CRTC asks for comments on price floor for ILECs

The Canadian Radio-television and Telecommunications Commission (CRTC) is reviewing price floor safeguards to ensure there are just and reasonable telecom rates in all markets.

The rule against price cuts has been in effect for certain retail services since 1994. At that time, it was applicable

to interexchange voice services. Price floor regulations prevented an incumbent telephone company from using its market power and diversity of service offerings to sell services below cost in markets of intense competition. These regulations applied to basket, sub-baskets and rate element levels of incumbent carriers Aliant Telecom, Bell Canada, Manitoba Telecom Services, Saskatchewan Telecommunications, Telus and Telebec.

Recently, the CRTC stated the present rules give the incumbents a high degree of downward pricing flexibility. Of all service providers, they are in the best position to use high mark-ups in certain areas to subsidize price decreases in the more competitive markets. Competitors, on the other hand, must pay a minimum 15 per cent mark-up on the facilities they lease from the incumbents, thus limiting any potential decrease in the prices of their service offerings.

Incumbents are also able to offer discounts within their service bundles. They can offer long-term or volume discounts, effectively making some customers subsidize other customer’s lower prices.

The Commission has determined that the present competitive telecom market is in a weakened state. In its December, 2002 report, the CRTC findings indicated that telecom revenues for incumbents had increased by eight per cent while competitors’ share of the market grew less than three per cent. As a result of this market assessment, the CRTC felt it was time to re-evaluate price floor regulations.

The resulting call for comments will look at interim modifications to the rules, which would see, for instance:

* Increased price floor to cover a minimum mark-up of 25 per cent on the Phase II costs of service components;

* Revised service bundling rules to reduce the opportunities for targeted price discounting; and

* Modified application of discounts to long-term and volume discount contracts, ensuring that any discount offered would apply to all.

This process will run from November 2003 until June 2004, allowing comments and responses. In the end, it is possible some rights will be re-established and customers in areas that do not have a lot of competitors will stop having to subsidize their service providers’ competitive forays.

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