Final Submission

Document Name: 2015-134.223915.2613000.Final Submission (1k07c01!).html
EORN/EOWC Final Comments on

Telecom Notice of Consultation CRTC 2015-134Raisons pour comparaitre / Reasons for appearanceEORN/EOWC did appear at the Appearing Hearing and if there are additional Hearings we would like to appear again.

Final Submission

Document Name: 2015-134.223915.2612999.Final Submission (1k07b01!).doc
[bookmark: _GoBack][image: EOWC] [image: EORN_ENLogo_2011]
Final Submission
25 May 2016
Regarding CRTC Review of Basic Telecommunications Services
Telecom Notice of Consultation CRTC 2015-134, 9 **** 2015, and CRTC 2015-134-4. 11 **** 2016.
Eastern Ontario Wardens’ Caucus (EOWC) and Eastern Ontario Regional Network (EORN)
**** Peter Emon Reeve **** Burton
Chair EOWC Chair EORN
Executive summary
1. On behalf of 13 County and Single Tier municipalities representing 750,000 residents of our Region, the Eastern Ontario ****’s Caucus (EOWC) thanks the Commission for the opportunity to participate in this important proceeding for the future of Canada’s communications system. We appreciate the Commission’s recognition of our Region’s success in taking the lead on improving coverage, speeds, and affordability of broadband Internet infrastructure by developing the Eastern Ontario Regional Network (EORN).
2. EOWC/EORN are encouraged and supportive of the Chairman’s statement on 18 **** 2016, acknowledging that Canadians’ need broadband Internet access as a basic service, refocusing the consultations to the design and implementation of an effective basic service framework, and calling for a national strategy to address access, affordability, and service quality gaps documented by the diverse range of parties that have participated in this proceeding.

3. As representatives of rural communities, we face the same basic challenge documented in this proceeding by other rural communities and underserved regions from across the country: Private sector incentives to invest and serve our communities are relatively lower than in low-cost urban centres of the country, limiting the capacity of market forces to meet rapidly growing demand for fixed and mobile broadband network resources. In addition to the problem of extending access to “unserved” individuals, relatively limited incentives lead to a digital divide between urban and rural areas of Canada. Without public sector leadership, there is little evidence on the record of this proceeding to suggest Canada’s urban-rural digital divide is likely to narrow in the future.

4. In Eastern Ontario, we recognized nearly a decade ago that market forces and existing rural broadband initiatives by higher levels of government were not sufficient to meet the needs of our Region. Working with our provincial and federal counterparts, the EOWC has developed and implemented the EORN Model to close coverage and capacity gaps in broadband infrastructure of our Region and to enable our stakeholders to harness the benefits of our emerging broadband infrastructure. Listening to evidence from various other communities from across Canada during this proceeding, where these gaps apparently remain more extensive than in Eastern Ontario, we support calls by the Commission and various parties to develop a national strategy in order to coordinate efforts by the public and private sectors to address needs and gaps that have been identified in this proceeding.

5. As the record of this proceeding clearly demonstrates, limited access to the Internet represents a key barrier to economic development in rural Canada. This is an important concern for local and regional governments who are largely responsible for the delivery of public services, retaining youth and skilled workers, and attracting businesses to their communities. Even though EORN has managed to surpass our own original coverage and speed targets, as well as those identified by the CRTC in 2011 and currently being reconsidered, Eastern Ontario stakeholders and the EOWC recognize that our job is not finished. Looking into the future, we have developed and are implementing the Eastern Ontario Digital Strategy: A Roadmap to Digital Leadership 2015-2024, which aims to address both the supply and demand side concerns raised by our stakeholders and priorities formed through extensive consultations with residents, businesses, and public institutions in Eastern Ontario.[footnoteRef:1] While we recognize that national priorities may be different than ours, the bottom-up consultative approach EOWC and EORN have utilized to develop and implement our digital strategy in the context of the broader Regional economic development strategies represents a useful model for other parts of the country and at the national level. [1: Available at: ] 6. Having explained why the EOWC developed EORN in our previous submissions, in this final submission we will elaborate on key implementation questions raised by the Commission during the hearings, as well as some of the claims by other parties participating in this proceeding. Extrapolating from our experience in Eastern Ontario and using a financial estimate of the projected cost to ensure that our Region does not fall too far behind urban Canada, we will provide the Commission with some high-level estimates of medium to long term capital expenditures required to achieve the same objectives across the entire country that we hope are useful to your deliberations in this matter.

7. We absolutely agree with the Commission that a national dialogue to coordinate efforts by federal, provincial, and municipal stakeholders is essential for developing a much needed national digital strategy. EORN created its own Digital Strategy for EOWC and the Eastern Ontario region in part because of the noticeable absence of a national or provincial digital strategy. The hard questions raised in the Telecom Notice of Consultation CRTC 2015-134 including: definition of broadband access as a basic service; treatment of mobile broadband; adoption of minimum service standards and service level guarantees; and decisions about the design of funding mechanisms needed to address the gaps, are essential questions that should be discussed and debated in the development of a national digital strategy. EOWC/EORN submit that deferring these critical questions to a future review or “advisory council” would be inconsistent with the will of the Parliament in the Telecommunications Act when it allocated the authority and responsibility for answering such questions to the CRTC.

8. Since another review of regulatory matters that are within the scope of the Commission’s authority to address will not take place for at least another 5 years, we support the Commission in taking the lead in developing a robust and forward looking basic service framework in this proceeding. Decisions (about including fixed and mobile broadband in the basic service framework, minimum standards of service, and mandated cross-subsidies from low cost urban to underserved communities) made by the Commission in this matter are likely to have a lasting and hopefully positive impact on the ability of local, regional and provincial governments to take the lead themselves in addressing the digital infrastructure needs of their stakeholders.

