Barrett Xplore Inc. and Barrett Broadband Networks Inc. Submission on Strategies for Sustainable Prosperity

Summary

Comments by Barrett Xplore Inc. and Barrett Broadband Networks Inc.

These comments are submitted by Barrett Xplore Inc. and Barrett Broadband Networks Inc. (collectively, "Barrett") in response to the Government of Canada's consultation paper on a Digital Economy Strategy for Canada.

Barrett is a national provider of broadband high–speed Internet access services in rural and remote areas of Canada. Using a combination of satellite and fixed wireless technology, Barrett provides ubiquitous coverage for Canadian businesses and consumers regardless of their location, thereby helping to bridge the divide between urban and rural broadband coverage in Canada.

Canada's digital strategy should have the following goals to establish a firm foundation for a strong digital economy:

• 100% access to broadband
• 100% digital literacy
• 100% access to (up–to–date) personal computers and other digital devices
• 100% e–engagement for small and medium sized businesses (SMBs)
• 100% of government services e–enabled.

Barrett does not consider it useful for the Government to set specific targets for the speed or other characteristics of ubiquitous broadband services. Future demand for bandwidth is impossible to predict and there is no need for a "one size fits all" solution. Different market segments will continue to require different levels of service which networks will evolve to meet.

The appropriate role for the Government is to provide a regulatory and legislative framework that is conducive to the "supply side". This includes:

• Attracting private investment in broadband networks in all regions of Canada;
• Encouraging the deployment of new, best–fit, least–cost technologies for the low density markets;
• Making spectrum available on a timely and cost effective basis; and
• Considering the investment of public subsidy in such manner as to be competitively and technologically neutral.

Since the economics of building broadband networks in high and low density markets differ greatly, care must be taken to ensure that the regulatory and legislative frameworks are attune to these differences and are not biased towards particular carriers or technologies.

Immediate steps that the Government should take to promote the extension of broadband networks to rural and remote areas include the reform of foreign ownership restrictions on companies like Barrett that are seeking to increase their investment to serve these areas, reforming spectrum licensing policies to improve access to low–priced spectrum spectrum in rural areas and judicious use of "best practices" public funding mechanisms.

For its part, Barrett is pursuing the objective of extending broadband networks to 100% of Canadians by:

• Pursuing new capital to increase its investment in infrastructure and technology (in spite of the barriers to doing so imposed by the foreign ownership restrictions);
• Investing in new HTS satellites with the first launch in mid–2011 thereby increasing capacity ten–fold and making available to residential customers speeds of 10 Mbps and business users 25 Mbps; and
• Investing in new wireless technologies for launch in the 2011–2012 timeframe thereby increasing capacity of fixed wireless services and reducing costs.

Submission

Introduction

These comments are submitted by Barrett Xplore Inc. and Barrett Broadband Networks Inc. (collectively, "Barrett") in response to the Government of Canada's consultation paper on a Digital Economy Strategy for Canada.

Barrett is a national provider of broadband high–speed Internet access services in rural and remote areas of Canada. Using a combination of satellite and fixed wireless technology, Barrett provides ubiquitous coverage for Canadian businesses and consumers regardless of their location, thereby helping to bridge the divide between urban and rural broadband coverage in Canada.

Barrett's fixed wireless networks include over 600 towers providing coverage to approximately 6 million Canadians. Its satellite network provides 100% ubiquitous national coverage. At present, Barrett has over 125,000 customers located in all ten provinces and the three territories, served by a national network of 3,500 dealers and technicians.

To date, Barrett's investors have invested hundreds of millions of dollars in private capital to fund the company's commitment to make broadband services available to all Canadians regardless of their location in less densely populated areas of this vast country.

Three things currently stand in Barrett's way of making its corporate vision a reality.

The first impediment is the existing economics of satellite–based broadband services compared to urban wireline technologies such as Fibre–coax and ADSL. This limitation will be remedied as early as next year with the introduction of Barrett's high throughput satellites. These satellites will provide a ten–fold increase in capacity and a very significant drop in price per bit.

The second impediment is the lack of affordable spectrum to serve rural consumers. While Barrett welcomes Industry Canada's introduction of multi–use spectrum in the form of broadband radio service (BRS) licences, new mechanisms need to be found to put affordable spectrum in the hands of rural service providers. The current auction process is resulting in ever fewer large companies holding ever more spectrum which they primarily use to serve urban and near urban areas and major transportation routes. Rural service providers cannot compete for spectrum on the basis of price, given the low population densities they serve. While 700 MHz and 2.5 GHz spectrum is wellsuited to serving rural areas, the anticipated auction price of this spectrum could potentially make it unattainable. What is needed is an innovative new licensing process that involves the creation of rural licences.

