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In the strange and bizarre world of Canadian telecom regulation

January 18, 2013

NorthwesTel, a wholly owned subsidiary of BCE Inc., an main telecom supplier north of 60 launched a new modernization plan that involves $233-million worth of investments over five years to provide northern Canadians with improved cellular, Internet and home phone services.

Northwestel has been the primary telecom services provider in northernmost Canada since the 1970s. From ‘rate of return’ regulation, the company moved to ‘price caps’ regulation in 2007. Under price caps certain services, like basic telephone, are price capped, while others (the ones that are more competitive) like Internet and long distance are forborne or unregulated. The company receives a subsidy of about $22 M per annum to provide services in the communities (most of therm) where it makes no economic sense to provide service.

The CRTC has previously said its goal is to ensure that northern Canadians, roughly 107,200 people living across the three territories, have access to communications services that are on par with those in the rest of the country. That’s because the dearth of affordable telecom choices and modern networks across the North are seen as barriers to economic development.

In TRP 2011-771, the Commission stated that the Company had “failed to make the necessary investments in its network as evidenced by the company’s aging infrastructure and the unavailability of services in many remote communities comparable to those provided in the rest of Canada” and that the “age of Northwestel’s equipment is likely affecting the quality and reliability of its services…”. The Commission also noted that the Company had failed to meet the required monthly standards across all quality of service indicators 29 times during the period 2007 to 2010. 

The CRTC wants Northwestel to invest tens or hundreds of millions of dollars to provide switching and transport equipment in the far north where few people live and where costs are the highest in North America.

Northwestel’s has attempted to balance competing demands for different types of services within the realities of a finite capital budget. The Company notes that its five year capital budget of $233 million (2013-2017) is divided into two main pieces;service upgrades and geographic expansion and Core Spending. The largest part represents the planned spending on wireless and high speed Internet upgrades, voice modernization, transport upgrades and other service modernization.


The CRTC monitors and regulates based on ‘plain old telephone service (POTS)’, the traditional voice lines. In modern Canada many people, particularly young people shy away form POTS lines in favour of wireless access. Everyone wants Internet access. Yet the CRTC punishes investor owned Northwestel based on not what people want but what was done traditionally.  The regulatory model is broken. The north needs capital infrastructure investments in telecom, yet the CRTC’s rules and decisions make it onerous. 

Northwestel is an investor owned entity, so ultimately, the shareholders must be satisfied that the capital spending is warranted. Northwestel already receives a higher share of capital that its revenues suggest is warranted.  Investing capital in plant with little cash flow does not make sense for the investors. Hey CRTC, throw the company a bone—open up the tap for capital investments to be made.