Intervention: Xplornet Communications Inc.

Document Name: 2015-134.224014.2395403.Intervention(1fc@z01!).html

Copie envoyée au demandeur et à tout autre intimé si applicable / Copy sent to applicant and to any respondent if applicable: Non/No

Intervention: Xplornet (Intervenor 292)

Document Name: 2015-134.224014.2395403.Intervention(1fc@z01!).html

Copie envoyée au demandeur et à tout autre intimé si applicable / Copy sent to applicant and to any respondent if applicable: Non/No

Intervention: Xplornet Communications Inc.

Document Name: 2015-134.224014.2395401.Intervention(1fc@x01!).pdf
Before the Canadian Radio-television and
Telecommunications Commission
Telecom Notice of Consultation CRTC 2015-134
Review of Basic Telecommunications Services
Intervention by

____________________________________________________ Xplornet Communications Inc.

____________________________________________________ Filed: July 14, 2015 - 2 -

Executive Summary

1. This intervention is filed by Xplornet Communications Inc. (“Xplornet”) in accordance with the directions on procedure set forth in Telecom Notice of Consultation CRTC 2015-134, Review of Basic Telecommunications Services, **** 9, 2015.

2. These comments address Phase I of the Commission’s public process which is to review the Commission’s policies regarding basic telecommunications services in Canada and gather information from the industry to better understand which telecommunications services are being offered across Canada and whether any areas of Canada are underserved or unserved.

3. The Commission has asked parties to address a number of questions regarding the obligation to serve and whether that obligation should be extended to broadband Internet access. Interveners have been asked to address the availability of high-speed Internet services in Canada and whether a new subsidy is required to ensure delivery of these services to Canadians at reasonable prices.

4. Xplornet is in the business of providing broadband Internet access services to Canadians in all regions of Canada using a combination of fixed wireless and satellite facilities. The focus of this business is low population density areas of Canada, typically referred to as rural and remote areas. Xplornet generally leaves the well-served higher population density areas (typically urban areas) of Canada for other carriers to serve with wireline, fixed wireless or mobile wireless networks. However, one does not have to go very far outside the core of urban centres to find lower population density areas where these carriers fail to provide broadband access. For this reason, Xplornet also uses its facilities to serve areas within the boundaries of cities like Ottawa that include large rural areas, notwithstanding the proximity of these areas to urban centres.

5. Since 2004, Xplornet has invested in successive fixed wireless and satellite technologies to bring Internet services to lower population density areas in Canada. Through private investment, Xplornet has deployed fixed wireless services in every province of Canada and has a constellation of satellites that can provide coverage to any household in Canada. This investment has made Xplornet one of the ten largest Internet service providers in Canada.

6. Today, Xplornet has two high-throughput 4G broadband satellites that have beams covering 96% of the Canadian population. The parts of Canada not yet served by high-throughput 4G satellites are served by the Anik F2 satellite which is currently being upgraded by Xplornet to 4G technology. Once completed in the next few months, facilities will be able to reach any Canadian with a broadband Internet service that has speeds of 5 Mbps download and 1 Mbps upload. The CRTC’s ambitious goal of achieving this target, set in in 2011, will have been achieved.

7. The result is that any Canadian, regardless of where he or she lives, will have access to Internet services with speeds of 5 Mbps down and 1 Mbps up by the end 2015. This is a tremendous achievement and a validation of the approach taken by the Commission in 2011 to refrain from regulation of the Internet.

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8. Achieving this milestone is rewarding but Xplornet’s greater goal is to continue to improve the Internet services available to its customers in rural and remote areas of Canada. To this end, Xplornet has purchased 100% of the Canadian capacity for Internet services on two additional high-throughput satellites, EchoStar XIX and ViaSat-2, scheduled for launch in 2016. These satellites will provide coverage for most of Canada, including Nunavut and the Northwest Territories. These new satellites will be capable of delivering speeds to customers of 25 Mbps. Xplornet is also upgrading its terrestrial fixed wireless network to 4G LTE, which is capable of speeds in excess of 25 Mbps. These speeds will be the actual speed received by customers.

9. Further, Xplornet has publicly announced its commitment to make available by Canada’s 150th anniversary in 2017, a network with a footprint covering 100% of the Canadian residences and businesses in low density areas with speeds of 25 Mbps down. A Canadian, regardless of the province or territory in which they live, will have access to a 25 Mbps Internet service. Beyond that, Xplornet believes Canada should aspire to the goal of providing all Canadians with access to broadband Internet speeds of 100 Mbps by 2020.

10. Xplornet is by no means alone in providing broadband Internet access services to Canadians who live outside the reach of cable and telephone wireline networks. There are some 500 Internet service providers (ISPs) in Canada, largely serving this market segment.

Xplornet faces competition wherever it provides service, whether that be in the northern territories of Canada or in the areas surrounding larger urban centres. Wireless mobile services that have networks covering 99% of Canadians also compete in this market and offer Canadians ever-increasing data speeds.

11. Wireless technology has advanced significantly since 2011 and LTE networks are capable of speeds rivalling those typically provided in wired networks. The size and number of wireless networks, including both mobile and fixed wireless networks, have grown and expanded coverage. Prices have converged to the point where the cost of a broadband Internet package in certain cities is now equivalent to the price of a package with similar speeds and data allowance provided using wireless technology in rural areas. Given consumers are increasing indifferent between the technologies, as evidenced by the number of Canadians opting for only wireless telephone service, there is no reason for the Commission to differentiate between the services provided through wired or wireless networks.

12. Similarly, the price of satellite services has also dropped in the past few years since the Commission conducted its last review of basic services. Moreover, this price is the same for all users of the satellite regardless of where they live - eliminating the concept of high-cost service areas. The reader might be surprised to learn that Xplornet has more satellite customers in the protected greenbelt around Toronto than it has in any other region of Canada. This anomaly is the result of a spectrum licensing policy that has made it too expensive to purchase spectrum to provide fixed wireless service to these areas lying just outside the coverage of cable and telephone companies’ wireline networks. Customers on the same satellite in the northern territories pay the same for their broadband satellite service as customers in the greater Toronto area.

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13. The Commission should not shy away from relying on satellite services where other networks do not provide service. There are many areas of Canada where it might not be feasible to build other forms of networks and install backhaul facilities. The new high-throughput satellites provide a much higher grade of service than the older generation of satellites and are the technology of choice in the United States, Australia, and Europe to serve rural and remote areas.

14. Nothing is static in this market. ISPs continue to push out their coverage and increase the speed of their services. Competition is such that no one can sit back and rely on an old network. For its part, Xplornet is involved in continuous investment and technology upgrades. This is the nature of the competitive market.

15. Against this background, Xplornet submits that regulation is not required to encourage extension of service to rural and remote areas of Canada. All areas of the country already have access to broadband Internet service and, within a few months later this year, all Canadians will have access to broadband service that meets the Commission’s target speeds of 5 Mbps download and 1 Mbps upload. Moreover, the concept of high-cost and low-cost areas has disappeared. In a market where fixed wireless, satellite and mobile wireless networks compete, there are not the same type of high and low cost issues that there used to be in the fixed wireless telephone market. There is really a single market using a number of technologies to provide the same product to Canadians using similar pricing.

16. While broadband access is clearly a basic service insofar as it is necessary to participate in the digital economy and take advantage of the myriad of services that are available through it, that alone does give rise to a need for regulation.

17. A bigger problem for Canada is the fact that approximately 14% of Canadian households do not have a computer. Subsidizing broadband access is not only unnecessary to extend service, but would do nothing to address the fact that such a large group of Canadians do not have the capability to use the service. The resolution of this issue depends on education, digital literacy and anti-poverty measures - not on broadband policy. Moreover, this issue presents itself in all regions of Canada and has nothing to do with high or low cost areas.

18. In Xplornet’s view, the life of the basic service regime and the obligation to serve is past due. It made sense in a monopoly telephone environment, when it cost more to deploy phone service in what became known as high-cost service areas. It was the quid pro quo for the grant of the monopoly to make the telcos serve areas that were more expensive to serve. It makes no sense in a market that has been competitive from the get go, and has succeeded in serving all of Canada in just a few years at competitive prices. Xplornet did not need a regulatory obligation to serve all of Canada. It made business sense to do so.

19. To subsidize other carriers to do the same thing makes no sense to Xplornet and would obviously damage the competitive market and harm businesses that have already made such investments.

20. Not only should the obligation to serve not be extended to broadband Internet services, it should be terminated with respect to wireline telephone service in so-called high-cost - 5 -

service areas. The beauty of broadband access is that it can be used to provide any telecommunications service, including IP-based telephone services (such as VoIP). The fact that broadband Internet service is now available to all Canadians means that all Canadians can use it as an alternative to their local telephone service. Access to wireline service is no longer necessary. Xplornet notes in this regard that 20% of Canadians have already abandoned their wireline service in favour of wireless service only. Given these choices are now available, the ILECs can be relieved of their obligation to provide what is really a last century technology, and the contribution fund’s underwriting of this service can be discontinued.

21. With 100% access to broadband service now a reality, the convergence that has been talked about for so long is now here. We can now begin to dismantle some of the old regulatory mechanisms that were used to support a world where different networks were required to support different services. With everything now going IP-based, and capable of being carried on a single network, the world has changed and the old technology no longer needs to be supported. Xplornet is of the view that it could be phased out over a one year transition period.

22. If the Commission disagrees with Xplornet and decides to keep the existing subsidy for local service in high-cost service areas, the current mechanism should be reformed. The ILECs should be relieved of their obligation to serve and the contribution should be made portable again, as it formerly was. It should go to the customer’s carrier of choice, regardless of whether that carrier provides wireline telephony, wireless mobile service or a broadband connection for VoIP service. This would be the least intrusive way of preserving the subsidy without picking winners or losers in the marketplace.

23. However, under no circumstances should the subsidy be extended to support the extension of broadband Internet access in the currently competitive environment.

24. Xplornet believes that these proposed reforms are fully consistent with the requirements of the Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, which require regulatory measures to be technologically and competitively neutral.

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INTRODUCTION

25. This intervention is filed by Xplornet Communications Inc. (“Xplornet”) in accordance with the directions on procedure set forth in Telecom Notice of Consultation CRTC 2015-134, Review of Basic Telecommunications Services, **** 9, 2015.

26. Xplornet asks to appear at the public hearing scheduled to convene on **** 11, 2016.

Xplornet believes that its appearance is necessary to answer questions about broadband coverage in Canada and the capability of its fixed wireless and satellite network to reach all Canadians at reasonable prices. Xplornet further believes that it needs to attend in order to ensure that the record with respect to the capabilities of broadband fixed wireless and satellite technologies are fully understood by the Commission. Moreover, this hearing is very important to Xplornet since any subsidy scheme or regulation of the Internet that might be considered would have a direct impact on its business.

27. As a matter of principle, Xplornet submits that all Internet Service Providers (ISPs), including all ten of the largest ISPs, should have standing at this hearing which seeks to address issues relating to Internet services. It is respectfully submitted that making all ILECs – incumbent local exchange carriers of telephone services – parties to the hearing and requiring other ISPs to prove why they should be permitted to attend a hearing regarding the very services they provide to Canadians, indicates a potential misunderstanding about the operation of the Internet service marketplace in Canada. It is the 500 ISPs in the Canadian market that provide many of the Internet services to areas outside the larger urban areas using fixed wireless and satellite services, and it is important to have these parties at the table to discuss the issues identified in the Notice of Consultation.

28. These comments address Phase I of the Commission’s public process which is to review the Commission’s policies regarding basic telecommunications services in Canada and gather information from the industry to better understand which telecommunications services are being offered across Canada and whether any areas of Canada are underserved or unserved.

29. As the Commission is aware, Xplornet is in the business of providing broadband Internet access to the public using a combination of fixed wireless and satellite facilities. The focus of this business is low population density areas of Canada, typically referred to as rural and remote areas. Xplornet generally leaves the well-served higher population density areas (typically urban areas) of Canada for other carriers to serve with wireline, fixed wireless or mobile wireless networks. However, one does not have to go very far outside the core of the urban centres to find lower population density areas where these carriers fail to provide broadband access. For this reason, Xplornet also uses its facilities to serve areas within the boundaries of cities like Ottawa that include large rural areas.

30. Since 2004, Xplornet has invested in successive fixed wireless and satellite technologies to bring Internet services to lower population density areas in Canada. Through private investment, Xplornet has deployed fixed wireless services in every province and has a - 7 -

constellation of satellites that can provide coverage in any area of Canada. This investment has made Xplornet one of the ten largest Internet service providers in Canada.1 31. Today, Xplornet has two high-throughput 4G broadband satellites that have beams covering 96% of the Canadian population. The parts of Canada not yet served by high-throughput 4G satellites are served by the two other 3G satellites, including the Anik F2 satellite which is currently being upgraded by Xplornet to 4G technology. Once completed in the next few months, facilities will be on the doorstep of every Canadian that can provide Internet connectivity with speeds of 5 Mbps download and 1 Mbps upload. The CRTC’s ambitious goal in 2011 will have been achieved.

32. Achieving that milestone is rewarding but the greater goal is continuing to improve the Internet services to Canadians. Xplornet has purchased 100% of the Canadian capacity for residential Internet services on two more high-throughput satellites, EchoStar XIX and ViaSat-2, scheduled for launch in 2016, which will include coverage for most of Canada, including Nunavut and the Northwest Territories. These new satellites will be capable of delivering download speeds to customers of 25 Mbps. Xplornet is also upgrading its entire terrestrial fixed wireless network to 4G LTE, which is capable of speeds in excess of 25 Mbps. These speeds are actual speeds being received by customers.

33. The result is that any Canadian, regardless of where he or she lives, will have access to Internet services with speeds of 5 Mbps down and 1 Mbps up by the end 2015, if he or she chooses to have broadband Internet services.

34. Further, Xplornet has publicly announced its commitment to make available by Canada’s 150th anniversary in 2017, a network with a footprint covering 100% of the Canadian residences and businesses in low density areas that can provide Internet access service with speeds of 25 Mbps down. A Canadian, regardless of the province or territory in which they live, will have access to a 25 Mbps Internet service.

35. Xplornet’s announcement regarding 25 Mbps service to all Canadians, regardless of where they live in this vast country, is not speculation. It is an achievable reality that is well underway. However, with advances in technology and ever-evolving customer needs, Xplornet believes Canada should aspire to more. At the Canadian Telecom Summit in **** 2015, Xplornet encouraged ISPs to work towards the goal of all Canadians having access to speeds of 100 Mbps by 2020.

36. Xplornet provides its services in competition with other wireless and wireline carriers.

There is nowhere in Canada where there is only one ISP. Even in remote areas, multiple carriers can reach subscribers using satellites. This is not surprising since the CRTC Communications Monitoring Report indicates there are over 500 ISPs providing service in Canada.2 The Canadian market for Internet services is robust and competitive.

1 This includes the ILECs and cable companies.
2 CRTC Communications Monitoring Report, 2014, Section 5.3.
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POLICY CONSIDERATIONS

37. The Canadian telecommunications policy enshrined in section 7 of the Telecommunications Act is to guide the policies applicable to Internet access.

Undoubtedly, this service is one that (a) “…serves to enrich and strengthen the social and economic fabric of Canada and its regions.” It also serves (h) “…to respond to the economic and social requirements of users of telecommunications services”, and it is very much part of the policy objective of rendering (b) “reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada.” Xplornet is committed to all of these objectives, as evidenced by its business plan and its mission of providing Internet services to Canadians wherever they live, work or play in Canada. This does not, however, mean that regulation is necessary to achieve these objectives. Indeed, paragraph (c) states as an objective “…to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications” and (f) requires the policy to “…foster increased reliance on market forces for the provision of telecommunication services and to ensure that regulation, where required, is efficient and effective”. Xplornet does not see these as conflicting objectives.

