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Is Broadband Basic Service?

By:MichaelDeSantisPublicInterestAdvocacyCentre1204‐ONENicholasSt.Ottawa,ONK1N7B7July2010

WithFundingfromIndustryCanada

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Copyright2010PIAC

Contentsmaynotbecommerciallyreproduced.

Anyotherreproductionwithacknowledgmentisencouraged.

ThePublicInterestAdvocacyCentre(PIAC)

Suite1204ONENicholasStreet

Ottawa,ONK1N7B7

CanadianCataloguingandPublicationData

Is Broadband Basic Service?

ISBN

1-895060-92-3

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Acknowledgement

ThePublicInterestAdvocacyCentre(PIAC)receivedfundingfromIndustryCanada’sContributionsProgramforNon‐profitConsumerandVoluntaryOrganizations.TheviewsexpressedinthisreportarenotnecessarilythoseofIndustryCanadaoroftheGovernmentofCanada.

TheAssistancewithresearchandeditingofthisreportprovidedbyMichaelJaniganisalsogratefullyacknowledged.

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TableofContents

Acknowledgment3

ExecutiveSummary5

IsBroadbandBasicService?5

Introduction7

TheImportanceofBroadband9

BasicServiceintheEUandMemberStates14

2005ReviewontheScopeofUniversalService17

SecondPeriodicReviewoftheScopeofUniversalService(2008)18

AnnualReviewoftheEuropeanElectronicCommunicationsMarketfor200819

France20

Spain22

Finland22

Australia23

Japan26

UnitedStates29

Canada38

Conclusion44

AppendixA47

AppendixB50

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ExecutiveSummary

IsBroadbandBasicService?

TheinternethasrevolutionizedthewayCanadianswork,learnandplay.Businessesrelyuponitincreasinglytomarketandsellproductsanddeliverservices.Schoolsrelyuponittodelivercurriculaandforthevastamountofinformationitcontains.Healthcareprofessionalsneedittodelivercriticalhealthcareservices,particularlytoruralandremoteareas.ItwouldlikelybeverydifficultforchildrenofCanada’snewestgenerationtoimagineaworldwithouttheinternet,givenhowpervasiveitseffectsare.

Agreatdealoftheinternet’srapidrisetoprominenceisthankstohighbandwidthorbroadbandconnections.Theseconnectionsallowdataandcontenttotravelswiftlyinternetusersandproviders.Indeed,manyoftheinternetapplicationswetakeforgrantedtodaysuchonlinevideoservices,streamingmusicandradioprogrammingandmultiplayeronlinegamingwouldnotbepossiblewithoutabroadbandconnection.Broadbandisanessentialcomponenttorealizingthefullpotentialoftheinternet.Unfortunately,PIACisgravelyconcernedthataccesstobroadbandinternetservicesisnotuniforminCanada.Manyconsumers,particularlythoseinruralorremoteareas,arenotableharnessthefullpotentialoftheinternet.Othersmaybeunabletoaccessexistingconnectionsbecauseoflackofresources.This21stcenturyversionofthe“DigitalDivide”,betweenbroadband‐connectedCanadiansandCanadianswithoutsuchbroadbandconnectionscouldhaveaveryseriouseffectonCanadianconsumersandthecountryasawhole.

BroadbandissoimportantthatsomecountriessuchasFinlandandSpainhavedeclareditalegalright.OthercountriessuchasJapan,AustraliaandtheUnitedStateshavecomprehensivepoliciestoensurethatcustomershaveaccesstobroadbandservices.Furthermore,theEuropeanUnionhasadetailedpolicyontheprovisionofbroadbandserviceforconsumersthroughoutEurope.NosuchregimeexistsinCanadaandPIACbelievesthatCanadianconsumers,particularlythoseinruralorremoteareas,areworseoffbecauseofit.

Theimportanceofbroadbandhaslongbeenrecognizedbythefederalgovernment.In1995,thefederalgovernmentcreatedtheInformationHighwayAdvisoryCounciltostudytheeconomic,socialandculturaladvantagesbroadbandcouldprovidetoCanadians.Later,in2001,theNationalBroadbandTaskForce,aninitiativeoftheGovernmentofCanada,wasestablishedbytheMinisterofIndustry.Theinitiativesought"tomapoutastrategyforachievingtheGovernmentofCanada'sgoalofensuringthatbroadbandservicesareavailabletobusinessesandresidentsineveryCanadiancommunityby2004."Sadly,thisgoalwasneverachieved.

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OtherfederalprojectssuchastheBroadbandforRuralandNorthernDevelopmentPilotProgram,theNationalSatelliteinitiativeandCanada'sEconomicActionPlanhaveundertakentoprovidebroadbandserviceforCanadianswhereitdoesnotcurrentlyexist.Todate,thereremainsnorightorguaranteeforCanadianconsumerstoreceivebroadbandservice,regardlessofwheretheylive.

TheideathattelecommunicationservicemustbemadeavailabletoallconsumersisanestablishedprincipleinCanadiantelecommunicationpolicy.TheCRTCreleaseditsTelecommunicationDecision99‐16.Inthisdecision,theCRTCestablishedtheBasicServiceObjectivefortelephoneservice.Thiscreatedaminimumlevelofservicethatmustbemadeavailabletoconsumers,regardlessoftheirplaceofresidence.Servicessuchastouch‐tonedialing,accesstoemergencyserviceandlongdistance,directoryassistanceandacopyofthetelephonedirectory.TheBasicServiceRequirementunfortunatelydoesnotapplytobroadbandinternetservices.

CanadawasconsideredaworldleaderinbroadbandavailabilitybytheOECDasearlyas2003.Today,ourrankingamongstOECDmembershasdroppedsharplytothebottomquartileofthelist.PIACisconcernedthatCanadianconsumersarenotguaranteedaccesstobroadbandservicesthewayconsumersinmanyothercountriesaretoday.Accesstobroadbandhasimportanteconomic,socialandculturalramificationsforCanadiansandwithoutit,Canadianconsumersriskfallingbehindintoday’sincreasinglyonlineinterconnectedworld.PIACbelievesthatbroadbandshouldbeconsideredanessentialserviceandbemadeavailabletoallCanadianconsumers,regardlessoftheirplaceofresidence.ThiswouldbeaccomplishedbyabasicserviceregimesimilartothatforbasictelephonyoutlinedbyTelecommunicationDecision99‐16.Thechiefcharacteristicsofanysuchplanwouldbethatitwouldbecomprehensive,competitivelyneutral,flexibleenoughtoaccommodatetechnologicaldevelopments,andsubjecttoeffectivemarketorregulatorydisciplinewithrespecttocosts.Currentproceedings,nowunderwayintheCRTCatthetimeoftheissuanceofthisreport,mayhelptoenablesuchanoutcome.

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Introduction

TheinternethasrevolutionizedthewayCanadianswork,learnandplay.Businessesrelyuponitincreasinglytomarketandsellproductsanddeliverservices.Schoolsrelyuponittodelivercurriculaandforthevastamountofinformationitcontains.Theinternethasalsoenabledcontentproviderstoentertainmillions,withYoutubeandiTunesbeingparticularlystrikingexamples.ItwouldlikelybeverydifficultforchildrenofCanada’snewestgenerationtoimagineaworldwithouttheinternet,givenhowpervasiveitseffectsare.

Agreatdealoftheinternet’srapidrisetoprominenceisthankstohighbandwidthorbroadbandconnections.Theseconnectionsallowdataandcontenttotravelswiftlyinternetusersandproviders.Indeed,manyoftheinternetapplicationswetakeforgrantedtodaysuchonlinevideoservices,streamingmusicandradioprogrammingandmultiplayeronlinegamingwouldnotbepossiblewithoutabroadbandconnection.Broadbandisanessentialcomponenttorealizingthefullpotentialoftheinternet.Unfortunately,accesstobroadbandinternetservicesisnotuniforminCanada.Manyconsumers,particularlythoseinruralorremoteareas,arenotableharnessthefullpotentialoftheinternet.The“DigitalDivide”,asthisphenomenonisknown,couldhaveaveryseriouseffectonCanadianconsumersandthecountryasawhole.

MinimumstandardsforbroadbandserviceforallCanadiansmustbeestablishedbymakingcreatingabasicoruniversalbroadbandservicerequirementforCanada.ThisfacthasbeenpromotedbytheCanadianRadio‐televisionandTelecommunicationsCommission(CRTC).TheCRTCpublishedareportonFebruary2010entitled“NavigatingConvergence:ChartingCanadianCommuincationsChangeandRegulatoryImplications”.Containedwithinthisreportwasanappendixpertainingtouniversalbroadbandaccess.ThissectionoutlinedanumberofreasonswhybroadbandshouldbeauniversalserviceavailabletoallCanadians.HerearethereasonsofferedbytheCRTC:

• improvededucationandnewopportunitiesforpost‐secondaryeducation;studentsandteachershaveaccesstomoreeducationmaterials;studentslivinginruralandremoteareashaveincreaseddistance‐learningchoices;

• improvedhealthcareviae‐healthapplications,enablingbettercollaborationandsharingofpatientfiles;thisisofparticularbenefittopatientsinruralandremoteareas,enablingmedicalprofessionalsintheseareastohaveaccesstodiagnosticservicesandconsultationwithcolleaguesinurbanareas;

• newbusinessandimprovedbusinessopportunitiesincludingtelecommuting,e‐commerceandonlinemarketing;broadbandaccessisalsoleadingtoimprovedproductivityandcompetitivenessofresource‐based,agriculturalandmanufacturingindustries,ultimatelyboostingGDP;

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• betteraccesstogovernmentservices(suchase‐taxfiling),improvedaccesstoinformationaboutpublicpolicyissuesandincreasedopportunitiestoparticipateincivicactivities;

• accesstonewsandinformation.TheInternetisbecomingakeywaytoobtainnewsandinformation,takingmarketshareawayfromtraditionalmediaandprovidingaccesstoawidersourceofinternationalinformation;

• greaterdiversityofvoicesandanotherplatformforCanadiancontent;thebroadrangeofentertainmentservicesandapplicationsenabledbybroadbandaccessprovidesnewmethodsofculturalexpression;and

• thepotentialtoremovelocationasarestrictionforparticipationinsociety,whichenablesbettersocialinclusionforindividualslivinginremotecommunities.1

TheReportalsomentionshowuniversalbroadbandaccessbringsbenefitsnotjustinthedomesticsphere,buttheinternationalsphereaswell.UniversalbroadbandallowsCanadianstobetterparticipateintheglobalinformationsociety.2

Theconceptofauniversaltelecommunicationserviceisnotanewone.Therewasatimewhenbasicwirelinetelephoneservicewassomewhatofararity.However,consumersandpolicymakerswereawareofthenumerousbenefitsofferedbyaccesstotelecommunicationservices,evenattheturnofthe20thcentury.Infact,basicserviceoruniversalservice,wasaterminventedbyAT&TChairmanTheodoreVailin1907,whendescribinghiscompany’swirelinetelephoneservice:

Universal Service is concerned with the making available of the provision of a certain defined set oftelecommunications services as widely as possible, both geographically and socially. Historically suchprovisionwasseenaslyingwiththeincumbent,howeversuccessfultheywereperceivedtobeintermsofmeeting their obligations! In a liberalized market, such service provision needs to continue to beguaranteedthroughamechanismthatwillnotdistortthecompetitiveconditionsunderwhichprovidersoperate.Thescopeofuniversalservicewillalso inevitablyevolveovertime,aspoliticianstrytoensurethatthebenefitsofthenewtechnologiesaremadeavailabletothesocietyasawhole.3

Thequestionnowremainswhetherthescopeofuniversalserviceshouldnowincludebroadbandinternetserviceforconsumers.ThisreportwilldemonstratehowothercountrieshavealreadyadoptedsimilarpoliciesfortheircitizensandhowCanadashouldadoptasimilarpolicytoserveitsowncitizensaswell.

1“NavigatingConvergence:ChartingCanadianCommunicationsChangeandRegulatoryImplications”ConvergencePolicy,PolicyDevelopmentandResearch,CRTC,February2010.

2Ibid3Walden,IanandAngel,John,TelecommunicationsLawandRegulation,OxfordUniversityPresssecondedition2005

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TheImportanceofBroadband

Inordertounderstandbroadbandwell,itisimportanttoconsiderthetypeofinternetservicethatprecededit.Wheninternetservicebegantoachievebroadconsumeracceptanceinthe1990’s,themostcommonwayforconsumerstoconnectwasusingamodem,phonelineand“dial‐up”service.Thisdial‐upservicerequiredaconsumertoconsciouslyanddeliberatelyconnecttheircomputereachtimetheywishedtoaccesstheinternet.Thisconnectionofferedverylowuploadanddownloadspeedsbymodernstandardsandalsooccupiedaconsumer’sphonelineforthedurationoftimetheywishedtobeconnected.

Broadbandofferedamuchmorecompellinginternetexperiencefortheconsumerinanumberofways.Mostobviouswastheexponentialincreaseinspeedpossibleoverabroadbandconnection.Downloadinglargefilesorconsumingbandwidthhungrycontentsuchasmusicorvideowasnowapleasantexperience,unlikeoverdial‐upwheretheprocesscouldtakehoursorevenlonger.Evensimplebrowsingontheinternetcouldbeaslow,tediousexperienceoveradial‐upconnection.Furthermore,broadbandallowedconsumerstohavean“always‐on”internetconnection,asopposedtodial‐upwhenusershadtomanuallyconnectanddisconnecteachtimetheywishedtogoonline.Thealways‐onqualityofbroadbandalsoallowedconsumerstounwiretheirinternetandexperienceitindifferentways.Theproliferationandnearubiquityofwirelessroutersallowsmanydevicessuchaslaptops,personaldigitalassistants,streamingaudioandvideoplayersandsometelevisionstoconnecttotheinterneteasilyandrapidly.Thisrevolutioninthewayconsumersconnecttotheinternettowork,learnandplaywouldhavebeenimpossiblewithouttheadventofbroadbandservicesdeliveredtothehome.

Inmanyways,theimplementationofbroadbandarchitecturemimicsthewaythatwirelinetelephoneservicewasinstalledinCanadaaroundtheturnofthe20thcentury.In1885,Bell’spatentswerevoidedbythefederalpatentcommissioner.Thismoveforcedthecompanytoopenuptocompetition.Bellresistedandemployedpredatorypricingschemesandexclusionaryservicecontractstodriveawayitscompetition.4In1906,boththefederalandprovincialgovernmentsofCanadabegantoregulatetelephoneserviceandmanyofthesepracticesended.Inspiteoftheendofthesepractices,mostofthelargetelephoneserviceproviderssuchasBellhadamonopoly‐likecontrolovertheirrespectivemarketsandfavouredlarger,urbanmarketsoversmallerruralones.Infact,awitnessbeforethefederalSelectCommitteeonTelephoneSystemsin1905statedthat

4Achequeredprogress:FarmersandtheTelephoneinCanada,1905‐1951(p.2).

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…thisbranchoftelephony[ruraltelephony]hasinthepastbeenabsolutelyneglectedanddiscouragedinCanada by existing companies, for the reason that it does not prove such a lucrative business as theexchangesinthetownsandcities.5

TheSelectCommitteehadbeenformedlargelyasaresultofanenergeticlobbygroupthatarguedruraltelephoneservicewasanecessityasitreducedisolationandallowedfarmerstoparticipatemoreactivelyinlocalmarkets.Astimeprogressed,telephoneservicewasgraduallydeployedaroundtheCanadiancountryside.AccordingtoRobertM.Pike,somemethodsusedtoencourageinvestmentintelephoneinfrastructureweremoresuccessfulthanothers.HenotesthatSaskatchewan’spolicyofcontrollingmajorexchangesandtrunklines,withassistanceprovidedtoanetworkofruralcooperativeswasthemosteffectivewayofencouragingtelephonedeployment.6LesseffectivewerethecentralizedpubliccontrolpoliciesofManitobaandAlbertaandthelightlyregulatedprivatesystemsofQuebecandtheMaritimes.

Thiscomparisonisinstructiveandwillbeexaminedlaterinthisreportwithrespecttobroadbanddeployment.Thehistoryofwirelinetelephoneservicecouldprovideusefulcontextandpertinentexamplesforthebroadbandbasicservicedebate.

