Speech
Notes for an address
by David Colville
Vice-Chairman, Telecommunications
Canadian Radio-television
and Telecommunications Commission
on the occasion of the release of the
Regulatory framework for a second price cap period
Gatineau, Quebec
May 30th, 2002
(CHECK AGAINST DELIVERY)
Introductory Remarks
Good afternoon ladies and gentleman.
My name is David Colville and I am the Vice-Chair, Telecommunications of the
CRTC.
Today, the Commission is issuing new rules for local telephone rates. These
new rules will take effect on June 1st, 2002 and will apply over the
next four years to the largest telephone companies in Canada: TELUS, SaskTel,
MTS, Bell Canada and Aliant Telecom.
Since 1998, all of these companies, except SaskTel, have been subject to price
regulation - a form of regulation that focuses on controlling prices. This type
of regulation protects customers from excessive price increases, while at the
same time, encouraging the telephone companies to become more innovative and
efficient.
Looking back over the past four years, it is clear that for the most part,
price regulation has worked well.
However, it is also clear - with the benefit of hindsight-that when the
Commission designed the initial price cap regime we made certain assumptions
about how the world would unfold, especially how local competition would unfold.
A number of those assumptions have not come true.
As a result, the benefits of the first regime have not been as evenly
distributed as we might have liked. The primary example of this was the fact that
some business customers enjoyed significant price reductions while other
customers, in particular, residential telephone customers generally faced price
increases.
In view of this, when we were designing the regime we are putting in place
today, we thought long and hard about how to make sure that all three
stakeholders - customers, competitors and telephone companies - share fairly in
the benefits of price regulation and the productivity improvements that flow from
improved efficiencies and technological advancements in this industry.
We believe we have achieved a better balance in the new regime.
The new pricing rules for local phone service rates will balance more fairly
the interests of the main stakeholders-customers, both business and residential;
competitors; and incumbent telephone companies. They will distribute the benefits
of efficiency gains more evenly across the system. They will also protect
consumers, both in terms of price and quality of service, while continuing to
promote competition.
We believe that the approach we are adopting in the next regime will not have
the same problems as the initial regime. In particular, we believe the next
regime is flexible and robust enough to foster the further development of local
competition, without being dependent on it to control prices and maintain high
quality service.
In order to achieve the goals of protecting and promoting the interests of
customers, encouraging the development of local competition, and ensuring that
the telephone companies have the pricing flexibility and financial incentives
they need to operate their businesses effectively, the new price regulation
regime differs from the first in a number of important ways.
First, the Commission has established a more targeted approach to determine
the prices of telephone company services. In particular, the new regime separates
services into eight groups or baskets. This revised structure permits the
Commission to apply more focused pricing constraints to these groups of services.
These targeted constraints also indirectly help foster local competition by
ensuring that the price cap regime itself does not drive prices down, thereby
weakening the opportunities for competitive entry.
I want to emphasize, however, that no matter how quickly or slowly local
competition develops, the pricing constraints the Commission is imposing today
will ensure that, on average, residential customers will see no increase in their
basic phone rates, unless inflation soars in the next few years.
The second major change from the initial regime is the introduction of rules
to ensure that the telephone companies maintain high quality local telephone
services. This means that customers and competitors will be entitled to rebates
if the incumbent telephone companies do not meet the Commission-mandated service
standards.
In a related vein, the Commission has also decided to look at the
establishment of a "consumer bill of rights". This will be the focus of a
follow-up proceeding. As well, the Commission has frozen payphone rates until it
holds a policy proceeding to look into the issues related to payphone service in
Canada.
The third major difference in the next regime involves certain services used
by competitors to connect their networks to those of the telephone companies in
order to serve their customers.
The pricing of these services as well as the retail services purchased by
these competitors was a topic of hot debate in the price cap review proceeding
and in recent news articles about today's decision. AT&T Canada asked for a 70%
reduction in the prices they pay for both competitor interconnection services as
well as the retail services they purchase. Call-Net asked that the telephone
companies be required to provide them at cost.
Given the emphasis put on this issue by these companies, there has been a lot
of speculation lately as to what the Commission would do.
What we have done is to listen carefully to the arguments put forward by all
sides and to study the evidence in front of us with great care.
In the end, we have decided that in light of the slow development of local
competition, as well as the importance of these services to competitors, it is
necessary to reduce the price of many of these services.
Up until now, the pricing of these services has varied. Some were priced at
market rates. Others were priced at cost plus a 25% mark-up or more, intended to
help cover the telephone companies' overhead.
The Commission has decided that many Competitor Services should be priced at
cost plus a 15% mark-up. The Commission is also requiring the telephone companies
to establish a new wholesale service - the competitor DNA or Digital Network
Access service. These changes provide a significant cost reduction to competitors
and create a more level competitive playing field.
At the same time, the revised pricing ensures that the telephone companies can
still recover their costs and receive a reasonable contribution toward their
overhead. It also avoids creating an artificial incentive for competitors, over
the long term, to rely on the incumbent telephone companies' facilities, instead
of building their own.
I would like to emphasize this last point since this issue has received so
much media attention.
The Commission believes it is critically important to have regulatory rules
that make sense from an economic perspective. If competitors were to get access
to the telephone companies' services at artificially low prices - or even for
free, as some people have suggested - they would have no economic incentive to
build their own facilities. This would not be good for competition or for Canada.
Both the telephone companies and the competitors must run their businesses on
a sound economic basis - just like companies in every other industry. The
Commission cannot protect them from their mistakes. The most we can do is
establish fair rules which should help promote competition. We believe we have
done precisely that in this decision.
Finally, the Commission has approved certain plans filed by the telephone
companies aimed at extending and upgrading service in remote and underserved
areas of their territories. These initiatives will help ensure that all Canadians
enjoy the benefits of our advanced telecommunications networks on an affordable
basis.
Overall, the Commission is confident that the next price regulation regime
will work to the benefit of all stakeholders - customers, competitors and
telephone companies. We believe it is a balanced approach and will continue to
provide Canada with the best telephone system in the world.
Thank you very much for your time. I would be happy to answer any questions
you may have.
- 30 -
Contact: Denis Carmel, Ottawa, Ontario K1A 0N2
Tel.: (819)
997-9403, TDD: (819) 994-0423, Fax: (819) 997-4245
e-Mail:
denis.carmel@crtc.gc.ca
Toll-free # 1-877-249-CRTC (2782)
TDD -
Toll-free # 1-877-909-2782
This document is available in alternative format upon request.
Date Modified: 2002-05-30 |