38. The Policy Direction to the CRTC provides guidance to the Commission on how to balance the objectives set forth in section 7 of the Telecommunications Act. The Direction is clear that the Commission is to “…rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives.”

39. The Policy Direction goes on to state that “(ii) when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.” Moreover, the Direction requires that regulatory measures of an economic nature “…neither deter economically efficient competitive entry into the market nor promote economically inefficient entry” and that measures of a non-economic nature “…to the greatest extent possible are implemented in a symmetrical and competitively neutral manner.” Finally, regimes related to access to networks, are “to ensure the technological and competitive neutrality of those arrangements or regimes” and are “not to artificially favour either Canadian carriers or resellers.”

40. For these reasons, regulators have to be careful about how they intervene in respect of Internet services. Subsidizing one carrier in a competitive market can distort investment decisions and may result in weakening the competitive market. Initiation of a subsidy scheme in the face of rapid technological development may result in the curtailment of private investment in those areas. This in turn may result in some customers being served much later than they might otherwise be in a competitive market. This was certainly the case in connection with the Commission’s Deferral Account regime (Telecom Decision CRTC 2006-9 and others that followed) pursuant to which only the ILECs were eligible to receive funds. In some areas, the pending subsidy announced for the ILECs was sufficient to dissuade other carriers from building out their networks and reduced the appetite of investors to fund the development of competitive networks. In other cases, the designated areas never received the subsidized service they were promised due to delays in the ILEC’s construction programs once the subsidies were approved. Where development did occur, - 9 -

the time-lags in that deployment resulted in subsidies being paid in areas that were by then already served by other carriers.

41. Industry Canada tried to avoid these problems with its Broadband Canada Program and other subsequent programs. Prior to deciding on where funding was necessary to extend service, Industry Canada undertook a painstaking mapping exercise in which it mapped out all of the existing services and then targeted its subsidies to only those areas which were underserved. It also engaged in a competitive bidding process for public funding in which carriers bid on the subsidies. This resulted in a much more equitable distribution of public funds and avoided the layering of public subsidies on top of private investment from other carriers, as was the case with the Deferral Account program. However, such programs ignore long term expansion plans and do not take into consideration technologies under development. It is acutely true of satellite programs that require at least three years of lead time. For example, the original Broadband Canada Program ignored a satellite that was under construction at the time of the announcement of the awards and was launched six months after the program deadlines.

42. Last year, Industry Canada again mapped the provision of Internet services in Canada and announced as part of the Economic Action Plan for Canada, a commitment of $305 million to fund a second round of the Broadband Canada program designed to connect an additional 280,000 rural, remote and northern households to high-speed Internet at minimum speeds of 5 Mbps. On May 20, 2015, the Minister announced that the target had been exceeded by 75,000 households. Most of these projects are to be completed by 2017.

According to the Minister, this will result in 98% of Canadian households being able to subscribe to high-speed Internet services.3 Xplornet notes that this equals the percent availability of wireline telephone service at its peak. More importantly, Xplornet believes that the real number is 100% availability of 5 Mbps Internet services as a result of the services that it offers.

43. The targeted subsidy programs of Broadband Canada and other similar provincial and municipal funding programs have completed the job of extending the reach of broadband services to all Canadians and augmented available capacity. When the work is completed on the latest Broadband Canada program deployments and the Anik F2 satellite upgrade is complete in a few months, it is does not appear any areas of Canada would lack access to Internet services meeting the CRTC’s target speeds.

MISCONCEPTIONS CAN LEAD TO POOR POLICY DECISIONS

44. There is a misconception in Canada that it is rural and remote areas of the country that are not adequately served by Internet services that meet the Commission’s target speeds. In fact, rural and remote areas are covered either by fixed wireless or broadband satellite, and frequently both. It is Xplornet’s experience that many of the people who do not have access to adequate broadband services are located in low population density regions immediately surrounding large urban areas. People located in lower density rural or remote areas tend to be provided Internet services through lightly loaded network facilities and, as a result, 3 “High-Speed Internet Coming to Rural Canada”, Government of Canada, press release May 20, 2015, see:

http://news.gc.ca/web/article-en.do?nid=976709.
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have a good experience. Conversely, people immediately outside large urban areas may not have access to cable-based Internet services or telco high-speed services, and end up using Xplornet’s broadband satellite service. Their use of the satellite is so prevalent that they are consuming beam capacity in the region, which can produce congestion and slower than anticipated speeds. Consumers in these areas, based on the population density, should be served by fixed wireless networks. However, because the spectrum in these areas is typically bundled with the urban city spectrum, it is unavailable for fixed wireless Internet networks. As a result, there is a very surprising number of people dependent on satellite in areas just outside major urban areas.

45. As an example, Map 1 below shows the location of satellite customers within the Toronto Tier 4 spectrum licence area. The customers are sprinkled around the protected greenbelt of Toronto on the **** Escarpment and the Oak Ridges Moraine. These areas do not permit development to occur in densities that would warrant wired networks. There is a lack of access to fixed wireless spectrum that prevents development of fixed wireless networks. This leaves a concentration of people, who can literally see the city lights, with satellite Internet service as their only option. While they would be better served by fixed wireless networks, they fall within the Toronto spectrum licence, which is the most expensive spectrum in Canada and not available for fixed wireless Internet use.

MAP 1
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46. This has led the Toronto tier 4 licensed area to become Xplornet’s single largest concentration of satellite customers. This has nothing to do with subsidizing service to rural and remote areas. It has everything to do with the licensing of fixed wireless spectrum in Canada and the geographic composition of the large urban spectrum licence tiers.

47. Misconceptions that providing Internet service in distant rural and remote areas is more difficult and more expensive than near-urban areas may lead the Commission to incorrectly assume that subsidies can resolve concerns about Internet service, when in fact the underlying causes and resulting issues may not be something within the Commission’s control.

48. In paragraph 4 of the Notice, the CRTC states “in many rural and remote areas, access to these services or to more than one TSP may be limited, which may impact the ability of consumers living in these areas to participate in the digital economy.” It is Xplornet’s experience that there is competition to provide Internet services in rural and remote areas but that the choices may be much more limited in a few near-urban areas.

49. The Commission should heed the Policy Direction and not subsidize where competitive market forces are providing a satisfactory level of service. Without understanding the specific issues that have nothing to do with the remoteness of the area or the cost of service, the Commission should not attempt any subsidy scheme.

50. Misconceptions about technologies can also lead to inappropriate decisions. The CRTC must maintain its technological neutrality and not pre-empt the competitive market.

Favouring certain technologies over others can lead to inefficient and expensive results that are not in the best interests of Canadians.

51. This was realized by the Australian Government. In 2009, Australia announced a $43 billion plan to create a publicly owned company to build a national high speed broadband network. The initial plan was to provide service to 90% of Australians through fibre networks and to the remaining 10% through fixed wireless networks. In 2013, the Government of Australia concluded that it was not practical to reach the last 7% of Australians through fixed wireless networks. At that time, they announced two direct to home satellites would be launched in 2015 to provide Internet in rural and remote parts of the country. The packages will have speeds up to 25 Mbps for downloadg and 5 Mbps for uploading. The decision to implement a direct to home high-throughput satellite service confirms what participants in the competitive markets in United States, Europe and Canada already knew – that satellite technology is the more efficient and higher quality solution for reaching remote customers.

52. Similar misconceptions exist about wireless technology compared to wirelines. Wireless technology has advanced significantly since 2011 and LTE networks are capable of speeds rivalling those typically provided in wired networks. The size and number of wireless networks, including both mobile and fixed wireless networks, have grown and expanded coverage. Prices have converged to the point where the cost of a broadband Internet package in certain cities is now equivalent to the price of a package with similar speeds and data allowance provided using wireless technology in rural areas. Given consumers are increasing indifferent between the technologies, as evidenced by their preference for - 12 -

wireless routers in their homes instead of Ethernet cables and by the number of Canadians opting for only wireless telephone service, there is no reason for the Commission to differentiate between the services provided through wired or wireless networks.

53. Xplornet respectfully submits that the Commission should remain technology neutral and avoid trying to over-engineer the “right” technology solution. Generally speaking, the competitive market is the best selector of technology and will drive innovation to find solutions.

54. There is also a frequent misconception amongst government agencies and departments that 100% availability should also mean sufficient capacity for 100% of Canadians.

Xplornet continues to increase its capacity to handle the demand for its services and fully expects other ISPs will do the same. However, there are areas where the network capacity of Xplornet and other ISPs exceeds the demand, and yet less than 100% of the Canadians in those areas are online. It is of paramount importance that the Commission not confuse availability of Internet service with adoption of Internet service. Service is available to 100% of Canadians but only 84% have chosen to use the Internet. In designing policies and regulations, the Commission should be cognisant that the real issue is not the availability of networks or technology, but rather the issue of adoption, which is tied to awareness, education and economic factors.

55. Internet access is not the only element required to participate in a meaningful way in the digital economy. Other equipment, such as a PC or other digital device is required, as is a certain level of digital literacy. While children and younger people have grown up with computers and the Internet and have generally received instruction with respect to their use at school or home, there are many older people and people who are socially and economically disadvantaged that are not digitally literate to a sufficient degree to participate in a meaningful way in the digital economy. These people are being left further behind, or in some cases, have no interest in participating in the digital economy. While Governments have talked at length about the need for more digital literacy, there has been little concerted effort to extend digital learning to those who need it most. Given approximately 14.4% of Canadian households do not have a computer,4 it is unlikely that requiring Internet access be available to 100% of Canadian households will close the adoption gap in a material way. Subsidizing Internet access will not address the lack of computers that are necessary for 100% participation in the digital economy.

4 Statistics Canada, Survey of Household Spending, Dwelling Characteristics and Household Equipment Table 203-0027 – year 2013

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ALTERNATIVE FRAMEWORK

56. The remainder of this intervention responds to the specific questions posed by the Commission in its Notice of Public Consultation.

57. However, before responding to the Commission’s questions, Xplornet would like to briefly present a view of how the marketplace for telecommunications services looks to a participant that, with just 10 years experience, is a relative new-comer not burdened by the historical way of thinking about the telecommunications business.

58. From Xplornet’s perspective, there is only one marketplace and really only one product or service. As a result of advances in technology, all telecommunications today is essentially reduced to bits and bytes. It moves across Internet Protocol (IP) networks. Each network may be configured slightly differently to achieve different results, but at the heart, all IP-networks are moving 1s and 0s from point A to point B. Traffic may be separated into “voice”, “video” and “data” components but it is all still electronic traffic and still moves through IP networks.

59. How the traffic moves varies widely - but that is the great thing about technology. It gives you choices for how to best move the traffic to meet the needs of the consumer.

60. If you start with the premise it is all IP traffic, you quickly realize there are a myriad of substitute ways of delivering that IP traffic that include legacy telephone lines but also many other alternatives. For a customer, what is the difference between a call on a traditional telephone plugged into a jack served by a twisted pair telephone line, a smart phone connected to a mobile wireless network and a cordless phone plugged into an ATA connected to an IP-based network delivered through wired, wireless or satellite technology? They are functionally the same. The CRTC itself acknowledged the trend in paragraph 8 of Telecom Notice of Consultation CRTC 2015-134 when it noted that 20.4% of Canadian households rely only on mobile wireless services. A similar observation can be made about cable television and the substitutes that exist through IP-based networks, such as Netflix and YouTube.

61. This leads back to the purpose of this hearing. It is to discuss the basic service obligation for traditional telephone lines and whether to layer on an additional obligation to provide broadband Internet access. In principle, the original concept was that it was inefficient to have multiple telephone lines running to the same house. It was better to grant one provider, known as the Incumbent Local Exchange **** (ILEC), a monopoly to provide service in an area. Since that ILEC would have no competition, it was necessary to regulate the price that could be charged, thereby insuring customers paid a fair price and the ILEC achieved a reasonable return on its operations. The trade-off for receiving the monopoly rights in an area was the obligation to provide service. The ILEC basically had to serve anyone who wanted service within a certain proximity of its network. Sometimes that was expensive and there needed to be compensation for that extra expense of reaching the most distant of customers.

62. It was a practical idea in the early part of the last century. However, today there is no monopoly. In urban areas, there are typically at least two wires going to a home that can - 14 -

provide IP-based telephone service (ILEC and cable companies) and mobile wireless networks on top of that. In rural areas, there are multiple fixed wireless services that give the home or business access to IP-based telephone networks, along with the mobile wireless networks. In remote areas, there are at least two or more satellite services that provide the home or business access to IP-based telephone networks and possibly even ever-expanding mobile wireless networks as well that now cover 99% of the population.

There is competition. There are market forces constraining price. There is no place in Canada were service cannot be provided economically on a competitive basis through at least one of the available technologies for IP networks.

63. Given the world has evolved, does the basic service obligation regime still have a place in telecommunications? Xplornet believes the answer should be “no” as evidenced by the development of the marketplace. That development occurred in the unregulated portion of the marketplace – in IP networks, more commonly referred to as Internet access services.

It is a robust and competitive marketplace that includes the largest telephone and cable companies and, according the CRTC Communications Monitoring Report, over 500 smaller entrepreneurial enterprises that provide wireless Internet access service across Canada. It was the competitive and largely unregulated elements that allowed Xplornet to grow from a small start-up in Woodstock, New Brunswick in 2004 to become the one of the 10 largest ISPs in Canada. Xplornet is exactly the success story that the CRTC is supposed to create with an environment to respond to the economic and social requirements of users of telecommunications services, as reflected in section 7(h) of the Telecommunications Act.

64. It is from this view point that Xplornet respectfully submits that the time has come to eliminate the basic service obligation and support from the Contribution Fund. There are sufficient alternative technologies to provide voice communication today that this scheme is no longer necessary to insure service and plays no meaningful role in encouraging the economically efficient deployment of the right technology to serve the potential customer.

65. The idea of expanding a scheme that has outlived its usefulness in the telephone world to the highly competitive Internet access business is to invite trouble. It would be antithetical and unnatural to try to impose a scheme that came out of regulated monopolies onto the vibrant and competitive marketplace of IP network access. Canada is fully served by broadband networks, which will continue to improve through competitive pressures. It is economical to serve every part of Canada, as Xplornet has proven over the last decade.

66. If service is not sufficiently fast or robust in an area, that represents a business opportunity that at least one or two of the existing 500 ISPs might consider pursuing. In Xplornet’s experience, if service is lagging in an area, it is typically because either (i) demand has exceeded supply and the deployment plans to expand have not been completed yet, or (ii) there is a structural impediment in the marketplace (such as the spectrum issue in the Toronto greenbelt). Neither of these situations would be resolved by introducing a basic service obligation scheme. If the CRTC needs any evidence, it need only look at its own Deferral Account and the results of that scheme. Throwing money at the problem and forcing someone who did not want to deploy a network in that area, did nothing more than stall investment by those who did want to serve the area and delay deployment. Service - 15 -

for consumers could have been obtained much quicker without the ill-fated intervention that the prior CRTC Chair admitted was “a bad idea”.

67. In the interests of not repeating history and not trying to impose a monopoly based scheme into an otherwise healthy marketplace, Xplornet strongly urges the CRTC not consider extending the basic service obligation scheme but rather to let it come to an appropriate end. While Xplornet has answered the questions posed by the Commission in the sections below, these answers should be considered against the background outlined above.

