Dalfen clarifies CRTC position on TPR panel report, forbearance

CRTC chair Charles Dalfen recently gave a speech at the 2006 Telecommunications Invitational Forum, explaining the commission’s response to some of the recommendations of the Telecommunications Policy Review Panel. He also talked about criticism of the CRTC’s forbearance ruling. The following is an edited excerpt of his April 30 speech. It won’t surprise this audience when I say that I do not necessarily agree with each of the TPR’s 127 recommendations. However, there’s a lot of food for thought there and I do want to take the time to address some of the issues in it that strike me as being especially important. In the territory where the regulator operates – a no man’s land at the intersection of public good and private gain – the issues are slippery, the stakes are high, and perfect solutions are at a premium.The report acknowledges that the Canadian telecom sector is in excellent health and that most telecom markets have completed the transition from monopoly to competition. What the report did not draw attention to – but could have – is that Canada’s CAPEX to revenue figures in telecommunications are well above the OECD average and the second highest among G-7 countries. These are achievements for which the industry, our colleagues in government and we at the commission, can all take some credit. Notwithstanding this success, the report was critical of the Commission, suggesting that we were slow to adapt, isolated from international trends, and out of synch with the reality of the telecom industry. I don’t entirely agree, of course. But my purpose tonight isn’t a rebuttal. On the contrary, I welcome the report. There’s value in being presented with feedback on our performance, and with ideas for improving it and for moving forward. The panel concluded that competition in the few telecommunications markets that remain regulated is now strong enough, on its own, to protect consumers most of the time. It argued, therefore, that we should stop making regulated companies seek prior approval from us for pricing and service proposals. Instead, the panel said, providers should be free to introduce services or change prices, and then, if they then fail to comply with regulatory requirements, we should intervene after the fact. I agree with the principle. After-the-fact regulation of retail rates would be less burdensome on the industry – and on the commission – than the current practice of ex ante approval, provided, as the panel has recommended, that meaningful penalties can be levied, where necessary, in order to encourage compliance. I would hope that such penalties would not have to be imposed often, if at all. But in their absence, regulating after the fact would be toothless, and a disservice to consumers. On the broader question of telecom regulation of any kind – an area where the panel’s preferences are clear – I want to say a word about our recent decision on forbearance for local telecom services. By some, that decision has been interpreted – misinterpreted, I should say – as an attempt by the Commission to hang on to regulatory control for as long as possible. To those who hold that view, I can condense my response to two words: "not so". The forbearance decision is nothing less than a roadmap to deregulation of local services, which was precisely what stakeholders requested of us – a dashboard as one CEO put it. As a result of that decision, the path is now well marked by clear criteria, and the distance to deregulation in many markets should not be long. Some have criticized us for using competitor quality of service standards, as well as loss of market share, as criteria for deregulation. To this I say that our reasoning had everything to do with protecting consumers. I know we all agree that the endgame is "sustainable competition." Making this happen requires us to ensure that incumbents, who control services and facilities required by competitors, don’t use their position to inhibit competition. The competitor quality of service standards are based on the performance standards that incumbents meet when they self- provision. We’re simply asking them to provide the same quality of service to competitors as they provide to themselves for services that are required by both. If they don’t do that – if they don’t give competitors fair access to services like phone numbers and interconnecting trunks – then I don’t see how we can realistically talk about the prospect of sustainable competition, in the services provided to Canadians. I believe that the framework laid out in the forbearance decision will lead to results in a relatively short period of time. I expect we should be able to forbear from regulating most business markets in major cities within 18 months. As for residential markets, Halifax, Montreal and Toronto as likely to qualify soon for forbearance. And there’s a wildcard – wireless substitution – that could make it reasonable to imagine even shorter timeframes. The record available when we made the forbearance decision indicated that the number of Canadians using wireless as a full substitute for local wireline service was not significant enough to allow us to include in our calculations of incumbent market share loss those customers who substitute wireless for wireline phones. Recent Statistics Canada data, however, show that the number of households subscribing to mobile service only, though still small as a proportion of all wireless subscribers, is growing rapidly. This is a development that we will watch closely. Let me close by saying that we have heard the report’s core message, which we appreciate: the world is changing, and regulatory institutions such as ours need to review the way they respond to change, and to renew themselves where necessary to ensure they respond optimally. At the CRTC the process is already underway. A lot of the discussion in the wake of the TPR report has centered on deregulation and the virtues of the market. That’s fine as far as it goes. But market forces do not – can not – solve all problems. At the Commission, we have an obligation to give weight to all voices. Canadians want reliable, high-quality telecommunications services at competitive prices. They want choices – of service providers as well as services. To the extent that markets alone can’t meet these expectations, the task is left to the regulator. It’s a second-best solution. But it has to be done. The issue that faces all of us isn’t "to regulate or not to regulate", but rather "how best to regulate" in an environment where the ground under the telecom industry is constantly shifting, consumer needs and preferences are fluid, and old business models are fading away even as new ones emerge. For as long as regulation remains necessary, our aim is to use the least restrictive measures necessary in order to achieve the policy objectives laid out in our guiding legislation.

Dalfen clarifies CRTC position on TPR panel report, forbearance

News | May 11, 2006

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