Speech
Notes for an address
by Charles Dalfen
Chairman, Canadian Radio-television
and Telecommunications Commission
to the 2006 Telecommunications Invitational Forum
Cambridge, Ontario
April 30, 2006
(CHECK AGAINST DELIVERY)
Good evening, and thank you for inviting me to open the Forum this year. Our industry generates its share of “hot issues” and this year is certainly no exception.
What is important, as ever, is to try and keep the ratio of light to heat generated by our controversies as high as possible, and one of the advantages of the Forum is that it can make an important contribution to this effort.
Let me begin by acknowledging the report of the Telecom Policy Review (TPR).
It won’t surprise this audience when I say that I do not necessarily agree with each of its 127 recommendations, however, there’s a lot of food for thought there and I do want to take the time to address some of the issues in it that strike me as being especially important.
The TPR panel members had to wrestle with complicated issues on which reasonable people may disagree: a challenging task, as I’ve learned repeatedly during my time at the helm of the Commission.
In the territory where the regulator operates – a no man’s land at the intersection of public good and private gain – the issues are slippery, the stakes are high, and perfect solutions are at a premium.
The Report acknowledges that the Canadian telecom sector is in excellent health and that most telecom markets have completed the transition from monopoly to competition.
In Canada we enjoy universal service of very high quality and rates that are among the lowest in the world. We lead the G-7 and most of the rest of the world in broadband penetration, despite geographic, demographic and topographic challenges not faced by any other country with comparable broadband penetration levels.
Our recent deferral account decision will in fact expand broadband penetration still further into rural and remote communities across Canada that it would otherwise be uneconomic to service.
What the Report did not draw attention to – but could have – is that Canada’s CAPEX to revenue figures in telecommunications are well above the OECD average and the second highest among G-7 countries.
These are achievements for which the industry, our colleagues in government and we at the Commission, can all take some credit.
Notwithstanding this success, the Report was critical of the Commission, suggesting that we were slow to adapt, isolated from international trends, and out of synch with the reality of the telecom industry.
I don’t entirely agree, of course . . . . But my purpose tonight isn’t a rebuttal.
On the contrary, I welcome the Report.
There’s value in being presented with feedback on our performance, and with ideas for improving it and for moving forward.
And so I’ve read the Report in the spirit in which I’m sure it was intended: ensuring that Canada remains a leading nation in telecom services in an environment of revolutionary, technologically-driven change.
It is almost a cliché to say that change is one of the few constants in the telecom environment. And that means that the change agenda for us, as much as for you in the industry, is constant too – it’s an ongoing project.
With that in mind, I want to focus on certain themes in the TPR Report that are, in my view, especially helpful and relevant in terms of advancing the change agenda.
And let me point out, before getting into that, that as far as the specifics of the Report are concerned, we have undertaken an internal review of all of the Panel’s recommendations that apply to us.
We will also be striking a working group with the Competition Bureau to develop recommendations on how the Canadian telecom sector can more effectively benefit from the expertise resident in both agencies, in telecommunications proceedings where principles of competition law and policy and their application are pertinent; in the development of consistent definitions of key terms such as essential facilities; and in the development by the Bureau of guidelines on abuse of dominant power by telecommunications service providers. The specific areas of focus of the working group should be finalized in the next week or so.
Our own internal review should be completed in a month or so. There are a number of the Report’s recommendations that I fully expect we will adopt.
Where the Report’s recommendations require legislative change, or where they may be at odds with our own understanding of how we should fulfill our mandate, we will look forward to participating actively in the ensuing debate and discussion, bringing to the table the Commission’s experience and expertise.
At this stage I can see a number of broad areas of convergence between the TPR Panel’s thinking and our own.
One is in the Report’s recommendation that Cabinet should take responsibility for making telecommunications policy.
Too often, in my view, the CRTC has had to deal with issues on which successive governments had not defined clear policies, even though the Telecommunications Act gives the government the authority to issue broad policy directions to the Commission.
In the absence of such direction, and faced with requests from service providers and users for decisions, we’ve had to fill the policy vacuum.
If we have been a policy-maker, it has been by necessity, not by choice.
The Panel also concluded that competition in the few telecommunications markets that remain regulated is now strong enough, on its own, to protect consumers most of the time.
The Panel argued, therefore, that we should stop making regulated companies seek prior approval from us for pricing and service proposals.
Instead, the Panel said, providers should be free to introduce services or change prices, and then, if they then fail to comply with regulatory requirements, we should intervene after the fact.
I agree with the principle.
After-the-fact regulation of retail rates would be less burdensome on the industry – and on the Commission – than the current practice of ex ante approval, provided, as the Panel has recommended, that meaningful penalties can be levied, where necessary, in order to encourage compliance.
I would hope that such penalties would not have to be imposed often, if at all. But in their absence, regulating after the fact would be toothless, and a disservice to consumers.
On the broader question of telecom regulation of any kind– an area where the Panel’s preferences are clear – I want to say a word about our recent decision on forbearance for local telecom services.
By some, that decision has been interpreted – misinterpreted, I should say – as an attempt by the Commission to hang on to regulatory control for as long as possible.
To those who hold that view, I can condense my response to two words: “not so”.
The forbearance decision is nothing less than a roadmap to deregulation of local services, which was precisely what stakeholders requested of us [– a “dashboard” as one CEO put it].