9. The record of this proceeding is replete with evidence from communities across Canada documenting that the business case to invest in fixed and mobile networks in rural and remote areas of Canada is extremely weak (or non-existent). While most of the parties appear to agree on this point, there are some differences in the manner in which regulated entities and the other parties characterize the magnitude of existing gaps or the standards of service the Commission should adopt pursuant to this proceeding. EOWC/EORN are particularly pleased to see that our recommendations are consistent with those made by rural communities and consumer groups from across the country such as the First Mile Connectivity Consortium (FMCC) and OpenMedia.

10. In this submission, we build on the experience in Eastern Ontario to answer three specific questions raised by the Commission regarding gap identification, best practices, and the role of different levels of government in achieving basic service objectives of the Telecommunications Act.[footnoteRef:2] [2: Paragraphs 7584-7586, CRTC 2015-134 hearing transcript. 18 **** 2016.]
11. On behalf of the residents, businesses, municipal governments, and other Eastern Ontario stakeholders concerned about quality and affordability of access to basic communications services, we urge the Commission to:

1. Define high-speed/broadband Internet access as a basic service under the Telecommunications Act. High-speed broadband internet is already essential for most Canadians to participate in the economic and social discourse of our country. Recognizing this technological and economic reality in the federal regulatory framework represents an important first step toward addressing gaps identified on the record of this proceeding about coverage, service quality, and affordability of access to broadband Internet connectivity. For rural communities, mobile network coverage and the availability of high-speed mobile data services with minimum service quality guarantees are critical for communication between our residents, visitors, and emergency service workers. We recommend including both fixed and mobile broadband in the basic service framework 2. Mandate concrete minimum standards of basic service. Minimum basic service standards should be based on actual network performance, purchased consumer packages and long term service level agreements for publically funded projects. The Commission should mandate that, in addition to “best effort” retail packages currently available, operators also offer a basic retail service package that includes minimum service quality guarantees to residential and business users at a reasonable price.

3. Complement minimum service standards with forward looking “aspirational” speed and reliability targets. Future targets should be sufficient to encourage private sector operators to invest more in access and transport facilities in underserved communities.
4. Develop a sustainable industry funded rural broadband infrastructure cross-subsidy mechanism. The Commission has the legal authority, and we submit the responsibility, to require regulated entities to contribute funds needed to address current gaps and future growth in Canada’s digital divide. These funds should be distributed through local intermediaries that are already taking the lead in identifying and addressing service quality and affordability gaps across the country, rather than an inflexible centralized fund distribution model that bypasses community level control and accountability.

12. Objective: This intervention regarding the Review of Basic Telecommunications Services (CRTC 2015-134) elaborates on some of the relevant questions raised by the Commission that would have to be addressed if broadband Internet access is redefined as a basic communications service under the Telecommunications Act. We further discuss the limitations of some of the proposals by other parties as they relate to the set of implementation questions outlined by the Chairman in his comments during the hearing on 18 **** 2016.[footnoteRef:3] We hope the Eastern Ontario approach to developing and leveraging our digital strategy will provide a useful example for the Commission and communities in other parts of Canada trying to overcome similar problems. [3: Paragraphs 7584-7586, CRTC 2015-134 hearing transcript. 18 **** 2016.] 13. Emerging consensus: While some service providers have argued that the Commission should continue to forebear from recognizing broadband Internet access as a basic communications service under the Telecommunications Act, the vast majority of parties participating in this proceeding agree that it is time for the Commission to reconcile Canada’s regulatory framework with the reality that multipurpose broadband networks have in fact become the most basic form of communications platform. On behalf of the 750,000 residents of Eastern Ontario and municipal governments we represent, we urge the Commission to build on this consensus.

14. Policy options: We were pleased to hear that the CRTC recognizes that it is time to reconsider the strategy it adopted in 2011 when it excluded high-speed data services from Canada’s basic service framework, as well as its calls for a national dialogue that leads to developing a national broadband strategy. We support an enhanced role for the CRTC that would come from reclassifying broadband as a basic service, including the adoption of national minimum service quality standards based on actual (versus advertised) speeds for both fixed and mobile broadband services, and funding mechanisms required for ensuring that all Canadians can access this minimum basic level of service. EOWC/EORN also support the calls for a national strategy and wish to participate in any dialogue that leads to its development in order represent the interests of Eastern Ontario.

15. CRTC’s role in a national strategy: We have also heard from a small number of regulated entities that the magnitude of gaps is small and that their customers are satisfied and don’t need higher quality, more symmetric speeds, or minimum service level guarantees. These claims are inconsistent with the experience in Eastern Ontario, which we detailed in our previous written and oral submissions. These parties have generally argued that the Commission should maintain the status quo regulatory framework from 2011, which is based on “aspirational” targets only and does not include any binding obligations with respect to minimum service standards or funding mechanisms and to defer hard questions that it posted in the CRTC 2015-134 Notice of consultation to some potential future national “advisory council” composed of government and industry executives. The EOWC/EORN strongly disagree with this proposed delay and believes that as an independent regulatory authority, the Commission is mandated by Parliament to engage in evidence based decision making based on the facts that it has been presented on key legal and policy design choices it made in 2011 and is reviewing in this proceeding. Since another review of these issues will not take place for at least another 5 years, avoiding them in this consultation will only further delay addressing gaps in access, speeds, and affordability of services in underserved communities.

16. Constitutional considerations: The Canadian Parliament has vested the CRTC with the authority and responsibility under the Telecommunications Act to answer legal and policy questions that are central to this proceeding. While we clearly agree and have ourselves demonstrated that other levels of government and agencies have an important role to play in the development of fixed and mobile broadband in relatively high cost communities, telecommunication is first and foremost a federally regulated industry. Provinces, municipalities, and other departments of the federal government simply do not have the legal authority to define minimum service standards and develop the cross-subsidy mechanism needed to ensure that Canada’s urban-rural digital divide does not grow further in the future. Explicit commitments to rural Canada such as those under the Telecommunications Act represent a fundamental expectation of Canadian federalism, which we hope the Commission considers as a key justification for recognizing both fixed and mobile broadband Internet access as basic services and executing an effective implementation strategy.

