Speech
Notes for an address
by Charles Dalfen
Chairman, Canadian Radio-television
and Telecommunications Commission
to the 2005 Canadian Telecom Summit
Toronto, Ontario
June 1st, 2005
(CHECK AGAINST DELIVERY)
Good afternoon. I'm pleased to be with you today, and honored to be given the last word at this year's telecom summit. Given a few of the other speeches you've heard yesterday and today, it only seems fair.
As your last speaker at this conference, may I congratulate Mark and Michael for the tremendous job they have done in organizing a first rate conference, with an exceptional array of speakers across a wide range of topics of interest to the industry. The attendance speaks for itself.
In characteristic fashion, you have scheduled this event to take place barely three weeks after we issued a decision about the regulation of local telephone services that use voice over internet protocol – VoIP, as we all refer to it.
Since it is on the minds of most of us here today, I will spend some time talking about VoIP.
What I want to do, however, is to discuss our decision in the broader context, of a number of common themes that have guided the Commission's work, in some cases for over a quarter century, in other cases for a far shorter period.
The first of these themes is “staying the course”. What does this mean? And why is it important?
What it does not mean is continuity for its own sake or because we are hidebound or because we have too many lawyers who are comfortable with precedents.
Nor, however, does it mean change for its own sake or for the sake of what might dazzle us, particularly when the dazzle has not yet razzled, as it were.
What it does mean is being deliberate, disciplined and consistent. It means adapting our rules to technological and market changes on a timely basis, and it means properly discharging our role as a quasi-judicial tribunal, giving careful consideration to the facts and arguments that are presented by all of the parties before us.
Why staying the course is important is that it has resulted in a successful telecommunications system for Canadians, by any measure.
Independent observers have commented on the strength of Canada 's telecom sector and on how well we stand up to international comparisons.
Canada has been shown to be among the leaders in the OECD in terms of the quality of competition in most markets, the levels of investment and productivity, the affordability of residential and business services, the quality and availability of the infrastructure, and the effectiveness of measures to protect consumers. Canada has also been cited as an example of “best practices” in regulatory reform among the OECD countries.
We have much to be proud of in telecommunications.
We are a leader because we have an industry that is committed to innovation and investment, entrepreneurs who are keen to test the waters of competition, and sophisticated consumers who demand the best in terms of both the quality and variety of services.
The federal government has also played a vital role both in promoting the deployment of the latest telecommunications facilities and services across the country, and in maintaining consistency of policy and regulatory direction.
The Commission's contribution has come from, among other things, a firm commitment to sustainable facilities-based competition, a willingness to removing obstacles to competition – by allowing appropriate access to telco and cable infrastructure, to multiple unit buildings and to municipal rights of way – and at the same time a continual willingness to refrain from regulating when markets become sustainably competitive.
Together we have built one of the most innovative, consumer-oriented, competitive and productive telecommunications sectors on the planet.
This does not mean we can be complacent. To not keep up would be to falter. My point, however, is that this did not all happen by shifting course in response to every new switching or transmission technology or to every new regulatory theory.
The second theme, not unrelated to the first, is the centrality to Government policy and CRTC regulatory direction for over 25 years, of the goal of sustainable competition in all telecommunications markets, so that we can forbear from exercising our tariff approval responsibilities, in order to allow market forces – rather than regulation – to determine market outcomes.
There's no question about it: robust competition is the key to protecting users of telecommunications services, as well as stimulating investment and fostering innovation by telecommunications companies.
I agree fully with today's luncheon speaker on that point.
Regulation is a second-best approach that we use until competition is healthy enough to ensure, on its own, a vibrant marketplace and an innovative industry offering the highest possible quality and widest possible range of services.
As most of you know, services in the long distance, internet, wireless, and data and private line markets are provided without any service provider having to file tariffs for approval.
As most of you also know, competition and price deregulation in the local exchange services market remain unfinished business.
Today, 8 years after competition was introduced for local telephone service, the incumbent telephone companies continue to account for 98 percent of revenues for local residential services, and 92 percent of revenues for local business services.
Our luncheon speaker today said that our reliance on these figures represents an “outdated assessment of market conditions”, and shows that the Commission pursues “a strategy seen through a rear-view mirror”.
Well, we don't agree on everything.
The fact of the matter is that no better figures, and no superior methodology have been presented to us that would support a credible alternative view of the telecom market.
Similarly, we've heard the argument that wireless substitution has rendered obsolete the conventional view about the market for local telephone services.
Again, I point to the facts before us. The latest available data suggest that today, wireless substitution is but a marginal phenomenon. Only about 2.5% of Canadian households have chosen to make wireless their only form of telephone service.
