Industry Committee on Feb. 8th, 2018

[The Chair, Liberal, Dan Ruimy]

Welcome, everybody, to meeting number 94 of the Standing Committee on Industry, Science and Technology. We are continuing our study of broadband connectivity in rural Canada.

Today, we have a fun group of participants joining us. All the way from Montcalm Télécom et Fibres Optiques, we have Louis-Charles Thouin, president, and warden of the Regional County Municipality of Montcalm; as well as Pierre Collins, project manager.

[Pierre Collins, Project Manager, Montcalm Télécom et fibres optiques]

Hello.

[The Chair, Liberal, Dan Ruimy]

We have from SaskTel, John Meldrum, vice-president, and corporate counsel, regulatory affairs. We all met him earlier in Regina. We had breakfast with him, actually.

We have from SouthWestern Integrated Fibre Technology, Geoff Hogan, chief executive officer; and Donghoon Lee, research partner, economist, R2B2.

Is that really R2B2?

[Dr. Donghoon Lee, Research Partner, Economist, R2B2, University of Guelph, SouthWestern Integrated Fibre Technology]

Yes.

[The Chair, Liberal, Dan Ruimy]

Star Wars, the University of Guelph.

[Voices]

Oh, oh!

[The Chair, Liberal, Dan Ruimy]

We also have from the Wubim Foundation, William Chen, director.

Welcome, everybody. You each have seven minutes to present and then we will go to questions.

We'll start with the folks from Montcalm Télécom.

You're the first. Thank you. You have up to seven minutes.

[Pierre Collins]

If I understand correctly, you want us to present our project and to talk about what we are doing in our rural areas.

More than three years ago, the RCM of Montcalm began a project to deploy a fibre-optic network to homes. Fifteen years ago, as part of a provincial program called Villages branchés, the RCM had already installed a hundred or so kilometres of fibre-optic cable in order to connect the school boards. So it wanted to use that network and make it available to its residents.

The RCM did a detailed study to find out the number of residents and residences in its territory that were underserved. That turned out to be 7,100 of 22,000 residences. Those figures were very different from the ones that the Government of Canada had. Local service providers claimed that the region was being well served, but our audit of the municipality's residents showed us that the minimum speed was not being achieved.

The project had financial and technological aspects. The RCM obtained funding of $12.9 million through the usual processes for that kind of installation. The amount was approved by the Quebec Ministère des Affaires municipales et de l'Occupation du territoire and by the RCM.

A major federal grant program, called Connecting Canadians—Digital Canada 150, came to support the project in quite a significant way. We had submitted a grant application to the department of the day, known as Industry Canada. The Montcalm project was selected for its excellence. We received grants of $4.7 million, the largest amount to be awarded to a company that did not exist at the time. The RCM was actually still in the process of establishing a not-for-profit organization that would build the network.

This project is close to the RCM's heart. It is being carried out by and for all residents and it is being led by a not-for-profit organization of four non-elected and four elected officials. The project is currently under way.

We are perhaps in a good position to explain one matter of importance to us, an operational constraint on our project: rights of way. For more than 30 years, the field of telecommunications in the country has become increasingly deregulated, as illustrated, for example, by the historic decisions made in 1985, 1987, 1990 and 1992. The CRTC looks very favourably on competition in telecommunications and innovation in Canada. But one obstacle remains: rights of way. Support structures belong to the legal owners, those who built the network and who control access to it.

The number one rule for success in telecommunications is to obtain the right of way. It is still very difficult for us to get access to support structures in our province because all the poles are equally divided between Hydro-Québec and Bell Canada. We also have to modernize those networks at our own expense: the last group to ask for access to them is responsible for the costs of renovating them. That regularly requires us to bury the fibres and to use methods of communication and transmission that are much more costly. We are therefore prevented from progressing as fast and as far as we would like.

I do not know how much time I have left, and I could probably keep talking to you about this for many hours.

But that is basically where we are. The network is being built. The RCM decided that it would have one, and it will indeed have a network bringing optical fibre to the home.

Would you like to add anything, Mr. Thouin?

