Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 5 - Evidence, September 30, 2009
OTTAWA, Wednesday, September 30, 2009
The Standing Senate Committee on Transport and Communications met this day at 6:30 p.m. to study emerging issues related to its communications mandate and to report on the wireless sector, including issues such as access to high-speed Internet, the supply of bandwidth, the nation-building role of wireless, the pace of the adoption of innovations, the financial aspects associated with possible changes to the sector, and Canada's development of the sector in comparison to the performance in other countries.
Senator Dennis Dawson (Chair) in the chair.
[English]
The Chair: First, I will welcome our new committee member, and I will welcome the other members from Manitoba that are at the committee to welcome him; Senator Plett will be our permanent member. Welcome to the committee. Senator Plett will see that we have a good working relationship and we are starting with a western issue so he will feel at home.
Good evening. This is the seventh meeting of the committee on our study of the wireless sector. Today we have Robert Watson, President and Chief Executive Officer of SaskTel, who will make the presentation, and John Meldrum, Vice President of Regulatory Affairs and Corporate Counsel, who will join Mr. Watson in answering our questions.
[Translation]
Sasktel is the leading full service telecommunications provider in Saskatchewan, offering competitive voice, data, dial-up and high speed internet, entertainment and multimedia services, security, web hosting, text and messaging services and cellular and wireless data services over its digital networks.
[English]
Mr. Watson, the floor is yours.
Robert Watson, President and CEO, SaskTel: Thank you very much, Mr. Chair and honourable senators. It is an honour to have the opportunity to appear before you.
At SaskTel we are proud of our accomplishments, so please excuse us ahead of time if we are boisterous about them.
The rural requirements are front and centre, particularly for the province of Saskatchewan. We have a geographical size the same as Texas, with slightly over one million people, growing again, frankly, and of course the province is long and narrow. We go from the 49th parallel to the 60th parallel.
It is a challenge to deliver any communications. Most people do not realize the province is not flat. Only one third of the province is flat and the rest is Canadian Shield, which is comprised of trees and lakes. This geography presents a significant challenge.
In our view, there is no question that broadband brings economic development and empowers the people of today no matter where it is delivered, whether in an urban centre or rural centre. Delivering broadband was part of our basis to approach the Government of Saskatchewan over a year ago.
As I mentioned, our population of one million people is not within one centre. That situation is different from Manitoba, where one large centre takes up a significant part of the population. The largest city in the province is Saskatoon, which has a population of approximately 225,000. Regina has approximately 200,000 and then the size of centres goes down from there dramatically.
To deliver broadband to the rural communities, the economic conditions become challenging, not to mention the technological challenges that we can discuss later.
On slide 4, we have some history behind this project. CommunityNet Phase I, which was completed several years ago, where we first worked with our provincial counterparts in delivering broadband to 279 communities, had a customer base in health, education and government. We followed up that project with CommunityNet Phase II, where we went even deeper into rural Saskatchewan by adding another 300 communities.
By the time we finished CommunityNet Phase II, we were delivering broadband to communities of 200 people or less; or any community that had a library or school. Some communities had only 60 people.
We came to the government with a rural infrastructure program to guarantee high-speed service to every person in the province no matter where they lived, and the high speed being a minimum 1.5 megabits per second of traffic. I know that is technical but that is a good capacity for a minimum guarantee. Frankly, most of the population can access service of 5 megabits per second in their home, which is significant. Lots of cities in this country do not have that capability. It was challenging technically and geographically to deliver it there.
One thing to consider from page 5 is that it is important not only upfront to put together a model to build this network and to make this service available to every citizen, but one of the essential factors to understand is that the effort cannot stop at building the network, because demand will increase dramatically.
We have a mine at Cigar Lake in northern Saskatchewan that is looking for us to build a 100-gigabit connection to them. That bandwidth is huge. We will have to build a special fibre link-up to reach them. They are willing to pay for the connection and it is reasonable for them to do that because we have the network essentially built already.
One of our messages today is yes, build upfront, but also there must be a commitment of ongoing development of the networks to empower them.
Our future network technology is built on three aspects: Wireline, delivered mostly by fibre connection, provides the backbone of the network. Then we use the latest technology in copper to connect to the home. We have a trial starting next year, where we will connect to 3,600 new homes with fibre only, and technology is developing behind that trial.
The second aspect is high-speed broadband wireless. It is becoming popular now and acceptable. We can deliver up to 5 megabits per second on high-speed wireless.
The third aspect of our build is an equal partnership with a satellite company. The satellite company provides high- speed connection to what we refer to as deep, deep rural, where even government subsidy at 100 per cent is not a good choice. That satellite offering became part of the whole package of the program and we subsidized that offering for a 10-year period for those consumers who need it. It is a guarantee that within three years we will deliver high-speed connection to 100 per cent of the population in the province.
When we put this package together for the Government of Saskatchewan, we learned through this process that there were a couple of aspects to consider. First, we learned that to increase the bandwidth to the main centres in the province became a market opportunity; in other words, the economics for us to provide that service were well within our mandate.
