Feds tell CRTC to back away from telco regulation

TORONTO – The federal government on Tuesday tabled a proposed policy directive to the CRTC, advising it to rely on market forces to the “maximum extent feasible” under the Telecommunications Act and to regulate only when absolutely necessary, signaling a major shift in favour of incumbent carriers.

Industry Minister Maxime Bernier announced the government’s guidelines to the CRTC during a speech at the Canadian Telecom Summit, which featured a panel debate by the regulatory affairs staff of several incumbents and cablecos. He said he hoped the directive would help the CRTC clarify the meaning of regulatory objectives outlined in the Act, while fulfilling some of the recommendations made by the Telecom Policy Review report, which was completed in March.

“It is not the role of the government to determine how this increasingly complex market will evolve,” Bernier said. “It is up to the market – it is up to you – to decide on technology . . . the government wants to ensure that all businesses have a chance to succeed and consumers have access to the best services at reasonable prices.”

In a press Q&A immediately following his speech, Bernier said the proposed directive has to sit in both the House of Commons and the Senate for 40 days. In the meantime, he said, the government will receive comments from both the public and other players in the industry. After the 40-day period, the directive would be formally submitted to the CRTC.

This marks the second time this year the government has formally intervened to make changes in the way the CRTC regulates telecommunications in Canada. Last month Bernier called on the CRTC to reconsider its May 2005 decision to regulate voice-over-IP (VoIP) services. Rogers Cable and Shaw Communications, which have both entered the VoIP space, have urged the CRTC to maintain its position.

The proposed policy directive, meanwhile, could mean changes to the “forebearance decision,” in which the CRTC said it will deregulate an incumbent only after competitors in the region have a minimum of 25 per cent market share and that they provide access to their networks for six months.

Lawson Hunter, BCE‘s executive VP and chief corporate officer, immediately applauded Bernier’s announcement.

“Relying on market forces, in our view, is the right direction and we’ve been supportive of the recommendations of the Telecom Policy Review report,” he said. “This is just a further reflection, as was the VoIP decision, that the government accepts the fundamental recommendations and will move on them quickly.”

Chris Peirce, chief regulatory officer of MTS Allstream Inc., predicts the government will not be able to issue final direction to the CRTC until the fall, because Parliament is scheduled to recess during the summer and the policy has to be put before Parliament for a total of 40 working days when Parliament is in session.

The proposed policy direction “probably outlines good year or more of work,” he said, because the CRTC would then have to review its rules on mandated access to incumbent carriers’ wholesale services.

“We’ll have to see what the view of the regulator and the government is,” Peirce said. “This policy direction doesn’t really change anything in the here and now. It endorses an approach that the regulator would say it is already taking.”

Although it’s unusual for the government to give direction to the CRTC, Peirce added, “reviewing what a competitor should have access to is not, in and of itself, unusual.”

Incumbents such as Bell and Telus argue that regulation provides them with little incentive to build out their network facilities to more parts of Canada, while competitive local exchange carriers and cablecos insist the incumbent take advantage of their dominance by charging steep markups for use of their networks and try to provide different rates for services in different cities, a strategy called “targeting” which the CRTC has frowned upon.

Both sides told the Canadian Telecom Summit they have tried to work out deals among themselves, but each pointed the finger at the other for failing to make headway.

“What’s the point in having a meaningful conversation with a competitor when, every time you don’t get what you want you go crying to the regulator?” asked Mirko Bibic, chief of regulatory affairs at Bell Canada, who urged MTS Allstream and the cablecos, “Take the training wheels off and compete . . it’s time.”

Telus executive vice-president of corporate affairs Janet Yale agreed. “We’re a new entrant in Ontario and Eastern Canada. We’re not whining about it, we’re getting on with business,” she said. “There’s no use in negotiating with competitors when negotiation is just foreplay before regulation.”

“Yeah, and then we get screwed,” shot back Peirce, who claimed Bell and Telus together own 88 per cent of the business local telephone service market. Peirce said 25 cents out of every dollar goes to paying Bell for access to its network. These margins of between 30 and 50 per cent come despite a failure to see the kind of performance MTS Allsteam expects, he added.

“It’s not just access. It’s the quality of service that goes along with that,” Peirce said.

Ken Engelhart, vice-president of regulatory affairs at Rogers, said it was important to regulate against targeting and “winback” offers to customers that leave incumbents because it will be impossible to sustain competition. Rogers, he said, spends about $350 to acquire a new subscriber. If that customer cancels the next day and goes back to Bell, it would take at least the same amount to attract them again, doubling the investment. The CRTC has ruled in the past that incumbents cannot launch winback offers for three months following a customer defection.

“(Bell and Telus) will tell you that targeting is just the way business is done. It’s not,” he said. “Your insurance company doesn’t have a higher rate for loyal customers and a deep discount for those who go somewhere else.”

Shaw Communications vice-president of telecommunications Jean Brazeau sad it is Bell who has been “incessantly whining” to the CRTC to loosen its control, and accused Bell of steering the focus of the regulatory discussion away from a converged broadband policy that incorporates voice, data and video technologies.

“All we hear are calls for local telephony deregulation,” he said. “They want to marginalize the competition, one market at a time.”

— additional reporting by Greg Meckbach

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