InCanada,broadband’simportancewasrecognizedasfarbackas1995.ThatyearsawthecreationoftheInformationHighwayAdvisoryCouncil.Canadahasseenanumberofimportantbroadbandprojectssincethattime,bothatthefederalandprovinciallevels.Herearesomeexamples:

• TheNationalBroadbandTaskForce,aninitiativeoftheGovernmentofCanada,whichwasestablishedin2001bytheMinisterofIndustry.Theinitiativesought"tomapoutastrategyforachievingtheGovernmentofCanada'sgoalofensuringthatbroadbandservicesareavailabletobusinessesandresidentsineveryCanadiancommunityby2004.";

• TheBroadbandforRuralandNorthernDevelopmentPilotProgramisanotherexample.ThiswasannouncedbyIndustryCanadain2002toassistcommunitieswithouthigh‐speeddataservicesaccess,focusingspecificallyonFirstNations,rural,remoteandnortherncommunities.ThisprogramwaspromotedasthefirststeptowardtheGovernmentofCanada'scommitmenttohigh‐speedconnectivityforallCanadiancommunitiesby2005;

5ClaudeFischer,“Technology’sRear:TheDeclineofRuralTelephonyintheUnitedStates1920to1940”SocialScienceHistory11(1987):295‐327.6Supranote2p.6.

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• TheNationalSatelliteinitiative,wasajointprogrambetweenInfrastructureCanada,IndustryCanadaandtheCanadianSpaceAgency.Itwaslaunchedin2003toprovidehigh‐speedbroadbandInternetaccessservicesviasatellitetocommunitieslocatedinthefar‐andmid‐north,andinisolatedorremoteareasofCanada.TheGovernmentofCanadacontributed$155milliontowardthecostsofimplementingthisinitiativetopurchaseandaccesssatellitecapacity;

• Therehavealsobeenvariousprovincialinitiativestoensureaccesstohigh‐speedInternet,suchas,AlbertaSuperNet(focusedoneducationandhealthcare),ConnectOntario,Quebec'sVillagesBranchesprogram,Manitoba'sBroadbandProjectOffice,ConnectYukon,BroadbandBC,NunavutBroadbandTaskforce,NewfoundlandGovernmentBroadbandInitiativeandBroadbandforRuralNovaScotia.Saskatchewan,NovaScotiaandNewfoundlandallannouncedprogramsinlate2008toencouragebroadbandfacilityconstruction;and

• Canada'sEconomicActionPlan,whichprovided$225milliontoIndustryCanadaoverthreeyearstodevelopandimplementastrategytoextendbroadbandcoveragetoasmanyunservedandunderservedhouseholdsaspossible,beginningin2009‐2010.7

IntheCRTCTelecomPublicNotice97‐42,ProfessorHeatherHudsongavewrittenevidenceregardingtheimportanceofbroadbandtoremotecommunitiesinCanada,particularlycommunitiesinCanada’snorthernregions.Residentsoftheseareashavelongrecognizedtheimportanceoftelecommunications.Intheearly1970’s,indigenouspeoplelivinginnorthernandfarnorthernareasheldreliabletwo‐waycommunicationsastheirnumberonepriority,followedbyradioandtelevisionbroadcasts.8Thesetelecommunicationsserviceswereimportanttomaintaincontactwithrelativesinothercommunities,tofacilitatecommunicationforthepurposesofemploymentandeducation,tocontactgovernmentagenciesandbuyersoftheirproductssuchasfurs,fishandhandicrafts.TheChiefsofnorthwesternOntarionamedreliabletelecommunicationsservicesastheirtoppriority.YoungInuitbelievedthatitwouldbeacriticaltoolintheirongoingstrugglesrelatingtolandclaimsandpoliticalautonomy.AnInuit

7Supranote1.8WrittenevidencebyHeatherHudson,CRTCTelecomPublicNotice97‐42,1997.

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leaderfromArcticQuebecstatedthat:“Weneedinformation‐‐massesofit.Withoutit,ourculture

won’tsurvive.”9

Professor’sHudson’sresearchthatinstantaneoustelecommunicationsservices,suchasbroadband,canimprovetheratioofoutputtocostforservicesinremoteareas,increasethequalityofproductsandservicesanddistributethebenefitsoftheseservicesmoreequitablythroughoutthearea.Overall,theinvestmentintelecommunicationsserviceshasproducedsomeverytangibleresultsforconsumers,particularlyaboriginalconsumerslivingintheseremoteareas.ProfessorHudsonsumsitupwell:

The investment in telecommunications in Canada’s remote areas in the past twodecades has resulted in many benefits for northern social, cultural, political andeconomicdevelopment.NativepeopleacrosstheNorthhaveusedtelecommunicationsintheformoftelephone,faxandvideoconferencingtopressforlandclaimsandgreaterpolitical autonomy. Northern entrepreneurs use telecommunications to participate infur auctions, order supplies for co‐operatives, and run guiding businesses and touristlodges. People on reserves in northwestern Ontario can complete high school viacorrespondence with audio conferencing tutorials; while students in Rankin Inletdownload a virtual frog dissection kit and post pictures on their website of eldersteaching them to sew seal and caribou clothing. Northerners also recognize theInternet’s potential for economic development. Sakku Investments, the businessdevelopmentarmofRankinInlet’sInuitassociation,seestheInternetastheelectronicroad system for their business development. “As far as I’m concerned,” says Sakku’sCEO,“it’sadriver’sedschool.”10

Animportanteffectattributedtoincreasedconsumerbroadbandconsumptionisalowerunemploymentrate.TheSacramentoRegionalResearchInstitute(SSRI)conductedastudybetween2001and2006todeterminewhethertherewasacorrelationbetweenbroadbandgrowthandthenumberofnewjobsavailable.TheSSRIdiscoveredacorrelationbetweenanincreaseinbroadbandgrowthandanincreaseinavailablejobs.Theinstitutediscoveredthatforeverypercentagepointincreaseintheadultpopulationusingbroadband,thereisacorrespondingincreaseinemploymentgrowthby0.075%aswellasanincreaseinthepayrollgrowthrateby0.088%.11Thereportnotedthat“(b)asedonanestimateof"strong"9QuotedinHudson,HeatherE.WhenTelephonesReachtheVillage.Norwood,NJ:Ablex,1984.(TheauthordidextensivefieldworkinplanningandevaluatingcommunicationsprojectsintheCanadianNorthinthe1970's.).10Supranote8.

11Cheng,Jacqui:"Studylinkingbroadband,jobcreationshowsneedforcoherentUSpolicy"<http://arstechnica.com/old/content/2007/11/study‐linking‐broadband‐job‐creation‐shows‐need‐for‐coherent‐us‐policy.ars>.

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broadbandgrowthoverthenextseveralyears(about3.8percent),SRRIsaysthatCaliforniacouldseeacumulative10‐yeargainof1.8millionjobsand$132billioninpayroll.”12Thesearesomeimpressivefiguresandthisstudyshedssomeimportantlightononeoftheveryimportanteffectsbroadbandinternetcanhaveonacommunity.

Broadbandinternetalsoprovidesgreatbenefitstoindividualswithdisabilities.InDecemberof2009,theUnitedStatesChamberofCommerceconcludedacomprehensivestudythatexaminedthedifferentbenefitsdisabledpeoplecouldderivefrombroadband.13Thereportuncoveredanumberofdifferentadvantagesbroadbandhadtooffer.Oneofthemwashowbroadbandfacilitatedavarietyofcommunicationmethodsthatareaccessibleandconvenientforpeoplewithdifferentdisabilitiessuchasemail,instantmessaging,textmessagingandvideoconferencing.Broadbandalsoincreasesandimproveseducationalopportunitiesandoptionsforpeoplewithdisabilities.Increasingnumbersofdifferentschoolcurriculaandlearningapplicationsaremadeavailableonlineandthispresentsatremendousopportunityfordisabledpeoplewhoarelessmobileorotherwiseunabletoleavehometoattendclasses.Accesstobroadbandalsoincreasesthenumberofemploymentopportunitiesavailabletopeoplewithdisabilitiesbyenablingtelecommuting.Broadbandalsoaffordsthemmanyentrepreneurialopportunitiesbyprovidingaconduittocreateandmanageasmallbusinessandearnanincomefromhome.Finally,broadbandallowsmanydisabledpeopletoaccessthelatestmedicalinformationandservices.Remotetelemedicineisanincreasinglyusefulandpracticalwaytodelivermedicalservicesandbroadbandmakesthisdeliverypossible.

Therearealsosomegroupsthatadvocateforbroadbandusingmoralandreligiousarguments.The“BringBettyBroadband”campaignwasstartedbyacoalitionofChristianchurchesintheU.S.andtheIslamicSocietyofNorthAmerica.Accordingtothem,thebroadbandissueisaboutthe“righttodisseminateandreceiveinformation”anditis“arightthathelpsustodefineourselvesashumanbeingsandpoliticalactors”14Thecoalitionsubmitsthatjustdistributionofaccesstocommunicationandinformationisessentialtopromoteeconomicjustice.

12Ibid.13U.S.ChamberofCommerce:“TheImpactofBroadbandonPeoplewithDisabilities”<https://www.uschamber.com/assets/env/0912broadband_dis.pdf>.

14Anderson,Nate:"Churches,mosquessaybroadbandisabouteconomicjustice"<http://arstechnica.com/tech‐policy/news/2009/07/churches‐mosques‐say‐broadband‐is‐about‐economic‐justice.ars>.

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For too long, the process of reaching out and educating traditionally disenfranchised communities hasbeenlefttovolunteereffortsandthephilanthropiccommunityalone.Increasingaccessdoesn'tjustassistthepeoplewhoarehelped,weallbenefit.Justasthevalueofatelephoneincreaseswhenwecanreachmorepeoplebyusingit,thevalueoftheInternetforallofusincreaseswhenweareallconnected.15

Thecoalitionbelievesthataccesstobroadbandisaquestionofsocialjusticethatbringseconomicanddemocraticbenefitstoallwhoareabletoconnect.

Anadditional,interesting,takeontheroleofbroadbandinternetservicewasrecentlyprovidedbyNewBrunswickMemberofProvincialParliamentJackCarr.MrCarrfiledacomplaintwiththeNewBrunswickHumanRightsCommissionallegingthattheslowspeedofinternetservicesandthehighpriceforservicewasaformofdiscriminationagainsttheruralresidentsofhisconstituency.Mr.Carrbasedthiscomplaintonthe“placeoforigin”ruleintheprovince’sHumanRightsAct,oneofthe14differentcriteriaunderwhichahumanrightscomplaintmaybeadvanced.Thiswasaboldmove,astheprovinceofNewBrunswickhadalreadycommittedtomakingbroadbandavailabletotheprovinceby2010.16Regardless,thisexamplehighlightstheimportanceofbroadbandserviceinacommunity,particularlyamoreremotecommunitysuchastheonethatMr.Carrrepresents.

BasicServiceintheEUandMemberStates

TheEuropeanUnion(EU)regulatestelecommunicationsservicesonaninternationallevel,evenasmanyofitsmemberstatesregulatetheseservicesonanationallevelaswell.In2002,theEuropeanUniondevelopedacomprehensiveframeworkonelectroniccommunicationspolicy.TheDirectivewasknownasthe“FrameworkDirective”andwasadoptedbytheEUparliamentandCouncilonMarch72002.TheDirectivedefinesuniversalserviceas“theminimumsetofservices,asdefinedintheUniversalServiceDirectiveofspecifiedqualitywhichisavailabletoallusersregardlessoftheirgeographicallocationandinlightofspecificnationalconditions,atanaffordableprice”17TheFrameworkDirectivealsograntsthegovernmentsofthememberstatesthedutytopromotetheinterestsofthecitizens

15Ibid.

16Anderson,Nate:"Canadianpol:broadbandnotaluxury,butbasichumanright"<http://arstechnica.com/old/content/2008/10/canadian‐pol‐broadband‐not‐a‐luxury‐but‐basic‐human‐right.ars>.

17Directive2002/21/ECoftheEuropeanParliamentandoftheCouncilofMarch72002onacommonregulatoryframeworkforelectroniccommunicationsnetworksandservices.OfficialJournaloftheEuropeanCommunities.24April2002.L108/33‐50.

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oftheEUby“ensuringallcitizenshaveaccesstoauniversalservicespecifiedintheUniversalServiceDirective.18

TheUniversalServiceDirective(March72002)19servesasthecornerstoneoftheEUregulatorylandscape.Thedirectivelaysoutboththesubstantivecomponentsofuniversalservice,andastatementofvalueswhichunderliethispolicyframework.Thedirectivebearsapreambleestablishingkeyobjectivesofuniversalservicesuchas“afundamentalrequirementofuniversalserviceistoprovideusersonrequestwithaconnectiontothepublictelephonenetworkatafixedlocation,atanaffordableprice.20Thefollowingaresomekeycomponentsofthepreamble:

• Clause1:theconceptofuniversalserviceshouldevolvetoreflectadvancesintechnology,marketdevelopmentsandchangesinuserdemand.

• Clause8:Connectionstothepublictelephonenetworkatafixedlocationshouldbecapableofsupportingspeechanddatacommunicationsatratessufficientforaccesstoonlineservices.

• Clause10:affordablepricemeansapricedefinedbymemberstatesatthenationallevelinlightofspecificnationalconditionsandmayinvolvesettingcommontariffsirrespectiveoflocationorspecialtariffoptionstodealwiththeneedsoflow‐incomeusers.

• Clause16:consumersshouldbeprotectedfromimmediatedisconnection.• Clause12:itisimportantfortheretobeadequateprovisionofpaytelephones.• Clause13:itisimportanttoguaranteeaccessfordisabledusers.

Thedirectivestatesinarticle1section1thatitsaimistoensureavailabilitythroughthecommunityofgoodqualityandpubliclyavailableservicesthrougheffectivecompetitionandchoice,andtodealwithcircumstancesinwhichtheneedsofendusersarenotsatisfactorilymetbythemarket.Thus,theinitialarticlesofthedirectivesetoutthattheaimoftheEUshouldbetomaintainacompetitivemarketwhilestillensuringtheprovisionofuniversalservice.Thedirectiveimposesonmemberstatestheobligationtoensurealluserswithintheirterritoryhaveaccesstouniversalserviceregardlessoftheirlocationwithinthememberstate.Thisprovisionofuniversalserviceistobeundertakenwithaneyetoefficiency,quality,andwithoutdistortionofmarkets(Article3s.2).Thesubstantiveobjectiveofuniversalservice

18IbidatArticle8section4.19Directive2002/22/ECoftheEuropeanParliamentandoftheCouncilofMarch72002onuniversalserviceandusers’rightsrelatingtoelectroniccommunicationsnetworksandservices(UniversalServiceDirective).OfficialJournaloftheEuropeanCommunities.24April2002.L108/51‐77.20Ibidat52.

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accordingtothedirectiveisthat“Allreasonablerequestsforconnectionatafixedlocationtothepublictelephonenetwork,andforaccesstopubliclyavailableservicesatafixedlocationismetbyaleastoneundertaking(art.4(1).Keepinginlinewiththeaimsofensuringflexibilityandaccommodationtochangingtechnologies,article4(2)ofthedirectivestipulatesthattheconnectionprovidedshallbecapable,notjustofvoicecommunicationsbutalsotelephone,faxanddatacommunicationsanddataratessufficienttopermitfunctionalinternetaccess.Inthedirectivestatesaregiventheauthorityto“designateoneormoreundertakingstoguaranteetheprovisionofuniversalservicesothatthewholeoftheterritorycanbecovered.”(Article8).Therearelimitationstotheappointmentofuniversalserviceproviders;thisappointmentmustbeundertakenwithaviewtoefficiency,objectivity,transparencyandnon‐discrimination.Thedirectivealsoimposesonmemberstatesotherobligationssuchas:

• Monitoringtheaffordabilityoftariffs(article9)• Controllingexpenditureandensuringconsumersdonothavetopayforunrequested

services(article10)• Monitoringthequalityofservicethroughperformanceassessments,andmonitoring

compliance(article11)

Shouldthedesignationofanundertakingastheproviderofuniversalservicebedeemedunfair,anationalregulatoryauthoritycanundertaketocostoutandintroduceamechanismtocompensatethatundertakingfrompublicfundsand/orsharethenetcostsofprovidinguniversalservicebetweenprovidersofelectroniccommunicationsnetworksandservices(article13).

Akeyelementofthedirectiveisarticle15whichestablishesamandatedreviewofthescopeofuniversalserviceinordertoperiodicallyconsiderwhetherthescopeofuniversalserviceshouldbechangedorrevised.Thisreviewistobeundertakeneverythreeyears,andthereviewprocessisestablishedunderannexVofthedirective.Followingareview,areportshouldbesubmittedtotheEuropeanParliamentandtheCouncilbytheEuropeanCommission.

