Digital divide: The high costs of Arctic broadband

THE GLOBE AND MAIL, Nov. 13, 2012 - When Peter Jackson was making The Lord of the Rings trilogy, his  iPod racked up some serious frequent-flyer miles. The device journeyed around the world multiple times  as the director shuttled music for the films between his home and shooting locations in New Zealand  and his studio in London.

With the high cost of Internet bandwidth in New Zealand at the time, it was the only realistic way to  move the data around. Over the course of production, Jackson sent 1.5 terabytes of data back and forth  via courier. Each trip, carrying 30 gigabytes, took about two days. The process added lengthy delays to  the production of the films, which would go on to win multiple Academy Awards.

More than a decade later, Canadians and businesses in the north know the director’s pain. Poor services  and especially high prices are interfering with their ability to join the rest of the world’s burgeoning  digital economy.

“We’re in the same position,” says Kirby Marshall, president of Yellowknife-based IT provider Global  Storm. “It’s nothing short of abysmal.”

Mr. Marshall’s company provides services and support for corporations and First Nations in the Yukon,  Northwest Territories and Nunavut. With the cost of bandwidth prohibitively expensive across the  territories, many customers are manually backing up their important client information by sending it via  courier on hard drives, to be installed in data centres in Edmonton and California.

“If they have hundreds of gigabytes of data that they’re trying to back up, try doing that over a pipe  where you’re paying $10 a gig,” he says. “Down south, what you take for granted with managed services  and all sorts of stuff, up here a lot of people aren’t even using because it just costs too much money.”

Mr. Marshall’s frustration is typical of consumers and business owners in the north. In conversations  with them, it’s felt most clearly in references to “us” and “you,” as in northerners and southerners. It’s  the digital divide, presented in the clearest terms.

While the rest of Canada marches along into a digital age where steadily faster and cheaper connectivity  is opening up new opportunities, the north is left limping along in a pre– Lord of the Rings era. With the  vast distances and isolation they have to contend with, entrepreneurs including Mr. Marshall believe it’s  a tragedy in the making.

In concluding its review of the situation last fall, the Canadian Radio-television and Telecommunications  Commission found things to be dire indeed. Aging networks, service outages, prohibitive costs – the  hallmarks of a neglected region. The culprit: a regulated monopoly by incumbent provider Northwestel.

The company, owned by Bell Canada Enterprises since 1988, has historically been the sole provider of  Internet and phone services in the territories. In its review, the CRTC said Northwestel had failed to  make necessary investments in its network despite receiving an annual subsidy of $20-million since 2007  to provide services in remote communities.

Over that same time, the company’s annual income from operations had nearly doubled, to $69.3- million in 2010. The company, according to the CRTC, had unjustly enriched its shareholders at the  expense of the 100,000 people it had been charged with serving.

Prices remain startlingly high compared to southern Canada. Single business phone lines start at $63,  while a 16-megabit home Internet connection costs $84. A business wanting the same will pay $200. In  both cases, the upload speed – necessary for any sort of managed or cloud service – is low at one  megabit or less, as is the monthly usage of about 70 gigabytes. Going over is prohibitively expensive, at  $7.50 per gigabyte.

The commission was “concerned that this situation has likely affected the quality, reliability and choice  of services available to customers, as evidenced by a number of outages in various communities and the  lack of service options.”

The solution, it was decided, was to open the north up to competition. In May, the figurative doors were  thrown wide. Other companies could come in, access Northwestel’s network and sell their own  telecommunications services, similar to the wholesale system that has existed in the provinces for some  time.

In response, Northwestel proposed a $273-million five-year modernization plan that would have seen  much of its aging infrastructure updated and improved. The company planned to roll out 3G or 4G  wireless in the 96 communities it serves and upgrade 79 of those to have wired Internet download  speeds of at least five megabits per second.

The scheme hinged, however, on the regulator’s approval of parent Bell’s attempt to purchase Astral  Media. Bell had pledged $40-million to northern development as a condition of its proposed $3.4-billion  purchase of the broadcaster.

With the CRTC’s outright rejection of the deal last month, it’s back to the drawing board for  Northwestel. The company says it is now reviewing its modernization plan, with an eye to suggesting a  new one to the regulator by the end of the year. One way or the other, its scope will have to be scaled  back, the company says.

In the meantime, it looks like northerners are going to have to hang their hopes on service competition  finally springing up in the north.

Some entrepreneurs are already jumping at the opportunity. But who are these interlopers and can they  really deliver digital salvation? And is the north big enough in a demographic sense to foster meaningful  competition?

***

“That was a nine out of 10,” says Samer Bishay as he eases his six-seater Eclipse jet to a halt on the  runway of the Yellowknife airport.

He’s answering a question from one of his passengers, gauging how close we were to disaster. About an  hour earlier, as the midnight sun was just about to set over a beautiful July day in the Northwest  Territories capital, the landing gear on Mr. Bishay’s jet refused to deploy.