RESPONSE TO QUESTION
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?

68. Telecommunications is being used for a myriad of functions, too numerous to enumerate with any degree of accuracy. New uses are emerging daily. Among the most common uses are:

 Communication between family and friends (such as voice, video or email)  Communications with and between businesses, including both ecommerce (shopping) and obtaining product or service information

 Emergency Response

 Entertainment (including music, movies, television, books, games, etc.)  News, Sports and Weather Information

 Social Media
 Downloading and interaction with applications
 Tele-learning
 Tele-medicine and telehealth
 Interaction with Government
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 The Internet of things

 Research including scientific and informational (such as finding directions or food recipes)

 Banking
 Remote work by individuals

69. It is difficult to rank these uses in order of importance since individuals, businesses and governmental agencies (government, schools and health services and police) are all likely to impose their subjective views to rank them. For young people, mobile texting, social media and streaming might be the most important functions, while for police, fire and other emergency services, mobile communications might be the most important. For an online business, e-commerce and e-mail will prevail. From a public health perspective, e-health, 911 and mobile wireless services might be the most important. For our economy and for regional development, Internet access, coupled with advanced communications services are likely the most important.

70. An Internet access service is the most important communications tool for the development of a digital economy. However, not all users necessarily need the highest speeds.

Customers rank email, search engines, weather reports, games, maps, entertainment (movies, music, books), news, sports and health applications as their primary focus when using the Internet. For those customers using e-mails, IP-voice services and web browsing, lower speeds may be fine. Since higher speeds cost more money, most users will weigh the cost against the speed they need to adequately support their usage. For other services like telemedicine or ultra high definition video streaming, higher speeds may be essential.

But that does not mean that everyone needs the same kind of capacity. It is dependent on the customer’s activities.

71. The competitive market has generally responded to this issue by offering different speeds at different price points. This enables users to select the service they require at a price they can afford, tailored to their intended uses. This value proposition has improved over time with higher speeds being offered at lower prices today than in 2011.

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?

72. With the evolution to digital communications, the technology or transmission medium is less important than its functionality. Broadband services in general can provide all of the services identified in question (a). Broadband can be provided by fibre networks, coaxial cable networks, ADSL or DSL over copper wire, fixed wireless networks, mobile wireless networks and satellite networks. Where there is a choice of networks, consumers will generally determine what speed they require and will select their ISP on the basis of who offers the most competitive package that fits their needs. Consumers have proven to be technology agnostic and, in a surprising number of cases, are not even aware of what technology is providing their service. Some individuals, including many elderly people do - 17 -

not require more than a basic telephone service to satisfy their needs. This service can also be provided using any of the IP-based networks described above, although generally a broadband Internet connection is not required to provide this single service, if that is all that is wanted.

73. The technology used to provide Internet services will vary depending on the location of the customer and the density of population being served. Generally speaking, cable-based services and fibre or DSL services will be the best solution in dense urban markets where these networks exist. Outside of areas served by these networks, fixed wireless networks will make sense whenever the population density justifies the construction of a broadcast site and connection to backhaul and transit facilities. In lower density areas or where there may be terrestrial impediments to wireless service (such as rocks, dense trees, etc. that block radio frequencies), broadband satellite can be used to fill in the coverage gaps.

74. What characteristics a telecommunications service should have is dependent on what that service is intended to do for the customer. Capacity and speed are largely irrelevant to a telephone line. Latency is meaningless in a broadcast context. Mobility is not important for an Internet connection to a desk top personal computer. Xplornet’s experience is that Internet customers want sufficient speed to do what they want to accomplish online (which varies depending on their specific uses), a reliable connection and an affordable price. The latency of satellite is only a potential impediment to a small percentage of Canadians who engage in online first-person shooter games and live auctions. It is not relevant for activities like streaming video through Netflix and is acceptable for IP based telephone services, much like latency has been fully accepted by consumers within mobile wireless networks. Ultimately, it will be the customers in the market who determine what technologies best address their needs in which circumstances.

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.

75. Xplornet believes that broadband Internet access should be and is already available anywhere in Canada that has power to run a computer or recharge a mobile device. Satellite networks, largely built using private funds, fill in the gaps in the terrestrial networks that serve the bulk of the Canadian population. Between wired and wireless technologies (include mobile, fixed and satellite with its ubiquitous coverage) availability of service is not a barrier to participation in the digital economy.

76. Given this availability, the barriers to meaningful participation in the digital economy are affordability, digital literacy and lack of interest by potential users.

77. Affordability can present a barrier in all parts of Canada, regardless of the number of potential suppliers. There is a segment of the Canadian public that simply cannot afford Internet access and the necessary computer equipment or digital device required to participate. This segment is spread across the country – in urban, rural and remote areas.

A subsidy program addressed to geography (rural and remote areas) or technology (cable or DSL) will not begin to address this issue.

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78. While rural and remote areas of Canada have traditionally been high cost serving areas for legacy telephone lines, prices charged by Xplornet and other ISPs in rural and remote areas are not materially different from urban prices. As an example, Internet services in Alberta cities are comparably priced to service being offered in rural Alberta areas on fixed wireless 4G LTE networks.

79. Xplornet does not charge more to serve Canadians in remote regions. The same prices apply nationally to the satellite platforms. The issue of affordability is therefore not tied to a rural or remote location but rather to a segment of Canadian society. It is a national issue.

80. As indicated above, Canada’s spectrum policy can be a barrier to the provision of broadband service in areas surrounding large urban centres like Toronto. The fact that spectrum is auctioned to the highest bidder in these urban markets means that companies like Xplornet cannot get access to the spectrum required to serve these peripheral areas within the urban tiers. This has resulted in more people in the Toronto tier using Xplornet’s satellite service, than in any other tier in Canada. The fact that broadband satellite resources are being consumed by customers in large urban spectrum licensing tiers is indicative of a barrier to service created by a flaw in spectrum licensing policy.

81. There is also a segment of the Canadian public that has no interest or does not see the value in the Internet, either due to age, lack of technical savvy or the absence of knowledge about what they can do if connected to the Internet. Better digital education programs can reduce the number of those falling into this category. However, like the economic factors, these social factors are not confined to an geographic region of Canada.

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

82. Spectrum policy could be a more effective enabler of Internet services. As indicated above, current spectrum policy tends to auction the rural parts of urban markets as part of a single tier licence. This makes it too expensive for companies that focus on the rural segment to purchase this spectrum. In addition, there has been a trend of converting fixed wireless spectrum to mobile usage either on a co-usage or an exclusive basis. This is leaving less spectrum available to serve customers in the rural parts of large urban tiers. The economics of bidding on spectrum in these tiers does not support the provision of fixed wireless services to customers in these peripheral areas.

83. There is also a need for more focus on digital literacy. Only through education will those Canadians who are wary of the Internet change their minds and join 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.

84. Xplornet believes that the same answer applies to the future as applies today. All of the telecommunications services described in paragraph (a) can be provided via IP networks.

In fact, all telecommunications traffic is becoming IP-based, including voice, video and data. Carriers are evolving their old networks to be IP-based and deploying new IP-based networks. Mobility is a relative concept given mobile wireless networks carry voice, video and data traffic, and fixed networks, which support voice, video and data, can hand off to Wi-Fi sites thereby replicating the same nomadic experience. It is meaningless to talk about old concepts of telephones, televisions and the Internet, and to regulate each one based on its historical technology. It is all IP traffic within a network and that network can have both wired and wireless aspects within it.

85. For Canadians to participate meaningfully, they need access to an IP-based network that best suits their needs (be it mobile or fixed/nomadic, or both) and digital literacy programs to help make sure they are aware of all that technology can do for them.

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?

86. Xplornet believes that the Commission’s current target speeds for broadband Internet access service are sufficient to meet the minimum needs of most Canadians today. This target enables VoIP, e-mail, video streaming, use of applications, e-learning, entertainment, shopping, banking, access to government services, social media, gaming, emergency services, research and remote work to function.

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87. While certain levels of telemedicine and ultra high definition video entertainment might require higher speeds, this does not require all Canadians to have these speeds. Tele-medicine and ultra high definition video entertainment can be addressed by having a higher speed supplied at a different price. This is also true of certain other applications that might require a higher bandwidth, such as large business applications or distribution centres, data centres, etc. However, such enterprises are usually located in areas that have higher speed services available using fibre or other high capacity network services.

88. But today’s target speed is a minimum. As the technology continues to evolve, Canadians should aspire to a target speed of 100 Mbps by 2020.

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.

89. Access to a reliable IP-based network fast enough to meet the needs of consumers that connects Canadians to each other and the world, be it through the Internet or otherwise, has become a basic telecommunications service necessary for Canadians to meaningfully participate in the digital economy. For consumers, this translates to access to the Internet but for businesses may mean something more, including secured cloud access or private networks. This connectivity is basic in the sense that one cannot participate in the digital economy without being able to reach it through the Internet. However, as noted above, a certain level of digital literacy and a computer or other digital device is also necessary to participate.

90. The fact that an underlying service is required to participate in the digital economy does not mean that the CRTC has a role to perform in regulating it.

91. The Commission has stated on numerous occasions that the retail market for Internet access services is a competitive market with a level of competition necessary to protect the interests of users. While the Commission has regulated wholesale access to the networks of the ILECs and largest cable companies in order to ensure sufficient competition in the retail market, it has not found it necessary to regulate retail services. The fact that there are 500 ISPs in the Canadian market bears testament to the high degree of competition in this market - a very different picture from the historic situation in the local telephone market, which started out with a single service provider.

92. Under this framework, the retail market has evolved using a number of technologies to supply Internet access with increasing speeds over time. This process continues. In the past few years, developments in satellite technology, have enabled Xplornet to increase the speeds it offers from 500 kbps to 10 Mbps and for fixed wireless, from 500 kbps to 25 Mbps, all without regulation or mandates. At the same time, prices for packages with faster speeds (based on Mbps) have declined steadily.

93. Xplornet believes that its competitors have similarly increased their speeds and data allowances and dropped their price per Mbps over the same time.

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94. In its Notice of Consultation, the Commission has pointed out that in the recent Satellite Inquiry Report, approximately 18,000 households in satellite-dependent communities in the Yukon, Northwest Territories and Nunavut, as well as in certain remote areas of British Columbia, Saskatchewan, Manitoba, Ontario and Quebec are without access to broadband internet service at the Commission’s targeted speeds. As indicated above, this situation will be short-lived. These customers will have access to Xplornet’s 5 Mbps download and 1 Mbps upload service on Anik F2 by the end of this year, and access to a 25 Mbps download and 1 Mbps upload service on Xplornet’s new high-throughput satellites scheduled for launch in 2016.

95. Xplornet notes the Commission’s statement in paragraph 31 of its Notice of Consultation that in 2013, approximately 1.2 million, or 9%, of Canadian households did not have access to broadband Internet service at the Commission’s target download and upload speeds.

More recent statements by Minister of Industry indicate that as a result of the Government’s Economic Action Plan for Canada, only 2% of Canadian households will be without high-speed service by 2017. Xplornet questions whether any Canadians will fall outside of its satellites’ combined coverage of all of Canada by the end of this year, As a result, there is no evidence of a compelling market failure to warrant intervention by the Commission in the private market. In fact, the opposite is true. There is compelling evidence the Commission’s decision to forebear regulating these telecommunications services has had a beneficial result for Canadian consumers.

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.

96. Xplornet does not consider that technology should be a factor in defining whether a telecommunications service should be considered a basic service. As noted above, voice, video and data are being communicated by IP-based networks. Classifying a service by technology is artificial since all of the above noted technologies can move IP from a consumer to the Internet and back, and therefore perform exactly the same end-function for a consumer. Which technology provides that functionality better, is dependent on a number of factors, including population density, topography, rate of interactivity and need for portability. It is broadband functionality that is required by Canadians to participate in the digital economy - not a specific technology.

97. As in Canada, countries around the world are looking to satellite technology to fill in coverage gaps in rural and remote areas. This includes the United States, Australia, New Zealand, United Kingdom, Indonesia, Spain, and Europe in general.

98. In accordance with the Policy Direction, there is requirement for regulations respecting access services to be technologically and competitively-neutral. Users will be attracted to the low cost service that provides the functionality they require. The Commission should not distort the market by creating unnecessary regulations on one type of underlying technology.

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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)?

99. As a general proposition, Xplornet believes that the provision of Internet services should be unregulated. Market forces are sufficient to ensure that the terms are just and reasonable. The limited regulation has encouraged 500 entrepreneurial Canadians to offer Internet services where there was a need. Had there been increased regulation that created barriers to entry, fewer ISPs would exist today.

100. Where services are provided with assistance of a government program, such as the Economic Action plan for Canada, there are usually strings attached to the subsidy received. In Xplornet’s experience, this usually relates to minimum upload and download speeds and price. Xplornet believes that this is appropriate when subsidies are received to provide a service in an unserved or underserved area. However, in all other cases, terms and conditions should not be regulated, except where the Commission has made as specific determination such as the case of traffic management practices or confidentiality of customer information.

101. In the case of local telephone service, Xplornet believes that the time has come to stop subsidizing service to high-cost areas. With mobile wireless service available to 99% of the population and IP-based voice service available to 100% of the population by the end of this year, there is no longer a need to subsidize a legacy telephone network. There are substitutes available to all Canadians and the pricing of these services generally does not vary by location.

102. By the end of this year (2015), Xplornet will offer a service with speeds of 5 Mbps down and 1 Mbps up in all regions of Canada and by 2017 all Canadians will have access to its 25 Mbps down and 1 Mbps up service. There is no need for regulation in this market.

103. As noted above, since the last hearing in 2011, speeds and data allowances have increased and prices on a per Mbps basis have decreased without regulation. Demands of customers in the competitive market have been the sole driver of these changes. As a result, there does not appear to be a rationale for creating a service obligation or regulations for the provision of Internet access services.

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

104. The competitive market should determine the price for high-speed Internet services.

Market forces are strong enough to ensure that customers are not overcharged. The only exception should be for services that are provided pursuant to a subsidy program like the Connecting Canadians program. In such cases, it is fair to contractually tie a maximum chargeable price to a competitive bid for subsidies.

105. There are a wide variety of technologies being used to deliver Internet access services and it is unrealistic for the Commission to assess the cost of each technology and become an - 23 -

expert for the purposes of determining prices. If the Commission had initially done that years ago, Xplornet would never have been able to bring satellite services into the marketplace. These services were very expensive initially but as the technology developed and the number of customers scaled, Xplornet was able to reduce the price because the per customer cost declined. But for those brave souls who were willing to pay the original monthly fees as satellite technology was developed, Canada would be in a very different position today. Put another way, had the Commission capped prices at say $100 per month in 2006, Xplornet would not be here today.

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?

106. The evidence shows that market forces can be relied on to ensure that all Canadians have access to basic telecommunications services.

107. Xplornet is proof of that statement. Xplornet is not an ILEC. Xplornet is not a cable company. The Commission had no way of regulating or forcing Xplornet to come into existence and provide service. Xplornet did so because there was a market opportunity.

Xplornet is still investing today and plans to continue to invest, not because of any regulation or government program, but solely because Xplornet needs to keep improving service to customers to remain competitive.

108. It took decades for the Canadian telephone industry to roll out service to all Canadians, largely in a monopoly environment, and it has taken until comparably recent times to ensure that the quality of service received in rural and remote areas is comparable to that which is received in urban areas of the country.

