Speech
SMOOTH SAILING OVER TROUBLED WATERS - A REGULATOR'S PERSPECTIVE
Notes for an address
by Charles Dalfen
Chairman, Canadian Radio-television
and Telecommunications Commission
to the Ontario Telecommunications Association 37th Convention
Ottawa, Ontario
June 17th, 2002
(CHECK AGAINST DELIVERY)
Introduction
Thank you, Sharon (Chuter, President, OTA), and good morning, everyone.
As the new Chairman of the CRTC, it is a great pleasure to be part of your 37th
Annual Convention.
It is a pleasure to also note that in spite of a few very turbulent years in
the telecommunications business, the Ontario Telecommunications Association
members have not only survived but thrived.
Without question, you have continued to play a vital role in your serving
areas because of your strong commitment to:
- customer service,
- innovation, and
- close ties with your communities.
From a regulatory perspective, your cooperation and your high-quality
interventions to our proceedings have been extremely valuable.
Regulatory change is very much on your agenda these days. One of the greatest
challenges that you are likely to experience over the next few years is already
in place and known to you. I am referring to Decision 2001-756-the new Regulatory
Framework for the Small Incumbent Telephone Companies, announced in December.
I will be talking about Decision 756, but before I do I would like to touch on
three things.
- The first is somewhat personal, and relates to why I am back at the CRTC,
- The second is the CRTC's overall mandate with respect to
telecommunications, and
- The third entails some of the broad challenges and changes taking place in
the communications environment.
Let me start with the first, why I am here.
Why am I here?
As some of you may know, I have returned to the CRTC after 20 plus years in
private law practice. A number of people have asked me why.
The answer can be summed up in a single word: Belief.
I believe in public service. I believe in the ability of public institutions
such as the CRTC to make a difference. I believe in the Commission's excellent
people-in their dedication, competence, and professionalism. I believe in its
mission-as set out in the Telecommunications Act and the Broadcasting
Act.
I left the CRTC over twenty years ago with a sense of pride. I return now with
a profound respect for its achievements over the past two decades and with
anticipation about adding to this legacy.
When I left the Commission in 1980, we had issued Telecom Decision 79-11,
which introduced interconnected private line voice competition and we had begun
terminal attachment liberalisation.
I have closely followed the business of the CRTC over the past two decades. It
is certainly a different world now.
There was an absolute telecom monopoly in public switched voice
telecommunications two decades ago. The barriers to competition have now been
eliminated.
The way I see it, the regulator's job is to open doors and ensure fairness
once the doors are open.
I believe that the CRTC has done a superb job of carrying out its mandate and
in maintaining the respect of Canadians.
What I hope to bring to my new responsibilities is not a change in policy
direction but certain values that I have long held dear.
These include integrity, quality and civility. These are also part of the
culture of the Commission.
I believe that integrity should characterise both our processes and our
products, which are primarily our decisions with fairness.
People participating in our processes and reading our decisions should have a
clear sense that our Commission has given them a fair hearing. Should also be
comprehensible.
A respect for quality means ensuring that our activities and decisions convey
thoughtfulness, knowledge and common sense.
They should also be carried out in a manner that optimizes both thoroughness
and speed.
Civility means being respectful of each other, even when we disagree.
I intend to carry these values forward as we work to fulfil our mandate. With
this in mind, let me touch on the key objectives of that mandate.
Brief overview of CRTC mandate
As you know, our mandate comes from the Telecommunications Act.
In very simple terms, the Act exists to ensure that the telecommunications
industry serve the interests of Canadians.
This means pursuing the objectives set out in section 7 of the
Telecommunications Act, from which we derive support for universal service at
competitive prices, for innovation, and for a strong Canadian telecommunications
industry that can compete in Canada and globally.
All of these objectives are good. However, the challenge comes in balancing
them against the other objectives.
There is no magic formula for doing this, particularly in an environment where
technology, international competition, economic conditions and the wants and
needs of consumers are in a constant state of change.
Reaching an optimal result often means some give and take on the part of
everyone.
In the major population centres, roughly akin to the old Stentor serving
areas, the balancing of objectives has resulted in the introduction of
competition in Long distance service, local services and broadcast distribution
systems, including cable, direct-to-home satellite, and multipoint distribution
systems.
What do the early returns show on competition in the major serving areas? A
number of objectives have been met. A number of challenges remain.
After the first 10 years of competition in long disance services, competitors
serve about 30% of the market, while the incumbents serve about 70%.
Today, long distance competition, business and residential consumers across
most of Canada are benefiting from competition through greatly reduced prices,
new services, new pricing packages and choice among service providers.
The introduction of local service competition has not gone as well. After
roughly five years of local competition, the incumbent local exchange carriers
(ILECS) still have roughly a 95% market share. It is clear that local competition
will require more time to take hold than originally anticipated.
Some major changes in marketplace
Difficulties in achieving local competition and slowing growth in other areas
of telecommunications over the past couple of years can be attributed to several
economic factors.
