The telecom market may be competitive, but it’s still highly regulated

The CRTC has made some good first steps in helping to ensure telephone competition is viable in Canada. But according to the president/CEO of Call-Net Enterprises Inc, more needs to be done. Speaking to shareholders at the company’s AGM in Toronto May 16, Bill Linton said favourable decisions on price caps, service charges paid to ILECs, and a lifting of the foreign ownership rules are necessary to expand the local services market. An edited excerpt of his presentation appears below: Much has changed within our industry and within our company since I joined late last year. Operating and financial conditions in the Canadian and global telecommunications industry have continued to deteriorate. The number of companies affected by the downturn has continued to increase and it is clear that no one is immune from this trend…Clearly, those who have emerged survivors are earning more with less, putting their existing infrastructures to work with unprecedented productivity, and leveraging their relationships with their customer base. Despite recent changes, the Canadian telecommunications industry remains highly competitive and highly regulated. It may come as a surprise to some of you that market conditions have not influenced our financial results in recent years, as much as has the regulatory environment in this country. We must see the need for further fundamental regulatory change in this country or we, and other competitive telcos, will continue to suffer…. illustrate the magnitude of the negative financial impact on competitive telcos of the former carrier cost regulatory regime. More than 30 per cent of our gross revenue went directly to the incumbents like Bell Canada, Telus or Aliant under the former regime. As voice prices dropped during the past few years, the incumbent telco’s take of our revenue did not. Contribution as a percentage of revenue shot up dramatically as a result. Operating an incumbent telco profitably under these circumstances wasn’t too difficult. If we won, they won and if we lost, they won any way. So you can see how regulatory reform is fundamental to our success.…. On April 20, we received word of the CRTC’s decision on re-banding unbundled loops. This order lowered unbundled rates effective April 27, by approximately 30 per cent. A further 10 per cent reduction is expected in the third quarter. This decision will reduce contribution requirements by about two-thirds in January 1, 2002 generating a savings of approximately $14 million. Later this year, the CRTC is scheduled to revisit the matter of service charges paid to incumbents when switching local customers. A favourable decision, along with rebanding, will provide the financial incentive to further expand the local services market. In October, the CRTC will begin public hearings on price caps. These hearings are significant insofar as they will determine the regulatory regime for the incumbent telcos for the next four to five years. We intend to take an aggressive approach at these hearings arguing our point that regulation continues to negatively impact competition in this industry… Access to capital is a limiting factor for competitive telcos and in particular for Call-Net. We are optimistic that within the next two years, foreign ownership restrictions on Canadian telecommunications companies will be eliminated, thus opening opportunities to raise new debt and equity from investors. We believe that the market valuation of our company will change significantly when the regulatory environment changes and this is why we consider it a key growth strategy…. In the near term, we will preserve cash and ride out the storm with a highly disciplined focus on business fundamentals and prudent management, leveraging existing assets. This near-term strategy is designed for maximum performance within existing resources.

The telecom market may be competitive, but it’s still highly regulated

News | 06/18/2001 4:00 am EDT

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