CCTA rejects suggestion that deferral account surplus be returned to consumers

The head of Canada’s cable industry association has rejected a proposal by a B.C. consumer group to hand money accumulated in the price cap deferral accounts back to subscribers, saying the suggestion is unworkable and doesn’t meet the test for using the funds as set out by the telecom regulator. Michael Hennessy, president of the Canadian Cable Telecommunications Association (CCTA) tells Network Letter that the CRTC would be justified in ordering the funds used to improve Canada’s telecom infrastructure, hopefully along the lines proposed by his group (NL, May 26/04; Telecom Public Notice 2004-1). The commission is currently studying how to use hundreds of millions of dollars built up in arms-length accounts by the ILECs over the course of two years under the price cap regime (Telecom Decision 2002-34). The funds represent money overpaid by subscribers as a result of price floors implemented by the regulator to boost local rates in an effort to spur facilities-based competition. The ILECs and CCTA have each made recommendations to use the funds to upgrade their current infrastructure, and better serve remote communities or disadvantaged subscribers. In reply comments made earlier this month to the 2004-1 process, the British Columbia Public Interest Advocacy Centre (BC PIAC) argues that proposals by the ILECs and by the cable industry to make capital expenditures are inappropriate uses for the money built up in the deferral accounts. It argues that such uses would constitute a thinly-disguised tax on subscribers to benefit Canadian society, something best left to politicians and Parliament. BC PIAC counsel James Quail tells NL that the funds’ raison d’etre has not worked. "(The proposals are) just treating it as a pot of general discretionary revenue. It’s just sort of found money…But, the money is there for a particular purpose. It was put there essentially as an experiment to deliberately increase residential local rates a bit in order to sweeten the market to induce competitors to come in. It was absolute total failure...It was inflating prices on the assumption that it would encourage competition and lead to lower rates," he says. "That hasn’t happened. So, the money is sitting there and the commission is thinking, and everybody else is thinking, well, here’s this money, let’s pull out our wish list. What can we do to subsidize in various ways our own capital expansion? It’s all very tempting, but it’s not a proper way, an appropriate way to deal with that money. If the idea is that as a matter of social policy there should be a tax levied on local phone service to pay for social infrastructure, things like that, then so be it. Then it’s an honest, upfront transparent mechanism that has some kind of real political accountability built into it. But, just reaching into the pocket and throwing the money around that way is totally inappropriate." He maintains that the price cap regime has failed thus far in spurring local facilities based competition, and that the only viable alternatives to the ILEC’s "natural monopoly" are coming from technologies unrelated to the system: cell phones and Voice over Internet Protocol (VoIP). Quail argues that there are no real constraints to putting the money back in the hands of subscribers who have been paying more than they would have without the price cap regime in place. He acknowledges, however, that the odds of the commission ordering a refund are slim. BC PIAC’s assertion that the money can and should be transferred back to subscribers is disputed by the CCTA and others. Hennessy says the proposal raises administrative complexities, but, more importantly, is not an appropriate way to handle the accounts.Hennessy tells NL that any use of the funds should benefit ILECs and competitive providers, as well as subscribers, to be legitimate. "If the test, and I think it’s the appropriate test, is competitors, consumers and the telephone companies, that they all have to benefit in this equation, then the PIAC test, or PIAC proposal does not meet the test because it focuses only on one group in there, which is why it sounds simple. It raises, one, administrative complexity in terms of how do you ensure that the people that paid in are receiving back, and, two, it raises the fundamental issue that has to do with the regulation of pricing in the first place. One is a consumer issue…but the other is the protection against anti-competitive conduct. And, as the commission has recognized in many cases, a lowering of rates can be detrimental to the development of the sustainable facilities-based model." Hennessy does not agree with Quail’s assessment that the facilities-based competitive marketplace has failed to materialize, arguing that cable companies will soon join the fray in exactly that capacity. He says that the technological capability has only now materialized to do so, and done so in ubiquitous fashion. "Those two things weren’t there, before. We still think, obviously, that it’s a high-risk game entering the market, but clearly we’re entering primarily on a facilities basis because we believe that’s the only way to compete. I think our decision to delay, given the problems that the initial CLECs had in the market, has proven to be wise." He tells NL that it’s his hope the CRTC will apply the multi-beneficiary test to the various proposals now before it to use the deferral accounts. The CCTA has urged the commission to use the deferral money to build telco-owned fibre to remote communities that would be available to any competitor as backhaul, arguing that a competitively neutral scheme is the only one that would be appropriate.

CCTA rejects suggestion that deferral account surplus be returned to consumers

News | October 28, 2004

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