Intervention: Canadian Network Operators Consortium Inc.

Document Name: 2015-134.223974.2394465.Intervention(1fbkx01!).pdf

Canadian Network Operators Consortium Inc.

Consortium des Operateurs de Réseaux Canadiens Inc.

107-85 Curlew Drive, Toronto, ON, *** *** (416) 613-CNOC

www.cnoc.ca
July 14, 2015
FILED VIA GCKEY
John Traversy
Secretary General

Canadian Radio-television and Telecommunications Commission Gatineau, Quebec

*** ***
**** Mr. Traversy,

Subject: Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134, 9 **** 2015, as amended by Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134-1, 3 **** 2015 (CRTC File no. 8663-C12-201503186) 1. Canadian Network Operators Consortium Inc. (“CNOC”) is hereby filing its intervention in the above-cited proceeding.

Yours very truly,
**** Sandiford

Chair of the Board and President Copy: **** Seidl, CRTC (via email) John Macri, CRTC (via email) *** END OF DOCUMENT ***

Intervention: Canadian Network Operators Consortium (Intervenor 267)

Document Name: 2015-134.223974.2394465.Intervention(1fbkx01!).pdf

Canadian Network Operators Consortium Inc.

Consortium des Operateurs de Réseaux Canadiens Inc.

107-85 Curlew Drive, Toronto, ON, *** *** (416) 613-CNOC

www.cnoc.ca
July 14, 2015
FILED VIA GCKEY
John Traversy
Secretary General

Canadian Radio-television and Telecommunications Commission Gatineau, Quebec

*** ***
**** Mr. Traversy,

Subject: Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134, 9 **** 2015, as amended by Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134-1, 3 **** 2015 (CRTC File no. 8663-C12-201503186) 1. Canadian Network Operators Consortium Inc. (“CNOC”) is hereby filing its intervention in the above-cited proceeding.

Yours very truly,
**** Sandiford

Chair of the Board and President Copy: **** Seidl, CRTC (via email) John Macri, CRTC (via email) *** END OF DOCUMENT ***

Intervention: Canadian Network Operators Consortium Inc.

Document Name: 2015-134.223974.2394464.Intervention(1fbkw01!).pdf
BEFORE THE CANADIAN RADIO-TELEVISION
AND TELECOMMUNICATIONS COMMISSION
IN THE MATTER OF
REVIEW OF BASIC TELECOMMUNICATIONS SERVICES,
TELECOM NOTICE OF CONSULTATION CRTC 2015-134
INTERVENTION OF CANADIAN NETWORK OPERATORS CONSORTIUM INC.
14 July, 2015
i
TABLE OF CONTENTS

EXECUTIVE SUMMARY ...................................................................................................................... 1 1.0 INTRODUCTION ................................................................................................................. 4 2.0 CANADIANS’ EVOLVING NEEDS FOR TELECOMMUNICATIONS SERVICES ...... 5 2.1 Telecommunications applications ......................................................................................... 5 2.2 Telecommunications service platforms ................................................................................. 6 2.3 Telecommunications service characteristics ......................................................................... 8 2.4 End-user service/application tiers.......................................................................................... 9 2.5 Barriers that limit or prevent Canadians from meaningfully participating in the digital economy .............................................................................................................................. 10 2.6 Target speeds for broadband Internet access service .......................................................... 12 3.0 THE COMMISSION’S ROLE REGARDING ACCESS TO BASIC

TELECOMMUNICATIONS SERVICES .......................................................................... 13 3.1 Broadband Internet should be considered a basic telecommunications service .................. 13 3.2 Terms associated with the subsidized provision of broadband Internet as a basic telecommunications service................................................................................................. 14 3.3 The existing local service framework .................................................................................. 15 3.4 Market forces and government funding .............................................................................. 15 3.5 The Commission’s role in ensuring the availability of basic telecommunications services 17 3.6 Northwestel’s operating territory ........................................................................................ 18 4.0 ADDITIONAL REGULATORY MEASURES FOR BASIC TELECOMMUNICATIONS SERVICES .......................................................................................................................... 20 4.1 Subsidization and the contribution collection mechanism .................................................. 20 4.2 The current $10 million contribution threshold is inappropriate ......................................... 21 5.0 CONCLUSION ................................................................................................................... 22 1

EXECUTIVE SUMMARY1

ES1- CNOC recommends that the Commission focus on the characteristics of broadband connections required to support various types of telecommunications services and applications.

Services/applications can then be classified in a few specific tiers that would inform other aspects of the Commission’s basic services policy.

ES2- The capabilities of telecommunications service platforms are an important consideration.

Compared to all other platforms, wireline networks deliver vastly superior performance for virtually all service elements.

ES3- The sensitivity of end-user applications to one or more service characteristics is another important consideration. ****, bandwidth, latency, jitter, packet loss can be important factors for determining the services and applications that can be supported by a bandwidth connection.

ES4- The greatest barrier that limits or prevents Canadians from meaningfully participating in the digital economy is the lack of vigorous competition in the markets for wireline and mobile wireless services in Canada. Independent service providers introduce price and non-price service innovations to markets for telecommunications services. These competitors are key to sustainable competition, which is the only way to mitigate this daunting obstacle preventing Canadians from engaging the digital economy.

ES5- Realistic speed targets should not be unattainable for high-cost serving areas and yet not sufficiently ambitious for more accessible rural areas. It may therefore be desirable for the Commission to establish lower, yet still practical, speed targets for high-cost terrestrial and satellite serving areas than is the case for the rest of Canada. The Commission should also consider establishing targets for other service characteristics that are necessary to enable types of applications that are beneficial to consumers.

1 Note: Capitalized terms in the Executive Summary are defined in the body of the Intervention, with full citations.

2

ES6- Broadband Internet should be considered a basic telecommunications service going forward. Broadband Internet ought to be integrated in the basic service objective and government subsidies should be made available to allow deployments in high-cost serving areas.

ES7- Given the vastly superior capabilities and characteristics of wireline networks, the Commission should support cable, FTTN and FTTH builds in high-cost areas as a priority – wherever it is economically efficient to build such networks. Where such deployments would be economically inefficient and wasteful relative to the population numbers that would ultimately reap the benefits from those facilities, wireless and satellite alternatives must take precedence.

ES8- Two conditions should be attached to the provision of any broadband Internet access subsidized by virtue of being considered a basic telecommunications service: first, access to the subsidized facilities used to provide broadband Internet services should be available to competitors on a mandated wholesale basis; second, subsidized broadband facilities should be upgradable to the speed and other characteristics required to support high-requirement services/applications.

These conditions are necessary to ensure that subsidized deployments will stimulate competition while also being as economically efficient as possible.

ES9- The existing local service framework has been successful in its goals and should be maintained.

ES10- Market forces cannot be relied upon to ensure that all Canadians located in remote and rural areas will have access to broadband services. Additional funding from the Federal Government will be required to reach and surpass the present speed target and consider other relevant targets on a broader scale.

ES11- The Commission’s primary role in ensuring the availability of broadband access should be to identify high-cost serving areas that are eligible for subsidies necessary for the deployment of network facilities. An important aspect of this responsibility is also determining which network facilities are most suitable and economically efficient for individual high-cost serving areas. The 3

Commission should strive to enable wireline network builds wherever it is economically feasible to do so.

ES12- Any broadened contribution requirements to facilitate broadband Internet deployments must be carefully calibrated. Unlike funds raised through general tax revenues and government fees, broadened contributions and redistributed telecommunications service revenues could result in deadweight losses that would ripple throughout the economy. These kinds of market distortions would send improper economic signals throughout the industry, with corresponding losses in efficiencies.

ES13- While government funding is certainly the best foundation for a broadband subsidy regime, if the Commission concludes that such funding needs to be supplemented by the industry-funded contribution mechanism currently used to subsidize voice services in high-cost serving areas, CNOC encourages the Commission to calibrate its mechanism very carefully to mitigate any corresponding economic distortions to the greatest degree possible.

ES14- Finally, the $10 million contribution threshold applicable to the current voice services subsidy regime is inappropriate and inequitable from the perspective of smaller players. CNOC recommends that the Commission replace the current contribution threshold with an across the board exemption for the first $10 million in Canadian Telecommunications Service Revenues for all TSPs. This approach will eliminate the built-in inequity of the current threshold based model and ensure that TSPs of all sizes are affected in a similar manner by the obligation to contribute to the NCF.

ES15- The main obstacle to the provision of telecommunications services in Northwestel’s operating territory is the high cost of terrestrial and satellite transport. A transport subsidy should be introduced in this serving territory that is accessible to all carriers, not just Northwestel. This mechanism should subsidize transport costs in Northwestel’s territory that exceed comparable costs for transport facilities in **** Canada. Comparable costs would be those that are no more than 10% greater than the **** Canada costs. This subsidy mechanism would replace all other Commission-approved subsidies in this territory.

4
1.0 INTRODUCTION

1. Canadian Network Operators Consortium Inc. (“CNOC”) is pleased to participate in the review of basic telecommunications services initiated by Telecom Notice of Consultation 2015-1342 (“TNC 2015-134”). Pursuant to section 26 of the Canadian Radio-television and Telecommunications Commission Rules of Practice and Procedure3 (“CRTC Rules”), CNOC wishes to be considered an intervener in the proceeding. This submission constitutes CNOC’s intervention in the proceeding. The intervention follows the order and themes of the Commission’s questions outlined in Appendix B of TNC 2015-134. Pursuant to paragraph 47 of TNC 2015-134, CNOC is also making the following statement: “I wish to appear at the public hearing”.

2. Since the Commission’s previous examination of the obligation to serve and basic service objectives4, the telecommunications landscape has continued to shift rapidly. Broadband access continues to increase in importance to consumers and now constitutes the platform over which a wide range of services, including voice, data and video, are offered. Ensuring that all Canadians can access and participate in a digital economy enabled by a world-class communications system must, therefore, be an ever increasing and important, albeit very challenging, objective of regulatory policy. At the same time, the measures taken to enable such access and participation should not interfere with the market forces that the Commission has also been fostering through the promotion of increased competition in the provision of both wholesale and retail telecommunications services.

3. CNOC’s focus in this proceeding is to promote the shift required to ensure that the Commission’s basic telecommunications services policy is responsive to the needs of a broadband world, while also ensuring that the policy is constructed and implemented in a manner that promotes the operation of market forces. In this way, the policy can promote both the attainment 2 Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134, 11 **** 2015 TNC 2015-134 was amended by Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134-1, 3 **** 2015 (“TNC 2015-134-1”).

3 SOR/2010-277.

4 Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291, 3 May 2011. (“TRP 2011-291”).

5

of the telecommunications policy objectives set out the Telecommunications Act (“Act”)5, as well as adherence to the Policy Direction6.

