Intervention: Bragg Communications Inc. (Intervenor 280)

Document Name: 2015-134.223999.2394704.Intervention(1fbrk01!).html

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Intervention: Bragg Communications Inc. (Intervenor 280)

Document Name: 2015-134.223999.2394702.Intervention(1fbr$01!).pdf
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July 14, 2015
FILED VIA: GCKEY
File No.: 8663-C12-201503186
Mr. John Traversy
Secretary General
Canadian Radio–television and
Telecommunications Commission
Ottawa, Ontario
*** ***
**** Mr. Traversy:

Re: Eastlink Comments – Telecom Notice of Consultation CRTC 2015-134 – Review of basic telecom services

1. Bragg Communications Inc., carrying on business as Eastlink, provides herein our comments in relation to the above-noted Notice of Consultation. Eastlink requests to appear at the public hearing.

2. In Phase 1 of this proceeding the Commission intends to review its policies regarding basic telecommunications services in Canada. The primary issues to be considered relate to the Commission’s objectives as set out in the Telecommunications Act and to ensure that Canadians have access to basic telecommunications services, with a focus on 3 measures: the obligation to serve, the basic service objective and the local service subsidy regime.

https://services.crtc.gc.ca/pub/instances-proceedings/Default-defaut.aspx?EN=2015-134&Lang=eng&_ga=1.135557553.1838822724.1405095418�2

3. The advancement and availability of new technologies and consumers’ use of those technologies have been changing drastically over the years, raising the question as to whether the existing requirements remain appropriate. No one can dispute that internet access and mobile technologies are becoming increasingly important to support the needs and interests of Canadians. In fact, the 2014 Communications Monitoring Report recognizes that consumers rely on multiple services per household, including wireline telephone, internet, wireless and TV distribution (noting that the average number of communications connections per Canadian household increased from 4.3 in 2009 to 4.5 in 2013)1

. These technologies are increasingly used

for applications that go well beyond fulfilling basic telecom needs – including for entertainment, social networking, streaming TV and programming content. Eastlink submits it is relevant to consider that it is much of this non-essential use that is driving capacity needs, when assessing whether the Commission should change the basic service objective (BSO) requirements.

4. In this proceeding the Commission has sought answers to a number of questions (the Questions) listed in the Notice. We offer our general thoughts below, along with initial answers to some of the Questions, attached.

Basic Service Objective

5. While reserving the right to provide further comments at a later date, Eastlink submits that the existing BSO requirements for basic wireline telephone service likely do not require material changes. A wireline telephone network, once built, can readily serve consumers and usage does not generally impact the capacity of the network; in our view, the existing rules in place associated with mandating a basic standalone telephone line, seem to be reasonable. We also note that while the BSO includes the provision of individual telephone line service, the ILECs obligation to serve (OTS) can be met by offering mobile wireless voice service.

6. As described in TRP 2011-291, “the primary goal of the obligation to serve and the basic service objective is for all Canadians, regardless of where they reside, to have reasonable access 1 2014 Communications Monitoring Report, page 9.

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to basic telecommunications services”.2
If this goal remains valid, a key issue is to determine
what “basic telecommunications services” are today.

7. In past decisions the Commission maintained the BSO in regulated exchanges on the basis that there was insufficient competition to protect the interests of users. In forborne exchanges the Commission recognized that competition continues to be strong, thereby allowing market forces to work and making it unnecessary to mandate a BSO to protect the interests of consumers.3

The Commission did maintain the ILECs’ obligation to provide standalone primary exchange service (PES) at capped rates to ensure that consumers who seek only a basic wireline telephone service are able to receive it at a reasonable standalone rate.

8. At the time of the last review in 2011 the Commission appropriately noted that market forces driven by consumer demand were instrumental in increasing the availability of broadband services; moreover, the Commission recognized that a combination of market forces and targeted government funding would continue to drive out broadband internet rollout in rural and remote areas.4

In this proceeding the Commission asks whether the BSO should include broadband service.

9. This proceeding is occurring while the Federal Government, through Industry Canada, has announced a contribution of $305M toward broadband expansion to 280,000 unserved and underserved households in Canada – the Connecting Canadians project. Connecting Canadians has not yet been concluded such that visibility into all additional areas of the country where broadband services will be upgraded or expanded remains unclear, although a number of applications have been recently approved. However, this project may result in some reduction to currently unserved or underserved households.

10. In Eastlink’s view, the responsibility for ensuring Canadians in rural and remote areas receive basic broadband services appropriately lies with the government through funding initiatives; this may also be achieved in combination with partnerships by service providers and 2 TRP 2011-291, paragraph 39.

3 TRP 2011-291, para 45.
4 Ibid, para 63.
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via market forces. While the Commission did state its intention to review the matter of funding mechanisms should market gaps persist, Eastlink submits that the Commission’s determinations in 2011 not to intervene in regards to internet expansion remain appropriate today. In light of the extensive availability of broadband services to most Canadians, and in light of continued initiatives to expand services to unserved and underserved communities, imposition of increased regulatory obligations for the provision of broadband service is not necessary. While we note there may be some limited exceptions that could arise as this proceeding progresses - for instance, it may be that the far **** may require a regulated model, any decision to increase regulation over broadband must be very carefully considered. Even if it is arguable that in some cases government funding programs are insufficient to entirely meet the objectives, it does not necessarily mean a regulated model will provide the outcomes sought, as discussed below.

11. In Eastlink’s view, the principles on which the BSO and obligation to serve (OTS) were established – a determination that there is some basic level of telecommunication service that consumers are entitled to and which need is not being met today – remain relevant to this review.

Eastlink is not convinced that the issues have changed that much since the last determinations.

