CRTC denies Bell proposal to freeze price cap during deflation

The CRTC has denied an application by Bell Canada, and its affiliates Bell Aliant and Telebec, to freeze the 2010 price cap on local phone rates due to potential deflation in the market. The CRTC allows local phone rates to increase over time with inflation. In times of deflation, telecommunications companies are expected to apply an "inflation measure" to pass down cost reductions to customers in the form of reduced prices on their home phone plans. Bell’s 2009 application proposed to change the price cap formula so that the inflation measure on the 2010 cap—for the period June 1, 2010 to May 31, 2011—is zero. The change would have left rates unchanged during a potential period of deflation, when they could have decreased. In a decision Wednesday, the CRTC said it would be appropriate to apply negative inflation to capped services, with the exception of services in high-cost serving areas. Had Bell’s application been approved, the following telephone services would have been frozen at the same prices in a deflationary economy: 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 a letter responding to Bell’s application, Northwestel supported the application, arguing that the high cost of serving remote communities continues to rise and that the company cannot afford to reduce phone plan prices during deflation. “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,” the company’s letter said. “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.” In remote areas, keeping prices in sync with deflation would mean further subsidies where the rates are already below costs. Rogers Communications Inc. also supported freezing phone prices in high-cost, or rural, areas. But Rogers also argued that phone prices could drop with deflation in competitive areas, where services are cheaper to provide. “We basically argued exactly what the CRTC ordered,” Ken Engelhart, Rogers’ senior vice president of regulatory affairs, told The Wire Report. “We said they shouldn’t reduce prices in the high-cost areas and they should reduce competitor services.” In areas where there is enough competition among local exchange carriers, or phone companies, Bell argued that it had never contemplated negative inflation when the price cap formula was first put into place. Bell also said that deflation in the telecom industry could cause a negative domino effect across the Canadian economy. “They were trying to say that you would get on this overall deflationary spiral, where the prices of everything would start to go down,” Engelhart said. “It just seems unrealistic that telecom by itself could create a deflationary spiral.” In a submission in response to Bell’s application, Internet service provider TekSavvy Solutions said regulation of overall deflation falls outside of the CRTC’s jurisdiction. “Neither the Objectives, nor the policy direction require or permit the Commission to engage in macro inflation policy,” said the letter. “For the Commission to do so would be economically distortionary, inefficient and arguably illegal.” Bell did not have a regulatory source available for comment Monday. jmigneault@thewirereport.ca

CRTC denies Bell proposal to freeze price cap during deflation

News | March 17, 2010

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