[Louis-Charles Thouin, President, Warden, Regional County Municipality of Montcalm, Montcalm Télécom et fibres optiques]

We are talking about 535 kilometres of fibres. As Mr. Collins said, there was already a network of 100 kilometres. We added 535 kilometres to that in order to connect every house and serve every resident who is poorly served or underserved at the moment.

That gives you a good summary of the general situation.

[Pierre Collins]

It was a very quick summary.

[Louis-Charles Thouin]

You seem to know the file well.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We'll now move to John Meldrum from SaskTel in Regina.

You have up to seven minutes.

[John Meldrum, Vice-President, Corporate Counsel and Regulatory Affairs, SaskTel]

Thank you for the opportunity to appear.

I've had the pleasure of working for SaskTel for over 40 years, 30 of which have been in a senior executive capacity. I saw our crown corporation deliver individual line service, cellular, and Internet throughout the province for the very first time. As the most rural province in Canada, we have a very good understanding of the challenges that arise in meeting the Internet and cellular needs of our rural residents.

Before delving into those challenges, I want to address the issue of acceptable high-speed Internet service. In that regard, we support the commission's target of fifty-ten, but would note that ultimately what you think of that goal depends on where you are today with regard to Internet connectivity. For example, if you're relying solely on satellite Internet, or if your service is subject to congestion, most of the people we speak to in Saskatchewan would call fifty-ten a pipe dream, and would settle for a consistent five-one or ten-two service. We note that the CRTC acknowledges the challenges of achieving fifty-ten for rural customers and suggests that rural improvements may take up to 15 years. That is far too long a time frame. Rural Canada needs better Internet service today, not up to 15 years from now.

There are realities that we've overcome to provide service. As I said, Saskatchewan is the most rural province in Canada due to the wide open spaces between most rural residents. It is hard to bring this to life for people familiar with their own rural areas in eastern Canada. Basically, think about the distances between farms and houses in your rural areas that you're familiar with and multiply those distances by a factor of about seven.

We recently took DSL Internet to Kendal, Saskatchewan, a village of 77 people. While Kendal is in the middle of productive farmland, with other towns and villages dotting the highway every 13 kilometres, the biggest town around is Indian Head, with 1,900 people, some 35 kilometres away on a grid road. After that it's Regina, which is 80 kilometres away. The issue for us is that in telecommunications, the lack of density drives up capital costs per person served, and distances between groups of people drive up capital costs. We've overcome many things to meet the current situation in Saskatchewan, where virtually any community of any size has wireline Internet service, virtually any town of a decent size has adequate cellular service, and we've recently announced a plan to expand cellular service to those small towns.

The backbone, the backhaul, is a building block for our Internet service. We continue to invest heavily in backbone facilities, facilities that are all made available to competitors at prices that have what I would call the “oversight of regulation”. This job will never be 100% complete, as the data traffic will continue to grow, and we will continue to have to invest. But today, other than a few uneconomic backbone routes that are part of a Connect to Innovate application, our backbone will be meeting our current needs until we need more capacity.

For non-cellular, the next biggest challenge is “last-mile” facilities. If it's wired service, then we require the installation of more fibre, more cabinets and, ultimately, to meet the fifty-ten goal for us, fibre to the premise. We recently fibred Rosthern, Saskatchewan, for $1.8 million for 1,083 residences. That's $1,700 a residence. We won't get all the customers, because there is a cable competitor in that town. For a fixed wireless service, it's all about spectrum, and not cellular spectrum. In rural Saskatchewan we have lots of cellular spectrum. It's the non-cellular spectrum that we need, which is constraining our ability to meet customer demands.

In terms of cellular service, we've been doing a lot of work on the economics of expanding cell service to fill in many of the unserved and underserved areas of Saskatchewan. To cut to the chase, each unserved area requires a new fibre-fed cell tower and the equipment required to be installed at the cell site. On average, it's $1 million per cell tower. Basically, most of the expansion is uneconomic due to the relatively small number of people in the footprint of these new towers. I want to remind you that cellular spectrum is not at all an issue. We have all of our unused cellular spectrum available for these towers. It's the high initial capital costs involved in building a tower.

