Information
October 1, 2001
PRICE CAP
History
In May 1997, the Canadian Radio-television and Telecommunications
Commission (CRTC) introduced a regulatory framework that would allow
telephone companies the flexibility to change rates more quickly in a new
competitive environment.
This framework, called price cap, uses a formula to limit rate
increases to a given ceiling and allows for faster regulatory processes if
price changes are within certain specified criteria. These criteria include
items such as inflation, productivity and extraordinary cost
increases/decreases. For example, basic residential local rates can
increase annually, on average, by up to inflation.
The price cap framework was applied to the major incumbent telephone
companies for four years, beginning in January 1998. The CRTC was to
review this framework before the end of this period.
Price cap goals
The price cap method was put in place to achieve the following goals:
- to make reliable and affordable services of high quality,
accessible to both urban and rural area customers;
- to foster competition in the Canadian telecommunications markets;
- to provide incumbent telephone companies with incentives to
increase efficiencies and to be more innovative, as well as with a
reasonable opportunity to earn a fair return for their utility
segments; and
- to put in place a pricing plan that is simple, straightforward,
easy to understand and reduces the regulatory burden on
telecommunications companies as much as possible.
Price cap review 2001
Scope
In July 2000, the CRTC asked for comments on
the scope of the upcoming review of the price cap regime for the major
incumbent telephone companies. In particular, the Commission sought help
in answering the following questions:
- Does price cap regulation allow for sustainable competition?
- Does the current price cap regime allow for sustainable
competition?
- What criteria should be used to measure the success of the current
price cap regime in achieving its goals?
- What issues should be considered in the upcoming proceeding to
review price cap regulation?
2. Issues
In March 2001, after considering all of the
comments received, the CRTC began a review of the price cap regime for the
major incumbent telephone companies.
The Commission asked telephone companies and other interested groups to
suggest what the rules of the new price regulation regime should be. These
could cover, but were not limited to, the following topics and questions:
- What elements should the price cap formula cover? Should
inflation, productivity and extraordinary costs be measured, and if
so, how?
- What services should the formula apply to and how should they be
treated?
- How should the services be grouped for the purposes of applying
various criteria?
- How long should the new price cap regime last?
As part of this review, the CRTC will also consider, among other
things, the telephone companies’ service improvement plans. These plans
are intended to improve the level of telephone service for customers in
rural and remote areas, as well, as provide service where none exists.
The price cap public hearing will provide an opportunity for the
Commission to hear from the general public, other interested parties, as
well as from telephone companies.
Hearing dates
Beginning on October 1st, 2001, this hearing is scheduled to
last until Friday, October 12th, 2001. If needed, it could be
extended into the week of October 15th.
The new price cap regime will go into effect some time in 2002.
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Reference Document: Public Notice CRTC 2001-37
General Inquiries:
Ottawa, Ontario K1A 0N2
Tel: (819) 997-0313, TDD: (819) 994-0423, Fax: (819) 994-0218
Toll-free # 1-877-249-CRTC (2782), eMail: info@crtc.gc.ca
TDD - Toll-free # 1-877-909-2782
Media Relations:
Denis Carmel, Tel: (819) 997-9403, eMail: denis.carmel@crtc.gc.ca
Date Modified: 2001-10-01
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