CRTC Looks Again at Wholesale Market for Fibre Networks

The CRTC has begun looking again at the issues around sharing access to networks—particularly attempting to encourage new investment in fibre networks. The introduction of the facilities-based forbearance test and the scheduled deregulation of non-essential wholesale services earlier in 2008 (Decision 2008-17) maintained the mandated access to incumbent networks (see Canada: 5 March 2008: CRTC Schedules Deregulation of Non-Essential Wholesale Telecoms Services). BCE later appealed against this, applying to the federal cabinet for a reversal of December's Decision 2008-117 on an application from Cybersurf Corp., supported by Distributel, MSNi, MTS Allstream, and Yak, relating to matching service speed requirements for wholesale internet services. Together with companion Order 2009-111 issued on 3 March 2009, this ordered Bell Canada to file tariffs for mandated wholesale ADSL services for any access speeds provided to Bell Canada retail customers (see Canada: 13 March 2009: BCE Appeals Fixed Network-Sharing Rules as Accusations Fly of Cell-Site Sharing Go-Slow). BCE had also attempted to assert that the decisions applied only to ADSL services provided over purely copper facilities and that incumbent local exchange carriers (ILECs) had no such requirement to offer matching speeds over fibre-to-the-node (FTTN) solutions as reference was made to service provided over copper facilities. The CRTC's decision found that the reference to copper facilities implied that a service that includes utilisation of copper facilities is subject to the matching speed requirement, implying that only a full fibre-to-the-home (FTTH) network could be exempted and not the FTTN/VDSL networks in deployment. The services supplied over the FTTN network were also not qualitatively different, providing only an old service—internet access—at new speeds.

The bid gained some traction with the governor in council referring the decision back to the CRTC for reconsideration, noting that the incumbents arguments on encouraging investment in networks had some weight: "It is critical that the regulatory regime provide a cohesive, forward looking framework that provides the proper incentives for continued investment in broadband infrastructure, encourages competition and innovation and leads to consumer choice."

The CRTC is therefore reconsidering the matching-speeds requirement, as well as competitor access to new types of internet access infrastructure with five main questions to answer:

1. Are the respective wholesale obligations imposed on the incumbent telephone and cable companies equitable or do they represent a competitive disadvantage?
2. Should incumbent telephone companies be required to provide access to the high-speed asymmetrical digital subscriber line (ADSL) access services located at the central office?
3. Should incumbent cable companies be required to provide access to the high-speed internet access services located at the head-end?
4. Should the matching-speeds requirement apply to aggregated ADSL access services?
5. And how should the Commission's essential services framework be applied to next-generation networks?

Outlook and Implications

The Globe and Mail reports that the week-long hearing is progressing with indications that the CRTC is retaining its original stance in favour of ensuring that wholesalers/resellers of internet services retain access to the incumbent networks. The BCE CEO attempted to draw an analogy between his own business and that of the Tim Hortons Coffee chain—that mandating network access would be equivalent to sharing its coffee—and that it would lose its competitive differential: “If they were forced to resell their coffee to Bob's corner store, they wouldn't go out of business, but their business model wouldn't be optimized”. Konrad von Finckenstein, the CRTC's chairman, disagreed with that analysis, noting that: “No it is not. For two reasons. One, Tim Hortons is not part of a network…Second, if Tim Hortons went out of business, it wouldn't be a national tragedy."

BCE's core argument remains that the new fibre networks require significant investment, which will not happen if it is not permitted to retain greater control over its networks. It is also unfair to require it to provide access in a competitive marketplace where other players can also invest in facilities-based infrastructure—mandated access is a legacy of the monopoly era and attempts to move into a competitive model. However, BCE, particularly Bell Aliant, has received some government subsidies for deploying fibre-based services in some regions, which undermines this point to some extent (see Canada: 1 June 2010: Nova Scotia Government and Bell Alliant to Collaborate on FTTH and Canada: 8 July 2009: Bell Aliant Partners with New Brunswick Cities for FTTH). The intention of mandating leasing arrangements is in part to allow competitors to build a market base and gradually build out network facilities. Given the lower access to capital and the restrictions on foreign investment (also under review, see Canada: 17 May 2010: Industry Canada Begins Push to Lift Foreign-Ownership Restrictions), there remain significant barriers to smaller players entering the market. There are not large numbers of competitors, but the incumbents also need to invest to compete with the cable companies, although this will be mainly in urban areas and wireless looks like it may increasingly fill in the gaps (see Canada: 20 May 2010: BCE Targets Cable TV Market and Non-Urban Wireless Coverage).