I have four recommendations for what we need.

First, for fixed wireless Internet service, we need more spectrum suitable for fixed wireless Internet service. Currently, our fixed wireless service offering is spectrum-constrained and we have stopped cells in a number of sectors. Ultimately, in the absence of changes in technology spectrum utilization or spectrum assignment, we do not see a path to 50-10 for fixed wireless Internet service.

Second, rural Canada needs a program in addition to the CRTC program: $750 million, minus the money designed for far north satellite, is a drop in the bucket. The current timelines for deep rural essentially mean that the digital divide between rural and urban Canada will continue to grow.

Third, to meet the future need for speed, ultimately fibre will need to be installed for as many customers as Canada can afford; where fibre is unaffordable, those customers will need to be served by fixed wireless and satellite. That means in terms of fibre, we'll need a capital contribution for locations that are close to being economical. For those that are extremely uneconomical, in addition to a capital contribution, there will be a need for ongoing financial support.

Fourth, for unserved and underserved cellular areas, there will be a need for a capital contribution for those locations that are close to being economical, and—again for more sparsely populated areas—an ongoing subsidy program, because the capital for cellular does not stop with the initial installation, and that capital will be uneconomical as well.

[The Chair, Liberal, Dan Ruimy]

Excellent. Thank you.

We're going to move to SouthWestern Integrated Fibre Technology, and Mr. Hogan.

[Geoff Hogan, Chief Executive Officer, SouthWestern Integrated Fibre Technology]

Thank you for having us. Thanks for your time today, committee.

We at SWIFT in southwestern Ontario believe that broadband really should be an essential utility. We cannot participate in the modern economy today without it. We believe that SWIFT is the solution that is in place for southwestern Ontario today.

I'm not going to read this whole slide, but currently we have a lot of underserved areas. The density may be slightly higher than it is in Saskatchewan, but not by much in many of the rural areas in southwestern Ontario. Our residents have unequal access to digital services. Our urban residents have much better access than our rural residents, again, meaning access to education, health care, government services, the whole thing.

Even cows wear Fitbits now. Our agricultural communities are very dependent on technology. The third line in the fourth concession needs as much or, arguably, more broadband than their urban counterpart, because they have to drive farther to get to access services when they don't have broadband.

There are urban needs as well. We have a member of SWIFT who's building a data centre in Cambridge. There's not enough fibre for the customer to build the data centre in our technology triangle in southwestern Ontario.

It's a big problem. How does SWIFT solve this? Our catchment area, our project area, has 10% of Canada's population. We have an aggregated demand model. We have members who join our organization, and we do procurements on their behalf. When we go to the providers—we now have 1,500 sites today, and we hope to have 3,000 by May or June—that then gets on the table so that when providers bid for services, it's not only the current incumbents who are bidding for service but also, potentially, new providers coming into the area. That increases the competition, which is what we're hoping will solve the problem in the long term in these rural areas. If we get more competition, the market will take care of itself.

We have data-driven decisions. We'll get to that in a second with regard to the relationship with the University of Guelph.

Just as a quick snapshot of where we are, for the folks who aren't from Ontario, in southwestern Ontario we have 14 first nations in our catchment area and about 25% of Ontario's population.

I touched on our aggregated demand model. We're a membership-based organization. We have members from the public sector, the private sector, agriculture, all of those organizations that need connectivity. We're going to use that aggregated demand to have more say with the providers when we go to public procurement. We have one on the street right now.

The municipalities that started this project have $17 million to date, and we have a target of $18 million to $20 million for the project. The municipalities are very serious about helping their residents and want to partner with the federal and provincial governments to provide services to our residents.

Just to give you a quick cross-section of our members, we have four first nations that have joined the project already and, as I said, there are 14 in our group. They have the same challenges as our other rural residents. Their high school students can't do their homework when they get home. They can do their homework in school, but when they get home they have to drive to McDonald's to upload their homework, and that's really, in my opinion, not acceptable in Canada.

We have a really unique partnership with the University of Guelph. There are three professors, approximately, who do broadband research in Canada, and Helen Hambly is one of them. Dr. Jamie Lee is also with us here today.