Inordertomonitorcomplianceandreviewthescopeofuniversalservice,thememberstatesareobligedtoundertakeamarketanalysisinordertomaintain,amend,orwithdrawtheobligationsrelatingtoretailmarkets.Inlinewiththedirective’sprioritizationofuniversalservicethrougheffectivecompetition,article17obligatesmemberstatestoimposeregulatoryobligationsonundertakingsifamarketanalysisrevealsthattheretailmarketinquestionisnotcompetitive.Suchmeasuresthatmaybeundertakentoestablishamorecompetitivemarketinclude:retailpricecapmeasures,measurestocontrolindividualtariffs,ormeasurestoorienttariffstowardscostsorpricesoncomparablemarkets(Article17(2)).Thisarticlealsostressestheimportanceofnotapplyingretailcontrolmechanismswhereeffectivecompetitionispresent(article17(5)).Articles20‐31ofthedirectivedealwithuserrightssuchas:setting

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minimumstandardsintermsofkeyelementsofservicecontracts,transparency,quality,integrityofnetworks,operator/directoryassistance,emergencycallnumbers,numberportability,and“mustcarry”obligations.Also,article34providesanobligationformemberstatestoensurethattransparent,simpleandinexpensivedisputeresolutionproceduresareavailabletodealwithunresolveddisputesrelatingtoissuesinthedirective.

2005ReviewontheScopeofUniversalService

Intermsofimplementingthedirective,transpositionofthedirectivewastohavetakenplacebyJuly242003.SincetheadoptionoftheuniversalservicedirectivebytheEU,theEuropeanCommissionhasundertakentworeviewsofthescopeofuniversalservice,onein2005,andanotherin2008.Thepurposeofthesereviewswastodeterminewhetherthescopeofuniversalserviceshouldbemaintainedorchangedinparticulartoincludemobileorbroadbandcommunications.21AnnexVoftheuniversalservicedirectiveprovidesparameterstoguidethereview.Inreviewingthescopeofuniversalservice,thecommissionistoconsider:

a) Arespecificservicesavailabletoandusedbyamajorityofconsumers,anddoesthelackofavailabilityornon‐usebyaminorityofconsumersresultinsocialexclusion?

b) Doestheavailabilityanduseofspecificservicesconveyageneralnetbenefittoallconsumerssuchthatpublicinterventioniswarrantedincircumstanceswherethespecificservicesarenotprovidedtothepublicundernormalcommercialcircumstances?(AnnexVUniversalServiceDirective)

The2005reviewofthescopeofuniversalserviceconcludedthatmobilecommunicationsandbroadbandinternetaccesswerenottobeincludedwithinthescopeofuniversalservice.TheCommissionfoundthatasignificantmajorityofconsumersinthememberstatesalreadyhadaccesstomobilecommunications.The2005reviewalsoprovidedclarificationonthepurposeofthedirective:“universalserviceisanotamechanismwherebytheroll‐outofnewtechnologiesandservicesisfinancedbyincreasingthecostsforallexistingtelephoneusers.Rather,itisthesafetynetthatallowsaminorityofconsumerstocatchupwiththemajorityofuserswhoalreadyenjoybasicservices.”22Intermsofbroadband,theECconcludedinthe2005reviewonthescopeofuniversalservicethatby2004,approximately85%ofthepopulationintheEU‐15hadaccesstoabroadbandnetwork.TheECalsofoundthatasmall,thoughgrowing,minorityofEUconsumerscurrentlymadeuseofbroadbandservices.Sincethemajoritywas

21ReportregardingtheoutcomeoftheReviewofUniversalServiceinAccordancewithArticle15(2)ofDirective2002/22/EC,COM(2006)163,SEC(2006)445,p.2.22Ibid.

19

notusingthisservice,theECconcludedthatithadnotbecomenecessaryfornormalparticipationinsociety,suchthatconsumerslackingbroadbandaccessfacedsocialexclusion.Despitethisconclusion,theECnotedthattheEUhasastrategyforbroadbandthroughtheeEuropeActionPlan.23

SecondPeriodicReviewoftheScopeofUniversalService(2008)

OnSeptember252008,theECreleasedacommunicationonthereviewofthescopeofuniversalserviceinelectroniccommunicationsnetworksinaccordancewiththeuniversalservicedirective.Thisreviewbeginswithare‐capitulationofthemeaningandpurposeofuniversalservice,being“aminimumsetofe‐communicationsservicesavailabletoallendusersuponreasonablerequestatanaffordablepriceandspecifiedquality,independentlyofgeographicallocationwithinamemberstate.”24Thereviewalsosuccinctlyrestatesthecurrentscopeofuniversalservice:

• Accessatafixedlocationformakingandreceivinglocal,nationalandinternationaltelephonecallandfaxcommunications,anddatacommunicationsatdataratessufficienttopermitfunctionalinternetaccess.

• Availabilityofatleastonecomprehensivedirectoryanddirectoryenquiryservicecompromisingallfixedandmobilesubscriberswhowishtobeincluded.

• Availabilityofpublicpayphones• Specificmeasuresensuringaccessandaffordabilityofpubliclyavailabletelephone

servicestouserswithdisabilitiesorspecialneedsandthoseonlowincomes25

Asof2008,16memberstateshaddesignatedprovidersofuniversalserviceonthebasisofthedirective,andtheother9countriesintheEUhaveensureduniversalserviceonthebasisoftransitionalagreements.26

Inregardstothefundingmodelsforuniversalservice,thereviewalsoreiteratesthepossibilityforauniversalservicefundtobeestablishedifthenationalregulatoryauthorityconcludesthatadesignateduniversalserviceproviderissubjecttoanunfairburden.Therelatednetcostscanbefinancedthroughpublicfunds,orthroughasector‐specificfundthatis

23Ibidat9.24CommunicationontheSecondPeriodicReviewoftheScopeofUniversalServiceinElectronicCommunicationsNetworksandServicesinAccordancewithArticle15oftheDirective2002/.22/EC.COM(2008)572.25September2008.p.2.25Ibid.26Ibidat3.

20

contributedtobyallundertakingsactiveinthemarket.27Atthetimeofthereview,fivestateshadactivatedauniversalservicefund.Thereviewalsonotesthatmemberstatescanmandateadditionalservicesbeyondtheminimumsetofservices,solongasfinancingoftheseadditionalservicesisundertakenbythestatesthemselvesandnotbyspecificmarketplayers.28

Intermsofaccesstobroadband,theECfoundthatonaverage93%ofthepopulationoftheintheEUhadaccesstobroadbandintermsofaccesstoDSLnetworks.Intermsofusage,theECfoundthat“averagefixedbroadbandusagepenetrationper100inhabitantsintheEUwas20%inJanuaryof2008,whiletheratevariessignificantlyacrossmemberstatesfrom7.6%inBulgaria,to35.6%inDenmark.29Intermsofhouseholdusage,theECfoundthat36%ofhouseholdshadfixedbroadbandaccess,whileatotalof49%ofhouseholdsusetheinternet,eitheratnarrowbandorbroadbandspeeds.30BasedonthesefindingstheECconcludedthat“althoughbroadbandadoptionhasnotyetreachedlevelsofcoverageandtake‐upthatwouldqualifyitforconsiderationundertheuniversalserviceframework,itisapproachingthesethresholdsratherquickly,whilstthenumberofnarrowbandconnectionsisprogressivelydecreasing.31TheECconcludedthat:

…although broadband is not yet used by the majority of consumers (as required by the first twoconsiderations in annex V of the Universal Service Directive) and is therefore not encompassed by theuniversalserviceobligationsas laiddownanddescribedbythepresentwording, take‐up isapproachingthethreshold ofusebyamajorityof consumers. Furthermore, it is reasonable toanticipate that in a relativelyshort horizon of time, narrowband will no longer answer the requirement of being sufficient to permitfunctional internetaccess(aslaiddowninArticle2(4)ofthedirective).Thus,thesituationdoesneedtobekeptunderreview.32

TheECconcludedthe2008reviewbyposingaseriesofquestionstobeconsideredwithinawiderpublicdebateinordertodeterminewhetheruniversalserviceattheEUlevelisanappropriatetoolto“advancebroadbanddevelopment,andifso,whenandhowitshouldbeinvoked,orwhetherEUpolicyinstruments,andinsuchcase,whichoneswouldbemoreefficient.”33Inposingthisseriesofquestionstoinformapublicdebateabouttheroleofuniversalserviceindevelopingaccessiblebroadband,theECintendstoacceptsubmissionsduringlate2008andearly2009,inanticipationofissuingasummaryofthispublicconsultationinthelatterhalfof2009,tobefollowedbyconcreteproposalsin2010.34

27Ibid.28Ibid.29Ibidat6.30Ibidat7.31Ibidat4.32Ibidat7‐8.33Ibidat10.34Ibidat11‐12.

21

AnnualReviewoftheEuropeanElectronicCommunicationsMarketfor2008

EachyeartheECissuesareportidentifyingkeydevelopmentsinthee‐communicationsmarket,andinhowwellmemberstateshaveimplementedthe2002ecommunicationspolicyframework.InMarchof2009,theECissuedits14thannualcommunicationpertainingtothedevelopmentofthecommunicationssectorin2008.Partofthisannualreportdetailshowandtowhatextentmemberstateshaveimplementedtheecommuncationsdirectives,suchastheUniversalServicesDirective.Accordingtothisreport,severalmemberstateshavedecidednottodesignateaspecificundertakingasaproviderofuniversalserviceduetotheirpositionthatserviceswereadequatelyaccessiblethroughthemarketundernormalcommercialconditions.35

Somestateshavealsoalteredtheirscopeofuniversalservicetoincludeothermandatoryservices,forexample:

• DenmarkhasincludedtheprovisionofISDNservices,leasedlines,andmaritimeemergencyserviceswithinthescopeofuniversalservicetotheirdesignations

• Spainhaspassedalawtoallowbroadbandservicestobeinducedwithinthescopeofuniversalservice.

• Finlandhasdecidedtoadoptnewbroadbandstrategieswhereinternetconnectionsofanaveragespeedof1mbpswouldbedefinedasuniversalservice

Francehasannouncedagoalofensuringbroadbandcoverageforalloftheterritoryby2010(withadesignatedcallfortenderin2009)36

France

In1999,Franceunbundleditslocalloopsbyintroducingnewregulationstopromotecompetition.Overtenyearslater,multiplecompetitorshaveemergedontheFrenchmarket37andconsumershavebenefitedwithverycompetitivepricescomparedtoCanada.Additionally,moreregulationswereintroducedconcerningtheconstructionofnewhomesandbuildings.AsofDecember2007,allnewbuildingsarerequiredtobecompatiblewithopticalfiber.38This

35CommissionStaffWorkingDocumentaccompanyingtheCOM(2009)140report,SEC(2009)376/2,volume1part2,30July2009,p.44.36Ibidat44‐45.

37Anderson,Nate:"Broadband:othercountriesdoitbetter,buthow?"<http://arstechnica.com/old/content/2008/05/broadband‐other‐countries‐do‐it‐better‐but‐how.ars>.

22

cableismucheasierandcheapertoinstallatthetimeofconstructionandmakesbroadbandmorereadilyavailabletoFrenchcitizens.

Francedidnotalwaysenjoythecompetitivemarketplacethatitnowdoestoday.Historically,France’stelecommunicationmarkethasbeendominatedbyFranceTelecom(FT).FThadalargestakecontrolledbytheFrenchgovernmentandthisplayedanimportantroleinblockingcompetitorsfromenteringtheFrenchmarket.39In1996,Francecreateditsfirsttelecommunicationsregulator,theART.TheARTprovedtobearelativelyweakregulator40anditsregulatorydecisionsrequiredtheapprovalfromtheMinisterforEconomy,FinanceandIndustryinordertobebinding.ThedecisionswerealsopossibletoappealonsubstantiveandproceduralgroundstoFrenchcourts,furtherweakeningthepoweroftheART.MostcomplaintsconcerningARTdonotconcertpriceabuses,butratherissuessuchasconnectiondelaysandtheuseofvaguelanguageregardingservicestandardsratherthanclear,fixedstandardsthatwouldhavemadeamarketentrymorepredictablefornewentrants.41ThepassageofEuropeanCommissionFrameworkDirective2002/12/ECrequiredmemberstatestoadoptwholesalelocalloopunbundling,bitstreamaccessandleasedlinesintolawbyJuly2003.42BetweenFebruary2003andJanuary2004,France’sunbundledloopswentfromnearlynonetoover250,000.43Today,FTnolongerenjoysthenear‐monopolyitoncedidwithonly47%oftheFrenchbroadbandmarket,astwoothermajorcompetitorshaveemergedIliad(Free)with24%ofthemarketandSFR(withNeufCegetel)with22%ofthemarket.44

Francehasrecentlyannounceditsintentiontobring100megabytepersecond(Mbps)broadbandinternettomostofitscitizenswithinthenextdecade.NicholasSarkozy,thePresidentofFrance,announcedinDecemberof2009thatheintendedtospend4.5billionEurotodeployultrafastbroadbandwithinhiscountry.45Themoneytofinancetheprojectisbeingraisedbya“grandemprunt”orbondissueworth35billionEurotofinanceinnovativeinfrastructureprogramsandhelppullFranceoutofaworldwiderecession.46Someofthefunds

38Ibid.39BerkmanCenterforInternetandSociety,HarvardUniversity:“NextGenerationConnectivity:AreviewofbroadbandInternettransitionsandpolicyfromaroundtheworld”atp.96.<http://cyber.law.harvard.edu/sites/cyber.law.harvard.edu/files/Berkman_Center_Broadband_Final_Report_15Feb2010.pdf>.40Ibid.41Ibid.422002/12/EC.43OECDRegulatoryReforminFranceFigure2.44Supranote39atp.97.45“SarkozyunveilsEUR4.5bngovernmentinvestmentinultra‐highspeedbroadband”http://www.telegeography.com/cu/article.php?article_id=31353.46Anderson,Nate:"France:70%toget100MbpsInternetwithin10years"http://arstechnica.com/tech‐policy/news/2009/12/france‐70‐to‐get‐100mbps‐internet‐within‐10‐years.ars.

23

notraisedbythebondissueforinfrastructureprojectswillbeprovidedbybanksthattheFrenchgovernmentbailedoutduringtherecenteconomiccrisis.47ThedetailsconcerninghowexactlythefundswillbespentarenotclearbuttheFrenchgovernmenthasannouncedthatitwillfinance2billionEuroofthesumrequiredtobring100Mbpsbroadbandserviceto70%oftheFrenchpopulation,withtheremainderbeingfinancedbyothersources.48Frenchconsumersnowenjoyaveryhighlevelofserviceforreasonableprices.FreeoffersFrenchconsumersapackagefor30Euroswhichincludes100Mbpsuploadand50Mbpsdownloadspeeds,HDTVserviceandunlimitedvoicecallingnationallyandto70internationalcountries.ApackageofferingtheseservicesforthisveryreasonablepriceseemsunimaginableinCanadaandyet,itispresentlyavailableinFrance,asaresultofbasicserviceguaranteesandstrongcompetition.

Spain

Asof2011,thecitizensofSpainwillenjoythelegalrighttobroadbandserviceofatleast1Mbps,wherevertheylive.49Thisservicewillbeprovidedatregulatedratestocitizensallaroundthecountry.Theformerstatemonopoly,Telefonica,hasalwaysheldthecontractwhichprovidedthebasicservicerequirementtotheremoteandunderservedareasofthecountry.However,othertelecommunicationsprovidersinSpainhavealsocomeforwardandaskedtobeconsideredtoprovidebasicservices.50

Spain’stelecommunicationsregulator,theCMT,hasproposedthatTelefonica,VodafoneandOrangepaythecostsofdeliveringbasicservice.Thecostofprovidingbasicservicein2006,beforethedefinitionincludedbroadbandinternetwasover75millionEuros.However,itisdifficulttoquantifyhowmuchitwillcosttoimplementbasicserviceforbroadband.

Finland

Finlandhasrecentlymadeaccesstobroadbandinternetserviceahumanrightforallofitscitizens.ThisrightwilltakeeffectinJuly2010,atwhichpointallFinnishresidentsareentitledtoaminimumof1Mbpsbroadbandlineintotheirhome.51Thisminimumlevelofservicewillriseto100Mbpsin2015.WhatisevenmoreremarkableaboutthisdevelopmentisthatFinlandalreadyhas96%broadbandpenetrationamongitspopulation.Thismeasurewas47Ibid.48Supranote31.49“Spaincodifiestherighttobroadband”<http://www.pcmag.com/article2/0,2817,2356014,00.asp>.50ICTStatisticsNewslog:“Spaintoadd1Mbpsminimumspeedtouniversalserviceobligationfrom2011”<http://www.itu.int/ITU‐D/ict/newslog/Spain+To+Add+1Mbps+Minimum+Speed+To+Universal+Service+Obligation+From+2011.aspx>.51“Finlandmakesbroadbandaccessalegalright”<http://www.guardian.co.uk/technology/2009/oct/14/finland‐broadband>.

