mbps. When it subsidizes such builds, however, it requires the build to extend 10 Mbps/1 Mbps broadband service.

Recommendations
Recommendation 2.1:

In the event the Commission deems it necessary to establish a fund to facilitate the deployment of broadband, 5/1 should be recognized as a suitable minimum broadband speed to enable participation in the digital economy.

Recommendation 2.2:

In the event the Commission determines that a fund is necessary, the Commission should only fund broadband in underserved or unserved communities in Bands G and H1 (i.e., communities without speeds of at least 5 Mbps download and 1 Mbps upload) leaving governments and market forces to cover the remaining areas.

Recommendation 2.3:

When subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload, with the exception of satellite communities where it should only fund for 5 Mbps download and 1 Mbps upload.

Recommendation 2.4:

The Commission could establish a higher aspirational target speed and report on Canada's progress in achieving that target, similar to the U.S. aspirational target of 25/3.

Recommendation 2.5:

The Commission should recommend to the Federal Government that they increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments.

2.1
Setting of a Minimum Broadband Target

85. As is apparent from our Key Findings in response to Q1, 5 Mbps broadband service is clearly sufficient to meet the minimum needs of Canadians today and in the near future. Email and web-browsing are the most important services to Canadians' participation in the digital economy. Moreover, as demonstrated by the Commission's technology resource centre's results published in the 2014 CMR, the vast majority of Internet applications, even those well beyond the minimum necessary to participate in the digital economy, can be achieved through a 5 Mbps connection. For these reasons, we believe that a target of 5 Mbps download and 1 Mbps upload could be established for the purposes of funding the deployment of broadband in Bands G and H1, if deemed necessary.

2.2
Setting the Minimum Target Build for Subsidies

86. We also believe there is a difference between the minimum target for considering whether a community is served, underserved or unserved and the speed subsidized in areas that are considered to be unserved. Given that access to 5 Mbps download (and 1 Mbps Upload) is enough to participate in the digital economy, we submit that there is no reason to set a higher level for considering whether a community is "served". However, when granting subsidies, it may be sensible to fund builds that exceed 5 Mbps, but only in areas where broadband services of 5 Mbps and up are not already available.

87. This is effectively the model currently established in the U.S. Attached as Appendix 3 is a report by **** Gillan of Gillan Associates regarding the transitioning of voice subsidies as part of Universal Service to Broadband support in the U.S. In this report, Mr. Gillan explains that the FCC's Universal Service regime for broadband provides funding for the build out of broadband to exchanges where no other provider is offering speeds of 4 Mbps download and 1 Mbps upload and such funding is provided to accommodate speeds of 10 Mbps down/1 Mbps up. As further discussed below, the FCC has defined broadband as consisting 25 Mbps download and 3 Mbps upload. But the FCC does not use that definition for Universal Service Fund (USF) purposes. Rather, the 25/3 measure is an aspirational target.

As a separate matter, the FCC is also required to annually report to Congress "regarding the availability of 'advanced telecommunications capability' to all Americans," in what can be considered a "report card" on broadband deployment. In this context, the FCC recently changed its definition of "broadband" to 25 Mbps/3 Mbps, although neither the speeds used to determine whether service is already available (4 Mbps/1 Mbps), nor obligations of the recipient (10 Mbps/1 Mbps), under the Connect America Fund were affected.

88. We see logic in the FCC approach and believe that Canada could take a similar stance. In short, if the Commission creates a broadband fund, it should only fund broadband in communities in Bands G and H1 that do not have access to broadband (i.e., defined for funding purposes as speeds of 5 Mbps download and 1 Mbps upload). However, when subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload (except for satellite which should be set at 5/1 for the reasons set out in our answer to Q7).

89. While adopting the American approach, we note that implementing this policy will actually exceed the American approach in two areas. First, under our proposal, the minimum target for funding purposes would be set at 5 Mbps download instead of the U.S.'s 4 Mbps. Second, we note that the U.S. treats "extremely high costs serving areas (HCSAs)" differently by exempting these areas from eligibility for the fund. These excluded exchanges will be addressed by a $100M Remote Area Fund (RAF). However, as noted by Mr. Gillan:

To prepare the [Connect America Fund] CAF Offers, the FCC created the Connect America Cost Model ("CAM"). The CAM identifies a "statewide" listing of specific unserved census blocks in exchange for a six-year offer of support. The CAM is a complex model that estimates the cost of a green-field build of a fiber-to-the-premises (FTTP) network. The specific census blocks included within a statewide offer do not include areas that the FCC considers "extremely high-cost." These "extremely high-cost" census blocks are a by-product of the annual CAF budget of $1.8 billion for price cap areas. To stay within this budget, the CAM sequentially excludes from CAF Offers the highest-cost census blocks until the total of all the CAF Offers fits within the budget. As a result, the $1.8 billion annual budget is not sufficient to cover all customer locations even in the areas served by the price-cap ILECs, with the final CAM analysis estimating that nearly 625,000 locations are within "extremely high-cost" areas that will remain unserved.

[Emphasis added]

90. In short, at this point in time, the FCC's broadband subsidy regime does not have an active plan to bring broadband to all Americans. We recommend if the Commission decides to create a fund, it should focus on such extremely HCSAs first as the means of balancing government and market-based funding with any new subsidy.

2.3
Setting Canada's Broadband Aspirational Target

91. There is also a difference between: (i) a minimum target, which should be established to close gaps that are necessary to participate in the digital economy in circumstances where government funding is not available and market forces have not responded to demand, and (ii) an aspirational target which we as a nation should generally strive to achieve. The latter can impact our actions by ensuring that we create policies that support broadband expansion as further discussed below. But the aspirational targets should not be confused with the minimum target for funding purposes.

92. In terms of establishing these targets, it is useful to examine the policies adopted by other nations. Attached as Appendix 2 is a report by **** + **** which provides an international comparison of universal service regimes across 17 different OECD countries, focusing in particular on whether these regimes have expanded the scope of universal voice service to broadband services.

Copied below is Table 2 of this report which provides actual versus aspirational broadband targets:
Table 2
Actual versus Aspirational Broadband Speeds
Country
Mandated minimum speeds under broadband USO
Policy minimum speeds (non-USO: e.g. through tendering or Government-led deployment)
Aspirational broadband targets (non-USO)
Australia
N/A
4 Mbps download / 1 Mbps upload in rural areas
NBN – 25 Mbps download, and 50 Mbps to 90% of fixed line premises
12 Mbps in rural areas
Belgium
1 Mbps
N/A
1 Gbps by 2020
Finland
1 Mbps
N/A

Government expects more than 99% of the population to be within 2km of an optical fibre or cable network permitting connections of 100 Mbps by the end of 2015 ****

N/A
N/A
Government intends to use mixed technologies for speeds of >30 Mbps
Germany
N/A
1 Mbps

The government now concentrates its efforts on fast broadband, to cover 100% of households with 50 Mbps by 2020 Japan

N/A
N/A

In 2010, the government implemented a policy to deliver ultra-high speed broadband (30 Mbps or more) to 100% of households by 2015 (the ‘Hikari-no-michi’ policy). The policy now seeks to deliver speeds of 100 Mbps.

New Zealand
N/A
1 Mbps
UltraFast Broadband: 100Mbps downlink / 50 Mbps uplink speed by 2019
Rural Broadband Initiative: 5Mbps downlink /500 Kbps uplink by 2015
Spain
1 Mbps
N/A
100 Mbps by 2020
Switzerland
2 Mbps / 200 Kbps
N/A
N/A
United Kingdom
N/A
2 Mbps

The government’s definition of “superfast broadband” is >24 Mbps. The policy’s aim is to have superfast broadband coverage in 95% of UK homes and businesses by 2017 United States of America

N/A

4 Mbps download/1 Mbps upload in rural areas, but in areas where 4/1 Mbps is not available, finances 10/1 Mbps FCC benchmark for 2015 is 25 Mbps/3 Mbps

93. Of the 17 OECD countries reviewed in this report, no country has a minimum broadband target higher than 4 Mbps (although, as mentioned above, the U.S. will fund areas that do not have 4 Mbps with speeds of 10 Mbps or above).

94. Aspirational targets are conversely and appropriately set much higher than the minimum targets and vary greatly from country to country with the highest aspirational targets being set at 100 Mbps in Japan, Finland and New Zealand. Others countries have tended to establish aspirational targets between 25 (such as the U.S. and the UK) and 50 Mbps (such as Germany and Australia).

95. Some of these targets have important caveats associated with them. Finland, for example, considers households "served" if they find themselves within 2 km of an optical and cable network permitting connections of 100 Mbps, but they make the homeowners responsible for the funding of their connection (i.e., the last mile) and only a small percentage of residents have done so. We also note in this respect that in addition to its broad aspirational target of 25 Mbps, the U.S. has also established as part of its National Broadband Plan a milestone goal such that at least 100 million homes should have affordable access to 100 Mbps / 50 Mbps by 2020. Similarly, Australia has set different aspirational targets based on geography and technology. It has established targets of 12 Mbps in rural areas, 25 Mbps in other areas regardless of technology and 50 Mbps to 90% of fixed line premises.

96. Where aspirational targets are set, they are aggressive. In other words, aspirational targets should also be inspirational. But those targets are also established based on achievable and realistic goals and such goals may be tempered by geographic and/or technological thresholds and limitations.

97. With this important context, we believe, similar to the U.S. model, that the current target of 5 Mbps download is appropriate as a minimum target for determining whether or not a community is "served" or "unserved" for funding purposes. We also believe, with the exception of satellite-served communities, that funding could be used for the deployment of 10 Mbps in areas that are currently unserved by speeds of at least 5 Mbps.

98. With regards to the aspirational target, we believe it is important both to look to the future and at the same time be realistic. For example, an aspirational target of 100 Mbps across all communities may not be realistic for the Canadian context. But establishing separate targets for terrestrial communities vs. satellite-served communities and perhaps for non-HCSAs vs. HCSAs (or extremely HCSAs) may be appropriate. In our view, an aspirational target of 25 Mbps, similar to the U.S., would be appropriate with some necessary exemptions for satellite-served communities.

99. Beyond setting the aspirational target, the Commission should also ensure that it adopts policies that actually assist industry to achieve those targets. For example, the Commission should ensure it implements policies that encourage facilities-based competition by, among other things, ensuring TSPs can install facilities in new Multi Dwelling Units (MDUs) and other buildings (as the Commission has recently done in decisions such as Decision 2014-42), and by (as explained by Dr. Eisenach) ensuring it does not impose wholesale obligations that undermine the incentives to invest in both the wireline and wireless sectors. At the municipal level, governments should be encouraged to work cooperatively with all TSPs to enable access to support structures and other civil infrastructure needed for network builds (as the City of Toronto has recently done in respect of our Gigabit Fibe project).

Of course there is a role for the Federal Government as well. It should increase the capital cost allowance for broadband network assets as an incentive to accelerate digital infrastructure investments. In fact, the latter can have such a significant impact on investment that we encourage the Commission, as part of its decision in this proceeding, to recommend that the Government do just that, similar to how the Commission recommended that the Government remove the wireless roaming cap at paragraph 191 of Telecom Decision CRTC 2015-177.

3.0
Question 3

Which services should be considered by the Commission as basic telecommunications services necessary for Canadians to be able to meaningfully participate in the digital economy? Explain why.

a)

Explain whether the underlying technology (e.g. cable, digital subscriber line, fibre, fixed wireless, mobile wireless, and satellite technology) should be a factor in defining whether a telecommunications service should be considered a basic service.

b)

Identify, with supporting rationale, the terms, conditions, and service characteristics under which basic telecommunications services should be provided. Should any obligations be placed on the provider(s) of these services? If so, what obligations and on which service provider(s)?

c)

What should be the prices for basic telecommunications services and how should these prices be determined? Provide rationale to support your answer.