It's very important to us that we measure how effective public investment is in providing incentives for private sector to improve broadband. We're doing a longitudinal study. We started collecting data back in 2012. When our program is done in 2021, we should have some very interesting stats. Jamie will talk about that in just a moment.

We collect data from three main data sets. There's the MUSH sector, including all of the public places, because they're the ones that provide the most revenue to the providers at the beginning of the project. We've collected provider data. We know where all of the providers' fibre in southwestern Ontario is. We have it mapped in a GIS system. We're also collecting residential, farm, and business data from people by using a survey mechanism through the university.

Just to go on to give you a quick snapshot of the data we've collected, we've collected the provider data under NDAs, because, obviously, Bell's not interested in sharing with Rogers where their infrastructure lies. This is a disaggregated view of the data that I'm showing you now on the slide. This is Middlesex County in the centre of southwestern Ontario. The blue areas are within 500 metres of fibre, and the yellow areas are not. You can't deliver high-quality wireless without the tower being connected to the base with fibre. You can see that the folks in the yellow areas shown there are at a serious disadvantage. This is really overstating how well it is in Middlesex, because the fibre that's running along may not have enough capacity to actually break out to connect people.

I'm going to turn it over to Dr. Lee now, who is going to talk a bit about our analysis of the economic outcomes.

[Dr. Donghoon Lee]

Thank you, Geoff.

Hello, everyone. Since I have about a minute, I'm going to be brief.

At R2B2, we completed some preliminary estimates of the economic benefits, namely consumer surplus and telecommuter surplus. Depending on the assumption of consumer surplus, we see the private net benefit to consumers ranging essentially from $2.6 billion to $6.5 billion. Through our continued research, we'll be able to provide more precise estimates. Right now, the estimates are rather wide, but through our research we'll be able to provide more precise estimates.

Also, please note that this is actually not the social net benefit. To estimate the social benefit or its equivalent, which is a return for the broadband investment in terms of society's point of view, we will have to put a social cost on the total social benefits. This is what we are really hoping to answer in the near future. I think that is the most important question at R2B2.

Now I'll quickly introduce another type of benefit that we had estimated, which is the telecommuter surplus. As you can see in the second-last line, the benefits could be very significant to the average telecommuter—anywhere from $10,000 to $30,000.

Other economic analyses of broadband in our research include the impact of broadband on wages, income, property values, and so forth. At R2B2, the research topics extend further to other areas as well, such as precision agriculture, health care, and so forth.

Thank you.

[Geoff Hogan]

I'm at seven minutes. Would you like me to stop, Mr. Chair?

[The Chair, Liberal, Dan Ruimy]

You're over your seven minutes by 16 seconds, but that's okay.

[Voices]

Oh, oh!

[The Chair, Liberal, Dan Ruimy]

That's pretty good. Were you finished?

[Geoff Hogan]

One more minute would do it.

[The Chair, Liberal, Dan Ruimy]

I'll give you 30 seconds. Wrap it up.

[Geoff Hogan]

Okay. The way we are approaching this is to take a typical rural area where there is some existing fibre and a lot of services, and we are augmenting that fibre optics with the fibre optics that we're subsidizing, which will be owned by the private sector. The key to this is that the new fibre is going to have a very high capacity, and there are going to be entrances into that fibre every kilometre along the way. That begins to make the business case for the private sector to connect the people who are closer to the fibre—those in the orange areas on the chart. That's the model we have. Over time, we will fill in the black areas until everyone is connected.

That's our model. The summary is that we have an evidence-based solution. We're leveraging the voice of our 3.5 million Ontarians who are members. We're maximizing the existing broadband infrastructure investment. We're trying to create universal and equitable access to all services.

[The Chair, Liberal, Dan Ruimy]

I'm glad I gave you extra time. Thank you very much.

Next, we have Mr. Chen from the Wubim Foundation.

How do you pronounce “Wubim”, Mr. Chen?

[William Chen, Director, Wubim Foundation]

It's the “Woo-bim” Foundation. Don't worry. Everyone mispronounces it. I mispronounced it for the first year or so.