24

enactedinordertoguaranteeserviceforcitizensresidinginruralandremoteareas,accordingtotheCommunicationsMinisterSuviLinden.52

MinisterLindenexplainedthatprovidingthisbasicservicewouldimproveFinland’sbusinessenvironmentasitwillfacilitatemoreelectronictransactions.53Furthermore,theavailabilityofbroadbandconnectionsinruralandremoteareaswillimproveruralvitality.Thisbasicserviceregimeforbroadbandcouldserveasamodelforothercountriesconsideringimplementingsimilarpolicies.FinlandcouldserveasaparticularlyusefulexampletoCanadaduetoitslowpopulationdensityandthefactthatitcontainslarge,sparselyinhabitedregionsinarcticandnear‐arcticconditions,similartoCanada.

Australia

Australiadoesnotcurrentlyhaveabasicservicerequirementfortheprovisionofbroadbandinternetservicesforitsconsumers.However,areportentitled“AccessibleBroadbandforAllAustralians”writtenbyMediaAccessAustralia,theAustralianCommunicationExchangeandtheConsumer’sTelecommunicationNetworkadvocatesforabasicserviceprovisioninAustralia.54

ThereportsuggeststhatAustraliadevelopanationalbroadbandplanwithagoalofdeveloping100%coverageofbroadbandavailabilityforAustralianconsumers.BroadbandisnolongeraluxuryforAustralians,butratheranecessity(muchlikeitisforCanadians).Thereportlistsanumberofreasonsbroadbandshouldbeuniversallyimplemented,aswellasimportantservicesandopportunitiessuchas:

‐ Telecommuting‐ Educationalopportunities‐ Accesstogovernmentinformationandservices‐ E‐healthinitiatives‐ Socialnetworking‐ CommunicationsapplicationssuchasVoiceoverIP(VOIP)

Thereportsumsuptheimportanceofbroadbandasfollows:

Broadbandisn’tsimplyausefulsocialutility;itisnowanessentialservice.Usingasimple‘takeaway’test,manyAustralianswouldfindtheirabilitytoaccessbasicinformationandgovernmentservicesandworkopportunities,andtointeractwiththeirsocialnetworks,wouldbesignificantlyreducedwithoutaccessto

52Ibid.53Erhet,Christian:“Finaldgovernmentdeclareslegalrighttobroadbandinternetaccess”<http://jurist.law.pitt.edu/paperchase/2009/10/finland‐government‐declares‐legal‐right.php>.54MediaAccessAustralia:“AccessibleBroadbandforAllAustralians”<www.mediaaccess.org.au/docs/CTN_Accessible_Broadband.doc>.

25

broadband.Giventheinadequacyofregulatoryarrangementsapplyingtobroadband,thereisaneedtoensure that broadband is ‘upgraded’ so that consumer protections reflect our dependence on theservice.55

OfparticularnotetotheauthorsofthereportishowavailablebroadbandservicesareinAustralia.Thereportstatesthatgovernmentinitiativesthatattemptedtocreateincentivesforcommercialprovidersdidnotfunctionasplanned.ThefirstsuchprogramwastheHigherBandwidthInitiativeSchemewhichpaidincentivestocommercialISPstoofferhighbandwidthconnectionstoregional,ruralandremoteareas.56Alargerprojectcalledthe“ConnectAustralia”programwasdesignedtomakebroadbandandwirelesscommunicationmoreavailabletoAustraliansinruralandremoteareas.$1.1billionAustraliandollarshasbeenspentunderthisprogramtomakebroadbandservicesmoreavailabletoAustralianconsumers.

TheAccessibleBroadbandreportidentifiesADSLasthemostprolificbroadbandserviceavailabletoAustralians,withservicereaching91.6%ofthepopulation.57MoremodernandfasterbroadbandtechnologiesarenotaswidelyavailabletoAustralianconsumers.ADSL2+isonlyavailableto46%ofthepopulationandcableisonlyavailableto33%ofAustralians.58ThereportidentifiedanAustraliangovernmentstudywhichindicatedanumberofreasonswhybroadbandhasnotbeenwidelyadopted.Someofthosereasonsare:lackofawarenessofbenefitsofbroadband;familyincomesandperceptionsabouthighbroadbandcosts;confusionoverbroadbandtechnologyandpackages;misinformationfromprovidersaboutwhatisavailable;ageingofthepopulation;familymake‐up(e.g.whethertherearechildrenoryoungpeopleinthefamily);literacyandeducation;limiteduseofconnection;andnegativeexperienceswithdial‐upandskepticismaboutbroadbandasthepossiblesolution.59

ThereportalsoindicatesthatformanyAustralians,affordabilityistheultimatebarrier

andthatmarket‐basedapproachestobroadbanddeploymentwillnotbeabletoaddressthisissue.ThisisparticularlytrueforAustralianswithdisabilitiesanduniversalaccesscanonlybeachievedifbasicserviceisregulatedbythegovernment.OneinfiveAustralianssuffersfromadisabilityandAustralianswithdisabilitiesarelesslikelytosubscribetobroadbandservice.

ThereportfailstomentiontheAustralianBroadbandGuarantee,whichisafederalinitiativeto“helpresidentialandsmallbusinesspremisesaccessametro‐comparable

55Ibidp.6.56Ibid.57Supranote4258Ibid,p.7.59Ibid

26

broadbandserviceregardlesswheretheyarelocated”.60TheprogramattemptstoprovideinternetserviceonalevelcomparabletowhatisavailableinwellservedurbanareasinAustralia.TheGuaranteeprovidesforaminimumof512kbpsdownloadand128kbpsupload,3Gbpermonthofdatausageandatotalcostof$2500AUDincludinginstallationandtaxesforthreeyearsofservice.61TheprogramfundsISPswhohavevoluntarilyagreedtobeapartoftheprogramwithasubsidythatencouragestheseISPstomakebroadbandservicesavailableinunderservedareas.

WhiletheAustralianBroadbandGuaranteerepresentsafirststepintherightdirectiontoservingAustralianconsumers,itsuffersfromanumberofdeficiencies.Oneimportantproblemisthestandardofserviceguaranteediswoefullyinadequatefortoday’sinternetuser.512kbpsisindeedfasterthandialupservice,butcanhardlybeconsideredbroadbandbyanymoderndefinition.Furthermore,a3Gbcappermonthwouldbeextremelylimitingforconsumersandwouldeffectivelyprecludemanyoffertheexcellentservicesbroadbandsupports,suchasVOIPtelephony,streamingaudioandvideoservicesandsomebandwidth‐intensivetelehealthapplications.Additionally,theuploadanddownloadspeedsindicatedarepeakspeedsandparticipatingISPsareallowedtohaveaverageuploadanddownloadspeedsofupto40percentlower.62Thismeansthatthealreadymeagerspeedstoutedbytheprogrammaynotevenbeavailablenearlyhalfofthetimetheconsumerwishestousetheirservice.

AnotherissuewiththeAustralianBroadbandGuaranteeisthatthesubsidythatitoffersisnotavailabletoconsumerswhoareservedbyanISPthatoffersanequivalentservicetotheirresidence.Thesubsidyisonlypayableonceandconsumersareobligatedtoremainwiththesame(andoftenfirst)providertoservetheirmarket.Thismeansthatifacompetingprovideroffersanew,superiorserviceforthesamepriceinagivenmarket,theconsumermustdiscontinuetheirsubsidizedservice(andlikelypayahigherrate)orbeforcedtocontinueusingalowerqualityservicetomaintainthesamesubsidizedrate.Thiscreatesadifficultsituationforconsumersandcouldprecludethemfromobtainingthebestserviceforthelowestpricefortheirneeds.Italsoservesasanimpedimenttoproviderscontinuallytryingtoofferbetterservicesbyreducingcompetitioninthemarketandforcingcustomersintolongtermcontractsforservice.

LuckilyforAustralianconsumers,theirfederalgovernmentisabouttoaddressthefailingsofthemarket‐basedapproachwithanewgovernment‐builtopticalfibernetwork.A

60DepartmentofBroadband,CommunicationsandtheDigitalEconomy,AustralianGovernment:“AustralianBroadbandGuarantee”<http://www.dbcde.gov.au/broadband/australian_broadband_guarantee>.61ibid62AustralianBroadbandGuaranteeProgramGuidelines2009–10<http://www.dbcde.gov.au/__data/assets/pdf_file/0009/118098/Australian_Broadband_Guarantee_Guidelines.pdf>atp.15.

27

governmentpressreleasedatedMay6th,2010bytheMinisterforFinanceandDeregulationandtheMinisterforBroadband,CommunicationsandtheDigitalEconomyannouncedtheconstructionofanew,government‐backedbroadbandnetwork.Thisnetworkisslatedtoserve90‐93%ofhomeinAustraliawiththeremainderofhomesbeingservedbynextgenerationwirelessandsatellitetechnologies.63Thisplanisprojectedtocostapproximately$43billion(AUD)andtakebetween7‐8yearstocompletemostofthemajorwork.64Somespeculatethatthisambitious,government‐ledplanmaybetheresultofpoorserviceavailabilitybyTelestra,theAustraliannationalincumbentcarrier.NateAnderson,atechnologyjournalistfromArsTechnicawrites:“Themessageisclear:Australiarefusestobeheldbackbythebusinessdecisionsofasinglecompany.AsanewreportontheAustralianplanmakesclear,there'snotmuchattempttomakethiseasieronTelstra."Existingparticipantswillneedtoadapttosucceed,"saysthegovernmentreport”.65

ThiskindofboldplanningbyanationalgovernmentcouldserveasausefulexampletoasimilarlylargeandsparselypopulatedcountrysuchasCanada.UndertheAustralianplan,thenetworkwouldbebuiltupusinggovernmentfunds,butthegovernmentitselfwouldnotbecomeanISP.Instead,itwouldsellwholesaleaccesstoitsnetworktoanyandallcommercialISPswhowishtoparticipate,withoutdiscrimination.66Thiswouldcreateafarmorelevelplayingfieldforcompetition,especiallysincethenewnetworkwillinstallfiberrightuptotheresidencesoftheretailcustomers.

Japan

RegulationoftelecommunicationservicesinJapandatesbackto1885,whentheMinistryofCommunicationswasfirstestablished.ThisministrywasdividedintwoaftertheSecondWorldWarintotheMinistryofTelecommunicationsandtheMinistryofPosts.In1952,theMinistryofTelecommunicationsunderwentadramaticchangeandwasincorporatedintoapubliccorporationcalledtheNipponTelephoneandTelegraphcompany(NTT).NTTbecameJapan’smonopolydomestictelephoneserviceprovider.Theyear1952alsosawtheevolutionoftheMinistryofPostsintotheMinistryofPostsandTelecommunications(MPT)whowasresponsibleforregulatingthetelecommunicationsmarket.Japanunderwentmajorreformin63SenatortheHon.StephenConroy,MinisterforBroadband,CommunicationsandtheDigitalEconomy,mediarelease,May6th,2010:"LandmarkStudyconfirmsNBNvisionisachievableandaffordable"<http://www.minister.dbcde.gov.au/media/media_releases/2010/040>.64Ibid

65Anderson,Nate:“Uh‐oh,telcos:93%ofAustraliagettinggov't‐runfiber“<http://arstechnica.com/tech‐policy/news/2010/05/uh‐oh‐telcos‐93‐of‐australia‐getting‐govt‐run‐fiber.ars>.

66Ibid

28

itstelecommunicationssectorinthe1980s,bringingcompetitiontotheJapanesemarket.ThisprocessmirroredthebreakupofAT&TthatwasoccurringintheUnitedStatesatapproximatelythesametime.67In1996,theMPTbeganderegulatetheJapanesetelecommunicationmarketandloosenedtherulesonforeignownershipinthemarketandintroducedanewsetofregulationsforend‐to‐endconnectionswithNTT.

Japanbegantoimplementpoliciestoencouragebroadbanddevelopmentin2001.Theso‐called“e‐JapanStrategy”soughttotransformJapanintothemostadvancedITstateintheworldby2006.68Japanalsorevealedits“e‐JapanPriorityPolicyProgramme”thatsetoutJapan’s5keypolicydirections.Theseinclude1)infrastructure,2)humanresources,3)e‐commerce,4)e‐government,5)networksecurity.Japanmetthebenchmarksithadsetforitselfwithits“e‐Japan”programandin2003,Japanembarkedonthe“e‐JapanStrategyII”.Insteadoffocusingonbuildingbroadbandinfrastructure,thissecondstrategysoughttopromotebroadbandusageandsubscriptionsbyJapaneseconsumers.69E‐Japanaccomplishedthistaskbypromotingtheuseofbroadbandinthemedicalcare,employment,governmentservice,foodandsmallbusinessfinancingsectors.Japanlauncheditsu‐Japanstrategyin2004.ThisnewstrategysoughttomakehighspeedinternetserviceinJapanubiquitous.70Theseinitiativesallsetambitioustargetsandwerebuttressedbyaneffectiveandcapablebureaucracy.71ThesefactorshelpedtomakeJapanoneofthetopcountriesintheworldforprovidingbroadbandservicetoconsumerswiththehighestmaximumandaveragebroadbandspeedsavailabletoconsumersinOECDcountries,aswellasthelowestpricesforhighandveryhighspeedbroadbandservice.72ThesetoprankingsarearguablytheresultofJapan’scarefulandeffectiveregulationofitsbroadbandmarket.

AnotherfactorwhichhascontributedtoJapan’stopstandinginbroadbandservicesisthewayinwhichithasinvestedininfrastructure.MajoreffortsinfinancingJapan’sbroadbandnetworkbeganin2000,whentheBasicITlawbeganandconcertedeffortsstartedtoupgradenetworkinfrastructure.TheBasicITlawmarkedthebeginningofaseriesoftaxincentives,someofwhichpermittedahighlyaccelerateddepreciationofcapitalinvestmentsintelecommunicationsinfrastructureandequipment.73TheJapanesegovernmentalsoagreedtooffersecurityforloansusedbyprivatecorporationstofundbroadbandinfrastructure

67InternationalTelecommunicationUnion:“WorkshoponPromotingBroadband”<http://www.itu.int/osg/spu/ni/promotebroadband/casestudies/japan.pdf>.68Ibid69ITStrategicHeadquarters:“E‐JapanStrategyII”<http://www.kantei.go.jp/foreign/policy/it/0702senryaku_e.pdf>.70PleaseseethisJapaneseMinistryofInternalAffairsandCommunicationswebsitefordetails:http://www.soumu.go.jp/menu_seisaku/ict/u‐japan_en/index.html71Supranote39atp.240.72OECDBroadbandPortal,Table1e,fromECCommunitySurvey,asof2007.73Supranote55.

29

improvements.74Thisallowedthemtoborrowatcheaperinterestratesandhelpedcreateanincentivetodeploymorebroadbandcapacity.ConsumersinruralorunderservedareaswerealsoaddressedbyJapanesepoliciesprovidingasystemofgrantsin2006forfundingtelecommunicationinfrastructure.Thisprogramhasprovidedcashtofundbuild‐outindifferentlocalesacrossthecountry.In2008,theeffortwidenedandJapaninitiatedits“StrategyontheDigitalDivide”andsetouttoeliminateareasthathadnobroadbandserviceavailable.Japanhascommitted185billionYentotheproject.75

AsaresultofJapan’srobustschemestoimplementbroadbandinfrastructure,itnowhasaverymodernnetworkavailabletoconsumersaroundthecountry.IntheearlydaysofJapanesebroadbanddeployment,cablewasthepredominanttechnologyforconnectingconsumers.WhenJapanunbundleditslocalloopsandestablishednewrulesconcerninginterconnectionandallocatingunused“darkfiber”,DSLbroadbandquicklybecamemorepopularstartingintheyear2000.76WiththeriseofDSLbasedbroadband,morecompetitorsbegantoappearonthemarket.AnewproviderinJapan,calledSoftbankmadeampleuseoftheserelaxedrulestoprovidefasterandcheaperservicethantheincumbent,NTT.Eventually,thepriceandspeedofDSLdroppedtothepointwhereitbecametheleadingtechnologyforbroadband.Thisperiodwasmarkedbyaggressivepricingandrapiddeploymentofservicesandmanyplayersenteredthemarketatthispoint,includingNTT,whohadpreviouslyfavouredISDN.77However,byJuneof2008,fibertothehomehadoutpacedDSLintermsofthenumberofconsumersubscriptions.78NTTwasanearlyleaderfortheprovisionoffibertothehomebutasitbegantofacefacilities‐basedcompetitionfromutilitycompanysubsidiarieslikeK‐OpticomandTEPCO.79Also,NTT’sfibertothehomeinfrastructureissubjecttounbundlingrulesandthismakesitsubjecttocompetitionfromotherserviceproviders.NTTremainsthelargestbroadbandproviderwithapproximately50%ofthemarketforwirelineaccess.Softbankisthenextlargestproviderwithapproximately14%ofthemarketanditmakesuseoftheunbundlingandinterconnectionofNTT’snetwork,asdoothercompetitorsinJapanaswell.80

74ThomasBleha,“DowntotheWire,”ForeignAffairs,May/June2005<www.foreignaffairs.org/20050501faessay84311/thomas‐bleha/down‐to‐the‐wire.html>.75OECD,TheImpactoftheCrisisonICTsandTheirRoleintheRecovery,July2009.<http://www.oecd.org/dataoecd/33/20/43404360.pdf>.76Supranote5577Ibid78Ibid79Ibid80TeleGeography,GlobalCommsDatabase,Countryprofile,Japan,updatedMarch2009.