Key Findings
Key Finding 3A:

We have reached a tipping point where the majority of Canadians have found alternatives or abandoned ILECs' traditional wireline voice services. Less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC.

Key Finding 3B:

While The Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today, it does have the power under s.46.5 of the Act to create a fund to finance the build of broadband and to impose a contractual obligation to build on any TSP that volunteers to take advantage of such funding.

Recommendations
Recommendation 3.1:

Any funding for broadband should be technologically neutral. Any service capable of delivering the requisite characteristics of the minimum target should be permissible whether it is provided over DSL, cable, FTTN, FTTH, fixed wireless or satellite services.

Recommendation 3.2:

As an exception to the principle of technological neutrality, mobile wireless services should not be considered at this time for the purposes of determining whether a community is "served" or "unserved".

Recommendation 3.3:

If the Commission determines that a subsidy fund is needed, it should only mandate minimum target speeds and, if it determines it is necessary, require bidders to commit to providing service at rates comparable to competitive offerings offered in non-subsidy areas. As Canada benefits from high levels of competition in broadband, there is no need mandate specific terms or rates.

Recommendation 3.4:

In the event the Commission determines funding is required in Bands G and H1, it should define broadband as a "basic telecommunications service" only in Bands G and H1 in order to allow it to create a fund for building broadband in these areas under s.46.5 of the Act.

Recommendation 3.5:

Distribution of subsidies for broadband deployment should be done through an RFP competitive auction process rather than through a broadband obligation to serve.

3.1
Broadband
3.1.1
Establishing a Technologically Neutral Target

100. The underlying technology used to deploy broadband should not be a determinative factor of whether or not the service meets the target used for funding purposes, to the extent there is any. On its face, any service capable of delivering the requisite characteristics of (namely, 5 Mbps download speeds and 1 Mbps upload speeds) should be permissible whether it is provided over DSL, cable, FTTN, FTTH, fixed wireless or satellite services. Ultimately, the retail provider will choose the most appropriate technology, or combination of technologies based on local conditions such as geography, and cost.

101. An exception to this principle is that we do not consider that mobile wireless data services should be taken into consideration when considering whether a community is "served" or "unserved" by broadband. Such a determination should be limited to fixed services. Excluding mobile wireless also has the benefit of being consistent with the Government's approach for Connecting Canadians. Our understanding is that the Government excluded mobile wireless when assessing whether a community is "served" or "unserved".

3.1.2
Using a Competitive RFP Process

102. The Commission does not have the legal authority to impose an obligation to build broadband facilities in an area that does not have those facilities today. The ILEC obligation to serve for telephone services that was originally found at common law, and later superseded by the Act, is rooted in the historical public utility notion of "practical monopoly", a notion that is no longer applicable in today's competitive environment. A detailed analysis of the Commission's legal authority is set out at Appendix 5.

103. However, the Commission does have the power to create a fund to finance the build of broadband and to impose a contractual obligation to build on any TSP that volunteers to take advantage of such funding in the event it determines that such a fund is needed. Under section 46.5 of the Act, the Commission must first declare broadband to be a 'basic telecommunications service' if it wishes to create a broadband subsidy. If it intends to create such a fund, we submit it should only declare broadband to be a basic telecommunications service in Bands G and H1. This is analogous to the current BSO for voice which only applies with respect to ILEC's local voice services in regulated areas, as further explained below. The attributes that define the BSO for voice do not apply to ILECs in forborne areas, nor do they apply to CLECs in any region.

104. Even if the Commission possessed the authority to impose an obligation to serve, we believe that proceeding through a broadband obligation to serve is not the right public policy decision for Canadians. In our answer to Q13 below, we discuss the drawbacks of using cost models (which are required when setting an obligation to serve) as opposed to an auction model whereby all TSPs who wish to build can bid for the subsidy. We also examine some pointed lessons from recent U.S. experience in this respect.

105. Without repeating all those findings here, we note that establishing a broadband obligation to serve would deny communities the benefits afforded from competitive auctions and ultimately cost Canadians (and the industry funding the contribution regime) more. This is consistent with Industry Canada's experience with its Connecting Canadians program whereby the RFP process resulted in Industry Canada's program exceeding its anticipated household target by over 76k households without any increase in funding.

106. We also note that an international comparison demonstrates that very few countries have implemented a broadband obligation to serve. The following table reproduced from the **** + **** report attached as Appendix 2, demonstrates that of the 17 OECD countries that have been reviewed, only 4 have implemented broadband as part of a Universal Service Obligation (USO) and those that have mandated relatively low speeds:

Table 3
Scope of USOs and USFs
Country
Universal Service Obligation (USO)
Universal Service Fund (USF)
Voice
B/band
Industry funding mechanism
Voice
B/band
Australia
(
(
(
(
(
Belgium
(
( (1 Mbps)
(
(
(
Denmark
(
(
(
(
(
Finland
(
( (1 Mbps)
(
(
(
****
(
(
(
(
(
Germany
(
(
(
(
(
Italy
(
(
(
(
(
Japan
(
(
(
(
(
The Netherlands
(
(
(
(
(
New Zealand
(
(
(
(
( (5 Mbps)
**** Africa
(
(
(
(
( (no target speed)
**** Korea
(
(
(
(
(
Spain
(
((1 Mbps)
(
(
(
Sweden
(
(
(
(
(
Switzerland
(
( (2 Mbps/
200 kbps)
(
(
(
United Kingdom
(
(
(
(
(
USA (Federal Connect America Fund)
(
(
(
(
( (10 Mbps/1 Mbps is funded BUT only in areas that do not have an existing 4 Mbps/1 Mbps)

107. Of these countries, only Belgium, Finland and Spain have established broadband obligations to serve of 1 Mbps whereas Switzerland implemented a broadband obligation to serve of 2 Mbps. These speeds are likely achievable through existing telephone infrastructure of those countries' incumbent providers. No country has adopted an obligation to build next generation infrastructure and, in any event, experience clearly demonstrates that requiring competitors to compete for subsidies through an RFP process results in better networks for less cost. We accordingly submit that the distribution of subsidies for broadband deployment should be done through an RFP process rather than through a broadband obligation to serve.

3.1.3
No Requirement for Commission to set Specific Pricing

108. Broadband services benefit from a wide breadth of competition leading to consumer choice and lower prices and, as further described in response to Q4, vibrant competition has led to world class networks and plans. To the extent the Commission deems it necessary to establish a fund in order to assist in the deployment of broadband in Bands G and H1, there is no need for the Commission to also address terms or conditions associated with the service, other than setting the minimum bandwidth requirements. Imposing terms and rates would be contrary to the Policy Direction and lead to a "vanilla broadband" product, standardized amongst all ISPs, rather than benefit from the robust competition that already exists. If the Commission is of the view that certain terms or rates may not be just and reasonable, should the Commission desire some certainty with respect to rates in areas to be served pursuant to subsidies, the Commission could require bidders to commit to offer services at rates comparable to competitive offerings offered in non-subsidy areas. Such a solution would provide competitors the flexibility to differentiate themselves and also provide some certainty to the Commission that rates are just and reasonable.

3.2
Voice
3.2.1
The Current BSO for Voice and the Obligation to Serve for Voice

109. Historically, the leading telecommunications service has been wireline telephony. Throughout the 20th century, it has been central to the telecommunications needs of Canadians and the primary focus of the Commission's (and predecessor entities') regulatory framework. For most of that span, the ILEC was understood to be the primary, if not the only, provider of wireline telephony. The Commission accordingly required ILECs to fulfill a telephony-centered BSO consisting of:

· Individual line local service with touch-tone dialing, provided by a digital switch with capability to connect via low speed data transmission to the Internet at local rates;

· Enhanced calling features, including access to emergency services, Voice Message Relay service, and privacy protection features;

· Access to operator and directory assistance services;
· Access to the long distance network; and
· A copy of a current local telephone directory.

110. We believe that wireline local voice service should continue to be treated as a basic service, though alternative technologies (such as fixed wireless, or mobile wireless in forborne exchanges) should continue to be allowed to satisfy the applicable voice obligation. With Canadians rapidly decreasing their reliance on traditional wireline telephony, moving instead to IP-based and wireless alternatives and recognizing that the ILEC's historical incumbency has all but disappeared, it makes sense to modernize the BSO by removing some of its antiquated components.

111. The latest CMR shows that since 2009, wireline retail voice market sector revenues have declined by 4.7% annually. The Commission attributes this revenue decline to changes in the way Canadians communicate including:

· the migration of households from wireline services to mobile wireless services; and

· the use of Internet-based services (which generally have a greater negative impact on long distance services), such as:

· social networking (e.g., Facebook, Twitter, and Pinterest);
· emails and texting;
· computer-to-computer communications (e.g., Skype); and,
· access-independent VoIP services.

112. Canadians are consistently reducing their dependency on wireline residential and business voice services. For instance, the number of managed-network wireline voice lines decreased from 18.6 million lines in 2009 to 15.9 million lines in 2013, a 3.8% drop annually since 2009. In addition, according to the latest Statistics Canada's Survey of Household Spending, the percentage of households subscribing to wireline telephone service has declined from 86.5% of households in 2011 to 79.6% in 2013.

113. Even in the ****, customers are moving away from traditional phone services. Between 2009 and 2014, the number of network access service (NAS) for Northwestel has shrunk by over #.

114. Canadians have also been switching from ILEC wireline voice to other wireline voice service providers. As of December 2013, over 30% of households were subscribing to local telephone service from a cable-based carrier.

In addition, as the Commission noted in TNC 2015-134, over 20% of Canadian households rely on mobile wireless services.

This means that less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC. We have clearly reached a tipping point where the majority of Canadians have found alternatives or abandoned ILECs' traditional wireline voice services.

115. All these facts demonstrate that the ILECs' primary exchange service (PES) (i.e., traditional wireline home phone) is not as necessary or "basic" a telecommunication service as it once was. While we consider that wireline voice services should still be considered a basic telecommunications service, we foresee a time when voice will become just one of a myriad of applications accessed over broadband – eventually making a voice-centric BSO obsolete.

3.2.2
Modifications to the BSO

116. Local voice obligations can be placed in three broad categories, as illustrated in Table 3.2 below, though there is overlap between them.

# Filed in confidence with the CRTC.
Table 4
Local Voice Obligations
Required of all providers
Required of ILECs in forborne exchanges
Required of ILECs in
regulated exchanges
9-1-1
9-1-1
9-1-1
Message Relay Service
Message Relay Service
Message Relay Service
Privacy Protections
Privacy Protections
Privacy Protections
Equal Access*
Equal Access
Equal Access
Unlimited Local Calling
Unlimited Local Calling
Stand-Alone **** Cap
Tariffed Rates
Access to Low-Speed Internet at Local Rates
Operator Assistance
Copy of Directory
* Equal Access is not required of Type II (wireless) CLECs or Type IV (small) CLECs.

117. These various obligations were initially introduced at a time where local voice services were analog and wireline only. Over time, some of these obligations were relaxed or re-formulated to take into account technological developments. For instance, mobile wireless technology is now permitted for ILECs to provide stand-alone PES in forborne exchanges. Similarly, wireless CLECs and small Type 4 CLECs no longer need to support Equal Access. Along the same vein, while all voice providers must enable 9-1-1, the exact form of the 9-1-1 requirement varies between fixed wireline, nomadic wireline and mobile wireless providers.

118. As ILECs, like the rest of the industry, increasingly provide IP-based services and abandon analog wireline infrastructure, we submit that voice obligations must be adapted to reflect tomorrow's, if not today's, IP world.

119. Broadly speaking, the Commission must consider whether it is necessary for IP-based solutions to recreate all traditional analog wireline functionality without any variation. In many cases, importing certain traditional (TDM) concepts into IP is proving inefficient and expensive.

As a result, the Commission has accepted that IP versions of TDM services may differ slightly from their predecessors but still provide customers with adequate functionalities. A good example is voice over FTTH. Comparing FTTH and TDM PES yields a few, minor differences, which have not prevented customers from taking up the newer FTTH product.

