Concerns raised over small ILECs regulatory framework proposal

A proposal from the Canadian Independent Telephone Company Joint Task Force (CITC-JTF) to create a new price cap regime for small local telcos, including a new subsidy pool to help fund them, is being met with stern criticism from some of the larger telcos and cablecos. According to the JTF, the new regime is required to set the rules for greater long distance competition in the small incumbent local exchange carriers’ (SILECs) regions. “If the proposal is adopted, long distance competition in SILEC territories will be encouraged through lower interconnection rates, SILECs will be able to use their additional pricing flexibility to compete more effectively with cable companies and other competitors who offer telephony services in SILEC territories,” the JTF told the CRTC in July. MTS Allstream Inc., Rogers Communications Inc., Bragg Communications (EastLink) and Telus Corp. say the proposal – negotiated with Bell Canada and Bell Aliant – will only serve to line small ILECs’ pockets with money from the other telephony providers. “This is a new and unprecedented subsidy proposal through a ‘negotiation’ designed to serve their own interests while increasing contribution costs to all other competitors,” wrote MTS Allstream Inc. in its initial comments to the proposal. The Manitoba incumbent also noted that the CRTC denied a previous and similar request from Northwestel in 2007. In that decision, the commission said it was inappropriate for the northern ILEC to recover lost interconnection revenue from the national contribution fund. A key part of the JTF proposal is to lower long distance interconnections rates – fees charged to telephony providers interconnecting to the small ILECs in their markets – closer to actual costs. This loss of revenue would be funded by additional subsidy payments from other telephony providers and would be administered in a manner similar to the National Contribution Fund. Competitors entering the small ILECs’ markets would pay into the new fund, but would be able to draw from it if they had fewer than 20,000 subscribers. EastLink and Rogers take issue with this point. Since they would have to pay into this new fund, they should be able to draw from it if they enter a small ILEC area, the companies argued. “Given the value to consumers of bringing competition to these high cost serving areas, it is inappropriate for the commission to deny CLECs who plan to enter into these areas the right to this subsidy,” EastLink wrote. “It is particularly inappropriate given that EastLink is a TSP (telecom service provider) that pays into this fund and therefore indirectly will finance the SILECs’ ability to compete with EastLink in these serving areas.” Telus agreed with EastLink and Rogers, noting that the JTF proposal seeks to ensure the “the viability of the SILECs” and to ensure their “financial predictability” over the four-year price cap period. “The proposal provides unwarranted protection of the SILECs, to the detriment of all other parties including all other telecommunications service providers who must pay higher contribution payments than would otherwise be the case and the general body of subscribers who must ultimately bear these costs,” the company writes. MTS argued that the JTF’s price cap plan provides enough flexibility to offset the loss of revenue from reduced interconnection charges. It points to the potential price increases the small ILECs will be able to implement over the four-year price cap regime: local business service rates could be hiked as high as $68.55 from the current average rate of about $47.50. In reply comments, the JTF countered claims that the proposed framework “will serve to artificially prop-up the financial position of the SILECs in the face of competition,” as was suggested by Telus. “The outright dismissal of the competitive environment facing SILECs and the exaggerated presumptions of the financial and other resources of the SILECs to establish costs and absorb revenue reductions through rates increases reflect the very myopic view of large established ILECs facing little if any real competition in the rural markets where they provide services,” responded the JTF. On the issue of limiting access to the new subsidy pool, the small ILECs say it’s appropriate. “The SILECs remain of the view that most CLECs that enter SILEC territories are typically very large companies that have financial resources far in excess of the SILECs and that the contribution subsidy is unlikely to be a material consideration in their expansion decision,” the JTF argued. In addition, it notes that the framework as proposed “will have no impact on the level of competition in SILEC territories.” Perry Hoffman is an Ottawa-based freelancer. He can be reached at perry@messagingmechanics.com.

Concerns raised over small ILECs regulatory framework proposal

News | 10/06/2009 2:41 pm EDT

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