Earlier this month the Auditor General of Alberta released a major report, with a section on contract management at Service Alberta devoted to SuperNet. Several news outlets covered the release, and decided that the section dealing with SuperNet was the most newsworthy, summarizing it as mismanagement of a $1 billion contract.
The report is a bit of a strange read, since it is on the topic of the original SuperNet, discusses it in present-tense, but the relationships and contracts that defined SuperNet 1.0 belong to the past. The Auditor General’s office effectively studied the period between 2005 and 2017, carrying out interviews and analyzing documents in 2017, and completing the audit in January 2018 — long before the last-minute hand-off of the network last summer. One of the report’s findings was that the Government of Alberta had identified risks in the 2018 transition and “incorporated mitigation strategies” into its planning, but the audit did not look at the procurement process or how the transition (to Bell) actually took place, or what is in the new contract.
Service Alberta Minister Brian Malkinson took the opportunity to reassure that GoA has already learned the report’s lessons, and will post the new contract online once Axia’s assets are transferred to Bell. Since Bell reported that it had completed acquisition of Axia back in September, I’m not sure what the reason for the hold-up is. This is the sort of public accountability that was badly missing from the last SuperNet deal. This time, the public is being asked to accept the Minister’s reassurance that it’s all good, while we wait to learn what sort of deal was struck with Bell back in June.
So what did the Auditor General learn about SuperNet 1.0? A lot of the report puts on official stamp on what we already knew — lax oversight, a badly-written contract, Axia doing things GoA thought was inappropriate, but GoA feeling largely powerless to stop them:
“In 2011 the department sought legal advice on potential non-compliance with operator independence requirements. The department then sought additional information from the operator on services provided to third parties… The operator has asserted it is compliant with contract terms and obligations. As a result, again, the parties to the contract did not consistently interpret the terms and conditions”
Or:
“The department attempted to exercise these audit rights in 2015 as a result of a number of contract disputes, including those identified above. The department has not been successful in exercising that right… again because of differing interpretations of contract terms”
The report does offer a kind of explanation for something I’ve wondered since reading the SuperNet 1.0 contracts — what about all the regular reporting that Axia was supposed to provide GoA about how the SuperNet was running?
“We found that, since 2006, the department has not always received this reporting from all contract parties. We also found no evidence of the department routinely requesting this information from the parties. We asked department management why they have not obtained this information as required under the contract. Management stated that they considered the reporting to be more relevant to the initial construction of the network rather than ongoing operations.“
Right. I’m guessing that the various ministries responsible for SuperNet over much of this period really weren’t interested or capable in monitoring what was happening with the network. What about when GoA started to have more serious concerns about the contract after 2011? Maybe no one at Service Alberta saw this information as valuable enough to ask for. Maybe some people weren’t aware this was in the contract. Whatever the reasons, I’ll be interested in what kind of accountability is written into SuperNet 2.0, and whether accountability on paper translates to accountability in practice.
So, we now have some more specifics about fundamental issues that Service Alberta was quite up-front about last year before the contract expired. The SuperNet seems to be chugging along in continuity mode for the time being, and the communities Axia fibred up are still getting the internet they agreed to for the same price. But last summer did not exactly inspire confidence about the SuperNet 2.0 transfer. What was all that last-minute contract negotiation about? What exactly is Alberta paying for right now? Here, the Auditor General can tell us nothing — these sorts of audits can take many months to pull together.
With the transition to Bell’s operation of the SuperNet a smooth one so far, it’s worth revisiting the topic and my previous blog post. Any anticipated squabbles between Bell, Axia, and GoA have been rendered moot by Axia ceasing to exist as an independent entity in Alberta, now that it is being absorbed into the big body of Bell. This means Bell now owns anything that Axia might have wanted to claim as its property, and it inherits all of the corporate infrastructure responsible for keeping the SuperNet running. I wonder if this was the plan all along ever since GoA started favoring Bell for the contract, or if it’s what led to the last-minute nature of the announcement, as Bell and GoA belatedly realized they would face some serious disruption if they tried to go around Axia.
The remaining question is what happens to the communities that Axia (Connect) has extended fibre networks in during the past few years. The SuperNet 2.0 contract should really have done away with the possibility for such an arrangement, which violated the “level playing field” intent of the SuperNet (with the wholesaler also competing in the retail market). But so far we have indeed witnessed continuity for places like Nanton and Stavely, which makes me wonder, is this continuity just a temporary arrangement? Is there a plan to sell these networks off to another party, or does everyone previously served by Axia Connect just become a Bell customer? If the latter, this legitimates what Axia had done in recent years and would be a big win for Bell, which would not be confined to the role of middle-mile intermediary. It could open up the possibility for Bell to use the SuperNet to great competitive advantage against rural Alberta ISPs, whether they rely on SuperNet or not. It would also be another example of the GoA choosing to maintain the SuperNet status quo, rather than making difficult decisions and much-needed changes to the contract. I hope this is not the case, but it’s certainly a possibility given previous history.