I remind honourable senators that although SaskTel is a Crown corporation, we must operate as a profitable entity. In fact, we must have a 14-per-cent return on equity. That 14-per-cent return on equity is better than any other telco in the country right now. We look at every opportunity like any normal company would look at an opportunity. We can afford to connect the major centres ourselves, within our business plan, and profitability goes down quickly in delivering service to rural Saskatchewan. That service delivery is where we took into account the private-public partnership model.
We approached the Government of Saskatchewan at the time with two different models. We approached them with a model of SaskTel delivering 100 per cent of the service or a model where they took some of the allotted money and set it aside for private companies to deliver some of the network. After much talk and deliberation, the government decided the best model was to have SaskTel have the obligation to deliver the network within three years, and within that obligation, we guarantee that 60 per cent of the money will be given to private companies to assist us to build the network.
In other words, one company is responsible for delivering and maintaining the service, and we took that responsibility to the private companies in the province to build the network for us, help us maintain it or buy some of the network from them.
Finally, with the public-private partnership with the satellite provider, Xplornet, we have guaranteed Xplornet a minimum number of customers so they can deliver that service within the province.
One thing we found out through this process is that we are able to deliver this network and have commitments of the funds because in rural areas that are uneconomic — even at the edge of economic for government contributions — it is important, in our view, to focus on the delivery of one network to the consumer. Deliver the one network properly and then competition can take place for the services delivered over that network.
Part of our program also is that we are opening up this network, similar to SuperNet in Alberta. However, we have two advantages over SuperNet because our network provides delivery of services right to homes or businesses where SuperNet in Alberta provides delivery only to the community. We provide service for a few sales — and for a cheaper price, by the way. That factor is important.
The next thing is that through partnerships, we will work with private companies in any community in which the company wants to deliver that service for us. Again, SaskTel takes on the obligation of delivering the quality of service, with the private companies delivering it for us on our behalf. We think that factor is important.
In terms of funds, we were able to focus on building a single network. The government did not split the funds between two companies and have two networks. That approach works well in the urban centres. In the province of Saskatchewan, SaskTel and Shaw compete directly in most communities; Access is another cable company.
With our cable TV product, SaskTel competes directly with Shaw; there are two different networks. I argue that the people of Saskatoon, in particular, have some of the best TV pricing in the country because there are two good competitors in those urban centres. The model falls apart dramatically in the rural centres because of the cost of the network.
To date, we believe the federal programs — though with good intentions — are not sustainable for two reasons. The federal programs try to split up the funds too much. The funds should be dedicated to a provider to build the network. Also, the federal programs do not give sustainable funds to maintain and continue to develop the network, in our view.
As for recommendations, we recommend that the Government of Canada recognize broadband service as an essential service, similar to, frankly, the federal government recognizing that a local line is an essential service. Broadband, we believe, will be an essential service for economic development for the future, and will assist anybody no matter where they live in the province or country.
We believe there should be the mechanism to continue with the high-cost serving areas. The contribution funds in place now need to remain. In other words, all telephone companies contribute to these funds, and the contributions are used to keep the rural rates at a reasonable price.
A hearing is taking place now with the Canadian Radio-television and Telecommunications Commission, CRTC, to review all that issue. Our firm belief is those funds should not go away. If they go away, rural rates will go from an average rate of $30 a month now to $40 or $50 a month, which will not assist rural communities at all.
There should be a specific fund for Industry Canada to advance broadband networks on a national basis. Again, we ask for consideration that the definition for basic service include broadband.
I have gone through the presentation quickly, chair and honourable senators. I will look to my colleague to ensure I did not miss anything. Hopefully, there will be questions.
The Chair: Thank you, Mr. Watson. First, I want to welcome a new addition to our committee: Senator Frum, welcome to the Standing Senate Committee on Transport and Communications. You will see we are a nice group except for a few members, but I will not mention them.
Senator Johnson: As you know, this study is important, particularly in rural areas. I have a home in a rural area in Manitoba and I know how we have struggled to have the service.
Can you comment on a remark you made in your statement about broadband remaining uneconomic in Saskatchewan? On page 2 of your presentation, in the first couple of paragraphs, you talk about the creators of wealth, and that broadband is essential, yet you state on page 5 that it remains uneconomic. Is it uneconomic because the federal programs are not sustainable; is that part of it?
Mr. Watson: Mr. Chair and honourable senators, when we look at a business model for a corporation — again we look at it the same way as any other corporation in Canada would — we look at our return on investments, and a reasonable return on investment is anywhere from 11 per cent to 14 per cent.
When we have a low-density population, it takes a significant investment not only to build the network there, but more importantly, to sustain, maintain and upgrade the network. The economic factor relates to the low density and providing the capacity in low density areas.
Satellite is a good option. Technically it stacks up, and unless physics change the way we know it, it will still stack up this way. The best possible connection is fibre connection. Then we can upgrade it reasonably with fibre optics.
