Northwestel - Unique Service Area

Unique Service Area

Northwestel's service area is uniquely recognized by the Canadian regulator, the CRTC as being entirely a high-cost serving area, characterized by:

• the most severe climate (six to nine months of weather adverse for outdoor construction and maintenance, temperatures that make metal brittle, icing of towers and microwave dishes, wind damage)
• extremely low population density (long distances between communities, most of which are very small)
• the smallest communities to use expensive fixed assets such as exchanges (exchange itself, electricity, backup power, building heat and light)
• all-weather road access to only 55 of 93 communities & localities (air transport costs, overnight accommodations, risk of stranding due to weather), and
• terrestrial long distance networks to only 48 of 93 communities & localities - the rest are served by satellite (transponder lease costs, solar activity interference, adverse angle of signals on entering the atmosphere)

As an example of the low population density, the area of Kluane National Park and Reserve in the southwest Yukon, which has an adjacent population of less than 1,100, is 22,013 km2 (8,499 sq mi). The Golden Horseshoe of Ontario, the area around Toronto and Hamilton, Ontario, is 31,562 km2 (12,186 sq mi), has some 8.1 million people; the densest portion of 22,000 km2 (8,500 sq mi) of the Golden Horseshoe likely has over 5 million people.

Northwestel's operating area is one third of Canada's land mass, but only 1/300th of Canada's population. Other phone companies serve much smaller territories and have cities of hundreds of thousands of people. Telus and Bell Canada have cities and urban regions in excess of two million population.

An example of extraordinary maintenance costs occurred in the late 1990s when wind blew the satellite dish at Grise Fiord off its base and wrecked it, cutting off communications for a community of just a few hundred people. A replacement dish, and installation crew, had to be sent in by air freight charter, and assembled on site. This sort of cost must be covered as "monopoly local", supported by carrier access tariff fees, or in the resale prices charged to resellers of local service.

While not necessarily a cost factor, an adverse effect of the high latitude is the refraction of radio signals by the atmosphere. At Grise Fiord, the satellite antenna faces horizontally south at the satellite which is located over the equator. The signal from the satellite strikes the atmosphere at such a flat angle that adverse conditions can deflect the signal away from the straight-line required to reach the antenna. The effect is similar to how an oar appears bent at the surface of the water.

As a result of these factors, long distance competition arrived some nine years later than in the rest of Canada, and local competition was still not allowed through 2006. In addition, the CRTC recognized the need for external supplementary funding to sustain the company with competition, since it was viewed as essential that Northwestel remain in business to provide basic phone service to all communities it now served.

The external subsidy allows the company to offer a long distance plan, to all communities in its operating area, with a rate of 10 cents per minute for calling within Canada during off-peak hours. Without the subsidy, this low rate could not be offered. The Carrier Access Tariff (CAT) rate was also subsidized at just 7 cents per minute from 2001 to early 2007, and a lower CAT rate would have required even greater subsidy; other Canadian companies can offer lower CAT rates without subsidization. In addition, the "toll connecting trunks" (portions of the long distance networks that connect local exchanges to the long distance exchanges) are unusually long, and are regarded as part of monopoly local, requiring external subsidy to sustain. Circuit charges are also priced well above cost in order to cross-subsidize non-profitable services such as monopoly local.

Considering the difficulties of the operating area, Northwestel provides a fairly modern telecommunications network, including a basic level of such features as Call waiting, dial-up Internet, Call Number Display in 58 exchanges (62 communities & localities), and, in the largest centres which are still smaller than Bell Canada's fair-sized towns, video conference services. More advanced features, such as Name Display, are not available, and long distance transmission of Call Number Display is limited to just 14 communities. They also provide cable services, as "TheEdge", with television and DSL Internet in some communities, many of them with government assistance. As NetKaster they also provide Two-way Satellite Internet access to Alberta and parts of the NWT and Nunavut and planned expansion in British Columbia, Saskatchewan, Manitoba and Yukon.

The CRTC initiated a proceeding on January 17, 2006 (Telecom Public Notice CRTC 2006-1) to review the regulatory framework for Northwestel, with a decision for a new framework issued in 2007 to go within 60 days. The CRTC examined moving Northwestel from rate-of-return regulation to price regulation, or a transitional regime. It also examined the possibility of local service competition (and under what conditions), possible split of rate base between competitive and utility, further SIP proposals, and status of long distance competition and the setting of the CAT rate.

The strongest opposition to the proposal by Northwestel came from Telus. The proposal envisioned a substantial increase in supplemental funding in order to shift from an implicit subsidy (circuit charges far above cost) to an explicit subsidy (charges closer to parity with elsewhere in Canada); there would also have been a major cut in the 7 cent-per-minute CAT rate to a new switch connect rate lower than one cent per minute, again replacing an implicit subsidy with an explicit subsidy through supplemental funding. Consumer groups expressed concern about the price-cap regime, suggesting continued regulation. Various groups expressed concern about the unknown long distance rate reductions, as for competitive reasons, neither Northwestel nor the CRTC could disclose the specifics.

The CRTC issued its decision (Telecom Decision 2007-5) on February 2, 2007, following an interim order issued on December 6, 2006 that allowed the first raise in basic network service rates since 2001 (residence customers face an increase of $2.00, equal to 1.11 percent per year over six years). The approved switch connect rate will be $0.0415 per minute per end; local service resale was approved; Toll Free remains regulated; other toll services will now be forborne from regulation; a new SIP program to replace outdated and Industry Canada-non compliant transmission networks was not approved.

The company announced its new long distance plans on 21 March 2007, after adjusting its original plans to reflect the CRTC-approved rates and regime. The timing of the CRTC decision conflicted with the company's temporary loss of staff for volunteer activity at the Canada Winter Games.

Further CRTC proceedings in late 2011 opened the Northwestel service area to facilities-based local service competition, with limited availability of number portability. There was a small reduction in the switch connect rate which remains the highest in Canada. Again, a further service improvement plan, including replacing a radio-based line service in Upper Halfway River, B.C., and non-compliant microwave radio systems, was rejected by the CRTC. CLECs may offer service as from 1 May 2012; one hopeful competitor, SSi Micro, was seeking CRTC remedies for rates for data transport while other potential competitors began preparing for to enter the northern market.

On May 28, 2012 it was announced that Iristel, one of Canada's largest Voice over IP networks (VoIP), would be the first CLEC to enter the Yukon, Northwest Territories and Nunavut through a partnership with ICE Wireless. Samer Bishay, president of both Ice Wireless and Iristel, considered it to be the official end of Northwestel's long standing monopoly in northern Canada.