{"id":13095,"date":"2019-11-12T06:52:24","date_gmt":"2019-11-12T11:52:24","guid":{"rendered":"http:\/\/mhgoldberg.com\/blog\/?p=13095"},"modified":"2025-01-07T14:09:16","modified_gmt":"2025-01-07T19:09:16","slug":"climbing-the-ladder-of-investment","status":"publish","type":"post","link":"https:\/\/mhgoldberg.com\/blog\/?p=13095","title":{"rendered":"Climbing the ladder of investment"},"content":{"rendered":"

I am going to take a little vacation time over the next couple weeks, so while I am gone, I thought I would provide a collection of quotations that I think are relevant for a couple hot regulatory issues these days: the state of Canada’s mobile wireless industry and the appeals associated with wireline wholesale. <\/p>\n

As noted by the 2006 Telecom Policy Review Panel<\/a>, the CRTC originally encouraged competition via resale through various rulings that “established a general policy requiring an incumbent who chose to offer a retail telecommunications service to permit resale of that service, whether by competitors or others.” When the CRTC approved facilities-based competition in 1992, “it did so recognizing that the construction of network facilities by entrants was necessary for the full benefits of competitive entry to be realized.”<\/p>\n

Have those fundamental principles changed? <\/p>\n

From Telecom Decision CRTC 92-12<\/a>:<\/p>\n

The Commission considers that resale can provide many benefits, but it is not a substitute for facilities-based entry. Facilities-based entry permits sustainable and more broadly-based competition, thereby increasing the benefits to be derived from competition.
\n…
\nHowever, resellers can complement facilities-based competition by providing price discipline, ensuring greater responsiveness and serving niche markets.<\/p><\/blockquote>\n

Testimony of Marc Gaudrault, CRTC Notice of Consultation 2009-261, Transcript 31 May 2010<\/a>, Line 926:<\/p>\n

In order for the ladder of investment to work most effectively, the wholesale services provided by ILECs and cable carriers at each rung of the ladder should be constructed so as to facilitate the maximum amount of service differentiation downstream at the retail level and the ability of competitors to climb the ladder. This means differentiation of functional attributes such as speed, throughput, quality and types of service, geographic coverage and service bundling. <\/p><\/blockquote>\n

From the report of the Telecom Policy Review Panel<\/a>:<\/p>\n

The Proper Scope of Mandated Wholesale Access<\/strong>
\nAs stated above, a fundamental objective of mandated wholesale access should be to maintain incentives for innovation, network efficiency and investment. In the Panel\u2019s view, the most effective method for promoting these incentives is to ensure that competitive market forces apply to the broadest possible range of network and service components in as many locations as economically feasible.<\/p>\n

To this end, new entrants should have both opportunities and incentives to build their own facilities. Since by definition retail market entry is not possible without competitor access to essential facilities, the regulatory framework should continue to require incumbents to make these available, on a mandatory basis if necessary.<\/p>\n

However, the Panel concludes that, given the current state of competition in Canada, continuing to require that incumbents make non-essential facilities available to competitors undermines the incentives for the latter to build alternative facilities. This in turn undermines competitive market incentives for all service providers to be efficient, to innovate and to invest, for several reasons. <\/p>\n

First, when designing their networks, entrants can either build non-essential facilities or lease them from the incumbent. Mandated wholesale access at regulated prices reduces the cost and especially the risks associated with leasing relative to building. It thus increases the likelihood that leasing will be more attractive than building. Mandated wholesale access therefore tends to discourage entrants from supplying their own facilities, even where doing so would otherwise be economical. The potential negative impact is much more limited if mandated wholesale access is limited to essential facilities.<\/p>\n

Second, regulated wholesale pricing reduces the revenues that entrants who build facilities can generate in the wholesale market when they lease those facilities to other providers. This arises because regulatory constraints on ILEC wholesale prices also effectively place upper limits on the price that other service providers can charge for facilities in the wholesale market. This in turn affects investment decisions of both incumbents and new entrants in cases where the viability of constructing network facilities is dependent on their ability to profitably supply facilities on a wholesale basis to other service providers. The broader the scope of mandated access, the greater the negative impact on investment decisions.<\/p>\n

Third, artificially low wholesale rates undermine the price levels and revenues that could otherwise be sustained in the retail market. The broader the scope of mandated access, the more significant the impact on retail prices. This compromises the ability of both entrants and incumbents to recover potential network investments.<\/p>\n

The argument in support of mandating the availability of non-essential facilities is that it can actually facilitate, rather than hamper, construction of facilities by entrants by providing them with a \u201cstepping-stone\u201d until the day they can build their own facilities. The validity of this argument rests entirely on the assumption that the CRTC can set prices that are both:<\/p>\n