The third impediment is lack of available capital. At the present time, Canadian capital markets are good at providing seed capital to new ventures in the start–up phase. They are also good at providing capital to larger enterprises that have large positive cash flows in the mature stage of their business cycle. However, there is a huge gap in between for companies like Barrett that are beyond the start–up phase — but well below the billion dollar level. While Canadian capital markets shy away from this middle group, American and other foreign capital markets are willing to address it. However, they are generally only willing to address it on normal venture capital terms. The current foreign ownership restrictions on Canadian carriers seriously inhibit companies like Barrett from meeting these terms and securing this investment. Barrett therefore welcomes the recently announced review of the investment restrictions and urges the Government of Canada to take steps to eliminate the restrictions for smaller companies like Barrett.

As discussed further in these comments in response to the specific questions raised, Barrett does not support Government dictated outcomes in competitive markets. The CRTC's deferral account process has highlighted the market distortions and perverse outcomes that can result from that type of exercise. Competitive forces can be relied upon to stimulate innovative ideas and to improve efficiency in most sectors of the economy provided that Government policies and regulations establish an environment that is conducive to allowing these forces to operate. The Government simply cannot be efficiently and effectively involved in influencing or dictating competitive outcomes.

The Government of Canada's objective appears clear. It wants to extend broadband access to all Canadians to enable them to participate in the digital economy; it wants to promote the use and development of IT in Canada; it wants to stimulate the development of new technologies and new media applications; and it wants Canadians to recapture global leadership in these sectors.

In Barrett's view what the Consultation paper is calling for is a national industrial strategy. What is needed to implement this strategy will be political will and certain key reforms at both the federal and provincial levels of government. Federal and provincial legislation and policies need to be reassessed to ensure that they are in synch in enabling, rather than impeding, these objectives. To the extent that current regulations respecting spectrum licensing and foreign ownership impede the goal of achieving 100% penetration of broadband services in Canada, they need to be changed in a manner consistent with achievement of that goal. High spectrum prices in rural areas discourage deployment — this needs to be reformed. Foreign ownership restrictions on smaller companies inhibit their development to the next level — this needs to be changed. If Canada wants to regain its lead in the development of satellite and wireless communications systems, it should tailor its tax structure and support of university R&D programs to facilitate achievement of that goal. If Canada wants a more IT literate population and workforce, it should start at the curriculum level in primary and secondary schools and students should be made more aware of career opportunities available to them in the IT and related industry sectors.

In the remainder of these comments, Barrett has set out its vision of a digital strategy for Canada and has addressed the specific questions posed in the Consultation Paper. Barrett's focus is on the questions raised in sections 1, 2 and 3 of the Paper.

Section 1 — Capacity to Innovate using digital technologies

Growing Canada's digital advantage in order to generate wealth, ensure future economic growth and productivity, create new jobs and maintain a high standard of living for Canadians will require an increase in ICT–enabled innovation across all sectors of the economy. Canada must become a country of technology leaders.

Private sector will play the primary role, but governments can assist by refocusing and realigning existing programs and policy levers to support the adoption of digital technologies across all sectors, while also protecting the online marketplace. Both public and private sector leaders need to define what they can do to encourage greater adoption and use of digital technologies within their sectors.

• Should Canada focus on increasing innovation in some key sectors or focus on providing the foundation for innovation across the economy?

As discussed further below in response to the appropriate components of a successful digital strategy, there should be two tracks to Canada's strategy. In the first track, the appropriate role for the Government is to establish a foundation that is conducive to innovation across the economy. In the second track, an attempt can be made to identify specific sectors that have particular relevance to the Canadian economy, geography or environment that might help to distinguish our innovations in global markets.

• Which conditions best incent and promote adoption of ICT by Canadian businesses and public sectors?

Education of businesses and the public sector is a key ingredient to successfully promoting the adoption of ICT. In general, both businesses and public sector institutions are searching for tools to increase productivity and solve problems that they face on a day to day basis. If they are being asked to invest capital in ICT, they need to know that it will either give them new or better tools to solve problems, or that it will reduce their costs in the short to mid–term. While the Government cannot market specific products to business or institutional users, it has an important role to play in promoting the use of ICT as a vital business tool.

The same is true of the consumer market where increased digital literacy through the education system and through public awareness campaigns can change the way people look at ICT. If the public does not know the capability of technology, they cannot be expected to purchase it. Focusing on youth now, will ensure a digitally literate population in the future. However, there is also a need to address an older segment of the population that might benefit more from certain aspects of the technology, such as health care related applications. Service providers, such as Barrett, also have a responsibility to advance digital literacy, working closely with the rural communities which we serve.

