Speech
CHOICE COMPETITION AND CONVERGENCE FOR CANADA
Notes for an address by Françoise Bertrand, Chairperson
Canadian Radio-television and Telecommunications Commission
to the 1997 Canadian Telecommunications SuperConference
Toronto, Ontario
May 9, 1997
(CHECK AGAINST DELIVERY)
Good morning, Ladies and Gentlemen.
Thank you for inviting me here today and giving me the opportunity to be with
you. I am pleased to be here as this will be my first speech about our decisions
since we released them last week.
Competition leading up to convergence
We live today in an increasing converged world in terms of telecommunications
and broadcasting, in terms of technology and the diverse needs of consumers. The
continued development of technologies and innovative services have the potential
of altering the economic activities of the country as we move from the
post-industrial to a full information, knowledge-based economy. These changes are
bound to deeply affect business, education, culture, our homes, and many of us
personally.
We believe that competition is the key to driving the info highway in order to
provide enhanced services and more choices.
In this vein, the MayDay decisions, as we called them, launched a fully
competitive telecommunications marketplace for Canada, which will become one of
the world's most competitive countries in this sector. In our view, these
decisions will provide a kick-start to competition that allow Canada to really
participate in the development of the global communications environment.
Highlights and impacts of 1997 decisions
The decisions mark the culmination of the review process begun by our 1994
regulatory framework decision. They set the rules to facilitate competitive entry
into the residential and business local service market.
Now, let us look closely at the impacts of these decisions. First of all, here
are the basic guiding principles:
- entrants would be treated as equals or co-carriers, not as customers of the
phone companies;
- disruption to the existing network structure that has served Canadians
would be minimized, without limiting opportunities for innovation;
- subscribers would have maximum freedom to choose amongst available local
service providers and all long distance companies; and
- the decisions would be technology neutral.
While we have focused on facility-based competition in the mid-to-long
term, we also wanted to encourage early market entry. We have therefore described
a minimum set of "essential" facilities that the incumbent telcos must provide to
entrants at reasonable rates, as well as a second set of facilities that will be
available for a 5 year period only.
Essential facilities are those that are monopoly supplied and required by
entrants as an input but which are not economically or technically reproducible.
Central Office codes, subscriber listings and loops in less densely populated
areas are designated as "essential". Such facilities must be unbundled and
provided at tariffed rates.
The second group of facilities which must be available for five years only, do
not meet the definition of "essential" but which we believe, are necessary to
help kick-start competitive entry. These facilities are mandated to be unbundled
at the same rates as the essential services. These facilities include: loops in
densely populated centers and local transiting service.
As for pricing of these essential and other services which must be unbundled
for competitors, we have determined that the incumbents may charge the
incremental cost of these facilities plus a markup of 25%. In this way, we
believe that the local access shortfall will not increase. Those rates will have
to be approved by the Commission.
Although we have encouraged a facilities-based approach to local competition,
the Commission has also permitted resale of business and residential
services. However, we did not mandate wholesale resale tariffs or service
branding. We believe that there is already adequate resale opportunity in the
area of business services, with bulk discounts available for Centrex and
multi-line services. As for residential services, we concluded that as virtually
all residential rates are below cost it was simply unacceptable to impose a
discount which would have increased the local subsidy requirement. As a matter of
fact, incumbent telcos will not be required to "subsidize" the introduction of
competition, as was the case for long distance service. However, we believe that
resale will facilitate creative packaging of various service by entrants and will
encourage competition and "one stop shopping".
With respect to directories, we have mandated the provision of white
pages directories containing the listed numbers of all subscribers, regardless of
their service provider. New entrants will not be obliged to provide a directory.
Of course the incumbents telephone companies will continue to benefit from the
yellow pages revenues.
With regard to subsidies, the Commission has decided that there will be
only one explicit subsidy source, namely the contribution to the local access
shortfall paid to the incumbents at present by the long distance providers. The
Commission has decided to freeze the amount of interexchange contribution
at 1997 levels for the initial 4 year period of price cap regulation. The rates
themselves will be determined during the proceeding to implement price cap
regulation for the Stentor telephone companies.