The next best connection is broadband wireless, and it is becoming better all the time. Frankly — and I know the satellite boys might be upset by this statement — but satellite is the third-best connection for reliability and capacity.
People want more and more speed, especially at home. The thing that will drive this demand is essentially beyond our control. The interaction of Internet will drive the want and need for more capacity. The Internet right now is used mostly to pull information back. When we reach Internet 3.0 and 4.0, which world standards are working on now, that is fully interactive Internet. In other words, users not only pull stuff back, they go out and join the Internet. It will be done not only in simple data using keyboards; it will be done in full motion video.
Anybody in the world then can sit anywhere and run a business anywhere. Someone can be in Northern Manitoba or Northern Saskatchewan and easily run a business.
The follow on with a point I made — which I perhaps did not make strongly enough — is what is really important is the content on this network. In Canada, we can focus on how we deliver more and more content using the Internet.
Senator Johnson: You stated that about 100 per cent of the population of Saskatchewan in 2011 will have access to 1.5 mbps of broadband. Do you believe access to at least 1.5 mbps broadband in the near future will be available to 100 per cent of the Canadian population with the investment that has been made of $225 million to develop the strategy?
Mr. Watson: I do not know the models or networks in the other provinces as well as our own, of course, but I do not think that is possible. Substantially more money will need to be committed.
Senator Johnson: We need to put more money into it. You mentioned the CRTC twice in your presentation. Something is currently under review. Can you explain that point? The other one is about changing the definition that CRTC uses regarding basic service.
John Meldrum, Vice President of Regulatory Affairs and Corporate Counsel, SaskTel: Mr. Chair, the CRTC administers a fund in Canada. All telecommunication providers contribute approximately 1 per cent of their revenues to that fund, and it is used to subsidize high-cost rural and remote access in Canada, to keep the rates for local telephone service affordable. That national fund has been in place for six years or more, and the CRTC recently kicked off a review of that national fund to see whether it should be continued or whether there should be changes.
Mr. Watson mentioned that if the national fund was eliminated, we would need to charge our rural customers anywhere from $40 to $50 a month. We are subsidized on average $18 a month in terms of our high-cost rural and remote customers. Approximately 42 per cent of our lines are rural and remote, as per the CRTC's definition.
Senator Johnson: The other part of the question was about the definition of basic service. Under your recommendations, you wanted the CRTC to change the definition of basic service.
Mr. Meldrum: Yes, the CRTC has defined their expectation of what telephone companies in Canada will provide in terms of dial tone, access to directory assistance, message relay services and those sorts of things. The Telecommunications Policy Review Panel, a panel of experts appointed by the federal government to examine telecommunications regulation and the need for telecommunication reform, also completed a large study on the whole issue of rural broadband and how to deal with providing broadband services to rural Canada. I do not know whether the committee has had the opportunity to talk to the people who conducted that study, but they have a whole chapter on it, and the experts recommended the definition of basic service be expanded to include high speed access. The experts felt that by expanding the definition, the CRTC would need to look at a number of things to bring the phone companies and the level of service up to that basic level of service.
Senator Cochrane: We heard from witnesses a few days ago, and I was inclined to go along with satellite technology. Mr. Watson, you are not in favour of that approach, are you? Tell me why.
Mr. Watson: Satellite technology is good and there is no question it is required for remote, remote areas of Canada. It is economical. It is a good service. All I said is, technically it is not as good as fibre or broadband wireless.
Senator Cochrane: In regards to speed or what?
Mr. Watson: It is in regards to speed and reliability. It is impacted by trees and the weather. Because it is so far away, there is still delay. It is not a big issue when sending data back and forth. When sending voice, it is a big issue.
Mr. Meldrum: It is essentially a shared service. They are all shared at some point, but satellite is shared right away. Users are sharing bandwidth.
Mr. Watson: I do not want to offend my friends at the satellite companies. Essentially, the service is good and an essential one for deep, deep rural. As I said, unless physics change, light waves are much better than air waves, and the closer, the better.
Senator Zimmer: Mr. Watson and Mr. Meldrum, a special welcome from a fellow Saskatchewanian. Most people think I come from Manitoba, but I do not; I was born, raised and educated in rural Saskatchewan. I stress rural because you are dealing with some of the issues in rural Saskatchewan, and that is important. One does not lose the history and one never loses the Rider pride, so welcome.
I have three questions. First, what are the implications for rural Saskatchewan residents if the national fund used for subsidizing high-cost rural and remote services is eliminated?
Mr. Watson: Chair and honourable senators, that question is a great one. Without the high-cost fund, we are talking about an increase of $10 to $20 a month. For many people, that increase may not seem like much, but the problem is that there is nothing to substitute. They cannot upgrade to broadband circuit or something like that. It becomes another expense in rural Canada that urban Canada does not pay and, frankly, it is not necessary. It has worked so far, and works well now.