Other traditional requirements, such as dial-up, have become obsolete and of little use to Canadians. The Commission's forward-looking approach to voice obligations should thus both reflect the particular characteristics of IP and the evolving expectations of Canadians about their local voice service.

120. Accordingly, we are proposing the elimination of Equal Access and dial-up from the existing BSO, as further discussed in our response to Q8.

3.2.3
Pricing for local voice

121. The Policy Direction requires that the Commission rely on market forces to the maximum extent feasible. Already, the majority of residential exchanges have been forborne pursuant, in part, to subsection 34(2) of the Act, in recognition of the fact that competition from facilities-based providers and wireless substitution are sufficient to protect the interest of users. When less than 50% of households in Canada subscribe to a traditional wireline voice service from the ILEC, it is clear that the price of local voice services can and should be governed by competitive market forces.

122. In answer to Q10 below, we set out our proposal for some limited rate increases for voice services in some regulated areas.

5.0
Question 5

What should be the Commission's role in ensuring the availability of basic telecommunications services to all Canadians? What action, if any, should the Commission take where Canadians do not have access to telecommunications services that are considered to be basic services?

5.1
Broadband

123. As indicated in greater detail in other sections, in the event the Commission deems it necessary to establish a fund to support the deployment of broadband, we submit the Commission could:

· Establish a fund and broadband contribution regime to assist in ensuring access to basic broadband services in Bands G and H1 as further described in our response to Q10.

· Establish a minimum target for funding purposes in Bands G and H1 of 5 Mbps download.

· Establish a minimum target, for the purposes of subsidy, of 10 Mbps (such that funds are made available for the deployment of 10 Mbps in communities that are not currently served by at least 5 Mbps) and 5 Mbps for satellite communities.

· Establish a competitive RFP process for the distribution of broadband subsidy in Bands G and H1.

· Establish a higher aspirational broadband target, such as 25 Mbps, and periodically report on the nation's progress in achieving this goal.

5.2
Voice

124. Voice services are already ubiquitous in Canada with many competitive alternatives. In fact, as the Commission indicated and as further addressed in our response to Q3 above, demand for wireline voice services is on the decline. Accordingly, no further actions need be taken other than the amendments we have proposed in our response to Q8 and Q3.

6.0
Question 6

In Telecom Regulatory Policy 2011-291, the Commission stated that it would closely monitor developments in the industry regarding the achievement of its broadband Internet target speeds to determine whether regulatory intervention may be needed. What action, if any, should the Commission take in cases where its target speeds will not be achieved by the end of 2015?

125. As the current target was not an obligation on any specific carrier, no intervention is required with regard to any specific carrier. However, in the event the Commission deems it necessary to establish a fund to assist in the deployment of broadband in Bands G and H1, we believe the Commission should set a minimum target speed of 5 Mbps for funding purposes in Bands G and H1 as further described in response to Q3, Q5, Q10 and Q13.

7.0
Question 7

In Telecom Regulatory Policy 2013-711, the Commission stated its intention to establish a mechanism, as required, in Northwestel's operating territory to support the provision of modern telecommunications services. Such a mechanism would fund capital infrastructure investment in transport facilities (e.g. fibre, microwave, and satellite), as well as the cost of maintaining and enhancing these facilities. The Commission considered that this mechanism should complement, and not replace, other investments from the private sector and governments, including public-private partnerships.

a)

Explain, with supporting rationale, whether there is a need for the Commission to establish such a mechanism in Northwestel's operating territory. As well, explain whether there is a need for such a mechanism in other regions of Canada.

b)

What impact would the establishment of such a mechanism have on private sector investment and government programs to fund the provision of modern telecommunications services?

Key Findings
Key Finding 7A:

Northwestel has filed with the Commission two discrete proposals that would each enable all 58 terrestrially-served communities in Northwestel's serving area to receive broadband speeds exceeding 15/1 (which, if granted, would make it ineligible for funding in these communities under our proposal in the event the Commission deems a fund to be necessary).

Recommendations
Recommendation 7.1:

Special consideration for satellite communities can be accommodated in light of ongoing transponder costs. These considerations should apply to both satellite communities in and outside Northwestel's territory.

Recommendation 7.2:

The Commission should not implement an auction for satellite communities until the outcome of the Telesat C-band pricing proceeding (TNC 2015-133) is known.

126. This section also addresses a recommendation found in the Answer to Q2:
Recommendation 2.3:

When subsidizing broadband builds, the Commission should fund builds of 10 Mbps download and 1 Mbps upload, with the exception of satellite communities where it should only fund for 5 Mbps download and 1 Mbps upload.

7.1
Northwestel Territories and other Satellite Communities

127. We believe that there is a demonstrated need for a mechanism to support investment in transport facilities in Northwestel's operating territory, as the costs for satellite capacity are a major barrier in being able to provide broadband services that meet the Commission's target speeds. As was noted by the Commission in the proceeding leading to TRP 2013-711, the cost of satellite transponder capacity has been the limiting factor associated with the provision of affordable Internet services in communities that rely on satellite backhaul transport:

122. The Commission notes that both Northwestel and SSi stated that it is technically feasible to offer broadband Internet service at the Commission's target speeds in satellite-served communities, but that the cost of satellite transport is the biggest impediment to affordable broadband Internet services. The evidence in this proceeding demonstrates that rates in satellite-served communities for residential broadband Internet access are generally much higher than rates in terrestrially served communities. Further, most parties in this proceeding identified transport infrastructure as an important issue in the **** to ensure access to affordable broadband Internet service at the Commission's target speeds and to other telecommunications services.

123. The Commission considers that transport infrastructure in the ****, particularly in satellite-served communities, needs to be addressed. The Commission also considers that, without its intervention, the digital divide within Northwestel's territory (i.e. terrestrially versus satellite-served communities) will likely not be resolved.

128. To address these matters, the Commission stated its intention to "establish a mechanism, as required, to support the provision of modern telecommunications services in Northwestel's operating territory that are responsive to the economic and social needs of Canadians in the ****. Such a mechanism would fund capital infrastructure investment in transport facilities (e.g., fibre, microwave, and satellite), as well as the cost of maintaining and enhancing these facilities to ensure that they support evolving telecommunications services, such as broadband Internet".

129. Northwestel has proposed two discrete mechanisms to the Commission that would enable all 58 terrestrially-served communities in Northwestel's serving area to receive broadband speeds of 15/1. As such, if one of these mechanisms is approved, Northwestel will be able to provide broadband service to all 58 of its terrestrially-served communities at speeds far exceeding the Commission's targets, without the need for any subsidy. Of course, if these proposals are rejected, some of these 58 terrestrially-served communities may remain underserved and require government or other assistance for future developments.

130. With respect to the 38 communities that are served by satellite, the Commission has the ability to create a mechanism that would assist in providing transport facilities for these communities. To this end, we have provided a detailed and comprehensive proposal for how existing contribution funds may be redirected to support improved broadband services in unserved and underserved areas across the country in response to Q13 with special treatment for satellite communities if the Commission determines it should create such a fund. We believe that this proposal addresses northern considerations, including those related to the high costs of satellite transport. To the extent the Commission deems a fund to be necessary, we believe that the regime outlined in response to Q10 and Q13 for the broadband fund can work equally well for satellite communities in Northwestel territories (be they served by Northwestel or competitors such as SSI Micro) or outside Northwestel territories.

131. For satellite communities, if creating a fund, we submit that the Commission should only fund broadband speeds of 5 Mbps download and 1 Mbps upload. In terrestrial communities, the purpose of building for 10 Mbps is to build for future demand since it is cost efficient to build that extra capacity at the same time as constructing the facilities. Since 5/1 is sufficient for Canadians to participate in the digital economy today and for the near future, and since in satellite communities the ISP would be leasing capacity for a short period (e.g., three years), the logic for building for 10 Mbps does not apply.

132. We believe that funding to support satellite communities should not be awarded until the outcome of the TNC 2015-133 is known. As part of the Satellite Inquiry, the Inquiry **** found Telesat to be the dominant provider of C-band fixed satellite services, which are currently relied upon by service providers to deliver telecommunications services to many satellite communities in Canada.

The TNC 2015-133 proceeding is currently being held to assess the continued appropriateness of the price ceiling that currently applies to Telesat's C-band services and to determine whether it would be appropriate to implement other regulatory measures with respect to Telesat's C-band services. In light of the potential changes that the outcome of the TNC 2015-133 proceeding may have on the rates for the C-band services commonly relied upon by service providers to deliver telecommunications services in satellite communities, we do not believe that it would be appropriate to hold auctions for satellite communities until the outcome of that proceeding has been determined. Without being able to properly assess the costs to provide service, including the costs associated with satellite capacity, service providers would be prevented from formulating precise and competitive bids. Providers would be forced to make assumptions based on the current rates for C-band capacity, potentially resulting in the less efficient use of subsidy resources.

8.0
Question 8
What changes, if any, should be made to the obligation to serve and the BSO?
Recommendations
Recommendation 8.1:

The BSO should be amended to eliminate the requirement to provide access to low-speed Internet (i.e., dial-up).

Recommendation 8.2:

Subject to transition outlined in Recommendation 8.3, the requirement for all LECs (including ILECs in regulated and forborne areas) to provide equal access should be eliminated.

Recommendation 8.3:

To allow for an orderly transition, all equal access obligations (both PIC requirements and dial-around obligations (i.e., 1010XXX)) for residential end-users should be eliminated by 1 January 2018. For business end-users, dial-around obligations would cease on the same date as residential end-users, but PIC obligations would continue until 1 January 2022.

8.1
Proposed Changes to the BSO

133. In this response, we propose a few changes in order to modernize the BSO and PES requirements and make them more reflective of today's IP-based environment. However, we do not propose any change to the obligations regarding accessibility (telephones with teletypewriter (TTY) and message relay service (MRS)), privacy protections, enhanced features, operator and directory services. Further we support the provision of video relay service (VRS) through the voice contribution fund.

134. Our proposed changes relate to obligations that have grown obsolete and lost their importance to Canadians: these are access to dial-up (from the date of the decision) and access to the long-distance provider of choice (Equal Access) by 2018 (2022 in the case of business voice).

135. To help illustrate our proposal, we repeat Table [3.2], which we used in our response to Q3, and which presents existing voice obligations. The obligations we propose be removed or relaxed are highlighted in strikethrough red italics in the table below: the elimination of Equal Access and dial-up.

Table 8.1
Local Voice Obligations
Required of all providers
Required of ILECs in forborne exchanges
Required of ILECs in regulated exchanges
9-1-1
9-1-1
9-1-1
Message Relay Service
Message Relay Service
Message Relay Service
Privacy Protections
Privacy Protections
Privacy Protections
Equal Access*
Equal Access
Equal Access
Unlimited Local Calling
Unlimited Local Calling
Stand-Alone **** Cap
Tariffed Rates
Access to Low-Speed Internet at Local Rates
Operator Assistance
Copy of Directory
* Equal Access is not required of Type II (wireless) CLECs or Type IV (small) CLECs.
8.2
Access to Low-Speed Internet At Local Rates (i.e., Dial-Up)

136. A current component of the BSO is that ILECs, as part of their PES service, must enable access to low-speed Internet at local rates. This is not the provision of a narrowband service, merely the enablement over the PES line of dial-up Internet access.

137. Dial-up is obsolete. According to the 2014 CMR, there were only 123K dial-up subscribers in 2013 (which represent only 1% of all Internet subscribers), a number that is precipitously falling every year.

With typical download speeds of up to only 64 Kbps,

narrowband falls well short of the Commission's broadband targets, and dial-up only access is considered unserved under Industry Canada's Connecting Canadians strategy. The expected benefits of maintaining dial-up access are thus minimal.