Mr. Bishay repeatedly wiggled the plane in an effort to shake the wheel loose. When that didn’t work,  he turned to the manual on his iPad. It was further disheartening to hear the control tower ask if there  were any explosive materials on board.

The three passengers – two of his business colleagues and myself – sat in silence. Later, once on terra  firma, we’d half-joke that we were all running through death scenarios in our minds.

After what seemed like an eternity, Mr. Bishay finally turned to his last resort, a red emergency handle  on the floor of the cockpit. He pulled it and the yellow landing gear light on the dashboard turned green,  indicating it had deployed at last. He exclaimed the thought on everyone’s minds: “Oh thank God!”

From the air, groups of fire trucks and emergency personnel could be seen, ready for the worst. Little  did they know that Mr. Bishay was perhaps the competition they had been waiting for.

Aside from flying planes, the 36-year-old entrepreneur is also the president of Toronto-based Iristel, a  company that primarily sells Voice over Internet Protocol phone service, as well as Internet access in  some markets. As a competitive local exchange carrier – a company that leases network space from  owners such as Bell and Telus – it is largely invisible to the average consumer, but it’s well known to  businesses that buy phone service.

Iristel is a privately owned company that doesn’t disclose financials, but Mr. Bishay says it provides more  than four million phone numbers to companies in every province, making it one of the largest CLECs in  the country. Now, his goal is turn Iristel into a truly national enterprise by expanding to the territories.  The opportunities there may indeed fit into his wheelhouse.

Born in Cairo, he moved around Africa with his father, who worked for the World Bank. After 10 years in  Nigeria and another stint in Egypt, his family emigrated to Canada in 1989 to escape unrest. With  dreams of being an astronaut, Bishay ended up studying space and communications science at York  University.

In 1997, he interned at the Canadian Space Agency and, the following year, landed a job working in its  satellite communications program in Montreal, where he helped maintain Radarsat. The agency was  also located near the St. Hubert airport. As a child in Africa he longingly watched crop dusters and  dreamt of flying one day. With a flying school virtually next door to his job, he signed up for lessons and  started a journey that ultimately led to the near-disaster in Yellowknife.

While at the agency, Mr. Bishay came across a magazine article that inspired him to tinker with Internet  voice services. He set up a pair of servers in his condo living room and showed off the new voice service  to his friends, but they didn’t see the big deal.

“I’m like, ‘These servers can be anywhere in the world, they don’t have to be in the same room! You can  make a call on the Internet.’ ”

From there, he cold-called telecom providers around the world, promising an eight-fold increase in the  number of calls they could host on their networks if they adopted his technology. He got one taker, ITXC  in the Ivory Coast, and so Iristel was born.

Expansion followed quickly as Mr. Bishay landed clients in Egypt, Cameroon, Turkey and Romania. With  the business taking off, he quit the space agency and moved back to Toronto to focus on Iristel full time.

Before long, the hazards of doing business in Africa and the Middle East became apparent. Iristel lost all  its gear in the Ivory Coast when civil war broke out in 2002, prompting Mr. Bishay to reconsider his  business model. With deregulation finally allowing VoIP services in Canada in 2005, he decided to get his  CLEC license and shift focus.

“We realized that even though Africa and the Middle East is a great place to make a quick buck, longterm stability will only come in a stable political environment. So why go anywhere else but home?” he  says. “We stopped chasing our tails down in Africa.”

Iristel was quick to act on the CRTC’s landmark Northwestel ruling last year. While on a flying trip to  Alaska last winter, Bishay had a chance meeting with Cameron Zubko in Yellowknife. Zubko, 37, is the  head of Ice Wireless, a fledgling northern cellphone company started in 1999 by his father Tom, the  former mayor of Inuvik. The two entrepreneurs found they had a lot in common, including a shared  excitement for the newly opened north.

In January, Iristel took a majority stake in Ice Wireless for an undisclosed sum with an eye to offering a  suite of telecom services across the territories. The two companies now have wireless voice and 2.5G  data up and running in Whitehorse, Yellowknife, Inuvik, Aklavik, Behchoko and Hay River.

Bishay’s inauspicious visit to Yellowknife this summer was to oversee the installation of cell sites that  will add 3G wireless data capability, with the launch expected next year.

The wireless offering is complemented by VoIP service, launched in May. Iristel doesn’t yet offer wired  Internet service – the real problem area – but in the near term the plan is to provide a broadband alternative to Northwestel through wireless. Ice is also working on a spectrum deal that will help it  deliver super-fast Long-Term Evolution speeds, Mr. Zubko says.

On the wired Internet front, Yellowknife-based SSi Micro is hoping to become Northwestel’s prime  competitor. In a seeming rerun of the battle that has taken place in southern Canada for years, the small  Internet provider has for the past few months been fighting the big network owner through the CRTC  over the wholesale rates it charges.

