ISPs as Providers of Equitable Connectivity

Recently in the news — Canadians love connectivity and they want it cheaper. We can see this either as an indicator of increasing competition in the sector (thanks to Freedom Mobile), or a sign of how high rates and data caps make Canadians scramble for a deal when it’s offered.

The focus now is on mobile plans, but we’re not having the discussion about an affordable option for residential broadband. As announced in last year’s federal budget, affordable government-approved broadband for low-income Canadians may eventually become available. While there are strong parallels between this approach and 20th century efforts to achieve universal service through cross-subsidization, this will likely not be a universal program. Rather than imposing some sort of “skinny basic” for the internet, the federal Cabinet has made affordable internet a priority, allocated money, and left us waiting on the details.

In a previous post, I wrote about the CRTC’s universal service objective, and how the Commission likes to stay out of setting retail prices for broadband (unless we’re talking about an IPTV service). The CRTC does regulate wholesale internet rates to promote competition, and this is supposed to control prices, but part of the rationale for not intervening directly on retail pricing was to avoid doing something that would “inadvertently hinder the development of further private and public sector initiatives” on affordability. Well, the federal government’s $2.6 million annual program announced last March, can be seen as a public program to nudge private sector initiatives along. The money is meant to help support ISPs that offer low-priced connectivity to low-income families, who will also receive refurbished computers.

This is similar to what Rogers and TELUS have been doing already in select markets, and these companies may end up being able to roll their existing programs into whatever is finalized as the government’s plan with little effort. But if other providers do join (or are compelled to participate in a mandatory program), then this becomes more of an industry norm than a distinguishing virtue. Rogers and TELUS have been trying to behave and stand out as good corporate citizens (Bell’s distinctive efforts in this regard have been championing the issue of mental health).

The discussion is understandably focused on the incumbents here, but let’s not forget there are a host of organizations and ISPs that have long been devoted to a more equitable distribution of connectivity in society: FreeNets & community networks (NCF, VCN, ViFA, Chebucto), publicly-funded rural broadband (like SuperNet, or one-time funding programs like Connecting Canadians and Connect to Innovate), First Nations initiatives, as well as public internet access sites. The federal government’s affordable access program for low-income households was criticized for being developed independent of groups that have been advocating for affordable connectivity in recent years, and following this criticism the proposal was sent back to the design stage to gestate further.

Personally, I love to see programs targeted for low-income Canadians that need them most, but the shelved affordable access proposal was a feather-light welfare policy. This was not the state using the market to achieve a public good — this was the state trying to achieve a public good without imposing any undue burdens on the market, with the private sector invited to participate. It would have encouraged a form of cross-subsidization, where ISPs use wealthier subscribers to subsidize poorer ones. In the monopoly era, cross-subsidization is how universal service (a phone in every home) was achieved. The telco companies had their regional monopolies, and one justification for this monopoly power was that you could take profits from urban areas to subsidize connectivity for more expensive (or less profitable) rural areas. After the monopoly era ended, we shifted to the cultivation of competition and deference to market forces. The societal benefits of internet access for everyone are clear, but the distribution of connectivity is still treated as a corporate responsibility.

This Liberal government is taking its time on this issue — perhaps they see flaws in the previous approach but are reluctant to push a more robust policy.  In the meantime, telecom companies may be less willing to develop their own affordable access programs knowing they may have to adjust to whatever shape government policy takes.

Alberta’s SuperNet

Alberta is home to a remarkable fibre-optic network called the SuperNet, and the provincial government is about to decide what to do with it. This post will briefly summarize how this situation came to be, and what’s at stake in the forthcoming decision about “SuperNet 2.0“.

Just a slice of the SuperNet

At the end of the 1990s, Alberta was riding high on oil revenues and the promise of internet-enabled prosperity. The provincial government decided to invest in a network that would connect government and public buildings (such as schools and medical facilities) across the province. The need for public sector connectivity was combined with the need for rural internet access, and the idea was that last-mile ISPs would be able to plug into the SuperNet as a middle-mile network to reach towns and villages across the province. Economic development would be extended beyond the cities, bridging the digital divide. In those heady days, there was talk of luring Silicon Valley businesses, like Microsoft or Cisco, to rural Alberta. Entrepreneurs and knowledge workers would set up shop in small towns, rural patients could be diagnosed through telehealth, and university lectures could be beamed into remote schools.

The 2000s followed a decade of telecom liberalization and provincial privatization, including privatization of telecom assets (AGT), so the last thing the provincial government wanted was a publicly-owned network. Science and Technology Minister Lorne Taylor (credited with leading the SuperNet’s development) made clear that running telecom networks was the business of private industry, not government. The CTO of Alberta Innovation and Science emphasized that it was definitely not a government network. Government wasn’t going to build it, wouldn’t own it, and wouldn’t manage it. The private sector would be unleashed and competition would take care of the rest. All government had to do was throw in $200 million and set the terms of the deal.

As Nadine Kozak writes, the SuperNet was a contract, and not public policy. The contract was signed without public input or legislative debate. Citizens would be consumers of the network, and didn’t need to know the details of the deal, which was complicated and confidential. The contract would have to be renegotiated after construction fell behind and private sector partners Bell and Axia had a legal fight about not living up to their respective terms. The network was eventually completed without fanfare in 2005, with Bell eating the additional costs of the delay. Following another renegotiation of the contract in 2005, Axia would run the SuperNet for thirteen years (including the three-year extension granted in 2013), and the government would have the option of assuming ownership of the rural network after thirty.

