Americans give Canada failing grade for maintaining contribution subsidies

The battle over contribution has spilled into the United States, with AT&T Corp using its influence in Washing-ton to promote the interests of its Canadian subsidiary, AT&T Canada. Early this month, the Office of the United States Trade Representative (USTR) issued its annual review of telecommunications trade agreements under section 1377 of the Omnibus Trade and Competitiveness Act. Analyzing nine countries, the report cited the payment system in this country as cause for concern. "Canada's 'contribution' program for subsidization of local phone service to remote and high-cost areas, presents potential anti-competitive risks for certain long-distance carriers," the paper states. "The Canadian cabinet and the Canadian Radio-television and Telecommunications Com-mission have processes under way that can address these problems through reform of the contribution program." The report goes on to quote ambassador Charlene Barshefsky, the trade representative, urging a neutral system that would not provide integrated carriers with unfair subsidies. The largest of those integrated Canadian carriers dismisses such talk. "AT&T has been trying to pump up a trade issue in Canada which simply is not there," David Kidd, Bell Canada's VP of regulatory law told Network Letter. "They're really trying to import a trade issue to add further pressure to the Cabinet and the CRTC in a manner which is really inappropriate. "A lot of the facts and circumstances raised in the AT&T letter are simply incorrect," he adds. "This has never been an issue before. The CRTC has always had a very high reputation and we think this is done just for crass commercial purposes." Kidd was no more diplomatic when dealing with the USTR. In a March 14 letter to the office's executive secretary, he accuses the American telco of playing fast and loose with the facts. "It is clear that AT&T's allegations are based on distortions and mischaracterizations of the Canadian regulatory regime and Canada's legal obligations...," he writes. "It is regrettable that AT&T has resorted to such unfounded allegations in an apparent attempt to pressure the Canadian government to grant AT&T's affiliate unwarranted regulatory advantage for its private competitive goals in Canada." Not surprisingly, competitors in Canada welcomed the American report. "We're pleased that somebody's paying attention to the state of competition in Canada," the VP of regulatory affairs at Call-Net Enterprises Inc, Jean Brazeau told NL. "We were hoping that our own regulator would be doing that but it seems difficult to engage the Canadian regulator and policy makers in looking at the state of competition in Canada." The USTR had red flagged its concerns on this issue in an earlier report on foreign trade barriers. The telecom section of its more recent review of Canada was devoted to contribution. "The dominant local service companies are also long distance market competitors," the report states, "controlling more than half of long distance market share. Companies that do not provide local residential services argue that the contribution charges are set unjustifiably high, disadvantaging them compared to the competitors who receive (as well as pay into) monies from the contribution scheme." Kidd dismisses such complaints. "There clearly is no overpayment of contribution by the IXCs and Bell Canada and everyone else," he says. "There is clearly a shortfall between revenues and costs for residential local service. What's paid in by all carriers, including Bell is insufficient to cover that gap. There-fore there is absolutely no truth to the idea that there is a subsidy being created here that is available to cross subsidize other services." The American administration recognizes the problems that breaking down monopolies has caused to the telecom sector internationally. A senior official with the USTR, who did not wish to be identified, notes, "Governments are working hard to try to deal with the disputes that inevitably arise in a market like this where you have a former monopoly that's going to remain dominant and going to have the ability and the incentive to make it difficult for new entrants to come in for the foreseeable future. That's true in every market, including our own." But Bell wonders if the Americans are operating with proper information. In his letter to the USTR, Kidd accuses AT&T of twisting the words of the Canadian regulator. "By choosing to selectively quote from the CRTC's findings, AT&T has attempted to convey the notion that the regulator found that there is a lack of competitor facilities. In fact, the finding was just the opposite." In a recent letter to the USTR, AT&T quoted the CRTC as finding "the absence of ubiquitous, competitor-owned facilities across Canada." Bell provided the full quote, which said, "the absence of ubiquitous competitor-owned transmission facilities does not necessarily demonstrate there is a shortage of transmission facilities." Kidd says the attempt to warp the meaning was "egregious". He doubts it was successful. "When you look at the AT&T letter and you look at the very modest paragraph that put in their 1377 press release, one can conclude that they left a lot of AT&T's rhetoric on the cutting room floor." Battling Canada not a high priority for USTR What the U.S. will do next is uncertain. The USTR is letting domestic agencies attend to the situations in each of the nine nations. Further reports will be issued on the nine countries throughout the year. The final study on Canada will be released October 2. The American official who briefed reporters early this month indicated that Japan and Mexico were the nations with telecom regulations that most distressed the U.S. He left the impression that his country was willing to let the Canadian process follow its course. Bell's Kidd says he has spoken with William Corbett, the USTR's deputy assistant representative for communications industries. Corbett assured Kidd Canada is not high on the list of troublesome nations. However, the issue could affect Bell's bid to be removed from the U.S. list of foreign dominant carriers (NL, March 8/00). The USTR report might also spur Canadian authorities to move more quickly on the contribution issue, although one interested party is skeptical. "I hope it has that effect, but this is just wishful thinking on my part," Brazeau says. "I've been at this game for a long time and things move at a different pace in Ottawa and across the river in Hull." Call-Net is hoping the CRTC will act soon rather than waiting for the end of the price cap regime in 2002. Bell discounts that theory. "We'll be going in for a review on our price cap regime next year and that's a work in progress with the CRTC," reports Kidd.

Americans give Canada failing grade for maintaining contribution subsidies

News | April 10, 2000

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