4. CNOC is confident that the recommendations submitted in this intervention strike an appropriate balance between the economic and social objectives that the Commission is required to pursue.

2.0 CANADIANS’ EVOLVING NEEDS FOR TELECOMMUNICATIONS SERVICES
2.1 Telecommunications applications

5. As TNC 2015-134 notes, Canadians are using telecommunications services to fulfill many social, economic and cultural needs in today’s digital economy.7 Indeed, these uses include e-commerce, e-banking and/or telephone banking, e-health or telehealth services, telework, and distance education.8 Determining which of these “enablers”9 or individual uses of telecommunications are most important is a matter that end-user demand and social needs, rather than the Commission, should determine. Instead, CNOC recommends that the Commission’s attention should be focused on the characteristics of broadband connections required to support various types of telecommunications services and applications.

6. For example, video conferencing is an application that has different telecommunications requirements than online banking just as e-health applications demand different specifications than e-mail. In CNOC’s view, services/applications could be classified in a few specific tiers based on minimum supporting technical requirements. Grouping services/applications in this way would inform other areas of the Commission’s basic services policy. For example, service/application tiers would assist in determining appropriate universal speed targets and other goals.

5 Telecommunications Act, S.C. 1993, c. 38. The telecommunications policy objectives are set out in section 7 of the Act.

6 Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, SOR/2006-355 (“Policy Direction”).

7 TNC 2015-134, Appendix B, Question 1.
8 Ibid.

9 The first three subsections of this Part 2.0 also address Question 1. d) of TNC 2015-134.

6

7. In fact, a meaningful classification of communications service/applications must factor the capabilities of the underlying telecommunications service platforms (e.g. wireline, mobile wireless, fixed wireless, satellite, etc.), as well as the effects of individual service characteristics on various applications (e.g., the sensitivity of voice over Internet Protocol (“VoIP”) services to latency).

2.2 Telecommunications service platforms

8. The Commission has asked participants to identify which telecommunications services and service characteristics are most important to support end-user applications. Service characteristics including capacity, mobility, speed, latency, jitter and packet loss are all characteristics that can jointly or independently determine which applications can or cannot be used by the end-user on a given broadband platform. The underlying technology platform, in turn, drives the range of capability and performance with respect to many service characteristics.

9. Compared to all other telecommunications service platforms, wireline networks deliver vastly superior performance for virtually all service elements (mobility being the obvious exception). CNOC recently tendered expert evidence prepared by Nordicity (the “Nordicity Report”) in the Commission’s separate proceedings reviewing wireline10 and wireless11 wholesale service policies. The Nordicity Report demonstrates that wireless services are not a substitute for wireline services from both technical and economical perspectives.12 Key findings of the Nordicity Report are therefore highly relevant to the questions posed by the Commission in Appendix B of TNC 2015-134.

10. From a technical standpoint, the Nordicity Report explained that all of the theoretical capacity for all spectrum up to 100GHz is unable to come close to achieving the capacity of a 10 Review of wholesale services and associated policies, Telecom Notice of Consultation CRTC 2013-551, 27 October 2014 (“Wireline Wholesale Review”).

11 Review of wholesale mobile wireless services, Telecom Notice of Consultation CRTC 2014-76, 29 **** 2014 (“Wireless Wholesale Review”).

12 See Attachment B to CNOC’s second intervention dated 27 **** 2014 in the Wireline Wholesale Review; See also Attachment A to CNOC’s intervention dated 15 May 2014 in Wireless Wholesale Review.

7

single fibre optic strand.13 It is a matter of physics that mobile wireless will never be able to achieve the capacity of wireline systems. **** comparisons between leading mobile wireless technologies and wireline services are also very illustrative of the gap between these platforms.

LTE-A mobile wireless technology is capable of practical speeds of around 5-20 Megabits per second (“Mbps”).14 In contrast, Fibre to the home (“FTTH”) is currently able to achieve practical speeds of 1 Gigabit per second (“Gbps”), Fibre to the node (“FTTN”) can achieve practical speeds of 25-100Mbps, and DOCSIS 3.0 can achieve practical speeds of 50-250Mbps.15 Clearly, even the most advanced mobile wireless technology is a laggard compared to the speeds achievable over fibre-based wireline technologies. It also bears noting that the Nordicity Report found that wireline services are considerably more affordable than the mobile wireless services of the three national carriers in several different scenarios based on data consumption.16 11. A similar disparity exists between the technical capabilities of satellite internet services and wireline systems. As outlined in the Nordicity Report, the capacity and speed of satellite services is severely limited.17 The latest satellite systems (referred to as high throughput satellites or “HTS”) feature far greater capacity than previous satellite generations – but still only allow speeds of up to 15Mbps.18 Moreover, the architecture of satellite systems leads to poor performance with respect to certain service characteristics which can suffer further quality degradations in poor weather conditions.19

12. While fixed wireless broadband services have speeds that typically range from 1.5Mbps to 3Mbps for residential offerings,20 such offerings can rise up to 100Mbps and beyond in certain cases, particularly for business customers with specific requirements for high-bandwidth services.21 In all cases, however, the aforementioned capacity and speeds of wireline services 13 Nordicity Report at p. 35.

14 Id., at p.36.
15 Id., at p.36.

16 See Part 5 of the Nordicity Report; Scenarios varied from light, occasional use in a single-person dwelling to moderate to heavy use in a multi-person dwelling.

17 Nordicity Report at p. 21-22.
18 Id., at p. 22.
19 Id., at p. 21.
20 Id., at p. 25.
21 Id., at p. 25.
8

greatly exceed the capabilities of fixed wireless broadband services. Fixed wireless systems are also unable to scale in dense populations as effectively as wireline services.22 13. Based on the above evidence, it is clear that different telecommunications platforms are able to deliver very different levels of quality and performance with respect to a broad range of service characteristics. Today, wireline services are superior to all other telecommunications services platforms and enable the greatest range of applications for the end-user. Emerging wireline technologies such as FTTH and DOCSIS 3.1 practically guarantee that wireline services will remain superior for the next 5 to 10 years and beyond.23

14. In other words, wireline technologies (and in particular those involving fibre-optic technology), where they can be economically deployed, support the broadest range of possible service characteristics (leaving any mobility requirements aside).

15. However, the deployment of wireline facilities is not always feasible, and where it is not, wireless facilities must be employed instead and any corresponding technical limitations must be recognized.

2.3 Telecommunications service characteristics

16. Certain end-user applications are particularly sensitive to one or more of a number of service characteristics.

17. The Commission has already acknowledged that broadband connection speed is important by setting a target speed of 5Mbps download and 1Mbps upload. For example, the quality and fluidity of streaming video and audio (e.g. multimedia services) are directly dependent on the speed/bandwidth of the underlying broadband connections over which the services are provided.

In addition, while consumer applications usually require higher download than upload speeds, certain business end-users require symmetrical download and upload speeds to enable a host of 22 Id., at p. 26.

23 In response to Question 1.e) of Appendix B.
9

business focused applications including: videoconferencing, cloud based data backup solutions, remote video security monitoring, etc.

18. Bandwidth also determines how many applications can run over the same broadband connection. In other words, a connection’s capacity will dictate whether multiple persons in the same household can simultaneously engage in applications like online gaming, video streaming services, distance education, Web surfing and voice communications.

19. VoIP, while not requiring much bandwidth, is sensitive to: (1) latency, which is the amount of time that it takes for a data packet to travel from source to destination; (2) jitter, which is a measure of variability in latency / response times; and (3) packet loss, which is the frequency of failed data packet transmissions. The interactions among them are also especially significant in the case of VoIP services.

20. During a VoIP call, round-trip latencies above a certain level can cause end-users to experience frustrating talk-over effects.24 If jitter is above a certain level, VoIP end-points must collect data packets in a buffer in order to make corrections. This process increases latency and may lead to packet loss, which means that voice packets are dropped from the call. Packet loss affects the overall quality of the call and can cause end-users to miss parts of a conversation that have been dropped from the network.

2.4 End-user service/application tiers

21. Based on the factors discussed above, CNOC recommends grouping end-user services/applications in three different classes: (1) low requirement services/applications, such as web browsing and e-mail, which require very little bandwidth are not sensitive to the characteristics that are important to real-time communications; (2) medium requirement services/applications, such as VoIP, which also has reasonably low bandwidth requirements, but, due to the need for real-time communications, are sensitive to factors such as latency, jitter and 24 It is worth noting that the architecture of satellite systems is such that round trip latency can be 25 times more than wireline technologies. See Attachment A at p. 22.

10

packet loss; and (3) high requirement services/applications, such as multimedia streaming, video conferencing, which require high bandwidth and must meet stringent performance standards.

22. In CNOC’s view, this classification is streamlined and simple to manage. These end-user service/application tiers will inform other aspects of the Commission’s basic services policy in a more constructive way than devising a hierarchy of the most important applications. As the record of this proceeding develops, CNOC expects to arrive at a position where it will be able to recommend to the Commission defined characteristics for the proposed tiers with greater precision and any corresponding regulatory consequences. It should then be easy for existing and future services/applications to be classified according to those tiers. This flexibility is necessary to track the evolution of new and emerging applications and their underlying technical requirements.

2.5 Barriers that limit or prevent Canadians from meaningfully participating in the digital economy

23. The greatest barrier that limits or prevents Canadians from meaningfully participating in the digital economy is the lack of vigorous competition in most markets for wireline and mobile wireless services in Canada.

24. A duopolistic market structure, enabling incumbents to exercise significant market power, is present in Canada’s retail wireline telecommunications service markets. This duopoly, consisting of Incumbent Local Exchange Carriers (“ILECs”) and cable carriers (collectively, “incumbents” or “incumbent carriers”), is a market structure that deprives consumers of competitive choice when it comes to service, features, quality and price.

25. In aggregate, the incumbents enjoy a commanding 92% market share for residential Internet access services relative to the 8% market share of independent service providers.25 A considerable gap also exists in market shares for business Internet access services.26 These dominant market shares are maintained through incumbent control over essential “bottleneck facilities” that cannot be duplicated on a widespread and economically efficient basis by 25 2014 Communications Monitoring Report, October 2014, Figure 5.3.5.

26 Id., at Figure 5.3.5.
11

competitors. The absence of a vibrant commercially-based wholesale market for Internet access services is further evidence of incumbent market power.

26. On the mobile wireless side, the three national incumbent carriers (Bell, Rogers and TELUS) possess significant market power based on market concentration, service pricing, supernormal profitability of carriers and various barriers to entry and expansion relating to:

spectrum cost and availability, access to roaming at affordable rates, access to antenna tower and site sharing at affordable rates and an inability to offer service bundles to compete with those of vertically integrated carriers.27

27. At the conclusion of the regulatory review of wireless wholesale services markets, the Commission determined that the three national mobile wireless carriers28 possess market power in the national markets for GSM-based wholesale roaming29 and wholesale MVNO access30 − which the Commission also found to be essential services31.

