December 16, 2005

Government’s decision buttresses telco monopoly

(from December 16 issue of the Yukon News)

Yukoners have long endured an uncompetitive telephone market, and that situation is not likely to change in the communities anytime soon.

On Wednesday, Northwestel won the cellular portion of the Yukon government’s new Mobile Communications Solution, a government project that will bring cell service to 17 Yukon communities.

“This announcement brings an improved and expanded wireless communications technology to the Yukon, which will greatly benefit all citizens,” said Highways and Public Works minister Glenn Hart in a release.

But many watchers of the fledgling cell phone market saw the decision a little differently.

Northwestel’s competitor on the bid, ICE Wireless, is trying to elbow into the Yukon cell market and rev-up competition.
Just last week, ICE’s Whitehorse cell network went online.

ICE is owned by Inuvik’s New North Networks, which has been in the business of community cell, mobile radios and internet services in the Northwest Territories since 1990.

In fact, it was ICE that proposed a community cell infrastructure plan to the Yukon government in the first place.

But now that Northwestel has won the right to build what ICE had dreamed of, some are using the dirty M word: monopoly.

“We’re disappointed but we’re not really that surprised,” said ICE president Tom Zubko on Thursday.

“Northwestel operates on government subsidies to maintain a monopoly, and a huge amount of their revenues come from federal government subsidies.”

The government’s decision is “not out of character for governments, period,” said Zubko.

“Does it go to opening up that sector for competition? No, it certainly doesn’t.”

Many saw potential in the MoCS system, as it could allow people in communities phone options other than Northwestel.

Was Northwestel interested in community cell service before ICE came along?

“No. On the record they weren’t. They had no intention of expanding cell service,” said Zubko.

Where did their interest come from?

“Well if you have a monopoly and somebody’s challenging your monopoly, what do you do?”

Northwestel first became interested in community cell services after the government released a request for proposals, said company spokesperson Anne Kennedy on Thursday.

“The Yukon government had announced that it was going to be providing cellular service. We responded to the bid,” she said.

Northwestel does not get government subsidies — other than $76 million it received from the Canadian Radio-Television and Telecommunications Commission six years ago, she said.

The government’s decision on the contract came down to a request for proposals.

Points were awarded for local business involvement, as well as First Nation participation — which both ICE and Northwestel have, through the Vuntut Development Corporation and Dakwakada Development Corporation, respectively.

But in the end, the decision was based on price, said Zubko.

ICE couldn’t compete.

But some question whether the playing field was level.

“I think that they bid a price that is substantially less than ours, in terms of the subsidy they wanted,” said Zubko.

“They’re spending more than we were planning on, and they’re charging the government less. If we used that basic formula, we would lose a lot of money over 12 years. We’re not prepared to do that.”

The largest cost in ICE’s proposal was for the services it needed to buy from Northwestel to allow its cellphones to link up with landlines.

“Suffice to say, it was the most expensive portion,” said Zubko.

Did Northwestel quote ICE the same prices it used in its own bid?

“I can’t comment on that,” said Kennedy, adding that the competitive bids are private and not released to the public.

Zubko said he would pursue the matter and that he is keen to see both bids.

As part of Wednesday’s deal, the government will invest $2.8 million over the first seven years of the MoCS system’s 12-year span, said Highways and Public Works spokesperson, Darren Butt.

Dakwakada is investing $2 million, and Northwestel an undisclosed amount.

It is expected that Burwash Landing, Teslin, Destruction Bay, Beaver Creek, Haines Junction, Pelly Crossing, Upper Liard, Carcross, Mayo, Old Crow, Tagish, Watson Lake and Dawson City will receive cell service in 2006, said Butt.

By 2007, Carmacks, Ross River, Faro and Stewart Crossing will likely come online, Butt said.

MoCS could be the death knell for ICE’s grand visions of community cell service.

The company hoped to expand into most of the Yukon’s communities.

After the MoCS deal, if ICE hopes to enter those communities served by Northwestel, it will have to erect its own infrastructure, because its network and phones are completely different than Northwestel’s.

That would mean not only two competing services, but also two competing network infrastructures.

Is that expense realistic in a market this size?

“Well, I don’t think it’s realistic in the smaller communities, but I think it’s realistic in Whitehorse and probably a couple of others,” said Zubko.

But Northwestel apparently feels there’s plenty of competition in the telecommunications market.

“There has been competition in the marketplace up here for a number of years,” said Kennedy.

Since 2001, long distance callers have been able to use phone cards, she added.

“We’re certainly open and welcome to competition. We’re not a monopoly up here; it’s just that there aren’t other competitors in certain areas.”

The announcement puts ICE back to its original business plan, which did not include any of the MoCS considerations, said Zubko.

“We’re fine. We’ve got seven locations in the Northwest Territories.

“We’re probably ahead of our targets for the first week of our operations,” he added.

“It’s not something we plan on dwelling on a whole bunch. We’ve got a great system that we’re putting in place.”

Asked if New North has been doing for 15 years what Northwestel all of a sudden displays interest in doing, Zubko, said “That’s right.”

The government is expected to announce the second part of the MoCS project — a mobile radio system — next week.

Northwestel has also submitted a bid on that, said Kennedy.


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