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TheUnitedStates

TheUnitedStates(U.S.)wasthecountrythatinventedtheinternet.WhatbeganasagovernmentfundedexperimentevolvedintoasmallcommunicationnetworkbetweenresearchersindifferentU.S.militaryinstallationsanduniversities.Eventually,theinternetwouldbecomemorepublicandcommercialinternetserviceproviderswouldofferservicetoconsumers.TheUnitedStateswashometosomeoftheveryfirstISPsonearth.

TheFederalCommunicationsCommission(FCC)istheregulatorybodyresponsibleforregulatingallradiospectrum,aswellasallinterstateandinternationalcommunicationsoriginatingorterminatingintheU.S.81TheFCCcameintoexistencewiththepassageoftheCommunicationsActof1934.ThislawwasamendedbytheTelecommunicationsActof199682whichdeclaredthemissionoftheFCCto

…makeavailablesofaraspossible,toallthepeopleoftheUnitedStates,withoutdiscriminationonthebasisofrace,color,religion,nationalorigin,orsex,rapid,efficient,Nation‐wide,andworld‐widewireandradiocommunicationserviceswithadequatefacilitiesatreasonablecharges.83

In1997,theFCCcreatedtheUniversalServiceFund(USF).Thisfundcollectsmoneyfromtelecommunicationprovidersforthepurposeofprovidingtelecommunicationservicesatreasonableratestounderservedareas.TheUSFfundsfourprogramstoservefourdifferentgroups.84Theyareahighcostgroupforconsumersthatareforcedtopayhigherpricesforservice,alowincomegroup,whichprovidesbasictelephoneservicefor7millionlowincomeconsumers,aruralhealthcaregrouptoprovidetelephoneandinternettohealthcarefacilitiesinremoteareasandagrouptoprovideinternetaccessforpublicschoolsandlibraries.NotallofthegroupsservedbytheUSFareentitledtointernetserviceandthereisnoexplicitrequirementtoprovidebroadbandtothesegroups.Thisisunfortunate,asdial‐upinternetisanincreasinglydifficultwaytoaccesstheinternetwiththeproliferationofmultimediaandbandwidthintensivewebsites.

DespiteaclearintentiononthepartoftheFCCtomaketelecommunicationservicesaswidelyavailabletoAmericanconsumersaspossible,theFCCavoidedtakingafirmstanceontheissueofbroadbandavailabilityuntilveryrecently.

81See47U.S.C.§151and47U.S.C.§154fordetailsonexactlyhowtheFCCwasempoweredbyCongresstoregulate.82amendmentto47U.S.C.§15183Ibid84PleaseseetheUniversalServiceAdministrativeCompany’swebsitefordetails:http://www.universalservice.org/about/universal‐service/fund‐programs/default.aspx

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TheFCCpublishesregularreportsonthestateoftelecommunicationsandbroadcastingintheUS,aswellasthepolicygoalsoftheCommission.OnesuchreportistheannualPerformanceandAccountabilityreport.Themostrecent2008reportsetsoutsomeoftheFCC’spolicyobjectives.TheseobjectivesareconsistentwiththeTelecommunicationsActof1996andtheGovernmentPerformanceandResultsActof1993.TheFCCidentified6majorareasofinterestforpolicyreformforits2006‐2011StrategicPlan.Amongthepriorityareaswerebroadbandandcompetition:

All Americans should have affordable access to robust and reliable broadband products and services.Regulatory policies must promote technological neutrality, competition, investment and innovation toensurethatbroadbandserviceprovidershavesufficientincentivetodevelopandoffersuchproductsandservices.

Competition in the provision of communication services, both domestically and overseas, supports theNation’seconomy.Thecompetitiveframeworkforcommunicationsservicesshouldfosterinnovationandofferconsumersreliable,meaningfulchoiceinaffordableservices.85

Startingin2009,theUSbegantoembarkonaclearerpathwithrespecttobroadbandpolicy.OnFebruary17,2009,PresidentBarackObamasignedtheAmericanRecoveryandReinvestmentActof2009intolaw.ThislawwasdesignedtohelpstimulatetheUSeconomyandaddresstherisingunemploymentintheUS.Thelawallotted$7.2billionUSDforbroadbanddevelopment.4.7billiondollarswasallottedtobringbroadbandtoun‐servedandunderservedareasandtofacilitatebroadbanduseandadoption.Theother2.5billionwasallottedtotheFCCtodevelopanationalbroadbandplanwithinayear.86Inordertopromotepublicparticipationinthecreationofthebroadbandplan,theFCCsolicitedcommentsfromthepublic,startinginApril2009throughtoFebruary2010.

AgroundbreakingreportwasreleasedbyHarvardUniversity’sBerkmanCenterforInternetandSocietyonFebruary16th,2010.ThereportwasentitledNextGenerationConnectivity:AreviewofbroadbandInternettransitionsandpolicyfromaroundtheworld,anditanalyzedthestateofbroadbandinanumberofdifferentcountriesinEurope,AsiaaswellasCanada.Itexaminedtheregulatorypracticesandpoliciesforbroadbandindifferentcountries,suchascompetition,access,publicinvestmentandpricingversusspeed.ThereportmadeanumberofimportantconclusionsaboutthestateofbroadbandintheU.S.aswellasintheworldmoregenerally.Thereportstatesthat:

Ourmost surprisingand significant finding is that 'openaccess'policies—unbundling,bitstreamaccess,collocationrequirements,wholesaling,and/or functionalseparation—arealmostuniversallyunderstoodashavingplayedacoreroleinthefirstgenerationtransitiontobroadband[dial‐uptobroadband]inmost

85FederalCommunicationsCommission:“FiscalYear2008PerformanceandAccountabilityReport”p.12<http://www.fcc.gov/Reports/ar2008.pdf>.86AmericanRecoveryandReinvestmentActof2009,Pub.L.No.111‐5,123Stat.118.

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of the high performing countries; that they now play a core role in planning for the next generationtransition [faster and always available connectivity]; and that the positive impact of such policies isstronglysupportedbytheevidenceofthefirstgenerationbroadbandtransition.87

Additionally:

Wefindthatincountrieswhereanengagedregulatorenforcedopenaccessobligations,competitorsthatenteredusingtheseopenaccessfacilitiesprovidedanimportantcatalystforthedevelopmentofrobustcompetition which, in most cases, contributed to strong broadband performance across a range ofmetrics…[T]he highest prices for the lowest speeds are overwhelmingly offered by firms in the UnitedStates and Canada, all ofwhich inhabitmarkets structured around “inter‐modal” competition—that is,competition between one incumbent owning a telephone system, and one incumbent owning a cablesystem.Thelowestpricesandhighestspeedsarealmostallofferedbyfirmsinmarketswhere,inadditiontoanincumbenttelephonecompanyandacablecompany,therearealsocompetitorswhoenteredthemarket,andbuilttheirpresence,throughuseofopenaccessfacilities.88

Thereportoffersanumberofexamplesandcomparisonsbetweenbroadbandproviders

indifferentcountriestoillustratethispoint.FranceTelecom,theincumbentprovider,wasforcedtoopenupitslinestosmallercompetitors,whereasGermany’sproviderswerenot.Asthereportstates:

Germanybegantheyear2002withdoublethe levelofbroadbandpenetrationper100 inhabitantsthatFrancehad.By2006FrancehadslightlyovertakenGermanybythatmeasure(althoughnotinpenetrationperhouseholds).AverageadvertisedpricesinGermanyaresubstantiallyhigheracrosseverycategoryofservice,fromverylowspeedstoveryhighspeeds.Franceisamongthecountriesinthefirsttierofspeedavailability,withsubstantialavailabilityof100Mbpsservice.Germanyisinthesecondtier,withofferingsof 50Mbps characterizing the top range available to residential subscribers. A review of the companyhistoriesofthosecompaniesthatgeneratedthecompetitiveenvironment inthetwocountriesstronglysuggeststhatunbundlingandopenaccessplayeda significant role inentry.A reviewof the regulatoryhistoriesandpoliticaleconomyofthetwocountriessuggeststhatthatdifference,inturn,wasdrivenbypolitical will, regulatory engagement, and determination around the implementation of the networkaccessframeworkthattheECpassedin2002.89

The reportalsoexaminedhow Japan’s regulatory environmenthelpedmake it oneof

theleadingcountriesforbroadbandserviceintheworldtoday:

What is clearly true is that unbundling enabled Yahoo!BB to enter the market with lower prices,aggressivemarketing,freeDSLmodemsandinstallation,andinnovativenewservices,mostdisruptiveofwhichwasbundlingfreeVoIPwithbroadbandaccessasearlyas2001.TodayYahoo!BBhasslightlyoverathird of the DSL market, NTT has another third, and the remainder is shared among other providers,mostlyKDDIandeAccess.Moreover,Softbankisnowmovingtoinvestinfiber,andhasbecomeamajor

87Supranote39atp.11.88Supranote39atp.12.89Supranote39atp.101.

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player in fixed mobile convergence by buying Vodafone's Japanese operations in 2006. In this case,unbundlingoropenaccessoperatedexactlyasanticipated—itcreated lowentrybarriers foranentrantwho was able to introduce extensive service innovations, create a brand, and become an aggressivecompetitorwhichhelpeddriveinvestmentawayfrommonopolyrent‐extractiondevices,likeNTT'sISDNpolicy.Thatentrantcontinuestobeamajorforceinthemarketalmostadecadelater.90

Canadadidnotfarewellincomparisontoothercountriesexaminedinthereport.The

reportwasparticularlycriticalofhowCanada’sattemptstoimposeunbundlingwerenotwellexecuted.

Canadainparticularoffersanexampleofhalf‐heartedeffortstoimposeunbundling,andincreasinglyheavyrelianceoncompetitionbetweenlocaltelephoneandcableincumbents.Itsresults,asourbenchmarkingstudyshows,havebeenweakerthanthoseofothercountrieswereviewhere.91TheBerkmanreportofferedanoutsider’sperspectiveonwhatkindofregulationslead

toacountry’ssuccessorfailureinprovidingbroadbandservicestoitscitizens.Thefactthatitwasnotproducedbyeitherregulatorybodiesororganizationsemployedbythetelecommunicationsindustrymakesitunique.ThereportservedasapreludetotheFCCNationalBroadbandPlan(thePlan)thatwasreleasedonMarch17th,2010.

TheFCCNationalBroadbandPlanisaverysubstantialdocumentatover300pages.The

PlansetsouttheUS’sbroadbandcompetitionandinvestmentpolicyaswellas“nationalpurposes”forbroadbandservice.Thesenationalpurposesincludehealthcare,education,theenvironment,theeconomy,civicengagementandpublicsafety.Thereportalsotakesasomewhatphilosophicaltackaswellbyadvocatingforbroadbandasanessentialtoolforbusinessopportunitiesandcitizenship.92ThePlanrevealssomesurprisingfactsaswell.Nearly100millionAmericanshavenoaccesstobroadbandinternettoday.14millionAmericansarenotabletoaccessbroadbandwheretheyliveand10millionAmericanschoolchildrenneeditasaprimaryresearchtoolforhomework.93

ThePlanbeginsbysettingsomeambitiousandbroadreachinggoalsforbroadbandin

theU.S.Thosegoalsare:1. Providingatleast100millionhomesaffordablebroadbandaccesswith100mb/s

downloadand50mb/suploadspeedsby2020.100millionhomesshouldhave50mb/sdownloadand20mb/suploadby2015.

90Supranote39atp.84.91Supranote39atp.79.92Supranote39atp.3.93Ibid.

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2. TheU.S.shouldleadtheworldinmobileinnovation,withthefastestandmostextensivewirelessnetworksofanynation

3. EveryAmericanshouldhaveaffordableaccesstobroadbandserviceandthemeansandskillstosubscribeiftheysochoose.

4. EveryAmericancommunityshouldhaveaffordableaccesstoatleast1gigabitpersecondbroadbandservicetoanchorinstitutionssuchasschools,hospitalsandgovernmentbuildings.

5. Everyfirstrespondershouldhaveaccesstoanationwide,wireless,interoperablebroadbandpublicsafetynetwork

6. EveryAmericanshouldbeabletousebroadbandtotrackandmanagetheirreal‐timeenergyconsumption.94

Implementingtheserecommendationsrequiressomesignificantpolicychanges

regardingbroadbandinnovationandcompetition.ThePlangoesintodetailabouthowitwillregulatetheprovisionofbroadbandservicestoconsumers. OnerecommendationinthePlanproposedwasthattheFCCandtheU.S.BureauofLaborStatisticscollectmoredetailedandaccuratedataonactualavailability,penetration,prices,churnandbundlesofferedbybroadbandserviceproviderstoconsumersandbusinessesandshouldpublishanalysesofthesedata.95ThisdatawillhelptheFCCmakemoreinformedpolicydecisionsregardingbroadbanddeployment,adoptionandcompetitionissues.AnotherrecommendationwasthattheFCCcoordinateitseffortswiththeNationalInstituteofStandardsandTechnologytoestablishatechnicalbroadbandmeasurementstandardandcreateamethodologyandaprocesstoupdatethisstandard.96Thisisapositivestep,asthemethodologyemployedbytheFCChasbeencriticizedbysomemembersoftheindustryforreportingISPspeedsastoolow.97Thisrecommendationislinkedwithanotherthatstatesthat“[t]heFCCshouldcontinueitseffortstomeasureandpublishdataonactualperformanceoffixedbroadbandservices.98TheFCCshouldpublishaformalreportandmakethedataavailableonline”.ThistypeofapproachhasbeenusedwithconsiderablesuccessintheUnitedKingdom,NewZealandandSingapore.ThePlanalsorecommendsthedevelopmentofbroadbandperformancestandardsformobileservices,multi‐unitbuildingsandsmallbusinessusers.

94Supranote76,p.9‐11.95Supranote76,p.43.96Supranote39atp.45.97Lasar,Matthew:“CableISPs:newbroadbandtestmakesourservicelookslow”<http://arstechnica.com/telecom/news/2010/03/cable‐isps‐new‐broadband‐test‐makes‐our‐service‐look‐slow.ars>.98Supranote39atp.45.

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AmajorissuethattheReportseekstoaddressistheavailabilityofbroadbandservices.TheReportstatesthattheFCCshouldconductacomprehensivereformofuniversalserviceandintercarriercompensationinthreestagestoclosethebroadbandavailabilitygap.Thisproposedreformwouldoccurinaseriesofstages99:

• StageOne(2010‐2011):Laythefoundationforreform.

o ThisincludesimprovingtheUniversalServiceFund(USF)performanceandreliability,aswellascreatingtheConnectAmericaFund(CAF)andtheMobilityFund.

• StageTwo(2012‐2016):Acceleratereform.o TheFCCshouldbeginmakingpaymentstotheCAF,broadenthe

disbursementstotheUSFandbeginreducingtheper‐minuteratesforintercarriercompensation.

• StageThree(2017‐2020):Completethetransitiono TheFCCshouldmanagetheUSFtokeepitssizeat2010levels,minimizing

theimpactonconsumers,shouldprovideallfundingforbroadbandavailabilitythroughtheCAFandshouldphaseouttheperminuteratesfororiginationandterminationoftelecommunicationstraffic.

TheReportalsoproposesthatCongressshouldconsideradditionalfundingfor

broadbanddeployment,thatitalsoconsiderexpandinggrant/loanprogramsandthattheFCCworkmorecloselywithstate,municipalandTribalgovernmentstopromotebroadbandconnectivity. TheReportalsoaddressestheprincipleofuniversalorbasicserviceinthecontextofbroadbandserviceintheU.S.ThecurrentfederalleveluniversalserviceprogramsintheU.S.werecreatedaftertheTelecommunicationsActof1996waspassed.In1996,only23%ofAmericanconsumershaddial‐upinternetserviceathomeandbroadbandwasvirtuallyunheardofforconsumers.100TheUSFwasnotcreatedwithimplementingbroadbandservicesinmind,asidefromhelpingtoinstallitintoschools,librariesandruralhealthfacilities.Thisiswhythecurrentregulatoryschemewillnothelpincreasetheavailabilityofbroadbandinasignificantway.TheUSFmustbereconstitutedfromafundthatprimarilysupportsvoicecommunicationtoonewhichsupportsabroadbandplatformcapableofhandlingmanyapplications,including

99Supranote39atp.135‐136.100Supranote39atp.140.

