Canada’s major ILECs are glad the Competition Bureau doesn’t want Cabinet to uphold AT&T Canada Corp.’s appeal of the CRTC price cap ruling, but they reject the Competition Commissioner’s call for a review of the state of competition in the telephony sector. The incumbents have submitted further comments on the AT&T Canada Cabinet appeal after the Competition Bureau last month advocated a CRTC review of the policy of encouraging facilities-based competition (NL, Dec. 16/02). On December 17, Bell Canada, Aliant Telecom Inc., MTS Communications Inc. and Saskatchewan Telecommunications filed a joint submission; Telus Corp. offered its comments one week later. "The bureau asks Cabinet to direct the commission to undertake a review of incumbents’ costing practices as they are used for the determination of the costs to be used as the basis for pricing essential and near-essential services," Bell and its allies write. "The bureau appears to be unaware that, in Decision 2002-34, the commission has already expressed its intention to undertake such a review. A public notice initiating the review is due by year-end." (To date, it still has not been issued.) Telus takes up the same argument when it tells Cabinet: "In the absence of any concrete evidence that the commission’s current policy prescription is flawed, there is little to be gained by ordering the commission to report on the feasibility and competitive benefits of such alternatives, as the bureau suggests. In any event, most if not all of these alternatives were debated in the proceeding leading to Decision 97-8, considered by the commission at that time, and soundly rejected." The company says competition commissioner Konrad von Finckenstein is wrong when he states that the CRTC may not have correctly identified essential facilities. In the bureau’s submission to Cabinet dated December 4, the commissioner suggested broadening the definition, although not to the same extent that AT&T Canada had recommended. "The bureau seems confused, in this regard, as to what constitutes an essential facility," Telus submits. "An essential facility has been correctly defined by the commission as a facility, function or service that meets all of the following criteria: (1) it is monopoly controlled; (2) a CLEC requires it as an input to provide services; and (3) a CLEC cannot duplicate it economically or technically." Downturn unrelated The bureau cited the downturn in the telecom market to justify its remarks. Telus dismisses those allegations. "The bureau asserts that ‘supply conditions may have changed. Actual or potential wholesale suppliers for new entrants may have exited the market or are no longer viable supply alternatives. As a result incumbents may have increased their control over network facilities and services,’" the western telco writes. "These conditions in the telecommunications market, conditions that are global and transitory, are completely unrelated to a finding that particular services are essential facilities. The bureau’s statements, once again, do not address whether the facilities in question are monopoly supplied or whether they can be economically and technically supplied by others." Bell and the other incumbents take a gentler tack, but argue the same position. "The bureau’s discussion of the reasons for its recommendations demonstrates mistaken understanding of the commission’s competition framework, confusion over the concepts of avoidable costs and essential facilities, and lack of awareness of upcoming proceedings already announced by the commission," the companies state. The ILECs are suspicious of submissions made by Call-Net Enterprises Inc., Primus Telecommunications Canada Inc. and Distributel Communications Ltd. (NL, Nov. 19/02). In their joint submission, Bell et al. allege that there is no conceptual framework for the requests made by these firms. "The Call-Net, Primus and Distributel responses are symptomatic of the mischief caused by the AT&T petition," the Bell et al submission charges. "Without a clear signal that telecommunications policy in Canada is to be guided by sound economic principles, one can expect yet more pleas for financial assistance and distortion of market forces as in the case of the AT&T petition. Rejection of AT&T’s petition is a crucial opportunity to provide that clear signal." The telcos become quite fanciful in their writing as they reject the arguments offered by the competitors. They are especially dismissive of Call-Net’s scenario of financially viable CLECs, with the prevailing market price above the average cost to competitors. Competitive Garden of Eden "Call-Net’s version of competition is static, overly simplistic and makes no mention of the process by which this state of Nirvana is to be attained," Bell and its allies offer. "In reality, markets are frequently in a constant state of turmoil with competitors entering and leaving as the ground shifts due to changes in technology, unexpected major events, sudden changes in the availability of capital resources, or other disruptions – particularly in an industry characterised by significant technological change. Clearly, by contrasting a competitive Garden of Eden with the reality, Call-Net hopes to persuade Cabinet to intervene in an attempt to micro-manage the outcome of the competitive process. However, government intervention is not warranted by the facts and would be inconsistent with the objective that Call-Net purports to advance – namely to foster reliance on market forces." Telus accuses AT&T Canada and Call-Net of playing fast and loose with figures in an attempt to justify calls for changes to the price cap regime. AT&T Canada wrote that ILECs control 99% of the applicable market while Call-Net said they had 99.4% of the local residential market and 96% of the total market. (These numbers conform to results from the CRTC itself. See the related story in this issue.)Telus says these facts are misleading, because the competitors have restricted themselves to major metropolitan markets. The numbers they cite include smaller communities where no alternative phone service exists. "The business plans of the CLECs predictably concentrated first on entry into the more lucrative and higher-margin business markets in the most densely populated and cheaper-to-serve urban centres," Telus notes. "By as early as year-end 1999, competitors had already captured 15% of the business local access market in Toronto, 10% in Montreal, 12% in Vancouver, 10% in Edmonton and a full 17% in Calgary. In the proceeding leading to the commission’s first price cap decision (Public Notice CRTC 96-8), AT&T predicted that ‘it is generally accepted that local competition will develop initially in the business local market’ and that ‘it would not be unreasonable to assume that the likely impact of local competition would result in market share losses (based on revenues) in a range between 6% and 11% over an initial five year period’. It is astonishing that AT&T is now lamenting the rate of competitive entry in the local access market, given the actual results exceed AT&T’s own predictions." Bell et al look at the list of participants in the appeal process to justify its claim that competition already exists in this country. "These participants include five national wireline network providers (AT&T, Bell Canada, Call-Net, Group Telecom and Telus), two major resellers (Distributel and Primus), a potential competitor from the cable industry (RCI) and a locally-based network provider (UCNet). As well, four participants are also providing wireless services on a national basis (AT&T, Bell Canada, RCI and Telus)."