Small telcos challenge ‘obligation to serve,’ say it increases the digital divide

Two organizations representing 30 small telcos in Quebec and Ontario have filed a petition with the federal cabinet asking for a review of a CRTC decision that will allow increased competition in their service territories. The petition, filed with the government Friday by the Association des compagnies de téléphone du Québec (ACTQ) and the Ontario Telecommunications Association (OTA), said the commission’s new framework for introducing competition in some rural and remote areas will leave the small telcos bankrupt within five years and have a negative impact on local services. They argue that this is contrary to the objectives of Canada’s telecom policy, which emphasizes a need for rural households and communities to have access to high-quality telecom services. “By introducing local competition in the rural and remote areas of Canada using a regulatory framework it developed for large urban incumbent carriers like Bell Canada and TELUS , the CRTC has misunderstood how feasible it will be to rely on market forces to ensure that the telecom policy objectives are met,” the joint application between the ACTQ and OTA said. “The CRTC’s ‘cookie-cutter’ approach disregards local operating conditions, fails to account for uniquely high cost structures, and is certain to impose crippling financial consequences on small, rural-based companies facing competition,” the petition said. The associations are asking the government to review and vary the CRTC's “obligation to serve” decision issued last May. That decision ended a decades-old regulatory framework that subsidized small incumbent telcos and protected them from local competition in exchange for their services in high-cost, unprofitable remote areas. As a result of the decision, the commission is allowing competing providers to enter the small incumbents' territories and will subsidize the costs of allowing the new players to access their networks. The small incumbents remain obligated to serve high-cost service areas in their territories, but the new entrants will not face the same obligations. The CRTC’s approach applies urban competition to rural areas and “ignores the reality” that the rural incumbents are the small, local players, while the new entrants are “large, well-financed” cable providers entering the telephone and Internet services markets, the associations said. The decision will mean the newly competing cablecos will be “free to ‘cherry-pick’ households residing in the more densely populated areas already passed by their cable network and to ignore serving those residing in more remote parts of the service area,” the organizations said. They added that the small incumbent telcos will “have no choice” but to use a greater proportion of their resources to compete in the low-cost service areas at the expense of the higher cost remote areas. “Inevitably, this will lead to erosion of both telephone and internet service and a new digital divide in Canada, at a time when the need for Canadians in rural and remote regions to access high quality, reliable telecommunications services has never been greater,” the petition said. The CRTC decision will also lead to the demise of small incumbent telcos, the groups said, reporting that “virtually all” of their member companies that now face competition from a large cableco “believe that they will be entering bankruptcy, or a situation very close to bankruptcy, within 5 years.” They said the policy will mean many rural communities will be served by one provider, “though one managed from a distant city, with limited local connections, concentrated in the lower-cost, higher-density part of the service area, and with no obligation or economic incentive to serve households in more remote and rural locations,” the groups said. The groups used the same arguments when they asked the CRTC to review and vary the same decision last year. The commission denied that request in a split-decision last November, leading the groups to launch their petition with the federal cabinet. The associations are now asking the government to order the commission to revert the small telcos’ subsidy payment formula to the one in place prior to the CRTC’s obligation to serve decision. They have also asked that the CRTC order new entrant competitors “to pay the start-up costs associated with the introduction of local competition” and to fund related costs through a central fund designated for subsidy payments. In a separate application filed with the commission Friday, the groups have asked the CRTC to stay the implementation of various aspects of its obligation to serve decision until the cabinet completes its review. news@thewirereport.ca

Small telcos challenge ‘obligation to serve,’ say it increases the digital divide

News | February 6, 2012

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