Will people still use it; yes. In the province of Saskatchewan, it may not have much of an impact because, with the new wireless network we are building, we will reach 90 per cent of the population. Lots of people need that phone line. It is an essential service and something that works no matter what. There has been lots of investment in it, and it gives people a lot of comfort living in a rural part of the world. They cannot walk next door to tell their neighbour if they are having troubles, as you are aware.
Senator Zimmer: This next question is supplementary to Senator Johnson's question. In your opinion, why have many federal broadband programs not worked well?
Mr. Watson: In my opinion, chair and honourable senators, first, it seems to come out in bits and pieces. It is more of a reaction from the government. I have been in the business 30 years and there does not seem to be a national plan to connect this country. I know we have our geographical limitations. I was born and raised in this country. In the 1970s and 1980s, it was not so apparent we needed this, but in 2000-plus it has become apparent that we need connectivity for knowledge and empowerment, and we need broadband connectivity. A simple power line will not do any more.
Senator Zimmer: How have First Nations reserves in Saskatchewan made out in terms of broadband and the remote areas they are in?
Mr. Watson: That is a good question. In the province of Saskatchewan, through our Broadband for Rural and Northern Development, BRAND, program, we were able to service the northern reserves quite well. The northern reserves have high speed and most of the northern reserves have cellular service. Part of our program here is to work with the southern reserves. It is quirky that the southern reserves do not have the connectivity that the northern reserves have right now. The program was specific for northern reserves.
We have a program and SaskTel has committed $6.8 million. We are in front of some of your people looking for an equal contribution to build the service. It is caught up in the federal responsibility for Aboriginal things. If you know anybody to help us out, we are willing to build it right away. With that service, we will cover almost 100 per cent of the reserves. There are some reserves with 10 or 20 people. Those reserves will still have the opportunity for satellite, Mr. Meldrum reminds me, which is essential.
Senator Zimmer: Thank you very much. I wish my Riders well.
Senator Johnson: I have a follow-up to Senator Zimmer's question about the reserves. Do you know if that situation applies across the country because the program is federally run? Is it the same in the North and in the South? Are the patterns the same?
Mr. Meldrum: Under the federal government's BRAND program, we partnered with a number of northern reserves and First Nations and Metis communities. It was not the easiest thing to accomplish and we had to invest money ourselves. I think Northern Saskatchewan may be in much better shape than other northern areas of Canada, but I have no firsthand knowledge.
Senator Mercer: Thank you for being here. I am excited to hear of the success of SaskTel. Your reputation precedes you. It is a great one.
With my other hat on as a member of the Standing Senate Committee on Agriculture and Forestry, we completed a detailed and extensive study on rural poverty. When we travelled across country, and we even visited Humboldt, Saskatchewan, one of the things that surprised me is that, in every one of the rural communities, including Humboldt, access to broadband and high-speed Internet was among the top four priorities of things that needed to be fixed.
I am impressed by your statistics. As a person who lives in a small village of a few thousand people outside of Halifax, and you are talking about providing service to communities of 200 people or less, communities where they might have only a school. I am impressed by that goal.
How many communities are there, of a population of, say, 2,000 and less, that have service in Saskatchewan?
Mr. Watson: The province is made up of just over 1 million people. As I mentioned, Regina and Saskatoon make up close to 500,000. The next eight communities make up another 150,000 and then the rest of the population is dispersed among the communities.
Once we go past the top 200 communities, we are talking about communities that are only in the hundreds. As I mentioned, the CommunityNet program delivered high-speed service to a community that had only a school or a library. Some of those communities had only 60 people.
Senator Mercer: The other day, we heard from witnesses who talked about the cost of compliance. I see Mr. Meldrum is Vice President of Regulatory Affairs and probably deals with the compliance issue on a regular basis.
You did not mention the issue of the cost of compliance with regulations. Is it because you are a Crown corporation that cost of compliance is not an issue, or is it an issue that is not at the top of your mind?
Mr. Meldrum: Mr. Chair, the cost of regulation is always an issue to a Scotsman. We have estimated that we probably spend about $1 a month per customer on the telecommunication side in terms of regulation. We pay our portion of the CRTC's costs. We also have to participate in all of their —
Senator Mercer: That is 1 per cent, is it not?
Mr. Meldrum: No, they figure out what the total costs are of running the telecommunications side of the CRTC, and they charge those costs back to all the telephone providers in Canada; the ones they regulate. That amount was $800,000 last year and moving towards $1 million. That is what we pay to the CRTC for them to regulate us. The model is an interesting one.
Then there are the issues of filing reports and the various things they want, as well as participating in the proceedings they have. We estimate we spend $1 per month per customer on regulation.
Senator Mercer: I have two small questions to end with. I was fascinated with your description of the opportunity of extending service in Cigar Lake. If I heard you correctly, you are thinking of using fibre optics to extend that service, or satellite?
Mr. Watson: Sorry, senator, they want 100 gigabytes. That is a huge capacity. Satellite cannot provide it. We have to provide it through fibre.