This subsidy will be made portable. This means that all local carriers may
receive a subsidy from interexchange carriers through a central fund that
will eventually be managed by a third party. I must say that the task forces
committees have worked very well in the past and we call upon this collaboration
for the future.
As a result of the Commission's scope of contribution decision, additional
services such as wireless and data services will contribute to this fund. The
payment of the subsidy will be limited to those serving residential subscribers,
and the amount will be higher for rural than for urban subscribers. The objective
here is to motivate entrants to expand their serving areas beyond the urban
centres, and to reduce upward pressure on rural rates. This means that
competition will be real, on an universal basis.
Finally, because new entrants into local telecommunications markets will not
have market power, we are not requiring them to file their retail rates for prior
approval. However, to ensure the maximum integration of new competitive networks
into what will evolve into a network-of-networks, new entrants as well as the
incumbent telcos must provide for interconnection with the facilities of other
carriers. To this end, telcos and new entrants must file intercarrier agreements
and tariffs for interconnection.
We have also established key safeguards for consumers in the coming
competitive local market. New entrants must provide access to emergency 9-1-1
service and message relay service for deaf and hard of hearing as well as equal
access to long distance providers, local number portability when available,
interconnection with other local carriers and wireless carriers. Finally, they
will be obliged to provide subscribers with certain information relating to their
terms of service and rates and abide by all current and future Commission
requirements designed to protect customer privacy.
I'd like to turn briefly now to highlights of our decisions with respect to
price cap regulation, which will come into force in January 1, 1998, for a 4
year period. The price cap method of regulation focuses on the level of prices
charged by the telcos, which is of direct concern to subscribers. Price cap
regulation is aimed essentially at sectors in which competition has not yet been
fully established, that is residential and business basic local service. These
services will be capped and subject to price cap index. This price cap index
limits changes in prices by deducting the rate of inflation and making an
adjustment for productivity gains in the order of 4.5%.
In 1994, we set out the importance of ensuring that prices move toward costs
in order to foster sustainable competition. We are also concerned to balance this
policy objective with the objective of maintaining reliable and affordable
service in rural as well as urban areas. Thus, while we approved a maximum price
increase of $3 per month, on an averaged basis, we decided against full rate
rebalancing because of concerns respecting accessibility. The additional revenues
from this third round of rate rebalancing will first be used to reduce
toll contribution rates to a minimum of $0.02 cents per minute. The final amount
of this increase will only be established further, to address the telephone
companies rate of return going in the price caps, following a public proceeding
where consumers and other interested parties will have the opportunity to
comment. After the price cap period, there will be no further rate rebalancing. A
complete review, taking place before the Price cap plan comes to its end in the
year 2001, will review whether that the parameters have been correctly set.
We also ensured that customers in high-cost areas will not receive rate
increases of more than 10 per cent annually for basic residential local service
and single-line business local service. Also, as I've mentioned above, the
portable contribution regime will also ensure that the policy objective of
accessibility is maintained.
We believe this is the first time that price cap and local competition have
been introduced at the same time and we believe that the local competition itself
may act as a constraint on local prices.
Collectively, these decisions mean that the telephone companies will have more
flexibility in setting their rates for local services and that, on the other
hand, consumers will be protected against excessive increases. I must say that we
will be vigilant in order to ensure that consumers' interests are respected. We
want consumers to have the same quality of service that they enjoy now, plus all
the benefits that competition produces in terms of new service offerings, and
packages.
Consumers will be able not only to select their long distance provider, but
also the provider who offers them the most suitable local services. They will
also have the possibility to maintain their telephone numbers from one competing
distributor to another. Competition will encourage the companies to innovate
more, and Canadians will therefore have a greater choice of services, at
competitive prices. I must also add that while we have established the
architecture of a competitive environment, we are cognizant that certain minor
adjustments may be needed, and that this is an on-going process.