The need to stimulate demand for digital products permeates all sectors of the digital economy, from network providers, to manufacturers, to applications developers to content providers. This is a significant cost component that innovative companies like Barrett have to bear in order to create a market for their services.

This is an important area where the Government can increase its role in a competitively neutral manner by stimulating demand for ICT tools and digital services that rely on broadband networks through public information campaigns.

• What would a successful digital strategy look like for your firm or sector?

In Barrett's view, there should be two tracks to a Canadian digital strategy. The first track involves putting the necessary building blocks in place, and the second track involves identification of strengths that Canada can exploit to differentiate itself in world markets.

The first track involves five key objectives:

• 100% access to broadband
• 100% digital literacy
• 100% access to (up–to–date) personal computers and other digital devices
• 100% e–engagement for small and medium sized businesses (SMBs)
• 100% of government services e–enabled.

Achievement of these objectives will require a concerted and coordinated effort by all levels of government to:

• establish economic and regulatory conditions that are conducive to the creation of high quality, robust broadband networks that are capable of delivering digital services and ICT solutions to Canadian consumers and businesses wherever they are located in Canada;
• take a leading role in educating Canadian businesses, public institutions and consumers on the advantages in terms of productivity and business tools that are possible through investment in ICT and broadband network services;
• implement tax and other incentives to upgrade personal computers and other digital devices for business and consumers;
• implement tax and other incentives, and educational programs, to move SME's from a very low level of ICT adoption to universal adoption;
• demonstrate a leadership role at the federal, provincial, territorial and municipal levels of government in making all government services available on–line; and
• adapt legislation and regulations to achieve these goals.

The second track of a successful digital strategy should identify those sectors or subject matters where Canada's uniqueness yields the opportunity to excel and create global leadership in digital technology, applications, or content. This has the advantage of tailoring our IT technology, applications and content to areas in which we already have in–depth knowledge and that will be useful to improving efficiency and innovation in our economy. Once developed, these digital products and services can be exported to countries with similar characteristics or industries. Possible targets include:

• Natural resources and the mining sector
• Strength of Canadian financial institutions
• Overcoming the challenges of our geography and climate
• Multiculturalism

If we cannot prioritize or focus on specific areas in which to differentiate and distinguish ourselves, there is a danger that, as a relatively small country (population and financial resources) Canada will realize only mediocre or average levels of achievement across the considerable breadth of the digital opportunity set.

• What are the barriers to implementation?

As discussed above, lack of market awareness of the advantages of ICT and lack of digital literacy in the general population are key barriers to achieving a digital strategy.

At a business level, the high cost of deploying networks in rural and remote parts of Canada and the difficulty of accessing sufficient capital represent two important obstacles faced by Barrett and other mid–sized network service providers.

As discussed in the introduction, the current foreign ownership regulations have made and continue to make it more difficult for Barrett to access early stage private capital thereby exacerbating this difficulty. The fact is that foreign investors, and particularly American financiers, have more of a willingness to invest in capital intensive businesses that have not yet reached maturity, than do their Canadian counterparts. The ownership restrictions represent a Government created barrier that could be remedied.

Access to spectrum is also a barrier faced by Barrett and others. As discussed further in section 2 of these comments, there is currently insufficient access to affordable spectrum to serve rural and remote areas of Canada. Barrett has markets where there are waiting lists of customers and we are willing to invest but where service expansion is frustrated by lack of access to spectrum. The Government needs to recognize that the spectrum auction process currently in use is not an appropriate mechanism for allocating spectrum in all areas of Canada. It may work well in urban areas — but it tends to work against network providers that focus on Canada's rural and remote areas. New solutions are needed to bring spectrum policy into line with the objective of extending high quality digital networks to Canadians in rural and remote areas of the country at a reasonable price. Specific suggestions on how to accomplish this are made in section 2 below.

While public subsidies may be required in sparsely populated areas to complete the job of extending broadband networks to Canadians in all regions of Canada, great care must be taken to ensure that such subsidies are competitively neutral and do not have the effect of picking winners on the basis of bias towards particular technologies or carriers.

It is also important to have a degree of certainty in the manner in which public subsidies are to be made available. As the CRTC's "deferral account" proceedings made very clear, uncertainty in the process and the prospect of one competitor being subsidized to overbuild another competitor's network, does more to undermine investor confidence in the sector than any of the other business challenges or uncertainties. That process effectively brought to a standstill investors' willingness to invest in non–ILEC networks in areas that were potentially subject to the deferral account subsidy.