109. When one looks at the rollout of Internet access services, it has been an accelerated process in a competitive market. The changes in technology have occurred at a faster rate and multiple technologies have been simultaneously deployed. We now have a situation in which fibre, cable, fixed wireless, mobile wireless and high-throughput satellites are all being used to serve Canadians. While there have been assistance programs from the federal, provincial and local governments from time to time to accelerate the deployment of services in specific rural areas, Xplornet believes that most of the network investment in rural and remote areas has come from private capital and been driven entirely by market forces.

110. As stated by Industry Canada as recently as May 20, 2015, the latest Economic Action Plan for Canada will result in a further 356,000 families being served by high-speed Internet access services by 2017, leaving a relatively small sector of the population (estimated at 2%) still to receive service at the CRTC’s targeted speeds. As discussed above, these Canadians will have access to service with speeds of 5 Mbps down and 1 Mbps up by the end of this year.

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111. There is therefore no need for a subsidy system to ensure access. The competitive market will have completed the job and, going forward, will ensure that prices are competitive and service levels improve.

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?

112. With respect, Xplornet does not believe that the Commission should extend its existing contribution regime to Internet access services. To do so on a targeted basis, based on either high cost areas or low incomes, is too complex given the degree to which Canadians already have access to the Internet. The CRTC’s own experience of trying to target subsidies based on geographic territories that lack Internet services delayed the introduction of service by other non-ILEC providers, and in other cases resulted in the ILEC being subsidized to provide service to areas that were already served by other providers. As the former Chair of the Commission stated at the last review of Basic Services, the deferral account was a “bad idea”.5

113. The fact that Xplornet’s satellite service has more customers in the Toronto tier, than in any other region of Canada is a testament to the flaw in Canada’s spectrum policy that fails to make sufficient fixed wireless spectrum available to ISPs. It is also a testament to the fact that focussing on rural and remote areas is not the answer to Canada’s broadband issues. Nor is poverty restricted to rural or remote areas. So focussing on high cost service areas is not the answer. Moreover, Xplornet charges the same for it satellite service across the country because it costs the same to provide service from the same satellite in Toronto as it does in Nunavut. Why would a subsidy extend to a satellite user in northern Canada and not to a satellite user in **** Ontario, given the cost to provide the service is the same? In the absence of any objective basis for determining the quantum or allocation of subsidies, it is simply too difficult to target subsidies in an effective manner without distorting the functioning competitive market.

114. Respectfully, the Commission is not the appropriate branch of government to be attempting to address the affordability issues. As indicated above, there is a segment of the population that is unable to participate in the digital economy and this is because they not only do not have access but lack a device for access. It is likely equally true these Canadians may also struggle to participate in other aspects of society because of the lack of financial means. A broader social program needs to address these issues and is not a matter for the Commission.

115. In Xplornet’s view, the Commission role should be to continue to monitor the rollout of broadband services and to continue to set target speeds. If the Commission can play a meaningful role in promoting digital literacy, that may be an appropriate area for action.

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 5 Telecom Public Notice CRTC 2010-43, Transcript 1, Timmins, October 26, 2010, paras. 986 and 987.

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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?

116. As indicated above, by the end of 2015, all areas of Canada will have access to Internet service with speeds of 5 Mbps down and 1 Mbps up. If individuals are not obtaining the speed purchased, those are matters best handled through the Commissioner for Complaints for Telecommunications Services (CCTS) process.

117. The Commission needs to be cognizant of the fact it takes time to deploy new network infrastructure after an issue has been identified. In some cases, service extensions may be planned for the area in question (such as the projects planned pursuant to the Economic Action Plan). Given that there are companies in the market that want to serve Canadians, it is unclear what action would be appropriate for the Commission to take that would not have been disruptive to the current expansion going on.

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.

118. Xplornet believes that it would be a mistake to introduce a new subsidy program targeted at Northwestel’s operating territory or elsewhere. Northwestel already benefits from the existing contribution fund to provide telephone services to end-users. There is no reason to suppose that Northwestel is the low cost provider of Internet access services in the **** and it is definitely not the only supplier. Subsidizing Northwestel to provide broadband access services would cut into Xplornet’s business, that is funded by private investment.

Xplornet already serves the **** of Canada, including the Northwest Territory, Yukon, Nunavut and the northern regions of the provinces. SSi provides similar services. A new subsidy program would essentially result in private investment being replaced by public investment to subsidize Northwestel’s provision of high-speed Internet service. Xplornet would then concentrate its services on other areas of Canada. This would not result in better service - it would result in a higher cost to Canadians and less competition in the ****.

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?

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119. In Xplornet’s view, this type of mechanism could have a very negative impact on private investment, as well as on other government funding programs. Since Xplornet already serves Northwestel’s operating territory using broadband satellites, a new subsidy program would undermine the investment that Xplornet has already made, and curtail new investment plans. Government funding is also likely to dry up in any areas that the Commission plans to subsidize. Further, as publicly announced, Xplornet is launching a new satellite that will serve most of Canada, including the ****, in 2016. It would appear fundamentally at odds with the policy objective of relying on the competitive market to the greatest extent possible, to subsidize one party, knowing there is a private investment in new network that has already been made.

120. Xplornet also fears that any subsidy program initiated by the Commission is likely to be of much longer duration than the typical Government program to assist in the construction of infrastructure. ****-term subsidy systems are not needed and would likely end up costing far more money over time. Lack of competition would inevitably mean poorer quality services than would otherwise be available.

Regulatory measures for basic telecommunications services

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

121. Xplornet respectfully submits that the time has come to get rid of the contribution regime.

The amount of the subsidy has diminished over the years as high cost areas have shrunk and the cost of providing service has been reduced over time. **** in 2000 when the Commission moved to a per minute contribution rate for all carriers and TSPs with telecom revenues in excess of a $10 Million threshold amount, the total subsidy amount for the large ILECs was $920.4 million6, whereas by 2014, it had shrunk by 91% to $80.4 for the large ILECs, or a total of $115.1 million including large and small ILECs and Northwestel.7 Xplornet wonders whether the provision of basic service in a $44 billion telecom market really depends on receiving this subsidy.

122. Regardless of whether the existing regime is retained, under no circumstances should the regime be extended to Internet access for the reasons provided above. The Government of Canada’s targeted subsidy plans have been very successful in extending the reach of Internet services in Canada and it appears are on the verge of completing the job and Xplornet’s has already made the investment to complete the CRTC’s target. This is not the time for a new CRTC subsidy program.

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

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

123. While it is certainly possible to consider broadband Internet service as a basic telecommunications service, this status does not justify the creation of a subsidy regime to support it. There are many services that Canadians consider to be essential or near-essential 6 Decision CRTC 2000-745, at paragraph 123.

7 Telecom Decision CRTC 2014-627, at paragraphs 10-19.
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to their daily lives and very few of them are subsidized. As previously discussed, the Internet market in Canada has been competitive from day one. There are now 500 ISPs in Canada. Internet speeds and data throughput have increased over time as the price per Mbps has declined. The competitive market has been very successful in extending service through multiple technologies to all Canadians. The case to make this a subsidized service does not exist. Subsidizing Internet service will mean establishing a speed for the service, which in itself will be limiting for consumers. Experience over the past five years has shown that speeds have greatly increased in a competitive market. This might slow down in a regulated environment. A subsidy regime will also mean picking winners and losers in what is a competitive market today. This will serve to reduce competition which drives innovation and price reductions in this market segment. The ultimate losers will be consumers.

124. The Commission’s only experience with broadband subsidies was the Deferral Account mechanism. That regime only benefitted the ILECs and had a negative impact on competition. It also led to new private investment being put on hold for a few years in the areas being subsidized. The Deferral Account program was counter-productive and set competition back by a number of years. Ultimately, it resulted in the delay of service extension to many Canadians. Further, technology changed so rapidly that by the time the projects were to be deployed, that the original proposals were no longer relevant to the marketplace. That experience ought not to be repeated.

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)?

125. The current regime of only extending the subsidy to the ILEC is unfair and it is not technologically neutral. It is quite possible for an end-user to receive a subsidized local telephone service, while additionally subscribing to a mobile phone service or a VoIP service. The subsidy no longer makes sense. Ninety-nine percent of Canadians now have access to mobile networks. All Canadians have access to Internet services that can support IP-based voice services. The subsidy to local service is now stale-dated. If the Commission decides to retain the telephone subsidy system, it should be modified.

Portability should be reintroduced so that the customer’s provider of choice can provide the service and receive the subsidy. While the subsidy could still be set as it is today, the customer should be able to apply it to any form of local telephone it wants - wireline if available, VoIP or mobile. This should be a customer’s choice.

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.

126. It makes no sense for a company like Xplornet to help subsidize the ILECs’ provision of telephone or Internet access to end-users, when Xplornet has spent its own capital to launch and operate broadband networks and IP-based telephone services to serve the very areas that the Commission wants to pay an ILEC to serve. This underscores the waste inherent is such a scheme.

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127. Respectfully, the current scheme makes little sense. Xplornet, as an IP-based telephone service provider, is required to pay into the National Contribution Fund (NCF). However, neither Xplornet nor any of the infrastructure it builds, is eligible to receive a contribution from the NCF. Xplornet questions why any of its revenues are subject to this regime. It seems patently unfair and anticompetitive that Xplornet, who provides services in the most rural and remote parts of Canada without funding, must pay to subsidize a competitor building out wireline technology that may compete with Xplornet’s services.

128. Xplornet submits that the contribution scheme should be abandoned. However, if the Commission insists that it continue, the scheme should be restricted to a contribution based on revenues of ILECs from basic telephone lines. Given there are alternative technologies available, including mobile wireless telephone services and voice services on IP-based networks, all of which are competitive marketplaces, this scheme should be restricted to its original partipants (ILECs) and original concept (basic wireline telephone only). It should not be allowed to distort the competitive marketplace for other telecommunications services.

129. Under no circumstances should the Commission consider expanding this outdated scheme designed to address monopoly territories to the competitive market of Internet services.

130. If the Commission undertakes the ill-advised path of extending this contribution scheme to subsidize broadband Internet service, all ISPs should be required to pay into it. If not, it imposes costs on some but not all ISPs, thereby making the playing field unequal.

However, by doing that, the Commission is simply increasing barriers to entry for potential new ISPs who could be providing service, increasing the cost of Internet service to all Canadians and redistributing money that could have been put to work to improve service in one area by the ISPs into other areas selected by the Commission 131. Aside from the obvious market inefficiencies created by doing this, how would the Commission decide where to redistribute the money and to whom? As indicated above, providing satellite Internet services in Toronto costs the same as providing services from that same satellite in the ****. There is no “high cost” area to which the subsidy should be directed. There is no specific “incumbent” entitled to the customers or the money.

132. At best, the Commission should make the subsidy payable to whichever carrier is selected by the end user, ILEC or non-ILEC. This reversion to the original concept of a portable subsidy that travels with the end-user, is necessary to avoid the adverse impact that a contribution regime would otherwise have on the competitive market and avoid partiality.

In addition, only one telecommunications service should be subsidized. If the customer decides to have the subsidy apply to Internet service, it ought not apply to telephone service as well since the customer can use an IP-based voice service more cheaply if they have Internet access already. The customer should receive only one subsidy and should be able to choose the service it applies to.

133. It is respectfully submitted that the basic service obligation regime makes no sense in the context of a pre-existing competitive marketplace. The very foundation of the basic service obligation was that the incumbent telephone provider (ILEC) had a monopoly on providing service and, in exchange, had an obligation to provide service. In a marketplace where - 29 -

there are already 500 competitors, how does the Commission propose to create an obligation on one party to serve and provide compensation to just one party to provide that service? If the Commission could find an unserved area of Canada, how does the Commission propose to determine the amount of funding required and select the provider before one of the 500 existing market participants enters that very area? It defies logic.

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.

134. While the existing regime could remain in place for local telephone service, it would make more sense to eliminate it, given the relatively low level of total subsidy now associated with the contribution regime and given the fact that end-users of Internet access service can use that service for VoIP services. It no longer makes sense to subsidize the local loop given this alternative method of supplying telephone access. Many consumers are abandoning their local telephone service in favour of VoIP or mobile wireless service, which are not subsidized, and which can be provided by a number of carriers using a variety of technologies. The fact that more than 20% of Canadians have discarded wireline telephones in favour of mobile phones, and that number is growing, and a further group of Canadians have adopted VoIP service in lieu of local wireline service, underscores that local wireless telephone is no longer considered essential by Canadians. There are viable alternatives.

135. If the existing subsidy remains in place, it should be made portable and it should be applicable to any form of local voice service - wireline, VoIP or mobile at the choice of the customer. This would be a fully portable, technology-neutral regime.

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?

136. The customer should be allowed to apply the existing subsidy to any form of local telephone service provided by its carrier of choice - wireline, VoIP or mobile on a technology-neutral basis

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

137. Xplornet does not believe that funding should be provided to any regions. However, if the Commission considers that it should continue to be provided to support local telephone service, it should be applied to high cost areas related to the provision of local wireline services as it is now, but be payable to the service provider of choice of the customer using the technology of choice of the customer.

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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)?

138. The subsidy regime should end. However, if the Commission determines that it should be continued, then it should be technology neutral and should go to the service provider that the subscriber chooses. The subsidy should be available for one source of telephone service, at the customer’s option, whether it be fixed, mobile or VoIP.

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

139. It should be based on the least-cost technology to provide local telephone service in a high cost service area as currently determined, minus a rate agreed to by the Commission. The subsidy should then be made available to the carrier chosen by the customer regardless of whether that carrier provides wireline, mobile wireless, VoIP or other forms of telephone service. It should be the customer’s choice which carrier receives the subsidy, as was originally the case in a portable subsidy regime.

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?

140. There should be no funding. If the Commissions determines funding is to occur, it should be distributed to the carrier that the end-user selects to provide the service.

141. Again, this very question indicates the problems with considering extending the contribution scheme to Internet or other services. There is no monopoly to whom the payment should go. Any award, to any participant, will distort the existing competitive market. The fact that the question references “competitive bidding process” indicates there is, in fact, competition and argues for the Commission forbearing from regulating and imposing this scheme on Internet services.

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

142. Xplornet does not recommend subsidizing backhaul facilities, but if the Commission does decide to subsidize such services, they should be made available to any other carrier that requires access based on the incremental cost of the traffic carried plus a reasonable markup.

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

143. No. The subsidy for telephone service should be set based on the least-cost manner of providing local telephone service in high cost service areas minus a notional rate agreed to by the Commission. However, the customer should be allowed to apply this subsidy to any - 31 -

provider of local telephone service (VoIP, wireline, mobile etc. that it wants). The customer should have this option regardless of the price of the service being chosen. For example, the customer may value a mobile phone more highly than a wireline phone, or may decide that a VoIP service bundled with Internet access has a higher value to him or her. While the subsidy would remain the same, the recipient should be able to apply it to any form of local telephone service - wireline, cable, VoIP or mobile telephone.

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.

144. The existing subsidy should be eliminated and no new mechanism implemented. If the Commission decides otherwise, there should be a replacement system for the existing residential local wireline service subsidy. It re-injects the existing subsidy system with the portability that the contribution regime formerly had and extends the consumer’s choice of service provider to any provider of local telephone service, regardless of whether it is VoIP, wireline or wireless. The level of subsidy will be the same regardless of the choice of service provider or technologies.

145. **** ILECs and Northwestel would still be eligible for the subsidy if the customer selects them as their supplier of telephone service. There would be no need for a transition.

