ILECs fight competitors on re-evaluation of forbearance forumla

The CRTC’s decision to re-open the debate on some of the forbearance criteria in the local telephony market (NL, Sept. 1/06) has succeeded in solidifying well-entrenched opinions on competition in the telecommunications market. But it has also served to expose a rift between the cable companies and smaller competitors. Telecom Public Notice 2006-12 asked for comments on three issues: the relevant market-share loss threshold for the incumbent carriers before they can file a forbearance application; whether the commission should maintain the current 20% market-share loss threshold before ILECs can engage in any winback activities; and whether wireless services should be included in the calculation of market-share loss. Market share loss threshold Opinion on the appropriate market-share loss threshold ranges from a proposal for no threshold at all, to maintaining it as it is and even increasing it in the short term. Citing what they see as evidence of increasing competitive activity in the local services market, resulting from the entry of dozens of local service providers, low barriers to entry, intense competitive rivalry between local services competitors, and rapidly expanding supply capabilities and customer bases, Bell Canada, Aliant and SaskTel argue that "in markets where alternative facilities are present the market-share loss threshold for granting local wireline service forbearance should be ." Bell defines alternative facilities as including "network facilities self-supplied by the alternate provider as well as the networks of providers which combine their facilities with the unbundled loops or competitive digital network (CDN) services that the alternate provider may lease from the ILEC or any other provider of facilities." If the CRTC rejects the 0% suggestion, Bell contemplates a 5% market-share loss as "sufficient evidence that competitive offerings are available in a market and customers are willing to subscribe to those competitive offerings." Telus Corp. notes that the current market share loss threshold is not required and is too high. However, rather than suggesting a specific number, the company states that "it is not in a position to propose different thresholds because there is simply no principled basis on which to do so due to the lack of a relationship between market share and market power in the type of market under consideration." Canada’s major cable companies – Shaw Communications, Rogers Communications, Cogeco Cable and Quebecor Media – take a more supportive line, stating that the current 25% threshold is "the minimum market-share loss threshold sufficient to demonstrate that competition is sustainable." They recommend that the current level not be changed. The cable companies admit that while they have engaged in aggressive marketing practices, including lower pricing and bundled offers, the incumbent carriers have "continued to conduct themselves as incumbents with market power, raising not lowering prices and have engaged in rivalrous behaviour only with the smallest possible group of higher margin customers." Access Communications Cooperative is adamant that the commission not reduce the current threshold because "market conditions have not changed in Saskatchewan since 2004. There are still no competitive suppliers of local exchange services operating in Saskatchewan at this time." Primus Telecommunications Canada suggests that just because the cable companies have been successful in local telephony markets doesn’t mean the 25% market share loss threshold should be changed. The company argues that the commission is ignoring the potential impact of lowering the threshold on non-cable competitors in the local telephony market. A small minority of competitors and other intervenors have taken the position that 25% is too low. The Consumers’ Association of Canada (CAC) and the Public Interest Advocacy Centre (PIAC) argue while 25% is too low, it does approach their recommended minimum level. UTC Canada, WTC Communications and Wightman agree with the CAC and PIAC that the current threshold isn’t high enough. "Simply put, UTC Canada believes that the thresholds established for local forbearance and the elimination of the winback rules are not high enough to ensure that competition in each local LFR will be sufficient to protect telecom users," states UTC. WTC suggests that the recommended threshold should be 30%, with at least one competitor capturing 15% of the market. Winback threshold ILECs also take aim at the 20% threshold for allowing winback activities. Bell maintains its view "that the winback rule is unconstitutional , not supported by current telecommunications policies as expressed in section 7(f) of the Telecommunications Act (the Act) and the federal government’s proposed Policy Direction to the commission and should be discontinued. Therefore, there should not be any share-loss threshold related to the elimination of the winback rule." Telus didn’t comment on the winback threshold specifically, only stating that the use of thresholds doesn’t provide useful information regarding market power in recently liberalized markets. It notes, though, that if thresholds are to be used "the market shares of all providers of all substitute services must be taken into account, and the thresholds must be significantly lower than 25% and 20%." The cable companies urged the commission to not change the winback threshold, stating that the "modest and time-limited restrictions on marketing that are imposed by the winback rule are essential to mitigate the ability to engage in anti-competitive conduct that these activities confer on an ILEC that still serves more than 80% of the customers in a market. Rapid market share loss does not alter this fact. Moreover, the fact that churn rates have declined as a result of the winback restrictions reinforces the importance of the winback rule, not the reverse." FCI Broadband went a step further in its argument, stating that "reducing the market share threshold for removing the winback restrictions, in conjunction with Bell’s detailed knowledge of most customers’ local telephone requirements, will enable Bell to constrain or diminish competition." FCI argued that the commission must consider arguments from other competitors such as itself, which are smaller and do not necessarily have the resources of the cable companies to market and retain customers. In addition, FCI was particularly adamant that the commission be attentive to such things as quality of service indicators which are crucial to FCI’s business. Not meeting a due date for the provisioning of a loop, for example, means "lost customers, lost revenues and a diminishing of reputation and reliability. As this problem compounds, FCI Broadband’s ability to achieve greater market share is made more difficult."One competitor – Eastlink – recommended that "If any change is made to this threshold it should be increased" and also recommended that the threshold only be removed once the incumbent carrier had been granted forbearance. Reply comments were due on November 7. The commission is expected to issue a decision sometime in March, 2007. The issue of adding wireless subscribers to the calculation formula for forbearance purposes will be explored in the next issue of Network Letter affiliated publication Report on Wireless. It is scheduled to be published during the week of November 13.

ILECs fight competitors on re-evaluation of forbearance forumla

News | November 9, 2006

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