12. The Commission determined in 2011 that in forborne areas there should be no BSO. In 2011 when the Commission considered the appropriate targets for broadband internet access, it considered the following as objectives to setting the targets:

Canadians should have access to a broadband Internet access service that allows several users in one household to use the world Wide Web (alpha-numeric text, images, and small video files), voice over Internet Protocol services, and other online services (such as email and banking) over a single connection at the same time. With this type of access users will be able to actively participate in online discussions, take advantage of many government services, and carry out research, to name just a few possible applications.

The Commission also considers that a broadband internet access service should allow a single user to stream higher-quality audio and video and to participate in video conferencing at reasonable quality using online services. This capability will enable users to engage in such activities as participate in distance learning and online consultations with professionals (e-health).5

5 Ibid, paragraphs 74-75.
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13. It was from those objectives that that the Commission established a target speed at 5Mbps download and 1Mbps upload (5/1 Mbps), which were considered sufficient to support the activities described therein. As referenced above, even in 2011 the Commission recognized that video streaming should be an expectation for a single user in a household; the purpose for such use as described in the examples was primarily for communication through video conferencing and e-health related issues – uses that relate to fulfilling basic health/educational needs. Issues associated with internet streaming of TV content or other programming content purely for entertainment purposes do not appear to have been considered as a basis for establishing those targets. While we cannot dispute that the latter uses are now driving capacity demands much higher, we are not convinced that the Commission could or should establish a regulated broadband policy based on principles of ensuring Canadians everywhere have as much internet capacity as they want to use.

14. The Questions seem to mix the issue between the types of uses that are the ‘most important’ and allow Canadians to participate ‘meaningfully’ in the digital economy (Question 1) and the uses Canadians should ‘reasonably expect’ to make of the internet (Question 2). In Eastlink’s view, what Canadians expect they should be able to use the internet for would be much more expansive than what should be considered a basic service as a government supported policy.

15. While Eastlink notes that a mandated BSO for wireline telephony funded by the industry through the contribution mechanism was successful to the extent that it allowed for the expansion and provision of basic wireline telephone service to Canadians, providing a similar model for broadband expansion is quite a different challenge, simply due to the increase year-over-year in bandwidth capacity for using such services, particularly as uses expand to more video streaming, gaming and other intensive applications.

16. While many of the ‘essential’ uses, (such as banking, online transactions, information access, education and e-health), could still be provided with up to a 5/1 Mbps service, expanding the BSO may inappropriately raise consumers’ expectations that they are entitled to a broadband service that fulfills all of their expected uses, rather than necessary uses and we are not sure how 6

the regime could control for that. In high cost serving areas reliant on subsidies, Canadians are ultimately contributing to a subsidized model, and requiring subsidies for unnecessary uses is not, in our view, proportionate to the purpose. When all Canadians are expected to subsidize services received by currently unserved or underserved Canadians, it becomes relevant whether they are subsidizing their basic needs for access to the digital economy or whether they are subsidizing all uses such as “marathon” interactive gaming sessions, for example. As all Canadians expand their internet usage, even those in urban centers will experience increased costs - some of those Canadians may not agree with subsidizing services which are increasingly used for gaming and excessive streaming. It is reasonable that the cities will help ensure the rural areas have basic needs only.

17. Yet, providing a lower speed service may offer only a short term solution, the maintenance and upgrading of capacity which cannot be financed over the long-term, and we agree that is of little value to consumers. In Eastlink’s view, we should not rush to create only a temporary solution at high costs to industry and inevitably to all Canadians in order to expand unnecessarily high-speed broadband to a broader range of unserved communities. If there is to be any solution, it may require a more targeted approach to finding ways to build a system that can be capable of serving consumers long-term, as capacity and usage changes over time.

Expanding the contribution regime - the risks of doing so for broadband 18. While Eastlink maintains that it is not appropriate to mandate a minimum broadband service, if there is a decision to regulate a basic broadband rollout it should be very carefully considered, and limited only to the extent absolutely necessary. The Commission is also seeking comments on how such expansion should be funded. One means proposed for consideration is to expand the contribution regime.

19. As described above, the contribution regime was built as a means to fund the expansion and provision of basic telephone service to HCSAs. This model, whereby some Canadians ultimately subsidize expansion to rural areas (through their service providers’ telecom revenues), appears to have been successful; moreover, in recent years the contribution fund has been 7

appropriately reduced to recognize that with advances in technology, competition, etc., many previously defined HCSAs are no longer in need of subsidization, thus a welcome reduction to the fund occurred (subject of course to other changes, such as expansion for VRS). In fact, in 2011 the contribution regime was modified so that only incumbents in limited areas would be entitled to the funding and only for a limited time, allowing for further reductions.

20. Eastlink submits that the industry accepted the contribution regime as a necessary model, but the industry also fought for changes on subsequent reviews so that subsidies would continue to be reduced in order to alleviate the costs imposed on the industry and all Canadians. The idea was that eventually the contribution regime would be phased out. Now we are faced with the question of establishing a model to fund a broadband expansion plan. Eastlink has serious concerns about the feasibility of such a model and whether it is appropriate to require some Canadians to subsidize such expansion when the costs will be significant compared to the ability to fulfill the objectives, long term. As avid supporters of rural development, with a history of focusing business expansion to rural areas, it is important to Eastlink that if initiatives for internet expansion are taken that they have long term success. It is our underlying interest in providing viable, long term solutions, which causes us to raise our concerns herein.