As a result of that decision, the path is now well marked by clear criteria, and the distance to deregulation in many markets should not be long.
Some have criticized us for using competitor quality of service standards, as well as loss of market share, as criteria for deregulation.
To this I say that our reasoning had everything to do with protecting consumers. I know we all agree that the end-game is “sustainable competition.”
If that term means anything at all, it means that consumers will have choices over the long term.
Making this happen requires us to ensure that incumbents, who control services and facilities required by competitors, don’t use their position to inhibit competition.
The competitor quality of service standards are based on the performance standards that incumbents meet when they self- provision.
We’re simply asking them to provide the same quality of service to competitors as they provide to themselves for services that are required by both.
If they don’t do that – if they don’t give competitors fair access to services like phone numbers and interconnecting trunks – then I don’t see how we can realistically talk about the prospect of sustainable competition, in the services provided to Canadians.
Meeting the quality of service criteria is a matter that is entirely within the incumbents’ control. It’s reasonable and it’s attainable.
I believe that the framework laid out in the forbearance decision will lead to results in a relatively short period of time.
In an interview published two weeks ago, I said I expected we would be able to forbear from regulating most business markets in major cities within 18 months.
As for residential markets, I had mentioned Halifax, Montreal and Toronto as likely to qualify soon for forbearance.
I foresee the major western markets following not far behind.
And there’s a wildcard – wireless substitution – that could make it reasonable to imagine even shorter timeframes.
The record available when we made the forbearance decision indicated that the number of Canadians using wireless as a full substitute for local wireline service was not significant enough to allow us to include in our calculations of incumbent market share loss those customers who substitute wireless for wireline phones.
Recent Statistics Canada data, however, show that the number of households subscribing to mobile service only, though still small as a proportion of all wireless subscribers, is growing rapidly.
This is a development that we will watch closely.
One more word about the forbearance decision: it’s about more than forbearance.
In it, we take steps to reduce regulation – easing and ultimately eliminating the winback rule – even before the criteria for forbearance are met.
We have also called for industry self-regulation on a variety of customer service activities that are currently regulated.
To say it again: our focus has been – and is – deregulation; which is why nearly all telecommunications markets in Canada are deregulated.
The last major market - local telecom service – is not quite there yet.
The competitive environment for local telecoms in Canada is as varied as Canadian geography and demography.
That matters, because it has implications for the way in which we implement the scaling back of current regulation.
On the one hand, in many urban telecom markets competition for local services is lively and getting livelier.
Forbearance, as I just said, is likely to be coming soon to these markets.
But as the TPR Report pointed out, it would be wrong to extrapolate from the general state of urban markets to the particular situations faced by some parts of the country and some classes of consumers.
Rural, vulnerable and disadvantaged Canadians face unique circumstances which, in the absence of regulation, would limit their service and price options to an unacceptable degree.
As the Panel observed, these consumers will continue to need the protection afforded by regulation for some time to come.
We’ll be in a better position to address detailed issues in the Report after we’d had more time to examine its analysis and findings.
In the meantime, what I can say now is that differences with the TPR Panel aside, I’m in full agreement with at least the following points:
- telecommunications plays a key economic role in Canada, and the regulatory environment should allow the telecommunications industry to respond as rapidly as possible to technological and market developments; and
- telecommunications plays a key social role in Canada, and we must ensure that it enhances social well being and the inclusiveness of Canadian society;
- telecommunications policy is the principal domain of the government, not the Commission;
- regulatory practice needs to adapt to current circumstances;
- to the extent that retail rate regulation remains necessary, ex post regulation supported by appropriate penalties, should supplant ex ante regulation.
Let me close by saying that we have heard the Report’s core message, which we appreciate: the world is changing, and regulatory institutions such as ours need to review the way they respond to change, and to renew themselves where necessary to ensure they respond optimally.
At the CRTC the process is already underway.
A lot of the discussion in the wake of the TPR Report has centered on deregulation and the virtues of the market. That’s fine as far as it goes. But market forces do not – can not – solve all problems.
At the Commission, we have an obligation to give weight to all voices.
And we hear from consumers as well as providers about the continuing relevance and necessity of regulation, in proper measure.
Canadians want reliable, high-quality telecommunications services at competitive prices.
They want choices – of service providers as well as services. To the extent that markets alone can’t meet these expectations, the task is left to the regulator.
It’s a second-best solution. But it has to be done.
The issue that faces all of us isn’t “to regulate or not to regulate”, but rather “how best to regulate” in an environment where the ground under the telecom industry is constantly shifting, consumer needs and preferences are fluid, and old business models are fading away even as new ones emerge.
For as long as regulation remains necessary, our aim is to use the least restrictive measures necessary in order to achieve the policy objectives laid out in our guiding legislation.
From where I sit there’s no debate about whether or not to unleash market forces into telecom markets.
These are already alive and well where most services are concerned. And where that is the case, we have deregulated.
The real issue – the tough issue – is found in the places where markets aren’t yet robust enough to protect the interests of consumers.
There, we will focus our attention on advancing the day when the degree of competition will make economic regulation unnecessary.
Until that day arrives, our job is to help channel the power of markets and the entrepreneurial drive of the telecom industry in a way that balances the interests of all Canadians and enterprises.
Thank you, and bon appetit.
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Date Modified: 2006-04-30
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