17. The EORN Model: For more than a decade Eastern Ontario stakeholders have identified concerns about coverage and quality of broadband Internet connectivity as a policy priority to elected representatives and municipal staff. Having emerged as a community driven response to our needs, the record of this proceeding suggests that the EORN Model represents a unique and cost effective approach for improving access to broadband Internet particularly in rural, remote and hard to serve communities. As detailed in Table 1 of our first submission to this proceeding, the regional approach to balancing transport and access network development projects in Eastern Ontario is about 3 to 9 times more cost effective than federal rural broadband development programs such as Connecting Canadians, while increasing speeds to levels that are higher than the current CRTC 5/1 Mbps standard. We believe that community input, fine-grained mapping of consumer needs and network capacity, as well as a forward looking perspective on rapidly growing demand for network resources help explain this apparent difference between our regional model and ad hoc last mile only subsidy programs that lead to a patchwork of successes. Although we recognize that the EORN Model may not be appropriate to adopt everywhere, the Eastern Ontario experience is consistent with evidence provided by other parties from rural and remote communities in this proceeding who have identified a lack of access to affordable high-capacity transport facilities as a key barrier to improving Internet access quality and affordability to residents and businesses.

18. Community intermediaries: Having recognized the needs of our community as well as the weak business case for market forces to serve our needs, and the limitations of existing rural broadband development programs, EORN used this evidence as well as research on best practices to develop a unique and successful regional broadband deployment model. We were pleased to hear that various other parties concerned such as the First Mile Connectivity Consortium (FMCC) and OpenMedia have also identified the importance of having “community intermediary organizations” take the lead in identifying needs, designing appropriate strategies for addressing them, and working with other public and private sector entities to achieve their objectives. We strongly believe that without the leadership and vision of the EOWC representing the 100+ local governments in Eastern Ontario an intermediary organization such as EORN would never have been created and market forces and ad hoc last mile subsidy programs would not have been sufficient to close the substantive coverage and capacity gaps in our Region. We support an open and transparent approach that includes external audits, third party expert reviews, input from provincial and federal governments, and ongoing consultations with user groups that are integral to any successful program. EORN’s regional model illustrates that local community control and accountability reduces cost and maximizes the impact of deploying scarce public funds in terms of network coverage and capacity improvements.

19. Program flexibility: The evidence from other rural communities further supports our call for the CRTC to maintain significant flexibility in distributing funds it collects from regulated entities and involving “community intermediary” organizations in order to promote accountability and cost control in program delivery. None of the parties calling for a centralized fund distribution model (such as one resembling the current National Contribution Fund (NCF) for basic telephone service or the Connecting Canadians approach), has provided any evidence that contradicts cost estimates EOWC/EORN provided in our first submission documenting that the EORN Model has been substantially more cost effective than centralized program design and delivery models that bypass community level accountability and cost control (see Table 1, EOWC/EORN first submission to CRTC 2015-134).

20. Program design: Some parties have proposed that the CRTC should rely on the relatively expensive ad hoc last mile subsidy program design strategies such as Connecting Canadians over decentralized public-private partnerships such as the EORN Model. These parties claim that adoption of a centralized fund distribution strategy that has proven to be unsustainable and led to a patchwork of local monopolies is preferable to public-private partnerships such as EORN where municipal and regional collaboration provide a basis for gap identification and program design. We believe that local control and accountability ensures network growth and expansion strategies evolve to meet local needs and conditions. In our first submission we have provided concrete cost estimates from a variety of previous rural broadband development projects documenting the cost effectiveness of the model EOWC has developed in EORN to address many of the same problems which are before the Commission in this proceeding.

21. Basic service implications of CRTC’s wholesale policies: The experience from other rural communities across the country is consistent with ours in Eastern Ontario as access to affordable transport services evidently remains a critical barrier to improving broadband services in most regions of Canada. In Eastern Ontario even the incumbent was not willing to extend, upgrade, and open up its regional transport facilities prior to the creation of EORN. For this reason, we had to provide substantive inducements to gain access to existing fibre facilities, extending them to improve coverage, and upgrading the Region’s transport facilities. Given our experience in Eastern Ontario, we do not fully understand why the Commission continued in CRTC 2015-326 to maintain that transport facilities are duplicable as this is clearly not the case in remote, rural, and even some suburban communities. As a first step in developing a coherent national strategy that reflects the interests of Canadians that live and work in rural and remote parts of the country, it might be prudent for the Commission to revisit its decision not to mandate wholesale access to fibre transport, the so-called “middle mile”, and excess dark fibre facilities. Particularly in rural and remote communities, it is neither feasible nor desirable to have multiple fixed network assets, such as fibre transport network into particular communities and mobile towers. CRTC wholesale policies intended to promote facilities based competition may reflect the interests of the 80% of Canadians that live and work in urban areas, but accentuate limited incentives for cooperation and risk sharing in addressing coverage and capacity gaps in rural communities. Given the CRTC’s determinations on wholesale access to fibre transport and Mobile Virtual Network Operators (MVNOs), we think it is even more pressing for the Commission to devise a sustainable funding mechanism to address gaps in terms of both fixed and mobile network development in rural and remote communities prone to underinvestment and market failures.

