Regulating based on today’s reality, not on tomorrow’s promise

CRTC chair Charles Dalfen gave the closing address at the Telecom Summit held in Toronto at the end of May and the beginning of June. In his keynote, he talked about the importance of regulating based on reality, not based on the promise of tomorrow. The following is an edited excerpt of his presentation. Since it is on the minds of most of us here today, I will spend some time taking about VoIP. What I want to do, however, is to discuss it in the broader context, of a number of common themes that have guided the Commission’s work, in some cases for over a quarter century, in other cases for a far shorter period. The first of these themes is "staying the course." What does this mean? And why is it important? What it does not mean is continuity for its own sake or because we are hidebound or because we have too many lawyers who are comfortable with precedents. Nor, however, does it mean change for its own sake or for the sake of what might dazzle us, particularly when the dazzle has not yet razzled, as it were. What it does mean is being deliberate, disciplined and consistent. It means adapting our rules to technological and market changes on a timely basis, and it means properly discharging our role as a quasi-judicial tribunal, giving careful consideration to the facts and arguments that are presented by all of the parties before us. Why staying the course is important is that it has resulted in a successful telecommunications system for Canadians, by any measure. Independent observers have commented on the strength of Canada’s telecom sector and on how well we stand up to international comparisons. The federal government has also played a vital role both in promoting the deployment of the latest telecommunications facilities and services across the country, and in maintaining consistency of policy and regulatory direction. The Commission’s contribution has come from, among other things, a firm commitment to sustainable facilities-based competition, a willingness to removing obstacles to competition – by allowing appropriate access to telco and cable infrastructure, to multiple unit buildings and to municipal rights of way – and at the same time a continual willingness to refrain from regulating when markets become sustainably competitive. This does not mean we can be complacent. To not keep up would be to falter. My point, however, is that this did not all happen by shifting course in response to every new switching or transmission technology or to every new regulatory theory. The second theme, not unrelated to the first, is the centrality to Government policy and CRTC regulatory direction for over 25 years, of the goal of sustainable competition in all telecommunications markets, so that we can forbear from exercising our tariff approval responsibilities, in order to allow market forces – rather than regulation – to determine market outcomes. There’s no question about it: robust competition is the key to protecting users of telecommunications services, as well as stimulating investment and fostering innovation by telecommunications companies. Regulation is the second-best approach that we use until competition is healthy enough to ensure, on its own, a vibrant marketplace and an innovative industry offering the highest possible quality and widest possible range of services. As most of you know, competition and price deregulation in the local exchange services market remain unfinished business. Today, eight years after competition was introduced for local telephone service, the incumbent telephone companies continue to account for 98% of revenues for local residential services, and 92% of revenues for local business services. Our luncheon speaker today said that our reliance on these figures represents an "outdated assessment of market conditions", and shows that the Commission pursues "a strategy seen through a rear-view mirror." The fact of the matter is that no better figures, and no superior methodology have been presented to us that would support a credible alternative view of the telecom market. I don’t want to belabour the statistics. But I do want to emphasize the underlying principle. We may well be – as many speakers here have suggested – in the early stages of a paradigm shift in telecommunications. But the truth is that no one in this room knows how quickly, or slowly, that shift will occur, and when the new paradigm will take hold. Given the unpredictability of the telecom environment, we, as a body charged with protecting the public interest, must have the discipline to focus on regulating the environment based on the facts that exist today. We do so based on what we have learned from the past, and on our sense, based on solid industry analysis, of what the future holds for telecommunications. We share the hope that all of you have, that VoIP will bring real competition in the local market. And this is precisely why it is important to stay the course and ensure that the market is not prematurely deregulated, while incumbents are so dominant, and so capable of nipping that competition in the bud. I have been asked a question a number of times, formulated in a different ways, by analysts and journalists that usually ends in the following four words: what’s the big deal? The preamble usually runs something like: Incumbents must continue to file tariffs for local service – as they have for 100 years – to ensure that their rates are "just and reasonable", for example not below their costs; and that they not give themselves "undue preference", for example an unfair competitive advantage. My invariable answer is: perhaps you should ask them. But that does not stop me from musing about that very interesting question myself…So I ask myself, rhetorically of course: Will the exciting – dare I say revolutionary – prospects of VoIP be stillborn, and all future innovation cease, if the incumbents – holders of 95%+ market are not allowed to price below cost, or, for example to specifically target the 4.3% of lines that competitors have been able to attract, after nearly a decade of trying? Can this tariffing requirement on incumbents really be the factor that will hold back Canada’s progress in adopting ICT technology and doom our international competitiveness? The incumbents have argued that the time taken by the Commission to reach decisions on tariff applications sometimes puts them at a disadvantage relative to unregulated competitors, and hampers their ability to respond quickly to changing market conditions. That might have been a valid complaint 18 months ago. Since then, the Commission has made a concentrated effort to streamline the processing of applications before it, including retail tariff applications. This is in fact my third theme. The bottom line is that we respond to filings within 10 business days, and are on track to issue final rulings on virtually all tariffs within 45 days. We also set ourselves the goal of reducing the average time taken to issue final decision by 50%. And now my fourth theme. By continuing for the time being to regulate the incumbent phone companies’ tariffs for local telephone services, including VoIP services, we hope to create conditions that will give new entrants a fair chance to establish themselves and create sustainable local telephone businesses. This, we believe, will lead eventually to a competitive environment that will be sufficient to protect the interests of users and make continued price regulation by the Commission unnecessary. To put it simply: price deregulation is the Commission’s intended end-game in local telephone services. The VoIP decision is a means to that end. We are regulating today so that we will be able to deregulate tomorrow. While we cannot be sure when exactly tomorrow will come, at the end of April we announced a proceeding to establish a precise framework for forbearance. The next several years are going to be a critical time for the sector. Soon enough, we at the Commission and you in the industry will have a clear sense of whether and when VoIP will indeed be able to fulfill the promise of supporting real competition in local telephone services. Our forbearance proceeding is going to give us – with your advice and input – the tools we will need to bring down the final curtain on tariff regulation when the moment is right.

Regulating based on today’s reality, not on tomorrow’s promise

News | June 9, 2005

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