“If we see rates rolled back to
what NorthwesTel’s proposing,
we won’t be in the Yukon, I
can guarantee you that.”
NorthwesTel is asking the Canadian Radio-television and Telecommunications Commission to reconsider a ruling that knocked its wholesale Internet rates down by 70 per cent.
After examining a cost study of NorthwesTel’s operations, the CRTC concluded that the telco was grossly exaggerating its costs.
For example, while NorthwesTel said that it was 60 times more expensive to lay fibre-optic cable in the North than in the south, the commission found it to be only twice as expensive – a conclusion NorthwesTel still disputes.
In February, the CRTC set the rates for NorthwesTel’s Wholesale Connect service – the wholesale Internet transport service used by its competitors – at 30 per cent above what it determined the true costs to be.
It was the latest in a string of decisions that went against the telco, and a significant win for its competitors, who had long argued that NorthwesTel’s rates were effectively blocking them from offering services in the North.
But NorthwesTel argues, in a filing last week, that the CRTC’s decision will really end up being a loss for both the North and its competitors.
If it can’t raise rates, NorthwesTel says it will cancel all of its planned investments in fibre-optic infrastructure.
“After we’ve gone and looked at it, we’ve come to the conclusion that there’s no longer any business case for us to build fibre to any community with these rates in place,” said Paul Flaherty, president of NorthwesTel.
That means it will reduce its yet-to-be-approved $233-million modernization plan by $36.5 million.
What that means for the Yukon is that the planned $3.6 million fibre-optic link from Carmacks to Dawson City will be cancelled.
Under the rates set by the commission, NorthwesTel would only be able to recoup 10 per cent of that investment, said Flaherty.
Instead, the telco will spend $1.4 million to upgrade the existing high-capacity microwave relay, because the rates it can charge for microwave service are about six times higher than fibre.
NorthwesTel would prefer to build fibre, which is a far more robust technology, but the business case simply isn’t there under the current rate structure, said Flaherty.
“It’s an unbalanced decision in our view that needs to be rethought,” he said.
“In setting the rates the commission should be trying to strike a balance between making them low enough to encourage competitors but not making them so low that it discourages investment,” he said.
As a counter, NorthwesTel has proposed new rates that it says would allow both investment and competition to flourish. And would still be 45 per cent lower than what it originally asked for, Flaherty said.
That’s a shocking admission, said Dean Proctor, the chief development officer for SSi Group, a Yellowknife-based internet provider.
“What they’re basically saying is the pricing that they gave the commission was a big bag of baloney, ‘But now we’ve got real pricing so lets negotiate from there,’” he said.
From where Proctor sits, this is simply another example of NorthwesTel’s “regulatory gaming.”
“The bottom line is they’re a monopoly and every day as a monopolist is a good day,” he said. “The longer they can stretch all this out and the longer they can prevent real competition from coming in, that’s all good for them.”
It was SSi’s complaint to the commission in June 2011 that got the ball rolling on all of this.
At that time, the complaint was about NorthwesTel’s V-Connect service, which allowed access to the raw fibre-optic link to the south.
NorthwesTel built, owns and controls the only fibre-optic link. SSi accused the telco of abusing its monopoly position by charging exorbitant rates for access to its network.
After months of deliberations, the CRTC ordered NorthwesTel to do the cost study to prove its rates were reasonable.
NorthwesTel appealed that decision, and instead of producing a cost study it proposed a new wholesale Internet transport service as an alternative to V-Connect.
However, because that new service was only available as a link from Yellowknife to Edmonton and had no quality-of-service guarantees, it was met with a strong rebuke by SSi.
NorthwesTel went back to the drawing board, consulted with SSi, and came up with a new service, Wholesale Connect.
While Wholesale Connect came much closer to what SSi was asking for, the rates remained an outstanding issue.
The commission set those rates in February, almost a year after NorthwesTel finally submitted its cost study.
The rates were still higher than what SSi was asking for, but low enough that SSi was able to start making plans to implement local competition and consider an expansion into the Yukon, the only one of the three territories where it doesn’t currently operate.
But if the commission “capitulates to NorthwesTel’s bullying” those plans will have to be put on hold, said Proctor.
“If we see rates rolled back to what NorthwesTel’s proposing, we won’t be in the Yukon, I can guarantee you that,” he said.
Contact Josh Kerr at