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«Delivered to | Northern Communications Information Systems Working Group c/o Government of Yukon Delivered by | Nordicity Date | Foreword The Project ...»

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the first half of Chapter 2:

User needs as defined through secondary research and primary research with northern • users through online surveys and focus groups;

Existing and future network capacity as determined via interviews with operators and • secondary research;

Current and projected traffic calculated based (population and economic trends in the • territories, user trends in benchmark jurisdictions, global markets, and);

Experience of jurisdictions with similar geographic, population and economic profiles in • setting and applying connectivity targets / standards to determine reasonable benchmarks.

At the end of the Executive Summary, detailed data is provided on each option, divided by territory and community. This data was compiled from Chapter 2 of the report, with additional relevant data pulled from the Appendices as needed, for ease of review by readers.

The costs produced from the Model provided in the following pages are only guidelines, and are not meant to represent detailed engineering costs, which are beyond the report’s scope.

To produce detailed numbers, an exercise of detailed costing would have to be based on agreed-upon build parameters, site visits, etc., and would be a next step once funding has been determined.

The intention of presenting four options is to start the discussion. Additional options can be developed using the Dynamic Optimization Model as needed.

Four options presented ranging from $623 million – $2.178 billion Four options were developed upon request by the NCIS-WG committee. The

following assumptions are embedded in each of the four options below:

Estimated microwave and fibre costs may vary +/- 50% (based on Alaskan estimates);

• The new Mackenzie Valley Fibre Link will connect six communities in NWT to fibre. The • costs for upgrading this backbone are not included in cost calculations in any of the four options below, as costs are covered by a project independent of this study.

Network access costs (often referred to as first mile or last mile connection) are the same • for each of the four options, and are not included in the estimates on the next page.

Option 1: Base Network Upgrade (no new redundancy): $622,680,000 To upgrade the existing backbone (referred to as the base network in the report) to meet the target bandwidth requirements, the engineering team estimates the cost will be approximately $622,680,00 combining all three Territories.

This option sees no change to the existing type of backbone – a community currently served by satellite will continue with satellite, a community with microwave will continue with microwave, and fibre-served communities will continue with fibre.

No new redundancy is added in this option. (See sheets at the end of the Executive Summary for more details by community and territory.) Option 2: Base Network Upgrade (critical traffic redundancy): $765,001,000 Option 2 was developed to ensure every community has a backup network (secondary network) ready for deployment in the event the primary network fails for a short period of time, such as a minor fibre cut or brief satellite service interruption.

The cost estimate of $765,001,000 includes the upgrade of the primary network as described in Option 1, plus the cost for ensuring the existence of a secondary redundant network that can support critical applications as needed. Where possible, the secondary network would be upgraded using existing backbone technologies already in place. For locations with no redundant infrastructure in place today, cost estimates include the building of additional satellite facilities where necessary.

In Option 2, an incremental amount of additional capacity is added via microwave, fibre or satellite capable of carrying the traffic load arising from critical applications required by first responders and key government services. (See detailed sheets at the end of the Executive Summary for details by community and territory.) Option 3: Base Network Upgrade (full traffic redundancy): $2,178,014,000 A third option identifies the cost of providing full traffic redundancy on a secondary network in the event of a major longer-term primary network failure.

For an estimated cost of $2,178,014,000, all three territories could achieve redundancy to their primary network, by upgrading existing secondary networks and/or building additional infrastructure where required, capable of handling the entire traffic load on a secondary network if necessary.

Costs for this option are based on the traffic estimates created in the model. (For details on additional capacity available, please see at the end of the Executive Summary.)

Option 4: Enhanced Network Upgrade (Option 2 plus new fibre builds):

$651,086,000 Consultants compiled the estimated costs for adding additional fibre links in all three territories.

The total of $651,086,000 for this option includes:

–  –  –

The aim of this final option is to provide each region with options to meet their unique

terrestrial circumstances as follows:

Yukon to connect one additional community to fibre currently served by microwave, and • build in additional redundancy to existing fibre networks;

NWT to connect three more communities to fibre4, and provide redundancy to an existing • fibre network – in addition to the communities slated for the Mackenzie Valley Fibre Link;

Nunavut to connect to the proposed Arctic Fibre undersea cable project, which proposes to • connect seven Nunavut communities to fibre at no cost to government. An additional 10 Nunavut communities would be connected to the fibre link for a fee.5 Calculations include the costs for adding these 10 communities, plus another 3 communities via microwave from a fibre-served community.


The costs for the Mackenzie Valley Fibre Link are NOT included in this option’s cost calculations – this is covered by another The cost for Nunavut’s fibre upgrades used in this analysis is based upon the deployment of Phase 1 the Arctic Fibre ESTIMATING INVESTMENT REQUIRED (Chapter 3) Service providers cannot cover the full investment required to upgrade the Arctic backbone to meet the demand for services at prices people can afford. So how much additional investment is required?

The report tackles the question of needed infrastructure investment in Chapter 3 based on each of the four backbone investment options presented in the summary above. The Dynamic Optimization Model was used to estimate the cost for a third-party service provider to operate, maintain, and sell services using the four backbone options presented in Chapter 2.

