Local competition shouldn’t be viewed on case-by-case basis, says von Finckenstein

Opening up rural and remote communities to local competition on a case-by-case basis would lead to “special deals,” CRTC chairman Konrad von Finckenstein said Thursday at the basic services hearing. “Categorically and emphatically, I don’t like case-by-case. I want rules, not special deals for special companies. You will always be accused as a regulator of making special deals for special companies if you use case-by-case,” he said. Thursday was the third day of a two-week CRTC hearing reviewing access to basic telecom services. One of the issues for review is whether areas served by small incumbent phone companies, also known as small incumbent local exchange carriers (SILECs), should be opened up to competition. Von Finckenstein’s comments came in response to a proposal for a case-by-case approach to introducing competition for SILECs. Under the current regulatory framework, SILECs can apply to have their territories opened to competition after receiving requests from competitors. Since the policy was established in 2006, only three territories have been opened to competition: NorthernTel serves two of the regions, and TBayTel one. When the CRTC established its policy in March 2006, there were 38 SILECs in operation, serving less than two per cent of the country’s population. Competitors argue it would not be competitively neutral to deny competition, but many SILECs say allowing competition would risk their financial viability. At the heart of the SILECs’ argument is what they call the “donut effect,” which arises when a competitor is allowed to enter a small market but only targets its profitable urban core. In such a case, SILECs have to compete with players that don’t share their obligation to serve non-profitable regions. Thirteen applications to open markets to competition have been suspended as commission policy is reviewed. Nine of the applications date back to 2008. Speaking at the hearing Thursday, Jonathan Holmes, executive director of the Ontario Telecommunications Association (OTA), told the commission it supports the commission’s case-by-case review mechanism. But Holmes said the process should be refined by creating two categories of SILECS. Category 1 SILECs would be defined as those with less than 2,500 network access points and wouldn’t have their markets opened to competition. Category 2 SILECs would be defined as those with more than 2,500 network access points, and would be open to competition. Some Category 1 SILECs could also be considered Category 2 if they have the capacity to absorb local competition. Category 2 companies could operate in areas opened to competition, but on an area-by-area basis instead of on a company-by-company basis, the OTA said. “New entrants could simply elect to enter those SILEC Category 2 exchanges where the commission has determined on balance, after careful, case-by-case assessment, that competition benefits outweigh any operational and financial concerns the SILECs in question may have,” Paul Downs, president of Nexicom Telephones Inc. and a member of the OTA, told the commission Thursday. But von Finckenstein responded that he does not favour a case-by-case approach. “I want to have a formula, I want a principle that you apply,” he said. Von Finckenstein said the OTA’s approach was “too qualitative” and would ultimately lead to industry criticism of the commission’s rulings. The chairman also questioned whether the donut effect has “actually ever happened.” “Let’s assume this happens … You go belly up. Presumably your assets and your operations will be sold in bankruptcy. All of those customers, they need service,” he said. “I can’t imagine that Bell or one of your competitors wouldn’t step in and buy it at bankruptcy prices. That, in effect, there would be no service to those outlying areas seems to me a theoretical possibility, but not a realistic one.” Len Katz, the commission’s vice-chairman of telecommunications, added that preventing competition from entering small markets could ultimately hurt consumers due to a lack of choice. “You do understand it’s a balance because we’re not giving the customer the opportunity should someone want to come in to that market to provide alternative services, different or better, as the case may be,” he said. But the OTA said consumers “have not suffered” and have already access to competitive services through wireless and voice-over-IP services. TBayTel, which also presented at the hearing Thursday, said the CRTC should continue introducing local competition in small markets without allowing SILECs to collect start-up costs from competitors. Bragg Communications Inc., which operates as EastLink, said Wednesday that the commission should allow local competition. While in its main territory the company is an incumbent phone company, or an incumbent local exchange carrier (ILEC), in other areas it also acts as a “competitive” carrier. Eastlink has filed five applications to enter SILEC markets. “We request that the commission lift this suspension so that consumers in these communities can receive the benefits of competition,” Eastlink’s regulatory vice-president, Natalie MacDonald, said. “EastLink respectfully submits that the SILECs have exaggerated the costs that they will incur by permitting competitive entry.” MTS Allstream, which also presented at the hearing Wednesday, said that local competition should be permitted, but that SILECs should not be given any “special considerations.” “Competition, when it exists, is good for consumers, good for businesses, and good for Canada, because it symbiotically drives investment and innovation,” MTS vice-president of regulatory affairs, Teresa Griffin-Muir, said. “We therefore think that protecting SILECs within their territories, yet allowing them to compete outside of their territories, runs counter to competition.” Bell Aliant told the committee Tuesday it also supports local competition. Hearings resume on Nov. 1 in Gatineau. kfournier@thewirereport.ca

Local competition shouldn’t be viewed on case-by-case basis, says von Finckenstein

News | 10/28/2010 10:25 pm EDT

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