28. Thus, incumbent carriers and their affiliates possess market power over the two platforms, wireline and mobile wireless, on which Canadians depend the most for access to highly sought after communications applications with significant social and economic benefits. This means that Canadians lack the level of choice in terms of telecommunications service, features, quality and price that would empower them to actively and meaningfully participate in the digital economy.

Furthermore, this lack of choice is particularly pronounced in the rural and remote high-cost serving areas that are a predominant focus in this proceeding.

29. Independent competitors introduce both price and non-price service innovations to markets for telecommunications services32 which bolster the level of choice that is available to consumers.

27 For further details on all of these market conditions, see Part 2.0 of CNOC’s final argument dated 20 October 2014 in the Wireless Wholesale Review.

28 Namely Bell Mobility, Rogers Communications Partnership and TELUS Communications Company.

29 Regulatory framework for wholesale mobile wireless services, Telecom Regulatory Policy CRTC 2015-177, 5 May 2015, at para 74.

30 Id. at para 88.
31 Id. at para 109.

32 The innovations of CNOC members are described at length in Part 4.0 of CNOC’s second intervention dated 27 **** 2014 in the Wireline Wholesale Review.

12

Importantly, independent service providers provide much higher value than just price discipline on the incumbents; competitors are the key to sustainable competition, which is the only way to mitigate the greatest barrier preventing Canadians from engaging the digital economy.

30. It is therefore critical for the regulatory policy emanating from this proceeding to promote competition in the provision of both wholesale and retail telecommunications services.

2.6 Target speeds for broadband Internet access service

31. Setting a single universal speed target based on uses that consumers should reasonably expect to make of the Internet is problematic.

32. On one hand, the current 5 Mbps download and 1 Mbps upload speed target is not sufficiently ambitious for many rural communities. Such communities should be striving for greater speed targets and the next-generation applications that those speeds enable. On the other hand, the current speed target is still very difficult to achieve in certain high-cost serving areas.

Indeed, the Commission acknowledged this reality in Telecom Regulatory Policy 2013-71133 (“TRP 2013-711”), noting that many communities in Canada, particularly (although not exclusively) satellite-served communities, are facing challenges in achieving the Commission’s broadband target.34

33. A realistic speed target should not be unattainable for high-cost serving areas and yet meaningless for more accessible rural areas. It may therefore be desirable for the Commission to establish lower, yet still practical, speed targets for high-cost terrestrial and satellite serving areas than is the case for the rest of Canada.

34. In addition, focusing on speed alone does not guarantee that broadband services will be of a sufficient quality to be of use to consumers. As noted above, other service characteristics must 33 Northwestel Inc. Regulatory Framework, Modernization Plan, and related matters, Telecom Regulatory Policy CRTC 2013-711, 18 December 2013.

34 TRP 2013-711, at paras 120-13.
13

also be considered in order to support the broad array of existing and anticipated services and applications that can ride over broadband connections.

35. CNOC expects to be in a better position to quantify minimum targets relating to service speeds and other service characteristics (such as latency, jitter and packet loss) once it has had an opportunity to collect additional data in this proceeding regarding the typical characteristics associated with low, medium and high requirement broadband services/applications as defined in section 2.4, above.

36. In addition, regardless of the minimum sets of characteristics required to support low, medium and high requirement broadband services/applications, actual targets cannot be established in the absence of an assessment of the funding requirements that would be required to achieve the specified objectives. Therefore, CNOC will also be focusing on trying to have as much data as possible placed on the record of this as proceeding as possible regarding the characteristics of broadband services that can be supported at different levels of investment.

37. As noted in section 3.4 below, government funding will be required to improve broadband access for Canadians living in high-cost serving areas without generating any adverse impacts on competition in the provision of telecommunications services. Once the amount of government funding for broadband access in high-cost serving areas is established, corresponding performance targets can be set based on the anticipated costs of achieving those targets.

3.0 THE COMMISSION’S ROLE REGARDING ACCESS TO BASIC
TELECOMMUNICATIONS SERVICES

3.1 Broadband Internet should be considered a basic telecommunications service 38. Broadband Internet is firmly entrenched in the cultural and socio-economic fabric of Canada. Accordingly, CNOC submits that broadband Internet should definitely be considered a basic telecommunications service going forward. As such, broadband Internet ought to be integrated in the basic service objective and government subsidies should be made available to allow deployments in high-cost serving areas.

14

39. As discussed in section 2.2 of this intervention, wireline networks have vastly superior capabilities and characteristics than other telecommunication service platforms. For this reason, the Commission should support cable, FTTN and FTTH builds in high-cost areas as a priority – wherever it is economically efficient to build such networks. However, the Commission must be vigilant in detecting conditions where fibre (or hybrid fiber-copper) deployments would be economically inefficient and wasteful relative to the population numbers that would ultimately reap the benefits from these facilities. In such cases, the deployment of lower cost wireless and satellite alternatives must take precedence.

3.2 Terms associated with the subsidized provision of broadband Internet as a basic telecommunications service

40. CNOC is recommending two conditions surrounding the provision of broadband Internet access as a basic telecommunications service where there is any subsidy involved.

41. First, access to the subsidized facilities used to provide broadband Internet services should be available to competitors on a mandated wholesale basis. Imposing this requirement as a condition for receiving subsidies will open high-cost serving areas to competition as soon as retail broadband service is available over the newly subsidized networks.

42. As already discussed, the lack of vigorous competition in markets for retail wireline and wireless telecommunications services is the greatest barrier limiting and preventing Canadians from meaningfully participating in the digital economy. The Commission should therefore adopt regulatory measures to mitigate this barrier wherever possible. An obligation to provide wholesale access to subsidized broadband Internet facilities will not only introduce Canadians in remote areas to broadband Internet, it will stimulate the competition that is necessary to ensure fulsome participation in the digital economy.

43. The rates for wholesale services over subsidized facilities should be based on Phase II costs plus a reasonable mark-up. Importantly, the Phase II costs used to compute wholesale rates should exclude all subsidies that the carrier received to deploy its facilities. Carriers should not be compensated by wholesale customers for costs that are subsidized from other sources.

15

44. The second condition that CNOC is proposing is that all subsidized broadband facilities be upgradable to the speed and other characteristics required to support high-requirement services/applications as defined in section 2.4 above, except in the case of the operating territory of Northwest Inc. (“Northwestel”) where this condition would be unduly onerous. CNOC’s early assessment, subject to the development of the record of this proceeding, is that the minimum download/upload/ service speeds required to support high-requirement services/applications are 25Mbps / 10Mbps.

45. This condition will ensure a greater economic lifespan for subsidized network infrastructure. Without this condition, there is a risk that certain facilities become outdated, irrelevant and lay fallow soon after they are deployed with the assistance of subsidies. The Commission should adopt all reasonable measures to prevent such unnecessary economic waste.

A condition that subsidized equipment be upgradable is a logical and appropriate safeguard.

3.3 The existing local service framework

46. Except in the case of Northwestel (which is discussed in section 3.6 below), the current local services framework should be maintained, including the following policies: the basic service objective, the obligation to serve, the associated subsidy regime, applicable price caps and standalone Primary Exchange Service (“PES”).35

47. The local service framework has been successful in its goal of ensuring access to basic telephone service for all Canadians. CNOC submits that the Commission should continue to oversee the framework and ensure that the subsidy requirement continues to decline over time.

3.4 Market forces and government funding

48. Market forces cannot be relied upon to ensure that all Canadians located in remote and rural areas will have access to broadband services. Commissioner ****’s October 2014 Satellite 35 All as most recently reviewed in TRP 2011-291.

16

Inquiry Report reported that as of December 2013, an estimated 1.2 million Canadian households did not have access to broadband Internet access at the Commission’s 5Mbps / 1Mpbs target.36 In these circumstances, the Policy Direction requires the implementation of regulatory measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the telecommunications policy objectives.37

49. Experience with the local service framework has shown how basic service objectives and associated subsidy regimes can advance the telecommunications policy objectives set out in the Act. If broadband Internet access receives a similar regulatory treatment, the development of Canada’s telecommunications system will be accelerated, in furtherance of objective 7(a) of the Act. Importantly, these measures would render reliable and affordable telecommunications services to high-cost serving areas in rural and remote regions of Canada, in furtherance of objective 7(b) of the Act.38 If subsidies are granted on the condition that subsidized infrastructure must be open to wholesale access, the efficiency and competitiveness of Canadian telecommunications will be enhanced, in furtherance of objective 7(c) of the Act.39 Finally, these measures will provide Canadians with an opportunity to engage the digital economy that would not otherwise be available to them, thereby responding to the economic and social requirements of these users, in furtherance of objective 7(h) of the Act.

50. Government funding is required to achieve the ubiquitous deployment of broadband Internet access at the current speed target and beyond.

51. The Federal Government has already pledged $305 million to extend and enhance broadband Internet services for 280,000 Canadian households in rural and remote areas.40 Additional funding will be required to reach and surpass the present speed target and consider other relevant targets on a broader scale. To the extent that the Commission decides to expand the 36 Satellite Inquiry Report, October 2014, at para 134.

37 Policy Direction, subpara 1(a)(ii).
38 Act, para 7(b).
39 Act, para 7(c).

40 Digital Canada 150, .

17

speed targets and potentially introduce new targets for other service characteristics, a staged timeline for attaining such goals should track projected Federal Government funding. Provincial and territorial governments wishing to make contributions could also do so whether through this or other mechanisms, but the primary responsibility for the development of telecommunications network infrastructure rests with the Federal Government, as it always has.

52. Broadened redistribution of telecommunications service provider revenues through the National Contribution Fund (“NCF”) is another tool that could, if necessary, assist the funding of a subsidy regime for broadband Internet access deployment. As discussed in Section 4.1 below, a great degree of caution should be exercised in relying on this approach in light of the significant market distortions that could result from contribution obligations that are not appropriately calibrated.

3.5 The Commission’s role in ensuring the availability of basic telecommunications services

53. If broadband Internet access is considered a basic telecommunications service, the Commission’s primary role should be to identify high-cost serving areas that are eligible for subsidies necessary for the deployment of network facilities. An important aspect of this responsibility is also determining which network facilities are most suitable and economically efficient for individual high-cost serving areas. As CNOC has argued, the Commission should strive to enable wireline network builds (i.e. cable, FTTN, FTTH) wherever it is economically feasible to do so. However, there will undoubtedly be many serving areas where wireline deployments do not make sense for a number of reasons (e.g. geography, population density, etc.).

In such cases, lower cost wireless or satellite technology must be funded instead.

54. The Commission will also be able to assess what broadband service characteristics can be supported by various investment levels.

