Price cap ruling – Smaller incumbents face challenges from latest price cap mechanism

The impact of the CRTC’s price cap ruling has been primarily focused on the major players, but the country’s smaller ILECs are saying they shouldn’t be lost in the shuffle because they are affected as well. All three of Canada’s regional telcos tell Network Letter they are disappointed with Telecom Decision 2002-34. Brad Woods, director of investor relations for Manitoba Telecom Services Inc., worries that local residential competition is not addressed by the ruling. The business market, on the other hand, has been too successful, he argues. "Price cap regulation worked really well in the business segment," Woods says. "In fact it worked too well and it drove prices lower than probably where they should have been for the market. What this decision doesn’t deal with is the fact that in a number of areas in the operating territory, basic local service is priced below costs. That issue has basically been ignored in this decision. In terms of trying to foster competition more generally in the residential segment, this doesn’t do it." MTS expects an annualized impact of $10 to $15 million a year over the four-year duration of the new price cap regime. Some of that is due to new quality of service standards imposed by the commission. While the company is exploring new ways to save money, one thing it does not anticipate is slashing jobs as Telus Corp. has proposed (NL Update, June 10/02). "It’s a journey that never ends, we’re always looking for ways to do things more efficiently and reduce costs," Woods explains. "Whether that’s in terms of implementing new systems or renegotiating contracts with vendors and that kind of stuff, it just goes on a continual basis." Next door in Saskatchewan, that approach is much more difficult. This is the first time SaskTel has taken part in the price cap proceedings. Until two years ago, the company was not under federal jurisdiction and not subject to the original price cap decision (NL, May 23/00). The GM of regulatory affairs for the provincial telco thought her company had impressed that upon the commission during the hearings last fall. "We put forward evidence that we thought would compellingly prove that there’s very little opportunity to obtain efficiency gains and productivity gains here in Saskatchewan," Candice Molnar tells Network Letter. "With the rural depopulation and the increasing costs of cable and plant, a feeling there would be productivity gains in serving those high-cost areas was something we thought we had put forward quite an argument suggesting there’s no chance." Her colleague John Meldrum, VP corporate counsel & regulatory affairs, estimates the Crown corporation will take a $50-million hit over the next four years as a result of the decision. He believes the reduction in subsidies will hurt SaskTel more than the freeze on rate increases will. "When we look at the $50 million, a big chunk of that is the reduction in what we get out of the high-cost fund and that concerns us immensely," he offers. "As to how that will translate into our capital programs and our service levels and those sorts of things, that remains to be determined." Pricing is also a concern at the other end of the country. Richard Stephen, director of regulatory matters for Aliant Telecom Inc., says the ruling was not what the regional telco had been hoping for."We were looking for more flexibility, particularly in the consumer pricing or the residential side," he explains to Network Letter. Also surprising was the decision by the CRTC to expand the number of capped services. Molnar echoes that sentiment. Many of SaskTel’s customers subscribe to bundled services such as local, LD, and smart touch features, and those services are now included in the price cap baskets. She wonders if it is right to force price reductions to an LD bundle. One of the stranger results of Decision 2002-34 is that national solutions are being imposed on regional carriers. While AT&T Canada Corp., Call-Net Enterprises Inc., and GT Group Telecom Inc. all state they are national players, they achieve that status by moving into selected large cities across the country. MTS faces competition from all the major CLECs in Winnipeg but none in the other communities in the province. The other regional ILECs are competing with entrants from their own backyard. "Within the region, Group Telecom is a fairly active CLEC, particularly in the Newfoundland market," Aliant’s Stephen reports. "Eastlink is operating in Nova Scotia, Prince Edward Island, and we’re expecting shortly in New Brunswick as a CLEC." It is also possibile that AT&T Canada will move into Halifax, he speculated. Meldrum says the ruling confirms the commission’s support for facilities-based competition. That makes it unlikely that resellers such as AT&T Canada or Call-Net will move into the province. But he still cautions that Shaw Cablesystems could move in, either on its own or through its stake in Group Telecom. Local cable operator Access Communications Cooperative Ltd. could follow the Eastlink model of switched-circuit telephony. The cableco currently offers high-speed Internet and paging services in Saskatchewan in addition to analog and digital cable. Stephen is hopeful that further hearings arising out of the initial decision will answer many of the questions ILECs and CLECs have about the implementation of the new regime. He will not venture an opinion on the likelihood of an appeal. So many of the details are of a technical nature that they would end up back at the commission in any event, he suggests.

Price cap ruling – Smaller incumbents face challenges from latest price cap mechanism

News | 06/18/2002 4:00 am EDT

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