Consumers and business could see lower phone rates in 2010 unless CRTC intervenes

What may be good for consumers is not always good for the economy, it seems. The real prospect of economic deflation in 2009 could result in lower phone rates for consumers and businesses across Canada starting next June. In a petition filed with the CRTC last week, Bell Canada and two affiliates say the unintended consequences of a three-year-old price cap decision could undermine efforts by the Bank of Canada to stabilize the economy. The 24-page Part VII application was filed Nov. 17 by Bell Canada, Bell Aliant and Télébec. It argues that the CRTC’s 2007 price cap decision – designed to protect consumers from unreasonable rate increases – based its pricing formulas on the assumption that inflation would occur annually. It appears there was no accounting for the impact deflation would have on the formula – such as a potential one-year cut in phone rates for residential and business customers at a time when dropping prices are fueling deflation. “... a review of the Commission's decision makes it clear that the Commission never contemplated negative inflation when it set the price cap parameters,” the companies write. As such, they say the pricing formula – which is based on several productivity inputs – is flawed, and that to mandate price and cost reductions via a regulatory formula “would be contrary to sound economic policy” and “interfere with the natural development of market forces.” The result of that decision , the telcos argue, is a policy that contradicts the Bank of Canada’s efforts to prevent deflation. “Given the Bank of Canada's efforts in this regard, it would be entirely contrary to this policy for another government agency, namely the Commission, to require ILECs to reduce prices for capped telecommunications services as a result of a negative inflation rate, which is the expectation for this calendar year,” the petition states. Such action, they caution, “would send the wrong signal to the Canadian market”. Deflation for 2009 looks almost certain. Economic indicators suggest the inflation rate for 2009 could be as low as -2-3%, although actual results won’t be known until Statistics Canada releases data on March 1, 2010. The telcos warns that downward pressure on the pricing formula would also trigger a reduction in the amount of money that flows into the National Contribution fund, which subsidizes the high cost of local service in rural and remote areas where rates are below costs. The companies are asking the CRTC to suspend any rate reductions for one year – the length of time most economists predict for the recession to end. The telephone service categories included are: residential local services in high-cost serving areas,; residential local services in non-high-cost serving areas; business services; other capped services; competitor services; services with frozen rates; payphones; and uncapped services. The petition also calls for the rate ceiling to be maintained for residential local service in unregulated high-cost serving areas. Tightening corporate budgets to accommodate the rate reductions isn’t an option, the telcos contend. They point out that while prices are dropping throughout the economy, many of their operational costs are fixed. “As an example, consider the wages and benefits paid by the ILECs. Many workers are unionized, and contract provisions may prevent or delay wage declines. This in turn places constraints on reductions in managerial compensation. Thus, even in deflationary times, the ILECs are very limited in reducing labour input prices,” the telcos write. The petition asks for the CRTC to respond by March, 21, just 30 days before Statistics Canada releases the country’s 2009 economic growth numbers.

Consumers and business could see lower phone rates in 2010 unless CRTC intervenes

News | November 24, 2009

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