55. All of the above information can then inform the Federal Government’s quantification of subsidies for network infrastructure deployments in high-cost serving areas and the Commission’s own allocation of subsidies, to the extent applicable, through the NCF.

18

56. Whether or not the Commission decides to broaden NCF contribution requirements to subsidize broadband Internet, the Federal Government should channel its contribution through the NCF. Those funds would in turn be directed to network builds in high-cost serving areas according to the Commission’s procedures and the findings discussed above.

57. The Commission has requested comments as to how it should approach cases where target speeds have not been achieved by end of 2015.41 If broadband access is part of the basic service objective, the Commission could focus on these serving areas as priority cases for the deployment of subsidized facilities.

3.6 Northwestel’s operating territory
58. Northwestel’s operating territory is a special case.

59. The main obstacle to the provision of telecommunications services in this vast area is the high cost of terrestrial and satellite transport. The Commission recognized this reality when it indicated its intention to fund capital infrastructure investment in transport facilities (e.g., fibre, microwave and satellite) in Northwestel’s operating territory in TRP 2013-711 after holding an inquiry on satellite transport services in Canada.42 In fact, the lack of affordable transport services is a much greater impediment to the availability of affordable retail services than the cost of access which can be managed more readily in the relatively small communities situated in this territory.

60. In CNOC’s view, this proposed transport subsidy mechanism should replace Northwestel’s current subsidy mechanism in recognition that the transport issue is the single biggest impediment to the availability of affordable services in Northwestel’s operating territory, and one which is not limited to Northwestel alone.

61. The proposed mechanism should also apply more broadly to terrestrial and satellite transport services provided by any carrier in Northwestel’s operating territory and not just 41 TNC 2015-134, Appendix B, Question 6.

42 At paras 125-129.
19

Northwestel. Such an approach would accord with the Commission’s stated intention of subsidizing both terrestrial and satellite services.

62. CNOC agrees with the Commission that the objective of the proposed mechanism should be to complement, and not replace, other investments from private sector and governments.43 To this end, funding occurring through the mechanism should be calculated based with reference to baseline costs for terrestrial and satellite transport services in non-high cost serving areas. CNOC submits that the mechanism should subsidize transport costs in Northwestel’s territory that exceed comparable costs for transport facilities in **** Canada. Comparable costs would be those that are no more than 10% greater than the **** Canada costs.

63. This approach is balanced and will be effective in addressing the specific circumstances of very remote areas in Northwestel’s operating territory. Consistent with CNOC’s other recommendations, any transport-based services that are subsidized should be subject to mandated wholesale access to increase competition in downstream markets for retail telecommunications services. As always, the rates for wholesale services over subsidized facilities should be based on Phase II costs plus a reasonable mark-up. Also, the costs used to compute wholesale rates should exclude all subsidies that the carrier received to deploy its transport facilities.

64. As a final note, CNOC wishes to emphasize that the proposed mechanism for subsidizing transport facilities in Northwestel’s operating territory is necessary to address a set of unique challenges presented in this serving area. This approach is not appropriate, nor is it economically feasible, for serving areas that do not share similar characteristics and challenges.

43 TNC 2015-134, at para 34.
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4.0 ADDITIONAL REGULATORY MEASURES FOR BASIC
TELECOMMUNICATIONS SERVICES44
4.1 Subsidization and the contribution collection mechanism

65. Any broadened contribution requirements to facilitate broadband Internet deployments must be carefully calibrated. CNOC is concerned that excessive contribution obligations could result in harmful market distortions.

66. Preliminary calculations of the expense that a broadened contribution requirement would impose on the industry are alarming. In the previous proceeding reviewing the basic service objective45, MTS Allstream Inc. (“MTS”) submitted evidence demonstrating that $7 billion would be required over ten years to roll-out broadband at download speeds of only 4 Mbps.46 Based on MTS’s calculation and the Commission’s data citing 2014 exempt retail Internet service revenues totalling $14 billion47, CNOC estimates that a contribution tax of 5% would be required to attain the Commission’s target speed throughout Canada.48

67. A 5% contribution tax over Internet service revenues is extremely high when compared to the local subsidy contributions which are currently set at 0.55%49. CNOC is concerned that this level of expense would result in deadweight losses that would ripple throughout the economy.

These kinds of market distortions would send improper economic signals throughout the industry, with corresponding losses in efficiencies.

68. The Federal Government has already pledged funds to address the lack of broadband speeds in Canada’s rural and remote areas. Funds raised through general tax revenues and government fees can contribute meaningfully towards a broad-based subsidy regime for broadband 44 Note: Questions 8-10 of Appendix B to TNC 2015-134 are answered in Part 3.0 of CNOC’s intervention.

45 Obligation to serve and other matters, Telecom Notice of Consultation 2010-43, 28 January 2010. (“TNC 2010-43”).

46 Final Arguments of MTS Allstream Inc. dated 12 November 2010 in the proceeding initiated by TNC 2010-43.

47 Attachment to Telecom Commission Letter Addressed to Distribution **** “Re: Review of basic telecommunications services, Telecom Notice of Consultation 2015-134– Disclosure of certain information from the Data Collection System (DCS), 2 July 2015.

48 The 5% estimate is derived by dividing the $700 million annual estimate (which is the annualized amount of the ten-year $ 7 billion estimate) provided by MTS by the $14 billion in 2014 exempt retail Internet service revenues.

49 Final 2014 revenue-percent charge and related matters, Telecom Decision CRTC 2014-627, 5 December 2014, at para 22.

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Internet deployment in high-cost serving areas, without a corresponding risk of disrupting the telecommunications industry, competition in the provision of telecommunications services, or the affordability of such services.

69. While government funding is certainly the best foundation for a broadband subsidy regime, if the Commission concludes that such funding needs to be supplemented by the industry-funded contribution mechanism currently used to subsidize voice services in high-cost serving areas, CNOC encourages the Commission to calibrate its mechanism very carefully to mitigate any corresponding economic distortions to the greatest degree possible.

4.2 The current $10 million contribution threshold is inappropriate 70. Currently, telecommunications service providers (“TSPs”)50 are required to contribute to the NCF when annual Canadian Telecommunications Service Revenues exceed a threshold of $10 million.51 This threshold approach to contribution obligations creates a situation of inequity for smaller players. **** players do not have the scale and resources that would allow them to absorb NCF related expenses as comfortably as larger players. The “all or nothing” threshold is therefore a significant shock for smaller service providers when they surpass $10 million in Canadian Telecommunications Service Revenues.

71. CNOC recommends that the Commission replace its current contribution threshold with a revenue exemption model. More specifically, CNOC proposes an across the board exemption for the first $10 million in Canadian Telecommunications Service Revenues for all TSPs.

Contributions will then be calculated based on all amounts surpassing the exemption figure, at the percentage rate determined by the Commission. This approach will eliminate the built-in inequity of the current threshold based model and ensure that TSPs of all sizes are affected in a similar manner by the obligation to contribute to the NCF.

50 Including groups of related TSPs.

51 CRTC Revenue-based Contribution Regime Reporting Instructions (revised January 2007), para 1.3. See http://www.crtc.gc.ca/partvii/eng/8638/crtc/CCMRep.htm.

http://www.crtc.gc.ca/partvii/eng/8638/crtc/CCMRep.htm
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72. The Commission should also ensure that the transition from a threshold to an exemption contribution model does not impose additional reporting requirements for TSPs with Canadian Telecommunications Service Revenues at or below $10 million. Otherwise, the benefits of this transition could be offset by the administrative burden that such reporting requirements would represent for the smallest players in the industry.

73. In addition, CNOC urges the Commission to consider increasing the contribution exemption from the current $10 million level to a higher amount given that this threshold has not changed since 2001.

74. No other change is being proposed to the operation of the contribution collection mechanism.

5.0 CONCLUSION

75. Broadband access has a prominent and flourishing influence on Canada’s economic, social and cultural identity. Broadband Internet must therefore be considered a basic telecommunications service that is integrated in the basic service objective and government subsidies should be made available to allow deployments in high-cost serving areas. These changes are necessary to ensure that all Canadians can access and participate meaningfully in a digital economy enabled by a world-class communications system.

76. Throughout this proceeding, the Commission should focus on the characteristics of broadband connections required to support various types of telecommunications services and applications. This approach will inform other areas of the Commission’s basic services policy, such as the appropriate target speeds. In turn, the Commission should strive to set attainable targets for speeds and other service characteristics that will provide Canadians with the most fulfilling uses and applications that can be realized over broadband access connections. In pursuit of broadband targets, the Commission should enable wireline deployments, which are technically superior to wireless and satellite alternatives, wherever such builds can be economically deployed.

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77. The greatest barrier that limits or prevents Canadians from meaningfully participating in the digital economy is the lack of vigorous competition in most markets for wireline and mobile wireless services in Canada. In order to mitigate this barrier, access to the subsidized facilities used to provide broadband Internet services should be available to competitors on a mandated wholesale basis. Additionally, subsidized broadband facilities should be upgradable to certain standards to ensure greater economic lifespans for subsidized infrastructure.

78. CNOC supports the continued existence of the local services framework, subject to conversion of the $10 million contribution threshold in the current voice services contribution regime to a corresponding revenue exemption.

79. Any broadened contribution requirements to facilitate broadband Internet deployments must be carefully calibrated to prevent harmful market distortions. Preliminary calculations demonstrate that overreliance on redistributed telecommunications revenues could have alarming consequences for the industry. If the Commission concludes that government funding, which is the best foundation for a broadband subsidy regime, needs to be supplemented by an industry-funded contribution mechanism, CNOC encourages the Commission to calibrate its mechanism very carefully to minimize any corresponding economic distortions to the greatest degree possible.

Whether or not the Commission decides to expand the contribution mechanism, the current contribution threshold should be replaced with a more equitable revenue exemption model.

80. In Northwestel’s operating territory, CNOC recommends the replacement of the current Commission-mandated subsidies with a transport subsidy mechanism should apply to all terrestrial and satellite carriers in that territory instead.52

81. CNOC is confident that all of these recommendations strike an optimal balance between the economic and social objectives that the Commission is required to pursue. CNOC looks forward to its participation in the upcoming stages of this very important proceeding.

52 As explained in Section 3.6, the transport subsidy mechanism should replace Northwestel’s current subsidy mechanism and apply to all other carriers in Northwestel’s operating territory.

