CRTC keeps Phase II wholesale rates approach with enhancements

The CRTC has opted to keep its cost-based rate setting approach for wholesale telecom services but made a few enhancements such as directing wholesale service providers to provide market-level information with its rate-setting applications, ensuring regular updates are made to the Regulatory Economic Studies Manuals (manuals) which cable carriers must file in nine months, and allowing providers to use the approved rates of other service providers. “Phase II-type approaches continue to be consistent with the wholesale rate-setting methodology used by other international regulators, and generally remain the best method of ensuring just and reasonable wholesale rates,” the commission wrote in its Friday decision. The commission also intends to initiate a separate proceeding to explore developing a common costing and rate-setting model for all wholesale service providers. In Aug. 2020 the CRTC launched a public consultation into whether the approach it uses to set wholesale rates should be changed. The commission sought comment on the continued use of the existing Phase II methodology, the adoption of a commercially negotiated rates approach; of a retail-minus rate-setting approach; of a most efficient operator model approach; or an accounting-based costing methodology. The latter three proposals saw little to no support. The incumbent local exchange carriers and the cable carriers generally argued against the existing approach because cost estimations come in “well below” the actual costs of providing service, and because it is a resource-intense and timely process. Instead the wholesale service providers preferred the commercial approach for setting wholesale rates because it “provides greater opportunity to meet competitor-specific needs, includes only parties in the rate-setting process, and minimizes unnecessary regulation.” The Public Interest Advocacy Centre (PIAC) and the wholesale service providers’ competition largely argued for the continued use of the Phase II methodology. According to the decision, those that argued against the commercial approach found that it would only favour the incumbents because of the asymmetry of information such as costs to provide the service; a lack of transparency or competition; and the competitors desire to negotiate quickly. According to the decision, the commission weighed its options based on efficiency, transparency, regulatory certainty, adaptability to market and technological changes, and the ability for companies to recover costs while maintaining a healthy competitive environment. The commission found that the commercial negotiation process would be less efficient “if employed to set rates for a portfolio of wholesale services, such as HSA, which has many customers negotiating with wholesale service providers offering a wide range of services or in cases where there is no comparable wholesale market for similar types of services.” It also found that the process lacked transparency and would give wholesale service providers the upper hand. Geoff White, executive director of the Competitive Network Operators of Canada (CNOC), called the decision positive. “ This was totally in line with what we had asked for. Fortunately, the CRTC rejected the use of commercial negotiation as its main approach. That could have been fatal to the service-based home internet industry,” White told the Wire Report in an email. The commission also said it intends to launch a separate proceeding to improve the efficiency of the rate-setting process. -- Reporting by Jenna Cocullo at jcocullo@thewirereport.ca

CRTC keeps Phase II wholesale rates approach with enhancements

News | July 7, 2023

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CRTC keeps Phase II wholesale rates approach with enhancements

News | July 7, 2023

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