138. Dial-up access is also redundant in an IP environment. While we have enabled it over FTTH in order to meet our regulatory obligations, we are unaware of any demand for dial-up where FTTH access is available. As well, dial-up is not available today on wireless devices (i.e., standard wireless devices do not have the required encoders to handle analog traffic such as dial-up). In order to make use of fixed wireless (which is permitted in regulated exchanges), a dial-up solution would need to be developed solely for compliance, even though there would be no demand for dial-up – today's wireless devices support broadband, not narrowband.

8.3
Equal Access

139. The other requirement that we believe should be eliminated is Equal Access. Equal Access is no longer an important enabler of long-distance competition. **** distance competition is firmly established between wireline and wireless facilities-based competitors who typically offer a variety of affordable long-distance plans to complement their local voice and broadband services. Competition is well-entrenched, with the Commission identifying over 150 long-distance providers in Canada over wireline alone.

140. ****-distance is also a declining sector of the telecommunications industry. According to the CMR, industry wireline toll revenues fell 39% between 2009 and 2013, and we expect the trend to have continued in 2014. ****-distance revenues have shrunk to account for only 5% of the overall telecommunications pie.

In addition, within the dynamic long-distance sector, reliance on Equal Access by end-users is small and decreasing.

141. Looking first from the end-user perspective, the number of wireline local subscribers who have pre-selected a long-distance provider different from their local voice provider is declining. In Quebec and Ontario, only # of our residential wireline local voice subscribers in 2014 were PICed to a competing interexchange carrier (IXC). We expect that this percentage is similar, if not even higher, than that experienced by wireline CLEC competitors. Of course, none of the 20% of households that are wireless-only are making use of Equal Access as this feature is not enabled by wireless CLECs or other wireless service providers.

142. We also note a precipitous decline in the number of Bell wireline local subscribers requesting to be PICed to a competing IXC. In 2014, only # residential local Bell subscribers asked to be PICed to another IXC.

143. At the supply level, the number of active Equal Access IXCs in our territory has been declining, standing now at #, down from # in 2011. Our toll origination minutes have also been declining, nearly halving between 2011 and 2014.

# Filed in confidence with the CRTC.

144. Even with the disappearance of mandated Equal Access, a number of options will continue to exist for customers who wish to place toll calls without using the long distance service of their local provider.

Table 8.2
Toll Calling Options That Do Not Require Equal Access
Option
Description
Voice Applications

A number of computer and mobile device applications allow users to engage in chat, sometimes video chat, via the Internet.

By far the best-known of these is Skype, which allows users to communicate by voice using a microphone, video by using a webcam, and instant messaging over the Internet. Skype-to-Skype calls to other users are free of charge, while calls to wireline telephones and mobile phones (when carried over traditional telephone networks) are charged to the user. Direct Skype-to-Skype traffic is estimated to account for nearly 40% of international calls in 2014.

While traditional toll has seen a decline of revenues over the years,
Skype's popularity has increased.

In Canada, beyond its direct Skype-to-Skype service, Skype offers a variety of toll calling plans, including a low subscription plan to make unlimited calls to anyone located throughout Canada and the U.S.

Over the top VoIP

Over the top VoIP (OTT VoIP) is widely available anywhere a broadband Internet connection exists. OTT VoIP services typically utilize a broadband Internet connection to enable consumers to make voice calls over their traditional home phone.

In 2013, there were nearly one million residential OTT VoIP lines in Canada.

While OTT VoIP providers often bundle their local and long distance services, they can also offer stand-alone long distance plans. In light of the large number of OTT VoIP providers, there are now Internet sites dedicated to helping Canadian consumers compare the services of different providers.

Calling cards

To initiate a call, calling card users typically either dial a toll free number or a local access number, before dialing the number of their choice. Customers with a speed dial option on their phones frequently utilize this option to pre-dial the access number.

Calling cards are offered by a large number of suppliers throughout Canada at numerous retail outlets at prices comparable to many of the plans offered by integrated carriers. For example, Yak charges the same per minute charge for its calling card that it does for its direct dialed long distance service (i.e., its long distance service enabled through Equal Access).

Instant Messaging and Social Media Chat Sites

Instant Messaging and Chat sites offered through Social Media can be accessed from any device that has access to Instant Messaging or Social Media sites. These services provide end-users with the capability to virtually talk to anyone around the world in real time at no incremental charge. The use of these options has increased significantly over the years.

145. These various options have been acknowledged by the Commission as providing sufficient toll alternatives when customers are served via wireless technology.

They can just as well constrain any perceived ability of ILECs or CLECs to exercise market power in the wireline context.

146. Given the relatively few customers that make use of Equal Access and the readily available alternatives that will continue to exist for those customers, retail toll competition will not be impaired if our proposal is approved.

147. The limited benefits and customer take-up of Equal Access compare poorly to the costs and inefficiencies resulting from its implementation on growth technologies. The Commission has already concluded, in TRP 2012-24, that the introduction of Equal Access over mobile wireless was not in the public interest in light of its negative costs/benefits relation:

The Commission is of the view that, in order to support equal access, wireless carriers would be required to make significant investments in their networks and that such costs are unlikely to be recouped from long distance service providers given insufficient demand. The Commission also considers that, due to technical impediments when roaming occurs, equal access in a fully functional manner may not be practical. Accordingly, the Commission considers that a wireless carrier should not be required to support equal access to qualify as a Type II CLEC.

148. **** Type IV CLECs are also relieved of the obligation to provide Equal Access, notably due to its cost of implementation as the Commission noted that these carriers "…have no opportunity to recover any costs associated with implementing equal access" and that "…it is unlikely that a cost-effective solution to provisioning equal access can be developed for these carriers at this time."149. Equal Access is also a costly and inefficient network concept in an IP environment. Equal Access functionalities were developed to work with TDM architecture and, as the TDM network reaches the end of its life, will become more difficult to continue to support. As the Commission recognized in TRP 2012-24, Equal Access is very difficult to provide over mobile wireless networks, and this was a factor in the Commission's decision to waive Equal Access for wireless CLECs.

150. Additionally, Equal Access is not generally available in VoIP soft switches, driving custom development and making it costly and more difficult to support as IP networks evolve. Equal Access was designed to work on our legacy toll switches, which have been manufacturer discontinued for a while. As we transition to IP, these older toll switches will need to be disconnected at some point. It simply does not make sense to have to invest millions to recreate the Equal Access service (and all the support systems) for the IP environment. It is a significant barrier as we try to migrate to IP. Demand is not there to justify new investments in today's long distance competitive world and it is not appropriate to deter efficient or innovative upgrades due to a regulatory requirement which makes no sense in today's environment.

151. We realize, however, that a period of adjustment both for end-users and IXC providers can be appropriate. We thus propose that "access to a long-distance network of the customer's choice" be removed from the PES requirements and that Equal Access also cease to be mandated at wholesale as of a sunset date to be set by the Commission. For residential subscribers, we submit that 1 January 2018 would be a reasonable date to eliminate Equal Access, both in terms of PICing IXCs (i.e., 1+ dialing) and dial-around functionality (i.e., 1010XXX dialing). Assuming that the Commission's decision in the current proceeding would be issued in the latter half of 2016, this would give consumers and toll providers more than one year to adjust their plans. This should be sufficient for residential customers who are typically on month-to-month arrangements.

152. For business end-users, with respect to the ability to be PICed to an IXC, we propose a date of 1 January 2022 for eliminating this obligation. Assuming again a Commission decision late in 2016, this gives businesses five years to adjust their long-distance plans. This longer period for business end-users may be required in light of the presence of long-term PIC contracts. However we expect that contracts for IXC services rarely exceed five years, thus allowing both customers and providers to exit and/or amend their arrangement before the 2022 sunset date.

153. For business subscribers, we also propose a date of 1 January 2018 to eliminate dial-around functionality. ****-term contract issues are irrelevant in the case of dial around.

154. Finally we note that Equal Access, or the separation of local and long-distance subscriptions, may of course continue past these sunset dates but on a forborne basis, as providers seek to satisfy the needs of their customer base.

9.0
Question 9

Should broadband Internet service be defined as a basic telecommunications service? What other services, if any, should be defined as basic telecommunications services?

155. See our answers to Q2, Q3, Q4 and Q8.
10.0
Question 10

What changes, if any, should be made to the existing local service subsidy regime? What resulting changes, if any, would be required to the existing regulatory frameworks (e.g. price cap regimes)?

Recommendations
Recommendation 10.1:

The costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are overstated. However, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement, as described in Recommendation 10.2.

Recommendation 10.2:

ILECs should be granted the flexibility to raise residential PES rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest Commission approved (i.e., by definition affordable) level in the country, $37.29 over a three year transition period. The maximum annual increase would be $2.50 per month. Rates would be permitted to rise until they reached $37.29 or the amount needed to eliminate the subsidy, whichever is lower. The permissible rate increase should be imputed for subsidy calculation purposes in each year, whether the ILEC implemented the increase or not.

Recommendation 10.3:

Given that the costs are inaccurate, the Commission should eliminate the local voice service subsidies in Bands E and F (with the exception of the subsidy that is being replaced by rate increases – which will be eliminated over a three year transition period).

Recommendation 10.4:

Given the very high cost nature of the areas in Bands G and H1, the annual local voice service subsidy amounts in these bands should continue to be calculated using the current formulas.

Recommendation 10.5:

As the local voice service subsidy amounts in Bands E and F are eliminated over the three-year transition period, the Commission could redirect the associated amounts each year towards subsidizing broadband in Bands G and H1. Based on the approved 2014 total subsidy amounts, we estimate the total amount that could be redirected to funding broadband services at approximately $75M by the third year of the transition period.

10.1
Changes to Contribution Payments and Rates in Bands E and F

156. ILECs currently receive subsidy for the maintenance of voice services in the regulated portions of HCSAs (Bands E and F) and extremely HCSAs (Bands G and H1). For reasons explained in detail in Appendix 6, we believe the costs used for the calculation of the local voice service subsidy amounts are inaccurate and the resultant subsidy amounts are overstated. Although in the most remote areas (Bands G and H1) it is highly likely that subsidies are still required, we believe there is no evidence to justify the requirement of subsidies for voice in the rest of the HCSAs (Bands E and F). However, as explained in Appendix 6, a review of those costs and the appropriate costing approach to use for subsidy calculations would require very lengthy and contentious proceedings, and is not recommended. Instead, the Commission should focus on the rate component of the calculations to reduce the local voice service subsidy requirement and eliminate unjustified subsidies.

157. We accordingly recommend that the Commission phase out the local voice subsidy for Bands E and F over a three-year transition period. Given the very high cost of continuing to provide voice service in Bands G and H1, the annual local voice service subsidy amounts in these bands should be maintained.

158. We also recommend that the Commission grant ILECs the flexibility to raise residential PES rates in regulated HCSAs in Bands E and F, where there is a local voice service subsidy requirement, to the highest affordable level in the country, which is currently $37.29 over a period of three years, or by the amount needed to eliminate the subsidy requirement, whichever is lower. By definition, the Commission has already determined that $37.29 is a just and reasonable rate. As such, the rates in Bands E and F should be allowed to rise to that level as the subsidy is eliminated.

159. As of 1 **** 2015, the retail rate used in the subsidy calculations

in Bands E and F for those ILECs that collected subsidies in 2014 and still have a subsidy requirement for 2015 range from $30.86 to $32.14 per NAS per month.

To protect consumers, we propose that the monthly per NAS rate increases be limited to a maximum of $2.50 in any one year – ensuring that all rate increases that are implemented to get to the $37.29 level would be completed by the third year (since all the imputed rates in bands where the amount of subsidy needed per NAS per month is in excess of $2.50 are above $30).

