The case to bridle Big Green

The recent spate of internet outages only serves to remind Rick Steele, who helped connect the territory to cyberspace, of what he now calls a "tremendous tactical error.

The recent spate of internet outages only serves to remind Rick Steele, who helped connect the territory to cyberspace, of what he now calls a “tremendous tactical error.”

He’s talking about the decisions that led to Northwestel enjoying an unregulated monopoly in delivering broadband internet access to the Yukon.

Now that the company is renewing calls on governments to contribute in excess of $20 million to help build a second fibre-optic cable Outside, Steele has a counter-proposal.

“If they want that second line, then they should be brought to sit at the table with the Yukon territorial government and key stakeholders, including the federal government. And there should be an oversight committee, to protect the public interest.”

In other words, bridle Big Green’s internet operations in a similar fashion to how the company’s telephone services are already regulated.

Not surprisingly, Northwestel shows no interest in being collared at this point.

The company spent $40 million to bury its first length of fibre-optic cable under 320 kilometres of rugged terrain in order to replace the older, slower method of relaying data by microwave tower, noted Paul Flaherty, its president and CEO.

“Our investors are the ones who really put in all the money for that,” he said. “There was virtually no government support.

“Does that entitle someone to come in and have major contributions in how the thing is operated? If they contributed to the entire cost of providing the service, that would be another thing.”

A second fibre-optic line would serve as a back-up measure, lest a wayward excavator accidently dig up one cable, as has occurred three times over the past week and a half.

But all of the recent cable snips occurred in northern Alberta, not the Yukon. That means a second cable wouldn’t have helped to prevent those outages.

Thankfully, Northwestel has already started laying new cable to reroute traffic from northern Alberta. That line, from Fort Nelson to Hay River, should be complete by next summer, at a cost of $7 million.

A second fibre-optic line from the territory could take three possible routes.

One would follow the existing path along the Alaska Highway to northern British Columbia. The downside to this, said Flaherty, is that there’s little room beside the roadway along craggy sections.

“You get too close to the existing fibre and it defeats the purpose: someone puts one shovel through and hits both of them.”

An alternate route would run to Skagway, where the line would connect with an undersea fibre-optic cable. Or the fibre-optic line to Haines Junction could be extended to Beaver Creek and on to Tok, Alaska, to be fed into the state’s network.

Any one of these projects ought to improve network stability, and prevent the number of territorial internet crashes. But there would still be plenty for the territory’s tech-savvy to carp about.

Anyone who depends on a Northwestel internet connection in the territory will, at some point, have considered the “high speed” description of the service as little more than a cruel joke. It’s prone to erratic lulls and drops and rarely performs at its advertised speed.

Usage caps are draconian compared to other Canadian jurisdictions, and customers who unwittingly download more than their monthly quota are hit with hefty surcharges.

Meanwhile, techies bemoan how the territory’s datapipes to Outside have plenty of unused capacity. As Steele puts it: “There’s a great big bucket of internet. It’s cheap water now, but they want to sell it by the thimble and call it cognac.”

The secrecy that surrounds Northwestel’s internet business model only compounds the frustration of customers, who are left to suspect they’re being price-gouged, because they only have the company’s word that they’re not.

Northwestel is privately held by Bell Canada, Steele notes.

“And Ma Bell is money hungry. That’s who they’ve got to actually answer to.”

Flaherty balks at the suggestion that he disclose how much his company earns annually in profits from internet services.

“That’s not something that I’d share. Obviously, to somebody out there who may be thinking of competing, that’s sensitive information.”

Steele helped pioneer internet delivery in the territory in the mid-1990s by managing the YukonNet Operating Society, which bought bandwidth from British Columbia and sold it to local internet service providers. Unlike Northwestel today, the society kept open books and disclosed its costs and rate of return.

At one point, the Yukon had seven competing providers. Steele doesn’t miss those days. “That was ridiculous. No one could make enough money to provide an adequate level of service.”

The rise of Northwestel’s monopoly brought with it economies of scale: a single big company is able to deliver services for cheaper than any small company could.

But without competition or public oversight, Northwestel has little incentive but to charge all the market can bear for internet services.

“It’s a business reality that when you sell more stuff, the price is supposed to go down,” said Steele. “And it has not – it’s gone up. They’ve increased prices for ADSL and cable users. Everywhere else, prices are going down.”

And there’s reason to suspect that the cost of internet services will continue to climb in the territory.

“Long-distance revenues have been shrinking year after year,” said Flaherty. “And that’s in part because people think things like Skype are free. Well, there’s network (bandwidth) that they’re consuming to use that. And if I’m not getting revenue from the long-distance side of that network, something else is going to have to contribute to it.

“The cost of all our infrastructure, in the worst case, would have to be recovered through the internet.”

Northwestel’s telephone services are subsidized by a pot of money paid into by Canada’s telephone carriers, to help offset the high cost of delivering phone to remote communities across Canada’s North. The company received almost $21 million in 2009.

In exchange for this sweetheart deal, the company’s prices and rate of return in this business are federally regulated.

Steele acknowledges that Northwestel faces its share of challenges in delivering internet across vast distances in the three territories. He’s rather not see the rise of a citizen’s group that would take on Northwestel in an adversarial manner.

“Yukoners don’t function well once we start throwing crap at each other,” he said.

Flaherty, for his part, has had a rocky week and a half, fielding complaints from residential customers, as well as business clients who found their credit-card scanners crash during the disruptions.

“It’s not fun to be on this side of the fence, I’ll tell you,” he said. “That’s why we decided to bite the bullet and spend the $7 million.”

Contact John Thompson