2019 UPDATE: In keeping with its practice to only offer retail internet service in Eastern Canada, Bell has sold the Axia retail operation to TELUS.
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!
Given the scope of the review, this is not an easy question to answer. First of all, it has become blindingly obvious that some level of internet access is required to “participate meaningfully” in society. This “self-evident truth” was expressed by CRTC Chairman Blais early on in the hearings. The question of whether broadband is a “want” or a “need” has shifted to more detailed questions around what sorts of minimum speeds (or other performance indicators) are needed, or what kinds of networks Canadians require. Should obligations to provide a certain level of connectivity be imposed on some intermediaries, or can we make do with “aspirational targets”? If obligations are imposed, who should be obliged, where, and to what standard? How much will it cost, and who should pay for it?
There’s been a lot of talk during the hearings about reaching those populations who face persistent challenges, including rural pockets that have been bypassed by the spread of connectivity. Connectivity for low-income populations has also been discussed repeatedly, since the digital divide carves through urban areas as well as the countryside. Surprisingly, digital literacy keeps coming up in questions from the Commissioners, an area that has rarely been a focus for providers, or covered by their support for MediaSmarts. All of this is interesting because the long-standing criticism of the digital divide concept was that it was overly concerned with the technical provision of access, and failed to consider the social obstacles, such as skills (digital literacy) and ability (including cost). Well, the CRTC is certainly thinking about these things, but actually regulating in these areas would be something new for the Commission.
Perhaps the most remarkable thing about the hearings has been the diversity of the participants. Speakers have included major and minor connectivity providers, as well other stakeholders. Since the ultimate stake is connectivity for the nation, the entirety of Canadian society is effectively a stakeholder, and written submissions have come from far and wide. The CRTC has agreed to hear presentations from advocacy groups, consumers, campaigners, policy wonks, not-for-profits, and populations at the thin edges of our networks. Some of these participants have appealed for very broad government interventions, and been pressed by Commissioners’ to comment on specific broadband targets or implementation strategies that the CRTC might actually have a role in.
Given my Alberta roots, it was especially interesting to see Axia’s Art Price present his regulatory vision, which understandably coincides with the business model the company is already pursuing in Alberta. Alberta’s SuperNet was held up as a model for the sort of “community interconnect grid” that could be pursued elsewhere. During the question-and-answer, Price noted the provincial government’s current lack of attention to issue, and sidestepped the question of what happens when a backbone is built but no one steps up for the last mile. Cybera’s presentation earlier today led to a more mixed view of SuperNet through the questioning of Commissioner Vennard, who has some experience with the history of this project.
It’s also been good to get a chance to hear from some of the hundreds of intermediaries scattered across the country, including ILECs, SILECs, IISPs, WISPs, cablecos, satellitecos, non-profits, regional networks, and co-operatives. I’ve tried to get a good sense of the diversity of these institutions through my research, but there’s still plenty of smaller ones out there that I’m obviously not aware of (like Chebucto Community Net). The incumbents and their facilities may be key to anything that results from this proceeding (because that is where new targets and obligations really matter), but it’s important not to overlook these more local institutions that have their own particular perspectives.
The range of actions the CRTC could decide to take (after the Commissioners have time to digest the whole process) is nearly as broad as the scope of the review. There has been some discussion online about what authority the CRTC could use to impose obligations for new networks, but various models for a way forward have been proposed by participants in the process, and any decision by the CRTC can generate years of dispute about its basis in regulatory law. The CRTC could also do nothing at all, and may feel like it has little ability to address these problems. After all, the Commission can’t fund the infrastructure itself, or ask the federal government to do so. The CRTC gets to set the rules under which intermediaries operate, through obligations and incentives, and it has never been the role of the Chairman to develop a “digital strategy” for the nation.
While we probably won’t end up with a government-funded open-access national fibre backbone, a new crown corporation, or obligations for incumbents to extend fibre across Canada’s north, it does seem that the CRTC will at least do something that looks significant. Given the comments of the Chair, and the Commissioners’ demonstrated understanding and recognition of connectivity problems, continuing with the status quo doesn’t seem to be an option. There will have to be a move that promises to address at least some of the remaining technical (territorial) gaps in connectivity. However, any action that’s truly ambitious here will mean the CRTC carving out a new role for itself. I think that without Cabinet support, a new national strategy or a new leadership role for the CRTC just doesn’t seem that likely.