146. If the Commission decides to eliminate the contribution regime, as Xplornet strongly advocates it should, then there should be a transition period of one year during which the old regime would still function prior to being phased out.

147. Xplornet thanks the Commission for this opportunity to provide comments in respect of its Notice of Consultation.

***END OF DOCUMENT***

Intervention: Xplornet (Intervenor 292)

Document Name: 2015-134.224014.2395401.Intervention(1fc@x01!).pdf
Before the Canadian Radio-television and
Telecommunications Commission
Telecom Notice of Consultation CRTC 2015-134
Review of Basic Telecommunications Services
Intervention by

____________________________________________________ Xplornet Communications Inc.

____________________________________________________ Filed: July 14, 2015 - 2 -

Executive Summary

1. This intervention is filed by Xplornet Communications Inc. (“Xplornet”) in accordance with the directions on procedure set forth in Telecom Notice of Consultation CRTC 2015-134, Review of Basic Telecommunications Services, **** 9, 2015.

2. These comments address Phase I of the Commission’s public process which is to review the Commission’s policies regarding basic telecommunications services in Canada and gather information from the industry to better understand which telecommunications services are being offered across Canada and whether any areas of Canada are underserved or unserved.

3. The Commission has asked parties to address a number of questions regarding the obligation to serve and whether that obligation should be extended to broadband Internet access. Interveners have been asked to address the availability of high-speed Internet services in Canada and whether a new subsidy is required to ensure delivery of these services to Canadians at reasonable prices.

4. Xplornet is in the business of providing broadband Internet access services to Canadians in all regions of Canada using a combination of fixed wireless and satellite facilities. The focus of this business is low population density areas of Canada, typically referred to as rural and remote areas. Xplornet generally leaves the well-served higher population density areas (typically urban areas) of Canada for other carriers to serve with wireline, fixed wireless or mobile wireless networks. However, one does not have to go very far outside the core of urban centres to find lower population density areas where these carriers fail to provide broadband access. For this reason, Xplornet also uses its facilities to serve areas within the boundaries of cities like Ottawa that include large rural areas, notwithstanding the proximity of these areas to urban centres.

5. Since 2004, Xplornet has invested in successive fixed wireless and satellite technologies to bring Internet services to lower population density areas in Canada. Through private investment, Xplornet has deployed fixed wireless services in every province of Canada and has a constellation of satellites that can provide coverage to any household in Canada. This investment has made Xplornet one of the ten largest Internet service providers in Canada.

6. Today, Xplornet has two high-throughput 4G broadband satellites that have beams covering 96% of the Canadian population. The parts of Canada not yet served by high-throughput 4G satellites are served by the Anik F2 satellite which is currently being upgraded by Xplornet to 4G technology. Once completed in the next few months, facilities will be able to reach any Canadian with a broadband Internet service that has speeds of 5 Mbps download and 1 Mbps upload. The CRTC’s ambitious goal of achieving this target, set in in 2011, will have been achieved.

7. The result is that any Canadian, regardless of where he or she lives, will have access to Internet services with speeds of 5 Mbps down and 1 Mbps up by the end 2015. This is a tremendous achievement and a validation of the approach taken by the Commission in 2011 to refrain from regulation of the Internet.

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8. Achieving this milestone is rewarding but Xplornet’s greater goal is to continue to improve the Internet services available to its customers in rural and remote areas of Canada. To this end, Xplornet has purchased 100% of the Canadian capacity for Internet services on two additional high-throughput satellites, EchoStar XIX and ViaSat-2, scheduled for launch in 2016. These satellites will provide coverage for most of Canada, including Nunavut and the Northwest Territories. These new satellites will be capable of delivering speeds to customers of 25 Mbps. Xplornet is also upgrading its terrestrial fixed wireless network to 4G LTE, which is capable of speeds in excess of 25 Mbps. These speeds will be the actual speed received by customers.

9. Further, Xplornet has publicly announced its commitment to make available by Canada’s 150th anniversary in 2017, a network with a footprint covering 100% of the Canadian residences and businesses in low density areas with speeds of 25 Mbps down. A Canadian, regardless of the province or territory in which they live, will have access to a 25 Mbps Internet service. Beyond that, Xplornet believes Canada should aspire to the goal of providing all Canadians with access to broadband Internet speeds of 100 Mbps by 2020.

10. Xplornet is by no means alone in providing broadband Internet access services to Canadians who live outside the reach of cable and telephone wireline networks. There are some 500 Internet service providers (ISPs) in Canada, largely serving this market segment.

Xplornet faces competition wherever it provides service, whether that be in the northern territories of Canada or in the areas surrounding larger urban centres. Wireless mobile services that have networks covering 99% of Canadians also compete in this market and offer Canadians ever-increasing data speeds.

11. Wireless technology has advanced significantly since 2011 and LTE networks are capable of speeds rivalling those typically provided in wired networks. The size and number of wireless networks, including both mobile and fixed wireless networks, have grown and expanded coverage. Prices have converged to the point where the cost of a broadband Internet package in certain cities is now equivalent to the price of a package with similar speeds and data allowance provided using wireless technology in rural areas. Given consumers are increasing indifferent between the technologies, as evidenced by the number of Canadians opting for only wireless telephone service, there is no reason for the Commission to differentiate between the services provided through wired or wireless networks.

12. Similarly, the price of satellite services has also dropped in the past few years since the Commission conducted its last review of basic services. Moreover, this price is the same for all users of the satellite regardless of where they live - eliminating the concept of high-cost service areas. The reader might be surprised to learn that Xplornet has more satellite customers in the protected greenbelt around Toronto than it has in any other region of Canada. This anomaly is the result of a spectrum licensing policy that has made it too expensive to purchase spectrum to provide fixed wireless service to these areas lying just outside the coverage of cable and telephone companies’ wireline networks. Customers on the same satellite in the northern territories pay the same for their broadband satellite service as customers in the greater Toronto area.

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13. The Commission should not shy away from relying on satellite services where other networks do not provide service. There are many areas of Canada where it might not be feasible to build other forms of networks and install backhaul facilities. The new high-throughput satellites provide a much higher grade of service than the older generation of satellites and are the technology of choice in the United States, Australia, and Europe to serve rural and remote areas.

14. Nothing is static in this market. ISPs continue to push out their coverage and increase the speed of their services. Competition is such that no one can sit back and rely on an old network. For its part, Xplornet is involved in continuous investment and technology upgrades. This is the nature of the competitive market.

15. Against this background, Xplornet submits that regulation is not required to encourage extension of service to rural and remote areas of Canada. All areas of the country already have access to broadband Internet service and, within a few months later this year, all Canadians will have access to broadband service that meets the Commission’s target speeds of 5 Mbps download and 1 Mbps upload. Moreover, the concept of high-cost and low-cost areas has disappeared. In a market where fixed wireless, satellite and mobile wireless networks compete, there are not the same type of high and low cost issues that there used to be in the fixed wireless telephone market. There is really a single market using a number of technologies to provide the same product to Canadians using similar pricing.

16. While broadband access is clearly a basic service insofar as it is necessary to participate in the digital economy and take advantage of the myriad of services that are available through it, that alone does give rise to a need for regulation.

17. A bigger problem for Canada is the fact that approximately 14% of Canadian households do not have a computer. Subsidizing broadband access is not only unnecessary to extend service, but would do nothing to address the fact that such a large group of Canadians do not have the capability to use the service. The resolution of this issue depends on education, digital literacy and anti-poverty measures - not on broadband policy. Moreover, this issue presents itself in all regions of Canada and has nothing to do with high or low cost areas.

18. In Xplornet’s view, the life of the basic service regime and the obligation to serve is past due. It made sense in a monopoly telephone environment, when it cost more to deploy phone service in what became known as high-cost service areas. It was the quid pro quo for the grant of the monopoly to make the telcos serve areas that were more expensive to serve. It makes no sense in a market that has been competitive from the get go, and has succeeded in serving all of Canada in just a few years at competitive prices. Xplornet did not need a regulatory obligation to serve all of Canada. It made business sense to do so.

19. To subsidize other carriers to do the same thing makes no sense to Xplornet and would obviously damage the competitive market and harm businesses that have already made such investments.

20. Not only should the obligation to serve not be extended to broadband Internet services, it should be terminated with respect to wireline telephone service in so-called high-cost - 5 -

service areas. The beauty of broadband access is that it can be used to provide any telecommunications service, including IP-based telephone services (such as VoIP). The fact that broadband Internet service is now available to all Canadians means that all Canadians can use it as an alternative to their local telephone service. Access to wireline service is no longer necessary. Xplornet notes in this regard that 20% of Canadians have already abandoned their wireline service in favour of wireless service only. Given these choices are now available, the ILECs can be relieved of their obligation to provide what is really a last century technology, and the contribution fund’s underwriting of this service can be discontinued.

21. With 100% access to broadband service now a reality, the convergence that has been talked about for so long is now here. We can now begin to dismantle some of the old regulatory mechanisms that were used to support a world where different networks were required to support different services. With everything now going IP-based, and capable of being carried on a single network, the world has changed and the old technology no longer needs to be supported. Xplornet is of the view that it could be phased out over a one year transition period.

22. If the Commission disagrees with Xplornet and decides to keep the existing subsidy for local service in high-cost service areas, the current mechanism should be reformed. The ILECs should be relieved of their obligation to serve and the contribution should be made portable again, as it formerly was. It should go to the customer’s carrier of choice, regardless of whether that carrier provides wireline telephony, wireless mobile service or a broadband connection for VoIP service. This would be the least intrusive way of preserving the subsidy without picking winners or losers in the marketplace.

23. However, under no circumstances should the subsidy be extended to support the extension of broadband Internet access in the currently competitive environment.

24. Xplornet believes that these proposed reforms are fully consistent with the requirements of the Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, which require regulatory measures to be technologically and competitively neutral.

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INTRODUCTION

25. This intervention is filed by Xplornet Communications Inc. (“Xplornet”) in accordance with the directions on procedure set forth in Telecom Notice of Consultation CRTC 2015-134, Review of Basic Telecommunications Services, **** 9, 2015.

26. Xplornet asks to appear at the public hearing scheduled to convene on **** 11, 2016.

Xplornet believes that its appearance is necessary to answer questions about broadband coverage in Canada and the capability of its fixed wireless and satellite network to reach all Canadians at reasonable prices. Xplornet further believes that it needs to attend in order to ensure that the record with respect to the capabilities of broadband fixed wireless and satellite technologies are fully understood by the Commission. Moreover, this hearing is very important to Xplornet since any subsidy scheme or regulation of the Internet that might be considered would have a direct impact on its business.

27. As a matter of principle, Xplornet submits that all Internet Service Providers (ISPs), including all ten of the largest ISPs, should have standing at this hearing which seeks to address issues relating to Internet services. It is respectfully submitted that making all ILECs – incumbent local exchange carriers of telephone services – parties to the hearing and requiring other ISPs to prove why they should be permitted to attend a hearing regarding the very services they provide to Canadians, indicates a potential misunderstanding about the operation of the Internet service marketplace in Canada. It is the 500 ISPs in the Canadian market that provide many of the Internet services to areas outside the larger urban areas using fixed wireless and satellite services, and it is important to have these parties at the table to discuss the issues identified in the Notice of Consultation.

28. These comments address Phase I of the Commission’s public process which is to review the Commission’s policies regarding basic telecommunications services in Canada and gather information from the industry to better understand which telecommunications services are being offered across Canada and whether any areas of Canada are underserved or unserved.

29. As the Commission is aware, Xplornet is in the business of providing broadband Internet access to the public using a combination of fixed wireless and satellite facilities. The focus of this business is low population density areas of Canada, typically referred to as rural and remote areas. Xplornet generally leaves the well-served higher population density areas (typically urban areas) of Canada for other carriers to serve with wireline, fixed wireless or mobile wireless networks. However, one does not have to go very far outside the core of the urban centres to find lower population density areas where these carriers fail to provide broadband access. For this reason, Xplornet also uses its facilities to serve areas within the boundaries of cities like Ottawa that include large rural areas.

30. Since 2004, Xplornet has invested in successive fixed wireless and satellite technologies to bring Internet services to lower population density areas in Canada. Through private investment, Xplornet has deployed fixed wireless services in every province and has a - 7 -

constellation of satellites that can provide coverage in any area of Canada. This investment has made Xplornet one of the ten largest Internet service providers in Canada.1 31. Today, Xplornet has two high-throughput 4G broadband satellites that have beams covering 96% of the Canadian population. The parts of Canada not yet served by high-throughput 4G satellites are served by the two other 3G satellites, including the Anik F2 satellite which is currently being upgraded by Xplornet to 4G technology. Once completed in the next few months, facilities will be on the doorstep of every Canadian that can provide Internet connectivity with speeds of 5 Mbps download and 1 Mbps upload. The CRTC’s ambitious goal in 2011 will have been achieved.

32. Achieving that milestone is rewarding but the greater goal is continuing to improve the Internet services to Canadians. Xplornet has purchased 100% of the Canadian capacity for residential Internet services on two more high-throughput satellites, EchoStar XIX and ViaSat-2, scheduled for launch in 2016, which will include coverage for most of Canada, including Nunavut and the Northwest Territories. These new satellites will be capable of delivering download speeds to customers of 25 Mbps. Xplornet is also upgrading its entire terrestrial fixed wireless network to 4G LTE, which is capable of speeds in excess of 25 Mbps. These speeds are actual speeds being received by customers.

33. The result is that any Canadian, regardless of where he or she lives, will have access to Internet services with speeds of 5 Mbps down and 1 Mbps up by the end 2015, if he or she chooses to have broadband Internet services.

34. Further, Xplornet has publicly announced its commitment to make available by Canada’s 150th anniversary in 2017, a network with a footprint covering 100% of the Canadian residences and businesses in low density areas that can provide Internet access service with speeds of 25 Mbps down. A Canadian, regardless of the province or territory in which they live, will have access to a 25 Mbps Internet service.

35. Xplornet’s announcement regarding 25 Mbps service to all Canadians, regardless of where they live in this vast country, is not speculation. It is an achievable reality that is well underway. However, with advances in technology and ever-evolving customer needs, Xplornet believes Canada should aspire to more. At the Canadian Telecom Summit in **** 2015, Xplornet encouraged ISPs to work towards the goal of all Canadians having access to speeds of 100 Mbps by 2020.

36. Xplornet provides its services in competition with other wireless and wireline carriers.

There is nowhere in Canada where there is only one ISP. Even in remote areas, multiple carriers can reach subscribers using satellites. This is not surprising since the CRTC Communications Monitoring Report indicates there are over 500 ISPs providing service in Canada.2 The Canadian market for Internet services is robust and competitive.

1 This includes the ILECs and cable companies.
2 CRTC Communications Monitoring Report, 2014, Section 5.3.
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POLICY CONSIDERATIONS

37. The Canadian telecommunications policy enshrined in section 7 of the Telecommunications Act is to guide the policies applicable to Internet access.

Undoubtedly, this service is one that (a) “…serves to enrich and strengthen the social and economic fabric of Canada and its regions.” It also serves (h) “…to respond to the economic and social requirements of users of telecommunications services”, and it is very much part of the policy objective of rendering (b) “reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada.” Xplornet is committed to all of these objectives, as evidenced by its business plan and its mission of providing Internet services to Canadians wherever they live, work or play in Canada. This does not, however, mean that regulation is necessary to achieve these objectives. Indeed, paragraph (c) states as an objective “…to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications” and (f) requires the policy to “…foster increased reliance on market forces for the provision of telecommunication services and to ensure that regulation, where required, is efficient and effective”. Xplornet does not see these as conflicting objectives.