Better models for public funding include the Broadband Canada process, which involved extensive competitive mapping in advance of the funding process in order to avoid subsidized overbuilds in areas already served, and the Alberta SuperNet model, where a publicly funded backbone network was built and operated by a company that was not in the retail business, and competing retail networks were given access to the backbone at lower rates. The Eastern Ontario Wardens' program also had an initial focus on backbone facilities which should result in a more competitively neutral public investment.

Therefore, great care must be taken to structure public subsidies in a manner that does not undermine the competitive market and the entry of private capital.

Other barriers to the digital economy include inconsistencies between federal and provincial regulations and taxation policies, and even inconsistencies between provincial regulations — all of which add significantly to the cost of doing business and adversely affect productivity.

• Once anti–spam legislation, and privacy and copyright amendments are in place, are there new legislative or policy changes needed to deal with emerging technologies and new threats to the online marketplace?

These are good first steps but a comprehensive approach is required that also considers hacking/data theft or misuse/phishing/digital locks, the rights to information as property, consistent e–commerce rules across the country, confusing layers of taxation (e.g. GST on access, taxes on a computer and its parts, taxes on online services, etc. — the provincial stewardship programs alone are significant barriers to bringing new products to Canada).

• How can Canada use its regulatory and policy regime to promote Canada as a favourable environment for e–commerce?

Tax credits can help encourage Canadians to get on–line, by incenting new computer purchases, education programs and higher speed access services that will in turn support digital media services and business applications.

Uniform rules for taxes, terms/conditions, personal data, etc. would significantly reduce the complexity of operating a national on–line business in Canada and would reduce confusion for consumers of those services and products. Current electronic payments rules to protect consumers are well–intentioned but virtually impossible for even the largest companies to comply with (thereby effectively rendering them useless because the rules cannot be enforced). Recognition of the enforceability of on–line contracts, basic requirements for those contracts, and uniform rules governing contractual acceptance would establish a better framework.

The Internet spans all of Canada, therefore providing an excellent tool for local businesses to reach a broader market. However, at the current time, there are numerous inter–provincial trade barriers in the form of provincial consumer protection legislation, contract rules, sales taxes, etc. that make the task of actually using the Internet for e–commerce in this country much more complex and much less efficient than it should be. These complexities also create barriers to foreign firms that wish to offer Canadians their products and services, thereby reducing access by Canadians to a broader range of goods and services. To make matters worse, Canada is also out of step with neighbouring e–commerce rules. This means that if a Canadian company is successful in an e–commerce platform to sell in Canada, it will likely need to build a new and different one if it wishes to expand its business to the United States.

Finally, consumers need to understand the rules. For example, they need tools to understand the legal implications of on–line shopping. They need to know that on–line contracts are binding and should be treated like other contracts they sign.

The Government of Canada has a role to play in streamlining the rules and educating consumers. Consideration should be given to facilitating e–commerce by working with provincial governments to develop uniform rules, taxes and consumer rights applicable to e–commerce transactions. Consumers need to be able to enter into internet–based contracts with the same sense of security that they currently enjoy in traditional commercial transactions. They need to know their rights and obligations and they need to be better educated in this regard.

Section 2 — Building a World Class Digital Infrastructure

Ensuring a state–of–the–art network infrastructure to promote innovation, attract investments and support world–class health care, research and education will be key to making Canada a leader in the global digital economy. All Canadians should have access to high–speed networks as digitally savvy citizens, consumers, workers, entrepreneurs and artists — to connect them to the potential that the digital economy offers. With major investments by the private sector, Broadband Canada and other government investments, Canada is on its way to connecting all Canadians. However, reaching this goal will take the concerted efforts of all stakeholders — individuals, businesses and governments.

• What speeds and other service characteristics are needed by users (e.g., consumers, businesses, public sector bodies and communities) and how should Canada set goals for next generation networks?

In Barrett's view, the Government should be very cautious when attempting to set targets on future speeds and characteristics of broadband services.

First, it is impossible to predict with any accuracy how technology will evolve and what demands will be placed on broadband networks. The road is paved with a litany of failed attempts to predict future requirements for competing power, bandwidth and numerous other prognostications. To build a policy on such targets is therefore dangerous.

Second, the capacity and hence speed of broadband networks will depend on the demands placed on the networks by a wide range of business and consumer segments. These demands will differ by market segment in the future, as they have in the past. Network providers will adapt their networks to meet demand and will develop different levels of service to meet variations in demand. The point is that one size will never fit all.