22. Supply versus demand side strategies: As powerful evidence from representatives of Canadians with disabilities such as MAC/Access 2020 Coalition and those advocating for low income Canadians such as Acorn and OpenMedia demonstrated during the hearing, affordability and service quality represent a barrier to fixed and mobile broadband use by low-income vulnerable groups that live in both rural and urban parts of the country. This indicates that gaps in achieving basic service objectives of the Telecom Act cross the urban-rural digital divide. While we recognize the complexity of the problem, it is relevant to point out that due to relatively lower incomes in rural communities, affordability and service quality concerns tend to be more pronounced than in urban areas where market forces tend to be stronger and disposable incomes are relatively higher. For example, Internet access for low-income children to conduct their homework represents an important concern for us, as does the connectivity of other vulnerable groups to whom we deliver public services and try to assist with our limited resources. Consequently, we welcome broader proposals for developing an affordability funding mechanism and adoption of a basic service package that enables those with limited means to access the basic communications services they need. Policies aimed at increasing demand and affordability of services by supporting low-income vulnerable groups can complement infrastructure improvement initiatives, but should not be a considered a substitute for them.

23. Needs versus capabilities: We noted that much of the discussions at the hearing focused on needs, costs, and who is going to pay for the type of policies that rural communities and consumer advocates have proposed. We believe that this approach to framing the basic service problem detracts attention from important questions about the incentives and capabilities of regulated entities to meet the rapidly growing needs of Canadian consumers of broadband network resources by reinvesting in additional network capacity and service quality. According to broadband speed measurements from the Google M-Lab project submitted to the record of the proceeding by OpenMedia, median measured broadband speeds delivered by incumbent operators of legacy copper/DSL/FTTN networks is just about at the 5/1 Mbps speed target, which means a substantive proportion of connections these service providers deliver can fall below CRTC’s 2011 “aspirational” threshold. By mandating service providers to commit to minimum service quality guarantees and service level agreements, the Commission has an opportunity to increase the incentives of Canada’s service providers to invest in the quality of basic services they deliver to residential and small and medium size enterprises that need a more reliable service profile than the current “best effort” standards in the market. EORN has successfully negotiated service level agreements in all of its contracts with private service providers which helps to ensure the long term sustainability and expansion of publicly subsidized networks in our region.

24. Advertised versus actual service quality: As various parties to this proceeding have clearly documented, broadband maps based on advertised coverage and speeds provided by service providers published by Industry Canada and recently updated by the Commission remain highly inadequate in identifying coverage gaps in Canada. Furthermore, given that rapid growth in demand for broadband network resources is expected to continue, broadband coverage maps based on advertised speeds are likely to become even less informative for identifying emerging capacity gaps in underserved communities where market forces to respond to growing demand are relatively weak. Quarterly reporting metrics from the ISP’s that work with EORN have indicated an average of 50% year over year annualized growth in network utilization and capacity for the last two years running.

25. Cost estimates and basic service objectives: In addition to claiming current 5/1 Mbps “aspirational” and “best effort” speed targets are sufficient to meet the basic service needs of Canadians, a number of regulated entities have converged on the figure of about $1.7 to $2 billion in speculating about how much it will cost to achieve basic service objectives of the Telecommunications Act.[footnoteRef:4] Consumer advocacy groups such as OpenMedia have put this figure to be a bit higher at around $3 billion, but have asked the Commission to adopt higher and more symmetric minimum basic service level standards than the existing 5/1 Mbps benchmark. Given the Eastern Ontario experience, this range seems reasonable as a short term estimate of capital expenditures that would be necessary to address gaps relative to the 2011 standards identified in this proceeding. Eastern Ontario has about a 10th of Canada’s rural population, while it contains a diversity of communities in terms of population density, topography, and socio-economic conditions. The EORN public-private partnership model has provided between $170 to $270 million in total public and private sector investments in Eastern Ontario’s broadband infrastructure, and by multiplying our investment by a factor of 10 to scale for the 20% of Canadians that live in rural and remote parts of the country would lead to the same range of cost estimate the Commission has discussed with various parties during the hearing. [4: See CRTC 2015-134, transcripts of oral testimony by Bell and Quebecor Media for example. ] 26. **** versus long term cost estimates: The figures noted above might be relevant as a short to medium term estimate of bringing the rest of rural Canada to the higher speed levels that we have managed to achieve in Eastern Ontario with EORN. However, we suspect that they significantly underestimate the capital expenditure requirements of ensuring that Canada’s urban-rural digital divide does not widen further in the medium to longer term. For example, according to estimates from the Ontario Ministry of Economic Development, Employment, and Infrastructure (MEDEI) in this proceeding, increasing download speed standards to 25 Mbps would more than triple the number of under-served households.[footnoteRef:5] The more ambitious the targets, the larger the size of the required contributions from operators that dominate low cost urban retail markets for fixed and mobile services. Assumptions about what standards and characteristics of services people need are implicit in various costs estimates provided by the parties in response to probative questions by the Commissioners during the hearings. [5: Paragraph 46. First submission by Ontario Ministry of Economic Development, Employment and Infrastructure to Telecom Notice of Consultation Canadian Radio-television and Telecommunications Commission 2015-134 (Broadband Internet Services)] 27. Towards a longer term policy horizon: One objective from our participation in this proceeding has been to provide the Commission with a forward looking perspective on challenges rural Canada must overcome in order to enhance access, affordability, and quality of our communications infrastructure. Even though municipal leadership, with support from higher levels of government and the private sector, have allowed Eastern Ontario to surpass CRTC 2011 speed targets for much of the Region, we recognize that our work is not finished and there is a lot more that needs to be done if we are to ensure that our infrastructure meets the rapidly growing demand for network resources and mobile broadband connectivity by our residents, businesses, visitors, and in municipal service delivery. There are three specific challenges that EOWC/EORN are currently trying to address in our Region which highlight why the estimates of $1.7-3 billion noted above should only be viewed as a baseline for short to medium term capital expenditure levels required to extend universal access to basic communications services to all regions of Canada at standards of service quality and affordability that are not too far behind urban centres. These considerations are not exhaustive, but are sufficient to explain why EOWC/EORN have recommended the Commission develops a funding mechanisms that can generate a sustainable source of capital inputs needed for achieving objectives the Parliament has stipulated under Section 7(b) of the Telecommunications Act.