21. Our concerns are based on some of the following issues:

(a) It is very difficult to determine what basic broadband service should be. Building a network for all uses consumers expect to make of the internet would mean building a service with potentially unlimited capacity; yet, building only to serve minimum needs will potentially fall short due to customers’ dissatisfaction since expectations will not be fulfilled when their service levels are impaired or they are prevented from reasonably using the internet for non-essential capacity intensive applications they want;

(b) Determining who should be entitled to funding. The OTS mandating incumbents to build out telephone services made sense in a model where their telephone infrastructure was generally considered to be more ubiquitous and more readily expanded - this may not be true of broadband where there are not necessarily incumbents as there were in the 8

telephony business. If one factors in the potential for wireless telephony solutions as a replacement for either wireline telephone or broadband in the future, it raises additional concerns that incumbent wireless service providers would simply use the policy as another tool to receive funding for build outs at a time when new wireless entrants are already operating at a significant disadvantage and investing heavily to provide competitive wireless services. Eastlink, as a new wireless entrant with a focus on building out to smaller and rural communities in our operating territories, would have concerns if wireless incumbents used this process as a means to subsidize their network build-out to compete against us in those rural areas, while focusing their own investments in the more heavily populated urban centers.

(c) Although some parties may agree that in limited regions, such as in the far ****, a regulated broadband requirement may be necessary, an industry subsidized model is not an appropriate solution if the tariff processes have not permitted those northern service providers to recover reasonable costs through rates. If the existing tariff regime requires service providers to charge below-cost rates for these regions to the point it is uneconomic to maintain the services then we do not support a regime where other Canadians are required to subsidize the provision of services. Moreover, we question a model where there is an expectation that the rates in the very far **** should be at the same level as urban southern Canada. In the far ****, many services and products, including food, are priced at higher rates than they are in regions to the south, and so a policy to demand that communication services be at the same rate merely moves the responsibility for those costs to other Canadians. While we recognize that some subsidies may be necessary for these regions, in Eastlink’s view it should only be so after appropriate costing models are first incorporated into the analysis. 622. Eastlink’s own business model has been to build out many rural communities across the country and we generally offer the same services at similar rates to those offered in our more 6 We refer, for instance, to Decision 2015-78 wherein the Commission directed Northwestel to reduce internet prices by 10-30% in certain cases and denied them the right to charge a surcharge for standalone DSL internet service. We note that Northwestel has since filed a Review and **** Application (3 **** 2015) on the basis that the impact of decision 2015-78 is to render terrestrial DSL Internet service substantially uneconomic, and puts their Modernization Plan, and as they claim - their ability to maintain their DSL internet service, at risk.

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urban areas; however, we also recognize that in the very hard to serve, higher cost areas, a model that creates an expectation of the exact same level of service at the exact same rates may not have long-term success if the population density and other factors do not support the business case to maintain and upgrade the network. The very reason why these areas are unserved or underserved is because the cost to build the network compared to the population to serve cannot justify the investment. In these rural unserved areas, where the service provider may be providing the service at a much higher cost, it may make sense to consider allowing a higher rate for the provision of services before mandating a subsidized model or before assessing the subsidies required.

Some ISPs will continue to invest

23. While many ISPs have not chosen to build high speed internet service into many of the rural communities, Eastlink was able to make a business case to provide service to many rural regions due to an entrepreneurial attitude and willingness to invest, combined with circumstances that made the investment work. Our family-owned business also operates on a philosophy of strong support for rural communities, noting that in its other businesses rural development on a sustained basis is a key focus of our owners. In addition to the Atlantic region, in many of our Ontario communities we made this business case because there was already existing cable facilities in nearby communities and building between communities to connect them made sense if we were able to bring both telephone service and high speed internet to these communities, while also increasing the level and quality of TV services. For example, in most of our northern Ontario communities Eastlink has connected them with fiber and extended our fiber/coaxial network to improve services to communities like Kapuskasing, New Liskeard, **** Lake, and Moonbeam, Ontario; most recently we have made the investments to upgrade our services in communities like ****, Ontario.

24. With incremental investments over time, companies can justify the expansion. Bringing competitive services to ****, Ontario would have been a difficult business case in the years shortly after we acquired the Persona systems in 2007 but over time and after much investment to connect the other communities in the nearby area the investment was made possible – and we 10

did so without government funding or other support. It is important to note that all companies may not make such a decision, but in Eastlink’s case, with our long term focus, even though the population to serve is relatively small, we were able to justify the investment to build. In many rural areas, other smaller providers are similarly extending their networks beyond traditional boundaries. While some communities may have had a longer wait for Eastlink to bring our services to them, in the end the quality and level of service provided over our robust wireline network means sustainable and expandable services in the long run.

Models that work - models that don’t
Rural Connect Newfoundland

25. Without specifically commenting on how any model for expansion should be funded or by whom, Eastlink submits that in assessing what works and what doesn’t, it may be helpful to consider the experience that some providers have had with certain initiatives. While everyone agrees that providing increased access to service to more Canadians would be ideal, Eastlink submits that no one would want this to be a short-lived success – it does not benefit anyone if the service cannot sustain usage beyond a short number of years, leaving those Canadians dissatisfied with the process and a perceived inferior service.

26. Any model that will work cannot be one that is based on building an unsustainable, low capacity technology that cannot be easily upgraded; otherwise, we simply end up with a project built for a very finite time with a service that does not fulfill evolving consumers’ needs even before the end of the project term. While in certain cases, low cost and/or limited technologies may be the most economical to justify expansion or they may be the only model that can feasibly be deployed for a certain area – such technologies may limit the capacity available to consumers in the long term.

27. Based on Eastlink’s own experience, the models that have worked the best are those models where, through government support combined with industry initiative, a robust transport network was built to enable us to expand service to communities, and industry was able to make 11

its own investments to serve individuals within those communities once transport was available.