Senator Mercer: As you are running fibre to Cigar Lake, which I gather from your description is in the far north of Saskatchewan, does running that fibre to Cigar Lake provide great opportunities along the road? Can you feed that service to the communities you encounter along the way?
Mr. Watson: Cigar Lake is probably about 450 kilometres from the closest other point we have. It is in the middle of nowhere. One can go there only by plane. The fibre would have to be a fibre dedicated to Cigar Lake. The opportunity from there is to continue north to places called Font du Lac, Stony Rapids and maybe even to Uranium City. The uranium and diamond companies are willing to pay their share of that cost and we ensure they do, frankly. Generally, it helps the entire network for the province.
Senator Mercer: Could we extend the service further into the territories?
Mr. Watson: We could go that far, yes.
Senator Mercer: You talked about broadband as an essential service. Does broadband as an essential service relate directly to your comment on page 10 about the CRTC changing the definition of basic service? Are you talking about broadband and high-speed access being part of the basic service, or are you talking about something else?
Mr. Watson: No, that definition is what we are talking about.
To put the service into perspective, several years ago, I had an interesting debate with an oil pipeline company. We wanted to put fibre beside the oil pipeline and we had difficulty dealing with the oil company officials because they thought the oil pipeline was their goal, until I told them that my single piece of fibre probably will carry a lot more commerce than their oil will.
Senator Mercer: That puts it all in perspective.
Senator Fox: Your record is impressive. I want to back up and see how you arrived there.
In conducting its study, this committee had the opportunity to meet with officials from other countries, including Britain and France. Britain has come up with a policy paper called Digital Britain, and in France it is called France Numérique. That paper is almost a government blueprint. It is sort of a white paper on how to go where they want to go.
In France, they recognize access as a right. In England, it is not the same thing: It is as much access as possible, under the circumstances, which is a bit of a Canadian approach. However, your approach looks like a right to high- speed Internet access.
Where did the impetus for this approach come from? Was it a government white paper or policy tasking SaskTel with the development of this network across the province?
Mr. Watson: No. Frankly, it was our idea to come forward with this approach, thinking that we could do it economically and make the promise to the people of the province. We have spent a lot of money on our network over the years and continue to be profitable. We could build this network and give this guarantee for a total ticket price of $130 million. The provincial contribution to that cost is $90 million. Those figures give you an indication of the economics. That brought us within our timeframe.
As I mentioned before, we were delivering high speed service to within 88 per cent of most people anyways. Although we are adding only 12 per cent, that is where all the cost is.
Senator Fox: The idea derived from your general mandate as a Crown corporation. Earlier, you interpreted your mandate to include access to high-speed Internet, and not only telephony.
Mr. Watson: Agreed; it was also a business opportunity.
Mr. Meldrum: If you go back to the original 80 per cent, I would say the genesis of the idea was within the provincial government but it found a willing partner quickly. The idea came from a chap by the name of Bob Hersche, who now works for SaskTel.
Senator Fox: I am perplexed by the business opportunity because, obviously, there are large parts of Saskatchewan where access to high-speed service is not commercially driven. On page 3 of your presentation, for instance, you say that in large areas of both southern and northern Saskatchewan there is less than one household per square kilometre. Yet you want to deliver services to them. Obviously, that service is not economical.
First, how do you deliver service there? Is it by satellite? How do you cost the service to the recipient? Does the recipient receive a low-cost service whose cost is equalized over all subscribers in the province?
Mr. Watson: We tried that approach but where we provide service to deep rural areas by satellite, those areas pay a modest premium. Service is mostly subsidized to bring it to within a 5-per-cent premium of the cost for those who live in downtown Regina.
Senator Fox: Service was subsidized by the pool of subscribers across the province?
Mr. Watson: No, it was subsidized by this total fund for a 10-year period. Our plan is a 10-year plan.
Senator Fox: Where does the money come from for that fund?
Mr. Watson: It comes from the government; the general fund.
Senator Fox: From the Saskatchewan government?
Mr. Watson: Yes, the fund is provincial.
Senator Fox: For these people who are fortunate enough to have a full square mile of terrain around them, delivery is by satellite, I assume.
Mr. Watson: We estimate that about 12,000 to 15,000 households or businesses in the province will need satellite- only delivery. We cannot reach them.
Senator Fox: How do they pay for the downlink from the satellite? Is it their responsibility, or do you come in with the package and set it up?
Mr. Watson: They order it from SaskTel. We are setting up local dealers to sell and maintain the service, because we are talking about really remote areas. Subscribers pay their SaskTel bill and we pay the satellite provider.
Senator Fox: For the downlink to their homes, do people pay a significant part of that cost or is it paid in the form of a monthly service fee for telephone and Internet access?
Mr. Meldrum: We subsidize that portion, although there is still a fee. The money from customers subsidizes the facilities in their homes, and then the monthly fees are reduced accordingly.
Senator Fox: In certain remote parts of Canada, service is not sustainable on an individual basis. We cannot expect individuals to bring the signal to their own homes from a satellite for high-speed Internet access. The service must be provided by a company such as yours, I assume.
