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Telecom Public Notice 2006-14, Review of regulatory framework for wholesale services and definition of essential service, is one of the most important regulatory proceedings before the CRTC. It will set the stage for how competition in telecom services will evolve in an era of increasing retail forbearance.

The public notice was issued nearly a year ago and the paper process has unfolded over the course of this calendar year. (Of course, there is little actual paper these days. Virtually everything is available in electronic format on the CRTC’s website.)

Oral hearings open today in the national capital region and will continue over the coming weeks. You can listen to it live by webcast.

The opening statement from TELUS summarizes the purpose of this process, which will have taken almost two full years by the time a decision is released in mid 2008:

• To determine the extent to which regulation should mandate the provision of facilities, functions and services by some facilities-based telecommunications providers to other telecommunications service providers. In other words, to what extent and on what terms should facilities-based carriers be required by regulation to share piece parts of their networks with others.
• Two regulatory frameworks will need to be determined:

1. The regulatory framework for mandated facilities sharing to be implemented at the end of the transition period.
2. The regulatory framework for mandated facilities sharing to be implemented at the end of this proceeding and continue until the end of the transition period

In the view of MTS Allstream,

The Government’s goal is to create a competitive telecommunications market in Canada – a market that will deliver the greatest benefits to customers, produce the greatest level of innovation and provide the greatest incentive for investment.

TELUS seems to agree with that, and adds that the CRTC’s also has to consider a sufficient transition period to allow market participants to adapt business plans to the newly competitive market. Rogers suggests that 5 years is an appropriate duration for such a transition period.

There is contention over many issues, not the least of which is defining precisely what is meant by the terms “essential facilities” and “essential services.” Last week, the CRTC issued a letter describing 6 possible categories of facilities, in order to try to help bring a focus to the proceeding:

1. Essential: Would include functionalities that meet the criteria of the Commission’s definition of essential facility and would continue to be made available to competitors via mandatory unbundling and mandated pricing (such as basic subscriber listing information).
2. Conditional Essential: Would include functionalities that would meet the criteria of the Commission’s definition of essential facility, conditional on specific circumstances (such as unbundled local loops in exchanges where wire-line competitors are not yet present). These functionalities would be made available to competitors via mandatory unbundling and mandated pricing until the specific circumstances were no longer in effect.
3. Non-Essential services subject to phase out: Would include functionalities that would not meet the criteria of the Commission’s definition of essential facility, and mandatory unbundling would be phased out over a specified transition period. Provisions would be made to enable annual price increases during the transition period in order to provide incentives for investment in, and construction of, competing telecommunications network facilities. Provisions would also be made for a carrier, at the end of the transition period and at its discretion, to: i) continue to offer the service pursuant to a tariff; ii) file an application for forbearance; or iii) file an application to withdraw the service.
4. Conditional Mandated Non-Essential: Would include functionalities that would not meet the criteria of the Commission’s definition of essential facility, but would continue to be made available to competitors via mandatory unbundling and mandated pricing, conditional on specific circumstances (such as unbundled local loops in exchanges where local forbearance has been approved on the basis of mandated access to such loops). Mandatory unbundling and mandated pricing would continue until the specific circumstances were no longer in effect.
5. Public Good: Would include functionalities that would not meet the criteria of the Commission’s definition of essential facility, but there would be general agreement that the functionalities should continue to be made available to competitors via mandatory unbundling for reasons of public benefit (such as access to 9-1-1 call routing services).
6. Interconnection: Would include interconnection and certain services ancillary to interconnection that would continue to be made available via mandatory unbundling and mandated pricing on the same basis as essential facilities (such as direct connection).

Which services fit into each box? That is the essence of the next few weeks, serving to clarify the lengthy submissions. Of course, one of the challenges from such a major and lengthy proceeding is the cost for smaller competitors to participate fully. As such, it will be interesting to see the extent to which niche operators are able to preserve the core interconnection requirements for their businesses in the long term.

The debate over essential services is not just a Canadian issue. Just last week, Sprint Nextel raised the level of its fight over wholesale access to broadband lines.

Ultimately, this proceeding will play a critically important role in determining the profitability and direction of competitive communications investment in Canada. The determinations in this proceeding could impact whether certain types of competition are viable at all.