The company says Northwestel’s wholesale bandwidth cost is five times what it charges retail  customers, while the network owner denies the accusation. Whether or not prices come down on that  front will depend on who the CRTC sides with.

Ultimately, Mr. Bishay thinks the situation in the territories is similar to what he’s dealt with before.

“We’ve competed in much more competitive environments and we’ve succeeded,” he says. “I’m  disappointed having to see somewhere in Canada that is at least five or six years behind what some of  these villages in Africa have done.”

***

For Northwestel, the numbers are difficult to argue. Under its regulated monopoly, the company had  been charged with servicing 40 per cent of Canada’s land mass, but just 0.3 per cent of the population.  That makes providing telecom services more difficult – and more expensive – no matter who is doing it.

The CRTC’s review, as well as critics’ charges about outdated services and too-high prices, are off base,  says president and chief executive Paul Flaherty. Such views don’t properly consider the “step functions”  the company has taken over the years, such as its 2007 purchase or Northern Television Systems or its  launch the same year of cellphone provider Latitude Wireless.

These were necessary moves to improve services, but they weren’t as easy for regulators to gauge as  the presence of older network equipment in switch buildings.

“On the surface it was easy to see [problems], but there was no attempt to get underneath it and  understand all the elements,” Mr. Flaherty says. “Those statements are misleading to say the least.”

Rivals don’t really know what they’re in for, nor are they prepared to offer the latest technology to  northerners, he says. In Whitehorse and Yellowknife, for example, Northwestel wireless customers are  enjoying fast 4G speeds while the only mobile data service Ice has managed to launch so far is itself  outdated.

Mr. Flaherty also says Northwestel is the only company willing to service every community, 80 per cent  of which have fewer than 500 people. Prices, meanwhile, are naturally going to be higher, simply  because there are great distances to be covered and fewer customers to pay back on the investments.

“If I’m going out for dinner in Edmonton and I live in Whitehorse, I’ve got to get to Edmonton before I  can go out for dinner,” he says. “That’s the issue with our services.”

Some observers begrudgingly agree, that the company is the only one with the size and scale to provide  meaningful services. There is the worry that opening the territories up to new service providers may  ultimately make things worse by introducing so-called cosmetic competition. With larger southern  companies such as Rogers and Shaw seemingly unwilling to enter a market where a Bell-owned  subsidiary is getting a big annual subsidy, a stronger regulated monopoly that’s more strictly overseen  by the CRTC may be the way to go.

“Some small companies can come in and make some chump change and Northwestel can then use those  people as an indication that they have competition and maintain their high price regime,” says Rick  Steele, a researcher in Whitehorse. “The notion that there could be competition in those small  communities is not real. Who wants to have six customers in Old Crow? Who’s going to compete for  that?”

Ice Wireless, however, is taking the same tack being used in southern Canada by fellow new entrants  such as Wind and Mobilicity: customer-friendly terms with low pricing. Ice is selling unlocked phones  without contracts, with free incoming text messages and low calling rates. Mr. Zubko believes such  prices will be hard for consumers to resist.

MR. Bishay also objects to the notion that he’s not interested in smaller communities. Iristel currently  does business in smaller Quebec towns, such as Gaspe and Rimouski, while Ice is already servicing  communities such as Bechoko and Iklavik, with respective populations of 2,000 and 700. Old Crow, with  300 people, is indeed on the radar.

“There’s no market too small to enter into,” he says.

The competitors would also like to see an opening up of the $20-million subsidy that Northwestel has  been getting. Having access to those funds, they say, would allow for real competition to happen.

Whoever ends up getting the subsidy, northern residents and businesses stress the urgency of the  situation. Without immediate action, the region risks being left behind in a permanent digital divide.

While Oscar-winning films may not necessarily be at stake, Mr. Steele sums it up succinctly: “You can’t  do business on the Internet here.”

About ICE

Established in 1999, Ice Wireless (“ICE”) is a telephone and internet company that provides  service to rural and remote communities in northern Canada. ICE provides a full range of  affordable and leading edge voice, video and data services, including GSM cellular, to  Yellowknife, Inuvik, Hay River, Aklavik, Behchoko and Whitehorse. In terms of population, the  Ice Wireless network covers 70% of the Northwest Territories and 78% of the Yukon. ICE  cellular customers can use their phones across Canada through a roaming agreement with  Rogers Wireless and Fido. For more information please visit www.icewireless.ca.

About Iristel

Established in 1999, Iristel Inc. (“Iristel”) was granted a carrier license by the Canadian RadioTelevision Commission (CRTC) in 2000 and is one of Canada’s largest VoIP service providers  with a coast-to-coast network. Iristel offers a complete portfolio of IP services in Canada,  including hosted IP PBX, virtual faxing, virtual roaming, and global IP trunking products and  services. For more information please visit www.iristel.ca.

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