To Sea and Back: 10 Years After, Where Are We Now?

John McLennan, vice-chair/CEO of AT&T Canada Corp., was a keynote speaker at the 10 Years of Telecom Competiton conference in Toronto. His full speech, an edited version of which appears below, can be found here. As the theme of this conference is a look back at the first 10 years of competition, at least on the wireline services side of the business, I hope that you are all noticing how vibrant and healthy I’m looking, after what has been a decade of intensity and true excitement in our industry. Given recent events, perhaps I shouldn’t be looking quite this good! But, part of the reason I feel great is optimism. Those of you who know me, know that I am a perpetual optimist about what Canadians can achieve on a global stage in this industry, an industry I believe will rise again and be part of the foundation of the new information economy. My optimism is dampened somewhat, however, because it appears while some in our industry have learned a lot, others seem to be afraid of the future and what it has in store. Many customers are pleased with low long distance prices and now frozen residential rates, but they are uncertain about how long this world can last. But our industry’s journey from 1992 to the present has raised a number of nagging questions in my mind, especially decision 2002-34, the new price cap regime, released just two weeks ago. So as I move towards closing, let me share them with you, on behalf of all of our customers and employees, questions that I hope will prompt some thoughts for you to consider. Why, after ten years of competition, are the mighty ships getting stronger, and the remaining new ones left adrift in the middle of the ocean? Why, over the last ten years, has no competitor become profitable? Why have the losses of these competitors grown more dramatically after the toll forbearance decision in late 1997? Why, if there’s real competition in toll, is Bell able to hit its residential LD customers with two increases within the last eight months? Why, over the last five years, have the telcos generated earnings far beyond levels achieved as regulated monopolies, while during the same period all of the new entrants have seen their losses grow? And why, just after this decision, is Bell able to comfortably publicly predict revenue growth of 8% and earnings growth of 12% annually for at least the next couple of years? That will be the best performance of any telco in North America, perhaps of any telco on the planet. Why has it been determined that the only "economic" approach to gauging costs is on the basis of Phase II which, in the words of Lemay Yates and Associates, is, "an arcane system of costing … These costs in many cases are out of date and the inputs and exact methodology are internal only to the ILECs." How is that these costs have become the sole measure of whether a competitor is being subsidized by the telephone companies? How can these internally-generated cost estimates that do not reconcile to the financial statements, and that are not subject to audit, and that are not used in any internal decision-making processes whatsoever, be the basis for anything, let alone the determinant of the prices that telephone companies are allowed to charge their competitors for the services and facilities they need to compete? Is the statement by the regulator "but that’s all we have" acceptable? What’s wrong with analyzing the only meaningful information that is available, which are the telcos’ financial statements, and then use judgement to make a decision as to what’s fair? Why, if we’re so concerned about developing an economically sound approach to competition, has the regulator decided that we no longer need to look at the overall financial performance of the telephone companies on an annual basis - certainly the only relevant information available to analyze performance and cost? Why is the information used by the telephone companies and the financial community to monitor the operations of those companies be of no assistance to the regulator in determining the telephone companies’ true costs, and the consequent fairness of their pricing? When did reliance on market forces come to mean reliance only on facilities-based market forces? When did the modifier "facilities-based" become more important than the state of competition itself? When did the regulator decide that the future for "facilities-based" competition would hopefully be achieved from cable companies or perhaps a new wireless technology platform? Does this infer that the new entrants who have created the competitive market during the past ten years are no longer relevant? Why do we think that competitors can raise enough money to build a network to compete, while subsidizing the earnings of the telephone companies they have to compete with? In this environment, how will facilities-based competition be sustained if there’s no capital to invest in new facilities? And why should all facilities be over-built in the first place? Why does it not make sense to minimize overall investment cost (like the wireless industry has learned all on their own) by making it reasonable to share some facilities on a competitively neutral basis? Industry structure is not just important -it is everything. It is much more important than who is captaining any of the ships! Structure is everything. So in June of 2002, our industry stands ten years after a major change intended to accelerate competition, unsure about whether to celebrate what we’ve done for customers, or mourn the toll it’s taken on us.

To Sea and Back: 10 Years After, Where Are We Now?

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

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