One of the important applications that currently requires ultra–fast broadband services is remote diagnostics and high–resolution imaging required by rural hospitals. This e–health activity will enable rural communities with diagnostic clinics to capture information from patients via x–rays, ICT scans, etc. and transmit those images to medical specialists elsewhere in the province or the country for analysis and interpretation. Clearly the e–health application of remote diagnosis will require 100 Mpbs capability.

However, the fact that e–health activities may require 100 Mbps capability does not mean that 100 Mbps capability needs to be extended to all rural homes and businesses. The digital divide is less about urban versus rural and more about the relative challenge/economics of serving high versus low density areas with broadband. There are rural communities and towns with sufficient population density to support wired broadband, including fibre. In fact, where regional or provincial backbone networks exist, each town represents a fibre hub or pop site. Once one goes outside the rural town, population density drops considerably and makes the economics of serving with wires more costly and challenging. Going back to our e–health example, it is almost always the case that rural diagnostic clinics are located in rural towns, not in the low density areas which surround the town. The same applies to medium to large businesses, universities, and public sector offices. Although a 100 Mbps broadband service may be needed by these medical, large business and public sector users within the heart of a town, such a service is necessarily not required by every individual and small business located within the town or in the rural area surrounding the town.

As discussed further below, this does not mean that residences and small businesses located in areas surrounding these rural communities will not receive a high–speed broadband service. Barrett's satellite service will offer 10 Mbps and 25 Mbps services to residential and business users on ubiquitous basis as early as next year, and these services will continue to improve over time as the demand increases for higher–speed services.

Rather than set universal goals for future speeds and other characteristics of broadband services, it is in Barrett's view more important for the Government to provide a regulatory and legislative framework that is conducive to the developing the "supply side" as discussed in the next section of these comments.

The third problem with setting a target for ubiquitous broadband services is that it could actually be counter–productive. As discussed above, a policy objective of providing a 100 Mbps broadband service to 100% of the Canadian population over the next five years is in all likelihood unnecessary to achieve Canada's digital strategy and would be prohibitively expensive to achieve in some areas of the country. In sparsely populated areas, it might even result in a cessation of private investment given the realization that the only way to achieve such a goal would be to subsidize service to the tune of tens of billions of dollars. With this prospect on the horizon, private investment would be unlikely to build out lower capacity networks to these areas in the meantime.

Networks will continue to evolve to meet growing demand. In the same way as cable TV companies continue to add capacity to their fibre/coax networks by pushing fibre closer to the home and adding more nodes, or fibre networks expand by adding new electronics, fixed wireless and satellite–based networks are continue to expand capacity at a very fast pace.

For example, Barrett has two new High Throughput Satellites (HTS) coming on stream in 2011 — 2012, with the first coming into service in mid–2011. These satellites offer a ten–fold increase in capacity (from 1.2 GBS to 12.4 GBS) with speed capability of 10 Mbps for residential users and 25 Mbps for business users. Just as Barrett prepares to launch much improved HTS value propositions, it will be looking forward and planning the next generation of satellites (likely 2015 deployment), which will target even more significant improvements in capacity and cost per bit.

On the fixed wireless side, Barrett is taking similar action to upgrade its existing technology and expand its coverage. Through technology advances and construction of additional towers, Barrett is anticipating a ten–fold increase in capacity and a substantive reduction in the cost per bit.

This is where Barrett will be in the next three years, underscoring the fact that it is operating in a dynamic market in which it is very difficult to predict future demand given all of the attendant variables. Barrett does not envisage any "end game" when it comes to network capacity. It will constantly be planning the next technology deployment while it is implementing the current one.

• What steps must be taken to meet these goals? Are the current regulatory and legislative frameworks conducive to incenting investment and competition? What are the appropriate roles of stakeholders in the public and private sectors?

In Barrett's view, the appropriate role for the Government is to provide a regulatory and legislative framework that is conducive to the "supply side". This includes:

• Attracting private investment in broadband networks in all regions of Canada;
• Encouraging the deployment of new, best–fit, least–cost technologies for the low density markets;
• Making spectrum available on a timely and cost effective basis; and
• Considering the investment of public subsidy in such manner as to be competitively and technologically neutral.

Since the economics of building broadband networks in high and low density markets differ greatly, care must be taken to ensure that the regulatory and legislative frameworks are attune to these differences and are not biased towards the use of particular technologies or particular carriers.