38. The Policy Direction to the CRTC provides guidance to the Commission on how to balance the objectives set forth in section 7 of the Telecommunications Act. The Direction is clear that the Commission is to “…rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives.”

39. The Policy Direction goes on to state that “(ii) when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.” Moreover, the Direction requires that regulatory measures of an economic nature “…neither deter economically efficient competitive entry into the market nor promote economically inefficient entry” and that measures of a non-economic nature “…to the greatest extent possible are implemented in a symmetrical and competitively neutral manner.” Finally, regimes related to access to networks, are “to ensure the technological and competitive neutrality of those arrangements or regimes” and are “not to artificially favour either Canadian carriers or resellers.”

40. For these reasons, regulators have to be careful about how they intervene in respect of Internet services. Subsidizing one carrier in a competitive market can distort investment decisions and may result in weakening the competitive market. Initiation of a subsidy scheme in the face of rapid technological development may result in the curtailment of private investment in those areas. This in turn may result in some customers being served much later than they might otherwise be in a competitive market. This was certainly the case in connection with the Commission’s Deferral Account regime (Telecom Decision CRTC 2006-9 and others that followed) pursuant to which only the ILECs were eligible to receive funds. In some areas, the pending subsidy announced for the ILECs was sufficient to dissuade other carriers from building out their networks and reduced the appetite of investors to fund the development of competitive networks. In other cases, the designated areas never received the subsidized service they were promised due to delays in the ILEC’s construction programs once the subsidies were approved. Where development did occur, - 9 -

the time-lags in that deployment resulted in subsidies being paid in areas that were by then already served by other carriers.

41. Industry Canada tried to avoid these problems with its Broadband Canada Program and other subsequent programs. Prior to deciding on where funding was necessary to extend service, Industry Canada undertook a painstaking mapping exercise in which it mapped out all of the existing services and then targeted its subsidies to only those areas which were underserved. It also engaged in a competitive bidding process for public funding in which carriers bid on the subsidies. This resulted in a much more equitable distribution of public funds and avoided the layering of public subsidies on top of private investment from other carriers, as was the case with the Deferral Account program. However, such programs ignore long term expansion plans and do not take into consideration technologies under development. It is acutely true of satellite programs that require at least three years of lead time. For example, the original Broadband Canada Program ignored a satellite that was under construction at the time of the announcement of the awards and was launched six months after the program deadlines.

42. Last year, Industry Canada again mapped the provision of Internet services in Canada and announced as part of the Economic Action Plan for Canada, a commitment of $305 million to fund a second round of the Broadband Canada program designed to connect an additional 280,000 rural, remote and northern households to high-speed Internet at minimum speeds of 5 Mbps. On May 20, 2015, the Minister announced that the target had been exceeded by 75,000 households. Most of these projects are to be completed by 2017.

According to the Minister, this will result in 98% of Canadian households being able to subscribe to high-speed Internet services.3 Xplornet notes that this equals the percent availability of wireline telephone service at its peak. More importantly, Xplornet believes that the real number is 100% availability of 5 Mbps Internet services as a result of the services that it offers.

43. The targeted subsidy programs of Broadband Canada and other similar provincial and municipal funding programs have completed the job of extending the reach of broadband services to all Canadians and augmented available capacity. When the work is completed on the latest Broadband Canada program deployments and the Anik F2 satellite upgrade is complete in a few months, it is does not appear any areas of Canada would lack access to Internet services meeting the CRTC’s target speeds.

MISCONCEPTIONS CAN LEAD TO POOR POLICY DECISIONS

44. There is a misconception in Canada that it is rural and remote areas of the country that are not adequately served by Internet services that meet the Commission’s target speeds. In fact, rural and remote areas are covered either by fixed wireless or broadband satellite, and frequently both. It is Xplornet’s experience that many of the people who do not have access to adequate broadband services are located in low population density regions immediately surrounding large urban areas. People located in lower density rural or remote areas tend to be provided Internet services through lightly loaded network facilities and, as a result, 3 “High-Speed Internet Coming to Rural Canada”, Government of Canada, press release May 20, 2015, see:

http://news.gc.ca/web/article-en.do?nid=976709.
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have a good experience. Conversely, people immediately outside large urban areas may not have access to cable-based Internet services or telco high-speed services, and end up using Xplornet’s broadband satellite service. Their use of the satellite is so prevalent that they are consuming beam capacity in the region, which can produce congestion and slower than anticipated speeds. Consumers in these areas, based on the population density, should be served by fixed wireless networks. However, because the spectrum in these areas is typically bundled with the urban city spectrum, it is unavailable for fixed wireless Internet networks. As a result, there is a very surprising number of people dependent on satellite in areas just outside major urban areas.

45. As an example, Map 1 below shows the location of satellite customers within the Toronto Tier 4 spectrum licence area. The customers are sprinkled around the protected greenbelt of Toronto on the **** Escarpment and the Oak Ridges Moraine. These areas do not permit development to occur in densities that would warrant wired networks. There is a lack of access to fixed wireless spectrum that prevents development of fixed wireless networks. This leaves a concentration of people, who can literally see the city lights, with satellite Internet service as their only option. While they would be better served by fixed wireless networks, they fall within the Toronto spectrum licence, which is the most expensive spectrum in Canada and not available for fixed wireless Internet use.

MAP 1
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46. This has led the Toronto tier 4 licensed area to become Xplornet’s single largest concentration of satellite customers. This has nothing to do with subsidizing service to rural and remote areas. It has everything to do with the licensing of fixed wireless spectrum in Canada and the geographic composition of the large urban spectrum licence tiers.

47. Misconceptions that providing Internet service in distant rural and remote areas is more difficult and more expensive than near-urban areas may lead the Commission to incorrectly assume that subsidies can resolve concerns about Internet service, when in fact the underlying causes and resulting issues may not be something within the Commission’s control.

48. In paragraph 4 of the Notice, the CRTC states “in many rural and remote areas, access to these services or to more than one TSP may be limited, which may impact the ability of consumers living in these areas to participate in the digital economy.” It is Xplornet’s experience that there is competition to provide Internet services in rural and remote areas but that the choices may be much more limited in a few near-urban areas.

49. The Commission should heed the Policy Direction and not subsidize where competitive market forces are providing a satisfactory level of service. Without understanding the specific issues that have nothing to do with the remoteness of the area or the cost of service, the Commission should not attempt any subsidy scheme.

50. Misconceptions about technologies can also lead to inappropriate decisions. The CRTC must maintain its technological neutrality and not pre-empt the competitive market.

Favouring certain technologies over others can lead to inefficient and expensive results that are not in the best interests of Canadians.

51. This was realized by the Australian Government. In 2009, Australia announced a $43 billion plan to create a publicly owned company to build a national high speed broadband network. The initial plan was to provide service to 90% of Australians through fibre networks and to the remaining 10% through fixed wireless networks. In 2013, the Government of Australia concluded that it was not practical to reach the last 7% of Australians through fixed wireless networks. At that time, they announced two direct to home satellites would be launched in 2015 to provide Internet in rural and remote parts of the country. The packages will have speeds up to 25 Mbps for downloadg and 5 Mbps for uploading. The decision to implement a direct to home high-throughput satellite service confirms what participants in the competitive markets in United States, Europe and Canada already knew – that satellite technology is the more efficient and higher quality solution for reaching remote customers.

52. Similar misconceptions exist about wireless technology compared to wirelines. Wireless technology has advanced significantly since 2011 and LTE networks are capable of speeds rivalling those typically provided in wired networks. The size and number of wireless networks, including both mobile and fixed wireless networks, have grown and expanded coverage. Prices have converged to the point where the cost of a broadband Internet package in certain cities is now equivalent to the price of a package with similar speeds and data allowance provided using wireless technology in rural areas. Given consumers are increasing indifferent between the technologies, as evidenced by their preference for - 12 -

wireless routers in their homes instead of Ethernet cables and by the number of Canadians opting for only wireless telephone service, there is no reason for the Commission to differentiate between the services provided through wired or wireless networks.

53. Xplornet respectfully submits that the Commission should remain technology neutral and avoid trying to over-engineer the “right” technology solution. Generally speaking, the competitive market is the best selector of technology and will drive innovation to find solutions.

54. There is also a frequent misconception amongst government agencies and departments that 100% availability should also mean sufficient capacity for 100% of Canadians.

Xplornet continues to increase its capacity to handle the demand for its services and fully expects other ISPs will do the same. However, there are areas where the network capacity of Xplornet and other ISPs exceeds the demand, and yet less than 100% of the Canadians in those areas are online. It is of paramount importance that the Commission not confuse availability of Internet service with adoption of Internet service. Service is available to 100% of Canadians but only 84% have chosen to use the Internet. In designing policies and regulations, the Commission should be cognisant that the real issue is not the availability of networks or technology, but rather the issue of adoption, which is tied to awareness, education and economic factors.

55. Internet access is not the only element required to participate in a meaningful way in the digital economy. Other equipment, such as a PC or other digital device is required, as is a certain level of digital literacy. While children and younger people have grown up with computers and the Internet and have generally received instruction with respect to their use at school or home, there are many older people and people who are socially and economically disadvantaged that are not digitally literate to a sufficient degree to participate in a meaningful way in the digital economy. These people are being left further behind, or in some cases, have no interest in participating in the digital economy. While Governments have talked at length about the need for more digital literacy, there has been little concerted effort to extend digital learning to those who need it most. Given approximately 14.4% of Canadian households do not have a computer,4 it is unlikely that requiring Internet access be available to 100% of Canadian households will close the adoption gap in a material way. Subsidizing Internet access will not address the lack of computers that are necessary for 100% participation in the digital economy.

4 Statistics Canada, Survey of Household Spending, Dwelling Characteristics and Household Equipment Table 203-0027 – year 2013

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ALTERNATIVE FRAMEWORK

56. The remainder of this intervention responds to the specific questions posed by the Commission in its Notice of Public Consultation.

57. However, before responding to the Commission’s questions, Xplornet would like to briefly present a view of how the marketplace for telecommunications services looks to a participant that, with just 10 years experience, is a relative new-comer not burdened by the historical way of thinking about the telecommunications business.

58. From Xplornet’s perspective, there is only one marketplace and really only one product or service. As a result of advances in technology, all telecommunications today is essentially reduced to bits and bytes. It moves across Internet Protocol (IP) networks. Each network may be configured slightly differently to achieve different results, but at the heart, all IP-networks are moving 1s and 0s from point A to point B. Traffic may be separated into “voice”, “video” and “data” components but it is all still electronic traffic and still moves through IP networks.

59. How the traffic moves varies widely - but that is the great thing about technology. It gives you choices for how to best move the traffic to meet the needs of the consumer.

60. If you start with the premise it is all IP traffic, you quickly realize there are a myriad of substitute ways of delivering that IP traffic that include legacy telephone lines but also many other alternatives. For a customer, what is the difference between a call on a traditional telephone plugged into a jack served by a twisted pair telephone line, a smart phone connected to a mobile wireless network and a cordless phone plugged into an ATA connected to an IP-based network delivered through wired, wireless or satellite technology? They are functionally the same. The CRTC itself acknowledged the trend in paragraph 8 of Telecom Notice of Consultation CRTC 2015-134 when it noted that 20.4% of Canadian households rely only on mobile wireless services. A similar observation can be made about cable television and the substitutes that exist through IP-based networks, such as Netflix and YouTube.

61. This leads back to the purpose of this hearing. It is to discuss the basic service obligation for traditional telephone lines and whether to layer on an additional obligation to provide broadband Internet access. In principle, the original concept was that it was inefficient to have multiple telephone lines running to the same house. It was better to grant one provider, known as the Incumbent Local Exchange **** (ILEC), a monopoly to provide service in an area. Since that ILEC would have no competition, it was necessary to regulate the price that could be charged, thereby insuring customers paid a fair price and the ILEC achieved a reasonable return on its operations. The trade-off for receiving the monopoly rights in an area was the obligation to provide service. The ILEC basically had to serve anyone who wanted service within a certain proximity of its network. Sometimes that was expensive and there needed to be compensation for that extra expense of reaching the most distant of customers.

62. It was a practical idea in the early part of the last century. However, today there is no monopoly. In urban areas, there are typically at least two wires going to a home that can - 14 -

provide IP-based telephone service (ILEC and cable companies) and mobile wireless networks on top of that. In rural areas, there are multiple fixed wireless services that give the home or business access to IP-based telephone networks, along with the mobile wireless networks. In remote areas, there are at least two or more satellite services that provide the home or business access to IP-based telephone networks and possibly even ever-expanding mobile wireless networks as well that now cover 99% of the population.

There is competition. There are market forces constraining price. There is no place in Canada were service cannot be provided economically on a competitive basis through at least one of the available technologies for IP networks.

63. Given the world has evolved, does the basic service obligation regime still have a place in telecommunications? Xplornet believes the answer should be “no” as evidenced by the development of the marketplace. That development occurred in the unregulated portion of the marketplace – in IP networks, more commonly referred to as Internet access services.

It is a robust and competitive marketplace that includes the largest telephone and cable companies and, according the CRTC Communications Monitoring Report, over 500 smaller entrepreneurial enterprises that provide wireless Internet access service across Canada. It was the competitive and largely unregulated elements that allowed Xplornet to grow from a small start-up in Woodstock, New Brunswick in 2004 to become the one of the 10 largest ISPs in Canada. Xplornet is exactly the success story that the CRTC is supposed to create with an environment to respond to the economic and social requirements of users of telecommunications services, as reflected in section 7(h) of the Telecommunications Act.

64. It is from this view point that Xplornet respectfully submits that the time has come to eliminate the basic service obligation and support from the Contribution Fund. There are sufficient alternative technologies to provide voice communication today that this scheme is no longer necessary to insure service and plays no meaningful role in encouraging the economically efficient deployment of the right technology to serve the potential customer.

65. The idea of expanding a scheme that has outlived its usefulness in the telephone world to the highly competitive Internet access business is to invite trouble. It would be antithetical and unnatural to try to impose a scheme that came out of regulated monopolies onto the vibrant and competitive marketplace of IP network access. Canada is fully served by broadband networks, which will continue to improve through competitive pressures. It is economical to serve every part of Canada, as Xplornet has proven over the last decade.

66. If service is not sufficiently fast or robust in an area, that represents a business opportunity that at least one or two of the existing 500 ISPs might consider pursuing. In Xplornet’s experience, if service is lagging in an area, it is typically because either (i) demand has exceeded supply and the deployment plans to expand have not been completed yet, or (ii) there is a structural impediment in the marketplace (such as the spectrum issue in the Toronto greenbelt). Neither of these situations would be resolved by introducing a basic service obligation scheme. If the CRTC needs any evidence, it need only look at its own Deferral Account and the results of that scheme. Throwing money at the problem and forcing someone who did not want to deploy a network in that area, did nothing more than stall investment by those who did want to serve the area and delay deployment. Service - 15 -

for consumers could have been obtained much quicker without the ill-fated intervention that the prior CRTC Chair admitted was “a bad idea”.

67. In the interests of not repeating history and not trying to impose a monopoly based scheme into an otherwise healthy marketplace, Xplornet strongly urges the CRTC not consider extending the basic service obligation scheme but rather to let it come to an appropriate end. While Xplornet has answered the questions posed by the Commission in the sections below, these answers should be considered against the background outlined above.

RESPONSE TO QUESTION
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?