Overall, the dot-com meltdown, telecom free falls has raised skepticism about
whether the concept of convergence has any substance to it, and whether bigger is
in fact better.
From a regulatory perspective, the CRTC is not doing anything to discourage
convergence. Indeed, we believe that if its promises are even partly fulfilled,
many will benefit.
At the same time, we cannot help but note that financial markets have been
brutal in their skepticism regarding the convergence model.
And convergence aside, it is very difficult today to raise start-up equity
capital either through initial public offerings or even private placements for
new telecommunications ventures of any kind.
Perhaps, more importantly, lenders and particularly banks, who normally
sustain start-ups through their early years, are either calling loans, not
lending, or not lending enough to sustain new ventures.
We hope that our May 30 price cap decision for the large ILECs will provide a
suitable regulatory framework for local competition in the major population
centres of the country.
However, it is just that. While it can create some degree of regulatory
certainty, it can not create improved economic conditions or be a substitute for
risk-taking by investors and entrepreneurs.
High-cost servicing areas
Turning to the areas, however, that are more important to you and your
businesses, I would note that over the past few years, the CRTC has taken a
number of steps to improve service to high-cost areas.
Some of the major steps that have been taken include:
- raising the bar on the definition of basic service objective to include,
for example, access to dial up Internet;
- simplifying the regulatory process on a Canada-wide basis to reduce costs
for the industry as well as the CRTC;
- initiating changes to spread the costs of subsidies more fairly among more
contributors. In effect, we abandoned a regime based on a contribution rate
collected exclusively from long distance service providers on a per-minute
basis and directed all telecommunications service providers to contribute a
percentage of their eligible revenues to a national subsidy fund.
- restructuring of bands, which redefined high-cost areas for all of the
ILECs. This tightened up on the criteria for subsidies in order to reduce the
burden and spread it over more players.
In the past year and a half, the CRTC has also committed itself to addressing
two fundamental issues of great concern to independents. The first was an
examination of the role that earnings, pricing and subsidies should play in
financing your businesses.
The second issue was to examine the cost recovery of direct toll.
In December 2001, we addressed the first of these items by issuing Decision
2001-756. This important ruling in our view:
- moves rural service providers from a regulated environment focused on
earnings to a new framework focused on prices;
- allows annual price increases based primarily on inflation, under the new
contribution mechanism established in Decision 2000-745;
- reduces the regulatory burden by allowing use of a proxy to determine
subsidy requirements, thereby eliminating the need to perform detailed costing
studies;
- provides a four-year transition period to reduce the possible financial
impact on companies receiving a lower subsidy under the new contribution
mechanism, and
- institutes a consultative process to determine how to deal with direct toll
and network access costs.
The new regulatory framework hopefully allows you to benefit more than ever
before from your efficiencies.
You get to keep more of your profits-particularly for those who commit
themselves to becoming leaner and more effective service providers.
Looking ahead for the independents
As all of you know, a second major undertaking is now underway to address the
process of cost recovery of direct toll service.
Its purpose is to establish the framework to regulate how you can recover the
costs associated with providing connections for long distance services between
your customers and the long distance carriers.
Let me make three main points regarding direct toll.
First, I understand your high anxiety with regard to the direct toll review.
There are, however a few comments I can make regarding direct toll that I hope
will allay some of your anxieties.
- One is that we have chosen to review direct toll through a consultative
process that includes representatives from all concerned parties. We have done
this in order to try to reach the most equitable and sustainable solution
possible.
- A second is that we are making every attempt to fully understand and
discuss every concern brought forward by you.
- A third is that we are examining as many options as possible.
Our intention is to implement, by the end of the year, a workable, sustainable
process that is a fair solution for the independents, the long distance providers
and your customers.
Conclusion
Taken all together, the telecommunications industry has gone through a great
deal of change in the past few years.
As your conference title suggests, the waters for everyone in the business
have been turbulent.
Ongoing changes in technologies, business conditions, consumer requirements,
and other factors suggest we can expect the waters to remain turbulent for some
time.
Nevertheless, you have survived, and as I said at the outset, you have
thrived. Compared to your big city cousins, many of you have done well.
I believe that the future looks bright for the independents.
You have four years to adjust to the new price cap regulation.
Paperwork associated with regulation has been reduced.
Most of you have managed to avoid the wild party of the dot-com boom and have
therefore avoided the morning after hangover.
The CRTC continues to support the independent telecommunications model as a
good way to provide high-quality service at competitive prices in high-cost
serving areas.
We encourage you to continue to make your issues known to us, and we are
pleased to see that OTA has provided a forum for the independents of Ontario to
pool resources and increase the effectiveness with regard to tackling both
regulatory and business issues.
Finally, we encourage you to take full advantage of the new regulatory
framework, to continue to innovate, prosper and provide the best possible service
to your communities.
Thank you.
- 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: 2002-06-17 |