As such, the proceeding is important to all of us.

Technorati Tags:
essential services, CRTC

The communications regulator in the UK, Ofcom, has begun a consultation to look at the regulatory issues associated with next generation broadband access. What is the purpose of such a consultation? While the deployment of next generation access networks will be very positive for consumers, Ofcom wants to see investment take place in an efficient manner and wants to remove any unnecessary regulatory barriers that may delay such investment.

As a result, it wants to move quickly to clearly set out the options for regulating new broadband networks, defining where ex ante regulation may be appropriate.

Ofcom provides insight into its considerations in the executive summary of its consultation paper. It begins by describing the principles that have guided its approach to broadband services to date.

The regulatory approach to broadband has had an important role in shaping how the market developed. … The most relevant aspects for the broadband market have been:

• contestability: making the opportunity for entering the market accessible to a wide range of companies;
• innovation: allowing the maximum scope for innovation by the promotion of competition at the deepest level at which it will be effective and sustainable; and
• equivalence: the requirement for operators with market power to make the inputs used by their downstream businesses available to their competitors on the same basis.

But it considers that Ofcom needs to adapt these principles and add two additional considerations in order to appropriately recognize the level of new capital investment required for next generation networks.

The five principles underlying our proposed approach are:

• contestability: we think that timely and efficient investment will best be achieved by making the investment contestable, allowing any operator who considers that there is a business case for deploying next generation access infrastructure to invest, as soon as they wish;
• maximising potential for innovation: as we recognised in the Telecoms Review for current networks, we believe that the scope for innovation and differentiation is essential for competition in next generation access, and that infrastructure investment is helpful in achieving this. We are consulting on an approach which maximises the potential for innovation, while allowing for the current economic and technical uncertainty around next generation access;
• equivalence: strong competition in current generation broadband has been helped by ensuring that all operators are able to buy exactly the same wholesale products, with the same processes and at the same price, as operators with market power. We propose to apply this principle to next generation access, supported by approaches such as functional separation, essential to reduce incentives for anti-competitive behaviour while retaining incentives for efficient investment;
• reflecting risk in returns: we recognise that anyone who makes investments in next generation access is likely to face significant commercial risks. Regulation should reflect these risks in order to provide appropriate incentives for investment in the first place. We are consulting on a range of approaches to reflect such risk such as anchor product regulation, and risk-adjusted returns; and
• regulatory certainty: It is also important that the regulatory regime we adopt is clear and in place for a reasonable period of time, to allow investors the clarity that they need to invest with confidence. We are publishing this consultation and establishing a program of seminars and meetings supporting it to provide this clarity.

Ofcom does not appear to be especially concerned that the UK lags other countries with fibre network deployment.

It may therefore be that the efficient deployment of next generation access is simply earlier in some other countries than in the UK. We do not yet see evidence that the UK will be significantly disadvantaged economically or socially as a result. It is important that we continue to monitor the situation closely for any new evidence that would change this view. However, we continue to think that promoting investment which is timely and efficient in the context of the UK market is the correct approach.

Technorati Tags:
broadband policy

On Friday, I wrote about the ability of comparitive statistics to be misleading. The National Post began a series of articles this past weekend, Swaddled in Nanny Nation. The first article speaks of the damage to Canadian consumers caused by government intervention in the marketplace, with comments aimed specifically at banking, air transport, telecommunications and agriculture.

One of the most flagrant ways Canadian industry is being coddled is through corporate subsidies.

The Saturday article points out billions in dollars in aid to Pratt & Whitney, Bombardier, GM and Ford.

Proponents of government subsidies argue that they create jobs, encourage research and development and spur economic growth. But often, the opposite happens.

Unintended consequences of artificial incentives.

This morning’s final installment of the Post series focusses on foreign investment restrictions in telecom: Not Upwardly Mobile. Writer Peter Nowak concludes:

The only way to solve a Canadian-created problem, therefore, is to bring foreigners in to fix it. Canadian politicians will first have to rid themselves of their cultural and economic xenophobia

A truly level playing field, with no handouts to try to pick winners, will work best for consumers and business alike. For sustainable competition, the lesson would appear to be that consumers will win if government will just get out of the way.

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]