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voice.TheReportrecommendsthattheFCCmovefirsttomaximizethenumberofhomesunservedbybroadbandstartingwiththosehomesthatwillrequirethesmallestinvestmenttofulfillthisgoal.ThiswillallowagreaternumberofhouseholdstobeservedquicklyforthesamelimitedinvestmentandwillalsoallowtheFCCtodevelopmoreexperienceandknowledgeaboutdeliveringbroadbandtoareasthatarehardesttoserve.TheUSFHighCostprogramwillhavetobeextensivelyreformedtoclosethebroadbandavailabilitygapandtheU.S.governmentwillgraduallyhavetowithdrawitssupportfortelephone‐onlynetworksandprovidefundingfornetworksthatsupportmanyapplications,includingvoice.101

ThereportalsostatesthattheIntercarrierCompensationprogram(ICC)wasimplementedbeforetheexistenceofbroadbandnetworks.Becauseofthisfact,theICCsystemhasnotchangedtoreflectthechangesinthemarketaswellasconsumerbehavior.Carrierscontinuetochargeratesabovecost,despitethefactthatVOIPtelephonyobviatesanyneedforcarrierswitching.AstheU.S.andtherestoftheworldevolvestowardsanIPbasedcommunicationnetworkthelevyingofchargesbasedonperminuteusagewillnotbesustainableinabroadbandworldwherepergigabitorunlimitedpricingschemesreign.102Asaresult,broadbandprovidershavebeenmovingslowlytowardsIPinterconnectionarrangementsforIPtraffic,becausethecurrentsystemofproviders’ratesabovecostscreatesdisincentivestoconvertallnetworkstoIPtechnology.TheFCCshouldstartastagedtransitiontowardsreducingtheper‐minuteratesforintercarriercompensationuntilthereiseventuallyauniformratepercarrier.

AnotherissuetheReportidentifieswithrespecttobroadbandisnotatechnical

problem,butrather,ahumanproblem.Broadbandadoptionisanimportantfactorinthecreationandimplementationofbroadbandnetworks.BroadbandadoptionisparticularlylowinsomevulnerablegroupsthatwereidentifiedintheReport.Theaveragerateofhouseholdbroadbanduseis65%.Thisfiguredropsto50%forruralhouseholds,42%forpeoplewithdisabilities,40%forlowincomehouseholds,35%forolderAmericansover65yearsandaslowas24%forthosewhonevercompletedhighschool.103ThethreemainreasonsthattheReportascribestotheproblemofadoptionofbroadbandarecost,digitalliteracyandrelevance.

Theissueofcostismostoftencitedasthereasonwhynon‐adoptersdonothave

broadbandserviceintheirhome.Some36%ofFCCsurveyrespondentsstatedthatthiswasthereasontheydidnothavebroadbandserviceintheirhome.104Becauseofthis,theReport

101Supranote39atp.143.102Supranote39atp.142.103Supranote39atp.167.104Supranote39atp.168.

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recommendstheFCCexpanditstelephoneaccessprograms(LifelineandLink‐Up)tomakebroadbandmoreaffordableforlowincomehouseholds.ThiscouldbedonebyrequiringtelecommunicationscarrierstopermitLifelinecustomerstoapplytheirdiscountstoanyserviceorpackagethatincludesbasicvoiceservice.TheFCCshouldalsointegratetheexpandedLifelineandLink‐Upprogramswithotherstateandlocale‐governmentefforts.Additionally,theFCCshouldfacilitatepilotprogramsthatwillproduceactionableinformationtoimplementthemostefficientandeffectivelongtermbroadbandsupportmechanism.TheReportalsorecommendsthattheFCCconsiderfreeorverylowcostwirelessbroadbandservice,followingasimilarprincipletofree,overtheairtelevisionbroadcasts.Thewirelessbroadbandsignalscouldbeaccessedbyadevicetheconsumerwouldhavetopurchaseinexpensively,muchlikeatelevisionantenna.Advertising‐basedmodelscouldfinancethesefreenetworks,muchasitsupportsfreeovertheairtelevisionbroadcasts.

Digitalliteracyisanotherobstacletobroadbandadoptionandisthereasonthat22%of

non‐adopterssayispreventingthemfromsubscribingtobroadbandservicesintheirhome.Digitalliteracyisacontinuallychangingidea,withnosetdefinition.TheReportidentifiesitinageneralsenseasaskillsetthatallowsanindividualtouseinformationandcommunicationstechnology“tofind,evaluate,createandcommunicateinformation.Itisthesumofthetechnicalskillsandcognitiveskillspeopleemploytousecomputerstoretrieveinformation,interpretwhattheyfindandjudgethequalityofthatinformation.”105ThePlanalsorecommendsthatthefederalgovernmentlaunchadigitalliteracyprogramthatcreatesaDigitalLiteracyCorps,increasesthecapacityofdigitalliteracypartnersandcreatesanOnlineDigitalLiteracyPortal.ThisproposedDigitalLiteracyCorpswouldprovidetrainingandoutreachservicesforcommunitiesthathavenotadoptedbroadband.TheReportalsosuggeststhatCongress,theInstituteofMuseumandLibraryServices(IMLS)andtheOfficeofManagementandBudget(OMB)shouldworkinconcerttosupportinstitutionsthatactaspartnersinbuildingthedigitalliteracyskillsofpeoplewithinlocalcommunities.CongressshouldconsiderincreasingitsfundingtotheIMLStoimproveconnectivity,upgradehardwareandtrainpersonneloflibrariesandothercommunity‐basedorganizations.TheOMBconsultingwithIMLSshoulddevelopguidelinestoensurethatlibrariansandCBOshavethetrainingtheyneedtohelppatronsusenext‐generatione‐governmentapplications.

Therelevancetosomeconsumersofreceivingbroadbandserviceinone’shomeis

anotherissuethatisimpedingitswidespreadadoption.TheReportidentifies19%ofnon‐adopterssaytheydonotbelievethatdigitalcontentdeliveredofbroadbandnetworksisacompellingenoughreasontojustifypurchasingtheservice.106AstheReportstates:

105Supranote39atp.174.106Supranote39atp.178.

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ManyAmericansmaynotfeelbroadbandcanhelpthemachievespecificpurposesanddonotviewonlineresourcesashelpfultotheirlives.Othersseemsatisfiedwithofflinealternatives.Theserespondentssay,forexample,thattheInternetisa“wasteoftime”.Thecountryhasauniqueopportunitytospuradoptionbymakingbroadbandcontentrelevanttothesenon‐adopters.107

Inordertocounteractthistendency,theReportrecommendedthattheNational

TelecommunicationsandInformationAdministration(NTIA)shouldexaminehowpublic‐privatepartnershipscouldimprovebroadbandadoption.Privateentitiesthatcouldbeusefulpartnersincludehardwaremanufacturers,softwarecompaniesandbroadbandserviceproviders.Thesepartiescouldworkwithfederalagenciesinnon‐adoptingcommunitiestoeducateconsumersontheuseofbroadband.ThesesamepartnershipscouldalsobeusefultoincreasetherelevanceofbroadbandforolderAmericans. DespitetheFCC’sclearintentiontoreformthebroadbandmarketintheU.S.,actingupontheseobjectivesmayprovemoredifficultthanpreviouslyanticipated.OnApril6th,2010,aU.S.federalappealscourtruledonalawsuitcommencedbyComcast,oneofthelargestbroadbandprovidersintheUnitedStates.AtissueinthecasewaswhethertheFCChadtherighttopreventComcastfromdiscriminatingagainstcertainkindsoftrafficoveritsnetwork.Comcasthadearlierassertedtherightto“throttle”orartificiallyslowdownBittorrenttraffic,whichistrafficgeneratedbyapopularpeer‐to‐peerapplicationusedforfilesharing.TheFCCorderedComcasttodiscontinuethepracticeandComcastappealed.Inaunanimous3‐0decisionoftheCourt,JudgeDavidTatelruledthattheFCCdidnotinfacthavethelegalauthoritytoregulateComcast’snetworkmanagementpractices.108 ThisunfortunatedecisionraisessomedifficultquestionsregardinghowtheFCCwillbeabletoimplementsomeofitsrecommendationsforbroadbandreform.OneissuefacingtheFCCnowistheywillbeabletoimplementsomeoftheirfundingrecommendations,suchasdivertingfundsfromtheUSFawayfromtelephoneservicetobroadbandservice.ThisdecisionsuggeststhattheFCCmaynothavetheauthoritytodoso.ThefinalanswerisnotyetclearasitwasnotclearatthetimeofthiswritingwhethertheFCCwouldchoosetoappealthedecisionorfindawaytoworkaroundit.Also,thedecisionraisesthepossibilitythatCongressmaypassalawthatcircumventsthisdecisionandallowstheFCCmoreauthoritytodecidehowtoregulateinternetservices.

107Ibid.108ComcastCorporationv.FederalCommunicationsCommissionandUnitedStatesofAmerica,2010FEDApp.08‐1291(D.C.Cir).

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Canada

InCanada,oneoftheprincipalcornerstonesofthebasicserviceobligation,asthepackageofinterrelatedpoliciesisgenerallytermed–theobligationtoserve‐wasformalizedinCRTCTelecomDecision86‐7inparagraph4.2ofthatDecision.OtherCommissionDecisionshaveclarifiedwhatisthebasictelecommunicationservicethatmustbeprovidedundertheobligationtoserve,andhowmustitbeprovided.InPN95‐49(citedinTelecomDecision96‐10),theCommissionaffirmedthatoneofitsobjectiveswastodeterminehowbesttoensurethatlocalserviceremainsaccessibleandaffordableincompliancewiththeobjectivessetoutinsec7oftheTelecommunicationsAct.

InDecision99‐16,theCommissionsetouttheBasicServiceObjective(BSO).ThisisalevelofservicethatalltelecommunicationsprovidersmustmakeavailabletoconsumersinCanada.TheBSOconsistsofavarietyofservicesthattelecommunicationsserviceprovidersmustmakeavailabletoallcustomers.AnexcerptofDecision99‐16explainstheminimumservicesbelow:

The Commission considers that the level of service now available to the vast majority ofCanadians shouldbeextended toasmanyCanadiansas feasible in all regionsof the country.Accordingly,theCommissionisherebyestablishingthefollowingbasicserviceobjectiveforlocalexchangecarriers:

• Individual line local service with touch‐tone dialing, provided by a digitalswitch with capability to connect via low speed data transmission to theInternetatlocalrates;

• Enhanced calling features, including access to emergency services, VoiceMessageRelayservice,andprivacyprotectionfeatures;

• Accesstooperatoranddirectoryassistanceservices;

• Accesstothelongdistancenetwork;and

• Acopyofacurrentlocaltelephonedirectory

The basic service objective is independent of the technologyused to provide service,andmaychangeovertimeasserviceexpectationsevolve.109

109CRTCTelecomDecision99‐16.

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Eachofthesefeaturesisessentialtoconsumers.Touch‐tonedialingisanecessitytoaccessdifferentservicesoverthetelephone,suchastelephonebankingorgovernmentservices.Theabilitytoconnecttolowspeedinternetisgrowinglessandlessusefulbytheday.Consumersneedguaranteedaccesstohighspeedbroadbandconnectionsforamultitudeofeconomic,socialandhealthrelatedreasons.Accesstoemergencyservices,suchas911service,areessentialtothehealthandsecurityofconsumers.Operatoranddirectoryassistancemakethetelephonenetworkmoreaccessibletoconsumers,particularlythoselessfamiliarwiththephonenetwork.AccesstothelongdistancenetworkmakestelephoneserviceatooltoconnecttotherestofCanadaandtheworld,aparticularlyimportantfeatureforbusinesses.Finally,acopyofthecurrentphonedirectoryallowsconsumerstomakethebestuseoftheirtelephoneservicebyallowingthemtofindandcontactothers.

Finally,inDecisionCRTC2000‐745,thecontributionregimewasestablishedforthepurposeofenablingthedeliveryofthebasicserviceobjectiveofDecision99‐16attheaffordableaccessrateobjectiveaffirmedinDecision96‐10.

AsCRTCTelecomDecision99‐16notes:

19. In assessing the options available to achieve these goals, the Commission mustconsiderthesometimescompetingpolicyobjectivesthataresetoutinsection7oftheTelecommunicationsAct(theAct),suchas:

(a) to facilitate the orderly development throughout Canada of atelecommunicationssystemthatservestosafeguard,enrichandstrengthenthesocialandeconomicfabricofCanadaanditsregions;

(b)torenderreliableandaffordabletelecommunicationsservicesofhighqualityaccessibletoCanadiansinbothurbanandruralareasinallregionsofCanada;

(c) to enhance the efficiency and competitiveness, at the national andinternationallevels,ofCanadiantelecommunications;

(f) to foster increased reliance on market forces for the provision oftelecommunications services and to ensure that regulation,where required, isefficientandeffective;and

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(h) to respond to the economic and social requirements of users oftelecommunicationsservices.110

WethushavetheframeworkofourcurrentuniversalserviceobligationinCanadathatconsistsofdeliveringbasicservicetoeveryoneinaservingarea.BasicserviceiscurrentlydefinedasaformoflocallandlineservicewithtouchtonedialingassetoutinDecision99‐16.Wherenecessary,contributionismadeavailableinaccordancewithCRTC2000‐745toenablethedeliveryofbasicservice.

TherehasbeenclearlysomeerosionofthecentralityofthelocallandlineserviceidentifiedasbasicserviceinDecision99‐16.TheremaywellbeothermeansthanthecurrentbasicserviceformulatomeettheconnectivityneedsdescribedbytheFCCatparagraph9herein.Atthesametime,broadbandservicehasbecomeanimportantnetworkforthedeliveryofawiderangeofservicesincludingtelephony.

Thefactthatadifferentnetworkortechnology,suchasbroadband,mayberequiredtonowmeetthesocietalneedsassociatedwiththeoriginalbasicserviceobjective,doesnotmeanthattheconceptofuniversalservicehasbecomeirrelevant.TheexperienceintheUnitedStatesandEuropeseemstopointtoaconclusionthatthebasicservicerequirementcanrequireadditionswithoutbeingsubversiveoftheoverarchingobjective.

Somecommentatorshavetakentheposition,notwithstandingtheregulatoryandcommonlawposition,thattheprincipleofobligationtoserveconsistentonlywiththepreservationofanaturalmonopoly,andthatithasnorelevanceinthecontextofanenvironmentinwhichcompetitionhasbeensupplantingregulation.111Thisviewhasbeenstronglychallengedbythosethatviewtheobligationnotassimplyafinancialobligationonthepartofserviceprovidertosubsidizeservicebutalsotoextendservicetomeetreasonabledemand.InCRTCproceeding2010‐43,expertevidencefiledbytheConsumerGroupsfromDr.BarbaraCherryoftheUniversityofIndianatracesthedevelopmentoftheobligationtoserveincommonlawandconcludesthatitremainsrelevantinaregulatoryenvironmentwhereforbearancefromregulationhasbeenpursuedasagoal:

Fortelecommunicationsservices,thecarrieroflastresortobligationhasbeenanimportantcomponentof

universal service policy to ensure that less desirable or unprofitable customers would continue to be

served. The application of a carrier of last resort obligation in a competitive environment requires

coordinationwithmodificationofuniversalservicepolicy.112Itisforthisreason,asstatedinSection3.2,

that application of a carrier of last resort obligation under a policy of forbearance requires careful

110Ibid111SeeRyan,M.H.,CanadianTelecommunicationsLawandRegulation,(2009),release2,pp.6‐67‐6‐73112See Cherry and Wildman (1999).

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evaluation — beyond a simple assertion of symmetric application among ILECs and CLECs — for

appropriateimplementation.113

Excerpts from Dr. Cherry’s testimony are set out as Appendix A to this report.

Itisalsoclearthatthetraditionalmechanismsformaintainingandfinancingthebasicserviceobligation,primarilythroughanobligationtoprovidebasicserviceintheformofsingleland‐linetelephony,cannotbetheprincipalmeansofmaintainingandfinancingbasicserviceinthefuture.Thesameregulatorybargainthatdrovetheestablishmentofbasicserviceprovidedbytheincumbentmonopolyproviderisnolongerinplace.TheGovernorinCouncil’sPolicyDirection,whichhastriggeredthenecessityforareviewofthecomponentsoftheCommission’sbasicserviceobligation,alsocontemplatesthatanyobligationshouldnowbesymmetricalandcompetitivelyneutral114.Wehaveappendedtothisreport,excerptsfromtheevidenceofregulatoryexpertJohnTodd,filedinCRTCproceeding2010‐43,thatoutlinesaregimethatiscompetitivelyneutralandprovidestherequiredcostdisciplinetoenableitsimplementation.