Assuming that the decision is released in 2016, we anticipate these increases taking place at the beginning of 2017, 2018 and 2019. Furthermore, under our proposal, no rate increase would be permitted beyond a level that would be needed to eliminate the subsidy in that rate band, even if the rate used for subsidy calculations in that band is below $37.29. Such flexibility will reduce reliance on subsidies while ensuring that the rates in these areas remain just and reasonable. We note that these rate increases are consistent with other rate increases permitted by the Commission including most recently in TRP 2011-291.

160. By 2019, this phasing out of subsidy will reduce the current national contribution fund (NCF) annually by approximately $75M.

As such, if the Commission deems it appropriate to establish a fund for the deployment of broadband in Canada's most remote communities (i.e., Bands G and H1), the Commission could redirect $75M from voice to fund those projects. Under our proposal, all subsidies would be eliminated in the first year – except for the portion of rate increases that are delayed as a result of the three year transition to raise rates.

161. To illustrate our proposal, we estimate that raising rates in Bands E and F to $37.29 (or to a level that eliminates the subsidy, whichever is lower) will result in total rate increases of approximately $36.5M. Thus, we propose that while $75M in subsidies are to be eliminated for ILECs serving those bands, ILECs would recover $36.5M in rate increases, leaving an actual reduction of $38.5M. We thus divide the reduction of subsidy into two components: the $38.5M subsidy reduction and the $36.5M rate increase. We further propose that the $38.5M subsidy reduction should be effective in the first year (2017). The $36.5M rate increases would be phased in over three years to protect consumers. As such, we estimate that rate increases of $2.50 a year (until the permitted maximum is reached) will result in total rate increases of $16M in 2017, $14.5M in 2018 and $6M in 2019.

Therefore, the money available to fund broadband would be $54.5M (i.e., $38.5M plus the $16M as a result of the initial rate increase) in 2017, $69M (i.e., adding the $14.5M rate increase to the $54.5M figure) in 2018 and the full $75M by 2019.

11.0
Question 11

What changes, if any, should be made to the contribution collection mechanism? Your response should address, with supporting rationale, which TSPs should be required to contribute to the NCF, which revenues should be contribution-eligible and which revenues, if any, should be excluded from the calculation of contribution-eligible revenues.

Recommendations
Recommendation 11.1:

Contribution eligible revenues (CERs) should be modified to include both retail paging service revenues and retail Internet service revenues.

Recommendation 11.2:

Assuming there is a broadband fund, funds for voice and broadband should be distributed on different bases. Specifically, voice funds should continue to be paid out to ILECs and the Canadian Administrator of VRS (CAV) in accordance with current practices. Broadband funds, however, should be paid out through a competitive auction model in accordance with the proposal we put forward in our response to Q13.

11.1
Changes to the Contribution Collection Regime

162. We do not believe that any changes are needed to the TSPs required to contribute, as the scope of TSPs specified in Decision 2000-745, remains appropriate. In that decision, the Commission concluded that:

all telecommunications service providers, such as ILECs, APLDS, CLECs, resellers, WSPs, international licensees, satellite service providers, Internet service providers (if a telecommunications service is provided), payphone providers, data and private line service providers are required to contribute based upon their total Canadian Telecommunications Service Revenues (CTSR), less certain deductions.

163. In making this determination, the Commission noted that "applying contribution against the broadest possible range of telecommunications service providers would spread the contribution burden across various sectors of the marketplace" and that "this approach would be competitively equitable, result in a lower revenue-percentage charge being applied to each service, and be more administratively efficient by eliminating the need for a detailed review and classification of all telecommunications services." In order to limit the administrative burden associated with collecting contribution from TSPs with small Canadian Telecommunications Service Revenues (CTSRs), the Commission set a minimum revenue threshold at $10M. Accordingly, all TSPs with a minimum CTSR of $10M are required to contribute to the NCF. We submit that these considerations remain appropriate and that no changes should be made to the scope of TSPs who should be required to contribute to the fund.

164. While the current scope of contributors continues to be appropriate, we believe that changes should be made to the collection mechanism with respect to the revenues that are contribution-eligible to better align the funds used to support the purposes of each component of the fund. Currently, the Commission allows certain deductions from TSPs’ CTSRs when calculating their CERs as appropriate to fund voice services. These deductions consists of the following:

-
Contribution payments received from the NCF;
-
Inter-carrier payments;
-
Retail Internet service revenues;
-
Retail paging service revenues;
-
Terminal equipment revenues; and
-

Non-contribution-eligible revenues eliminated from those bundles to which both contribution-eligible and non-eligible revenue are attributed.

165. We continue to support deductions for: contribution payments received from the NCF, inter-carrier payments, terminal equipment, and non-contribution-eligible revenues eliminated from those bundles to which both contribution-eligible and non-eligible revenue are attributed. In Decision 2000-745 the Commission determined that:

1) a deduction should be given for revenues received from the NCF so as not to require a TSP to pay contribution on subsidy amounts;

2) inter-carrier payments should be deducted to avoid double counting of revenues;

3) revenues from terminal equipment should be deducted as such equipment is also provided by non-TSPs, and it would not be competitively equitable to require TSPs providing such equipment to pay contribution, while non-TSPs would not; and 4) bundles require special consideration to properly account for revenues attributed to the combined sale of contribution-eligible and non-eligible services.

166. We believe that these deductions remain appropriate. However, two deductions should be removed in our view (and counted in contribution calculations): retail paging service revenues and retail Internet service revenues.

167. The Commission has historically exempted retail paging service revenues from eligibility in light of the nature of the service, existing policies with respect to their contribution exempt status and administrative complications. Retail paging services, such as text messaging, have evolved in an immeasurable manner in recent years, such that these services are now used by consumers largely as a substitute to traditional voice communication. In light of this dramatic shift in the nature of these services, it is our view that retail paging services should be properly viewed as an extension of retail voice services for the purposes of contribution, and their associated revenues included as part of TSP CERs.

168. With respect to retail Internet service revenues, we propose that they also be included. Given the nature of broadband services today – and how they have been used as a replacement for traditional voice services, we submit this exemption is no longer appropriate. Further, if the Commission does decide to create a broadband fund, clearly, broadband revenues should be included in the CER calculation to align the beneficiaries with the funds that are taxed to pay into the fund.

169. Consistent with our answers to other questions, and assuming the Commission elects to create a broadband fund, payments of contribution should be separated into those related to voice and those related to broadband.

12.0
Question 12

Should some or all services that are considered to be basic telecommunications services be subsidized? Explain, with supporting details, which services should be subsidized and under what circumstances.

170. See our response to Q10 for our proposal regarding how a broadband fund could be implemented should the Commission determine that such a fund is required for Bands G and H1 as well as how to reform the current local voice service subsidy regime in order to support this new basic service and fund.

13.0
Question 13

If there is a need to establish a new funding mechanism to support the provision of modern telecommunications services, describe how this mechanism would operate. Your response should address the mechanism described in Telecom Regulatory Policy 2013-711 for transport services and/or any other mechanism necessary to support modern telecommunications services across Canada. Your response should also address, but not necessarily be limited to, the following questions:

a)
What types of infrastructure and/or services should be funded?
b)
In which regions of Canada should funding be provided?
c)

Which service providers should be eligible to receive funding, and how should eligibility for funding be determined (e.g. only one service provider per area, all service providers that meet certain conditions, wireless service providers, or service providers that win a competitive bidding process)?

d)

How should the amount of funding be determined (e.g. based on costs to provide service or a competitive bidding process)?

e)

What is the appropriate mechanism for distributing funding? For example, should this funding be (i) paid to the service provider based on revenues and costs, or (ii) awarded based on a competitive bidding process?

f)

Should any infrastructure that is funded be available on a wholesale basis and, if so, under what terms and conditions?

g)
Should the Commission set a maximum retail rate for any telecommunications service that is subsidized?
h)

Should this mechanism replace the existing residential local wireline service subsidy? If so, explain how the existing subsidy should be eliminated, including details on any transition period. In addition, explain whether the small ILECs and/or Northwestel should be subject to any special considerations or modifications for this transition period.

Key Findings
Key Finding 13A:

Relying on an obligation to serve or a similar mechanism that relies on cost models for creating broadband subsidies is costly, time consuming and inefficient. Experiments conducted by the FCC have demonstrated that a competitive RFP process resulted in a significant number of bids, some of which were less than 50% of what would have been the FCC cost model's result, and with commitments to deliver higher speeds than required by the FCC.

Key Finding 13B:

The highest costs to expanding broadband in satellite communities are the ongoing operating expenses of paying for the backhaul of the satellite through leased capacity. As such, satellite bidders will likely require ongoing subsidies instead of on a one-time/build basis.

Key Finding 13C:
Governments rely on third party experts to help assist them in conducting auctions.
Key Finding 13D:

Wholesale access obligations would lower the business case in regions that are already challenging to deploy in to begin with. As bidders would have to factor in a decreased market penetration (in light of wholesale competition) it would correspondingly increase the cost of deployment and therefore increased required subsidies and industry contributions.

Recommendations
Recommendation 13.1:

Any auction design should ensure no subjective decision making in the award of winners once the criteria of the auction have been established.

Recommendation 13.2:

Any auction design should ensure technological neutrality preferring no one technical solution with the exception that, consistent with the Federal Government's Connecting Canadians program, mobile wireless (as opposed to fixed wireless) should not be considered when determining whether a community is "served" or "unserved", nor should it be an eligible solution as part of a bid.

Recommendation 13.3:

As a further exception to Recommendation 13.2, any auction should be designed to allow for a proper comparison between satellite-based solutions that require permanent subsidies and terrestrial-based solutions that only require onetime (or finite) upfront subsidies and may have special rules or exemptions pertaining to satellite-served communities.

Recommendation 13.4:

Any auction should be designed as a reverse auction allowing bidders to bid on the amount of subsidy they require to provide service in a community based on a monthly payment per household for 60 months for terrestrial communities and perhaps 36 months for satellite-served communities.

Recommendation 13.5:

Any auction should be designed to allow some form of grouping communities in Bands G and H1 together into a package so as to maximize network deployment efficiencies.

Recommendation 13.6:

Any auction should award bids to only one provider per community and the corresponding subsidy should not be portable to other ISPs even if another ISP later elects to serve customers in that area.

Recommendation 13.7:

There should be no regulatory requirement for the winner of any auction to wholesale access to its broadband service.

Recommendation 13.8:
**** bidders should have to report annually on their progress in rolling out service.
13.1
Overriding Principles

171. We submit that there are three fundamental principles that should underlie the structure of any Commission created broadband fund. Specifically, the fund should be designed:

(i)
To be complementary to, and not in lieu of, other investments from the private sector and governments;
(ii)

To be competitively allocated through a reverse auction in which the lowest bid wins the subsidy in all cases without the use of subjective, non-monetary criteria: this will minimize the total amount of funds to be allocated; and(iii)

To allow for a technology neutral provision of broadband services to the maximum extent feasible.
172. In this section, we explain our rationale for each of these principles.
13.1.1 Complementary to, and not in lieu of, government and private investments

173. We welcome the Commission's continuing recognition that any funding mechanism "should complement, and not replace, other investments from the private sector and governments, including public-private partnerships." As we have addressed in greater detail in response to Q4, Q7 and Q10, we believe the appropriate means of balancing these competing sources of funding and/or incentives for development of broadband (if the Commission believes any such Commission-established funding is required) is to establish a subsidy regime only for Bands G and H1. By focusing on the most remote bands (Bands G and H1), any new Commission subsidy program can address the most difficult problem first and the various governments can continue to provide incentives and subsidies to close the gap, if any, for remaining areas (i.e., unserved or underserved areas in Bands A through F).

174. The Commission should further make it clear in its announcement of such funding that it is meant to be complementary to government and private funding. It should also recommend, in its announcement of this new fund as well as in subsequent monitoring report, that the governments continue to work towards assisting in the deployment of broadband where there is no business case as well as continue to provide and expand upon incentives for broadband deployment such as the items mentioned in our answer to Q2.