Mr. Watson: They can do it but it is expensive. The price is prohibitive.
Senator Fox: At page 4, you talk about Saskatchewan's record and you mention four funding plans. Are those plans all provincial funding plans?
Mr. Watson: The first two phases of CommunityNet are provincial and Northern Broadband is federal, to serve Aboriginal communities.
Mr. Meldrum: The third one, Rural Infrastructure Improvement Plan, is both federal and provincial.
Senator Fox: At page 6 you talk about technology solutions and you mention satellite, of course. Is there any difference between the solution for satellite use in Saskatchewan and in other Canadian provinces? For instance, in Great Britain there will be delivery to many remote areas. Many remote areas in Canada are only a few miles from the main centres too. The same is true for remote areas of France, where, because of the mountains, the only way to bring in service is via satellite. Is your model pretty much standard around the world?
Mr. Watson: Yes; the only limitation in Canada for providing satellite delivery anywhere in the country from ocean to ocean to ocean occurs when something physical is in the way, such as a tree or a mountain.
Senator Fox: At page 7, you say that ``Rural/Northern areas cannot support multiple networks.'' Does that mean that in urban centres of Saskatchewan you support competing networks? For example, does Shaw deliver high-speed Internet access in competition with SaskTel, or are they precluded from delivering that service?
Mr. Watson: To answer your question simply, yes. In all urban centres of the province including centres with a population as low as 200, there is competition. Access Communications is a local cable provider, which serves most of the rest of the province. They will offer to the top 100 communities not only TV product but also telephone service and high-speed service. Two different networks will offer the services.
Senator Fox: Has any private company indicated interest in bringing broadband service to the more remote areas?
Mr. Watson: That is a good question. As soon as we received our mandate to build this network, we sent out notice in the single newspaper in the province to any party that was interested in building a service for us, that had built a service already or that wanted to build a service jointly with us to please come and see us, and we would lease the service from them. We have had only one party interested on a modest basis. Providing service is difficult in the rural areas.
Senator Fox: When you say, a ``need to create competition of services not networks,'' when talking about the remote areas, is there any competition of services in those areas now and if not, how do you have competition of services in remote areas?
Mr. Watson: The beauty of providing high-speed service everywhere is that once people have it, they can go anywhere for whatever they need. For example, Google gladly will give them any service they want, and Microsoft will do the same. People are empowered, and the network provides it. Services on a low-speed connection are not good. I do not know whether anyone has used dial-up access lately but people simply do not use it anymore.
Services are delivered over the broadband connection. SaskTel now must compete with Google, Microsoft, et cetera, to ensure that we deliver. It becomes an open ball game because anyone can go anywhere to find whatever they want.
Senator Fox: You are satisfied that this approach has worked well and that you can have competing services at that level.
Mr. Watson: My marketing department is nervous but we have taken a long-term strategy in the province to build the best network not only in the province but in the world on a geographical basis. Our second decision is to open up that network to anyone who wants to use it. We have made the offer that any cellular company can use our cellular network. We have made the offer to Access Communications, the cable company, to lease circuits from us, rather than build their own, at a cheaper rate than if they leased them from Alberta SuperNet.
Senator Fox: On the national strategy at page 8, you talk about federal programs and say, ``To date, federal programs have resulted in `one-of' short-term community base.'' What is your evaluation of the new federal program of $250 million announced in the budget? Do you have any comments?
Mr. Watson: I have a slightly jaundiced view of the announcement. We are seeing it only now so we do not know yet. First, the government has taken too long to deliver it, to be frank. Second, $250 million is a nice sum but it is nowhere close to what is required. My personal opinion is that not enough attention is paid on a national basis to our networks because the networks will drive the economies. Even when you put money into other industries, those other industries need to be able to connect to everyone. We made a comment that initial dollars are fine but there must be follow-up programs to provide sustainable growth. We know that providing 1.5 megabytes to everyone will not be enough. Three to five years from now, we will need to up the game again.
Senator Fox: The approach seems to be different between the federal government making funds available to extend access and the approach that you propose, which is to change the definition of basic service. Your approach will affect the Universal Service Fund. Perhaps you can elaborate on that effect. Is the Universal Service Fund essentially funded by telephone users across the country? Please explain how it works. Do all the telephone companies contribute a percentage of their revenues to this fund? How is that fund then allocated across the country?
Mr. Meldrum: In terms of allocation, the CRTC approves costs to provide service in the high-cost rural and remote areas. They know what companies charge, and they pay the difference between their approved cost and what the companies charge. That difference is the amount of the subsidy.
Senator Fox: Does that work right across the country?
Mr. Meldrum: Yes.
Senator Fox: The charge is a levy on all the telephone companies, but would you go as far as to say it is a levy on all telephone users in the country — like the cross-subsidization that we knew in the past?
