Deferral accounts – telco’s rainy day nest egg to pay for rural broadband

In January of this year, the CRTC announced plans for an increase in rural broadband internet service and the telco’s reply was ‘rural broadband is nice but who’s going to pay for it?’. Well it looks like the CRTC has found a way to fund a broadband internet roll-out to non-urban customers by using subscriber fees that the phone companies were counting on for their own benefit. The CRTC has approved a plan for the deployment of broadband Internet service to 287 rural and remote communities using funds from ‘deferral accounts‘ which will also be used to provide a rebate to urban phone customers.

What are ‘deferral accounts’? In 2002, the CRTC allowed phone companies to charge above their normally regulated price caps so that new competitors entering the market for home phones — primarily cable companies such as Rogers and Vidéotron — could undercut them. The extra charges went into deferral accounts, which over the years amounted to $1.6 billion. Phone companies were allowed to draw on these accounts to lower the wholesale rates they charged competitors such as Primus and Yak to access their networks.

According to this article in Broadcaster Magazine, “The large telephone companies will use funds that have accumulated in their deferral accounts to pay for these initiatives. . . Telus Communications Company will connect 159 communities in British Columbia, Alberta and Quebec.”. The telco’s have responded to the order with extreme unhappiness and maybe even a little surprise. Along with the CRTC allocation of hundreds of millions of dollars from the deferral fund, the federal regulator is setting the technical standard for rural broadband as well.

This isn’t sitting well with companies like Bell who would prefer to use  their wireless HSPA+ technology versus the DSL system mandated by the CRTC. HSPA+ is the preferred choice of carriers such as Bell because it is an easy and low-cost enhancement to their existing 3G networks and although in some tests it offers a higher speed when compared to DSL and even WiMax it falls short in two critical areas. Since it shares the same network infrastructure as heavily populated 3G networks, HSPA+ suffers from slow and inconsistent speeds in actual use. In order to manage this traffic, carriers making use of HSPA+ must implement 5Gb data limits per user. These usage caps are not required for WiMax or DSL which have proven to be successful in rural as well as urban use.

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