Thereexistsconsiderablepublicpolicysupportforabasicserviceobligationthatincludesbroadband.TheCanadiangovernment’sBroadbandTaskForcein2001recommendedanactionplanthatwouldhaveseenaccesstobroadbandinallCanadiancommunitiesby2004.TheTelecommunicationsReviewPanelReportof2006urgedthecreationofanationalstrategyforadoptionofICTs,notingtheeffectofimprovedbroadbandconnectivityas“aprimemeansofspreadingthesocialandeconomicobjectivesofinformationtechnology”.115Ittoorecommendedthatgovernment"immediatelycommenceaprogramtoensurethataffordableandreliablebroadbandservicesareavailableinallregionsofCanada,includingurban,ruralandremoteareas,by2010atthelatest.116

ThetimeforCanadatoactisnow.Canadahadanearlyleadinbroadbandadoptioncomparedtoothercountries.Infact,in2000,31%ofCanadianbroadbandsubscriptionswerebroadbandsubscriptions.117Inthe2003OECDsurveyofbroadbandpenetration,Canadarankedsecondper100inhabitants,behindSouthKorea.118Despitethisstrongstart,Canadaquickly

113TestimonyofBarbaraCherry,CRTCTelecomNotice2010‐43,p.25

114 Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives SOR/2006-355, sec. 1 (b)(iii)

115TelecommunicationsReviewPanelFinalReport2006p.7‐43116Ibid,Recommendation8‐1117CRTCCommunicationsMonitoringReportAugust2009,p.213‐226.118OECDCommunicationsOutlook2003

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lostitsstatusasabroadbandleader.DespitetheCRTC’spolicyofunbundledaccess,theCanadianmarketisnottypifiedbyunbundledcompetitionbutrather,byfacilities‐basedcompetition.

Generallyspeaking,consumershaveachoicebetweentwocompetitors,onetelephone‐basedandonecable‐based.Thesecompaniesmaintainaparticularoperatingareaanddonottendtocompetedirectlywithoneanother.Infact,themarketshareofrevenuecapturedbyincumbenttelecommunicationsprovidersdeclinedquitesharplyfrom23%ofmarketsharein2003to12%ofmarketsharein2007.119Additionally,therevenueearnedbyoutofterritoryproviders,bothincumbentandnon‐incumbentprovidersdroppedfrom16%in2004to8%in2008.120Thisdatastronglysuggeststhatsomecompetitionmayhavebeenoccurringpreviously,however,thistrendisreversingandprovidersarepartitioningofftheirrespectivemarkets.Bycontrollingdistinctmarkets,themajorincumbentsarereducingcompetitionbetweenthemselvestothedetrimentofconsumers.

DespiteCanada’slocalloopunbundling,therehasnotbeenamajorcompetitiveentryintotheCanadianbroadbandmarketoutsideofthemajorincumbentproviders.Thiscouldbetheresultofaveryearlypresenceofstrongcompetitorsinthemarket,astheincumbentprovidersmanagedtointroducebroadbandservicesveryrapidlyintotheCanadianmarket.AnotherfactorcouldbethewaytheCRTChasregulatedproviders.TheCRTChasadopteda“costsplusmarkup”approachwhichhasnotbeenadoptedbyothercountries.Thishelpstoinsulatetheincumbentplayersfromcompetitionasallmannerofcostsarecoveredaswellasahealthymarginforprofit.

WhateverthereasonforthelackofcompetitionwithintheCanadianmarket,thereisnoquestionthatitishavingaverynegativeeffectonthepricesofservicesavailabletoconsumers.AccordingtotheBerkmanreport,asofSeptember2008,themonthlypriceofanunbundledlocalloopinCanada(excludingremoteanddenseurbanareas)was70%higherthaninSouthKoreaandDenmark,almost50%higherthaninItaly,30%higherthaninJapan,France,orNorway,and25%higherthaninFinlandortheUK.CanadahasthehighestmonthlychargeforaccesstoanunbundledloopinanyOECDcountry.121Furthermore,thereportidentifiesCanada’smajorweaknessintermsofpriceversuslevelofservice:

119Supranote39atp.110.120Ibid.121Ibid.

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Intermsofprices,Canadaranks21stforthelowestspeedsand23dformiddlingspeeds.Itranksnexttolastinpricesofhighspeeds(onlytheSlovakRepublichashigherpricesinthattierofservice),anditdoesnotappearintherankingsforpricesofveryhighspeeds,becausetherewerenoofferingsofservicespeedsof35MbpsorhigherinCanadainSeptemberof2008.Ourcompanylevelpricingstudyforthehighest‐speedoffersinthecountriesweobserveherelocatesalmostalloftheCanadiancompaniesintheclusterwiththeslowestspeedsandhighestprices.122

ThissituationisunacceptableforCanadianconsumers.Broadbandisbecomingamore

essentialtoolforcommunication,business,healthandeducationwitheachpassingday.Canadiansneedtohaveaccesstoaffordablebroadbandservices,nomatterwheretheylive.OnewaytoensurethiswouldbethecreationofabasicservicerequirementforbroadbandinCanada

122TheOctober15,2009HarvardBerkmanCentreReport“NextGenerationConnectivity”notedonpage11.

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Conclusion Theinternethasquicklyevolvedfromanacademiccuriositytoanunstoppableforceontheearth’seconomic,politicalandsociallandscape.Acriticalcomponenttotheinternet’ssuccesshasbeentheriseofbroadbandandtheeverincreasingspeedsitoffers.Highbandwidthwebapplicationssuchasstreamingaudioandvideo,teleconferencingandtelepresenceandvoiceoverIPtelephoneservicewouldbeimpossiblebutforbroadbandinternet.Canadianconsumersareincreasinglyreliantuponsuchservices.However,withoutabasicservicerequirement,manyCanadianconsumerswillnotbeabletoaccessbroadbandandwillbeleftbehind. Theimportanceofbroadbandaccesshasbeenrecognizedbydifferentcountriesaroundtheworld.Manydevelopedstateshaveimplementedbroadbandbasicserviceregimestoensureconsumershaveaccesstobroadbandservice,nomatterwheretheyarelocatedwithinastate’sborders.OnJuly1st,2010,Finlandwillmakeaccesstobroadbandahumanrightforitscitizens.ThisisallthemoreremarkablewhenFinland’sgeography,whichincludesvasttractsofsparelypopulated,arcticland.Finland’sunremarkable1Mbpsstandardwillbeelevatedto100Mbpsby2015.ThisisatrulyimpressivestandardgivenFinland’sgeographicanddemographiccharacteristics.SpainhasalsofollowedsuittoFinlandandhasdeclaredthatbroadbandwillbecomealegalrighttoitscitizensasof2011.Francealreadyhasexcellentbroadbandandrelatedservicesavailabletoitsconsumersandforveryreasonableprices.Franceisseekingtowidentheavailabilityofitsservicesandprovidehighquality100Mbpsservicetoasmanyconsumersaspossible.Australiadoesnotpresentlyhaveabasicservicerequirementforallofitscitizensbuthasinsteadoptedtobuilditsownpublicallyfinancedbroadbandnetwork.Thisnetworkwillserve90‐93%ofthehomesinAustraliawiththeremainingnumbertobeservedwirelessandsatellitetechnology.123TheUnitedStateshasjustpublishedanambitiousbroadbandplanthatoutlinedacomprehensivestrategytoreformitsmarketforbroadbandinternetservice.Theyplantoprovideatleast100millionhomeswith100Mbpsbroadbandservice,wireallschools,hospitalsandgovernmentofficeswith1Gbpsandacompleterebuildingofthepublicsafetynetwork.124Itisclearthatothercountriesaretakingtheissueofbroadbandavailabilityveryseriouslyanddevotingconsiderableresourcestoaddressingit.

123Supranote57.124Supranote76atp.9‐11.

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Uponcomparisontoothercountries,Canadaisfallingbehind.Canadahasnocomprehensivebroadbandpolicyandnobroadbandbasicservicerequirement.Canada’seffortstocreategreatercompetitioninthebroadbandmarketplacehavebeencriticizedas“half‐hearted”.125ItistimeforCanadatostepupandcreateabroadbandbasicservicerequirementtobetterserveitsconsumersanditseconomy.Canadawasanearlyleaderinbroadbandadoption,cominginsecondtoSouthKoreainOECDbroadbandsurveysin2003.126Onlysevenyearslater,wearefarbehind,butthereisstilltimetocatchup. ThefederalgovernmenthaslongrecognizedtheimportanceofbroadbandaccesstoCanadianconsumers.TheBroadbandTaskForcehasrecommendedasearlyas2001thatCanadamakebroadbandservicesavailabletoallCanadiancommunities.TheTelecommunicationsReviewPanelReportcametoasimilarconclusionandrecommendedthatbroadbandservicesbemadeavailabletoallcommunitiesinCanada.ThemosteffectivewaytoensurethatCanadiansinallcommunitiesreceivebroadbandservices,whethertheyareurban,ruralorremote,istoestablishabasicservicerequirementforbroadbandandallowtheCRTCtoregulateastandardthatmustbeprovidedtoallCanadianconsumers. TheframeworkforabasicserviceprovisionthankfullyalreadyexistswithCRTCTelecomDecision99‐16.Canadiantelecommunicationsprovidershavebeensubjecttoitsrequirementsforoveradecade.TelecomDecision99‐16setsoutanumberofcriteriatoensurethattheservicedeliveredunderthebasicservicedirectiveisaccessibleandofsufficientqualitytoconsumers.ItisclearthattheideaofabasicservicerequirementinCanadaisnotanewone.Thebasicservicerequirementhasmadetelephoneserviceavailabletoconsumerslivinginmanyruralandremoteareasallacrossthecountry.Thisservicehasbroughtthemcountlessbenefitsrangingfromtheeconomic,politicalandsocial.Ifthisdefinitionorasimilaroneprovidingabroadbandbasicservicerequirementweretocomeintoeffect,consumerswouldgreatlybenefit.Abroadbandbasicservicerequirementwouldneedasimilarsetofcriteriainordertosucceed.Mostimportantoftheserequirementswouldbeaminimumstandardforuploadanddownloadspeeds.Otherimportantstandardstoconsiderwouldbeaveragewaittimesfortechnicalserviceandpricecontrolstokeeptheserviceaccessibletoallconsumers.

TheUnitedStatesservesasausefulmodelforservicestandards,astheirbroadbandmarketissimilartoours.TheNorthAmericanbroadbandmarketistypifiedbylargetelephone

125Supranote65atp.79.126Supranote106

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andcableincumbents,bothofwhichareabletodeliverhighspeedinternetservices.TheU.S.NationalBroadbandPlansetsincrementaltargetstoachievecertainlevelsofservicethatcouldserveasausefulexample.GiventhenatureoftheCanadianmarket,anybasicservicerequirementthatisimplementedmustbeequallyapplicabletobothtelephoneandcablebroadbandproviders.Therequirementshouldalsonotcreateanysortofgreaterburdenorhardshipononetypeofprovideroveranother.ThefederalgovernmentandtheCRTCshouldbemindfuloftheseconsiderationsiftheychoosetoimplementabroadbandbasicservicerequirement.

ThewidespreadadoptionofthetelephonerevolutionizedCanadiansocietyinmany

differentways.AsimilarrevolutionisalreadyunderwaywiththeinternetandasignificantsegmentofCanadianconsumersriskbeingleftbehindwithoutabroadbandbasicservicerequirement.Thetimeforactionisnow.Canadianconsumersdeservenothingless.

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Appendix A

Excerpts from Testimony and legal opinion of Barbara Cherry J.D., Ph.D.

filed in

In CRTC Telecom Notice 2010-43 – Obligation to Serve

Introduction…

“Classifying a firm or industry under the heading public service impose[s] an explicit set of

obligations on that firm or industry. In this respect the public service concept differs from other types of

regulation and has important policy consequences” (Stone, 1991, p. 28). These obligations include the

duty to serve. In CRTC Telecom Notice 2009-575 (par. 3), the Commission described the obligation to

serve as including the obligation to provide service to: existing customers; new customers requesting

service where the carrier has facilities (including the requirement to act as carrier of last resort); and new

customers requesting service beyond the limits of the carrier's facilities.

There is an important common law history underlying designation of a firm or industry that bears

the obligation to serve. It is critical that this legal history be properly understood and interpreted in order

to guide the Commission’s consideration of the obligation to serve in the present proceeding.

The common law history of the obligation to serve has often been misunderstood. Some modern

commentators focus on a modern concept of economic criteria and overlook the importance of the

historical social criteria for imposing this special obligation on an industry or firm. In particular, some

erroneously interpret legal history by claiming that common law imposition of a duty to serve requires the

existence of monopoly. As will be discussed, under the common law the imposition of the duty to serve

was originally, and often continues to be, independent of the existence of monopoly.127

Furthermore, the legal history shows that the scope of the duty to serve has evolved over time.

Public service companies must serve not only within existing capacity, but also have an affirmative

obligation to extend their facilities within their service area and usually have a barrier to exit. History

also shows that industries to which the common law duty to serve may be imposed changes over time,

such as due to changes in transportation and communication technologies. During the nineteenth century,

the common law duty to serve was imposed on new technologies such as railroads, telegraphy, telephony, 127 This is true however monopoly is defined — actual, natural, virtual or practical.

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as well as gas and electric utilities. The extension of the duty to serve to new technologies and services is

relevant to inquiry as to whether the duty should be extended to broadband service.

4.2. Duty to Provide Broadband Service

Turning to the issue in the present proceeding as to whether a carrier may be required to provide

broadband service, Ryan concludes: “It follows that the law does not require a carrier, or authorize the

Commission to require a carrier: (a) to provide broadband service to locations within an existing service

territory if the required facilities are not in place” (first full paragraph on p. 3, emphasis in original). This

unequivocal statement is inconsistent with both the common law and Metcalfe Telephones Limited v.

McKenna. The issue, rather, requires evaluation of circumstances under the now prevailing public policy

choices, which may also vary among carriers particularly given the statutory requirements of the Bell

Canada Act. Canada’s current policy is reflected in the policy goals embodied in section 7 of the

Telecommunications Act and the Governor in Council’s Policy Direction “to rely on market forces to the

maximum extent feasible as the means of achieving the telecommunications policy objectives” (at para.

1(a)(i)).

Such evaluation will be a challenging endeavor for the Commission, as the policy choices have

changed from those based on exclusive franchises in Metcalfe Telephones Limited v. McKenna. In this

regard, it bears emphasizing that under the common law both common carriers and public utilities have

the duty to serve which includes the duty to extend facilities “within its service territory” in order to meet

reasonable demand. Since telecommunications carriers in Canada are both common carriers and public

utilities, inquiry as to the “existing service territory” of a carrier needs to take into account

telecommunications carriers’ dual classification. Moreover, it is my understanding that broadband service

is considered a telecommunications service in Canada. If so, then a telecommunications carrier that

already provides broadband service to some customers within its service territory, can be required to

provide broadband service to others within the service territory in order to meet reasonable demand.

A further factual inquiry, of course, will then be what is “reasonable demand”. As to this inquiry,

the prevailing universal service policy may be determinative. Without any explicit funding support,

reasonable demand requires that customers be willing to pay compensatory rates.

The core of the duty to serve itself should be properly understood. It is not a requirement that the utility serve for inadequate compensation; it is an obligation to serve everyone who makes a reasonable request for service and who tenders reasonable compensation under rules of general applicability, including, of course, any rate differentials authorized by the regulatory agency. In other words, the duty to serve, properly conceived, is a

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prohibition against arbitrary, ad hoc, and selective refusals to deal” (Payton, 1981, p. 146, emphasis added).

Thus, to prevent arbitrary, ad hoc, and selective refusals to deal, the Commission can order a

telecommunications carrier to extend facilities to provide broadband in its service territory to customers

willing to pay compensatory rates.