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*** END OF DOCUMENT ***
EXECUTIVE SUMMARY0F
1.0 INTRODUCTION
2.0 Canadians’ evolving needs for telecommunications services
2.1 Telecommunications applications
2.2 Telecommunications service platforms
2.3 Telecommunications service characteristics
2.4 End-user service/application tiers

2.5 Barriers that limit or prevent Canadians from meaningfully participating in the digital economy 2.6 Target speeds for broadband Internet access service

3.0 The Commission’s role regarding access to basic telecommunications services 3.1 Broadband Internet should be considered a basic telecommunications service 3.2 Terms associated with the subsidized provision of broadband Internet as a basic telecommunications service 3.3 The existing local service framework

3.4 Market forces and government funding

3.5 The Commission’s role in ensuring the availability of basic telecommunications services 3.6 Northwestel’s operating territory

4.0 Additional Regulatory measures for basic telecommunications services43F 4.1 Subsidization and the contribution collection mechanism

4.2 The current $10 million contribution threshold is inappropriate 5.0 Conclusion

Intervention: Canadian Network Operators Consortium (Intervenor 267)

Document Name: 2015-134.223974.2394464.Intervention(1fbkw01!).pdf
BEFORE THE CANADIAN RADIO-TELEVISION
AND TELECOMMUNICATIONS COMMISSION
IN THE MATTER OF
REVIEW OF BASIC TELECOMMUNICATIONS SERVICES,
TELECOM NOTICE OF CONSULTATION CRTC 2015-134
INTERVENTION OF CANADIAN NETWORK OPERATORS CONSORTIUM INC.
14 July, 2015
i
TABLE OF CONTENTS

EXECUTIVE SUMMARY ...................................................................................................................... 1 1.0 INTRODUCTION ................................................................................................................. 4 2.0 CANADIANS’ EVOLVING NEEDS FOR TELECOMMUNICATIONS SERVICES ...... 5 2.1 Telecommunications applications ......................................................................................... 5 2.2 Telecommunications service platforms ................................................................................. 6 2.3 Telecommunications service characteristics ......................................................................... 8 2.4 End-user service/application tiers.......................................................................................... 9 2.5 Barriers that limit or prevent Canadians from meaningfully participating in the digital economy .............................................................................................................................. 10 2.6 Target speeds for broadband Internet access service .......................................................... 12 3.0 THE COMMISSION’S ROLE REGARDING ACCESS TO BASIC

TELECOMMUNICATIONS SERVICES .......................................................................... 13 3.1 Broadband Internet should be considered a basic telecommunications service .................. 13 3.2 Terms associated with the subsidized provision of broadband Internet as a basic telecommunications service................................................................................................. 14 3.3 The existing local service framework .................................................................................. 15 3.4 Market forces and government funding .............................................................................. 15 3.5 The Commission’s role in ensuring the availability of basic telecommunications services 17 3.6 Northwestel’s operating territory ........................................................................................ 18 4.0 ADDITIONAL REGULATORY MEASURES FOR BASIC TELECOMMUNICATIONS SERVICES .......................................................................................................................... 20 4.1 Subsidization and the contribution collection mechanism .................................................. 20 4.2 The current $10 million contribution threshold is inappropriate ......................................... 21 5.0 CONCLUSION ................................................................................................................... 22 1

EXECUTIVE SUMMARY1

ES1- CNOC recommends that the Commission focus on the characteristics of broadband connections required to support various types of telecommunications services and applications.

Services/applications can then be classified in a few specific tiers that would inform other aspects of the Commission’s basic services policy.

ES2- The capabilities of telecommunications service platforms are an important consideration.

Compared to all other platforms, wireline networks deliver vastly superior performance for virtually all service elements.

ES3- The sensitivity of end-user applications to one or more service characteristics is another important consideration. ****, bandwidth, latency, jitter, packet loss can be important factors for determining the services and applications that can be supported by a bandwidth connection.

ES4- The greatest barrier that limits or prevents Canadians from meaningfully participating in the digital economy is the lack of vigorous competition in the markets for wireline and mobile wireless services in Canada. Independent service providers introduce price and non-price service innovations to markets for telecommunications services. These competitors are key to sustainable competition, which is the only way to mitigate this daunting obstacle preventing Canadians from engaging the digital economy.

ES5- Realistic speed targets should not be unattainable for high-cost serving areas and yet not sufficiently ambitious for more accessible rural areas. It may therefore be desirable for the Commission to establish lower, yet still practical, speed targets for high-cost terrestrial and satellite serving areas than is the case for the rest of Canada. The Commission should also consider establishing targets for other service characteristics that are necessary to enable types of applications that are beneficial to consumers.

1 Note: Capitalized terms in the Executive Summary are defined in the body of the Intervention, with full citations.

2

ES6- Broadband Internet should be considered a basic telecommunications service going forward. Broadband Internet ought to be integrated in the basic service objective and government subsidies should be made available to allow deployments in high-cost serving areas.

ES7- Given the vastly superior capabilities and characteristics of wireline networks, the Commission should support cable, FTTN and FTTH builds in high-cost areas as a priority – wherever it is economically efficient to build such networks. Where such deployments would be economically inefficient and wasteful relative to the population numbers that would ultimately reap the benefits from those facilities, wireless and satellite alternatives must take precedence.

ES8- Two conditions should be attached to the provision of any broadband Internet access subsidized by virtue of being considered a basic telecommunications service: first, access to the subsidized facilities used to provide broadband Internet services should be available to competitors on a mandated wholesale basis; second, subsidized broadband facilities should be upgradable to the speed and other characteristics required to support high-requirement services/applications.

These conditions are necessary to ensure that subsidized deployments will stimulate competition while also being as economically efficient as possible.

ES9- The existing local service framework has been successful in its goals and should be maintained.

ES10- Market forces cannot be relied upon to ensure that all Canadians located in remote and rural areas will have access to broadband services. Additional funding from the Federal Government will be required to reach and surpass the present speed target and consider other relevant targets on a broader scale.

ES11- The Commission’s primary role in ensuring the availability of broadband access should be to identify high-cost serving areas that are eligible for subsidies necessary for the deployment of network facilities. An important aspect of this responsibility is also determining which network facilities are most suitable and economically efficient for individual high-cost serving areas. The 3

Commission should strive to enable wireline network builds wherever it is economically feasible to do so.

ES12- Any broadened contribution requirements to facilitate broadband Internet deployments must be carefully calibrated. Unlike funds raised through general tax revenues and government fees, broadened contributions and redistributed telecommunications service revenues could result in deadweight losses that would ripple throughout the economy. These kinds of market distortions would send improper economic signals throughout the industry, with corresponding losses in efficiencies.

ES13- While government funding is certainly the best foundation for a broadband subsidy regime, if the Commission concludes that such funding needs to be supplemented by the industry-funded contribution mechanism currently used to subsidize voice services in high-cost serving areas, CNOC encourages the Commission to calibrate its mechanism very carefully to mitigate any corresponding economic distortions to the greatest degree possible.

ES14- Finally, the $10 million contribution threshold applicable to the current voice services subsidy regime is inappropriate and inequitable from the perspective of smaller players. CNOC recommends that the Commission replace the current contribution threshold with an across the board exemption for the first $10 million in Canadian Telecommunications Service Revenues for all TSPs. This approach will eliminate the built-in inequity of the current threshold based model and ensure that TSPs of all sizes are affected in a similar manner by the obligation to contribute to the NCF.

ES15- The main obstacle to the provision of telecommunications services in Northwestel’s operating territory is the high cost of terrestrial and satellite transport. A transport subsidy should be introduced in this serving territory that is accessible to all carriers, not just Northwestel. This mechanism should subsidize transport costs in Northwestel’s territory that exceed comparable costs for transport facilities in **** Canada. Comparable costs would be those that are no more than 10% greater than the **** Canada costs. This subsidy mechanism would replace all other Commission-approved subsidies in this territory.

4
1.0 INTRODUCTION

1. Canadian Network Operators Consortium Inc. (“CNOC”) is pleased to participate in the review of basic telecommunications services initiated by Telecom Notice of Consultation 2015-1342 (“TNC 2015-134”). Pursuant to section 26 of the Canadian Radio-television and Telecommunications Commission Rules of Practice and Procedure3 (“CRTC Rules”), CNOC wishes to be considered an intervener in the proceeding. This submission constitutes CNOC’s intervention in the proceeding. The intervention follows the order and themes of the Commission’s questions outlined in Appendix B of TNC 2015-134. Pursuant to paragraph 47 of TNC 2015-134, CNOC is also making the following statement: “I wish to appear at the public hearing”.

2. Since the Commission’s previous examination of the obligation to serve and basic service objectives4, the telecommunications landscape has continued to shift rapidly. Broadband access continues to increase in importance to consumers and now constitutes the platform over which a wide range of services, including voice, data and video, are offered. Ensuring that all Canadians can access and participate in a digital economy enabled by a world-class communications system must, therefore, be an ever increasing and important, albeit very challenging, objective of regulatory policy. At the same time, the measures taken to enable such access and participation should not interfere with the market forces that the Commission has also been fostering through the promotion of increased competition in the provision of both wholesale and retail telecommunications services.

3. CNOC’s focus in this proceeding is to promote the shift required to ensure that the Commission’s basic telecommunications services policy is responsive to the needs of a broadband world, while also ensuring that the policy is constructed and implemented in a manner that promotes the operation of market forces. In this way, the policy can promote both the attainment 2 Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134, 11 **** 2015 TNC 2015-134 was amended by Review of basic telecommunications services, Telecom Notice of Consultation CRTC 2015-134-1, 3 **** 2015 (“TNC 2015-134-1”).

3 SOR/2010-277.

4 Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291, 3 May 2011. (“TRP 2011-291”).

5

of the telecommunications policy objectives set out the Telecommunications Act (“Act”)5, as well as adherence to the Policy Direction6.

4. CNOC is confident that the recommendations submitted in this intervention strike an appropriate balance between the economic and social objectives that the Commission is required to pursue.

2.0 CANADIANS’ EVOLVING NEEDS FOR TELECOMMUNICATIONS SERVICES
2.1 Telecommunications applications

5. As TNC 2015-134 notes, Canadians are using telecommunications services to fulfill many social, economic and cultural needs in today’s digital economy.7 Indeed, these uses include e-commerce, e-banking and/or telephone banking, e-health or telehealth services, telework, and distance education.8 Determining which of these “enablers”9 or individual uses of telecommunications are most important is a matter that end-user demand and social needs, rather than the Commission, should determine. Instead, CNOC recommends that the Commission’s attention should be focused on the characteristics of broadband connections required to support various types of telecommunications services and applications.

6. For example, video conferencing is an application that has different telecommunications requirements than online banking just as e-health applications demand different specifications than e-mail. In CNOC’s view, services/applications could be classified in a few specific tiers based on minimum supporting technical requirements. Grouping services/applications in this way would inform other areas of the Commission’s basic services policy. For example, service/application tiers would assist in determining appropriate universal speed targets and other goals.

5 Telecommunications Act, S.C. 1993, c. 38. The telecommunications policy objectives are set out in section 7 of the Act.

6 Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, SOR/2006-355 (“Policy Direction”).

