NorthwesTel plans to double or triple Internet service speeds for most Yukoners later this summer, says CEO Paul Flaherty.
This speed boost should apply to all Yukon communities except for Old Crow, which is connected via a pricey satellite link. Whitehorse currently enjoys internet speeds of up to 50 megabits per second, while the communities are served with connections of up to five megabits per second.
These service improvements come at a time when public support for the telecommunications firm may matter more than usual. On June 19 and 20, the CRTC is holding public hearings in Whitehorse on the company’s revised modernization plan.
In it, NorthwesTel proposes rolling out 4G cellular service to every Yukon community, save for tiny Swift River and Champagne. The company would also offer more calling services, like Caller ID, to every Yukon community.
In all, the company’s plan across all three territories would see $233 million spent over five years.
But NorthwesTel’s cellular upgrades would come with a string attached: it would require governments – namely the Yukon or Ottawa – to dish out $700,000. That money would ensure that 10 “contingent” communities that would otherwise be unprofitable are able to connect.
NorthwesTel’s plan also includes what Flaherty calls a competition-enabling feature. Local number portability – which allows customers to switch phone companies while keeping their existing phone numbers – would spread to Yukon’s communities. In September the service was brought to Whitehorse.
Flaherty also warns that the five-year timeline for his company’s plan would need to be stretched out if regulators stand their ground on their pricing for competitors to access NorthwesTel’s data-pipes. At worst, the new low rates may throw “into question” the company’s plan to lay fibre-optic cable from Stewart Crossing to Dawson City, he said.
Competitors cry foul
The price that NorthwesTel charges its competitors to use the only fibre-optic cable connecting the Yukon to the outside world has been a fierce point of contention during regulatory talks. Competitors accused the company of wildly inflating its costs. The CRTC agreed, cutting the wholesale cost of data transmission by 70 per cent. NorthwesTel is appealing the decision.
“We think the balance has been tilted too far in one direction,” said Flaherty.
Following the CRTC’s decision to lift NorthwesTel’s monopoly over the 867 area code, competitors are preparing to horn in on the Yukon’s telephone market.
Iristel, a Toronto-based telco, now offers an Internet-based land-line service in Whitehorse, and it has plans to expand into the Yukon’s communities soon.
And Ice Wireless, a cellular company founded in Inuvik, has plans to roll out 3G cellular service in Whitehorse and other Yukon communities. The two companies are working in tandem: Iristel holds a large stake in Ice, and they plan to co-operate in sending data Outside.
Jobs in jeopardy?
Flaherty cautions that Yukoners keen to switch over to these competitors may want to consider how NorthwesTel offers more than 300 jobs in the Yukon.
“We’re probably the largest private-sector employee,” said Flaherty. “The mines might be slightly higher, but they have a lot of people that fly in and fly out.”
NorthwesTel spends about $42 million in the territory annually on salaries, goods and services, said Flaherty. And he reckons the true economic impact of the company could be triple that amount, when you consider the spending of employees’ spouses and families. “You’re up to $120 million,” he said. “It’s pretty significant.”
NorthwesTel’s competitors, meanwhile, plan to challenge the incumbent by operating “from afar,” said Flaherty. Iristel operates its call centre from Romania, he noted.
“I think what people need to think about is the importance of having a local provider. If the answer is just, ‘Let’s just find a way to get the lowest cost,’ then let’s ship all these jobs to a lower-cost market. You saw a large bank in Toronto try to do that, and they got eaten alive.”
NorthwesTel’s competitors counter that the incumbent company puts an undue drag on the territory’s economy by charging unreasonably high costs for its services, and that this, in the long run, destroys more jobs than it creates.
To help prepare for competition, NorthwesTel has trimmed its staff by 10 per cent from its peak several years ago, said Flaherty. The company sacked nearly 30 workers in late 2011, and in 2012 it eliminated more jobs through buy-outs and attrition. Flaherty expects the company’s staff to further shrink in the future.
NorthwesTel’s modernization plan is spurred by a damning decision by the CRTC in December 2011, which concluded that the company was reaping record revenues while failing to maintain its aging equipment, even while collecting more than $20 million in annual subsidies to maintain its existing copper-line telephone services.
Between 2007 and 2010, NorthwesTel’s annual income had nearly doubled, reaching $69.3 million, according to the CRTC. “Despite this, the company has failed to make the necessary investments in its network,” regulators wrote.
What this statement omits, said Flaherty, is that NorthwesTel’s income swelled during this period due to its acquisition of three cable companies. “They made a sweeping statement about the profitability of the company,” he said. “But they never tried to understand what led to these increased numbers.”
Flaherty also maintains that regulators low-balled how much the company spends on infrastructure by focusing on a single, unrepresentative year, rather than taking a five-year average. “We think there are some fundamental flaws with how they came to their decision,” he said.
Flaherty also says the CRTC unfairly criticized the company’s use of antique telephone switches, which are now in the process of being replaced. He compares telecommunications equipment to automobiles: some older models are more reliable. “We actually have more problems with the newer switches than the older ones,” he said.
NorthwesTel yielded a healthy post-tax return of 16 per cent in 2012, according to financial results released to the News. That’s pretty sweet, but not outrageous.
The company reaped an operating income of $71 million, after receiving $228 million in revenues and paying $157 million in expenses.
After subtracting taxes, financing costs and other expenses, including a pension fund top-up, NorthwesTel reported a profit of nearly $32 million.
The company’s balance sheet for 2012 show assets of $377 million and liabilities of $177 million. That leaves equity of $200 million, against long-term debt of $67.5 million, showing that the company is well-capitalized.
Flaherty contends that most Yukoners support his company. He points to a petition the company has circulated in support of its plan, which has garnered 1,100 signatures. “Two-thirds of the comments on our website are supportive of what we’re trying to do,” he said.
An earlier version of NorthwesTel’s modernization plan died in October 2012, after the CRTC axed a $3.4-billion deal for Bell to buy specialty TV and radio company Astral Media.
As part of the deal, Bell proposed giving NorthwesTel $40 million it was required to pay into a public benefits fund. But regulators said no, noting the annual subsidies that NorthwesTel already receives to maintain its land-line telephone service.
CORRECTION: NorthwesTel is seeking $700,000 from governments to pay for cellular upgrades, and not to lay fibre-optic cable, as reported in an earlier version of this story. The company may seek these funds from sources other than the territorial government, like Ottawa. As well, the CRTC is holding meetings in Whitehorse for two days: June 19 and 20.
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