TORONTO – Calling 2013 “a pretty good year”, SaskTel president and CEO Ron Styles said this week that the provincial Crown corporation will come close to its financial targets ($1.2 billion in revenue, $93 million in net income) when it announces its annual results in April.
Styles was in Toronto on Monday and sat down with Cartt.ca to discuss the year past, the year ahead and some of the challenges posed by current regulatory uncertainty in Canada’s telecom industry.
The past year saw SaskTel continually add capacity to its wired and wireless network, continue to grow its fibre to the premises program, and expand its business customer fibre network into the cities of Moose Jaw and Saskatoon. The company’s FTTP program was expanded to pass another 40,000 homes in 2013, with the company actually hooking up a little under than 17,000 homes during the year. “In 2014, it’s going to be a continuation of the program,” said Styles. “We hope to pass around 33,000 (homes) and connect to 18,000.”. In addition, Prince Albert will be added to its business fibre network, he said.
In late February, SaskTel announced it will invest $322 million in overall capital expenditures in 2014, with about $183 million going toward its core Saskatchewan networks. Of that, approximately $61 million will be allocated to its FTTP and fibre to the business (FTTB) programs. As part of its FTTB program, SaskTel is converting existing DSL business customers to fibre. “I expect by the end of 2014, we’ll actually see us begin to shut down some of the old DSL systems, and those will be replaced by fibre,” Styles said.
The exponential growth in data usage on both its landline and wireless networks requires constant investment and in 2014, SaskTel plans to invest $36.8 million in ongoing 4G wireless network enhancements, as it moves wireless customers from its old CDMA networks to 4G and LTE (Long Term Evolution) technology. Styles said SaskTel has started to roll out LTE TDD (Time-Division Duplex) fixed-wireless technology in some parts of rural Saskatchewan, using the name SaskTel Fusion Internet for the broadband service. “So in the past where we didn’t have the ability to take 5 megabits per second (Mbps) out to a home or farm in rural areas, we’ll have that ability going forward in certain parts of the province… This is the first application of this technology here in Canada, and we’re quite excited about it.”
The CEO expects SaskTel will be able to offer rural customers speeds of 10Mbps within a year or so, using LTE TDD technology. He added the technology has demonstrated the ability to support speeds as high as 100Mbps. “Now, you need lots of spectrum and you’ve got to be careful about the number of people you have on a tower, but it (LTE TDD) definitely shows a lot of flexibility and a lot of potential growth in the future.”
He added that SaskTel could potentially start rolling out VoLTE (voice over LTE) and Advanced LTE in 2015 or 2016, depending on how fast the technologies mature.
“The only way you’re going to continue to increase capacity and the range of options that are available to people in rural Saskatchewan, and the speeds that are available, is by providing some sort of assistance." – Ron Styles, SaskTel
Turning his attention to government, Styles is happy the federal government’s recent budget included an additional $305 million in funding for rural broadband initiatives. “The only way you’re going to continue to increase capacity and the range of options that are available to people in rural Saskatchewan, and the speeds that are available, is by providing some sort of assistance,” he explained.
“We’re hopeful that we’ll be able to get in on the program, and that we’ll be able to use some of the technologies we’re exploring right now to make sure farmers and small communities and rural residences in Saskatchewan are all serviced with a better product – one that meets today’s needs. If you don’t have 5Mbps in this day and age, you probably don’t have enough speed to be able to function or operate a lot of the applications that are on the Internet.”
However, an ongoing problem in rural Saskatchewan, as in other rural areas of Canada, is the issue of unused spectrum, added Styles. “Anybody who’s bought spectrum in Saskatchewan, other than ourselves, they do not use or deploy spectrum into rural areas. Period. So there’s spectrum in places such as Canora, Saskatchewan, that has sat fallow now for over 25 years.”
In the recent 700MHz spectrum auction, SaskTel acquired 10MHz of spectrum in the C1 block for a little less than $7.6 million. The other 58MHz of spectrum licences in Saskatchewan were won by Telus, Rogers and Bell. Styles does not believe that 58MHz worth of spectrum will be used in rural Saskatchewan by the other carriers. “There’s no requirement for rural deployment in Saskatchewan for any of the people who won this other 58MHz. And the net result is they’re not going to improve capacity, they’re not going to improve propagation. You’re not going to get more distance out of it. It’s great spectrum, but if it’s not used, it doesn’t help anybody,” he said.