This data was then used to calculate how much of a financial incentive a service provider may require in order to invest in upgrading or building new backbone infrastructure.

The report also identifies the recurring annual subsidies required to assist low-income households to connect to the infrastructure.

Calculating the Net Present Value

Using a standard business model (see chart below), the Model’s assumptions include:

Estimated Capital Expenditures (CapEx): Includes backbone capital expenditures (based on • four options), and network access capital expenditures (connecting local networks to the backbone) based on $500 on average for each new subscriber;

Estimated Operating Expenditures (OpEx): Includes both network operations costs (a • percentage of the CapEx for terrestrial and $50,000 annual maintenance cost per community for satellite site) and standard administrative expenditures in the operations of telecommunications network such as cost of acquisition, sales, and general administration;

Operating Revenue: Assumes no new government purchases, no new revenue from mines operating outside of communities, no new revenue from large businesses located in large centres. The incremental revenue from small and medium sized businesses is assumed to be 20% of the incremental revenue in the fixed residential market.

–  –  –

In almost all options presented, a financial incentive payment would be required for a third party service provider to take on the risk of investing to build, upgrade backbone networks, and deploy services to Arctic consumers. This incentive would be required to assure a reasonable financial return, with details provided in the tables at the end of the Executive Summary, divided by territory and option, and summarized here for ease of access.

–  –  –

In Yukon, projected financial investment required is always lower than the upgrade costs, because over time, the incremental revenue generated from the upgraded network will offset part of the operating costs in future years.

In NWT, in two options, the projected financial investment incentive payment required is lower than the upgrade costs, and in two options, they are higher, as the revenue generated from the upgraded network is not sufficient to offset all operating costs in future years.



Two roll out scenarios: fast and slow - correspondingly to 3 and 5 year infrastructure build periods respectively - were In three of Nunavut’s options, the financial incentive required is lower than the upgrade costs and in one option, the financial incentive is higher. In all of the scenarios, however, the Net Present Value is negative but the financial investment will not completely offset the CAPEX costs.

Note: The final rolled up figures do not account for cost efficiencies if one company were to do all three territories. If one company were to do the upgrading work for all three territories, the final Capital Expenditure costs might be lower.

Annual Recurring Subsidy Required The consulting team also calculated the necessary recurring annual subsidy required for every household designated as a ‘low income’ household. These subsidies are included in the model regardless of which option is selected. Annual recurring subsidies were considered for low income households so that the monthly cost of service is kept at an affordable level.

–  –  –

Potential Sources of Financing Chapter 3 concludes it will be necessary to obtain funds from outside of the territories, as these infrastructure funds and recurring subsidy investments are not available locally.

In other countries such as Australia, the US, and the UK, infrastructure projects of this nature rely on federal government investment as the principal source of funding.

Other possible complementary sources of funds could come from service providers, operators, end users, territorial governments, and P3 (Public-Private-Partnership) project financing models.


(Chapter 4) Calculating the dollar value of benefits in increased broadband speeds and penetration is not an exact science, as it is difficult to isolate the effect of broadband in the larger economy.

However, research has shown that there is a positive relationship between broadband adoption and penetration, and GDP growth that is not explained by other economic factors.

In Chapter 4, the report’s authors calculate the rise in Gross Domestic Product using accepted economic models for assessing the impact of an increase in broadband penetration and speeds. The rise in GDP was in turn used as a base for calculating the measurable impact on the economy between 2016 and 2023 from additional jobs created and consumer surplus impact.

Measurements were calculated based on the forecast broadband penetration and adoption using the target speed of 9 Mbps down (delivered in 2019 in Yukon and NWT and by 2020 in


Increased penetration and speed of broadband leading to measurable rise in GDP;

Increased GDP leading to measurable increase in number of jobs;

Calculation of tax income to government from GDP and wages and territorial tax rates;

4. Increased benefits to consumers through use of broadband leading to measurable rise in the Consumer Surplus.

–  –  –

Non-quantifiable socio-economic impacts The impact on resource development, while not specifically measured in the report, was highlighted as a positive economic impact as improved communications networks would surely lessen logistical challenges facing developers, as well as increase the attractiveness of doing business in Canada’s Arctic.

In addition, better communication networks would likely lead to measurable benefits for northerners over time - accelerating job creation, increasing procurement opportunities for northern companies, and an increase in opportunities for Public-Private-Partnerships.

The report summarizes many of the other socio-economic positive impacts in the other areas such as increasing educational opportunities, enabling small and medium sized business creation and growth, realizing healthcare cost savings, supporting the Government of Canada’s Arctic initiatives, and improvements to public safety. These correspond with findings documented in other reports.

Socio-economic impact of doing nothing

Without significant improvements to broadband connectivity levels in the North, the three Territories would likely see reduced economic growth, lower territorial tax base and correspondingly, stagnant or lower household income and fewer jobs. The competitiveness and business development of the Territories relative to other northern jurisdictions with resource-based economies such as Alaska and the rest of Canada would be impeded. As development of the North is a key to overall Canadian economy, on a global basis, Canada’s ability to attract new capital into critical resource and transportation projects would be lessened.

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