Local service deregulation discussions set to begin, initial comments due June 22

Discussions are already underway among Canadian telecom executives about what conditions should exist before incumbent telecom companies are deregulated after the CRTC released on April 28 Public Notice 2005-2, a process to examine local forbearance. The process, to determine how soon incumbent telcos will see the myriad of restrictions against them lifted, will run through October 2005, with a public hearing planned in mid-September. The commission promises a decision within 150 days of receiving the last comments from parties on October 7. Though a decision could be as much as 10 months away, Network Letter sources are already debating what measures the commission should take into account when deciding whether companies such as Aliant, which has been fighting an incursion by EastLink in Atlantic Canada, should be able to file private tariff applications, have winback and promotion restrictions against them lifted, or see the commission forbear entirely from regulating the former monopoly telcos. For several years, the commission has used the concept of market power to determine the level of competitiveness in telecom markets, something the incumbents have chafed against. ILECs argue that market share – an important component of the commission’s definition of market power – isn’t the only measure by which levels of competition should be judged, and that other metrics including technology substitution should play a greater role in the commission’s decision in favour or not of forbearance. Last week, however, Telecom Decision 2005-27 dealt a blow to the incumbents as commissioners explicitly rejected consumer research studies conducted by firms including Decima Research Inc. and Ipsos-Reid as the basis upon which to make policy decisions – on price floor safeguards in that particular ruling. In its ruling, the commission writes: "(The ILECs) did not provide data on actual service substitutions or market share statistics. The Commission does not consider it as appropriate to base a determination regarding the state of competition on expressions of opinion, as it is to rely upon factual data on the entire market relating to competitive activity and market shares where, as in the present case, such evidence is available." While drawing accusations from representatives of the ILECs that the decision not to consider consumer studies was an example of "rearview mirror" policy making, the decision drew applause from competitors including CLECs and cablecos, which are focused on market share data. They often point out that the incumbent telcos control 97% of the local wireline market in Canada, and will not concede that technology substitution – the increasing use of wireless phones, email and other communication forms – should be the basis for deregulation. Chris Peirce, executive VP of regulatory law at MTS Allstream, says the analysis in the price floor decision was appropriate. "The price floor decision is, to us, a comforting example of (the commission) seeing through the spin that has been put out there about what some would say is happening in the marketplace, but which the data shows clearly is not. You just cannot call 97% and 98% of market share in any way competitive. It’s just not. For anyone who’s taking local exchange service, clearly there is no mainstream choice that would justify, or mainstream substitution that would justify, a deregulatory stance. At this point there are a number of services out there that are complementary, that are incremental, that are a number of things. But, they are clearly not substitutable. The last refuge of the desperate when the data clearly says something is to say, well, it’s measuring the wrong thing."In a recent editorial board meeting with the editors of Decima Reports, Ken Engelhart, VP of regulatory affairs at Rogers Communications, said that he, too, believes that despite the introduction of new technologies the incumbent telcos still enjoy a monopoly. "They’re pretending that Call-Net has a big market share and EastLink has a big market share. But, they don’t. All of those wireline competitors added up are 3%. That’s not the 2004 CRTC report as of December 31, 2003; that is my estimate based on the phone companies’ quarterly reports, updating those numbers. So, it’s still a monopoly. And, they talk a lot about wireless substitution, but, again, StatsCanada did a study in May of 2004, and showed that it’s 2.4% – up a whopping 0.5% in the previous 12 months from 1.9%. Bell is propagating a myth that they have lots of local competition and, therefore, should be deregulated. But, it is a myth. The facts show on anybody’s definition that they still have a monopoly." Not surprisingly, representatives of the incumbent telcos disagree. Lawson Hunter, executive VP of BCE Inc., tells NL he’s disappointed that the commission disregarded its survey on consumer usage of technology. "The measure of competition is the choice you had and the fact that there was vigorous competition to get your business. To just sort of say the installed base is a demonstration of the effectiveness of competition, I think, is just wrong. And the fact that they just dismiss consumer survey information as having any probative value, again, is just sticking their heads in the sand as far as I’m concerned. If people didn’t believe that the surveys that are statistically well-developed had some predictive value, why would they be spending the money on them?" he asks. Hunter says the decision doesn’t bode well for the upcoming forbearance process. "How you know when you’ve got effective competition is a very, very important issue and, again, (in the) price floor decision (it) still looks like they are very fixated in the rearview mirror." The rearview mirror is also something that TELUS Corp. executive VP of regulatory and government affairs Janet Yale says she’s concerned about. "The price floor proceeding was launched…in 2003, based on an assessment of the state of local competition for the last full year for which they had data, which was 2002. So, if you look at 2002, you have a problem. If you look forward to 2006, you might have a different view of what the state of competition is going to be. So, the dilemma the commission has, and I share their concern, is that it’s a data problem. If they want firm audited data, they end up looking back. But, if you want to make prospective policy, you’ve got to figure out a way to look forward at what the market is going to be like by the time the rules come into effect…The price floor proceeding is really kind of one of the last gasps, I hope, of a proceeding that – no one’s fault – but takes so long that by the time you come out with a decision, you’re dealing with a set of facts that no longer reflect the business reality in a competitive market situation." Alexander Adenyinka, VP and senior counsel of Call-Net Enterprises Inc., is more circumspect about the notice of a forbearance proceeding. "I think it’s an affirmation that the commission is being methodical, and being very transparent and is being forward-looking and is engaging the industry. But, at the same time, it’s not going to just react to perception or pressures that the sky is falling. It’s going to be methodical and principled in its approach," Adenyinka tells NL. Parties have until June 22 to submit comments on the broad strokes of the public notice. There are earlier deadlines for comments on Aliant’s particular application for forbearance, which will be decided upon as part of this process.

Local service deregulation discussions set to begin, initial comments due June 22

News | 05/10/2005 4:00 am EDT

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