It is important that whatever regime is put in place, the rules will need to be clear to investors and consistently applied. Uncertainty is the greatest deterrent to private investors as was evidenced in the CRTC' deferral account proceeding. As previously mentioned, the fact that the CRTC's subsidies were only available to the ILECs and not to their competitors, coupled with the fact that the process has ended up subsidizing overbuilds of competitor's networks, effectively resulted in a freeze on private investment in competing networks. This freeze has taken time to thaw.

As discussed in the Introduction to these comments, the foreign ownership rules in the Telecommunications Act and Radiocommunications Regulations are not conducive to private investment in mid–sized network providers like Barrett. Canadian capital markets are good at providing seed capital to new ventures in the start–up phase of their operations. They are also good at providing capital to larger enterprises in the mature stage of operation, with large positive cash flows. However, there is a huge gap in between for companies like Barrett that are beyond the start–up phase — but well below the billion dollar level of its major competitors. While Canadian capital markets shy away from this middle group, American and other foreign capital markets are willing to address it. However, they are generally only willing to engage when the ground rules are reasonably clear. The current foreign ownership restrictions on Canadian carriers seriously inhibit this investment on normal commercial terms. Barrett therefore welcomes the recently announced review of the investment restrictions and urges the Government of Canada to take steps to eliminate the restrictions for smaller companies like Barrett. In this regard, Barrett supports the recommendations of the Telecommunications Policy Review Panel in its 2006 report to the Government of Canada.

• What steps should be taken to ensure there is sufficient radio spectrum available to support advanced infrastructure development?

Industry Canada should continue to make more spectrum available to support the provision of broadband services. This spectrum should be made available for unrestricted use within the frequency range and spectrum block licensed — in the manner in which the new BRS spectrum is made available. Given the expense of deploying broadband networks, particularly in rural and remote areas of Canada, it makes no sense to limit the range of services that can be provided to business or residential subscribers. Barrett plans to offer its own customers a suite of voice, data, and media that is similar to what integrated carriers offer in urban areas. Maximizing usage of licensed spectrum will help to finance network deployment so it is important that spectrum policy be supportive of this result.

Steps should also be taken to minimize the regulatory burden and the time delays involved in transferring spectrum between carriers. While auctioned spectrum is now transferable, the actual process is still cumbersome, sometimes involving a complete ownership review of one or both of the companies. This is the case even when the transferor is transferring spectrum to a company that has previously had its ownership reviewed.

Different types of spectrum are still subject to different rules regarding transfer. While important steps have been taken to make spectrum more marketable, there is still room for simplification and streamlining of the regulatory process. There is a particular and urgent need to reform the manner in which spectrum is made available to serve rural and remote markets. This issue is addressed below.

• How best can we ensure that rural and remote communities are not left behind in terms of access to advanced networks and what are the priority areas for attention in these regions?

In addition to the reforms discussed above in terms of reforming the ownership and control rules and making more BRS spectrum available, there is a need to develop new spectrum licensing policies for rural and remote areas. In rural areas of Canada, large amounts of spectrum have been licensed to a number of carriers. The problem is that it has not been licensed in a manner that puts it in the hands of network providers who would actually use it to extend services to areas with lower population densities.

At the present time, broadband spectrum is licensed on the basis of geographic areas or tiers that typically include a mix of high and low density areas. This often includes one or more larger urban areas surrounded by a much larger area of low population density. The price paid for this spectrum in auctions is usually calculated based on the bidder's spectrum requirements to serve the urban areas within the tier. This inflates the average value of the spectrum on a per pop basis above the level that is economical to serve just the rural areas.

Because of this, companies like Barrett that are focused on serving the rural areas, are effectively precluded from participating in the auctions.

At the same time, the larger companies, such as the national or regional cellular companies that do participate in these auctions, are acquiring spectrum that they need primarily to serve the urban centres. While they do use some spectrum to serve some highways and communities outside of the residential fringe of these urban areas, this is not where the heavy demand is that is fuelling their desire for more spectrum. This is particularly true of the larger national carriers which have accumulated spectrum over time. They have more than enough spectrum to serve rural and remote areas of the country — but in a sense, they have to acquire more of it in order to keep up with demand in the urban areas.

This situation is not conducive to serving rural and remote areas of Canada and it needs to be corrected before the auction of the 2.5 GHz as well as the 700 MHz spectrum, which is ideally suited to serve remote and rural areas of the country.

Given the need of most major cellular companies for more spectrum in urban areas and given their excess of spectrum in rural areas, one solution would be to auction the two separately. This "doughnut" approach to tiering would produce an urban tier surrounded by a rural tier. Consideration could also be given to establishing some sort of set–aside if an auction for the rural portion of this spectrum were contemplated.

