The CRTC faces several options for long distance contribution, too bad none of them are perfect

In its ongoing review of the current long distance contribution collection mechanism, the CRTC faces a difficult choice among a relatively poor set of options. Motivated by the joint application filed in the fall of 1998 by AT&T Canada, Call-Net, ACC and London Telecom, the commission initiated a proceeding in March 1999 to review the contribution collection mechanism. Public Notice CRTC 99-6 is looking at the need to reform or replace the current per-minute contribution mechanism, taking into account technological, market and other developments. If the mechanism is replaced, the CRTC will need to determine the appropriate criteria for developing a new mechanism. It would also have to decide which services should be contribution eligible, which telecom service providers should pay contribution, how the subsidy requirement should be defined, and whether a uniform national contribution charge should be established. A number of parties, including AT&T Canada and Call-Net, say there's an urgent need to replace the existing regime. They claim the technology-driven shift now underway from traditional circuit-switched voice networks (over which voice and data traffic is measurable on a per-minute basis) to converged networks employing packet-switching technologies and IP protocols will soon make the existing mechanism unsustainable. A few incumbent telcos such as Telus and SaskTel make this same argument. In contrast, Bell Canada questions assertions that any significant migration of voice traffic to IP networks will occur in the immediate term, saying a number of technical, service quality and economic issues must first be resolved. Unfortunately, it's hard to tell who has the stronger argument since the record of the proceeding reveals very limited evidence on the likely timing and magnitude of the migration of voice traffic to IP networks over the next five years in Canada. Other justifications for replacing the existing mechanism have been raised by a number of parties, including the constant upheaval associated with the current mechanism, distortions to the toll market and the allegedly anti-competitive impacts of the regime on entrants in the long distance market. Consequently, most other parties suggest that the current mechanism be replaced by either a revenue-based or per-line mechanism. Both of these mechanisms offer advantages and disadvantages. The revenue mechanism, which is supported by many parties including consumer groups, Telus, SaskTel and certain interexchange service providers, offers the least-market- distorting alternative. However, there are many administrative complexities under a revenue-based mechanism, such as the separation, on an auditable basis, of contribution-eligible revenues from other revenues, the determination of telecom service providers that will be required to pay contribution, measures to avoid double taxation, and, in particular, dealing with bundled services. A per-line or subscriber line charge mechanism offers some improvements in terms of administrative considerations. However, by focusing on a single market segment (i.e, access) it creates a type of distortion which already exists under the existing regime. Moreover, the same technological developments that have brought into question the long-term sustainability of the existing per-minute mechanism also apply to the per-line mechanism. In the alternative, rather than replace the existing mechanism, Bell Canada says the commission should reform the existing per-minute mechanism by eliminating contribution of international traffic and current exemption for one-hop resellers. Other parties such as Rogers AT&T want the commission to fully rebalance rates and eliminate the explicit subsidy requirement altogether. Regardless of what option the commission adopts, most parties favour redefining the way in which the subsidy requirement is measured and rebalancing rates so that only true high-cost serving areas are subsidized. This would significantly reduce the magnitude of the subsidy and, consequently, the contribution funds that would need to be collected. While the commission studies its options among a set of relatively unsatisfactory choices, one mechanism which perhaps offers the best solution isn't even on the table. Direct government funding, which offers superior economic efficiency, sustainability, administrative ease and competitive neutrality, is regrettably outside the scope of this proceeding. For this solution we need to look outside of the commission - to the federal government. Bernie Lefebvre is vice president of Wall Communications Inc, an Ottawa-based consulting company.

The CRTC faces several options for long distance contribution, too bad none of them are perfect

News | April 10, 2000

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