7 TNC 2015-134, Appendix B, Question 1.
8 Ibid.

9 The first three subsections of this Part 2.0 also address Question 1. d) of TNC 2015-134.

6

7. In fact, a meaningful classification of communications service/applications must factor the capabilities of the underlying telecommunications service platforms (e.g. wireline, mobile wireless, fixed wireless, satellite, etc.), as well as the effects of individual service characteristics on various applications (e.g., the sensitivity of voice over Internet Protocol (“VoIP”) services to latency).

2.2 Telecommunications service platforms

8. The Commission has asked participants to identify which telecommunications services and service characteristics are most important to support end-user applications. Service characteristics including capacity, mobility, speed, latency, jitter and packet loss are all characteristics that can jointly or independently determine which applications can or cannot be used by the end-user on a given broadband platform. The underlying technology platform, in turn, drives the range of capability and performance with respect to many service characteristics.

9. Compared to all other telecommunications service platforms, wireline networks deliver vastly superior performance for virtually all service elements (mobility being the obvious exception). CNOC recently tendered expert evidence prepared by Nordicity (the “Nordicity Report”) in the Commission’s separate proceedings reviewing wireline10 and wireless11 wholesale service policies. The Nordicity Report demonstrates that wireless services are not a substitute for wireline services from both technical and economical perspectives.12 Key findings of the Nordicity Report are therefore highly relevant to the questions posed by the Commission in Appendix B of TNC 2015-134.

10. From a technical standpoint, the Nordicity Report explained that all of the theoretical capacity for all spectrum up to 100GHz is unable to come close to achieving the capacity of a 10 Review of wholesale services and associated policies, Telecom Notice of Consultation CRTC 2013-551, 27 October 2014 (“Wireline Wholesale Review”).

11 Review of wholesale mobile wireless services, Telecom Notice of Consultation CRTC 2014-76, 29 **** 2014 (“Wireless Wholesale Review”).

12 See Attachment B to CNOC’s second intervention dated 27 **** 2014 in the Wireline Wholesale Review; See also Attachment A to CNOC’s intervention dated 15 May 2014 in Wireless Wholesale Review.

7

single fibre optic strand.13 It is a matter of physics that mobile wireless will never be able to achieve the capacity of wireline systems. **** comparisons between leading mobile wireless technologies and wireline services are also very illustrative of the gap between these platforms.

LTE-A mobile wireless technology is capable of practical speeds of around 5-20 Megabits per second (“Mbps”).14 In contrast, Fibre to the home (“FTTH”) is currently able to achieve practical speeds of 1 Gigabit per second (“Gbps”), Fibre to the node (“FTTN”) can achieve practical speeds of 25-100Mbps, and DOCSIS 3.0 can achieve practical speeds of 50-250Mbps.15 Clearly, even the most advanced mobile wireless technology is a laggard compared to the speeds achievable over fibre-based wireline technologies. It also bears noting that the Nordicity Report found that wireline services are considerably more affordable than the mobile wireless services of the three national carriers in several different scenarios based on data consumption.16 11. A similar disparity exists between the technical capabilities of satellite internet services and wireline systems. As outlined in the Nordicity Report, the capacity and speed of satellite services is severely limited.17 The latest satellite systems (referred to as high throughput satellites or “HTS”) feature far greater capacity than previous satellite generations – but still only allow speeds of up to 15Mbps.18 Moreover, the architecture of satellite systems leads to poor performance with respect to certain service characteristics which can suffer further quality degradations in poor weather conditions.19

12. While fixed wireless broadband services have speeds that typically range from 1.5Mbps to 3Mbps for residential offerings,20 such offerings can rise up to 100Mbps and beyond in certain cases, particularly for business customers with specific requirements for high-bandwidth services.21 In all cases, however, the aforementioned capacity and speeds of wireline services 13 Nordicity Report at p. 35.

14 Id., at p.36.
15 Id., at p.36.

16 See Part 5 of the Nordicity Report; Scenarios varied from light, occasional use in a single-person dwelling to moderate to heavy use in a multi-person dwelling.

17 Nordicity Report at p. 21-22.
18 Id., at p. 22.
19 Id., at p. 21.
20 Id., at p. 25.
21 Id., at p. 25.
8

greatly exceed the capabilities of fixed wireless broadband services. Fixed wireless systems are also unable to scale in dense populations as effectively as wireline services.22 13. Based on the above evidence, it is clear that different telecommunications platforms are able to deliver very different levels of quality and performance with respect to a broad range of service characteristics. Today, wireline services are superior to all other telecommunications services platforms and enable the greatest range of applications for the end-user. Emerging wireline technologies such as FTTH and DOCSIS 3.1 practically guarantee that wireline services will remain superior for the next 5 to 10 years and beyond.23

14. In other words, wireline technologies (and in particular those involving fibre-optic technology), where they can be economically deployed, support the broadest range of possible service characteristics (leaving any mobility requirements aside).

15. However, the deployment of wireline facilities is not always feasible, and where it is not, wireless facilities must be employed instead and any corresponding technical limitations must be recognized.

2.3 Telecommunications service characteristics

16. Certain end-user applications are particularly sensitive to one or more of a number of service characteristics.

17. The Commission has already acknowledged that broadband connection speed is important by setting a target speed of 5Mbps download and 1Mbps upload. For example, the quality and fluidity of streaming video and audio (e.g. multimedia services) are directly dependent on the speed/bandwidth of the underlying broadband connections over which the services are provided.

In addition, while consumer applications usually require higher download than upload speeds, certain business end-users require symmetrical download and upload speeds to enable a host of 22 Id., at p. 26.

23 In response to Question 1.e) of Appendix B.
9

business focused applications including: videoconferencing, cloud based data backup solutions, remote video security monitoring, etc.

18. Bandwidth also determines how many applications can run over the same broadband connection. In other words, a connection’s capacity will dictate whether multiple persons in the same household can simultaneously engage in applications like online gaming, video streaming services, distance education, Web surfing and voice communications.

19. VoIP, while not requiring much bandwidth, is sensitive to: (1) latency, which is the amount of time that it takes for a data packet to travel from source to destination; (2) jitter, which is a measure of variability in latency / response times; and (3) packet loss, which is the frequency of failed data packet transmissions. The interactions among them are also especially significant in the case of VoIP services.

20. During a VoIP call, round-trip latencies above a certain level can cause end-users to experience frustrating talk-over effects.24 If jitter is above a certain level, VoIP end-points must collect data packets in a buffer in order to make corrections. This process increases latency and may lead to packet loss, which means that voice packets are dropped from the call. Packet loss affects the overall quality of the call and can cause end-users to miss parts of a conversation that have been dropped from the network.

2.4 End-user service/application tiers

21. Based on the factors discussed above, CNOC recommends grouping end-user services/applications in three different classes: (1) low requirement services/applications, such as web browsing and e-mail, which require very little bandwidth are not sensitive to the characteristics that are important to real-time communications; (2) medium requirement services/applications, such as VoIP, which also has reasonably low bandwidth requirements, but, due to the need for real-time communications, are sensitive to factors such as latency, jitter and 24 It is worth noting that the architecture of satellite systems is such that round trip latency can be 25 times more than wireline technologies. See Attachment A at p. 22.

10

packet loss; and (3) high requirement services/applications, such as multimedia streaming, video conferencing, which require high bandwidth and must meet stringent performance standards.

22. In CNOC’s view, this classification is streamlined and simple to manage. These end-user service/application tiers will inform other aspects of the Commission’s basic services policy in a more constructive way than devising a hierarchy of the most important applications. As the record of this proceeding develops, CNOC expects to arrive at a position where it will be able to recommend to the Commission defined characteristics for the proposed tiers with greater precision and any corresponding regulatory consequences. It should then be easy for existing and future services/applications to be classified according to those tiers. This flexibility is necessary to track the evolution of new and emerging applications and their underlying technical requirements.

2.5 Barriers that limit or prevent Canadians from meaningfully participating in the digital economy

23. The greatest barrier that limits or prevents Canadians from meaningfully participating in the digital economy is the lack of vigorous competition in most markets for wireline and mobile wireless services in Canada.

24. A duopolistic market structure, enabling incumbents to exercise significant market power, is present in Canada’s retail wireline telecommunications service markets. This duopoly, consisting of Incumbent Local Exchange Carriers (“ILECs”) and cable carriers (collectively, “incumbents” or “incumbent carriers”), is a market structure that deprives consumers of competitive choice when it comes to service, features, quality and price.

25. In aggregate, the incumbents enjoy a commanding 92% market share for residential Internet access services relative to the 8% market share of independent service providers.25 A considerable gap also exists in market shares for business Internet access services.26 These dominant market shares are maintained through incumbent control over essential “bottleneck facilities” that cannot be duplicated on a widespread and economically efficient basis by 25 2014 Communications Monitoring Report, October 2014, Figure 5.3.5.

26 Id., at Figure 5.3.5.
11

competitors. The absence of a vibrant commercially-based wholesale market for Internet access services is further evidence of incumbent market power.

26. On the mobile wireless side, the three national incumbent carriers (Bell, Rogers and TELUS) possess significant market power based on market concentration, service pricing, supernormal profitability of carriers and various barriers to entry and expansion relating to:

spectrum cost and availability, access to roaming at affordable rates, access to antenna tower and site sharing at affordable rates and an inability to offer service bundles to compete with those of vertically integrated carriers.27

27. At the conclusion of the regulatory review of wireless wholesale services markets, the Commission determined that the three national mobile wireless carriers28 possess market power in the national markets for GSM-based wholesale roaming29 and wholesale MVNO access30 − which the Commission also found to be essential services31.

28. Thus, incumbent carriers and their affiliates possess market power over the two platforms, wireline and mobile wireless, on which Canadians depend the most for access to highly sought after communications applications with significant social and economic benefits. This means that Canadians lack the level of choice in terms of telecommunications service, features, quality and price that would empower them to actively and meaningfully participate in the digital economy.

Furthermore, this lack of choice is particularly pronounced in the rural and remote high-cost serving areas that are a predominant focus in this proceeding.

29. Independent competitors introduce both price and non-price service innovations to markets for telecommunications services32 which bolster the level of choice that is available to consumers.

27 For further details on all of these market conditions, see Part 2.0 of CNOC’s final argument dated 20 October 2014 in the Wireless Wholesale Review.

28 Namely Bell Mobility, Rogers Communications Partnership and TELUS Communications Company.

29 Regulatory framework for wholesale mobile wireless services, Telecom Regulatory Policy CRTC 2015-177, 5 May 2015, at para 74.

30 Id. at para 88.
31 Id. at para 109.

32 The innovations of CNOC members are described at length in Part 4.0 of CNOC’s second intervention dated 27 **** 2014 in the Wireline Wholesale Review.

