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TELECOM UPDATE SPECIAL ISSUE
Exclusive interview:
CRTC CHAIR RESPONDS TO FORBEARANCE CRITICS
Number 525b: April 18, 2006
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INTERVIEW WITH CHARLES DALFEN: The CRTC's "local forbearance" decision
has been widely criticized in the press and elsewhere. In this
exclusive interview, Telecom Update editor Lis Angus asks CRTC
Chairman Charles Dalfen to respond.
ANGUS: Some have said the forbearance decision shows that the CRTC is
opposed to relying on market forces. Do you agree?
DALFEN: No. The opposite is true. We believe in market forces and
deregulation. In the past few years we have deregulated sector after
sector in the telecom industry -- in fact, local phone service is the
final frontier for deregulation.
But the Telecommunications Act says the CRTC can only "forbear from
regulating" when and where there is enough competition to protect the
interests of users. The purpose of this proceeding was to set criteria
for deciding when that stage has been reached in local phone service.
We set two key criteria: the incumbents have to have lost 25% of the
market within a local forbearance region, and they have to have met
all competitor Quality of Service indicators for six months. In
addition, they have to have a wholesale ADSL tariff, and have to show
that there is rivalry in the market.
ANGUS: The CRTC only issues its competition report, including market
shares, once a year. Do carriers have to wait for that annual report to
apply for forbearance?
DALFEN: No. They can apply at any time. They can even apply before they
have entirely met the thresholds -- so forbearance could be approved
conditional on meeting the criteria.
ANGUS: How long will it take the CRTC to process applications for local =
forbearance?
DALFEN: We expect to turn around forbearance applications in four
months -- and after the initial few applications, probably even faster.
ANGUS: When will we likely see local services deregulated?
DALFEN: I expect that most business markets -- in major cities at
least -- will be forborne in the next 18 months. As for residential
service, Aliant has met two of the criteria in Halifax already, market
share loss and rivalry. The other criteria -- filing a wholesale ADSL
tariff and meeting the competitor QoS indicators -- are under Aliant's
control. I expect Montreal and Toronto will soon qualify as well.
ANGUS: Why did you use lines in service as the measure of market share,
rather than revenues?
DALFEN: Lines is the measure of competition used around the world. It is
a straightforward and simple measurement. Tracking revenue is more
complicated, with a lot more bookkeeping. People wanted clear criteria
and that's what we set.
ANGUS: Would you be open to a forbearance application based on revenue?
DALFEN: We'd probably be open to a case being made on revenue as a
measure of market share, if for some reason there is a big discrepancy
between lines and revenue.
ANGUS: Why did you set 25% as the market share loss figure?
DALFEN: As every party to the proceeding acknowledged, setting the
level of ILEC market share loss to be used as criterion for
forbearance is not a precise scientific exercise. We think that 25% is
a fair level.
ANGUS: Why did the CRTC set different deregulation criteria for local
phone service than it did for cable TV? Cablecos can apply for
deregulation when they've lost only 5% of their customers
DALFEN: When we set the criteria for cable deregulation, the competition
was from satellites. By definition, satellite competitors had facilities
in every market, while cablecos did not have ubiquitous coverage. In
local phone service the situation is reversed: the incumbents have
near-universal coverage in their territories, while competitors have
much less.
Also, in the local phone market, competitors--even the
cablecos -- depend on the incumbents for essential services such as
phone numbers and interconnecting trunks. Some also require local
loops and other services. Satellite TV providers don't need any
facilities from the cablecos.
ANGUS: Why do you require the phone companies to meet certain quality
standards for services they provide to competitors? Isn't this just
protecting competitors?
DALFEN: No. It's about protecting customers. There's no point to
"sustainable competition" if it's just about the providers. The point
is that consumers need choices. We have to ensure that the incumbents
can't use their position to inhibit competition, leaving consumers
unprotected.
ANGUS: Why does the CRTC require the incumbents to provide wholesale
ADSL to competitors, including naked DSL, before they can apply for
forbearance?
DALFEN: This ensures that competitors who want to offer a bundled
VoIP-over-broadband service can get necessary facilities from the phone
companies, and that their customers can choose to cancel the incumbent's
phone service without losing the right to have broadband.
ANGUS: But isn't it true that the telcos' main competitors -- the
cablecos -- don't use the incumbents' infrastructure?
DALFEN: Firstly, as I said, all local service competitors, including
the cablecos, need some essential facilities from the incumbents, such
as phone numbers and interconnecting trunks. Secondly, the cablecos
aren't the only competitors -- resellers and other competitors need a
variety of other facilities from the telcos.
We had a whole proceeding to establish the minimum standards required
to allow competitors fair access to essential services. The incumbents
have been failing to meet these standards.
Meeting these standards is entirely within the phone companies'
control. It's neither acceptable nor fair to argue that those
standards are not important.
ANGUS: A recent Financial Post editorial claimed that the CRTC makes it
"illegal for the phone companies to cut prices." Is that true?
DALFEN: No. I don't know how anyone can draw that conclusion. The
incumbents can't raise residential prices, but they can certainly reduce
them if they wish -- as long as their prices don't drop below cost.
ANGUS: The Telecom Policy Review report recommended relying on market
forces as much as possible, and -- where regulation is still
required -- relying on complaints-based enforcement instead of requiring
prior approval of tariffs. Do you agree with that recommendation?
DALFEN: The TPR report also recommended that the CRTC have the power to
impose fines. Without that power, after-the-fact regulation is
toothless.
Before the recent election, the government introduced a bill that would
have given the CRTC the power to impose meaningful fines if carriers
violate their tariffs or other regulations. If the new government passes
such a provision, I could see the logic of complaints-based enforcement
for retail services rather than requiring advance approvals.
For further information, see:
** Telecom Update #524:
http://www.angustel.ca/update/up524.html
** CRTC Telecom Decision 2006-15:
http://www.crtc.gc.ca/archive/ENG/Decisions/2006/dt2006-15.htm
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