Mr. Meldrum: Yes, Mr. Chair and honourable senator, it is a levy against all telecommunications users in Canada; not only a levy against the phone company. As you pointed out, companies such as Shaw pay on their revenues because they have high-speed Internet and local telephone service, as does Bell Canada. At the end of the day, the businesses and residents of Canada pay that 1 per cent.
Senator Fox: From your perspective, is that the best way to go, or would you like to see more federal direct funding from the taxpayers, as opposed to consumers of telephone service?
Mr. Watson: I think the best way to go is a sequence. If the federal government deems basic service to be a broadband service, the next stage is to ask the industry what it will cost to deliver broadband service to 100 per cent of their population. Then, analyze those costs and figure out where the government contributions come in and where private enterprise comes in.
Senator Cochrane: Can you give me an example of the cost to customers of basic service in rural Saskatchewan?
Mr. Meldrum: The cost is about $23.50 a month. The CRTC has indicated that they want to see rates in rural Canada rise to $30 a month. They believe that $30 a month is affordable. Rates are going up in accordance with the rate of inflation. We used to charge $22, or in some cases a little more for those living on farms, and it is on its way to $30 over the next 10 years.
Senator Cochrane: Where does the $18-a-month subsidy come in?
Mr. Watson: We charge $22, but our actual cost to deliver the service is $40.
Senator Cochrane: Where does the subsidy come from?
Mr. Watson: It comes from the national fund collected from all the telephone companies.
Senator Cochrane: One of your slides mentioned Newfoundland. What connection do you have with Newfoundland?
Mr. Watson: We were trying to give you the scope and size of the broadband network.
Mr. Meldrum: CommunityNet Phase II is broadband wireless. We constructed towers, and the areas covered by the towers that we put in equalled the size of Newfoundland.
Senator Cochrane: You state that rural broadband remains uneconomic for rural areas. We have been hearing this message from many witnesses. SaskTel works on the ground and knows this situation firsthand. Give us a sense of the costs involved, and how they compare to more urban areas.
Mr. Watson: I will try, senator. With a population of 200,000 within 40 kilometres, for example, we can serve the area using fibre and the servers are more concentrated per person. When we deal with distances, the cost of distributing the signal and the maintenance of the fibre, copper cable and wireless becomes incrementally higher. The situation is more complicated than that, but that is essentially the reason.
Mr. Meldrum: There is something called windshield time, the time it takes for our personnel to go from the work centre to the customer's premises. In rural Saskatchewan, we can measure that sometimes in hours, not minutes.
Mr. Watson: The reason we are back to defining broadband as an essential service is because it will become that important to the user, to homeowners running a business out of their homes. If the service goes down, it must be back up before long. The situation is the same for local lines. If a local line goes down, we are obligated to fix it within a certain time.
Senator Cochrane: Cost increases in rural areas. Is the cost in urban areas much less?
Mr. Watson: When we estimated costs, we estimated that costs for providing service to deep rural areas were as much as 100 per cent more than the costs to provide service to an urban area.
Senator Cochrane: Do you see any way that rural service can become economically viable or profitable?
Mr. Watson: We do not see that happening without subsidies.
Mr. Meldrum: It probably depends on how rural the area is. In areas where people tend to live fairly close together, wireless broadband is a decent option, but we were faced with areas that we would call deep rural; very low density.
Senator Cochrane: What about in Nunavut, Inuvik and places like that?
Mr. Watson: They probably have a lot more reason to use satellite there, because they have bigger space. Saskatchewan is big, but the North is much bigger and the population is much sparser. The North would have to deliver a lot of the service by satellite.
Senator Mercer: I will go back to the discussion of subsidies. I assume that subsidies vary from province to province. Do they vary from community to community?
Mr. Watson: Yes, they vary from province to province, but federally, they are looked at it in the same way. We tried not to provide different subsidies from community to community.
Senator Mercer: Is the CRTC flexible on that subsidy?
Mr. Meldrum: The CRTC sets up bands. In Saskatchewan there are five bands, I believe. They say that a certain type of customer has similar cost characteristics, so they set the cost for that band and subsidize the difference.
Senator Mercer: What kind of bureaucracy does the CRTC have to administer that program? It sounds complicated to describe bands of population in northern Saskatchewan while sitting at the CRTC in Gatineau.
Mr. Meldrum: Once it is set up, it is reasonably efficient. The original set-up took a few years of hearings and work on the part of the CRTC.
Senator Mercer: My next question will sound political, but it is not meant to be. How was the commitment made to do the good work that you have done? This plan has been in place for sometime, but politically you have gone through a radical change in Saskatchewan from a New Democratic Party government to the Saskatchewan Party.
Did the plan change when the government changed, or did the plan remain the same? I assume that the commitment was made when the New Democratic Party was in power. Is it the same now with the Saskatchewan Party in power?
Mr. Watson: We started discussing the plan with the previous government. The government was encouraged by it. We continued discussions when the new government came in, and they were encouraged by the plan as well. I think it transcended any political bounds as it was a good-news story.
Senator Johnson: What is the total budget for SaskTel?
Mr. Watson: For the entire company?