28. A. Satellite subsidies: There are some communities and users in remote areas with very low incomes, who are likely to need subsidized satellite services for the foreseeable future to have access to basic broadband services. The lower bound of estimates you have heard from various incumbent operators do not account for the potentially large costs of developing a sustainable model for ensuring that communities and users that are likely to remain dependent on satellite connectivity can overcome affordability and service quality problems they face. These issues are well documented in the record of this proceeding by various parties, including members First Mile Connectivity Consortium (FMCC). A national strategy must recognize the long term nature of the confluence of affordability and cost considerations in the ****, developing a sustainable model of procuring low cost supply (e.g. wholesale purchasing) with demand side subsidies for satellite services for low-income end users (e.g. vouchers) that live in Northern or other sparse areas of the country (EORN satellite target area is defined as areas having less than 3 households per square kilometer - however even in areas where there is higher population density, satellite services have been widely subscribed in Eastern Ontario with over 19,000 people taking advantage of satellite access and currently using up all of the currently available beam capacity).

29. The Commission has heard from various parties that emerging satellite and other technologies are likely to come online sometimes in the future that will deliver higher quality services at lower cost. However, we think there are significant uncertainties in the value and relevance of these emerging technologies that have to be resolved first. Furthermore, technological change is a long term process and it would not be prudent for public policymakers to ignore the basic needs of communities they represent in the hope that future technological change will reduce the costs of doing so. Commitments to universal access will require sustained public support for delivering legacy or emerging satellite connections to low-income users in very sparse or remote communities. Since the fixed costs of satellite deployments are primary financed on the global capital markets, demand side subsidies that cover variable costs of satellite connections and wholesale discounts negotiated by the public sector directly from satellite operators can be used to address the needs of this class of users and communities. Sometime in the future, high-throughput and low latency satellites may address the service quality and capacity problems that have been detailed by numerous parties from the **** and other remote communities in this proceeding. However, the affordability problem in access to basic services in satellite dependent communities is not likely to be resolved without some form of subsidy program that helps low-income individuals, households, and community organizations buy satellite capacity they need (either on the open market or through a wholesale purchasing strategy by higher levels of government).

30. Although there are too many variables involved in this case for us to provide a useful cost estimate for supporting satellite connectivity in the medium to longer term in places where terrestrial broadband is not a feasible and to persons with limited means to purchase satellite capacity on the market, we know that funding for the satellite capacity EORN has procured to close some of the gaps in very high cost areas of the Region has been depleted. This aspect of the problem is not included in the baseline estimates of costs of closing the gaps around which various regulated entities appear to have converged in this proceeding.

31. B. Mobile infrastructure gaps: An issue that has received limited attention in this proceeding, has been the increasingly essential nature of mobile broadband services to the majority of Canadians and the magnitude of gaps in terms of mobile network coverage and capacity in rural Canada. Over the past few years Eastern Ontario residents, businesses, and public service delivery personnel have expressed significant concern about these gaps, which EOWC/EORN have validated through an independent mapping of the state of the mobile network in the Region. We have further conducted an economic analysis of the market failures we have identified, which clearly indicate the two mobile infrastructure operators that serve our Region are unlikely to address the gaps without substantive public sector inducements. We think that it would be reasonable to assume that such gaps are common in the rest of rural Canada and are likely to grow as demand for mobile connectivity continues its rapid growth, but operator incentives to make the necessary capital expenditures on capacity enhancements in rural communities will continue to lag behind urban centres. If we assume that the magnitude of current and projected gaps in mobile infrastructure, as well as the costs of addressing them, in the rest of Canada are proportional to our estimates from Eastern Ontario, then an additional amount of between $1.5 to $2 billion will have to be added to the baseline estimate of $1.7 to $3 billion for closing Canada’s urban-rural digital divide.[footnoteRef:6] [6: Depending on the exact design of the public-private partnership. Wholesale access obligations that encourage cooperation and infrastructure sharing on backhaul/transport, as well as mobile towers, could further reduce the costs of closing mobile network coverage gaps for the private sector and lower levels of government. ] 32. Futureproofing with fibre: Copper network infrastructure that delivers telephone and DSL/FTTN based broadband services in much of rural Canada is decades old and deteriorating, some dating back to the pre-World War II period. Upgraded DSL/FTTN connections also have limited range and scalability, which means they are not likely to be sufficient if the Commission chooses to increase minimum service level standards or make them more symmetric. In the short term, upgrading these networks might be the cheapest option for improving network capacity and actual speed delivered to end users, but in the longer term any public or private capital expenditures on legacy technologies represents a pure deadweight loss. Replacing rural copper with fibre represents a long term challenge that various advanced economies are currently trying to address, including countries such as Japan and Korea where private sector incentives to deploy fibre-to-the-premises (FTTP) have been substantially higher than Canada. In some low cost urban areas there may be hope that market forces will promote the deployment of fibre-to-the-premises (FTTP) in Canada. However, we submit that it would be wrong to assume that market forces by themselves will solve this problem in rural areas in the foreseeable future.

33. Furthermore, if dominant operators that have promised they are going to build FTTP networks of the future in urban centres such as Toronto and Vancouver deliver on their promises to do so, we fear that they may actually reduce their capital intensity in delivering fixed and mobile services in rural communities generating a lower rate of return on fixed capital expenditures. This can lead to a situation in which the operators actually start to cross-subsidize the FTTP network deployments in low cost urban centres by “sweating the copper” in rural Canada where consumers’ options and competitive discipline on the incumbents is relatively limited. A sustainable funding model in which the CRTC mandates dominant operators in low cost urban-centres to fund rural FTTP deployments can help counteract this long term challenge in the design and implementation of a robust national broadband strategy that considers the needs of both urban and rural Canada.

