ILECs, competitors begin debating definition of wireless substitution

While the CRTC very well may determine that mobile wireless services should be considered in the same market as wireline services with respect to forbearance, which wireless subscribers can be counted against an ILECs market share will be another issue altogether. "The fact that there are some households for whom a wireless connection is an effective substitute for wireline does not provide any justification for including the entire base of wireless service connections," submit Cogeco Cable Inc., Quebecor Media Inc., Rogers Communications Inc., Shaw Communications Inc. (the Competitors) in their initial comments to the CRTC on the matter. "The vast majority of households have not and would not consider wireless as a substitute for their wireline service." In contrast, the submission from ILECs Bell Canada, Bell Aliant, SaskTel and Télébec (the Companies) conclude that the total number of wireless subscriptions, both pre-paid and post-paid, should be included in any formula calculating market share for forbearance purposes. "The companies are not aware of any situation in which the commission has considered using only a subset of demand for a substitute service in forbearance determinations," state the Companies. One rationale mentioned in multiple submissions was to use only wireless-only households in a share-loss calculation. The Companies, however, found this approach lacking because it ignores instances where consumers use multiple competing products, and stated: "It is erroneous to equate substitution with the total replacement of one product for another." To polarize the issue, Manitoba incumbent MTS Allstream oppose the inclusion of wireless-only households on the basis that it doesn’t sufficiently represent substitution. Instances where a wireless-only consumer moves into their own house and chooses not to subscribe to wireline service result in a wireless-only household where no actual substitution has taken place, argues the telco. MTS completely opposes the inclusion of wireless services in forbearance calculations citing, among other things, that the commission previously "found increasing evidence that several Canadian carriers offer bundles consisting of both wireline and mobile wireless services, which would suggest that the two services are not substitutes for each other." The Companies also submitted that wireless is marketed as a replacement to wireline, pointing to unlimited evening and weekend calling, family plans that are attractive to multiple users and reduce some of the benefits of wireline service. "The increasing range of pricing plans to suit different customers needs further enhances the value of a wireless phone as a connectivity device, leading to increased substitution of wireless for wireline service," read the Companies’ submission. Much of the numerical evidence supporting the need for including wireless services in forbearance calculations comes from Statistics Canada’s Residential Telephone Service Survey (RTSS), which was released April 5. According to the survey, there were more than 615,000 wireless-only households in Canada in December 2005, up from 332,000 in December 2004. This represents a rise in the percentage of wireless-only households in Canada from 2.7% to 4.8%. Telus Corp. leans on the figures from the RTSS in its submission, but added three additional points demonstrating that wireless service limits the ILECs wireline pricing: there only needs to be enough customers willing to switch to wireless due to a wireline price increase to make the increase unprofitable; price and price structure don’t have to be the same for two services to be considered in the same relevant market; and it is important if customers perceive wireless service as a substitute to wireline, regardless of how it is marketed. However, the Public Interest Advocacy Centre (PIAC) disputes the RTSS in its submission and question its use as a tool for measuring substitution. "Nowhere in the RTSS questionnaire are respondents presented with specific question on whether they have switched from wireline to a wireless subscription," submits PIAC. The association adds that the ILECs have to use conceptual and hypothetical economic arguments regarding the substitution of wireline by wireless because no empirical evidence exists. Also in response to the survey data, the Canadian Cable Systems Alliance Inc. (CCSA) urges the commission to consider that the measurement of wireless-only households should account for the skewing of the provincial average between regions that contain major metropolitan centres and those that don’t. It has been shown that wireless substitution is much greater in urban centres than in rural areas, and the CCSA is concerned that forbearance would be accelerated in rural regions. The CCSA, the Competitors and PIAC are also adamant that ILECs not be permitted to count wireless-only households that subscribe to a wireless service provided by that same ILEC or its affiliate in the market share-loss calculation. If this were allowed, submitted the CCSA, there would be a strong incentive for the ILECs to promote converting existing wireline households to their own wireless service. "The result of such action," continued the CCSA, "would be to place the primary line services provided to such customers into an environment that is already forborne from regulation, thereby circumventing the regulatory safeguards that currently apply to the provision or primary line service." Telecom Public Notice 2006-9 will continue with interrogatories due August 18. The deadline for responses to interrogatories is September 8.

ILECs, competitors begin debating definition of wireless substitution

News | August 17, 2006

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