However, an auction may not be the right answer to the issue of how to put more spectrum in the hands of companies who intend to serve rural and remote markets. While auctions may be an efficient allocator of scarce spectrum resources in urban areas, where competing networks already exist, they may not be appropriate in rural and remote areas where public policy is aimed at encouraging network deployment. In that environment, it might make more sense for Industry Canada to revert to a comparative assessment process where licences are tied to rollout requirements and where the track record of competing applicants in delivering rural and remote services is taken into consideration in selecting the licensees. Such a process would also enable the Government to make the spectrum available at a lower price or no price in order to keep down the cost of building out network coverage to the areas that need service.

Public funding has been an important enabler to the extension of broadband networks to areas characterized by low population densities. To the extent that public funding continues to be necessary to extend broadband networks to areas with low population densities on a going forward basis, great care needs to be taken to ensure that the manner in which the public funding is made available is competitively neutral.

Over the past few years, there have been great improvements made to the manner in which public funding for broadband expansion has been administered. Since the CRTC's deferral account process (which only subsidized the ILEC, favoured wireline technology and resulted in subsidized over–builds of competitively supplied communities), there have been marked improvements in the mechanisms used to publicly fund broadband expansion. In Broadband Canada, the extensive broadband mapping process ensured a minimization of "overbuild". Further, by focusing on the areas of lowest population density, there was minimal impact on rural areas which could be profitably built out with private capital only. In the case of the Eastern Ontario Warden's Caucus initiative, the initial focus on deployment of a backbone network, available to all service providers, will encourage competitive investment in last–mile networks. The question remains how can we further improve on these advances.

Barrett does not consider "universal service programs" that use subsidies from one sector to help finance the extension of service to others, are a good model to follow. They result in increasing the cost of vital infrastructure in urban areas, thereby eroding the productivity advantages that the digital strategy is designed to foster. These advantages are important to the economy both in terms of national and international competitiveness of Canadian businesses.

Other possible approaches to the public funding of broadband networks to serve low density regions include "reverse auctions" and equipment subsidies.

Reverse auctions involve a two–step process. In the first step, the funding authority pre–approves potential suppliers after an assessment of their ability to meet the service standards, pricing etc. specified in the Request for Proposal for the project. In the second stage, the approved bidders bid on the lowest amount of subsidy that they require to complete the build. This is a multi–round process designed to select the bidder requiring the least subsidy. This process has two distinct advantages: first it only involves bidders whose service proposals meet the terms of the RFP; and secondly, it results in an efficient allocation of scarce public funding resources. Equipment subsidies are designed to lower the cost for businesses and consumers to acquire the equipment necessary to receive wireless, including satellite, broadband services. To the extent to which the cost of this equipment is viewed as a barrier to the purchase of broadband access, this type of program can be an effective tool to bring potential users in low density areas on line. Fortunately, in areas where the equipment is readily accessible from distribution outlets, the cost of this equipment has declined. However, in more remote areas there is also a significant cost to delivering the equipment to the consumer or business. In these areas, a direct subsidy or a tax credit may be an appropriate means to overcome this barrier to the use of the broadband satellite networks that are currently providing coverage.

In Barrett's view, Broadband Canada's broadband mapping exercise, concentration on backbone networks as was done by the Eastern Ontario Wardens program and Alberta Supernet, reverse auctions, and equipment subsidies for users in remote areas, all represent best practices in public funding. The key in each case is to have a competitively–neutral, technology–neutral process that does not result in the over–building of existing networks.

Finally, there is a need for the Government and regulators to recognize the role that satellites will play in serving customers in rural and remote parts of Canada. At the present time, these areas still exist within the city limits of some of Canada's major urban centres, but they can be expected to decrease over time as wireless and wireline networks are built out. Satellites have a major role to play in filling this gap while other networks are extended. However, regardless of how successful the expansion of wireline and wireless networks is, there will inevitably be large areas of Canada where satellites will provide the only means of delivering broadband services. This is true of Canada as it is true of other large countries like Australia, which are characterized by a few bands of heavily populated territory and very large regions with very low population density. Even with Australia's $43 billion (AUS) plan to extend broadband services to its population, the last 10% of the population is planned to be served by wireless and satellite. The same will undoubtedly be true in Canada.

Barrett has described the advances in satellite technology that are underway as well as its own plans to begin to deploy HTS technology as early as next  year. It is high time that the role of satellite in attaining Canada's digital strategy objectives is recognized by the Government of Canada, Industry Canada and the CRTC. The scepticism with which satellite technology has been viewed is outdated and unwarranted. Instead of questioning its ability to deliver, the Government should be considering how to maximize the benefits achievable through satellites. It should also be considering the role of Canada in research and development of satellite communications systems for use in this country and for export abroad. Canada was once a leader in satellite technology — a position that has sadly slipped. The Government of Canada needs to support the development of satellite technology in this country and the role of satellites in closing, rather than narrowing, the digital divide.