34. A forward looking strategy to delivering basic services in rural Canada requires accounting for the costs of moving away from copper to fibre, which is likely to benefit both rural consumers (higher quality) and rural service providers (lower maintenance operational costs) associated with this long term technological imperative. Based on cost estimates from a number of FTTP deployment projects in Canada and internationally, we estimate that total capital expenditures required for extending FTTP to 2 million of the nearly 3 million rural households in Canada will cost some where between $3 to $6 billion.[footnoteRef:7] Technological innovations that reduce the fixed costs of fibre deployments are likely to reduce this amount to some extent if rural FTTP deployments are delayed for a long time. However, in the EOWC/EORN experience, waiting for technological innovation to reduce the costs of addressing the basic needs of our communities today does not represent a prudent policy strategy. [7: Assuming that FTTP deployment costs are somewhere between $1500 and $3000 per household, including both the pass through and the final drop. The $1500 lower bound is based on estimates from Bell Aliant provided to Royal Bank regarding its FTTP deployments in Atlantic Canada, which included mostly urban areas with copper networks from early 20th century. The $3000 estimate represents the upper bound for rural FTTP deployment as estimated by the Western Ontario Wardens’ Caucus (WOWC) in the design of the Southwestern Integrated Fibre Technology (SWIFT) project. ] 35. Sustained funding needs: If we add the short to medium and medium to long term high-level cost estimates note above[footnoteRef:8], then we arrive at a total long term range of between $6.2 billion (i.e. 1.7 + 1.5 + 3) to $11billion (i.e. 3 + 2 + 6) of fixed investments that rural Canada needs in order to not fall further behind urban centres in terms of quality and affordability of access to basic fixed and mobile broadband services. The time horizon for making these investments will determine the amount that a sustainable funding model would have to raise from operators that dominate retail markets in low cost urban areas. Waiting for technological innovation to reduce the costs of fibre, 4G+ mobile, and satellite connectivity in the next decade is certainly a policy option, but not one that EOWC/EORN endorses or recommends. The option we prefer is for the CRTC to become more involved by setting realistic minimum service standards and contribute to public and private sector investments that will be needed to counteract the basic economic problem that generates the urban-rural digital divide, which we submit the Parliament predicted and accounted for under Section 7(b) of the Telecommunications Act. [8: Excluding the potential satellite supply and demand side components.] 36. CRTC’s role: Using the above baseline capital expenditure estimates, we try to sketch the potential role that the CRTC can play within Canada’s multilevel system of governance and accountability for delivering essential social and business infrastructure.[footnoteRef:9] Given the importance of broadband, rural communities are often willing to contribute some of their own resources to such infrastructure improvement initiatives, as demonstrated by EOWC’s $10 million investment in EORN. For simplicity, assume a mid range estimated total of $9 billion in public and private capital expenditure will be required to achieve longer term fixed and mobile infrastructure development objectives in rural Canada. Assuming that the standard public-private partnerships model where the private sector contributes 1/3, municipal and provincial governments 1/3, and federal entities make up for the other 1/3, then the total share for the federal government would be around $3 billion. Given that commitments to rural broadband in the recent budget are around $500 million over the next 5 years, there is going to be a medium term federal funding gap of $2.5 billion. We think the CRTC has both the mandate and opportunity to address this gap. If we assume the CRTC tries to help fill this gap over the next 10 years, then it would have to collect around $250 million per year from dominant service providers. [9: For an analysis of multilevel governance consideration in broadband infrastructure development see: Rajabiun, R., & Middleton, C. A. (2013). Multilevel governance and broadband infrastructure development: Evidence from Canada. Telecommunications Policy, 37(9), 702-714. ] 37. The estimated $250 million per year in the shortfall we hope the CRTC will help close represents just around one half of one percent (0.5%) of the total annual telecommunications sector revenues in Canada. Given that around 20% of Canadians live and work in rural and remote communities, we think this is an extremely modest and reasonable ask from the CRTC and regulated entities that dominate retail markets for fixed and mobile access services in urban Canada. It is notable that survey results submitted into the record of this proceeding by the Affordable Access Coalition (AAC) and CRTC’s own EKOS survey indicate that most Canadians are in fact willing to pay more if this means improving Internet access for other Canadians (around 1-2% more). These estimates suggest that even with the $250 million in rural fund collection from the industry as outlined above, there will still be significant room for developing the type of targeted demand side affordability subsidy mechanism that various parties have proposed (e.g. targeting Canadians with disabilities, children in low income households, remote communities with low/no disposable income). In practice, some of the funds collected and distributed for rural infrastructure and/or affordability support programs the Commission may choose to adopt pursuant to this proceeding will flow back to large service providers likely to be contributing to these funding mechanisms.

III. Further replies

38. The EORN Model: As we outlined in paragraph 18 of our original submission and in responses to questions by Commissioner Vennard, the EORN approach to broadband is somewhat distinct from other models in Canada, and perhaps around the world, because it emerged directly from the demand in our communities for the Eastern Ontario municipal leadership to assist in getting better broadband connectivity. We have had to frame our initiative in a manner that fits the standard public-private partnership criteria and go to the market to raise 1/3 of the required investments. The design of the project has been driven mostly by local knowledge generated through extensive consultations with our stakeholders and verified though fine grained mapping of the needs of our Region. The key insight that motivated the development of the EORN Model by EOWC in the late 2000s was that ad hoc federal and provincial programs such as the Connecting Canadians model were not going to be effective in addressing coverage and capacity gaps in our Region, and then asking how we can do better. For example, in very high cost rural and remote communities the 2/3 public subsidy may not be able to generate the 1/3 private investments that might be required, unless a model such as EORN is used that balances and optimizes subsidy allocation across average and high cost areas of a region. Having local knowledge about user needs and capabilities of operators is critical for implementing this strategy for cost minimization. In other words, we have found that having a good “ground game” is critical for identification and addressing coverage and capacity gaps in an efficient manner. Additionally, the EORN Model through its Contribution Agreement with Ontario and Canada has helped ensure that public funds are producing positive and measureable results including real rates of return for that investment. Our legal contracts with each private sector partner are long term, expiring in 2024, and comprehensive. The EOWC and is senior government partners, Ontario and Canada all shared the same desire to ensure to the best of our abilities that public investments would return the kinds of positive results currently being achieved and over the longer term through 2024.

