Forbearance ruling brings criticism and applause from telecom companies

The CRTC’s landmark decision setting the framework for local service forbearance has been hailed by some and criticized by others. Incumbent telephone companies complained the commission missed the boat, while cablecos and competitive providers applauded the CRTC for allowing competition to develop. The commission ruled in Telecom Decision 2006-15 that incumbent telephone companies have to lose 25% market share before they can submit an application for forbearance in a given market. The CRTC set the geographic scope of forbearance at census metropolitan areas for urban areas and economic regions based on StatsCan definitions for rural regions. As well, ILECs have to provide competitors access to their networks according to quality of service indicators for a period of six months prior to the submission of an application. The CRTC also reduced the no-contact period for winback activities from 12 months to three months for incumbent telephone operators. ILECs can now request relief from winback restrictions once they have lost 20% market share. Bell Canada was the harshest critic of Decision 2006-15. Mirko Bibic, chief of regulatory affairs at the incumbent telephone company, tells Network Letter the industry was expecting something different. "Personally I went in there, the industry went in there expecting a decision setting a framework for deregulation and we have a framework for yet more regulation," he says. Bibic wouldn’t single out a specific part of the decision as having the greatest negative impact on ILECs. "The whole thing is bad is for consumers…and what’s now become painfully clear is that the CRTC will not fix the system nor fix itself. You just can’t reform it. You need to completely change and replace the regulatory framework that we have. That’s what’s become clear as the light of day," he says. Janet Yale, executive VP of corporate affairs at Telus Corp., was equally unhappy with the ruling, saying the commission approached the issue in the wrong manner. She maintains that the CRTC should have been coming at forbearance from the direction of determining if there is a viable, meaningful alternative in the market, rather than looking at whether or not the incumbent provider has significant market power. "Our view was that was the wrong way to come at it. But even if you were coming at it that way, 25% was too high," she tells NL. "Our view was 15% is more than enough to satisfy that concern." The Telus executive refers to the test for cable rate deregulation, which was set at 5% market share loss from incumbent cable operators to direct-to-home (DTH) satellite players. But the cable companies and the CRTC itself believe this is a completely different market with its own set of unique circumstances that can’t be applied in the telecom world. CRTC chair Charles Dalfen tells Network Letter that the circumstances are different with DTH because cable companies faced a situation where the DTH competitor could serve every single one of their customers. "Here, it’s almost upside down. You’ve got incumbents serving the entire country…for many years, 100 years in many cases, and the competitors , either through cable systems or through resale or through other means, market by market usually stopping in urban markets. So it was a very different situation facing well-entrenched incumbents with customer relationships going back decades….In this circumstance, we didn’t feel that 5% was the right number," he says. Ken Engelhart, VP of regulatory affairs at Rogers Communications Inc., agrees that the situation is different. "Don’t forget when we lost 5% of the cable television market, 25% of the television households didn’t have cable service – those are people that got their television signals over the air. So when we lost 5% of the cable television market, we were down to 70% of the home," he explains. Rogers had called for a 30% market share loss threshold during the hearings last year, but notes the company can live with the 25% level and rebukes suggestions that this number is too steep. "I don’t think it’s an unrealistic number. Would you look at a market for shoes where one guys has 80% of the shoe market and say, ‘Oh that’s a competitive market’?" he says. "The question you’re asking is when is it competitive? I think at 75% for the incumbent…it’s challenging even to call that a competitive market, but I can get my head around it; 95% for one guy, it seems a bit crazy to call that competitive." Requests for an interview with Canadian representatives from Vonage Holdings Corp. were turned down due to the company’s initial public offering (IPO) filing with the Securities and Exchange Commission in the United States. But the company notes in a statement the ruling is consistent with arguments that the CRTC shouldn’t deregulate until there is sustainable competition. "With these new rules, Vonage Canada believes all companies, regardless of size, will have an equal opportunity to compete for Canadians’ telephone business on a level playing field," Bruce Robertson, director of marketing programs, said in a statement. Both Telus and Bell Canada haven’t ruled out the possibility of an appeal. "I think an appeal to the federal Cabinet is a very strong possibility and don’t be at all surprised if there is a leave to appeal application to the Federal Court at least on the winbacks issue, if not more," Bibic says.

Forbearance ruling brings criticism and applause from telecom companies

News | April 12, 2006

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