Competition breeds innovation. That’s the logic behind the Canadian telecom regulator’s decision to end Northwestel’s monopoly on the telecommunications industry in the north.
The Canadian Radio-television and Telecommunications Commission (CRTC) ruled Wednesday that it will open the Yukon, Northwest Territories and Nunavut to the kind of local business and residential telephone competition the rest of the country has had for years.
“For the first time, many northern residents will be able to choose an alternate local telephone service provider,” Leonard Katz, the CRTC’s vice-chairman of telecommunications, said in a statement. “Competition will be introduced as soon as possible to bring choice and innovative options to Canada’s North.”
Competition will start May 1, 2012 in some parts of the region.
The decision was almost a complete dismissal of Northwestel’s service, which is owned by Bell Canada’s parent, BCE Inc. [TSX: BCE]
“We are disappointed that Northwestel, which has until now been the sole provider of local telephone service in the North, has not made a greater effort to improve its services,” Katz said in the press statement. “Many communities have been plagued by service outages and certain features are not widely available to customers. Northern residents deserve to have access to reliable and high-quality services comparable to those offered in the rest of the country.”
In the decision the CRTC noted that since 2007 Northwestel has received over $20 million a year as compensation for providing service in remote communities, during which its annual income from operations has nearly doubled to $69.3 million in 2010. “Despite this," the decision said, "the company has failed to make the necessary investments in its network. Northwestel’s infrastructure is aging and services comparable to those provided in the rest of Canada are unavailable in many remote communities. The commission is also concerned that this situation has likely affected the quality, reliability, and choice of services available to customers, as evidenced by a number of outages in various communities and the lack of service options."
The subsidy will continue this year, but the telco’s request for additional funds was denied.
Northwestel has six months to submit a plan detailing how it will modernize its network.
Iain Grant, managing director at the Montreal-based Seaboard Group telecommunications consultancy, said the decision is a huge step for business in the north. “It’s a bottleneck,” he said of the existing situation. “Until this ruling, competitors were not allowed to own [telecommunications] facilities.”
Grant said the decision appears to have been pushed by Northwestel’s recent request for more money from the government, an allowance to charge $2 more per line and an extension of its TC monopoly. “They’re talking about taking the money that we give them ... to take additional money to upgrade the capabilities of the old switches, which is something they ought to have been doing anyways,” he said. “Northwestel has been holding its nose and saying ‘this is so expensive, you don’t know how tough it is’...maybe it’s time to let someone else ease that burden from you.”
In fact, Grant said the aging infrastructure, composed of more than 20-year-old switches, is so far behind the current state in the rest of Canada it needs replacing, not upgrades. “The cost of offering IP-based services is actually very low. You don’t need a switch, you need a $2,000 PC,” he said.
One provider that could benefit from the ruling is Yellowknife-based SSi Micro, the largest ISP in the north. CEO Jeff Philipp said the decision means a lot to business. “With today’s decision, the CRTC has clearly ruled on the side of of choice and innovation,” he said. However, Dean Proctor, the company’s chief development officer, maintained that it’s not out of the woods yet. “The next key step will be a decision by the CRTC on our application concerning Northwestel’s discriminatory pricing for backbone services to the south.”
This has been one of the main points of contention over Northwestel’s handling of telecom infrastructure in the north. Grant said. Because Northwestel’s wholesale pricing is so far out of whack with the normal markup of goods and services for the rest of the Northwest Territories, it has prevented companies like SSi Micro from having a true chance at using its infrastructure. Fibre optic lines run north from Alberta but, not coincidentally, Northwestel currently is selling use of them. “The key thing is that Northwestel has been charging an enormous amount for wholesale,” he said. “(Now), competitors could band together and buy another pipe, in this case fiber, south from Alberta.”
Grant also pointed out that, while fibre costs are higher in the north, it’s a relatively known quantity now, and one that is not prohibitive.