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April 5, 2012 [email protected] Clerk of the Privy Council and Secretary

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April 5, 2012 Telecom@Ic.Gc.Ca Clerk of the Privy Council and Secretary April 5, 2012 [email protected] Clerk of the Privy Council and Secretary to the Cabinet Langevin Block 80 Wellington Street Ottawa, ON Sir, Re: Canada Gazette, Part I, March 10, 2012, Notices No. DGTP-001-12 – Petition to the Governor in Council concerning Telecom Decision CRTC 2011-733 – EastLink’s comments 1. Bragg Communications Inc., carrying on business as EastLink (“EastLink”), is in receipt of a petition (the “Petition”) filed by L’Association des Compagnies de Telephone du Quebec (ACTQ) and the Ontario Telecommunications Association (OTA), (collectively referred to as the “Applicants”), in which the Applicants ask His Excellency the Governor in Council (the “Governor in Council”), pursuant to Section 12 of the Telecommunications Act to vary Telecom Regulatory Policy CRTC 2011- 291 Obligation to serve and other matters and/or Telecom Decision CRTC 2011-733 ACTQ/OTA/CityWest – Application to review and vary Telecom Regulatory Policy 2011-291 regarding determinations affecting small incumbent local exchange carriers (collectively referred to as the “Decisions”). 2. The Applicants have asked the Governor in Council to: (a) Revert to the subsidy levels and mechanism for calculating the subsidies paid to small incumbent local exchange carriers (SILECs) that were in place prior to the Decisions; (b) Oblige new entrant competitors in SILEC territories to pay the start-up costs associated with the introduction of local competition; and (c) Fund the ongoing costs of implementation of local competition from the central fund the CRTC has established for subsidy payments. 3. EastLink herein submits that the Applicants have based the Petition on five claims that together paint an alarmist and inaccurate portrait of the SILEC markets. EastLink further submits that, contrary to the Applicants’ claims, the public interest, the pursuit of competition in rural telephone markets, and the efficient use of subsidies are best served by maintaining the Decisions as issued by the federal regulator, the Canadian Radio-Television and Telecommunications Commission (the CRTC). 4. As a result, EastLink submits that the Governor in Council should reject the Applicants’ petition in its entirety. EastLink herein provides our comments on the Petition. Applicants’ claims 5. The Applicants claimed in the Petition that unless the Governor in Council returns the subsidy regime to the form it took prior to the Decisions and unless it directs new market entrants to cover all competition-related costs, there will be an “inexorable erosion of both telephone and internet service, and the creation of a new digital divide between the “town and country” in these rural areas where none now exists.” The Applicants claimed that this would happen because SILECs cannot exist without a substantial and constant flow of subsidies, and because only SILECs are willing to invest in high-cost rural serving areas. Finally, the Applicants claimed “it is not an exaggeration to suggest that the disappearance of these companies will accelerate the demise of these communities themselves.” 6. In fact, these claims are worse than exaggerations; these statements are absolutely untrue and ignore the operating realties of Canada’s telecommunications market. 2 7. EastLink herein refutes the Applicants’ five claims by instead offering the facts, which were not accurately reflected in the Petition: (a) The subsidy regime is intended to ensure that all Canadians can receive basic telephone service from one provider or another at an affordable rate. The subsidy regime is not intended to fund Internet and IPTV services, and is not intended to guarantee the financial well-being of any particular telephone service provider. (b) Regardless of the whether the Applicants continue operating in their current form or whether they are acquired by other telephone service providers, the parent company of the incumbent provider will always inherit the obligation to serve. There is no risk to the ongoing provision of basic phone service in rural Canada. (c) In any case, the Applicants are resilient businesses with strong customer bases in their monopoly markets, and many are aggressively expanding into new territories outside their own. During this expansion, the Applicants and the incumbent service providers whose territories they have entered have each funded their own competition-related costs. This principle is the cornerstone of the telecommunications industry and is the reason that consumers today have a variety of providers from whom to choose. The Applicants are absolutely capable of surviving the modest reduction in subsidies included in the Decisions and of covering their costs related