Section 3 — Growing the Information and Communications Technology Industry

Barrett does not propose to comment on the issues raised in section 3 of the Consultation Paper beyond what it has already said in its comments on sections 1 and 2.

Section 4 — Digital Media: Creating Canada's Digital Media Advantage

Barrett does not propose to comment on section 4 of the Consultation Paper as it is not currently operating in this industry sector.

Section 5 — Building Digital Skills for Tomorrow

Training and learning is a complex area of shared federal and provincial/territorial jurisdiction. While the provinces and territories have primary responsibility for training and education, the Government of Canada has overarching responsibility to ensure Canada's economic security and prosperity by: growing the labour force by reducing barriers; improving the quality of the labour force by supporting skills development; and enhancing labour market efficiency through facilitating labour mobility and adjustment.

To further inform the policy directions of the Government of Canada in improving the quantity, quality, and efficiency of the workforce in the area of digital skills, we are seeking your feedback on the following questions:

• What do you see as the most critical challenges in skills development for a digital economy?
• What is the best way to address these challenges?
• What can we do to ensure that labour market entrants have digital skills?
• What is the best way to ensure the current workforce gets the continuous up–skilling required to remain competitive in the digital economy? Are different tactics required for SMEs versus large enterprises?
• How will the digital economy impact the learning system in Canada? How we teach? How we learn?
• What strategies could be employed to address the digital divide?

As discussed earlier in these comments, Barrett views the education of businesses and the public sector is a key ingredient to successfully promoting the adoption of ICT. In general, both businesses and public sector institutions are searching for tools to increase productivity and solve problems that they face on a day to day basis. If they are being asked to invest capital in ICT, they need to know that it will either give them new or better tools to solve problems, or that it will reduce their costs in the short to mid–term. While the Government cannot market specific products to business or institutional users, it has an important role to play in promoting the use of ICT as a vital business tool.

The same is true of consumer markets where increased digital literacy through the schools and through public awareness campaigns can change the way people look at ICT. If the public does not know the capability of technology, they cannot be expected to purchase it.

The need to stimulate demand for digital products permeates all sectors of the digital economy, from network providers, to manufacturers, to applications developers to content providers. This is a significant cost component that innovative companies like Barrett have to bear in order to create a market for their services.

This is therefore an important area where the Government can increase its role in a competitively neutral manner by stimulating demand ICT tools and digital services that rely on broadband networks. If the Government wishes to attain the objectives of its digital strategy education at all levels of school, universities and the business community is required. This is true both in terms of having a population that is adept at exploiting the benefits of the digital economy — but also to ensure that young Canadians are aware of the job opportunities that are, and will be available to them in this sector. While universities and colleges have strong programs, High School students are often unaware of the opportunities that are available to them. There is a need to develop career counsellors who are knowledgeable in these areas.

Conclusion

To prosper in the global digital economy, Canada must build on its many strengths and foundations to seize new opportunities and regain its digital leadership. Other countries have set clear targets and timelines for reaching these targets.

• Should we set targets for our made–in–Canada digital strategy? And if so, what should those targets be?

As discussed above, Canada's digital strategy should have the following goals to establish a firm foundation for a strong digital economy:

• 100% access to broadband
• 100% digital literacy
• 100% access to (up–to–date) personal computers and other digital devices
• 100% e–engagement for small and medium sized businesses (SMBs)
• 100% of government services e–enabled.

For the reasons provided in section 2, Barrett does not consider it appropriate to set specific broadband speeds as targets for Canada's digital strategy. Canadian network suppliers will continue to increase network capacity and speeds to meet demand where and when demand develops. This will inevitably be part of the on–going development of the Canadian digital economy, since demand for increased capacity will be dependent on the availability of innovative services and applications and the success achieved in digital literacy and the other objectives identified above.

For its part, Barrett is pursuing the objective of extending broadband networks to 100% of Canadians by:

• pursuing new capital to increase its investment in infrastructure and technology (in spite of the barriers to doing so imposed by the foreign ownership restrictions);
• investing in new HTS satellites with the first launch in mid–2011 thereby increasing capacity ten–fold and making available to residential customers speeds of 10 Mbps and business users 25 Mbps; and
• investing in new wireless technologies for launch in the 2011–2012 timeframe thereby increasing capacity of fixed wireless services and reducing costs.