39. Municipal resource constraints: The EOWC emerged as a regional model for promoting economic development in Eastern Ontario because the smaller communities that make up our Region recognize their limited resources and have learned to work together to address our common concerns collectively. The EORN Model is a broader manifestation of this strategy, which reflects our experience that if we don’t take the lead to solve our own problems, nobody else will. In developing EORN, the EOWC has engaged in substantive consultations with our residents, businesses, and other stakeholders, researched various approaches to rural broadband development in Canada and internationally, and determined that a regional approach that combines an open access transport network with targeted last mile subsidies in relatively high cost areas would allow us to maximize the limited resources we have in terms of coverage, capacity/speeds, and affordability improvements across the entire Region.

40. **** strategies: While EORN has managed to exceed its original targets in terms of broadband coverage and capacity/speed improvements in Eastern Ontario, we do not pretend that the EORN Model is perfect or that it will fit everyone’s requirements and interests. Nevertheless, the EORN Model has proven to be substantially more cost effective for the public sector on a per connection cost and quality basis than the last mile only subsidy programs such as Connecting Canadians. This helps explain why regulated entities prefer the former program design approach over EORN type public-private partnerships where local communities hold them accountable for their performance after they have received public subsidies. Furthermore, it is clear from the record of this proceedings that last mile only subsidy programs tend to be both more expensive and unsustainable in terms of service quality that providers deliver to end users in the face of rapidly growing demand and limited incentives to reinvest cash flows from subscribers after the operator has received the public infrastructure subsidies. Our experience indicates that utilization of service level agreements that include hard performance targets with service providers is critical for their sustainability. Without contractual mechanisms that encourage operators to invest in network capacity in areas with otherwise lower than average rates of return on capital expenditures, capacity gaps in terms of actual connectivity speeds can actually become bigger than they were before public investments in underserved areas as user demand grows, a phenomenon which has been documented in submission by various parties in this proceeding.

41. Scalability: The EORN Model demonstrates that access to an affordable and scalable transport network that allows for aggregation of growing traffic from local communities is critical for the success of rural broadband development initiatives, an insight that is confirmed by the wide range of evidence presented by other rural communities from across Canada. This lesson is not new and was recognized long ago in the final report of the National Broadband Task Force (NBTF, 2001), headed by our current Governor General **** Johnson more than 15 years ago. It is also precisely because of the importance of access to scalable and affordable fibre transport facilities to effectively addressing rural connectivity gaps that various regions in Ontario are developing variations on the EORN Model in order to address service quality and affordability gaps in their communities.

42. Program flexibility: Because we recognize that local conditions must be reflected in the optimal design of rural broadband development programs that we have recommended that the Commission should not adopt a centralized and inflexible model for allocating any funds that it may choose to collect from regulated entities in order to support rural network development across a country as diverse as Canada. A new centralized approach modeled after the National Contribution Fund (NCF) for legacy telephone services, deferral account subsidies for the incumbents, or recent Connecting Canadians programs (for which local communities were excluded from applying) is likely to suffer from the well known information and monitoring problems that have plagued these types of initiatives. Similarly, we are concerned about some of the proposals you have heard about allocating any funds through top-down auction procedures administered by the CRTC or other federal agencies. Our understanding is that least cost auction procedures have been particularly problematic to implement for national governments in both developed and developing countries.[footnoteRef:10] [10: S. Wu, ****. "Maximum impact for minimum subsidy: reverse auctions for universal access in **** and ****." info 16, no. 5 (2014): 46-58.] 43. Local input and program design: Consultations at the local level with residents and industry were a critical input in the design of the EORN Model, while feedback from communities to the wardens and municipal staff has helped us develop our future priorities. For example, over the past few years, residents, businesses, and public sector workers have expressed significant concern about mobile network coverage and capacity gaps in Eastern Ontario, which have lead the EOWC to define addressing these gaps as a strategic policy priority, engage with technical consultants to map these gaps and model business strategies for addressing them, and search for private and public funding commitments to address the gaps we have identified. We recognize that our consultative democratic approach to program design is more time consuming than the Connecting Canadians model of ad hoc last mile subsidies various operators have proposed the Commission should adopt to allocate any funds it chooses to collect. However, the evidence suggests that our regional approach to many of the problems that are now before the Commission has significant benefits in terms of subsidy targeting, cost control, and democratic accountability to the people we are elected to represent.

44. From democratic accountability to a national strategy: EOWC and EORN have observed that the CRTC has been noticeably hands off in terms of designing wholesale access (i.e. transport/dark fibre access) and retail market regulations that meet the needs of relatively higher cost rural communities in which infrastructure competition is simply not feasible, nor really desirable as it implies too much duplication in fixed network assets. EOWC/EORN are not asking the CRTC to become the sole source of funding for future national broadband programs, but only to start playing a more active role by developing policies that are necessary for addressing access, affordability, and service quality gaps that parties from across Canada have detailed for the Commission on the record of this proceeding. In addition to their importance as threshold standards for reference and aspiration by the private and public sectors, the CRTC’s decisions in this matter will have a long term impact in shaping the incentives of private sector service providers to invest in underserved communities. Although we would wish that all of the $6 to $11billion needed in the medium to long term in terms of capital expenditures in rural Canada could be funded from a centralized source we are realistic about the underlying causes of the problems that are at the centre of this proceeding, and we acknowledge that a multi sectoral funding model will most likely be required.