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Importantly, independent service providers provide much higher value than just price discipline on the incumbents; competitors are the key to sustainable competition, which is the only way to mitigate the greatest barrier preventing Canadians from engaging the digital economy.

30. It is therefore critical for the regulatory policy emanating from this proceeding to promote competition in the provision of both wholesale and retail telecommunications services.

2.6 Target speeds for broadband Internet access service

31. Setting a single universal speed target based on uses that consumers should reasonably expect to make of the Internet is problematic.

32. On one hand, the current 5 Mbps download and 1 Mbps upload speed target is not sufficiently ambitious for many rural communities. Such communities should be striving for greater speed targets and the next-generation applications that those speeds enable. On the other hand, the current speed target is still very difficult to achieve in certain high-cost serving areas.

Indeed, the Commission acknowledged this reality in Telecom Regulatory Policy 2013-71133 (“TRP 2013-711”), noting that many communities in Canada, particularly (although not exclusively) satellite-served communities, are facing challenges in achieving the Commission’s broadband target.34

33. A realistic speed target should not be unattainable for high-cost serving areas and yet meaningless for more accessible rural areas. It may therefore be desirable for the Commission to establish lower, yet still practical, speed targets for high-cost terrestrial and satellite serving areas than is the case for the rest of Canada.

34. In addition, focusing on speed alone does not guarantee that broadband services will be of a sufficient quality to be of use to consumers. As noted above, other service characteristics must 33 Northwestel Inc. Regulatory Framework, Modernization Plan, and related matters, Telecom Regulatory Policy CRTC 2013-711, 18 December 2013.

34 TRP 2013-711, at paras 120-13.
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also be considered in order to support the broad array of existing and anticipated services and applications that can ride over broadband connections.

35. CNOC expects to be in a better position to quantify minimum targets relating to service speeds and other service characteristics (such as latency, jitter and packet loss) once it has had an opportunity to collect additional data in this proceeding regarding the typical characteristics associated with low, medium and high requirement broadband services/applications as defined in section 2.4, above.

36. In addition, regardless of the minimum sets of characteristics required to support low, medium and high requirement broadband services/applications, actual targets cannot be established in the absence of an assessment of the funding requirements that would be required to achieve the specified objectives. Therefore, CNOC will also be focusing on trying to have as much data as possible placed on the record of this as proceeding as possible regarding the characteristics of broadband services that can be supported at different levels of investment.

37. As noted in section 3.4 below, government funding will be required to improve broadband access for Canadians living in high-cost serving areas without generating any adverse impacts on competition in the provision of telecommunications services. Once the amount of government funding for broadband access in high-cost serving areas is established, corresponding performance targets can be set based on the anticipated costs of achieving those targets.

3.0 THE COMMISSION’S ROLE REGARDING ACCESS TO BASIC
TELECOMMUNICATIONS SERVICES

3.1 Broadband Internet should be considered a basic telecommunications service 38. Broadband Internet is firmly entrenched in the cultural and socio-economic fabric of Canada. Accordingly, CNOC submits that broadband Internet should definitely be considered a basic telecommunications service going forward. As such, broadband Internet ought to be integrated in the basic service objective and government subsidies should be made available to allow deployments in high-cost serving areas.

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39. As discussed in section 2.2 of this intervention, wireline networks have vastly superior capabilities and characteristics than other telecommunication service platforms. For this reason, the Commission should support cable, FTTN and FTTH builds in high-cost areas as a priority – wherever it is economically efficient to build such networks. However, the Commission must be vigilant in detecting conditions where fibre (or hybrid fiber-copper) deployments would be economically inefficient and wasteful relative to the population numbers that would ultimately reap the benefits from these facilities. In such cases, the deployment of lower cost wireless and satellite alternatives must take precedence.

3.2 Terms associated with the subsidized provision of broadband Internet as a basic telecommunications service

40. CNOC is recommending two conditions surrounding the provision of broadband Internet access as a basic telecommunications service where there is any subsidy involved.

41. First, access to the subsidized facilities used to provide broadband Internet services should be available to competitors on a mandated wholesale basis. Imposing this requirement as a condition for receiving subsidies will open high-cost serving areas to competition as soon as retail broadband service is available over the newly subsidized networks.

42. As already discussed, the lack of vigorous competition in markets for retail wireline and wireless telecommunications services is the greatest barrier limiting and preventing Canadians from meaningfully participating in the digital economy. The Commission should therefore adopt regulatory measures to mitigate this barrier wherever possible. An obligation to provide wholesale access to subsidized broadband Internet facilities will not only introduce Canadians in remote areas to broadband Internet, it will stimulate the competition that is necessary to ensure fulsome participation in the digital economy.

43. The rates for wholesale services over subsidized facilities should be based on Phase II costs plus a reasonable mark-up. Importantly, the Phase II costs used to compute wholesale rates should exclude all subsidies that the carrier received to deploy its facilities. Carriers should not be compensated by wholesale customers for costs that are subsidized from other sources.

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44. The second condition that CNOC is proposing is that all subsidized broadband facilities be upgradable to the speed and other characteristics required to support high-requirement services/applications as defined in section 2.4 above, except in the case of the operating territory of Northwest Inc. (“Northwestel”) where this condition would be unduly onerous. CNOC’s early assessment, subject to the development of the record of this proceeding, is that the minimum download/upload/ service speeds required to support high-requirement services/applications are 25Mbps / 10Mbps.

45. This condition will ensure a greater economic lifespan for subsidized network infrastructure. Without this condition, there is a risk that certain facilities become outdated, irrelevant and lay fallow soon after they are deployed with the assistance of subsidies. The Commission should adopt all reasonable measures to prevent such unnecessary economic waste.

A condition that subsidized equipment be upgradable is a logical and appropriate safeguard.

3.3 The existing local service framework

46. Except in the case of Northwestel (which is discussed in section 3.6 below), the current local services framework should be maintained, including the following policies: the basic service objective, the obligation to serve, the associated subsidy regime, applicable price caps and standalone Primary Exchange Service (“PES”).35

47. The local service framework has been successful in its goal of ensuring access to basic telephone service for all Canadians. CNOC submits that the Commission should continue to oversee the framework and ensure that the subsidy requirement continues to decline over time.

3.4 Market forces and government funding

48. Market forces cannot be relied upon to ensure that all Canadians located in remote and rural areas will have access to broadband services. Commissioner ****’s October 2014 Satellite 35 All as most recently reviewed in TRP 2011-291.

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Inquiry Report reported that as of December 2013, an estimated 1.2 million Canadian households did not have access to broadband Internet access at the Commission’s 5Mbps / 1Mpbs target.36 In these circumstances, the Policy Direction requires the implementation of regulatory measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the telecommunications policy objectives.37

49. Experience with the local service framework has shown how basic service objectives and associated subsidy regimes can advance the telecommunications policy objectives set out in the Act. If broadband Internet access receives a similar regulatory treatment, the development of Canada’s telecommunications system will be accelerated, in furtherance of objective 7(a) of the Act. Importantly, these measures would render reliable and affordable telecommunications services to high-cost serving areas in rural and remote regions of Canada, in furtherance of objective 7(b) of the Act.38 If subsidies are granted on the condition that subsidized infrastructure must be open to wholesale access, the efficiency and competitiveness of Canadian telecommunications will be enhanced, in furtherance of objective 7(c) of the Act.39 Finally, these measures will provide Canadians with an opportunity to engage the digital economy that would not otherwise be available to them, thereby responding to the economic and social requirements of these users, in furtherance of objective 7(h) of the Act.

50. Government funding is required to achieve the ubiquitous deployment of broadband Internet access at the current speed target and beyond.

51. The Federal Government has already pledged $305 million to extend and enhance broadband Internet services for 280,000 Canadian households in rural and remote areas.40 Additional funding will be required to reach and surpass the present speed target and consider other relevant targets on a broader scale. To the extent that the Commission decides to expand the 36 Satellite Inquiry Report, October 2014, at para 134.

37 Policy Direction, subpara 1(a)(ii).
38 Act, para 7(b).
39 Act, para 7(c).

40 Digital Canada 150, .

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speed targets and potentially introduce new targets for other service characteristics, a staged timeline for attaining such goals should track projected Federal Government funding. Provincial and territorial governments wishing to make contributions could also do so whether through this or other mechanisms, but the primary responsibility for the development of telecommunications network infrastructure rests with the Federal Government, as it always has.

52. Broadened redistribution of telecommunications service provider revenues through the National Contribution Fund (“NCF”) is another tool that could, if necessary, assist the funding of a subsidy regime for broadband Internet access deployment. As discussed in Section 4.1 below, a great degree of caution should be exercised in relying on this approach in light of the significant market distortions that could result from contribution obligations that are not appropriately calibrated.

3.5 The Commission’s role in ensuring the availability of basic telecommunications services

53. If broadband Internet access is considered a basic telecommunications service, the Commission’s primary role should be to identify high-cost serving areas that are eligible for subsidies necessary for the deployment of network facilities. An important aspect of this responsibility is also determining which network facilities are most suitable and economically efficient for individual high-cost serving areas. As CNOC has argued, the Commission should strive to enable wireline network builds (i.e. cable, FTTN, FTTH) wherever it is economically feasible to do so. However, there will undoubtedly be many serving areas where wireline deployments do not make sense for a number of reasons (e.g. geography, population density, etc.).

In such cases, lower cost wireless or satellite technology must be funded instead.

54. The Commission will also be able to assess what broadband service characteristics can be supported by various investment levels.

55. All of the above information can then inform the Federal Government’s quantification of subsidies for network infrastructure deployments in high-cost serving areas and the Commission’s own allocation of subsidies, to the extent applicable, through the NCF.

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56. Whether or not the Commission decides to broaden NCF contribution requirements to subsidize broadband Internet, the Federal Government should channel its contribution through the NCF. Those funds would in turn be directed to network builds in high-cost serving areas according to the Commission’s procedures and the findings discussed above.

57. The Commission has requested comments as to how it should approach cases where target speeds have not been achieved by end of 2015.41 If broadband access is part of the basic service objective, the Commission could focus on these serving areas as priority cases for the deployment of subsidized facilities.

3.6 Northwestel’s operating territory
58. Northwestel’s operating territory is a special case.

59. The main obstacle to the provision of telecommunications services in this vast area is the high cost of terrestrial and satellite transport. The Commission recognized this reality when it indicated its intention to fund capital infrastructure investment in transport facilities (e.g., fibre, microwave and satellite) in Northwestel’s operating territory in TRP 2013-711 after holding an inquiry on satellite transport services in Canada.42 In fact, the lack of affordable transport services is a much greater impediment to the availability of affordable retail services than the cost of access which can be managed more readily in the relatively small communities situated in this territory.