13.1.2
Competitive Allocation

175. It is important to design the fund in a manner that will result in the lowest subsidy being needed for the building of broadband.

176. We submit that a competitive bidding process (i.e., auction) will minimize the funds required.

177. Actual case studies demonstrate that auctions result in lower subsidies than using cost models. The evidence for this can be found in recent U.S. experiments. As explained by Gillan in Appendix 3, the FCC has created a detailed cost model establishing the cost of building broadband service across the U.S. in areas where the largest ILECs (called **** Cap ILECs such as AT&T or Verizon) have telephony plant but where no ISP is providing Internet service at least at 4 Mbps download / 1Mbps upload. The model itself was very expensive to build (costing in excess of $5 million) and took several years to construct. At the end of that process, the model determined the cost for building broadband in these communities and the amount of subsidy required for the ILECs to agree to build those communities. The ILECs were then given a Right of First Refusal (RoFR) to build broadband everywhere in their ILEC territory within a state for the amount of subsidy as determined by the model.

178. At the same time, the FCC undertook an experiment in which it invited other ISPs to offer to build broadband in some of these areas (the Rural Broadband Experiment or RBE program) so that it could see what level of subsidy an auction regime would determine is needed to serve these areas. The net results of the RBE programs is that the FCC was inundated with offers to build broadband by other ISPs for subsidies that were more than 50% lower than the cost model's results and for speeds that were higher than assumed by the model. As Mr. Gillan noted:

Most importantly to the purpose of this report, the FCC's limited experience with the Rural Broadband Experiments indicates that a competitive bidding process can produce results that are superior to a right-of-first-refusal system, at least for certain areas.

Although public information concerning the terms of specific bids is limited, the FCC did disclose that:
*

All of the rural broadband experiment proposals sought an amount of support at or below model-calculated levels;

and
*

High-performance network bidders (Category 1 – i.e., areas that bidders were required to build to 100 Mbps download and 25 Mbps upload) collectively requested $69 million in annual support for census blocks that would have received $149 million in model-based support as part of the CAF offer (i.e., offers which required ILECs to only build to 10 Mbps download and 1 Mbps upload).

The fact that competitive bidders were able to propose networks far more capable than required by the FCC, at costs so much lower (less than half) than the CAM calculated, demonstrates that competitive bidding can be more efficient than a right-of-first-refusal regime and its requisite cost model.

179. Economic literature supports these real world findings. **** (1999) described the benefits of distributing subsidy funds through a market-based competitive process – such as an auction – in order to minimize the amount of subsidy funds:

Competitive bidding offers an alternative method of assigning a "value" to universal service, by eliciting the valuations placed on the universal service obligation by the firms themselves. Rivalry among the bidders would be more effective means of ensuring that universal service payments are minimized than any amount of litigation over cost estimates. At the same time, since the bids would represent voluntary actions by the firms, they would also serve to discipline the regulator, and ensure that the regulator does not use its coercive power over the incumbent to "procure" universal service for a "price" that is too low. By setting a correct value on universal service, an auction can allow the regulator to have confidence that its universal service policy can be sustained, and, at the same time, that prices will be realigned in such a way as to promote efficient competitive entry and investment. Auctions represent a market mechanism for dealing with universal service, one that does away with traditional cost-of-service regulation. This is particularly important if one thinks of universal service as a policy to be maintained well into the future, since it would otherwise be necessary to maintain cost-of-service regulation indefinitely.

[Emphasis added]

180. After reviewing the use of auctions for funding basic telecommunication services (in mostly developing countries), Wallsten (2008) finds that properly designed auctions can effectively reduce subsidy expenditures:

The second lesson is that reverse auctions can be implemented successfully. When done properly, they may reduce expenditures on universal service. That is, the auctions create a market where none existed and use that market to reveal the expected costs of providing telecommunications services.

181. Moreover, there is nothing exotic about using auctions. Many countries, including Canada, have implemented auctions as part of their procurement process. Auctions have been effectively used to allocate billions of dollars in spectrum licences, oil and gas leases and Government financial instruments.

182. As for using auctions for broadband, **** + **** explain in Appendix 2, that auctions are used by governments and regulators throughout the world. As highlighted throughout our submission, Industry Canada recently used auctions to allocate the funds to build broadband to over 300,000 homes through its Connecting Canadians program. For all these reasons, we submit that the Commission should also use auctions in the event it deems a fund to be necessary.

183. Under our proposal, bidders would be required to build facilities capable of serving customers at 10 Mbps (with the exception of satellite communities) in areas that are not already considered "served" using a minimum target of 5 Mbps. The lowest bid at the end of the auction would win (hence the notion of a reverse auction). The key is that the methodology for determining the winner must be clearly established at the outset and competitively allocated without the use of subjective measures. Such an objective mechanism will facilitate true competition in bids.

184. As noted by Wallsten (2008), the elements of an auction for funding basic telecommunication service are straightforward:

The government defines say, a region, and asks for bids to provide service. Firms submit bids of how much the government would have to pay them to provide service in that region. The firm that asks for the smallest subsidy, all else being equal, wins the reverse auction and thus agrees to provide service in exchange for the subsidy it bid.

13.1.3
Technological Neutrality

185. The Policy Direction emphasizes the need for the Commission to strive for technological neutrality. Firms should be able to determine which communities they want to serve using the technology they believe provides the most effective means of meeting the broadband service requirements being auctioned, and then submit a bid for the amount of subsidy they require for each household served. With some limited exceptions noted below, we believe that the Commission should not favour any one technological solution over any other. In the end, all the Commission should concern itself with is whether broadband is being delivered with the lowest possible amount of subsidy.

186. To be clear, as long as the solution meets service or pricing requirements associated with it, a TSP should be eligible to bid for that solution. This approach is similar to what the Commission decided in the case of the broadband deferral account builds. Ultimately, the Commission allowed us to utilize a fixed wireless solution instead of a wireline DSL solution, provided that we ensured our retail offer matched the quality and rates of our DSL offers:

The Commission considers that, consistent with the principle of technological neutrality, the Bell companies should be able to deploy the technology of their choice as long as its broadband service meets the required criteria…The Commission further considers that Bell Canada's revised proposal, which makes use of HSPA+ wireless technology instead of wireline DSL technology, would also achieve the stated objective, as it would provide broadband service comparable with, or superior to, urban broadband service.

187. No subjective judgment should be exercised by the Commission preferring one technical solution over the other as such an approach undermines the objective nature of the reverse auction, with the exception that, consistent with the Federal Government's Connecting Canadians program, mobile wireless (as opposed to fixed wireless) should not be considered when determining whether a community is "served" or "unserved", nor should it be an eligible solution as part of a bid.

188. It must be recognized that the cost structure of different types of network elements may be significantly different, such that direct comparison may be difficult. In the case of any terrestrial solution, be it wireline (e.g., FTTH, cable, FTTN, ATM DSL) or fixed wireless (e.g., fixed wireless LTE), the biggest impediment to building out broadband is likely to be the upfront capital costs to connect that community and the houses within it. As such, we support an auction that provides for onetime funding (allocated over five years as discussed below) that is not eligible for renewal. In that manner, TSPs can bid their technological solution with a clearly defined ask for subsidy for a pre-set time period. In doing so, the Commission can be agnostic to the technological solution chosen and simply focus on the lowest cost bid.

189. The one exception to this general approach is satellite and we therefore propose a limited exception to our technological neutrality rule. As discussed in answer to Q7, satellite can be a very cost effective solution for backhaul even in cases where the TSP is able to deploy terrestrial local access facilities in the community itself – as Northwestel has done in 38 of its 96 communities. As recognized by Commissioner **** in her capacity as an inquiry officer into satellite communities, the biggest costs to expanding broadband in these communities is often not the cost of building the access plant or even the satellite receivers; instead the highest costs are the ongoing operating expenses of paying for the backhaul of the satellite through leased capacity.

From a subsidy perspective, this means that subsidies for satellite solutions will often need to be ongoing as compared to the onetime capital costs associated with terrestrial solutions.

190. This raises the problem of how to compare onetime costs for capital expenditures (CAPEX) based terrestrial solutions (e.g., building microwave to a community) to ongoing costs for satellite operating expenditures (OPEX) based solutions for the same community (e.g., if ISP 1 bids a terrestrial solution assuming a five-year subsidy as compared to ISP 2 that bids a satellite solution for that same community with the expectation that its subsidy would need to be renewed at the end of the five-year period). Clearly, onetime charges have the benefit that in the long run they may be cheaper. But, in the short term, satellite solutions for non-terrestrial communities would, in many if not most cases, win a head-to-head comparison with other technologies. Further, if no distinction is made, some bidders will bid on satellite solutions claiming they will only require onetime funding, when the reality is that additional funding will inevitably be sought once the initial funding expires because of the recurring nature of the expense associated with leasing satellite capacity.

As a result, depending on the length of time considered for the subsidy, it may be difficult to properly compare the two alternatives at the same time using a market-based approach such as an auction.

191. Due to these differences between terrestrial and satellite, the auction parameters will have to be designed to adjust for the differences in cost structures. One potential approach is to identify which areas should be served using terrestrial-based technology and which should be served using satellite-based technology. Under this scenario – the Commission would make an initial determination where it would solicit comments on classifying whether a community should be assigned to the satellite or terrestrial category. But if an ISP wanted to propose building a terrestrial solution to a satellite community, it would have to make the case as to why this was the cost effective long-term solution – and the Commission would make the decision whether to classify the community as satellite or terrestrial. We anticipate that rarely would a satellite community switch to a terrestrial classification (or vice versa) – but the process would allow for that outcome. Once this classification was complete, then terrestrial-based service areas could be auctioned in the same auction; likewise all satellite-based service areas could be auctioned in a separate auction. This satellite-specific auction could have shorter subsidy periods (for example three years) to account for the fact that new technological changes are expected in the near future which may affect the levels of service and associated costs that are available in satellite communities.

192. Another potential approach to this same problem is to allow the bidders to determine which areas they want to serve and which technology to use, and then auction all service areas together. Then within the auction, there could be an external weighting to reflect the fact that terrestrial solutions have a long-term benefit as compared to satellite from a costing perspective. These, as well as other alternatives can be considered in a process to determine the auction rules, similar to what Industry Canada does in the spectrum auction process.

13.2
Structure of the Auction

193. In this section, we provide some suggestions as to how an auction could be structured. The purpose of this is not necessarily to provide a comprehensive proposal but rather to demonstrate that a properly thought-out and run auction can be very successful. In some situations, such as the problem we discussed above regarding comparing satellite to terrestrial communities, we offer some options for the Commission's consideration.

194. We note in this respect that there are a number of firms experienced in supporting Government agencies with the development and implementation of auctions.

With well defined service parameters and conditions, an effective auction can be conducted. For example, in the recent 2500 MHz auction, Industry Canada effectively allocated 318 spectrum licences across Canada using a complex multiple round auction format. It is our understanding that Industry Canada relied on outside consultants to design and run the auction. If it believed it would be beneficial, the Commission could do the same for the creation of an auction process.

13.2.1
Monthly Subsidy

195. An initial question is the nature of the subsidy. As mentioned above, similar to Industry Canada, we support bids that compare the onetime capital costs to build (except in the case of a satellite bid as discussed above). However, we note that in the case of Connecting Canadians, Industry Canada limited the subsidy to only capital expenditures – stating that in most cases it would only fund up to 50% of the capital expenditures of the project. We submit that the Commission need not be so prescriptive. Perhaps, the overall most efficient bidder is a company that requires a higher subsidy for CAPEX but has a lower OPEX and thus requires an overall lower subsidy. To that end, the bid should be a reverse auction for the total amount of subsidy required – regardless of the nature of the costs.

196. We submit that the most efficient method is to have the bidders bid for the total amount of subsidy they require to provide service in a community based on a monthly payment per household. The subsidy would be a monthly payment regardless of whether it is used for CAPEX or OPEX.