A perfect example of this type of initiative was in the case of Newfoundland whereby the Province of Newfoundland supported a broadband expansion project to connect various communities via building a redundant fibre route from Nova Scotia through to Newfoundland and connecting Newfoundland communities across the province. A number of companies, including Eastlink (through Persona Communications Inc.) participated in and benefitted from these initiatives. In our view, the initiative was successful because the system to be built was robust, brought the appropriate underlying fibre network near or past the communities to enable service providers who already may have had some facilities in place within each of the communities to make additional investments to upgrade those facilities. Other notable aspects of the initiative were that service providers were not subject to mandated minimum services, speeds or prices – this is where market forces were able to operate freely in combination with some of the government funding and yet the end result was that consumers in those communities were more than adequately served. Another key feature is that it did not mandate a service be provided to ‘all’ households, which in rural Newfoundland would have been difficult if not impossible. It is much easier to make the case to invest where there is at least a ‘community’ to be served - in some cases that could be as small as 50 households. However, one household segregated in a rural area that is not located nearby others presents a cost and service challenge that may not be easily overcome. The Commission, too, has recognized that all households cannot necessarily be served through the OTS for telephone, noting that where the distance exceeds a certain length from the network the investment is only required where the consumer is willing to contribute to the costs of extending the network.

28. Today, a number of service providers have brought services to Newfoundland as a result of this project, including wholesale, residential and business customers. Eastlink has been able to invest into the hundreds of smaller communities in Newfoundland that were previously only served with our basic cable infrastructure – now they have access to the best of Eastlink’s cable services, wireline telephone service and high speed internet services of up to 400Mbps in some cases. One such example is in **** Bight, Newfoundland where we serve only about 50 customers, but now those customers have state of the art services, including digital and HD TV with hundreds of channels, PVRs and internet speeds up to 200Mbps.

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29. The other interesting aspect of this build from our perspective is that Eastlink was able to undertake the investments needed even though Eastlink has no large, urban center as an anchor communications system in Newfoundland. Eastlink does not provide residential services in St.

John’s and so we do not have the larger urban customer base on which to rely for recovering a significant portion of the investment. The Newfoundland example highlights what rural operators are able to do in cases where there is a business case, recognition and contribution by the government to the value that the connectivity will provide and initiative taken by the company to provide the service.

Rural Connect (otherwise known as Rural Broadband) Nova Scotia

30. Conversely, we offer another example of a project that we feel did not result in such a success story, and serves as a good example of how mandating a minimum service rollout with defined parameters does not necessarily provide the desired outcomes. In the case of Nova Scotia, in 2007 Eastlink was a successful recipient of some funding from a provincial/federal government partnership to provide broadband to unserved homes in Nova Scotia. Eastlink received $2M of government funding to build rural broadband to unserved homes in Nova Scotia, pursuant to a project estimated to cost us approximately $11M. Considerations for this project began in about 2005, such that it is relevant to keep in mind that the views on the type of service to be built were based on experiences in 2005, and not what we now know 10 years later.

31. In the case of Nova Scotia, the entire unserved population could not really be described as “communities”, but in many cases they were individual homes dispersed throughout rural parts of the province such that the cost to build a wired network to connect the homes would have been prohibitive. Instead, the government at the time mandated the project be built via a fixed wireless canopy technology. The requirement also specified that all households be served and that the speeds be provided at up to 1.5Mbps download with a guaranteed monthly rate set at urban rates charged at the time ($46.95). This rate was not permitted to increase throughout the duration of the five year project (which term extended 5 years from the date of completion). It was only as Eastlink proceeded to build out the project, that it became clear that a number of 13

homes were in such extremely challenging geographic areas that building a fixed wireless network to certain homes would not be possible given that mountainous/hilly areas, rough terrain and tree cover would impact the signals to provide the service. While this was true in many cases, it resulted in Eastlink being forced to invest over $30M in a project that was initially slated to cost us less than half of that, all without the flexibility to increase rates to help offset the cost.

32. Once the project was completed, and consumers began to take the service, Eastlink was serving just shy of 8,000 homes. The expectation in 2007 when the project was first getting underway was to provide consumers with an experience that would provide services at speeds better than dial-up; so they could browse, do banking and use the internet with a better experience than they could receive via a dial-up service – this may include video streaming but not of the nature we see today. However, within only a few years, consumer behaviour changed rapidly such that over the past 5 years Eastlink has noted a dramatic increase in capacity used by consumers in this “Rural Connect” area. Since inception, the service was initially the subject of build delays, increased costs and trouble connecting certain homes. Over the past few years, Eastlink began to experience increased problems with the quality of the service simply due to the increased significant usage by some consumers. While the service was not built for heavy video and gaming use (today’s internet applications for such gaming and streaming requires far more capacity than rural broadband internet technology can deliver), this is in fact what some consumers began using the service for and which they have come to expect. Eastlink continues to receive complaints about the quality of this service, and many of those complaints relate to the fact that customers have trouble gaming or streaming video such as Netflix. For a company like Eastlink, who offers an exceptional, high quality network elsewhere, with internet speeds up to 400Mbps, it is extremely difficult to be in a situation where the Rural Connect service is provided over an inferior technology, and even if consumers are informed that the nature of the service was never intended for such high capacity usage, we cannot control what a customer does once they connect to the internet. They are not happy with the service and customers insist that Eastlink is offering an inferior service even if we are meeting the basic requirements.

33. When the project was completed, consumers who signed up were provided the service at the committed speeds, and in 2007 when the project commenced, those speeds were deemed 14

sufficient for the purpose. While the intent of this project was to provide unserved residents with access to basic internet service such that they had connectivity, including web browsing, e-mail, some video services etc., very soon after it launched, customers’ use of the service began to impact the ability to maintain the speed levels and commitments that were initially made. If all the customers taking the service continued to only use it for the intended basic uses, including some nominal video streaming, connected customers would continue to experience a reasonable quality of service, however, the increased use by many customers began to impact the customer experience. We are left with a service offered through technology that cannot be augmented without significant investment; and of which there is no hope of ever recovering our significant investment.