45. Funding delivery: Recognizing the potential for rural and regional under-investment, the Parliament provides the CRTC with specific authority and significant discretion to adopt wholesale and retail market sector regulatory policies that it considers appropriate. While the CRTC is the only party with the legal authority to set minimum service standards, future speed targets, or to mandate large operators to contribute to a sustainable cross-subsidy mechanism, the Eastern Ontario experience documents that a more decentralized approach to gap identification and broadband development policy design is substantially more effective than centralized broadband improvement programs that bypass local community input, lead to an unsustainable and unaccountable patchwork of projects, and force communities to compete with each other for scarce funds from higher levels of government. While we agree with various parties that have argued CRTC should develop a funding mechanism for rural broadband infrastructure development, we strongly disagree with adopting a fund allocation strategy that bypasses lower levels of government. Any funds collected by the CRTC for broadband infrastructure development should be allocated to projects that have been subject to substantive community consultations, validated through independent technical and economic sensitivity analysis, and are designed to maximize the impact of scarce public funds available from different levels of government and private sector partners.

46. Implementation questions: In response to concerns by our community and our observations about private sector commitment levels to serving our regional basic service needs, the EOWC/EORN have developed and implemented a regional strategy that leveraged just over $120 million of public subsidies into around $270 million in total public plus private investments to improve broadband network coverage and speeds in the Region. This provides us with significant experience that is directly relevant to answering specific implementation questions raised by the Commission during the hearings[footnoteRef:11], as well as a unique perspective in balancing competing private and public interest considerations in matter. [11: See statement by the CRTC Chairman, CRTC 2015-134 transcript of 18 **** 2016 and CRTC 2015-134-5 Notice of change in procedure.] 47. Gap identification: The EOWC/EORN experience suggests that fixed and mobile broadband coverage maps that are based on “best effort” advertised rates of service from providers tend to be wholly inadequate for identifying unserved and under-served communities. This issue has been confirmed with evidence provided by various other parties on the record of this proceeding. Recognizing this problem early on, in Eastern Ontario we have found that fine-grained mapping of broadband infrastructure and independent engineering assessments are required for identifying coverage and capacity gaps. The cost effectiveness of the EORN Model is partly a function of the methodologies we have had to develop to identify unserved and underserved areas of our community and allocate our scarce resources to maximize private sector investments in them.

48. **** strategies: Although a large majority of parties agree that market forces by themselves are not sufficient to address current and future connectivity gaps in remote and rural communities, there are significant differences in the recommendations from various parties with respect to prioritization and program design strategies. Our experience illustrates the best strategy for identifying and addressing gaps is a bottom up approach that leverages local information, leadership, and accountability. Substantive consultations and input from various stakeholders have been a key ingredient in the development of the EORN Model and our strategies for the future. It is because of this accountability and control that locally and regionally led initiatives such as EORN have been substantially more cost effective than centralized federal programs such as Connecting Canadians and its predecessors (between 3 to 9 times in terms of subsidy per connection (a range the upper bound of which is relevant for estimating necessary public subsidies for enabling basic broadband access in very high cost and remote communities). Given the higher level of subsidy for operators from programs such as Connecting Canadians it may not be surprising to see that regulated entities tend to support the existing federal approach to rural program design. However, the Eastern Ontario experience suggests there are more cost effective and efficient alternatives available for addressing inequities in access, service quality/speeds, and affordability within Canada’s rural regions, and between them and lower cost urban centres where infrastructure competition and market forces might produce satisfactory results by themselves. EOWC/EORN recommend maintaining significant flexibility in the fund distribution model the Commission may choose to adopt at the conclusion of this proceeding from the revenues of large operators that dominate Canada’s low-cost urban markets.

49. Efficiency enhancing standards: In addition to contributing to efforts by other federal agencies, lower levels of government, and the private sector in raising funds for rural infrastructure development, the Commission can play an important role in promoting investment in the quality of basic services regulated entities deliver by requiring them to extend the range of their service offering with a basic service package that includes minimum service quality guarantees (i.e. versus current “best effort” offerings in the retail market). As documented in the record of this proceeding in response to interrogatories by OpenMedia, all dominant service providers already have deployed network control technologies that enable them to guarantee the minimum service quality level they deliver to end users. The fact that operators have refused to publish their contention/oversubscription ratios in the record of this proceeding casts further doubt on their assessments of the current gaps and the sufficiency of what they call “aspirational” minimum speed targets the CRTC adopted back in 2011. In addition to increasing these standards and making them more symmetric, we support proposals for requiring service providers to offer retail services that include minimum service quality guarantees of basic service to residential and small and medium size businesses that require a basic level of reliability in the fixed and mobile broadband services on which they depend. Improvements in the range of available services to include both best effort and offerings with minimum guarantees will benefit various user groups in Eastern Ontario and the rest of Canada, including public service workers, persons with disabilities, and productivity growth in small and medium size businesses. EOWC/EORN therefore support proposals for the Commission to mandate a basic service package where the operators guarantee their level of service to consumers that need a minimum level of reliability in their broadband connections (e.g. a 5/2 or 10/5 Mbps basic service package with minimum service level guarantees, implemented in phases over the next few years). As long as operators are allowed to offer any other “best effort” subscription packages they feel their customers demand, mandating them to offer a basic service package that include minimum service quality guarantees will not interfere with the operation of market forces, and may in fact motivate less efficient service providers to invest more in addressing emerging gaps associated with rapid growth in demand for fixed and mobile network infrastructure capacity.

***End of Document***