197. We submit that five years for terrestrial communities (and perhaps three years for satellite-served communities) is an appropriate time period for receiving a subsidy to build out broadband.

13.2.2
Community Eligibility and Aggregation

198. As mentioned above, only communities in Bands G and H1 should be eligible for bidding – and then only if they don't already have access to broadband at 5 Mbps download and 1 Mbps upload.

199. For defining geographic areas, a census population centre where the provision of in-home broadband Internet access service with a minimum of 5 Mbps download and 1 Mbps upload is not available should be the basis of the bid.

For simplicity, we recommend relying upon the hexagons prepared by Industry Canada for Connecting Canadians which are divided into 25 km2 hexagons and indicate where facilities-based ISPs are located for the purpose of identifying high-speed Internet availability.

200. In order to facilitate the attainment of economies of density and scale (to the extent that they exist), and continuous coverage, the Commission may wish to allow bidders to aggregate communities. One possible method to do this is to allow for package bidding. Package bidding allows bidders to aggregate similar (and perhaps adjacent), service areas and allow for the optimization of network deployment. This in turn should reduce the amount of subsidy required as efficiencies in network deployment should also reduce costs.

201. Another possible model is to have standardized packages. Under this approach, before conducting the auction, the Commission would call for proposals to package together communities. If a bidder wanted to package together, for example, 10 communities, it would propose that they be treated as a package. If any other bidder objected – for example another bidder proposed that only six of those communities should be packaged together – then the Commission would select the lowest collection of communities as a package (in this case six communities). In that manner, the packaging could never result in a potential bidder not bidding because it was not prepared to serve all the communities in the package.

13.2.3
Number of Winners for each Package

202. The Commission must ensure that only one bidder is subsidized to provide service in a given area (the community or aggregated collection of communities). In TRP 2011-291, the Commission determined that the purpose of subsidies is to assist the entity with the obligation to serve (which applies to telephony services). Although, in the case of broadband, the Commission cannot impose an obligation to serve on any entity, a bidder is agreeing contractually to accept the obligation to provide service if it is successful. In such a case, only that bidder should be funded for that area. In other words, there should be no notion of a portable subsidy – whereby multiple ISPs can receive subsidy within the same area simply by having the customer switch providers.

13.2.4
Role of Wholesale

203. While we recognize that the Commission has historically required wholesale access as a condition of receiving subsidies, there should be no obligation to provide wholesale access services under this program. Mandating wholesale access creates two fundamental problems: (i) it acts as a disincentive for potential bidders; and (ii) it drives up the costs of the subsidy.

204. Clearly, an ISP that bids knowing that there is no wholesale obligation will be able to seek a subsidy that assumes a higher level of retail penetration than if wholesale access is mandated. As such, the ISP can be expected to bid for a lower level of subsidy. In contrast, where there is a wholesale obligation, an ISP will have to assume that it will lose retail market share – and thereby retail market revenues to a wholesale competitor. Unless one believes that the wholesale competitor will actually grow the market (a dubious proposition), then the impact of mandating wholesale can only be to reduce the profitability (and therefore increase the required subsidy) for the bidder. As such, if the Commission mandates wholesale obligations as part of this regime, the Commission will be requiring the industry to pay a higher contribution – and by extension – subsidize competition. The goal of this program should be to bring access to all Canadians, not to subsidize competition.

13.2.5
Mandated Retail Rates

205. Retail rates should not be regulated. We note that in the case of the deferral account, the Commission did not set maximum retail rates nor should such rates be set in the case of areas which receive broadband subsidy funds.

The service would have to be defined to include a download speed (i.e., 5 Mbps) as well as some level of usage that is appropriate for the speed chosen.

206. As discussed above in our answer to Q3, there is no need for the Commission to also address terms or conditions associated with the service, other than setting the minimum bandwidth requirements. Should the Commission desire some certainty with respect to rates in areas to be served pursuant to subsidies, the Commission could require bidders to commit to offer services at rates comparable to competitive offerings offered in non-subsidy areas. Such a solution would provide competitors the flexibility to differentiate themselves and also provide some certainty to the Commission that rates are just and reasonable.

13.2.6
Reporting

207. In order to ensure that the winning bidder delivers the service as described, the winning ISP should be required to provide annual updates similar to how Northwestel reports on its Modernization Plan or how ILECs have reported on their deferral account broadband builds.

*** End of Document ***
� EMBED Word.Document.8 \s ���

� Specifically, Bell Canada is filing on behalf of Bell Aliant Regional Communications, Limited Partnership (which effective 1 July 2015 was wound-up into Bell Canada, and is now operated as a division of Bell Canada), Bell Canada, Bell Mobility Inc., Câblevision du Nord du Québec inc. (CVQ), DMTS, KMTS, NorthernTel, Limited Partnership, Northwestel Inc., Ontera and Télébec, Société en commandite.

� �HYPERLINK "http://www.bce.ca/news-and-media/releases/show/BCE-reports-first-quarter-2015-results"�http://www.bce.ca/news-and-media/releases/show/BCE-reports-first-quarter-2015-results�.

� Telecom Notice of Consultation CRTC 2015-134, Review of basic telecommunications services, issued 9 **** 2015.

� Akamai, The State of the Internet Report Q4 2014, Volume 7, No. 4, available at:��HYPERLINK "http://www.akamai.com/stateoftheinternet/"�http://www.akamai.com/stateoftheinternet/�.

� 2014 Communications Monitoring Report, Table 5.3.12.
� Ibid.

� **** A. Eisenach, Broadband Market Performance in Canada: Implications for Policy, NERA Economic Consulting, July 2015, Appendix 1.

� CRTC Monitoring Report 2014, Figure 5.3.8 Popular Internet applications – Bandwidth requirements.

� **** + ****, 'The Broadband USO Review: International comparisons of universal service regimes and broadband access' (July 2015), Appendix 2.

� BTIB 2010-961, Procedures for filing confidential information and requesting its disclosure in Commission proceedings, dated 23 December 2010, as amended in BTIB 2010-961-1, dated 26 October 2012 to reflect the directives in Telecom Regulatory Policy CRTC 2012-592, Confidentiality of information used to establish wholesale service rates.

� Telecom Notice of Consultation CRTC 2015-133, Review of Telesat Canada's price ceiling for C-band fixed satellite services, issued 9 **** 2015.

� BCE, **** Release, "BCE reports first quarter 2015 results", 30 **** 2015.
� ****, Figures 2.3.4 and 2.3.5.
� 2014 Communications Monitoring Report, Table 5.3.12.
� Ibid.

� Bell Aliant, **** Release, "FibreOP™ services poised to expand across NB - more customers able to experience ultimate broadband experience", issued 8 February 2010.

� Akamai, The State of the Internet Report Q1 2015, Volume 8, No. 1, available at:��HYPERLINK "http://www.stateoftheinternet.com/resources-report-state-of-the-internet.html"�http://www.stateoftheinternet.com/resources-report-state-of-the-internet.html�. Note that Akamai does not provide data for two G20 members: Saudi Arabia and the European Union.

� ****, Figure 2.3.2
� ****, Tables 2.1.3 and 2.1.4 (change in Level 2 pricing between 2008 and 2014).
� Eisenach, Appendix 1, p. 35.
� **** Report at 5.3.
� Ibid.

� Nera Consulting, Appendix 1, at Figure 16 (SOURCE: NERA Economic Consulting based on data from OECD Broadband Portal, “Fixed Broadband Basket High 3: 33 GB/60 hours per month. 15 Mbit/s and above,” (available at: http://dx.doi.org/10.1787/888932799722). Notes: [1] **** is for the OECD High 3 category which includes broadband services at 15 Mbps or higher with a monthly data cap of 33 GB. [2] Broadband prices are from **** 2012 and population density figures are from 2013. [3] The data point for Mexico is not shown for scaling reasons.).

� See �HYPERLINK "http://network.bell.ca/en/lte/"�http://network.bell.ca/en/lte/�.

� BCE, **** Release, "Bell accelerates expansion of 4G LTE wireless service to small communities across Canada", issued 25 February 2015.

� As of 31 **** 2015, the Rogers’ LTE network reached 87% of Canadians. See Rogers, Q1 2015 Earnings Release, page 14 found at: �HYPERLINK "http://netstorage-ion.rogers.com/downloads/IR/pdf/quarterly-results/Rogers-2015-Q1-Results-Release.pdf"�http://netstorage-ion.rogers.com/downloads/IR/pdf/quarterly-results/Rogers-2015-Q1-Results-Release.pdf�.

� CISCO VNI 2014 data, available at:��HYPERLINK "http://www.cisco.com/assets/sol/sp/vni/forecast_highlights_mobile/index.html%23~Country"�http://www.cisco.com/assets/sol/sp/vni/forecast_highlights_mobile/index.html#~Country�.

� Ibid.
� NERA Economic Consulting, Appendix 1, at page 22.

� Canada Digital Future in Focus 2015: The 2014 Digital Year in Review & Predictions for the year ahead. See �HYPERLINK "http://mkc.int.bell.ca/V5/download.aspx?b=1&col=CIS&id=45916"�http://mkc.int.bell.ca/V5/download.aspx?b=1&col=CIS&id=45916�.

� NERA Economic Consulting, Appendix 1, Figure 12.
� ****, Figure 2.2.2.
� NERA Economic Consulting, Appendix 1, Figure 9.

� Telecom Notice of Consultation CRTC 2010-43, Proceeding to review access to basic telecommunications services and other matters, issued 28 January 2010.

� TNC 2010-43, Transcript Reference - Volume 1, paragraph 923.

� Based on data from Statistics Canada, Canadian Internet use survey, Internet use, by age group, Internet activity, sex, level of education and household income, ��HYPERLINK "http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&id=03580153"�http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&id=03580153�.

� The Broadcasting Act has no obligation to build facilities where non-exist.

� �HYPERLINK "http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/biz-categories-technology/canadas-video-game-industry-ranks-no-3-worldwide/article9875545/"�http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/biz-categories-technology/canadas-video-game-industry-ranks-no-3-worldwide/article9875545/�.

� For more information, see the Electronic Software Association Canada's Fact Sheet: �HYPERLINK "http://theesa.ca/wp-content/uploads/2014/11/ESAC-Essential-Facts-2014.pdf"�http://theesa.ca/wp-content/uploads/2014/11/ESAC-Essential-Facts-2014.pdf�.

� **** Ivus and **** Boland, The Employment and Wage Impact of Broadband Deployment in Canada, Canadian Journal of Economics (2015) available at: �HYPERLINK "http://works.bepress.com/olena_ivus/6/"�http://works.bepress.com/olena_ivus/6/�.

� Ibid, page 2.
� Ibid. page 14.

� **** et al., The Internet and Local Wages: A Puzzle, American Economic Review 2012, 102(1): paragraphs 556 to 575.

� Ibid. paragraphs 557 and 558.

� Ivus & ****, page 28. They also add that another explanation "is that Internet infrastructure capabilities in the 1995-2000 period studied in **** et al. (2012), were less than those deployed in subsequent years. In **** et al. (2012), at most 30% of firms were using advanced Internet applications in the year 2000. In our study, by contrast, broadband Internet services are more widespread; the fraction of communities with zero broadband coverage was 47% in 2005 and 10% in 2012. Furthermore, all of the firms sampled in **** et al. (2012) are large (i.e., 100+ employees), since very few small firms deployed advanced Internet applications at that time. Our sample, on the other hand, includes firms of all sizes, the vast majority of which are small".

� CRTC Monitoring Report 2014, Figure 5.3.8 Popular Internet applications – Bandwidth requirements.

� �HYPERLINK "http://support.xbox.com/en-US/xbox-360/networking/slow-performance-solution"�http://support.xbox.com/en-US/xbox-360/networking/slow-performance-solution�.