Long before the spectrum auction started, SaskTel voiced its concern that the auction format was biased against regional bidders, such as SaskTel, MTS in Manitoba, Videotron in Quebec, and Bragg in the Maritimes. “I think the results demonstrate that, because no regional bidders were able to win any of the preferred spectrum.” All four regional carriers acquired spectrum in the C1 block in their jurisdictions, whereas Rogers, Telus and Bell won spectrum in the preferred A, B and C blocks in every region of the country.
Styles said he hopes the federal government will hear regional carriers’ concerns and use an auction format that provides a “level playing field between the big companies and the smaller companies” when it conducts next year’s 2500MHz spectrum auction, scheduled to start in the spring of 2015. “We think there needs to be more attention paid to fourth carriers in Canada… There should be a little more focus on making sure those companies are in a position to continue to compete and be successful.”
“We’re the ones helping to keep prices down, and without us there, you’d be facing national prices in Saskatchewan." – Styles
Comparing the big three telcos’ national and regional wireless plans, Styles pointed out that Rogers, Bell and Telus all offer plans in Saskatchewan that are competitively priced with SaskTel’s offerings. However, according to the CEO, similar national plans marketed by the big three typically cost between $25 and $30 more per month. “It raises the question: how can the national carriers bring their prices down in places like Saskatchewan, but charge much higher prices in Ontario and especially in a place like Toronto? The basic fact that they’re running two different plans is really at the heart of it.”
This is a good example of why the regulatory framework in Canada needs to continue to support smaller, regional carriers. “We’re the ones helping to keep prices down, and without us there, you’d be facing national prices in Saskatchewan,” he said.
The current in-flux state of wireless policy is also hurting the company. “The dramatic changes going on between the federal government and the CRTC are creating an environment that it’s tough to predict exactly what the framework looks like to make good business decisions.” One issue of particular concern is the regulation of domestic roaming rates. “It could have any number of impacts on us from a long-term perspective,” he said. “If we’re required to carry others’ traffic and we don’t have the capacity, we’re wondering what that means for us. There are obviously financial impacts that might go with that as well.”
As part of its federal budget announcement in February, the Canadian government said it plans to amend the Telecommunications Act to cap wholesale domestic wireless roaming rates, as a temporary measure until the Canadian Radio-television and Telecommunications Commission announces its own decision on roaming rates.
“There was some talk about a short-term framework to operate within, and then a longer-term one by the CRTC, but we haven’t seen any real details,” Styles explained. “The (CRTC’s) public hearings don’t start until September…so we don’t anticipate the CRTC will be confirming the new regulatory framework for roaming until probably late 2014 or early 2015. In the interim, if you don’t have certainty, it freezes things.”
For example, carriers will probably hold off renegotiating roaming contracts in 2014 because the industry will be waiting to see what Industry Canada and the CRTC decide to do.
On the broadcast side, Styles said questions surrounding “pick and pay” regulations could have an impact on SaskTel’s IPTV service, Max TV. “This pick-and-pay idea, what’s that going to mean going forward? How is the federal government going to apply it? Does it apply to U.S. companies that we’re buying content from? The impacts, both financially and in terms of the business model, are quite open at this point in time, and it makes you reticent to make investments in areas that don’t have a sound foundation.”
Styles said 2014 may be a tougher financial year for SaskTel, as margins get cut and government initiatives, such as the wireless code of conduct, add a certain amount of regulatory burden and cost to the business.
He explained that SaskTel also has to implement a new billing system to handle the capping aspects of the wireless code of conduct and he anticipates the cost of the new system will be between $3 million and $4 million. “By having to accelerate the billing system, we’ve had to push a few other things off and there’s a cost associated with deferring things… If you’re halfway through a new system upgrade or a new build, and you’ve got to put that on the backburner, there’s a cost to set it back there and to reactivate it. Again, our numbers are between $3 and $4 million, and these hit our bottom line directly.”
