New price caps give ILECs pricing flexibility, but not virtual forbearance

Canada's incumbent telephone companies have secured significant pricing flexibility that will allow them to compete more effectively without having to first be deregulated. On April 30, the CRTC released the rules for the new price cap regime, which comes into effect this summer. Some parties have suggested that the new more free-market approach to price caps that the commission has adopted amounts to virtual forbearance, but the head of regulatory affairs at Bell Canada counters that this is not the case. Mirko Bibic says the CRTC's recent price cap decision is welcome but "from a market-based approach to regulation, isn't forbearance." And Bell certainly won't stop its drive for regulatory forbearance by other means. "Our applications are in," Bibic says. "We're not withdrawing them and even if we hadn't filed them, we would still forge ahead to file them," he tells Network Letter. Bibic notes that the detractors of the new regime have focused on "big ticket items" without giving full appreciation to the "panoply of regulation below the surface" that incumbent telephone companies have to deal with in a price cap or regulated environment. He highlights such things as adhering to the price floor and ceiling, filing detailed cost studies, waiting for tariff approval, and following a consumer quality-of-service regime.They might seem minor to outsiders, but these obligations are "very real, tangible and costly for us internally," Bibic says. For obvious competitive reasons, he wouldn't go into specifics regarding direct costs, but notes that indirect costs also have a negative impact. For instance, having to wait for approval before rolling out new services has "secondary and tertiary effects in the marketplace and on your ability to compete. I can't quantify it, but it's real."Consumers gain more powerUnder the new price cap regime, consumers residing in still-regulated areas will benefit from a more market-based approach to pricing, and bundles might be the first place they start to see some price changes. The new regime gives the ILECs greater flexibility when it comes to pricing bundles, and this, according to Bibic, is a positive step. "I think consumers in areas which continue to be regulated ought to be see bundles comparable to what the forborne areas will see," he says. Bibic's comments came only a few days before Bell Canada introduced its Bell Bundle that offers consumers discounts if they subscribe to at least two of the following services: long distance, Internet, TV and mobility. Customers can save $5 per month when subscribed to two services, and $20 per month when subscribed to all four. It shouldn't come as a surprise that not everyone believes that consumers will benefit from the new price cap regime. CRTC commissioner Stuart Langford didn't share the opinion of the majority and dissented from the commission's April 30 decision, expressing doubt that consumers and competitors will benefit from the decision. He questioned the merits of the ruling, noting that properly constructed price caps can imitate a competitive marketplace in the short term, and in the long run establish conditions where new competitors will enter the market. Langford suggests the new price cap regime "fails on both fronts" by depriving "consumers of the key benefit of competition, lower prices, and provides incumbent telephone companies with excessive powers, powers that can only frustrate the rollout of competition in their territories." Rogers Communications Inc. wasn't impressed with the new price cap rules, and during its first-quarter financial and subscriber results conference call, VP of regulatory affairs Ken Engelhart described the new regime as virtual forbearance. But, he noted, price cap changes are "relatively less important" compared to the April 4 changes to winback and promotions rules. He is referring to the Industry Minister Maxime Bernier's decision to throw out the CRTC's previous local forbearance regime and put in place his own less rigorous framework.

New price caps give ILECs pricing flexibility, but not virtual forbearance

News | May 18, 2007

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