GATINEAU and YELLOWKNIFE – Northwestel has told the CRTC that unless it's allowed to levy a $20 per customer surcharge on standalone residential DSL customers in band H1 communities or receives an exogenous price cap adjustment of $8.5 million, its plans to continue a rollout of 15/1 Mbps Internet service to 42 more communities is in jeopardy.
The company's comments come in an appeal of Telecom Decision 2015-78 in which the commission ordered Northwestel to stop charging standalone DSL customers an extra fee and to cut lower-speed retail Internet rates by 10% and higher-speed ones by 30%. The revenue shortfall resulting from the March 4 ruling is so significant, it warns, that further expansion of high-speed services will be difficult.
“Indeed, the significance of the shortfall is such that, if certain elements of Decision 2015-78 are not changed or an exogenous factor is not permitted, then the $8.5M investment needed over the next 2 years to provide planned enhancements to enable 15/1Mbps Internet service for our terrestrial DSL Internet customers is at risk,” states the company in its June 3 appeal. (15/1 means 15 Mbps downstream and 1 Mbps upstream.)
Northwestel has implemented a Modernization Plan to upgrade Internet services in many communities. Under its plan, it had committed to deploy 15/1 Mbps service to 52 communities. Seven of them are now complete.
The CRTC ruled in 2015-78 however that “the additional fees may deter or prevent certain consumers in the North from participating in the digital economy. In addition, the Commission considers that the markups for DSL business Internet services are sufficient to allow the rates for those services to cover the local loop cost for stand-alone DSL service without additional fees.” The Commission added that requiring Northwestel to apply the same rates to customers in HCSAs as those in non-HCSAs “would further the Commission’s goal of ensuring that Northern Canadians are provided Internet access at reasonable prices.”
Northwestel says in its application that it's all well and good that the CRTC wants to encourage Canadians in the North to participate in the digital economy and be able to enjoy lower rates, but adds none of this can happen without service availability.
“While we acknowledge that the Commission’s decision has led to lower prices for Internet services in the North; the measures in Decision 2015-78 may not actually bring affordable Internet to Northern Canadians, since the funding to upgrade the terrestrial DSL Internet network is at risk. It is one thing to worry that the rates are too high, and therefore undermine the ability of Canadians to participate in the digital economy, but before one worries about the rates, one must first have to make sure the services are available. Decision 2015-78 does not meet that policy objective test because it undermines the incentive to invest,” argues Northwestel.
“Before one worries about the rates, one must first have to make sure the services are available.” – Northwestel
The company notes in its application that the Commission underestimated how the elimination of the standalone surcharge would affect demand for Internet-only services, and therefore overall Internet revenue. While the company wouldn't provide exact figures on the demand for standalone DSL since it was forced to eliminate the fee, it notes that DSL only customers have increased a rate greater than it anticipated.
“Without the stand-alone surcharge, we forecast that the demand for terrestrial residential DSL Internet stand-alone service will increase substantially, as shown in the table below (the table on page 11 of the application is redacted), and which will leave significant costs for local loops in band H1 unrecovered,” says Northwestel.
Because of the CRTC's failure to understand the impact on demand from the elimination of the standalone charge, it has undermined Northwestel's cost studies in support of its high-speed Internet rollout.
“Not only will there be less revenue to cover the loop costs due to rate reductions overall, but the re-rating of the stand-alone surcharge to zero will drive up demand for the stand-alone service. This is coupled with an increased demand for higher-speed and higher-cost/less profitable residential DSL Internet plans, as outlined below, which will increase the costs of terrestrial residential DSL Internet overall,” argues Northwestel.
Surcharges on standalone Internet are standard practice with many ISPs operating in Southern Canada, the company noted, pointing to Distributel, TekSavvy, Execulink, Acanac and even Bell Aliant.
“These extra fees charged to customers subscribing to stand-alone DSL Internet access are charged to recover costs associated with the local loop required to provide DSL Internet access, which are not recovered through the rate associated with the DSL Internet access itself. Often, these fees are meant to simply recover a cost that the Internet service provider (ISP) incurs when it buys a dry loop from the ILEC,” says Northwestel.
In the event that the Commission is unwilling to let the company adopt a $20 surcharge on standalone residential DSL customers, then it suggests an exogenous price cap adjustment as alternative solution. It acknowledges that this is a unique situation, but argues the application meets the appropriate criteria.
If a $20 extra fee on standalone customers isn't acceptable, says Northwestel, then “the next best option is the spread the costs across all Internet services, so that the costs are born by customers of the retail service that is the subject of Decision 2015-78 as well as the net beneficiaries of the investments we are making in high speed Internet under the Modernization Plan.”