The Commission has concluded that these decisions as a whole remove all
barriers to true competition and promote convergence between the
telecommunications and broadcasting distribution industries. In this spirit, the
telephone companies will be able to submit broadcasting licence applications
beginning on June 16, 1997, and cable distributors will have access to the local
exchange market. Any cable licence granted to the telephone companies will be
effective no earlier than January 1, 1998. I would also note in this area that
the Bell-TELUS decision released yesterday represents a further step leading to
convergence.
The changing focus of the CRTC in this new environment
The opportunities and challenges presented by a more competitive and converged
communications world have been and are being discussed in a number of fora: at
both federal and provincial governments levels and internationally. For example,
the United States' Telecommunications Act of 1996 opens competition
between cable and telephone companies. The European Community as well as
developing nations in the Pacific Rim and elsewhere, are examining the challenges
and opportunities that convergence pose.
In Canada, we are also taking up those challenges. It is precisely because
convergence will have such a profound impact on so many aspects of our lives,
that it is for me and for the Commission, a priority that is propelling our
agenda. In our minds, convergence should bring about innovations that will serve
Canadians, and not the other way around. In other words, these innovations must
enrich our daily lives.
Clearly, the Commission must also adapt to the new competitive environment in
which the industries it regulates, or exempts from regulation, evolve. We will
rely increasingly on market forces as competitive forces take hold, and we will
not hesitate to get out of the way. Still, it is also clear that for the next few
years at least, the presence of the Commission, with its technical expertise and
experience will be needed to foster the environment we are seeking. But then, I
also see a need, for some time, for an expert referee to ensure that the
competition is sustainable and to see to it that the interests of consumers and
citizens are protected. This is our prime responsibility. Clearly, in an
increasingly deregulated environment, the role of the Commission as a referee is
not likely to end in the near future.
Even the participants themselves tell us of the need to have someone of
special expertise to ensure that fair rules are in place to allow all interested
players to take part with a fair chance to succeed. We see ourselves increasingly
playing the role of mediator-arbitrator in competitive disputes, and we are
developing new ways of doing business with our "clients". Certainly and
ironically, we are having to work very hard in order to reduce our work!
Let me say too that fair rules for sustainable competition at home are
necessary to allow Canadian companies to grow and to give them the leverage they
need to face international competition and enter international markets.
Indeed, some would argue that even compared to the United States, Canada is a
length ahead in implementing competition and is more pro-competition. The
American legal processes is more complicated than ours on account of overlapping
jurisdictions between the states and the federal government, which is not the
case in the field of communications of our country.
We are also seeking new ways of communicating and listening to consumers and
users of telecom services, and we will be considering new approaches to
facilitate public participation in our processes.
In conclusion, all of us are on or affected by the path competition and
convergence in the communications sector. Through the public hearing process, and
ultimately by the release of its policies and decisions, consumers, business, and
interest groups have played a key role in shaping the new communications
landscape.
On that note, I would like to thank you for participating in this long
process. Your contribution allowed us to arrive at these decisions. According to
our in-house statistics, this long and exacting work saw 24 days of public
hearings requiring more than 129 binders, 4,000 copies of transcripts, and
approximately 32,000 pages of documentation for the Commission to absorb! I
sincerely believe that we have achieved a balanced decision that responds to the
broad interests of all parties. We invite you to maintain this spirit of
cooperation and keep us up date on the implementation of these decisions. The
work being done by various committees clearly illustrates that cooperation
benefits all involved, you as much as the Commission, but more importantly the
consumers which are our primary clients. From this point on for the Commission
and before we can expect a complete deregulation, our role now consists of
adapting ourselves to new conditions, and ensuring that competition is viable and
it supports convergence for all Canadians' benefit at all levels economic, social
and cultural. This most interesting journey continue.
Canada is a leader in communications. We have demonstrated this leadership, we
will rise to the challenge that globalization presents us, and well remain at the
forefront of this sector.
Thank you very much.
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Contact: CRTC Public Affairs, Ottawa, Ontario K1A 0N2
Tel.:
(819) 997-5427, TDD: (819) 994-0423, Fax: (819) 994-0218
This document is available in alternative format upon request.
Date Modified: 1997-02=5-09 |
