Entrants ask federal cabinet to overturn CRTC decision on LD contribution

Separating fact from fiction in the high stakes war over contribution has moved from the halls of the CRTC to the federal cabinet and even the Senate chamber. Just two weeks before the commission begins hearings into the broader issue of contribution, the cabinet is already weighing the evidence from some hotly worded interventions from telcos and competitors alike. Both sides are desperate to convince those at the highest level of government that their view on long distance contribution is the right one. This particular battle arose when the CRTC ruled last December that LD contribution rates were fair and dismissed applications by AT&T Canada Corp and Call-Net Enterprises Inc for lower rates. Both firms, along with Primus Telecommunications Canada Inc and RSL Com Canada Inc, responded with the appeal to cabinet on March 9. The interrogatories to the appeal, and the responses, are now being filed. The appeal marks the third high-level review on contribution being held coincident to each other. The CRTC's Telecom PN 99-6 to review the current collection mechanism - and alternatives to it - begins July 4 in Hull QC. In addition, the Senate subcommittee on communications has already begun its massive review of convergence, privacy and competition. The session on telephony and contribution is scheduled for this fall. The appeal to cabinet seems like a bit of a long shot, considering their notoriously low success rate. Why the upstart telcos decided to file is unclear. Some suggest there is a groundswell of support for them within senior political circles and that the Chrétien government could well overrule the CRTC. Another possibility is that the appeal will provide the companies with alternatives that can be offered up to the commission during its summer session. Is long distance contribution inflating ILEC revenues?Rebuttals to the appeal have been filed by Telus and by the Bell consortium, representing Bell Canada, the Aliant telcos (Island Telecom Inc, Maritime Tel & Tel Ltd, NBTel Inc and NewTel Communications Inc) and MTS Communications Inc. In its May 9 submission, the Bell group claims, "the petition filed on 9 March 2000 provides information that is both inaccurate and misleading. In short, it creates a false impression of current conditions surrounding the Canadian telecommunications industry in general, and the local service subsidy in particular." Telus is even more confrontational in its approach. "Simply put, because of considerably greater growth in off-peak minutes (which are subject to half the contribution rate on peak minutes), the growth in contribution-eligible minutes does not translate to an equivalent magnitude of growth in contribution revenues," the company writes in its April 17 intervention to cabinet. "Understandably, the Petitioners would rather talk minutes than revenues. But even in their attempt to re-direct the discussion to terms they consider favorable to their position, the Petitioners' assertions are without merit." The alternative LD providers take offense at this. In a joint submission filed June 1, they say, "The companies' argument that the growth in contribution revenue is almost precisely the growth that would have been expected at the time when the contribution rates were frozen, an argument echoed by Telus, misses the point of the Petition. The companies and Telus also use misleading statistics and arguments." The newcomers claim that revenues for optional features such as call display have been greater than the established telcos originally expected. For that reason, they argue, the contribution rates paid by the younger firms should be lowered. One of the older companies scoffs at that suggestion. "This request is a selective, self-serving proposal that ignores the fundamentals of price cap regulation," Bell and its allies write. "Whatever the expectations regarding any particular revenue stream may have been at the outset of the price cap regime, once the price cap regime is implemented, the actual revenue under-performance or over-performance of any particular service is irrelevant and demands no regulatory reaction." Standing squarely in the middle is the Utilities Consumers' Group of Whitehorse YT. The non-profit group agrees with the new entrants that too much money is being paid into the contribution scheme. But instead of costs being lowered, the UCG recommends the excess monies be kept in the central fund in order to provide telecom services to northern and remote areas. "Very few Canadians manage a household without electricity, running water, sewage and garbage systems," the non-profit organization writes in its submission to cabinet. "Likewise, telecommunications have become a lifeline for health, social and educational needs of all individuals and communities." That suggestion baffles the VP of government affairs for Call-Net. "If there's been an overpayment and they've overcollected, I'm not sure why it gets cast out as a consumer dividend," Ian Scott told Network Letter. "They may be drawing parallels to the U.S. where the FCC modified the access charge regime which is the equivalent to the contribution regime here and the long distance carriers have committed to pass on those reductions. "If we've overpaid, as we suggest we have for 98-99 and will continue to overpay this year and next year, the idea of simply just taking that and putting it into the system and giving it to consumers in a particular area just doesn't make sense to me. It's a separate issue. We paid the money. They get the benefit from the low rates and our vigorous competition in the market." Telus points the finger at the new telcos for some of the problems. They choose to cherry pick, the western ILEC writes, ignoring residential markets. "Since competitors cannot offer services on a ubiquitous basis right away, they will, as was the case at the onset of long distance competition, favor the market segments which offer the highest margins. It is therefore dubious for the petitioners to claim that the lack of new entrant presence in the residential market constitutes evidence that the current regulatory regime is anti-competitive." The firm styles the actions of the new entrants "particularly ironic", since by targeting profitable areas the companies create pressures on margins and increase the necessity for subsidies on lower-margin sections. "Telus submits that if the petitioners' assertions were true about a windfall to be had in the residential market, they would immediately start offering services in subsidy-receiving areas, in order to avail themselves of the alleged ‘windfall', especially considering the fact that they have access to incumbents' unbundled loop facilities in these areas, and thus do not need to build their own facilities." Scott disagrees with that logic. "We certainly plan to go into local, " he says. "One of the principal reasons why we're not in local residential is service charges. Now the phone companies went in there and said they wanted to charge us, I think initially it was in the nature of $225 to process an order per address. The commission after two cycles of proceedings has gotten down to $50; that's still ridiculous. It's $50 to process an order. " Telus goes on to say that many of the incumbent firms are now CLECs in other established telcos' territory. "The petitioners seem to be requesting that governments guarantee their profitability, in effect protecting them from any changes in the global telecommunications industry, and from themselves," Telus writes. Telus says the real issue facing all telcos is the problem of access to capital, and the solution, it claims, is to lift the limitation on foreign ownership. "Telus submits that this petition is nothing more than the latest of a series of tactics from the petitioners to apply more pressure on the government in order to rescind the foreign ownership restrictions," the western telco states. That last point also sends Scott for a loop. "Is Telus saying that they don't want foreign ownership rules changed? They're on record as saying they do and even in their submission they acknowledge that they want them changed," he remarks. "How this is connected to that is just beyond me. It's a smokescreen. We want to have the overpayments that we've made refunded to us. You tell me what the connection is."

Entrants ask federal cabinet to overturn CRTC decision on LD contribution

News | 06/19/2000 4:00 am EDT

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