Furthermore, the scope of customers to be served within a service territory could be expanded

through explicit universal service funding support. With regard to the potential for funding support for

broadband service, Ryan concludes:

The Commission has the power under section 46.5 of the Act to create a fund to support “continuing access” to “basic telecommunications services” and to require all service providers to contribute to that fund; but, in my opinion, this provision does not authorize the Commission to create a fund to support the building of broadband service into territories unserved by broadband. This section is intended to ensure that existing services remain affordable, not to support the introduction of new services. (fourth full paragraph on p. 3, emphasis in original)

His categorical conclusion that section 46.5 does not authorize the Commission “to create a fund

to support the building into territories unserved by broadband” is both misleading and a misstatement of

the law. It is insufficiently articulated to reflect the nuances of the scope of telecommunications carriers’

duty to serve, and does not recognize the contextual analysis necessary to determine what are service

territories. Ryan’s conclusion is also internally inconsistent. For example, in par. 3 (in his Introduction),

Ryan states that broadband service is an “existing service” as he has defined the term for purposes of his

opinion. Thus, if broadband is an existing service and thereby not a new service, then his objection to

applying 46.5 to broadband does not apply. Finally, “basic telecommunication services” is not defined in

the Telecommunications Act, but is to be determined by the Commission. Therefore, the Commission

could revise the definition of basic telecommunications services to include broadband service.

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Appendix B In this excerpt from his evidence, Mr. Todd outlines possible structures to accomplish the

basic service goal for broadband.

2. TWO MARKET SEGMENTS, TWO DIFFERENT CHALLENGES

In“determiningitsrole,ifany,regardingaccesstohigh‐speedInternetservices”(NC2010‐43,para.16),theCommissionwillneedtoexamineinthecurrentproceedingwhetherhigh‐speedInternetaccessshouldbeincorporatedintotheobligationtoserve,thebasicserviceobjective,thelocalsubsidyregimeandtheassociatedcontributionmechanism.Indoingsoitwillbeimportanttotakeintoaccountthedifferentstagesofmarketevolutionthathavebeenachievedtodateinthesetwosegmentsofthetelecommunicationsmarket(i.e.,basicserviceascurrentlydefinedvs.high‐speedInternetservice).

TheexistingregulatoryregimeincludesadefinitionofthebasicserviceobjectivethatincludesindividuallinelocalTouch‐Toneserviceandaccesstolow‐speedInternetatlocalrates,combinedwiththeobligationtoserveandtheexistingcontribution/localsubsidyregime.Totheextentthatallincumbentlocalexchangecarriers(ILECs)andothertelecommunicationsserviceproviders(TSPs)areincompliancewiththeexistingregulatoryregime,itfollowsthatthepurposeofreviewingtheexistingcontribution/subsidymechanismsis(i)toassesstheneedtocontinuewithamechanismthatsubsidizelocalserviceinhigh‐costserviceareas(HCSAs),and(ii)toidentifyandcorrectanyinequitiesinthecontributionandlocalsubsidyregimessoastoensureappropriatecompetitiveneutrality.Thereisnoneedtoalterthecontribution/subsidyregimetostimulateinvestmenttoexpandaccesstobasicserviceascurrentlydefinedprovidedthatappropriateQualityofServiceStandardsaremaintainedandenforced.

Incontrast,thecentralissuesrelatedtoreviewingthecontribution/localsubsidyregimeinthecontextofincludingHSIservicerelatetotheneedfor,anddesignof,aregulatoryregimethatwouldcomplementtheinclusionofaccesstohigh‐speedInternetserviceinanupdateddefinitionofbasicservice.Sincehigh‐speedInternetserviceisnotcurrentlyubiquitous,onekeyconsiderationiswhetherandtowhatextendtheexistinglocalsubsidyregimeneedstobeexpandedtoaddresscostsrelatedtoHSIservice,giventheexistingofotherinitiativesandsourcesoffundingfortheexpansionofhigh‐speedInternetservice.128ConsistentwiththeobjectivesoftheTelecomAct,itwillbeappropriateto128Forexample,aspartofCanada'sEconomicActionPlan,$225millionwasprovidedtoIndustryCanadaoverthreeyearstodevelopand

implementastrategytoextendandimprovebroadbandcoverage.Thegoalofthisinvestment,underTheBroadbandCanada:ConnectingRuralCanadiansProgram,istoextendbroadbandservicetoasmanyremainingunservedandunderservedCanadianhouseholdsaspossible,beginningin2009‐2010.ParticularsofotherFederalandProvincialprogramscanbefoundat:http://www.ic.gc.ca/eic/site/719.nsf/eng/h_00032.html

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implementasubsidyregimethatallowsTSPstocomplywithanexpansionofthebasicserviceobjectivetoincludehigh‐speedInternetaccessataffordablerateswithoutrequiringinternalsubsidiesorotherwisecompromisingcompetitiveneutrality.

Aswell,anothersourceoffundingforbroadbandexpansionarisesfromTelecomDecisionCRTC2008‐1,regardinguseofexistingdeferralaccountstoimproveaccesstotelecommunicationsservicesforpersonswithdisabilitiesandtoexpandbroadbandservicestoruralandremotecommunities.InDecision2008‐1theCRTCauthorizedtheincumbentISPs(phonecompanies)tospendbroadbandexpansionmoneyoutofadeferralaccountcreatedwithtelephonechargesinexcessofthepricecap(inexcessof$600M).IntheDeferralAccountsbroadbandrolloutproceeding(Follow‐upproceedingtoUseofdeferralaccountstoimproveaccesstotelecommunicationsservicesforpersonswithdisabilitiesandtoexpandbroadbandservicestoruralandremotecommunities,TelecomDecisionCRTC2008‐1),theISPsprovidedinformationontheirproposedbroadbandbuild‐outplans,includingsomeindicationofwhattheythinkthecostsare,wheretheywishtogoinfirst,andwhattechnologytheyplantouse.

Hence,thecriticalissueforaHSIsubsidyregimewillbethatitmayhavetosupportsignificantinvestmentinprovidingHSIserviceinareaswhereHSIserviceisnotcurrentlyavailable.Incontrast,theexistingsubsidy/contributionregimeisfocusedprimarilyonbridgingthedifferencebetweenthecostandaffordableratesforlocalservicethatiscurrentlyavailableinHCSAs.

Recognizingthatthechallengesbeingaddressedinthecontextofexistingbasicserviceandhigh‐speedInternetservicearedifferent,itshouldberecognizedattheoutsetofthisinvestigationthataseparateanddistinctcontribution/subsidymechanismmaybeappropriateforfurtheringthegoalofuniversalaccesstohigh‐speedInternetserviceshouldthatgoalbeendorsedbytheCRTC.

AfurtherconsiderationindesigningasubsidyregimethatsupportstheinclusionofHSIserviceinthedefinitionofbasicservice,isthatitmaybenecessarytoaccommodateaperiodoftransition.TheCRTCwillhavetoestablishatimeframeforupgradingfacilitiesinareasthatarecurrentlyunservedorunderservedintermsofhigh‐speedInternetservice.Thistimeframewillhavetobalanceoffthedesiretoensurethathigh‐speedInternetserviceisavailableinallregionsofthecountryassoonaspossibleagainsttheconcernthattheupgradesberolledoutinacost‐effectivemanner.Giventheexpectationthatcostswillcontinuetodeclineovertime,possiblyfairlyquicklygiventhefocusthatthetelecommunicationsindustryiscurrentlygivingtoupgradingcompetitivedataservicesinthelowcostandhighlycompetitivemarketsinacrossCanadaandaroundtheworld,itmakessensetodesignacontribution/subsidyregimethatisconsistentwithtargetingareasinwhichcanHSIaccesscanbeprovidedmosteconomically(i.e.lowestcostperline)tobeupgradedfirst.Atthesametime,deploymentofHSIserviceinhighercostareasshouldnotbedelayedmorethanisrequiredforefficientlyupgradingallunservedandunderservedareas.

2.1 DESIGNING A HIGH-SPEED INTERNET SERVICE SUBSIDY

TheCommissionchosetoimplementacost‐based(accounting)subsidyregimeinits97‐42decisioninpartbecauseamarket‐basedregime(e.g.,biddingprocess)wasunwarrantedfortherelativelysmallmarketregionsthatweredesignatedasHCSAs.Theeffortinvolvedindeterminingthe

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costofserviceforHCSAswasdeemedtobemoderate.Conceptually,thesamerationalemightbeusedtojustifyacost‐basedapproachforimplementingaHSIservicesubsidy.Inpractice,however,thetaskofdeterminingthesubsidyrequirementforHSIserviceusingacost‐basedapproachraisingseriousconcernsthatdidnotcomplicatemattersindesigningtheexistinglocalservicesubsidyregime.Thedesignchallengesincludethefollowing:

•Giventhenumberoffederal,provincialandlocalinitiativesinsupportofthedeploymentofhigh‐speedInternet,thegapbetweenthepotentialrevenueandthecosttoaTSPofdeployingthisservicewillnotprovideanaccurateindicationofthelevelofsubsidyrequiredforeconomicdeployment.Inaddition,availablefundingfromothersourcesmaychangeovertime,makingitnecessarytoupdateanycalculationofthefundinggaponafrequentbasis.

•ForILECs,thedeterminationofthelevelofsubsidyrequired,ifany,wouldalsohavetotakeintoaccounttheextenttowhichthecostshouldbefundedthroughtheDeferralAccountsFollow‐Upproceeding,presumablybyreducingthedeferralaccountfundingfromanysubsidiespayableinordertoavoiddoublerecovery.

•AlthoughaccesstoHSIservicewouldbeincludedintheupdateddefinitionofbasicservice,HSIservicewouldbeaseparateandunbundledserviceofferinginbothHCSAsandHCHSISAs.Thatis,customerswouldhavetherighttochoosetosubscribetobasictelephoneserviceascurrentlydefinedandseparatelytosubscribetoHSIservice.Theycouldchooseeitheroneofthoseserviceonitsown,orboth,correspondingtothechoiceavailabletocustomersiscompetitively‐servedmarketwithaccesstoHSIserviceatthistime.TheactualmarketpenetrationofHSIserviceinmarketsthatarecurrentlyunservedorunderservedwilldependonmanyfactorsincludingtheaffordabilityandavailabilityofcomputersinthatarea,theactualservicestandardsimplementedbytheTSPsofferingHSIserviceinthearea,etc.

Itwouldbeparticularlydifficulttoattempttoredesignthecurrentregimetoaddressboththeexistinglocalsubsidyissue(i.e.,thedifferencebetweencostsandaffordableratesforbasicserviceascurrentlydefined)andtheneedtosubsidizethedeploymentofHCIserviceinareasthatarecurrentlyunservedorunderservedinthisregard.ThereisnoevidentiaryoranalyticreasontobelievethatserviceareaswithbasicservicecoststhatjustifythecurrentHCSAlocalservicesubsidyalignwiththosethatrequireahighcostofhigh‐speedInternetservicesubsidy;hence,anyregimethatintegratesanewHSIservicesubsidywiththecurrentaHCSAlocalservicesubsidywouldbecomplex,ifnotimpractical.

GiventhedifficultiesinherentindesigningaregimethatwouldprovideappropriatesubsidiesforareasthattheCommissiondesignatesashighcostofhigh‐speedInternetserviceareas(whichcanbereferredtousingtheacronymHCHSISAs)usinganaccountingapproachsimilartotheonethatiscurrentlybeingusedfortheexistinglocalservicesubsidy,aseparateanddistinctmechanismthatismarket‐basedmaybemostappropriatefortheHSIsubsidy.

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Itisrecommendedthatamarket‐basedapproachbeadoptedalongthefollowinglines:

7. DefineparametersfortheHSIservicethatwillbemandatedasacomponentofbasicservice.TheparameterswouldincludetheminimumuploadanddownloadbandwidthandtheminimummonthlyusageinGBsincludedintheregulatedpricefortheservice.

8. DefinethemaximumratethataTSPwouldbepermittedtochargeforthedefinedHSIserviceinaHCHSISA(the“affordableHSIrate”)

9. Determinethe“maximumsustainablepremium”overtheaffordableHSIpricethatisobservedintheCanadiantelecommarketplaceatthistime.Forexample,areasonableestimatetouseasabasisfordesigningtheHCHSIsubsidycouldbederivedbydeterminingtheaveragepricechargedforHSIserviceinareasservingcustomerswithHSIratesinthehighest5%ofmarketrates.Themaximumsustainablepremiumwouldbethedifferencebetweenthishigh‐endrateandtheaffordableHSIratedefinedin2,above.ThisdifferentialwouldrepresentthesubsidyrequiredtoreducethecurrentmarketrateforHSIservicetotheaffordableratesetbytheCommission.

10. Bydeduction,itcanbedeterminedthatareaswhereHSIserviceisnotavailableareunservedbecausehighcost,lowincomeorsmallscale.Tobemoreexplicit,thereasonsamarketisunservedmayinclude:

•Unitcostsarehigherthantheyareinthemostexpensiveservedareas(duetohigherfacilitiesinstallationcostsbecauseofremotenessorcustomerdensity,forexample,oralownumberofpotentialcustomers)makingHSIserviceuneconomicforTSPsandcustomersatunsubsidizedmarketprices;

•Theamountthatcustomerscanaffordtopayintheunservedareasislessthanthepricethemarketwillbearinthemostexpensiveservedareas(i.e.,someareasmaybeunservedduetothelow‐incomepositionofcustomers);and/or

•Thenumberofpotentialcustomersisinsufficienttogenerateareturnoninvestment)ataratethatthemarketwillbear,givenpriceelasticityconsiderations.

11. Basedonmarketbehaviour,itcanbededucedthatgivenallcurrentrevenueandcostfactors,includingexistinggovernmentinitiativesthatareavailableineacharea,theunservedareasrequireasubsidythatexceedsthedifferentialinordertobeeconomic.Thisamountistheminimumsubsidylevel.HCHSISAswillrequirearangeofsubsidylevelsabovethatamountforTSPStobeabletoofferHSIservice.

12. AnHSIservicesubsidycouldthereforehavethefollowingdesign.

h) Thesubsidywouldconsistoftwotiers:an“accesssubsidy”anda“connectionsubsidy”.

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i) ForILECsthatarefundingtherolloutofHSIinpartthroughthefundsmadeavailablethroughtheDeferralAccountFollow‐upproceeding,thetotalaccesssubsidywouldhavetobereducedbyanamountequaltothatfundinginordertoavoiddoublerecoveryofthecostassociatedwithprovidingHSIinHCHSISAsthatareinexcessoftheamountsthatwouldberecoverablethroughtherateschargedcustomersfortheHSIservice.

j) TheaccesssubsidywouldbebasedonthenumberoflineswithintheHCHSISAthathaveaccesstoHSIservicewithoutregardtothenumberofcustomersthatchoosethebroadbandservice.

k) TheconnectionsubsidywouldbebasedonthenumberoflineswithintheHCHSISAthathavesubscribedtoHSIservice.

l) AnyTSPwouldhavetherighttoapplytotheCRTCfor“FirstMover”statusinanyHSHSISAandwouldbegrantedthatstatusprovideditisthefirstTSPtoapplytoprovideaccesstoHSIserviceintheHCHSISAandalsocommitstoacceptasetofobligationsestablishedbytheCommissionthatwouldinclude:

•TheobligationtoserveallcustomerswantingHSIserviceintheHCHSISAattheregulatedprice;and

•ProvisionoffacilitiesthatprovideaccesstoHSIservice(i.e.,servicecanbemadeavailabletoanycustomerwithintheHCHSISAwith10workingdays).

TheTSPwithFirstMoverstatuswouldbetheonlyTSPeligibletoreceivetheaccesssubsidy.SubsequentTSPsthatenterthemarketonacompetitivebasis(i.e.,secondandsubsequentmovers)wouldnotreceivetheaccesssubsidywhichwouldavoidsubsidizesmultiple,possiblyredundantfacilities,however,theywouldnothaveanobligationtoserve.

m) InthefirstyearoftheHSIservicesubsidyregime,theleveloftheaccesssubsidywouldbeadefinedpercentage(e.g.,50%)ofthemaximumsustainablepremiumdefinedin3,above.

•Subsequentyears,the“startinglevel”fortheaccesssubsidywouldincreaseby10%;hence,thefinancialrewardforenteringthemarketwouldincreaseovertime.

•OnceaTSPhasappliedforandbeenacceptedastheFirstMoverforaHCHSISA,theyear1accesssubsidyfortheHCHSISAwouldbefixedattheapprovedlevel.ForthatHCHSISA,woulddeclineby10%oftheoriginalamountineachsubsequentyear.ThesubsidypaymentreceivedbytheFirstMoverwouldequalthenumberoflinesthathaveaccesstoHSIserviceineachyearmultipliedbytheperlinepaymentapplicableforthatyear.

n) TheconnectionsubsidyperHSIsubscriberlinereferredtoabovewouldbeanamountthatisdeterminedperiodicallybytheCRTCbasedonmarketconditions.ItwouldbeaportablesubsidythatispaidtoallTSPsprovidingHSIserviceinHCHSISAsbasedonthenumberofcustomerstheyserveacrossallHCHSISAs.Thegoalwouldbetosettheleveloftheconnectionsubsidyatalevel

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thatishighenoughtoattractsomedegreeofcompetitioninthemostattractiveHCHSISAsovertime.