Competitors receive hidden gifts in price cap ruling, new Decima report discovers

The final implications of the CRTC’s price cap ruling may not be as dire as some of the telcos are claiming. A new report examining the details of Telecom Decision 2002-34 finds that competitors could realize significant savings. The Price Cap Decision: Real Winners and Losers is a study produced jointly by Mark H. Goldberg & Associates Inc. of Thornhill ON and Decima Publishing Inc., publisher of Network Letter. It combines documents filed with the commission, telco filings and statements, and original research to assess the impact of the ruling on ILECs, CLECs and their customers. "Much has been written and said about the disappointment expressed by certain competitors regarding the price cap decision," the report states. "While consumers are clear winners in the short term, this report finds that the decision contains hidden gifts for competitors – benefits that will continue to be unwrapped as follow-up proceedings and rulings to the decision unfold over the coming months." The report devotes space to examining the impact on competitive local service. CLECs that want to provide local service solely through resale of an ILEC’s primary exchange service or Centrex will see no benefit from 2002-34. In making this determination, the CRTC was furthering its goal of promoting facilities-based competition. But competitors using resale of unbundled network access are helped by four cost reductions contained in the decision. The mark-up for most Category I competitor services (including unbundled local loops, EAS transit costs and other transit costs) are falling by eight per cent. Low inflation and price cap restraints should result in a further 2.26 per cent drop in Category I competitor services this year. Co-location floor space costs are also scheduled to decrease. The CRTC is already reviewing the competitor digital network access (DNA) aspects of 2002-34 (NL, Aug. 27/02). Depending on the outcome of those proceedings, CLECs could see a reduction in the costs to access backhaul facilities and a drop in the cost of facilities used for EAS transit other than through an ILEC’s network. The final resolution of the review and vary, instigated in Telecom Public Notice 2002-4, is not expected until next spring at the earliest.The reverse side of the local competition coin is that 2002-34 froze local rates for residential service. Local business rates can only increase by the rate of inflation. "As a result of (a) only moderate price decreases for inputs required by CLECs to provide local service using ILEC unbundled loops; and (b) low local service retail prices, competitors will likely restrict expansion of their local services to where margins exist (e.g., co-locates with low cost inter-office access cost and a critical mass of customers)," the study states. The report points out that shortly after the decision was released, Call-Net Enterprises Inc. announced it was delaying its rollout to Edmonton and Quebec City. Plans to introduce DSL to the residential market have also been shelved. The Goldberg-Decima study finds similar variations in the ramifications for the LD market. LD providers depend on direct connection service, access tandem service and the retail DNA service to start and end LD traffic to ILEC local customers. "The decision provides substantial savings with respect to direct connection service ," the report notes. "In addition, the decision has resulted in several follow-up processes that have the potential to significantly decrease the access tandem service cost and possibly the cost of interconnecting circuits." The report notes that price decreases for long distance interconnection charges can reduce interconnection cost by as much as 1.1 cents per minute. It adds that the introduction of competitor DNA service has the potential for major cost savings for CLECs. But the actual figures are dependent on several factors yet to be determined. The study concludes that data network customers could see real savings in their costs. Because some data services have been forborne from regulation, a price war could well erupt between ILECs and CLECs.

Competitors receive hidden gifts in price cap ruling, new Decima report discovers

News | September 10, 2002

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