The increasing use of Internet phone services must be one of the main considerations by the Canadian Radio-television and Telecommunications Commission (CRTC) when examining a new regulatory framework proposal put forth by Northwestel Inc., says Paul Flaherty, the company's president and chief executive officer.

'While the consumer might feel they are benefiting, it's at the expense of being able to support the smaller communities the high-cost communities that exist in the North; the high-cost services as well,' said Flaherty of the growing popularity of voice-over IP telephone services, such as Skype.

Northwestel estimates approximately three per cent of northerners are currently using the often-free Internet long distance services. It is one of the key reasons the telecommunications company has submitted a proposal to the CRTC, said Flaherty.

'We're in a situation that needs some significant changes in our regulation and our pricing,' he told the Star in an interview this morning.

The CRTC is hosting a week-long hearing at the High Country Inn to examine the proposal, which includes a local line rate hike of $2 for residential and $5 for businesses.

It is also asking that the North receive $40 million from the national contribution fund to support maintaining the network that serves more than 110,000 residents in the Northwest Territories, Nunavut, the Yukon and northern British Columbia.

It is a 300 per cent increase above the $10 million it currently receives.

But in the approximately 97 communities Northwestel serves, it can cost upwards of $9,000 to just put in an access line, said Flaherty.

Maintaining local phone services in some northern communities is simply not economic, he said, and with the escalating move toward Internet services, it is becoming more difficult to finance.

Northwestel currently charges long distance providers, including those providing calling card services, an access tariff of seven cents per end of the call. It means the company receives approximately 14 cents from any long distance calls in the North.

That money is then used to subsidize telephone service provided to the North's remote areas.

With more people starting to talk online rather than through telephone lines, there is less money going into the pot to put toward local access, said Flaherty.

'They don't pay any contribution to the local network whatsoever (when they use Internet phone services),' he said. 'A good part of what we're trying to do is preserve our ability to serve the small remote communities.

'Our proposal is, recognizing that's going to happen, we think southern Canada should fund those high-cost elements specifically.'

Northwestel wants to decrease its carrier access tariff to 0.8 cents per end and get a $30-million increase from national funding.

The decrease would hopefully attract more competition from long distance providers, said Flaherty, but it would also allow high-cost, remote communities' lines to become explicitly funded through national contribution.

Telus Corp., which also provides service in northern B.C., isn't supporting the idea.

'We fully support the Canadian telecommunications policy objective of providing affordable telecommunications services to all Canadians,' said Michael Ryan, a legal expert representing Telus.

'But we have concerns about the uses to which Northwestel proposes to put the funds that it is requesting.'

Northwestel is trying to isolate itself from competition and the revenue losses it may suffer as a result, Ryan told the commission's panel.

'We believe that Northwestel is not making sufficient effort to maximize revenues from its own operations before seeking support from the (national contribution) fund.'

Northwestel needs to do its part before asking the rest of Canada's providers to account for 25 per cent of its revenue requirements, said Ryan.

Flaherty said northerners will be paying their fair share. Approximately $2 million will be generated by the rate hikes.

'On one hand, we're asking the South to give us $30 million more. On the other hand, we're asking northerners to give us $2 million more collectively,' he said. 'We feel strongly that it's important that we show that the North is going to contribute to some of it.'

Telus' cross-examination of Northwestel's marketing panel on Monday afternoon spent almost an hour looking at the company, which is owned by Bell Canada, and the question of 'an illusion' of competition.

Ryan also questioned how Northwestel had come to its decision of a residential rate increase of $2 per month.

'Subscribers who might be able well to afford the service might choose to take it if there was a $2 increase but not take it if there was a $3 increase,' he said. 'I am trying to understand what the company knows about its customer base and how that was factored into its decision about the proposed rate increase.'

The decision seems to have been made more in conjunction with Northwestel's competitive positioning rather than the objective of affordability and comparable services to the South, said Ryan.

'It was more of a position vis--vis the other companies to demonstrate to the commission we're trying to bring a balanced proposal to the table,' Flaherty conceded this morning.

The telecommunications company currently has the second-highest rates in Canada. The rate increase would keep the North in the same position, he said.

'You've got, obviously, groups from the South who are bringing sort of southern biases less concerned about the North, more concerned about the impacts on themselves,' he added.

Telus is just trying to deflect some of the issues and find ways to reduce any money it may have to put toward the contribution fund, he said.

In 2005, Telus' customers contributed $63 million, or 25 per cent, to the national fund.

'We therefore have a direct interest in any plans that affect the funding requirement or how the funds as spent,' said Ryan.

But when balanced between the decrease on the carrier tariff cap and the increase in the money put into the national pot, Telus should come out almost neutral, said Flaherty.

In the end, it will be the CRTC that decides the fate of Northwestel's proposal.

Flaherty said he hopes it doesn't get watered down too much.

'The commission is always trying to balance between the ratepayers in the North, the ratepayers in the South and obviously the opportunity for the company to earn a fair rate of return,' he said.

'But we have a very unique circumstance and we need people to understand through the commission the importance of that and hopefully not trade off so much that deteriorates the ability to provide service in the North.'