to the implementation of local competition. The Applicants will not all be bankrupt within five years. (d) The CRTC included in the Decisions several substantial and additional protections for the SILECs that are not available to larger incumbent telephone service providers. (e) Not all new entrants seeking to offer local telephone service in the Applicants’ territories are large, deep-pocketed, urban providers. EastLink first started operating in rural Nova Scotia and continues to offer service primarily in small rural areas. Furthermore, Cablovision Warwick is even smaller than the SILEC whose territory it hopes to enter as a competitor. As EastLink noted above, it has 3 been a cornerstone of the telecommunications market since 1997 that competitors and incumbent service providers should each be responsible for their own competition-related costs. Large incumbent providers like Bell Canada have had to bear the cost of competitors entering hundreds of their exchanges, and the Applicants have benefited from this arrangement as they expanded outside their territories. Requiring service providers like EastLink and Cablovision Warwick to fund our own and the SILECs’ costs of local competition implementation would be contrary to fifteen years of telecommunications competition policy in Canada, and could make offering competitive phone service in rural areas cost-prohibitive. 8. EastLink submits that the modest reduction in subsidies included in the Decisions is in keeping with the 2006 Policy Direction introduced by the Honourable Maxime Bernier to rely on market forces to the maximum extent feasible when determining if government intervention is appropriate. The reduction in subsidies and the requirement that the largest SILECs bear some of the cost of local competition is reasonable and reflects that there is a reduced need for government intervention to ensure the provision of basic telephone service. Clarifying the Facts Fact #1: The local telephone subsidy regime is not intended to fund Internet and IPTV. Rather, the local telephone subsidy regime is intended to ensure that all Canadians have access to basic telephone service, and the subsidy regime should be proportionate to that purpose. 9. The Applicants claim that a reduction in the subsidy regime would result in establishing a “digital divide” between town and country in their territories, as they claim they would no longer invest in their Internet and IP-based TV networks. It seems from this claim that the Applicants have been using subsidies intended to ensure provision of basic phone service to fund their investments in advanced TV and Internet networks. In fact, the Applicants stated in the Petition that several SILECs are offering basic phone service and high speed Internet at rates below those available in Toronto and Montreal. 4 10. It is absurd that Canadian subscribers in Espanola, Chicoutimi and Saguenay should contribute to a central subsidy fund through higher service fees, so that the Applicants can afford to offer their customers phone and Internet service at prices below that available in even Canada’s largest cities. This fact alone should be sufficient evidence that the local phone subsidy regime is bloated. The modest subsidy reductions included in the Decisions are necessary to make this particular government intervention proportionate to its purpose. 11. EastLink submits, while it is of course desirable that rural Canadians would have access to advanced TV and Internet services, there are existing programs specifically targeted to encourage such development. For example, EastLink participated in the Broadband for Rural Nova Scotia project, which aimed to provide high speed Internet to all Nova Scotians. In addition, Satellite TV providers have long offered television services to rural areas that are not adequately served by wired services. 12. In any case, competition is the best driver of investment in profitable TV and Internet services. This competition is already present in SILEC markets through cable providers like EastLink, Cogeco and Cablovision Warwick. Cable providers have invested – without subsidies – in our TV and Internet networks in SILEC territories throughout Ontario and Quebec. As a result, the SILECs have had no choice but to invest in their own networks to retain market share, and these investments now allow them to offer a variety of wireless, television and Internet services that will help ensure their ongoing viability after the introduction of local phone competition. 13. The Applicants’ claim that they have made significant investments in their TV and Internet networks is an argument in favour of the maximum support possible for competition, rather than favoruing the continuation of a bloated subsidy regime. As long as there are competitive cable and Internet service providers in the SILEC markets, the Applicants
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