I don't want to belabour the statistics. But I do want to emphasize the underlying principle. We may well be – as many speakers here have suggested – in the early stages of a paradigm shift in telecommunications. But the truth is that no one in this room knows how quickly, or slowly, that shift will occur, and when the new paradigm will take hold.
Given the unpredictability of the telecom environment, we, as a body charged with protecting the public interest, must have the discipline to focus on regulating the environment based on the facts that exist today. We do so based on what we have learned from the past, and on our sense, based on solid industry analysis, of what the future holds for telecommunications.
We share the hope that all of you have, that VoIP will bring real competition in the local market. And this is precisely why it is important to stay the course and ensure that the market is not pre-maturely deregulated, while incumbents are so dominant, and so capable of nipping that competition in the bud.
I'm sure that there is no disagreement in this room about my statement that VoIP offers the prospect of real competition in local markets.
I'm equally sure that there is strong disagreement about our finding that VoIP service is not INTERNET service, but is, telephone service. And this despite the fact that over a dozen OECD countries have come to the same conclusion, based on examining the nature of the service rather than its underlying technology, and like Canada, maintaining a technology-neutral approach.
Disagreement is, however, something that all parties, and even Commissioners, are entitled to and something with which we have more than a passing familiarity.
I have been asked a question a number of times, formulated in different ways, by analysts and journalists that usually ends in the following 4 words: what's the big deal? The preamble usually runs something like: Incumbents must continue to file tariffs for local service – as they have for 100 years – to ensure that their rates are “just and reasonable”, for example not below their costs; and that they not give themselves “undue preference”, for example an unfair competitive advantage.
My invariable answer is: perhaps you should ask them. But that does not stop me from musing about that very interesting question myself… So I ask myself, rhetorically of course:
Will the exciting – dare I say revolutionary – prospects of VoIP be stillborn, and all future innovation cease, if the incumbents – holders of 95%+ market share are not allowed to price below cost, or, for example to specifically target the 4.3% of lines that competitors have been able to attract, after nearly a decade of trying?
Can this tariffing requirement on incumbents really be the factor that will hold back Canada 's progress in adopting ICT technology and doom our international competitiveness?
On a more practical level, to be sure, there is always the potential issue of regulatory delay. Incumbent telephone companies are concerned about the competitive disadvantages they face as a result of the regulatory process itself. The incumbents have argued that the time taken by the Commission to reach decisions on tariff applications sometimes puts them at a disadvantage relative to unregulated competitors, and hampers their ability to respond quickly to changing market conditions.
That might have been a valid complaint eighteen months ago. Since then, the Commission has made a concentrated effort to streamline the processing of applications before it, including retail tariff applications.
This is in fact my third theme. The bottom line is that we respond to filings within 10 business days, and are on track to issue final rulings on virtually all tariffs within 45 days. We also set ourselves the goal of reducing the average time taken to issue final decisions by 50%.
We have taken seriously the comments of the industry, including comments made at last year's summit, to regulate in a more timely and efficient manner.
A year later, without reaming off statistics, I can tell you that in regard to tariff filings, competitive dispute settlement, and general speed of decision-making, the results have been noticeable, and in some cases dramatic.
And now my fourth theme. By continuing for the time being to regulate the incumbent phone companies' tariffs for local telephone services, including VoIP services, we hope to create conditions that will give new entrants a fair chance to establish themselves and create sustainable local telephone businesses.
This, we believe, will lead eventually to a competitive environment that will be sufficient to protect the interests of users and make continued price regulation by the Commission unnecessary.
To put it simply: price deregulation is the Commission's intended end-game in local telephone services. The VoIP decision is a means to that end. We are regulating today so that we will be able to deregulate tomorrow.
While we can not be sure when exactly tomorrow will come, at the end of April we announced a proceeding to establish a precise framework for forbearance. As many of you know, we are asking for comments on six questions:
- Which local exchange services should be subject to the forbearance framework?
- What are the appropriate markets for forbearance?
- What criteria should be used to determine whether or not a market is sufficiently competitive to protect the interests of consumers?
- Which powers and duties of the Commission should be forborne?
- What criteria, conditions and safeguards should the Commission apply following a decision to forbear? and
- What kind of process should the Commission have for future applications for forbearance from regulation of local telephone services?
We will hold a public consultation at the end of September, and expect to issue our decision on the framework early in 2006, specifically within 150 days of the close of the record.
The next several years are going to be a critical time for the sector. Soon enough, we at the Commission and you in the industry will have a clear sense of whether and when VoIP will indeed be able to fulfill the promise of supporting real competition in local telephone services.
Our forbearance proceeding is going to give us – with your advice and input – the tools we will need to bring down the final curtain on tariff regulation when the moment is right.
I and my colleagues at the Commission look forward to that day.
Thank you.
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Date Modified: 2005-06-01
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