34. The Nova Scotia example highlights how a project with specific, mandated requirements, and which cannot accommodate the actual usage by consumers over time, can fall short of consumer expectations. In the case of Nova Scotia, unlike in Newfoundland, building a fiber backbone to pass the nearby homes would also be a challenging solution, since many of the unserved or underserved homes here are not nearby one another forming smaller ‘communities’ as in the case of many of the Newfoundland areas. While there are small pockets of households, the vast majority of homes are spread apart in such a way that it is the access costs and not the transport costs which create the financial burden to build.

35. The project created an expectation beyond what was mandated for consumers and when consumers were left unhappy with the service, the service provider was blamed. Consumers do not necessarily understand the extent of investment that must be made or the impact to investment when the number of customers served is nominal relative to the size of the investment. An attempt to provide upgrades to this existing infrastructure based on the kind of funding that might be available will not provide sufficient improvement to keep up with the capacity demand of those customers – a more significant investment is necessary. Eastlink has considered how we could improve the services to these customers and we have not been able to justify the investment to do so in most cases. Since the costs to provide the initial service have not been recovered, the costs for a wired network here could not be recovered. It is notable that there were 3 service providers who received funding for the Nova Scotia project, including 15

Eastlink. One provider has since gone bankrupt,7
the other provider has required significant

additional funding from the government and, as described herein, Eastlink spent more than double our own money than was initially planned without receiving additional funding from the government beyond the $2M contribution.

36. Eastlink continues to focus on these areas and where we can make some business case to do so we will make the investment. However, as noted above, this investment will be done in incremental stages as we can expand our existing network outward, just as we expanded into ****, Ontario. For instance, of the households now receiving the 1.5Mbps service, Eastlink recently invested another $2M to upgrade underserved areas of Lower **** Pubnico and Paradise, NS. This expands our robust fibre network to another 700-800 additional homes, giving rural broadband customers in these areas the opportunity to access the same high standard of internet experience that Eastlink offers across the majority of the Province.

37. Given that these areas are currently ‘underserved’, it highlights that service providers can in some cases continue to target these areas and provide improvements to service – and improvements that will last much longer and provide capacity for expanded use than in cases where a mandated objective forces a build via an inferior technology and without government funding or other subsidies.

38. While there are other areas that remain served by only the fixed wireless internet technology, those areas will not, in our view, benefit from a mandate to upgrade the service within the existing technology. The costs will be significant and the upgrade will only provide short term and minimum improvement for those customers. It is also notable that some of the consumers served in this area by Eastlink’s fixed wireless internet network may also have access to an alternative competitor who offers the service via satellite. While some consumers may have other service options available to them they may be unwilling to pay the higher price for the service. That issue is not one of lack of availability, but in some cases, consumer choice or preference.

7 Omniglobe Networks had received $1M of funding to serve 1,300 customers and filed for bankruptcy through the project (http://www.theglobeandmail.com/technology/tech-news/ns-says-province-is-close-to-broadband-for-all/article577138/ );

http://www.theglobeandmail.com/technology/tech-news/ns-says-province-is-close-to-broadband-for-all/article577138/�http://www.theglobeandmail.com/technology/tech-news/ns-says-province-is-close-to-broadband-for-all/article577138/�16

39. If Eastlink were to assess what went wrong with the Rural Connect experience, we would say that there were many contributing factors. It is arguable that the primary cause of failure was that internet usage has expanded immensely since 2007 and such uses and the impact to capacity were not really anticipated at that time. Had usage patterns not changed, consumers may have continued to benefit from a reasonable quality service as originally intended. This further highlights how difficult it will be to estimate consumers’ needs and/or expectations into the future as there could be significant and unanticipated changes to broadband use over the next five to ten years. As a result, mandating a specific speed everywhere will not necessarily ensure that speed is experienced by consumers; providing faster theoretical speeds will not achieve the desired results when consumers watch more movies, play more games, and slow the experienced speeds down again with the increased traffic. This is further illustrated by Eastlink’s continued investment in internet infrastructure on our wireline side of the business by over 50% year over year and our speeds that have increased from 5Mbps to 400Mbps in 15 years. At the same time, where there is no regulation and the market is free to respond, this very same high Internet use is what has driven broadband service providers to build into rural underserved areas to offer service at rates that reflect the increased cost of building but that is kept reasonable by competition. This is in keeping with the Policy Direction and the interest of all Canadians.

40. Eastlink understands that the issues to be reviewed in this proceeding are important and also complex. While we agree that all Canadians want access to the digital economy and likely all want to experience a similar quality of service, we are realists in knowing that, across our expansive country, geography and small populations play a role in the extent to which this can be achieved. It cannot be ignored that service providers in Canada have done a fantastic job of building out robust extensive networks and providing competition to thousands of communities – and it is very often the smaller, innovative providers who are bringing these important services to rural Canada – while the much larger communications companies continue to focus investment in the highly populated c urban centers. Where a business case exists, we can rely on the industry to provide the services without regulation. Where the business case is difficult, a combination of government funding and industry initiatives may also work. In some limited cases there may continue to be challenges but we are not yet confident that a mandated 17

broadband rollout could succeed because the underlying companies need to continue to be successful in order to serve these areas; moreover, internet usage is expanding at such a fast pace that forcing many other Canadians to subsidize build outs to unserved areas and maintain ongoing investments may not be realistic in this environment where those Canadians are already paying for their own increased communications needs (and may not be fair where the uses that expanded broadband supports are non-essential, i.e., excessive gaming and video streaming).