68. Telecommunications is being used for a myriad of functions, too numerous to enumerate with any degree of accuracy. New uses are emerging daily. Among the most common uses are:

 Communication between family and friends (such as voice, video or email)  Communications with and between businesses, including both ecommerce (shopping) and obtaining product or service information

 Emergency Response

 Entertainment (including music, movies, television, books, games, etc.)  News, Sports and Weather Information

 Social Media
 Downloading and interaction with applications
 Tele-learning
 Tele-medicine and telehealth
 Interaction with Government
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 The Internet of things

 Research including scientific and informational (such as finding directions or food recipes)

 Banking
 Remote work by individuals

69. It is difficult to rank these uses in order of importance since individuals, businesses and governmental agencies (government, schools and health services and police) are all likely to impose their subjective views to rank them. For young people, mobile texting, social media and streaming might be the most important functions, while for police, fire and other emergency services, mobile communications might be the most important. For an online business, e-commerce and e-mail will prevail. From a public health perspective, e-health, 911 and mobile wireless services might be the most important. For our economy and for regional development, Internet access, coupled with advanced communications services are likely the most important.

70. An Internet access service is the most important communications tool for the development of a digital economy. However, not all users necessarily need the highest speeds.

Customers rank email, search engines, weather reports, games, maps, entertainment (movies, music, books), news, sports and health applications as their primary focus when using the Internet. For those customers using e-mails, IP-voice services and web browsing, lower speeds may be fine. Since higher speeds cost more money, most users will weigh the cost against the speed they need to adequately support their usage. For other services like telemedicine or ultra high definition video streaming, higher speeds may be essential.

But that does not mean that everyone needs the same kind of capacity. It is dependent on the customer’s activities.

71. The competitive market has generally responded to this issue by offering different speeds at different price points. This enables users to select the service they require at a price they can afford, tailored to their intended uses. This value proposition has improved over time with higher speeds being offered at lower prices today than in 2011.

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?

72. With the evolution to digital communications, the technology or transmission medium is less important than its functionality. Broadband services in general can provide all of the services identified in question (a). Broadband can be provided by fibre networks, coaxial cable networks, ADSL or DSL over copper wire, fixed wireless networks, mobile wireless networks and satellite networks. Where there is a choice of networks, consumers will generally determine what speed they require and will select their ISP on the basis of who offers the most competitive package that fits their needs. Consumers have proven to be technology agnostic and, in a surprising number of cases, are not even aware of what technology is providing their service. Some individuals, including many elderly people do - 17 -

not require more than a basic telephone service to satisfy their needs. This service can also be provided using any of the IP-based networks described above, although generally a broadband Internet connection is not required to provide this single service, if that is all that is wanted.

73. The technology used to provide Internet services will vary depending on the location of the customer and the density of population being served. Generally speaking, cable-based services and fibre or DSL services will be the best solution in dense urban markets where these networks exist. Outside of areas served by these networks, fixed wireless networks will make sense whenever the population density justifies the construction of a broadcast site and connection to backhaul and transit facilities. In lower density areas or where there may be terrestrial impediments to wireless service (such as rocks, dense trees, etc. that block radio frequencies), broadband satellite can be used to fill in the coverage gaps.

74. What characteristics a telecommunications service should have is dependent on what that service is intended to do for the customer. Capacity and speed are largely irrelevant to a telephone line. Latency is meaningless in a broadcast context. Mobility is not important for an Internet connection to a desk top personal computer. Xplornet’s experience is that Internet customers want sufficient speed to do what they want to accomplish online (which varies depending on their specific uses), a reliable connection and an affordable price. The latency of satellite is only a potential impediment to a small percentage of Canadians who engage in online first-person shooter games and live auctions. It is not relevant for activities like streaming video through Netflix and is acceptable for IP based telephone services, much like latency has been fully accepted by consumers within mobile wireless networks. Ultimately, it will be the customers in the market who determine what technologies best address their needs in which circumstances.

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.

75. Xplornet believes that broadband Internet access should be and is already available anywhere in Canada that has power to run a computer or recharge a mobile device. Satellite networks, largely built using private funds, fill in the gaps in the terrestrial networks that serve the bulk of the Canadian population. Between wired and wireless technologies (include mobile, fixed and satellite with its ubiquitous coverage) availability of service is not a barrier to participation in the digital economy.

76. Given this availability, the barriers to meaningful participation in the digital economy are affordability, digital literacy and lack of interest by potential users.

77. Affordability can present a barrier in all parts of Canada, regardless of the number of potential suppliers. There is a segment of the Canadian public that simply cannot afford Internet access and the necessary computer equipment or digital device required to participate. This segment is spread across the country – in urban, rural and remote areas.

A subsidy program addressed to geography (rural and remote areas) or technology (cable or DSL) will not begin to address this issue.

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78. While rural and remote areas of Canada have traditionally been high cost serving areas for legacy telephone lines, prices charged by Xplornet and other ISPs in rural and remote areas are not materially different from urban prices. As an example, Internet services in Alberta cities are comparably priced to service being offered in rural Alberta areas on fixed wireless 4G LTE networks.

79. Xplornet does not charge more to serve Canadians in remote regions. The same prices apply nationally to the satellite platforms. The issue of affordability is therefore not tied to a rural or remote location but rather to a segment of Canadian society. It is a national issue.

80. As indicated above, Canada’s spectrum policy can be a barrier to the provision of broadband service in areas surrounding large urban centres like Toronto. The fact that spectrum is auctioned to the highest bidder in these urban markets means that companies like Xplornet cannot get access to the spectrum required to serve these peripheral areas within the urban tiers. This has resulted in more people in the Toronto tier using Xplornet’s satellite service, than in any other tier in Canada. The fact that broadband satellite resources are being consumed by customers in large urban spectrum licensing tiers is indicative of a barrier to service created by a flaw in spectrum licensing policy.

81. There is also a segment of the Canadian public that has no interest or does not see the value in the Internet, either due to age, lack of technical savvy or the absence of knowledge about what they can do if connected to the Internet. Better digital education programs can reduce the number of those falling into this category. However, like the economic factors, these social factors are not confined to an geographic region of Canada.

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

82. Spectrum policy could be a more effective enabler of Internet services. As indicated above, current spectrum policy tends to auction the rural parts of urban markets as part of a single tier licence. This makes it too expensive for companies that focus on the rural segment to purchase this spectrum. In addition, there has been a trend of converting fixed wireless spectrum to mobile usage either on a co-usage or an exclusive basis. This is leaving less spectrum available to serve customers in the rural parts of large urban tiers. The economics of bidding on spectrum in these tiers does not support the provision of fixed wireless services to customers in these peripheral areas.

83. There is also a need for more focus on digital literacy. Only through education will those Canadians who are wary of the Internet change their minds and join 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.

84. Xplornet believes that the same answer applies to the future as applies today. All of the telecommunications services described in paragraph (a) can be provided via IP networks.

In fact, all telecommunications traffic is becoming IP-based, including voice, video and data. Carriers are evolving their old networks to be IP-based and deploying new IP-based networks. Mobility is a relative concept given mobile wireless networks carry voice, video and data traffic, and fixed networks, which support voice, video and data, can hand off to Wi-Fi sites thereby replicating the same nomadic experience. It is meaningless to talk about old concepts of telephones, televisions and the Internet, and to regulate each one based on its historical technology. It is all IP traffic within a network and that network can have both wired and wireless aspects within it.

85. For Canadians to participate meaningfully, they need access to an IP-based network that best suits their needs (be it mobile or fixed/nomadic, or both) and digital literacy programs to help make sure they are aware of all that technology can do for them.

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?

86. Xplornet believes that the Commission’s current target speeds for broadband Internet access service are sufficient to meet the minimum needs of most Canadians today. This target enables VoIP, e-mail, video streaming, use of applications, e-learning, entertainment, shopping, banking, access to government services, social media, gaming, emergency services, research and remote work to function.

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87. While certain levels of telemedicine and ultra high definition video entertainment might require higher speeds, this does not require all Canadians to have these speeds. Tele-medicine and ultra high definition video entertainment can be addressed by having a higher speed supplied at a different price. This is also true of certain other applications that might require a higher bandwidth, such as large business applications or distribution centres, data centres, etc. However, such enterprises are usually located in areas that have higher speed services available using fibre or other high capacity network services.

88. But today’s target speed is a minimum. As the technology continues to evolve, Canadians should aspire to a target speed of 100 Mbps by 2020.

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.

89. Access to a reliable IP-based network fast enough to meet the needs of consumers that connects Canadians to each other and the world, be it through the Internet or otherwise, has become a basic telecommunications service necessary for Canadians to meaningfully participate in the digital economy. For consumers, this translates to access to the Internet but for businesses may mean something more, including secured cloud access or private networks. This connectivity is basic in the sense that one cannot participate in the digital economy without being able to reach it through the Internet. However, as noted above, a certain level of digital literacy and a computer or other digital device is also necessary to participate.

90. The fact that an underlying service is required to participate in the digital economy does not mean that the CRTC has a role to perform in regulating it.

91. The Commission has stated on numerous occasions that the retail market for Internet access services is a competitive market with a level of competition necessary to protect the interests of users. While the Commission has regulated wholesale access to the networks of the ILECs and largest cable companies in order to ensure sufficient competition in the retail market, it has not found it necessary to regulate retail services. The fact that there are 500 ISPs in the Canadian market bears testament to the high degree of competition in this market - a very different picture from the historic situation in the local telephone market, which started out with a single service provider.

92. Under this framework, the retail market has evolved using a number of technologies to supply Internet access with increasing speeds over time. This process continues. In the past few years, developments in satellite technology, have enabled Xplornet to increase the speeds it offers from 500 kbps to 10 Mbps and for fixed wireless, from 500 kbps to 25 Mbps, all without regulation or mandates. At the same time, prices for packages with faster speeds (based on Mbps) have declined steadily.

93. Xplornet believes that its competitors have similarly increased their speeds and data allowances and dropped their price per Mbps over the same time.

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94. In its Notice of Consultation, the Commission has pointed out that in the recent Satellite Inquiry Report, approximately 18,000 households in satellite-dependent communities in the Yukon, Northwest Territories and Nunavut, as well as in certain remote areas of British Columbia, Saskatchewan, Manitoba, Ontario and Quebec are without access to broadband internet service at the Commission’s targeted speeds. As indicated above, this situation will be short-lived. These customers will have access to Xplornet’s 5 Mbps download and 1 Mbps upload service on Anik F2 by the end of this year, and access to a 25 Mbps download and 1 Mbps upload service on Xplornet’s new high-throughput satellites scheduled for launch in 2016.

95. Xplornet notes the Commission’s statement in paragraph 31 of its Notice of Consultation that in 2013, approximately 1.2 million, or 9%, of Canadian households did not have access to broadband Internet service at the Commission’s target download and upload speeds.

More recent statements by Minister of Industry indicate that as a result of the Government’s Economic Action Plan for Canada, only 2% of Canadian households will be without high-speed service by 2017. Xplornet questions whether any Canadians will fall outside of its satellites’ combined coverage of all of Canada by the end of this year, As a result, there is no evidence of a compelling market failure to warrant intervention by the Commission in the private market. In fact, the opposite is true. There is compelling evidence the Commission’s decision to forebear regulating these telecommunications services has had a beneficial result for Canadian consumers.

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.

96. Xplornet does not consider that technology should be a factor in defining whether a telecommunications service should be considered a basic service. As noted above, voice, video and data are being communicated by IP-based networks. Classifying a service by technology is artificial since all of the above noted technologies can move IP from a consumer to the Internet and back, and therefore perform exactly the same end-function for a consumer. Which technology provides that functionality better, is dependent on a number of factors, including population density, topography, rate of interactivity and need for portability. It is broadband functionality that is required by Canadians to participate in the digital economy - not a specific technology.

97. As in Canada, countries around the world are looking to satellite technology to fill in coverage gaps in rural and remote areas. This includes the United States, Australia, New Zealand, United Kingdom, Indonesia, Spain, and Europe in general.

98. In accordance with the Policy Direction, there is requirement for regulations respecting access services to be technologically and competitively-neutral. Users will be attracted to the low cost service that provides the functionality they require. The Commission should not distort the market by creating unnecessary regulations on one type of underlying technology.

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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)?

99. As a general proposition, Xplornet believes that the provision of Internet services should be unregulated. Market forces are sufficient to ensure that the terms are just and reasonable. The limited regulation has encouraged 500 entrepreneurial Canadians to offer Internet services where there was a need. Had there been increased regulation that created barriers to entry, fewer ISPs would exist today.

100. Where services are provided with assistance of a government program, such as the Economic Action plan for Canada, there are usually strings attached to the subsidy received. In Xplornet’s experience, this usually relates to minimum upload and download speeds and price. Xplornet believes that this is appropriate when subsidies are received to provide a service in an unserved or underserved area. However, in all other cases, terms and conditions should not be regulated, except where the Commission has made as specific determination such as the case of traffic management practices or confidentiality of customer information.

101. In the case of local telephone service, Xplornet believes that the time has come to stop subsidizing service to high-cost areas. With mobile wireless service available to 99% of the population and IP-based voice service available to 100% of the population by the end of this year, there is no longer a need to subsidize a legacy telephone network. There are substitutes available to all Canadians and the pricing of these services generally does not vary by location.

102. By the end of this year (2015), Xplornet will offer a service with speeds of 5 Mbps down and 1 Mbps up in all regions of Canada and by 2017 all Canadians will have access to its 25 Mbps down and 1 Mbps up service. There is no need for regulation in this market.

103. As noted above, since the last hearing in 2011, speeds and data allowances have increased and prices on a per Mbps basis have decreased without regulation. Demands of customers in the competitive market have been the sole driver of these changes. As a result, there does not appear to be a rationale for creating a service obligation or regulations for the provision of Internet access services.

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

104. The competitive market should determine the price for high-speed Internet services.

Market forces are strong enough to ensure that customers are not overcharged. The only exception should be for services that are provided pursuant to a subsidy program like the Connecting Canadians program. In such cases, it is fair to contractually tie a maximum chargeable price to a competitive bid for subsidies.

105. There are a wide variety of technologies being used to deliver Internet access services and it is unrealistic for the Commission to assess the cost of each technology and become an - 23 -

expert for the purposes of determining prices. If the Commission had initially done that years ago, Xplornet would never have been able to bring satellite services into the marketplace. These services were very expensive initially but as the technology developed and the number of customers scaled, Xplornet was able to reduce the price because the per customer cost declined. But for those brave souls who were willing to pay the original monthly fees as satellite technology was developed, Canada would be in a very different position today. Put another way, had the Commission capped prices at say $100 per month in 2006, Xplornet would not be here today.

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?

106. The evidence shows that market forces can be relied on to ensure that all Canadians have access to basic telecommunications services.

107. Xplornet is proof of that statement. Xplornet is not an ILEC. Xplornet is not a cable company. The Commission had no way of regulating or forcing Xplornet to come into existence and provide service. Xplornet did so because there was a market opportunity.

Xplornet is still investing today and plans to continue to invest, not because of any regulation or government program, but solely because Xplornet needs to keep improving service to customers to remain competitive.

108. It took decades for the Canadian telephone industry to roll out service to all Canadians, largely in a monopoly environment, and it has taken until comparably recent times to ensure that the quality of service received in rural and remote areas is comparable to that which is received in urban areas of the country.

109. When one looks at the rollout of Internet access services, it has been an accelerated process in a competitive market. The changes in technology have occurred at a faster rate and multiple technologies have been simultaneously deployed. We now have a situation in which fibre, cable, fixed wireless, mobile wireless and high-throughput satellites are all being used to serve Canadians. While there have been assistance programs from the federal, provincial and local governments from time to time to accelerate the deployment of services in specific rural areas, Xplornet believes that most of the network investment in rural and remote areas has come from private capital and been driven entirely by market forces.

