We discussed the impact on telecom carriers of the federal government’s cancellation of the tax benefits associated with income trusts.
The CRTC has issued a Public Notice (PN 2006-14) to examine the regulatory framework for wholesale services and definition of essential service.
This proceeding will be significant and it includes live hearings scheduled to be held in Gatineau in October 2007. Yes, a year from now. Following the hearings, there will be further exchange of arguments and reply, meaning that the file won’t close until January 2008. A decision will be rendered within 180 days.
The timing should be perfect for The 2008 Canadian Telecom Summit.
This is a major regulatory proceeding. Among the more more significant issues in looking at relaxing regulation of retail services is whether there is still a need to regulate wholesale services. If so, what are the essential wholesale services that should be regulated, as contrasted with those that are provided according to what the market will bear.
As the CRTC notes in the Public Notice:
The Commission notes that to date it has not conducted a comprehensive framework proceeding with respect to wholesale services and that, as noted above, its current regulatory regime for wholesale services evolved on an incremental basis. … The Commission, therefore, considers there is a need to conduct a comprehensive proceeding to review the regulatory framework for wholesale services, including, in particular, a review of the definition of essential service and the associated pricing principles.
…
The Commission notes … that the complexity of the interrelationships between several of the wholesale services means that to deal with them in isolation could create unforeseen problems.
The Commission’s conclusion … is that any limitation of scope in the interests of time would ultimately create a longer overall timeline as it would be necessary to conduct several significant lengthy related proceedings in sequence.
[PN 2006-14, p.15-21]
The report of the Telecom Policy Review panel looked at the issue of wholesale services and the CRTC’s public notice appears to be advancing in a manner consistent with a number of the TPR recommendations. For example, recommendation 3-19 states:
The regulatory framework should continue to require owners of essential wholesale facilities to make them available to competitors at regulated wholesale rates. Regulatory requirements to provide non-essential wholesale services or facilities should be phased out in order to provide increased incentives for innovation, investment and more widespread construction of competing network facilities.
The TPR report also calls for
A working group of CRTC and Competition Bureau members should be established as soon as possible to develop recommendations to the CRTC on the definition of essential facilities and its application to today’s telecommunications networks.
The CRTC’s public notice recognizes the draft Information Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry, issued by the Competition Bureau in September. This type of cooperation with the Bureau is consistent with TPR panel recommendations for joint activity on wholesale services.
Key to relaxing the regulation of retail services is for us to get the regulation of wholesale services right. This Public Notice will set the tone for the future of competition in the telecom industry.
Winback rules are one of the more contentious issues in the rules for ILECs competing in the local services business. We recently wrote about a Bell win against Videotron on one of the skirmishes in the winback wars. On Tuesday, Primus lost another winback battle.
The winback rules state:
… an ILEC is not to attempt to win back a business customer with respect to primary exchange service [(PES)] or local VoIP [Voice over Internet Protocol] service, and in the case of a residential customer of local exchange service (i.e. PES or local VoIP service), with respect to any service, for a period commencing at the time of the local service request and terminating three months after that customer’s primary local exchange service or local VoIP service has been completely transferred to another local service provider, with one exception: ILECs should be allowed to win back customers who call to advise them that they intend to change local service provider.
[Decision 2006-15, p.486]
So, the CRTC cut the winback prohibitions to 3 months (from 12) in Decision 2006-15 and Primus fought an uphill battle to try to argue that the Commission should stick to its guns and keep to the original 12 month prohibition. My first reaction in reading the Primus application was to call their lawyer and ask if he felt a little guilty taking their money – the chances of winning were so slim.
To have the CRTC review and vary a decision requires a demonstration of substantial doubt as to the correctness of the original decision. Indeed, the CRTC said that
Primus has not presented new evidence to raise any doubt, let alone substantial doubt, as to the correctness of the Commission’s determination.
The competitor quality indices were set in 2002 and updated in 2005. The CRTC has been pretty clear about its expectations for the ILECs to exceed these standards, not view them simply as targets:
The Commission reiterates that the Q of S standards are not performance targets; they are the minimum acceptable performance levels. The RRP is not intended to provide the ILECs with a choice between paying rate rebates or meeting the Q of S standards.
[Decision 2005-20, p. 67]
Competitors order ILEC services in order to meet end user requirements, not for their own sake. When an ILEC messes up, both the competitor and its customers are losers. When the competitor is dependent on ILEC facilities and services, it is not in a position to defend its own reputation. As a result, frequently the end user simply gives up and returns to the ILEC for service.
It is precisely for this reason that the CRTC has repeatedly tried to get ILECs to pay attention to competitor quality of service metrics. Read the tone of Decision 2005-20 and Section VI of Decision 2002-34 to get a sense of the frustration of the Commission and competitors.
There is an alternate approach available to the ILECs: just meet the quality standards that are supposed to be delivered and exceeded.
And if there is a message for the CLECs at the same time, it is that customers are looking for more than just pricing advantages. CLECs and ILECs alike should be promoting quality, overcoming the challenges of delivering increasingly complex network services.
Let’s see carriers deliver better, clearer, smarter, friendlier, easier to use services.
That would be a high-quality competitive advantage.
Earlier this year, the CRTC was asked to look at the way it recovers its operating costs. Under the regulations that have been in place for a the past decade, the CRTC’s costs of telecommunications regulation are borne solely by carriers that file tariffs.
Those companies, the ILECs, are finding that to be increasingly burdomesome. As more types of services are forborne, a shrinking number of carriers are bearing the costs of CRTC activities that are not necessarily driven by tariff-related activity.
In 1998, the CRTC proposed amending the 1995 regulations on its own. At that time, the Commission stated:
The Commission notes that it is not solely the Canadian carriers that file tariffs that cause the Commission’s costs. Increasingly, Commission resources are spent, not only on processing tariff applications, but also on such activities as establishing and monitoring a regulatory framework designed to ensure that there is sustainable competition.
In the Commission’s view, the proposed new regulations provide for a more appropriate and equitable means of recovering the Commission’s telecommunications costs.
A year and a half later, the CRTC mysteriously abandoned its plan to revise the scope of fee-payers and maintained the status quo.
That was 8 years ago.
In yesterday’s Decision, the CRTC agreed with Bell and Aliant that its original 1998 view, calling for a new way to allocate costs, was correct. The Commission has indicated that it will draft changes to the fees regulations and seek approval from Treasury Board.
The CRTC plans to use a process similar to that used for subsidizing high cost serving areas. All companies (carriers and resellers) with Canadian telecommunications services revenues exceeding $10M are expected to become contributors to recover the cost of the CRTC’s telecommunications operations.
As new contributors, primarily cablecos and resellers, gripe about coming under the new tax scheme, they can take comfort in having escaped hundreds of millions of dollars in CRTC costs that have been paid solely by tariff-filing telcos for the past 7 years.