41. Eastlink looks forward to participating in this proceeding. Throughout the course of this process we are hopeful that the Commission will be able to strike a reasonable balance among the interests and concerns of all stakeholders. We support solutions that provide sustainable, long-term benefits for consumers while requiring the least amount of regulatory intervention, in keeping with the Policy Direction.

Regards,
**** MacDonald
VP Regulatory
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Appendix 1 – Eastlink Submission 2015-134
Canadians’ evolving needs for telecommunications services

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

Eastlink is not in a position to know which services are the most important to ensure Canadians “meaningfully participate in the digital economy”. The issue is how we define digital economy and what “meaningful participation” is. On the one hand, one could argue that meaningful participation should be limited to the services on which Canadians rely to manage necessary transactions in their daily lives - primarily for accessing information and news, processing financial transactions through banking or for health related issues, all of which one may consider to be the more essential types of services; on the other hand, some Canadians may claim that access to social networking sites and video entertainment is just as important. The former types of activities rely on lower capacity telecommunications service and the latter require significant capacity.

In Eastlink’s view, if the answer to this question determines the outcome of this proceeding, it is more appropriate to focus on the basic activities that Canadians require in order to manage their daily lives – basic access to information, banking, e-health where necessary and access to fulfill educational requirements where applicable. Video entertainment and social networking would not necessarily fall into this category, although we acknowledge the increasing value Canadians place on this access.

While Canadians will inevitably be the beneficiaries, so too will commerce, governments and other institutions that will benefit from the ease with which they can provide their services and reduce the costs associated with providing the physical environment in which such transactions are provided today. Eastlink submits that the answers to these questions may also shed light on who should ultimately be responsible for fulfilling new broadband objectives, if any that result from this proceeding. Where access to the digital economy begins to replace social and government functions that were accessed in the physical world (as opposed to the digital world) then perhaps where access to those services benefits those entities, obligations associated with ensuring such access should be borne by those entities. Eastlink reserves the right to comment further on these issues throughout the course of this proceeding.

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

Eastlink submits that the Commission’s findings in 2011 are still true today. In Telecom Regulatory Policy 2011- 291 the Commission determined that while it would not regulate or impose additional basic service requirements on broadband access, it did set the goals or objective of target broadband speeds at 5Mbps download and 1Mbps upload. In doing so, the Commission noted:

Canadians should have access to a broadband Internet access service that allows several users in one household to use the world Wide Web (alpha-numeric text, images, and small video files), voice over Internet Protocol services, and other online services (such as email and banking) over a single connection at the same time. With this type of access users will be able to actively participate in online discussions, take advantage of many government services, and carry out research, to name just a few possible applications.

The Commission also considers that a broadband internet access service should allow a single user to stream higher-quality audio and video and to participate in video conferencing at reasonable quality using online services. This capability will enable users to engage in such activities as participate in distance learning and online consultations with professionals (e-health)

To accommodate such uses, the Commission considers that the appropriate target speeds for broadband Internet access services are a minimum of 5Mbps download and 1Mbps upload.8

Eastlink maintains that the 5/1Mbps target should suffice to meet these basic needs. Mobile access to these basic functionalities, while not essential, is becoming an expectation and accessible through mobile apps and increasingly fast mobile wireless networks.

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

The answer to this question really depends on what the Commission ultimately determines are the key activities that equate to “participation in the digital economy”. If this continues to be core activities like banking online, access to information and some limited video access primarily for e-health or educational purposes then the there are limited barriers for consumers, given that these activities require low speed services and most Canadians have access to such services.

Perhaps in high cost serving areas which operate on limited technologies it can be said that the barrier to consumers participating meaningfully is that their ability to access essential services 8 Ibid, paragraphs 74-75.

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via the internet are compromised by the reality that all consumers will use the services for far more expansive purposes, thus straining the limited capacity available Accessibility in hard to reach areas could also be addressed through publicly available internet access points, libraries etc. or in some cases appropriate government initiatives to build out service. Digital literacy, to the extent it is found to be a barrier for some individuals could be accommodated through appropriate government run education programs.

In some cases the barriers that prevent some Canadians from participating in the digital economy may relate to the ongoing and exponentially increased use of internet service for activities which the existing available technology may be of limited capacity. For instance, in the case of hard to serve areas, certain technologies, such as fixed wireless internet technology, may severely limit the internet experience as new customers are added, or where usage on a per customer level expands. In some very rural or hard-to-reach areas, such technologies may have been chosen as a cost-effective solution at a time when usage was never expected to increase as it has today. If all internet users were only using the service for the core activities described above, all customers receiving service could participate at reasonable cost. But consumers will not limit use of the service to fulfill their basic needs – rather, it is becoming a replacement for traditional entertainment and social functions – with increased usage for video streaming, gaming or capacity-intensive applications, which will affect the experience of all other users served in a given area. Finally, as noted above, these needs continue to develop such that it is difficult to predict the network strain at this time.

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

High speed internet service is available broadly to most Canadians and over recent years numerous advances in technology have increased the availability and accessibility of information and services for consumers. Availability of Wifi access has been expanding such that Canadians are often able to access free Wifi in public spaces including government, commercial locations such as restaurants and coffee shops, and some municipalities and towns have Wifi based initiatives as well. As noted, connected devices also enable information sharing and ease of accessing information and other services for consumers. Mobile apps and increasingly fast mobile wireless networks also provide means by which consumers can participate in the digital economy.

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

Generally, Eastlink expects consumers will continue to rely on mobile and/or fixed broadband access. Mobile telephony is likely to replace an increasing number of wireline telephone lines and in fact, over the next 5 to 10 years, we may see many changes in mobile technologies that enable increased reliance on mobile as a replacement for additional wireline services. When one considers that companies continue to expand broadband rollouts to new areas today, including Eastlink as described herein, and given substantial changes are likely to occur on the mobile front in future, it may be more appropriate to let industry compete and build on the existing 21

government programs, before regulating and diverting money away from new networks and technology into obligation-meeting programs.

