Bell finds allies and foes in bid to avoid cutting phone rates starting June 1

The CRTC allows local phone rates to increase in times of inflation, but should rates be allowed to drop in times of deflation? It’s a thorny regulatory question that has pitted Canada’s largest telco against its competitors and consumer advocates. A new proceeding is now under way to decide whether phone rates will stay flat or drop beginning June 1. The CRTC received written comments Jan. 7 in response to a Dec. 1 notice, which called for a broader proceeding, involving all ILECs and CLECs, to consider a Nov. 17 Part VII application by Bell Canada and its affiliates. Bell wants the CRTC to tinker with a price cap formula that, if left unchanged, would force incumbent telcos across Canada to lower phone rates for one year in high cost serving areas, starting June 1. It wants the regulator to keep the price cap for 2010 at zero, which would leave rates unchanged. Bell and its affiliates, Bell Aliant and Télébec, say the 2007 price cap decision – designed to protect consumers from unreasonable rate increases—based its pricing formulas on the assumption that inflation would occur annually. Bell contends 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. Deflation for 2009 looks almost certain. Economic indicators suggest the inflation rate for 2009 could be as low as negative 2 to 3 per cent, which would automatically trigger a rate reduction of about 3.2 per cent for the following telephone services: 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. In its Jan. 7 intervention to the CRTC, the Public Interest Advocacy Centre takes aim at Bell for attempting to rewrite price cap rules that are still relatively new. PIAC says if the commission was concerned about a deflationary impact, it would have allowed for this in its original decision. Bell’s application, contends PIAC, reflects a view that CRTC decisions are “opening gambits in a regulatory routine of haggling and corner-cutting that has more in common with an Arabian market bazaar than a final rule-making tribunal. In this case, while the efforts of Bell are creative, they continue the pattern of litigiousness ... that ultimately subverts the integrity of Commission decisions.” PIAC and others also reject Bell’s claim that lower phone rates would contradict the Bank of Canada’s efforts to prevent deflation. ISP provider TekSavvy Solutions Inc. points out that the Bank of Canada and the CRTC have different statutory obligations. The CRTC’s priority, the ISP says, is to ensure that rates charged by Canadian carriers for telecommunications services are just and reasonable; it’s not the commission’s priority to get involved in macro inflation policy. “For the Commission to do so would be economically distortionary, inefficient and arguably illegal,” the ISP writes. TekSavvy urges the CRTC to reject Bell’s application, saying the request violates the principles of price cap regulation. MTS Allstream also opposes what it describes as “Bell’s attempt to manipulate established regulatory policy simply because the market conditions in which all parties must operate negatively affect Bell in this instance.” Rogers Communications Inc. supports most of Bell’s application, but rejects its attempt to avoid a rate decrease for tariffed competitor services. “... The reduction would amount to around $2M or less for all competitors and would have no measurable impact on any deflationary trend. Moreover, given the thin margin in the retail business market, it is highly unlikely that this one-time wholesale price reduction would flow through to retail price reductions by competitors. This further mitigates any deflationary impact,” Rogers writes. Not surprisingly, Bell’s application is supported by other ILECs—notably Telus, SaskTel and Northwestel—all of which are facing rate reductions unless the price cap formula is changed. SaskTel, for example, argues that negative inflation is “is an extraordinary event and inconsistent with the Commission’s experience with price cap regulation.” It also makes no sense, SaskTel notes, to lower rates in high cost rural and remote serving areas because the rates are already set at below cost. Northwestel points out that it’s not realistic for it to lower rates when the cost of serving remote communities continues to rise. “For example, Northwestel relies on helicopter usage, on a relative basis, more than any other telecom in Canada due to the remote nature of our network infrastructure, and the extreme length of our transport network,” Northwestel writes. “Furthermore, the Company notes that the costs to send a technician to a remote community including local transportation, lodging, meals and air transportation have not decreased in 2009.” The deadline for filing reply comments to the CRTC is Jan. 14.

Bell finds allies and foes in bid to avoid cutting phone rates starting June 1

News | January 13, 2010

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