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Rural Internet providers angered by federal support of bigger rivals

Richard Lajeunesse, a 53-year-old member of the Grassy Narrows First Nation in Northwestern Ontario, watched his community get poor Internet service with the help of one government grant, saw it upgraded with a second, and might see his Internet service business taken away by a third.

Mr. Lajeunesse runs a one-man Internet service company out of nearby Kenora, Ont. He helped bring high-speed Internet to the surrounding rural community, including Grassy Narrows, five years ago. Now, he worries that the federal government's $225-million broadband stimulus fund is about to toss him out of business - an unexpected twist, given that the money was allocated to promote precisely the type of service that Mr. Lajeunesse's small company provides.

The government has awarded conditional funding to a much larger, national company called OmniGlobe Broadband Inc., so it can offer service in the same territory served by Mr. Lajeunesse's firm, North One Communications Inc., which has only 400 subscribers.

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And he is not alone. Across the country, government money is being spent to bring Internet service into some communities that already have it. In the process, the government may be arming big companies to do battle with tiny, locally owned businesses or non-profits that spent their own capital, and in some cases previous government funding, to provide service.

The situation is particularly galling for Mr. Lajeunesse, who has seen the government award two previous grants in his area. An initial grant went to an outside provider to launch a satellite Internet service, which fell into disrepair. A second grant went to an aboriginal group to start a wireless Internet service. Mr. Lajeunesse expanded the system with his own capital and now helps to operate it.

"How much money are they going to keep throwing at something that's already there?" Mr. Lajeunesse asks. "It basically destroys what I've been doing for the last five years. It's just another overbuild with taxpayers' money. Why are they wasting the money on that? Give it to some place that really needs it."

When Industry Canada announced the first projects to conditionally win broadband stimulus funding, the vast majority of the money went to larger providers such as OmniGlobe, which won six contracts. In most cases, the larger companies are being funded to provide precisely the same level of technology that already exists.

Iain Marlow reports live from the telecom summit, and shares audio interviews with Rogers execs and a Q&A with Tony Clement

OmniGlobe's marketing manager, Elsa Lebey, said her company attempts to work with local providers wherever possible, helping them to expand their networks rather than competing against them for customers.

Western Canada-based PCC Communications Inc., with about 225 employees, won 13 contracts, one of which was in northern British Columbia, right on top of the area now served by the Peace Region Internet Society. Arvo Koppel, the society's system administrator, has just eight employees and about 4,000 customers. He worries that the government is ignoring local providers and may actually increase the digital divide between urban and rural Canada, instead of reducing it.

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Mr. Koppel said large providers will pick the most accessible customers and ignore those who live in the most remote areas, where service is more expensive to provide. "Somebody who is coming from Calgary or Vancouver or Toronto has no problem dividing the market and leaving some [people]off the list," he said.

The problem for small Internet service providers (ISPs) is that Industry Canada doesn't know they exist. Mr. Lajeunesse told the federal government department he was in that territory well before the funding was announced, but it failed to include him on the department's map of broadband Internet coverage - and then allocated funds to fill in that area. The same thing happened to the East Shore Internet Society, which serves a small part of southern B.C.

Industry Canada had delayed the funding announcements several times because large providers, such as BCE Inc.'s Bell Canada, kept expanding their networks, making underserved communities "a moving target," Industry Minister Tony Clement said in an interview late last week.

"It shouldn't have happened that way. And if it has, I'd like to know about it. That's not good," Mr. Clement said. "I was briefed that we had mapped the whole country."

Two more rounds of financing announcements are planned. The potentially damaging overlap situation has caught even veteran industry watchers off-guard.

"[Small Internet providers]have worked hard for many years to establish and provide service in these remote areas that [bigger]businesses weren't interested in," said Marita Moll, a member of a University of Toronto group researching community networks. "To come in with government funding to compete with them and quite possibly destroy them, I'm shocked."

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Iain Marlow reports from the Canadian Telecom Summit

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