� Based on Bell Canada numbers, including territories formerly served by Bell Aliant in Ontario and Quebec. In determining this we have included plans of up to 8 Mbps in our assessment of what constitutes plans "at or close to 5 Mbps" as per the Commission’s request in The Companies(CRTC)7May15-3.

� Online, searchable maps have been created by Industry Canada showing high-speed Internet availability across the country. The maps are divided into 25 Km2 hexagons and indicate where facilities-based ISPs are located for the purpose of identifying high-speed Internet availability and program eligibility for Connecting Canadians: �HYPERLINK "http://www.ic.gc.ca/eic/site/028.nsf/eng/50012.html"�http://www.ic.gc.ca/eic/site/028.nsf/eng/50012.html�.

� Derived from the maps used by Industry Canada available at: �HYPERLINK "http://www.ic.gc.ca/eic/site/028.nsf/eng/50016.html" \l "Maps"�http://www.ic.gc.ca/eic/site/028.nsf/eng/50016.html#Maps�.

� Gillan, Appendix 3, page 3.
� Gillan, Appendix 3, page 5.

� **** + ****, The Broadband USO Review: International comparisons of universal service regimes and broadband access (July 2015) Appendix 2.

� **** + ****, Appendix 2, Table 2 at pages 7-8.

� Telecom Decision CRTC 2014-42, Bell Canada – Request for access to Plaza Corporation's **** Harbour Club multi-dwelling unit building project, issued 5 February 2014.

� BCE, **** Release, "Bell Gigabit Fibe bringing the fastest Internet to Toronto residents with a billion-dollar+ network investment, creation of 2,400 direct jobs" (25 **** 2015).

� **** + ****, Appendix 2, Table 1.
� An upload speed is indicated only if it is part of the USO.

� Note: This column indicates only that there is a mechanism in place for universal service funding. The fund may not be active because the USO provider has not made a claim. If the fund is active this will be indicated with a tick or cross in the “Voice” or “Broadband” column under “Universal Service Fund”.

� "In 2013, approximately 94% of telecommunications revenues were from services that the Commission has determined are sufficiently competitive that tariff filings are no longer required". 2014 CRTC Communications Monitoring Report, page 135.

� 2014 CRTC Monitoring Report, page 154.
� 2014 Monitoring Report, page 160.
� TNC 2015-134, paragraph 8.

� For instance VoIP soft switches are not designed by manufacturers to support Equal Access. The customized functionality must be developed and added.

� Refer to CRTC 6716 Item 2350 – Fibre to the **** and Fibre to the Business and CRTC 21491 Item 280 – Fibre to the **** (FTTH) for specific exceptions to the end-customer's service where their local service is provided over FTTH instead of TDM.

� Telecom Regulatory Policy CRTC 2013-711, Northwestel Inc. – Regulatory Framework, Modernization Plan, and related matters, issued 18 December 2013.

� TNC 2015-133, at paragraph 8.
� Not quite a decade ago, in 2005 there were over 1.5M dial-up subscribers. 2010 CMR, Table 5.3.2.
� 2014 CMR, Appendix 5.
� CMR, page 154.
� Table 5.1.1
� In 2013, Table 5.1.2 of CMR.

� We understand that Fido, which did support Equal Access, has ceased offering it following Telecom Order CRTC 2012-521, Fido Solutions Inc. – Withdrawal of equal access and destandardization of casual calling arrangements.

� Such as WhatsApp, textPlus, Facetime, Facebook Messenger, Viber, Line, Tango, Google Hangouts, Samsung's ChatOn and, of course, Skype.

� �HYPERLINK "http://blogs.wsj.com/digits/2014/01/15/skypes-incredible-rise-in-one-image/"�http://blogs.wsj.com/digits/2014/01/15/skypes-incredible-rise-in-one-image/�.

� 2014 CMR, page 154.
� �HYPERLINK "https://en.wikipedia.org/wiki/Skype"�https://en.wikipedia.org/wiki/Skype�.
� �HYPERLINK "http://www.skype.com/en/rates/"�http://www.skype.com/en/rates/�.
� 2014 CMR, Figure 5.2.1.

� See for example �HYPERLINK "http://www.whichvoip.com/voip/canada_voip.htm"�http://www.whichvoip.com/voip/canada_voip.htm�.

� �HYPERLINK "http://www.yak.ca/yak-travel-card"�http://www.yak.ca/yak-travel-card�.

� Telecom Regulatory Policy, CRTC 2012-24, Network interconnection for voice services, issued 19 January 2012, paragraph 90.

� TRP 2012-24, paragraph 91.

� Telecom Decision CRTC 2006-58, Canadian Cable Telecommunications Association – Part VII application re the application of some competitive local exchange carrier (CLEC) obligations to certain CLECs, paragraph 106.

� This is the rate for Telebec’s regulated residential PES in sub-bands E2-e and E2-f.
� Officially the imputed average rates as explained in Appendix 6.

� We note that while Bell Aliant also has a subsidy requirement in Bands E and F within the Bell Aliant Ontario and Quebec serving areas which was calculated using imputed rates that are slightly below $30, the subsidy requirement in each of those bands is only $0.03 per NAS per month.

� As already noted, in the case of Bell Aliant in Bands E and F within its Ontario and Quebec serving area, there is still a subsidy requirement estimated for 2015 and the imputed rate levels used to calculate those subsidy amounts are below $30 per NAS per month. However, the amount of subsidy needed is only $0.03 per NAS per month in each of those bands, and therefore the increase needed to eliminate those subsidy amounts is only $0.03 per NAS per month in each band.

� Telecom Regulatory Policy CRTC 2011-291, Obligation to serve and other matters, issued 3 May 2011.

� As detailed in Appendix 6, we estimate that the amount of contribution paid in Bands E and F (for both ILECs and SILECs) for the last year for which final subsidies are known (2014) was $75M. Under the existing regime, this number could change each year as result of impacts of inflation and forbearance applications. Nonetheless, for the sake of simplicity, we believe the Commission can assume that the savings from eliminating subsidies in Bands E and F will total $75M annually.

� See Appendix 6 for calculation details.
� Decision CRTC 2000-745, Changes to the contribution regime, issued 30 November 2000.
� Ibid., paragraph 88.
� Ibid., paragraph 87.

� As defined at Line D.7 in Part B of Telecom Circular CRTC 2007-15, The Canadian revenue-based contribution regime, issued 8 **** 2007.

� As stated in the Commission's question 7.

� The limited budget for the Rural Broadband Experiments, combined with the limited public information concerning the bids, makes it difficult to draw conclusions of broad application. It should also be noted that RBE proposals could choose which census blocks they would serve, while the CAF Offers required that all the census blocks within the funded range as an obligation the incumbent would have to accept if it accepted the CAF offer.

� December CAF Order at paragraph 85.
� Ibid. at paragraph 85 footnote 193.
� Mr. Gillan, Appendix 3, page 13.

� ****, D. (1999). "Auctions for Universal Service Obligations." Telecommunications Policy, 23:645-674, page 647 (emphasis added).

� Wallsten, S. (2008). "Reverse Auctions and Universal Telecommunications Service: Lessons from Global Experience." Federal Communications Law Journal, 61: 373-394, page 393. Other economists have made similar findings. Laffont and Tirole (2002) note that given the extent of asymmetric information between the regulator and firms, auctions are a superior market-based method to determine universal service subsidies:

The use of proxy models to compute universal service support is a prescriptive approach. That is, the subsidy is set by the regulator rather than by market forces. In view of the difficulties involved in estimating the true cost of universal service, it is worth considering alternative support mechanisms in which this cost is elicited from the market participants through an auction mechanism. (Laffont, J-J. and J. Tirole, (2002), Competition in Telecommunications, The MIT ****, page 243.) The notion of using auctions to minimize the level of subsidy to fund basic telecommunications services was raised by Milgrom (1996):

The first calls for the use of an auction in which bidders name the price they require to accept a universal service obligation in a service area. This means that the selected suppliers stand ready to offer a prescribed basic service package at a prescribed "affordable price." The advantage of this option is that competition among would-be universal service providers could drive down the necessary level of subsidies. Also, once auctions are conducted there would be no further need for cost studies to determine appropriate levels of subsidy to a monopoly telephone supplier. (Milgrom, P., "Procuring Universal Service: Putting Auction Theory to Work," Le Prix ****: The **** Prizes, 1996, **** Foundation, 1997, 382-392.)� Wallsten, S. (2008). "Reverse Auctions and Universal Telecommunications Service: Lessons from Global Experience." Federal Communications Law Journal, 61: 373-394, page 392.

� Telecom Decision CRTC 2010-805, Bell Canada – Application to review and vary certain determinations in Telecom Decision 2010-637 concerning the use of high-speed packet access wireless technology and the deferral account balance, issued 29 October 2010, at paragraph 19.

� See, Satellite Inquiry Report, October 2014, at paragraph 87.

� A perfect example of this is occurred in the funding associated with providing broadband service to Nunavut. The Federal Government's Broadband for Rural and Northern Development **** Program (BRAND) was launched in **** 2002 as a three-year $105M initiative was to promote Internet Capital investment by matching capital funds. One of the key criteria of the program was that "The BRAND program also requires that projects be sustainable based on a one-time contribution from the BRAND program. Bidders must propose a sustainable service that fits the intent of this program." (Nunavut Broadband Development Corporation Request for Proposal Closing Date **** 21, 2003 Version 1.0 page 15). Northwestel bid on this program understanding that the investment would need to be sustainable. However the funding under BRAND was awarded to a party that was able to re-access the program for additional funds. In 2009, Mr. **** of SSI Micro was quoted in Up **** September 2009 as saying "Last **** I threatened to shut [the network] down if the federal government didn't smarten up. Eight months into it we started losing money because we weren't getting any contribution for satellite subsidy." The article continued "…Now with $21-million in new federal bandwidth funding starting to flow, things appear to be back on track." (See Up Here Business, **** 2009, Issue 264, "Internet or Internot" �HYPERLINK "https://www.ssimicro.com/sites/default/files/news-articles/UH-2009-09-09.pdf"�https://www.ssimicro.com/sites/default/files/news-articles/UH-2009-09-09.pdf�).

� Industry Canada, Framework for Spectrum Auctions in Canada, **** 2011 available at: �HYPERLINK "http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01626.html"�http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01626.html�. See Section 5 on Auction Process Overview.

� For example, **** Auctions which has designed and implemented auctions for several regulators and countries, including Industry Canada with respect to its 700 Mhz and 2500 Mhz spectrum auctions: �HYPERLINK "https://www.powerauctions.com/"�https://www.powerauctions.com/�.

� Industry Canada took a similar approach for Connecting Canadians, using 2011 Census household counts data overlaid into the hexagon mapping information. See �HYPERLINK "http://www12.statcan.gc.ca/census-recensement/2011/dp-pd/prof/index.cfm?Lang=E"�http://www12.statcan.gc.ca/census-recensement/2011/dp-pd/prof/index.cfm?Lang=E�.

� Even when using a fixed wireless solution, the Commission did not regulate the retail rate but instead required Bell to match its urban rates. At paragraph 10 of Decision 2010-805, the Commission summarized Bell Canada's proposal in this regard as "Bell Canada indicated that its HSPA+ wireless technology proposal (the revised proposal) would address the requirements identified by the Commission in Telecom Decision 2010-637, such that the approved communities in Ontario and Quebec would have access to a broadband service that was comparable, or in some cases superior, to what is available in urban areas." An associated footnote further explained "the features available with the revised proposal include (i) various retail service options (i.e. speeds and usage caps), (ii) monthly usage allowances greater than 2 GBs, and (iii) an insurance option providing an extra 40 GBs of usage for $5 per month." The Commission approved this approach at paragraph 20 of that same decision stating "the Commission considers that Bell Canada's commitment to maintain comparability as urban broadband service improves, as well as to make an appropriate wholesale service available, will ensure that consumers in the approved communities have access to high-quality broadband services over the long-term."[image: image15.emf]Company Name **** 1 of 1

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