A lot of change can occur over a 5 year period that could significantly alter consumer behaviour and use of technology. As noted in response to the questions above, even if the basic functions for participating in the digital economy could be achieved through lower speed internet services, in higher cost areas, where investment in a technology to provide a level of service to fulfill these needs is offered, consumers’ use of that service cannot be controlled or limited to only what is considered essential access. Rather, consumers will continue to expand usage based on the patterns that we have seen over recent years – doubling or more each year. A consumer who expects to be able to stream TV programming, YouTube, Netflix or other online video content will continue to do so and as more consumers use the service for those purposes, it will very quickly impact the capacity of the system, necessitating a robust system with ongoing capacity upgrades.

Moreover, we cannot predict what the next new phase of technology will bring to consumers which may cause a disruptive effect on existing networks and planning. We refer to our example in our submission regarding our experience with Rural Connect, which highlights this issue.

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

Eastlink submits that a 5/1 service would enable a consumer to make the use of the service for the types of basic functions that allow them to manage finances, perform banking, engage in online commercial transactions and participate in online e-health related matters or distance educational endeavours. Again, the difficulty is that for very hard to reach areas, or where lower capacity technology is used to provision unserved Canadians with this service, it runs the real risk that once the service is built actual usage by consumers will exceed the basic use for which it was intended, causing continued customer dissatisfaction.

Moreover, the question is framed as a request as to whether the 5/1 speeds are sufficient “based on uses that consumers should reasonably expect to make of the internet”. In Eastlink’s view, there is a difference between the minimum or basic requirements to participate in the digital economy and the uses that consumers may expect to make of the internet, the latter being far more expansive and likely to increase exponentially over time. In Eastlink’s view, it would be extremely difficult, if not impossible, to build internet access to Canadians in high cost serving areas based on “uses consumers should reasonably expect to make” – because use is constantly expanding and the types of use play a significant role in increasing capacity constraints, at least in Eastlink’s experience. We refer again to our example of the Rural Connect service in Nova Scotia. In many of the unserved and underserved communities it is not feasible to build a service that will fulfill the expected uses by consumers in those areas, either now or over the course of the next 5 or 10 years. Even if the Commission determines that a minimum capacity to fulfil 22

basic needs should be the target, we cannot control what a consumer will do when they turn their internet connection on.

As to timelines, please refer to Eastlink’s response to Question 6.

The Commission’s role regarding access to basic telecommunications services 3. Which services should be considered by the Commission as basic telecommunications services necessary for Canadians to be able to meaningfully participate in the digital economy? Explain why.

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

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

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

(a-c) Basic telecom services necessary for Canadians to meaningfully participate in the digital economy are not likely that different from those the Commission determined in 2011, noting also the objective of a 5/1Mbps service. Eastlink does not necessarily believe that the technology should be a factor in defining whether the service is basic – rather, it should be whether the service is available to the consumer and meets the basic telecommunications requirement.

However, we acknowledge that services provided over certain technologies will have inherent capacity limitations and if the objective is long term sustainable service for those areas, then technology becomes a relevant factor toward ensuring this objective is met.

Given the impact that internet usage has on costs to maintain the service and given that most areas that are underserved or unserved are challenging and costly areas to serve, a regulated requirement to serve these areas may not be an appropriate solution. In any regime that mandates the provision of the service it is important to recognize the need for reasonable cost recovery and markup. The companies providing the service are in the business to profit and imposing non-profitable obligations could significantly impair the business case and eventually cause a provider to leave the market. We note for instance comments made by Northwestel in its Application to Review and **** TD 2015-78 dated 3 **** 2015 the following statement, which is on point:

The measures in Decision 2015-78 may not actually bring affordable internet to Northern Canadians, since the funding to upgrade the terrestrial DSL Internet network is at risk. It is one thing to worry that the rates are too high, and therefore undermine the ability of Canadians to participate in the digital economy, but before one worries about the rates, 23

one must first have to make sure the services are available. Decision 2015-78 does not meet that policy objective test because it undermines the incentive to invest.9While the existing regime for rate setting for wireline phone services remains valid today to ensure that for standalone telephone service customers are entitled to the service at a capped rate, usage of basic voice service does not materially impact the network or cost of the network.

However, consumer use of broadband capacity is constantly evolving, making costs to provide, upgrade and maintain such service in higher cost serving areas a greater challenge.

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

Given the size of this country, the extent of availability of internet service to so many Canadians is already quite incredible. Many very rural communities are already able to receive extremely fast internet speeds and consumers in many rural areas receive speeds comparable to those offered in the largest urban centers. Many rural areas also have basic access as well –as a result of either market forces or targeted initiatives by government combined with private investment.

We believe that such initiatives can continue to work, if properly established. We refer to our submission which describes Eastlink’s own success in building service to rural households, either as a result of our own investment or through partnerships with government.

Service to “all” Canadians may be a very difficult challenge to meet. “All” Canadians may not have access to electrical power, running water or other basic services and while the goal is laudable, and although many providers may continue to expand services, it is important that expectations also be realistic. In fact, even in the case of the OTS for telephone service, the Commission has recognized that beyond a certain border of the network a carrier is not required to provide the service without a contribution from the consumer seeking access. Eastlink submits that the Commission must recognize the challenge if the goal is to provide service to “all” Canadians.

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

While Eastlink reserves the right to comment further on the Commission’s role at a later stage in this proceeding, Eastlink submits that the Commission’s current role for existing obligations remains appropriate, while government funded initiatives combined with market forces and private investment should be a primary means by which to continue to expand services – particularly as new services replace access to government services or in cases where there is simply no case for commercial enterprise to build.

