David Colville, CRTC vice-chair of telecommunications, spoke on behalf of the commission following the release of Telecom Decision 2002-34. Here is an edited version of his remarks. The full speech can be found on the CRTC web site. Looking back over the past four years, it is clear that for the most part, price regulation has worked well. However, it is also clear – with the benefit of hindsight – that when the Commission designed the initial price cap regime we made certain assumptions about how the world would unfold, especially how local competition would unfold. A number of those assumptions have not come true. As a result, the benefits of the first regime have not been as evenly distributed as we might have liked. The primary example of this was the fact that some business customers enjoyed significant price reductions while other customers, in particular, residential telephone customers generally faced price increases. In order to achieve the goals of protecting and promoting the interests of customers, encouraging the development of local competition, and ensuring that the telephone companies have the pricing flexibility and financial incentives they need to operate their businesses effectively, the new price regulation regime differs from the first in a number of important ways. First, the Commission has established a more targeted approach to determine the prices of telephone company services. In particular, the new regime separates services into eight groups or baskets. This revised structure permits the Commission to apply more focused pricing constraints to these groups of services.These targeted constraints also indirectly help foster local competition by ensuring that the price cap regime itself does not drive prices down, thereby weakening the opportunities for competitive entry. The second major change from the initial regime is the introduction of rules to ensure that the telephone companies maintain high quality local telephone services. This means that customers and competitors will be entitled to rebates if the incumbent telephone companies do not meet the Commission-mandated service standards. The third major difference in the next regime involves certain services used by competitors to connect their networks to those of the telephone companies in order to serve their customers.The pricing of these services as well as the retail services purchased by these competitors was a topic of hot debate in the price cap review proceeding and in recent news articles about today’s decision. AT&T Canada asked for a 70% reduction in the prices they pay for both competitor interconnection services as well as the retail services they purchase. Call-Net asked that the telephone companies be required to provide them at cost. The Commission believes it is critically important to have regulatory rules that make sense from an economic perspective. If competitors were to get access to the telephone companies’ services at artificially low prices – or even for free, as some people have suggested – they would have no economic incentive to build their own facilities. This would not be good for competition or for Canada. Both the telephone companies and the competitors must run their businesses on a sound economic basis – just like companies in every other industry. The Commission cannot protect them from their mistakes. The most we can do is establish fair rules which should help promote competition. We believe we have done precisely that in this decision. Finally, the Commission has approved certain plans filed by the telephone companies aimed at extending and upgrading service in remote and underserved areas of their territories. These initiatives will help ensure that all Canadians enjoy the benefits of our advanced telecommunications networks on an affordable basis.