Senator Johnson: Yes.
Mr. Watson: For the total corporation, our revenues this year probably will be about $1.1 billion, and we will put $120 million to the bottom line. That is a true bottom line after depreciation. It is a cash number, so it is a good return. It is a decent return.
Senator Johnson: That is a good return.
Mr. Watson: We are a profit-driven corporation, and that resulted from the contribution from the provincial general fund of $90 million to this project. Unless we received the $90 million, it sat outside of our economic return. Any company needs to have an economic return for their shareholders. We pay dividends like everyone does.
Senator Cochrane: Is that $90 million a provincial contribution?
Mr. Watson: Yes, it is.
Senator Fox: I have a question about SaskTel International, which seems to be a successful company. From my briefing notes, I recall you were involved in the telecommunications system in the Chunnel. Is SaskTel International still an active company? Does it operate only internationally, or is there potential to bring some of your experience to bear in other Canadian provinces?
Mr. Watson: That is a good question, senator; thank you. We are proud of SaskTel International, although it is a modest part of the corporation. You are right. We built a communications system for the Chunnel; we built the entire network for the Philippines; and we recently left Tanzania and we were managing their entire telephone system. We presently have a contract to build broadband wireless for Mozambique. We have two contracts, one in Bermuda and one in Trinidad and Tobago, to help those countries build Internet Protocol Television, IPTV.
Also, through SaskTel International, we have assisted, and have contracts with, a couple of small telephone companies in Canada to help build TV over their copper plant.
On our software side, we deal with 11 telcos in North America selling our software service. We are proud of SaskTel International.
Senator Fox: The company sounds like a great story.
Senator Johnson: Are you best in the world?
Mr. Watson: Regarding SaskTel International on the project side, we do not pick manufacturers. We simply project- manage a job, such as building a wireless or fibre network for a company.
On the software side, we have software that is now being picked up by CenturyTel, the fourth largest software company in the U.S. Not many people know about the company, and they are picking up our software. It is an exciting time for us.
Senator Johnson: It is good for Saskatchewan.
Senator Zimmer: This question may put you on the spot, but I will ask it: The CRTC is the regulator per their guidelines, their rates and everything else. In your opinion, are they in line with the times — visionary, futuristic and reactionary — in reacting to your issues and your problems?
You can claim the fifth amendment.
Mr. Watson: Personally, I believe that government is required for the greater good. The question is the degree to which government is involved in business.
As a Crown corporation, we have a unique opportunity. We also, sometimes, have the difficulty of dealing not only with the federal regulator but with a provincial owner, as well as public policy issues to deal with it. No where is the public policy defined. We run as a corporation, and we have committees. We have a governance committee, an audit committee and then this grey area called ``public policy'' that one cannot grab on to; we know only that it is something for the greater good.
The CRTC is required. We definitely need a regulator. Less regulation is better. However, things are required. On a personal basis, I think they have to get their act together more on the broadcast side than on the telecom side because we deal with both sides now. I think CRTC has real issues. In my personal view, when they try to deal with broadcast issues, they are thinking back 30 years rather than forward 10 years.
Senator Zimmer: As you said to me, good question, and you should be in politics.
Senator Plett: Thank you chair. I have more of a comment than a question, but I want to start off by saying I am proud to be a rural Manitoban. I believe anybody living in Manitoba should cheer for the Bombers, not for the Saskatchewan Roughriders. We may not have as much to cheer about, but we beat Senator Frum's Argonauts the other day, and we are happy about that win.
I have spent my lifetime literally travelling around your wonderful province of northern Saskatchewan, my province of northern Manitoba and much of northwestern Ontario. I have seen firsthand the difficulties you face with some of your challenges. I commend your company, SaskTel, for the inroads it has made.
I live in a small village 20 kilometres from Winnipeg, and we received high-speed Internet a year or a year and a half ago, and I am not sure it is high-speed. I have a cottage further south of there, and I need my own satellite connection to access Internet there.
As you suggested in your opening remarks, Manitoba is somewhat different than Saskatchewan, with Winnipeg as the largest centre. However, many of our challenges are the same, and Saskatchewan is much ahead of our province, so I commend you. I hope that the people of Manitoba will go to Saskatchewan for lessons. Thank you for your presentation.
Mr. Watson: Chair and honourable senators, to set the record straight, I moved to Saskatchewan five years ago. I moved from Mississauga, Ontario, to Regina. My wife and I moved there, and I cannot tell you what a wonderful experience it has been. I have been to every part of the province; up to Uranium City, and I saw the sand hills of the Athabasca Basin. Saskatchewan is a spectacular province. I go around the province every day these days and tell them that Saskatchewan is the place to live for the next generation. We will see enormous things coming out of that province in wealth and other things. I cannot tell you how friendly the people are, especially the rural people.
Mr. Meldrum: I have lived in Saskatchewan all my life and my condolences to the Bombers.
The Chair: On that partisan note, I will adjourn the meeting.
(The committee adjourned.)