Public infrastructure in many rural communities did receive a considerable boost in connectivity thanks to SuperNet, but the province never did become Silicon Valley North, and the last mile of the network only extended to public sector clients. It was imagined that private ISPs would connect to the network and compete with each other over the last mile for residential and business customers (see below), but in much of rural Alberta this never happened. Local incumbent TELUS preferred to use its own network, even choosing to (over)build additional facilities in places where it would have been cheaper to use SuperNet.

Meanwhile, government responsibility for the network shifted or split between departments through successive reorganizations. In 2010, Premier Redford stated, “We haven’t focused on it as a priority … (It) seems to have been more of a problem between government departments not wanting to take ownership, or not knowing exactly who’s the leader”. For those who don’t have to deal with it directly, SuperNet is just another piece of the invisible infrastructure that keeps our world running, and today, most Albertans have never heard of it.

Cybera CEO Robin Winsor shows the CRTC a piece of the SuperNet – Nov. 24, 2014

There are also some people who know about SuperNet, but don’t have entirely positive things to say about it. Robin Winsor, head of Cybera, stated that “although many good things have come from the build of the SuperNet, its capacity has been vastly under-realized and under-utilized“. Axia, the company that operates the network, has long worked to counter widespread “misconceptions” about the SuperNet, like the “myth” that the network is expensive and difficult to access. Axia has often ended up as the face of the network and the target of many of these complaints, even through in many cases the faults lie in the design and execution of the SuperNet contract, for which provincial governments have been ultimately responsible.

Axia is a remarkable company in the Canadian telecom industry,  and the SuperNet contract was key to making it what it is today. Axia has since promoted or developed similar open-access fibre networks in several countries, but seems to have recently re-focused on Alberta. When it comes to the SuperNet, its prime responsibility has been to run the network (as Axia SuperNet Ltd.). In this capacity, Axia serves public sector clients, and acts as an “operator-of-operators” for ISPs wishing to connect to SuperNet for backhaul. In line with the principles of running an open-access network, Axia is not supposed to compete with the last-mile ISPs, or offer internet access to residential and business clients through SuperNet. Axia has also helped produce lots promotional content over the years about the SuperNet’s accomplishments and the “unlimited possibilities” offered by this totally amazing network.

On the other hand, Axia’s actions indicate that the company clearly recognizes the limitations of SuperNet, and has worked to address these through Axia Connect Ltd., a separate business endeavour from Axia SuperNet Ltd. (see this recent CRTC appearance by CEO Art Price on the distinction). What Axia SuperNet Ltd. cannot legally do (act as a last-mile ISP), Axia Connect can and does. Whereas Axia SuperNet Ltd. does not compete with private industry in the last mile, Axia Connect has been putting many millions of dollars into last-mile connections, focusing its efforts on deploying FTTP to parts of Alberta hereto neglected by incumbents. In the process, Axia is helping resolve the digital divide in a way that the SuperNet could not, but it is also competing with other approaches to the same problem, such as those currently being pursued through the Calgary Regional Partnership.

The distinction between Axia SuperNet and Axia Connect has kept the company compliant with the terms of the SuperNet contract, but claiming that Axia Connect’s FTTP deployments are “made possible by having access to the SuperNet” doesn’t help the public draw this distinction. Axia’s brand in Alberta is intimately linked to SuperNet, and for the first time, we are forced to consider what a decoupling might look like. This is because the SuperNet contract is once again up for renewal, except this time, Axia is not being granted a simple extension. Even if the company successfully wins the contract for the next term, the government seems to be looking at a “new vision” for the deal.

In short, the situation in Alberta is as follows: The SuperNet is legacy infrastructure, largely built or acquired from existing fibre assets in the early 2000s, and for now it should still be a valuable network with a lot of potential. Observers from other parts of Canada have sometimes looked at it with envy, but the project’s history has been troubled, and SuperNet has only achieved part of its original vision. The existing (and “increasingly-out-of-date“) contract expires in June 2018, with a decision on SuperNet 2.0 expected soon, and Axia, Bell, TELUS, and Zayo competing for the contract. Will a traditional incumbent become the government’s private sector partner? How messy would a transfer or responsibilities from Axia be, should the company lose the bid? If Axia wins, how will the deal be restructured to address the shortcomings of SuperNet 1.0? These are the big questions right now.

Meanwhile, broadband is a hot topic in rural Alberta, with active regional discussions, like an upcoming Digital Futures Symposium in Cochrane, the related Alberta Broadband Toolkit, municipal collaboration through the Calgary Regional Partnership, and broadband studies being carried out by the REDAs. TELUS has also been active with fibre upgrades, and there is a “land grab” underway as rural communities examine competing models of connectivity and decide how best to meet their needs.  Some communities are trying to convince Axia Connect to build them a local network (by demonstrating there are enough interested subscribers), while others are collaborating on a middle-mile backhaul option (skipping the SuperNet), or considering investing in a publicly-owned last-mile network (usually a choice between dark fibre, lit fibre, and wireless). It’s hardly a broadband gold rush out there in rural Alberta, but this is the most exciting I’ve seen it since I started paying attention several years ago.

Lots of dimensions here left to cover, and new developments expected. More Alberta explorations and updates to follow!