Search Results for: incentives

Wednesday was a busy day. Recovering from Halloween candy-induced sugar shock; Finance Minister income mistrust; client meetings; industry briefings; and, the Canadian Information Productivity Awards. BCE’s 3rd quarter results got lost in shuffle.

The wireless industry held a briefing Wednesday to help the community of analysts better understand the competitive landscape as described in their recently released commissioned reports from Wall Communications: “A Study on the Wireless Environment in Canada” and more catchily entitled “An Examination of Issues Raised in the Telecommunications Policy Review Panel’s March 2006 Report Regarding the Canadian Mobile Wireless Services Industry.”

The Canadian wireless sector has been feeling under attack lately. The CRTC has imposed number portability under a more compressed timetable; it is planning to consider equal access to long distance competition on cellular; consultants like Seabord Group have released studies that suggest Canadians are paying 60% more than equivalent US plans. Seabord says price is a hurdle that holds back Canadians’ adoption of wireless services.

So CWTA released the Wall reports as its rebuttal and had the authors available for Q&A.; While I agree that there are a number of factors that contribute to wireless penetration lagging the US, I am not pursuaded by Wall Communications that our prices are just fine, thank-you.

The Wall report says that Seabord assumed average use of 500 minutes in looking at comparable US plans, which Wall claims is too high. Canadian minutes of use aren’t that high, but the industry numbers include pre-paid, which Wall acknowledged brings the average down. Industry average (pre-paid and post-paid) is closer to 400 minutes per month.

When pressed to give a better post-paid number to allow Seabord to defend its claim, the subject was changed. I note that Rogers’ most recent results indicated that their average post-paid customer generated 541 minutes of use per month for the first 9 months of 2006, up 50 minutes from a year ago. It seems to me that Seabord’s use of 500 was pretty good.

Industry Canada will soon be soliciting comments on rules for its next spectrum auction, including an examination of whether incentives such as a spectrum set-aside should be introduced to attract more facilities based wireless carriers. CWTA will need more convincing evidence to demonstrate that we already have sufficient levels of competition.

Through the summer, we wrote about Bell’s application to raise Centrex rates and the subsequent opposition filed by the Federal government.

On Friday, the CRTC gave final approval to the Bell price increase, rejecting arguments to allow customers out of their contracts in the case that the telephone company initiates the tariff increase.

The Commission said

if the Commission were to direct the Companies, as has been essentially suggested by MTS Allstream, to modify the terms of their Centrex tariffs, and by extension other tariffs, so as to provide customers with the ability to reduce or eliminate their use of a service during the term of a contract period without incurring any penalties, the Commission considers that incentives for the ILECs to continue to make available discounted pricing plans for their customers would be greatly reduced.

This seems disingenuous. According to the CRTC, customers can’t be let out of their contracts when the phone companies raise their prices, because of a fear that ILECs may no longer offer discounts for long term contracts if customers aren’t bound to stick it out. What about the idea that a contract is binding on both parties? What good are discounts if the ILECs get to raise the prices of their own will in the middle of the term?

The ILECs created their own disincentive for customers to sign up to long term contracts, since there is apparently no assurance that the pricing will be maintained. What Allstream sought was for the Commission to permit customers to hold ILECs accountable to offer the committed prices for the duration of the contract period. You would think this wasn’t a novel concept.

Who won in the end? We’ll see if the rate increase was worth the loss of goodwill when these contracts are up for renewal.

The government’s proposed policy direction to the CRTC is being reviewed by the House of Commons in committee today. There are 3 panels appearing – each with 45 minutes: ILECs (Bell, Bell Aliant, TELUS and Sasktel); Cable companies (Rogers, Shaw, Videotron and Cogeco); and, New entrants and the public interest (MTS Allstream, Primus, Cable Systems Alliance, PIAC, Quebec Coalition of ISPs and L’Union des consommateurs).

Interesting groupings, with MTS Allstream not appearing as an ILEC and CCSA not appearing with the other cable companies.

Recall that at The Canadian Telecom Summit last June, Industry Minister Bernier announced a proposed direction to the CRTC that it should rely on market forces above other objectives set out in the Telecom Act.

Darren Entwistle spoke at an Ottawa lunch hosted by the Canadian Chamber of Commerce yesterday, calling for “a regulatory revolution in Canada” to bring changes at the CRTC.

While I support the intent to have regulation migrate to an increased reliance on market forces, I would ask ‘will it make a difference?’ What aspects of which decisions would the CRTC have dealt with differently with this policy direction in place versus the way they ruled?

Do we actually think that the CRTC ignored the potential for an increased reliance on market forces? Is it possible that the CRTC considered whether market forces would be sufficient and decided ‘no’? Will the policy direction change these results?

Take a look at the VoIP reconsideration Decision. In that instance, the Cabinet sent the CRTC’s VoIP Decision back for reconsideration with a specific view to increase the weight of market forces. On September 1, the CRTC came back endorsing its original conclusions [note: Cabinet has until the end of November to decide if the CRTC’s confirmation of its original conclusion is acceptable].

So what will be the difference with the government’s policy direction in place?

If Cabinet wants to end up with specific results on the CRTC’s decisions, then it appears it has to issue specific directions. For that reason, elements of part (c) of the proposed direction will be the most contentious:

(c) in order to promote efficient, informed and timely operations the Commission should adopt the following operational practices:

(i) provide for maximum efficiency in regulation by using only tariff approval measures that are as minimally intrusive and as minimally onerous as possible,

(ii) with a view to providing increased incentives for innovation, investment in and construction of competing telecommunications network facilities, conduct a review of its regulatory framework regarding mandated access to wholesale services, in order to determine the extent to which mandated access to wholesale services that are not essential services should be phased out and the appropriate pricing of mandated services to encourage investment and innovation in network infrastructure,

On a prospective basis, if government wants the CRTC to change its overall approach, then we should be watching for changes to the CRTC and the Telecom Act itself.

There are a number of Commissioners of the CRTC with terms expiring soon. We’ll be watching for a shift in the direction of the CRTC in appointments of the Chair and Commissioners.

Bell Canada has applied for a 10% increase in rates for Centrex III service. Bell has asked for the CRTC to approve the tariff increase by today, to be effective September 1.

Bell’s justification for the increase included:

The rates for these components have remained unchanged since 2002 while network investments have continued. In addition, inflation over this same time period was 10.12% as per the Bank of Canada’s statistics.

Bell’s arguments ignore the productivity improvements that would normally be assigned as offsets against the inflation factors – productivity that represent improved capital and operational efficiency.

Bell may be trying to create better financial incentives for customers to migrate to their IP-based Centrex service, MIPT. There must be confidence that customers won’t look at TELUS IP-One and other carrier and customer premises-based solutions. Even customers under contract will see their rates increase: generally, the contracts refer to the tariff.

Centrex-based resellers of local lines are going to be badly hurt by this action. Their contracts likely don’t point to a tariff and therefore the increases will eat into their margins.

There are three ways for Bell to succeed on this filing: unit revenues for Centrex go up 10%; competitors get hurt; and, customers are incented to migrate to Bell’s portfolio of VoIP solutions, some of which may win forbearance under the CRTC’s pending VoIP reconsideration.

Bell only loses if this manoeuvre angers customers sufficiently to have them take look elsewhere.