110. As stated by Industry Canada as recently as May 20, 2015, the latest Economic Action Plan for Canada will result in a further 356,000 families being served by high-speed Internet access services by 2017, leaving a relatively small sector of the population (estimated at 2%) still to receive service at the CRTC’s targeted speeds. As discussed above, these Canadians will have access to service with speeds of 5 Mbps down and 1 Mbps up by the end of this year.

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111. There is therefore no need for a subsidy system to ensure access. The competitive market will have completed the job and, going forward, will ensure that prices are competitive and service levels improve.

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?

112. With respect, Xplornet does not believe that the Commission should extend its existing contribution regime to Internet access services. To do so on a targeted basis, based on either high cost areas or low incomes, is too complex given the degree to which Canadians already have access to the Internet. The CRTC’s own experience of trying to target subsidies based on geographic territories that lack Internet services delayed the introduction of service by other non-ILEC providers, and in other cases resulted in the ILEC being subsidized to provide service to areas that were already served by other providers. As the former Chair of the Commission stated at the last review of Basic Services, the deferral account was a “bad idea”.5

113. The fact that Xplornet’s satellite service has more customers in the Toronto tier, than in any other region of Canada is a testament to the flaw in Canada’s spectrum policy that fails to make sufficient fixed wireless spectrum available to ISPs. It is also a testament to the fact that focussing on rural and remote areas is not the answer to Canada’s broadband issues. Nor is poverty restricted to rural or remote areas. So focussing on high cost service areas is not the answer. Moreover, Xplornet charges the same for it satellite service across the country because it costs the same to provide service from the same satellite in Toronto as it does in Nunavut. Why would a subsidy extend to a satellite user in northern Canada and not to a satellite user in **** Ontario, given the cost to provide the service is the same? In the absence of any objective basis for determining the quantum or allocation of subsidies, it is simply too difficult to target subsidies in an effective manner without distorting the functioning competitive market.

114. Respectfully, the Commission is not the appropriate branch of government to be attempting to address the affordability issues. As indicated above, there is a segment of the population that is unable to participate in the digital economy and this is because they not only do not have access but lack a device for access. It is likely equally true these Canadians may also struggle to participate in other aspects of society because of the lack of financial means. A broader social program needs to address these issues and is not a matter for the Commission.

115. In Xplornet’s view, the Commission role should be to continue to monitor the rollout of broadband services and to continue to set target speeds. If the Commission can play a meaningful role in promoting digital literacy, that may be an appropriate area for action.

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 5 Telecom Public Notice CRTC 2010-43, Transcript 1, Timmins, October 26, 2010, paras. 986 and 987.

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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?

116. As indicated above, by the end of 2015, all areas of Canada will have access to Internet service with speeds of 5 Mbps down and 1 Mbps up. If individuals are not obtaining the speed purchased, those are matters best handled through the Commissioner for Complaints for Telecommunications Services (CCTS) process.

117. The Commission needs to be cognizant of the fact it takes time to deploy new network infrastructure after an issue has been identified. In some cases, service extensions may be planned for the area in question (such as the projects planned pursuant to the Economic Action Plan). Given that there are companies in the market that want to serve Canadians, it is unclear what action would be appropriate for the Commission to take that would not have been disruptive to the current expansion going on.

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.

118. Xplornet believes that it would be a mistake to introduce a new subsidy program targeted at Northwestel’s operating territory or elsewhere. Northwestel already benefits from the existing contribution fund to provide telephone services to end-users. There is no reason to suppose that Northwestel is the low cost provider of Internet access services in the **** and it is definitely not the only supplier. Subsidizing Northwestel to provide broadband access services would cut into Xplornet’s business, that is funded by private investment.

Xplornet already serves the **** of Canada, including the Northwest Territory, Yukon, Nunavut and the northern regions of the provinces. SSi provides similar services. A new subsidy program would essentially result in private investment being replaced by public investment to subsidize Northwestel’s provision of high-speed Internet service. Xplornet would then concentrate its services on other areas of Canada. This would not result in better service - it would result in a higher cost to Canadians and less competition in the ****.

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?

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119. In Xplornet’s view, this type of mechanism could have a very negative impact on private investment, as well as on other government funding programs. Since Xplornet already serves Northwestel’s operating territory using broadband satellites, a new subsidy program would undermine the investment that Xplornet has already made, and curtail new investment plans. Government funding is also likely to dry up in any areas that the Commission plans to subsidize. Further, as publicly announced, Xplornet is launching a new satellite that will serve most of Canada, including the ****, in 2016. It would appear fundamentally at odds with the policy objective of relying on the competitive market to the greatest extent possible, to subsidize one party, knowing there is a private investment in new network that has already been made.

120. Xplornet also fears that any subsidy program initiated by the Commission is likely to be of much longer duration than the typical Government program to assist in the construction of infrastructure. ****-term subsidy systems are not needed and would likely end up costing far more money over time. Lack of competition would inevitably mean poorer quality services than would otherwise be available.

Regulatory measures for basic telecommunications services

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

121. Xplornet respectfully submits that the time has come to get rid of the contribution regime.

The amount of the subsidy has diminished over the years as high cost areas have shrunk and the cost of providing service has been reduced over time. **** in 2000 when the Commission moved to a per minute contribution rate for all carriers and TSPs with telecom revenues in excess of a $10 Million threshold amount, the total subsidy amount for the large ILECs was $920.4 million6, whereas by 2014, it had shrunk by 91% to $80.4 for the large ILECs, or a total of $115.1 million including large and small ILECs and Northwestel.7 Xplornet wonders whether the provision of basic service in a $44 billion telecom market really depends on receiving this subsidy.

122. Regardless of whether the existing regime is retained, under no circumstances should the regime be extended to Internet access for the reasons provided above. The Government of Canada’s targeted subsidy plans have been very successful in extending the reach of Internet services in Canada and it appears are on the verge of completing the job and Xplornet’s has already made the investment to complete the CRTC’s target. This is not the time for a new CRTC subsidy program.

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

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

123. While it is certainly possible to consider broadband Internet service as a basic telecommunications service, this status does not justify the creation of a subsidy regime to support it. There are many services that Canadians consider to be essential or near-essential 6 Decision CRTC 2000-745, at paragraph 123.

7 Telecom Decision CRTC 2014-627, at paragraphs 10-19.
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to their daily lives and very few of them are subsidized. As previously discussed, the Internet market in Canada has been competitive from day one. There are now 500 ISPs in Canada. Internet speeds and data throughput have increased over time as the price per Mbps has declined. The competitive market has been very successful in extending service through multiple technologies to all Canadians. The case to make this a subsidized service does not exist. Subsidizing Internet service will mean establishing a speed for the service, which in itself will be limiting for consumers. Experience over the past five years has shown that speeds have greatly increased in a competitive market. This might slow down in a regulated environment. A subsidy regime will also mean picking winners and losers in what is a competitive market today. This will serve to reduce competition which drives innovation and price reductions in this market segment. The ultimate losers will be consumers.

124. The Commission’s only experience with broadband subsidies was the Deferral Account mechanism. That regime only benefitted the ILECs and had a negative impact on competition. It also led to new private investment being put on hold for a few years in the areas being subsidized. The Deferral Account program was counter-productive and set competition back by a number of years. Ultimately, it resulted in the delay of service extension to many Canadians. Further, technology changed so rapidly that by the time the projects were to be deployed, that the original proposals were no longer relevant to the marketplace. That experience ought not to be repeated.

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)?

125. The current regime of only extending the subsidy to the ILEC is unfair and it is not technologically neutral. It is quite possible for an end-user to receive a subsidized local telephone service, while additionally subscribing to a mobile phone service or a VoIP service. The subsidy no longer makes sense. Ninety-nine percent of Canadians now have access to mobile networks. All Canadians have access to Internet services that can support IP-based voice services. The subsidy to local service is now stale-dated. If the Commission decides to retain the telephone subsidy system, it should be modified.

Portability should be reintroduced so that the customer’s provider of choice can provide the service and receive the subsidy. While the subsidy could still be set as it is today, the customer should be able to apply it to any form of local telephone it wants - wireline if available, VoIP or mobile. This should be a customer’s choice.

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.

126. It makes no sense for a company like Xplornet to help subsidize the ILECs’ provision of telephone or Internet access to end-users, when Xplornet has spent its own capital to launch and operate broadband networks and IP-based telephone services to serve the very areas that the Commission wants to pay an ILEC to serve. This underscores the waste inherent is such a scheme.

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127. Respectfully, the current scheme makes little sense. Xplornet, as an IP-based telephone service provider, is required to pay into the National Contribution Fund (NCF). However, neither Xplornet nor any of the infrastructure it builds, is eligible to receive a contribution from the NCF. Xplornet questions why any of its revenues are subject to this regime. It seems patently unfair and anticompetitive that Xplornet, who provides services in the most rural and remote parts of Canada without funding, must pay to subsidize a competitor building out wireline technology that may compete with Xplornet’s services.

128. Xplornet submits that the contribution scheme should be abandoned. However, if the Commission insists that it continue, the scheme should be restricted to a contribution based on revenues of ILECs from basic telephone lines. Given there are alternative technologies available, including mobile wireless telephone services and voice services on IP-based networks, all of which are competitive marketplaces, this scheme should be restricted to its original partipants (ILECs) and original concept (basic wireline telephone only). It should not be allowed to distort the competitive marketplace for other telecommunications services.

129. Under no circumstances should the Commission consider expanding this outdated scheme designed to address monopoly territories to the competitive market of Internet services.

130. If the Commission undertakes the ill-advised path of extending this contribution scheme to subsidize broadband Internet service, all ISPs should be required to pay into it. If not, it imposes costs on some but not all ISPs, thereby making the playing field unequal.

However, by doing that, the Commission is simply increasing barriers to entry for potential new ISPs who could be providing service, increasing the cost of Internet service to all Canadians and redistributing money that could have been put to work to improve service in one area by the ISPs into other areas selected by the Commission 131. Aside from the obvious market inefficiencies created by doing this, how would the Commission decide where to redistribute the money and to whom? As indicated above, providing satellite Internet services in Toronto costs the same as providing services from that same satellite in the ****. There is no “high cost” area to which the subsidy should be directed. There is no specific “incumbent” entitled to the customers or the money.

132. At best, the Commission should make the subsidy payable to whichever carrier is selected by the end user, ILEC or non-ILEC. This reversion to the original concept of a portable subsidy that travels with the end-user, is necessary to avoid the adverse impact that a contribution regime would otherwise have on the competitive market and avoid partiality.

In addition, only one telecommunications service should be subsidized. If the customer decides to have the subsidy apply to Internet service, it ought not apply to telephone service as well since the customer can use an IP-based voice service more cheaply if they have Internet access already. The customer should receive only one subsidy and should be able to choose the service it applies to.

133. It is respectfully submitted that the basic service obligation regime makes no sense in the context of a pre-existing competitive marketplace. The very foundation of the basic service obligation was that the incumbent telephone provider (ILEC) had a monopoly on providing service and, in exchange, had an obligation to provide service. In a marketplace where - 29 -

there are already 500 competitors, how does the Commission propose to create an obligation on one party to serve and provide compensation to just one party to provide that service? If the Commission could find an unserved area of Canada, how does the Commission propose to determine the amount of funding required and select the provider before one of the 500 existing market participants enters that very area? It defies logic.

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.

134. While the existing regime could remain in place for local telephone service, it would make more sense to eliminate it, given the relatively low level of total subsidy now associated with the contribution regime and given the fact that end-users of Internet access service can use that service for VoIP services. It no longer makes sense to subsidize the local loop given this alternative method of supplying telephone access. Many consumers are abandoning their local telephone service in favour of VoIP or mobile wireless service, which are not subsidized, and which can be provided by a number of carriers using a variety of technologies. The fact that more than 20% of Canadians have discarded wireline telephones in favour of mobile phones, and that number is growing, and a further group of Canadians have adopted VoIP service in lieu of local wireline service, underscores that local wireless telephone is no longer considered essential by Canadians. There are viable alternatives.

135. If the existing subsidy remains in place, it should be made portable and it should be applicable to any form of local voice service - wireline, VoIP or mobile at the choice of the customer. This would be a fully portable, technology-neutral regime.

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?

136. The customer should be allowed to apply the existing subsidy to any form of local telephone service provided by its carrier of choice - wireline, VoIP or mobile on a technology-neutral basis

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

137. Xplornet does not believe that funding should be provided to any regions. However, if the Commission considers that it should continue to be provided to support local telephone service, it should be applied to high cost areas related to the provision of local wireline services as it is now, but be payable to the service provider of choice of the customer using the technology of choice of the customer.

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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)?

138. The subsidy regime should end. However, if the Commission determines that it should be continued, then it should be technology neutral and should go to the service provider that the subscriber chooses. The subsidy should be available for one source of telephone service, at the customer’s option, whether it be fixed, mobile or VoIP.

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

139. It should be based on the least-cost technology to provide local telephone service in a high cost service area as currently determined, minus a rate agreed to by the Commission. The subsidy should then be made available to the carrier chosen by the customer regardless of whether that carrier provides wireline, mobile wireless, VoIP or other forms of telephone service. It should be the customer’s choice which carrier receives the subsidy, as was originally the case in a portable subsidy regime.

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?

140. There should be no funding. If the Commissions determines funding is to occur, it should be distributed to the carrier that the end-user selects to provide the service.

141. Again, this very question indicates the problems with considering extending the contribution scheme to Internet or other services. There is no monopoly to whom the payment should go. Any award, to any participant, will distort the existing competitive market. The fact that the question references “competitive bidding process” indicates there is, in fact, competition and argues for the Commission forbearing from regulating and imposing this scheme on Internet services.

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

142. Xplornet does not recommend subsidizing backhaul facilities, but if the Commission does decide to subsidize such services, they should be made available to any other carrier that requires access based on the incremental cost of the traffic carried plus a reasonable markup.

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

143. No. The subsidy for telephone service should be set based on the least-cost manner of providing local telephone service in high cost service areas minus a notional rate agreed to by the Commission. However, the customer should be allowed to apply this subsidy to any - 31 -

provider of local telephone service (VoIP, wireline, mobile etc. that it wants). The customer should have this option regardless of the price of the service being chosen. For example, the customer may value a mobile phone more highly than a wireline phone, or may decide that a VoIP service bundled with Internet access has a higher value to him or her. While the subsidy would remain the same, the recipient should be able to apply it to any form of local telephone service - wireline, cable, VoIP or mobile telephone.

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.

144. The existing subsidy should be eliminated and no new mechanism implemented. If the Commission decides otherwise, there should be a replacement system for the existing residential local wireline service subsidy. It re-injects the existing subsidy system with the portability that the contribution regime formerly had and extends the consumer’s choice of service provider to any provider of local telephone service, regardless of whether it is VoIP, wireline or wireless. The level of subsidy will be the same regardless of the choice of service provider or technologies.

145. **** ILECs and Northwestel would still be eligible for the subsidy if the customer selects them as their supplier of telephone service. There would be no need for a transition.

146. If the Commission decides to eliminate the contribution regime, as Xplornet strongly advocates it should, then there should be a transition period of one year during which the old regime would still function prior to being phased out.

147. Xplornet thanks the Commission for this opportunity to provide comments in respect of its Notice of Consultation.

***END OF DOCUMENT***