9 Paragraph 26.
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6. In Telecom Regulatory Policy 2011-291, the Commission stated that it would closely monitor developments in the industry regarding the achievement of its broadband Internet target speeds to determine whether regulatory intervention may be needed. What action, if any, should the Commission take in cases where its target speeds will not be achieved by the end of 2015?

While the Commission may have indicated an expectation that internet target speeds of 5/1 Mbps would be achieved by end of 2015, it may not be feasible for certain ISPs to provide such speeds at this time to certain households - the significant investment required to provide such speeds may not be justified given geographic conditions and low population levels in certain areas.

Moreover, even if a company were mandated to provide the speeds and could find a solution to build a service at the target speeds, in many of these areas consumers’ use of the service could very quickly surpass the capacity available making ongoing management of the network and assurance of quality of service or maintenance of the target speeds very difficult, costly and unsupportable.

We refer to Eastlink’s own experience with a project that was initiated to provide consumers with a target speed of up to 1.5Mbps in unserved areas in Nova Scotia and as described at paragraphs 30-40 of our submission as an example of mandating a service at specified speeds and prices, and via a lower capacity technology which simply did not result in desired outcomes.

The cost to upgrade this service cannot be recovered and many consumers are now left with an unsatisfactory service for their desired use.

In this regard, Eastlink submits that mandating that industry build such services where there is no business case or where there is insufficient funding but that only provides a short term gap-fill is not the right solution. A solution that builds expectations for consumers only to find out that the service cannot keep up capacity in a feasible way will not succeed. This is not good for consumers, industry or governments. As such, if the Commission is not satisfied with industry’s achievement of the targets, Eastlink submits that a targeted approach to incrementally build a robust transport network on which providers can justify the incremental investment to serve households may be a more appropriate regime (although we remain open to other suggestions put forward during this process). We suggest that it be targeted and incremental because the costs to provide all Canadians with access over a shorter timeframe may be prohibitive if the network is to be robust and satisfy future growth.

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

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Eastlink agrees that no funded mechanism should entirely replace private sector investments and government funded projects. In this regard, if there is to be any mechanism is should be limited to complimenting other forms of investment. We do not believe that an industry funded solution (through a contribution regime or otherwise) should replace funding that could reasonably come from revenues for selling a higher quality service - as noted in our submission, the Commission should first reconsider its own policies for assessing service provider costing information and price caps. In the case of Northwestel, the Commission denied Northwestel the right to charge a higher monthly fee on the basis that consumers in the far north should be entitled to internet service at rates comparable to those in southern Canada. Please refer to our response to Question 3 regarding the Northwestel Decision.

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

We refer to our submission that even in cases of underserved areas today, over time some of these areas can justify expansion through government funding or private investment. Eastlink has recently expanded service to another 700-800 homes in a currently underserved area of Nova Scotia with our own investment. We would have serious concerns if a mandatory regime granted funding or subsidies to our much larger competitors after we have been making our own significant investments into many of these rural areas. A mechanism as proposed for Northwestel’s territory will mean that all Canadians, through industry subsidies, will be subsidizing these communities – such a model, if expanded to other regions would mean increased costs for all Canadians.

The nature of the expansion is also relevant – mandating a build out that would have short term benefits and result in consumer dissatisfaction is not the right course of action; rather than target all such areas over a shorter timeframe with an unsustainable, low capacity service, perhaps targeting fewer areas for incremental build outs of a higher quality service would be preferable.

Regulatory measures for basic telecommunications services

8. What changes, if any, should be made to the obligation to serve and the basic service objective?

Eastlink sees no reason to make material changes to the existing OTS and BSO, other than to remove the requirement to provide a printed phone book.

We reserve the right to comment further at a later phase of this proceeding.

9. Should broadband Internet service be defined as a basic telecommunications service?

What other services, if any, should be defined as basic telecommunications services?

Please see response to #8.
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10. What changes, if any, should be made to the existing local service subsidy regime?

What resulting changes, if any, would be required to the existing regulatory frameworks (e.g. price cap regimes)?

We reserve the right to comment at a later stage of this proceeding.

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

Eastlink reserves the right to comment at a later phase of this proceeding. Generally Eastlink supports principles of competitive fairness in such determinations and a determination about who should contribute would more appropriately be made as this proceeding progresses and there is more clarity on the extent of changes to the BSO and the outcome of whether broadband is included. It may be that a broader base of revenues and TSPs should be included in the event of such changes.

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

No, as per Eastlink’s submission and our answers to the questions above, Eastlink has concerns about a subsidized regime for new services that form the BSO. If subsidies do form part of a new BSO regime, they should only be established to the very limited extent necessary. This may involve a reconsideration of existing policies on costing in HCSAs and permitting service providers more flexibility in charges for services. Expanding subsidies only means more Canadians will be paying more for their communications services. We also refer to our response to #11, which reserves the right to comment further as the proceeding progresses.

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

b) In which regions of Canada should funding be provided?

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

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

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

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

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

h) Should this mechanism replace the existing residential local wireline service subsidy? If so, explain how the existing subsidy should be eliminated, including details on any transition period. In addition, explain whether the small ILECs and/or Northwestel should be subject to any special considerations or modifications for this transition period 13 (a) – (h) Eastlink reserves the right to address these issues at a later phase in this proceeding.

There are many complex issues to be considered and addressing the issue requires further consideration as this proceeding progresses. Moreover, our initial views are that any funding regime should be carefully considered and be minimally intrusive, government should participate and industry participants should be generally treated equitably. Eastlink maintains that appropriate government/private industry partnerships may also provide an opportunity for solutions which may be preferable to a one-size fits all model.

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