Debate rages over implications stemming from Panel’s recommendations

When the Telecommunications Policy Review Panel released its recommendations, it was expected that some would cheer while others would decry them as counterproductive. This is the case as BCE Inc. lauds the panel’s recommendations as necessary, and MTS Allstream says the report will do very little to stimulate competition. Lawson Hunter, executive VP of BCE, notes that the recommendations describe a much-needed change in telecommunications policy direction. "It’s the right thing to do and I think if Canada we really would leapfrog into having the best regulatory framework for the sector for the next 10 years," he tells Network Letter. Chris Peirce, chief regulatory officer at MTS Allstream, expresses the opposite sentiment, noting that the report is a disappointment. "It’s an opportunity missed for a far more provocative approach that, as we said, really embraced the notion of competition. You know, you look at their policy goals and competition is not one of them. They want efficient functioning of markets. I don’t know what that means," he says. The MTS Allstream executive also takes issue with some of the opening remarks in the report, particularly the comments relating to the regulatory framework protecting competitors from the incumbent telephone companies. "How you could take the last six years or seven years, and the disappearance of two dozen competitors in a world where the incumbents have continued to do better than they ever did under a guaranteed rate of return environment, and conclude that competitors have been protected is just astonishing," Peirce says. But these types of comments were to be expected. Both companies were on opposite sides of the debate throughout the process. In fact, there are a number of elements where the two companies find themselves across the table from each other. One aspect is the creation of the Telecommunications Competition Tribunal (TCT). It would be made up of three members with a chair appointed by the federal Cabinet, according to the Policy Review Panel’s recommendations. "The proposed TCT should not be a new government institution, but rather a joint decision-making mechanism involving the CRTC and the Competition Bureau," reads the report. "The TCT should operate as a telecommunications sector-specific competition authority, assuming responsibility to apply industry-specific competition law based on the civil provisions of the Competition Act." Peirce suggests the TCT is nothing but an added layer of regulation and the last thing the industry needs is greater regulatory involvement. Instead, it needs "effective regulatory involvement." He notes that it’s unclear at this time whether the TCT will be transitional or longer-term and that depends on whether there continues to be significant market power in markets. Hunter doesn’t share that opinion, noting that the TCT serves the purpose of helping to fix the system. It might seem complicated, he says, but "it’s because we’ve got such an ungodly complicated system that has been created. The report at one point…says we have one of the most competitive telecommunications markets in the world yet we have one of the most prescriptive, intrusive, burdensome regulatory systems, too. So we’ve created this very, very complicated system and it’s sort of like regulation begets regulation." Current proceedings to have greater impactMTS Allstream believes the local service forbearance decision, which is expected to be released by the CRTC in the near future, will do more for competition than implementing the recommendations. Peirce even suggests that other decisions may render much of the Panel’s report moot. "If you’ve got something like the forbearance proceeding together with cable entry continuing and the CRTC continuing with the assessment it’s doing of access to facilities, that review of access and creation of new regulatory bodies may just become less relevant as time goes on," he says. Hunter has harsh words for people who suggest that the forbearance proceeding could have a greater impact on competition than implementing the Panel’s recommendations. "The notion that the CRTC can just fix this up and that local forbearance is an answer to the fundamental change that the panel recommended is just completely wrong. That just leaves us where we are today with the same heavy handed ex ante wrong objectives. It just leaves you in this highly discretionary model where the market really can’t work without the government saying it’s okay, which the panel said is wrong." "Remember one of the fundamental changes that the panel recommended is that we should move to a presumption of no regulation, whereas the current act…says every telecommunications service is regulated until we say it isn’t," Hunter says. "The presumption should be you should only regulate when you have demonstrated need to regulate, which is, by the way, what the Australians and the UK ." He adds that Canada’s current approach is "just crazy," and failing to implement the report "leaves us with the same wrong-headed type of regulation" as is in place today. Peirce suggests that taking a close look at the recommendations might reveal little difference between what currently exists and what has been proposed by the panel. "You talk about this ex post/ex ante discussion, well the CRTC went through that: ‘Here’s a new service. Does someone offering that service have significant market power? Is it effectively the same market? Should it be regulated?’ It seems to me that that’s the same type of logic that the panel is suggesting. You know, drill down through the recommendations; I don’t think you end up with a world much different." One independent analyst says he believes the report is fair for all involved, including cable operators, telcos and Internet portal companies. "One, it’s long overdue because the industry has evolved well beyond both the spirit and the intent of the regulation. The industry evolved and regulation needed to keep up. Two, I think it really is a leveling of the playing field for the big players," Joel Finalyson, principal at Secor Consulting, tells Network Letter. He suggests that the recommendations if implemented would also spur greater product innovation and that there would be new services introduced to the Canadian market stemming from a greater competitive spirit. "I think we’re going to see a lot more happening with the distribution or the consumer consumption of digital content," Finlayson says. "I think we’re going to see the portals investing in and launching a number of new services to stay competitive if nothing else." Increased mergers and acquisitions activity could also result from the report, Finlayson notes, adding that it’s not going to be big players buying big players. "I think you’re going to see a lot of the well-funded cablecos and telcos buying smaller players that they can actually do something with," he says. The "regulatory shackles" didn’t allow for the larger companies to take advantage of possible acquisitions, but "now they’re going to better exploit and monetize new acquisitions." Primus Telecommunications Inc. and Vonage Holdings Corp. could also become acquisition targets, according to Finlayson. But he notes it will be the likes of Google Inc., Yahoo Inc., AOL Inc. and Microsoft Corp.’s Internet portal MSN making the purchases. "I think that portals are actually increasingly trying to extend their reach into the home and across a portfolio of services. The portals are branded, they have a massive amount of traffic, they have leading-edge technologies, they have in many cases a billing relationship with their clients and they have deep pockets," Finlayson says. Whether any of the recommendations contained in the nearly 400-page report will be implemented remains to be seen. Peirce isn’t so sure anything will happen in the near term. "I think practically speaking what happens next is not much changes," he says. "Most of what is called for would require legislative overhaul….There’s a few things in this world you can state with certainty I think one of them is they will not be amending the Telecommunications Act before the next election." Hunter is more optimistic, noting that the federal government doesn’t appear to have any philosophical differences with the recommendations. "It’s a question of how it fits into their priorities and when. I think they’re going to move on it, it’s just really a question of when, and obviously from our point of view, the sooner the better," he says. The Telecommunications Policy Review Panel released its report on March 22, which contained more than 120 recommendations. An upcoming issue of Network Letter will endeavour to include the opinions of the major cable companies and the utility telecom operators.

Debate rages over implications stemming from Panel’s recommendations

News | March 29, 2006

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