60. In CNOC’s view, this proposed transport subsidy mechanism should replace Northwestel’s current subsidy mechanism in recognition that the transport issue is the single biggest impediment to the availability of affordable services in Northwestel’s operating territory, and one which is not limited to Northwestel alone.

61. The proposed mechanism should also apply more broadly to terrestrial and satellite transport services provided by any carrier in Northwestel’s operating territory and not just 41 TNC 2015-134, Appendix B, Question 6.

42 At paras 125-129.
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Northwestel. Such an approach would accord with the Commission’s stated intention of subsidizing both terrestrial and satellite services.

62. CNOC agrees with the Commission that the objective of the proposed mechanism should be to complement, and not replace, other investments from private sector and governments.43 To this end, funding occurring through the mechanism should be calculated based with reference to baseline costs for terrestrial and satellite transport services in non-high cost serving areas. CNOC submits that the mechanism should subsidize transport costs in Northwestel’s territory that exceed comparable costs for transport facilities in **** Canada. Comparable costs would be those that are no more than 10% greater than the **** Canada costs.

63. This approach is balanced and will be effective in addressing the specific circumstances of very remote areas in Northwestel’s operating territory. Consistent with CNOC’s other recommendations, any transport-based services that are subsidized should be subject to mandated wholesale access to increase competition in downstream markets for retail telecommunications services. As always, the rates for wholesale services over subsidized facilities should be based on Phase II costs plus a reasonable mark-up. Also, the costs used to compute wholesale rates should exclude all subsidies that the carrier received to deploy its transport facilities.

64. As a final note, CNOC wishes to emphasize that the proposed mechanism for subsidizing transport facilities in Northwestel’s operating territory is necessary to address a set of unique challenges presented in this serving area. This approach is not appropriate, nor is it economically feasible, for serving areas that do not share similar characteristics and challenges.

43 TNC 2015-134, at para 34.
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4.0 ADDITIONAL REGULATORY MEASURES FOR BASIC
TELECOMMUNICATIONS SERVICES44
4.1 Subsidization and the contribution collection mechanism

65. Any broadened contribution requirements to facilitate broadband Internet deployments must be carefully calibrated. CNOC is concerned that excessive contribution obligations could result in harmful market distortions.

66. Preliminary calculations of the expense that a broadened contribution requirement would impose on the industry are alarming. In the previous proceeding reviewing the basic service objective45, MTS Allstream Inc. (“MTS”) submitted evidence demonstrating that $7 billion would be required over ten years to roll-out broadband at download speeds of only 4 Mbps.46 Based on MTS’s calculation and the Commission’s data citing 2014 exempt retail Internet service revenues totalling $14 billion47, CNOC estimates that a contribution tax of 5% would be required to attain the Commission’s target speed throughout Canada.48

67. A 5% contribution tax over Internet service revenues is extremely high when compared to the local subsidy contributions which are currently set at 0.55%49. CNOC is concerned that this level of expense would result in deadweight losses that would ripple throughout the economy.

These kinds of market distortions would send improper economic signals throughout the industry, with corresponding losses in efficiencies.

68. The Federal Government has already pledged funds to address the lack of broadband speeds in Canada’s rural and remote areas. Funds raised through general tax revenues and government fees can contribute meaningfully towards a broad-based subsidy regime for broadband 44 Note: Questions 8-10 of Appendix B to TNC 2015-134 are answered in Part 3.0 of CNOC’s intervention.

45 Obligation to serve and other matters, Telecom Notice of Consultation 2010-43, 28 January 2010. (“TNC 2010-43”).

46 Final Arguments of MTS Allstream Inc. dated 12 November 2010 in the proceeding initiated by TNC 2010-43.

47 Attachment to Telecom Commission Letter Addressed to Distribution **** “Re: Review of basic telecommunications services, Telecom Notice of Consultation 2015-134– Disclosure of certain information from the Data Collection System (DCS), 2 July 2015.

48 The 5% estimate is derived by dividing the $700 million annual estimate (which is the annualized amount of the ten-year $ 7 billion estimate) provided by MTS by the $14 billion in 2014 exempt retail Internet service revenues.

49 Final 2014 revenue-percent charge and related matters, Telecom Decision CRTC 2014-627, 5 December 2014, at para 22.

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Internet deployment in high-cost serving areas, without a corresponding risk of disrupting the telecommunications industry, competition in the provision of telecommunications services, or the affordability of such services.

69. While government funding is certainly the best foundation for a broadband subsidy regime, if the Commission concludes that such funding needs to be supplemented by the industry-funded contribution mechanism currently used to subsidize voice services in high-cost serving areas, CNOC encourages the Commission to calibrate its mechanism very carefully to mitigate any corresponding economic distortions to the greatest degree possible.

4.2 The current $10 million contribution threshold is inappropriate 70. Currently, telecommunications service providers (“TSPs”)50 are required to contribute to the NCF when annual Canadian Telecommunications Service Revenues exceed a threshold of $10 million.51 This threshold approach to contribution obligations creates a situation of inequity for smaller players. **** players do not have the scale and resources that would allow them to absorb NCF related expenses as comfortably as larger players. The “all or nothing” threshold is therefore a significant shock for smaller service providers when they surpass $10 million in Canadian Telecommunications Service Revenues.

71. CNOC recommends that the Commission replace its current contribution threshold with a revenue exemption model. More specifically, CNOC proposes an across the board exemption for the first $10 million in Canadian Telecommunications Service Revenues for all TSPs.

Contributions will then be calculated based on all amounts surpassing the exemption figure, at the percentage rate determined by the Commission. This approach will eliminate the built-in inequity of the current threshold based model and ensure that TSPs of all sizes are affected in a similar manner by the obligation to contribute to the NCF.

50 Including groups of related TSPs.

51 CRTC Revenue-based Contribution Regime Reporting Instructions (revised January 2007), para 1.3. See http://www.crtc.gc.ca/partvii/eng/8638/crtc/CCMRep.htm.

http://www.crtc.gc.ca/partvii/eng/8638/crtc/CCMRep.htm
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72. The Commission should also ensure that the transition from a threshold to an exemption contribution model does not impose additional reporting requirements for TSPs with Canadian Telecommunications Service Revenues at or below $10 million. Otherwise, the benefits of this transition could be offset by the administrative burden that such reporting requirements would represent for the smallest players in the industry.

73. In addition, CNOC urges the Commission to consider increasing the contribution exemption from the current $10 million level to a higher amount given that this threshold has not changed since 2001.

74. No other change is being proposed to the operation of the contribution collection mechanism.

5.0 CONCLUSION

75. Broadband access has a prominent and flourishing influence on Canada’s economic, social and cultural identity. Broadband Internet must therefore be considered a basic telecommunications service that is integrated in the basic service objective and government subsidies should be made available to allow deployments in high-cost serving areas. These changes are necessary to ensure that all Canadians can access and participate meaningfully in a digital economy enabled by a world-class communications system.

76. Throughout this proceeding, the Commission should focus on the characteristics of broadband connections required to support various types of telecommunications services and applications. This approach will inform other areas of the Commission’s basic services policy, such as the appropriate target speeds. In turn, the Commission should strive to set attainable targets for speeds and other service characteristics that will provide Canadians with the most fulfilling uses and applications that can be realized over broadband access connections. In pursuit of broadband targets, the Commission should enable wireline deployments, which are technically superior to wireless and satellite alternatives, wherever such builds can be economically deployed.

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77. The greatest barrier that limits or prevents Canadians from meaningfully participating in the digital economy is the lack of vigorous competition in most markets for wireline and mobile wireless services in Canada. In order to mitigate this barrier, access to the subsidized facilities used to provide broadband Internet services should be available to competitors on a mandated wholesale basis. Additionally, subsidized broadband facilities should be upgradable to certain standards to ensure greater economic lifespans for subsidized infrastructure.

78. CNOC supports the continued existence of the local services framework, subject to conversion of the $10 million contribution threshold in the current voice services contribution regime to a corresponding revenue exemption.

79. Any broadened contribution requirements to facilitate broadband Internet deployments must be carefully calibrated to prevent harmful market distortions. Preliminary calculations demonstrate that overreliance on redistributed telecommunications revenues could have alarming consequences for the industry. If the Commission concludes that government funding, which is the best foundation for a broadband subsidy regime, needs to be supplemented by an industry-funded contribution mechanism, CNOC encourages the Commission to calibrate its mechanism very carefully to minimize any corresponding economic distortions to the greatest degree possible.

Whether or not the Commission decides to expand the contribution mechanism, the current contribution threshold should be replaced with a more equitable revenue exemption model.

80. In Northwestel’s operating territory, CNOC recommends the replacement of the current Commission-mandated subsidies with a transport subsidy mechanism should apply to all terrestrial and satellite carriers in that territory instead.52

81. CNOC is confident that all of these recommendations strike an optimal balance between the economic and social objectives that the Commission is required to pursue. CNOC looks forward to its participation in the upcoming stages of this very important proceeding.

52 As explained in Section 3.6, the transport subsidy mechanism should replace Northwestel’s current subsidy mechanism and apply to all other carriers in Northwestel’s operating territory.

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*** END OF DOCUMENT ***
EXECUTIVE SUMMARY0F
1.0 INTRODUCTION
2.0 Canadians’ evolving needs for telecommunications services
2.1 Telecommunications applications
2.2 Telecommunications service platforms
2.3 Telecommunications service characteristics
2.4 End-user service/application tiers

2.5 Barriers that limit or prevent Canadians from meaningfully participating in the digital economy 2.6 Target speeds for broadband Internet access service

3.0 The Commission’s role regarding access to basic telecommunications services 3.1 Broadband Internet should be considered a basic telecommunications service 3.2 Terms associated with the subsidized provision of broadband Internet as a basic telecommunications service 3.3 The existing local service framework

3.4 Market forces and government funding

3.5 The Commission’s role in ensuring the availability of basic telecommunications services 3.6 Northwestel’s operating territory

4.0 Additional Regulatory measures for basic telecommunications services43F 4.1 Subsidization and the contribution collection mechanism

4.2 The current $10 million contribution threshold is inappropriate 5.0 Conclusion

Intervention: Canadian Network Operators Consortium Inc.

Document Name: 2015-134.223974.2394466.Intervention(1fbky01!).html

Raisons pour comparaitre / Reasons for appearancePursuant to paragraph 47 of Telecom Notice of Consultation CRTC 2015-134, CNOC is making the following statement: “I wish to appear at the public hearing”.

Intervention: Canadian Network Operators Consortium (Intervenor 267)

Document Name: 2015-134.223974.2394466.Intervention(1fbky01!).html

Raisons pour comparaitre / Reasons for appearancePursuant to paragraph 47 of Telecom Notice of Consultation CRTC 2015-134, CNOC is making the following statement: “I wish to appear at the public hearing”.