Price cap ruling – Telcos still grumbling about CRTC price cap ruling, appeals likely

The fallout from the CRTC’s price cap decision is just beginning, as both ILECs and CLECs alike consider their next moves. While no one has formally decided to launch an appeal of Telecom Decision 2002-34, proceedings arising out of the ruling will give all parties further opportunities to attempt to change the regime. At last week’s Celebrating 10 Years of Telecom Competition in Canada conference, commission vice-chair David Colville reminded delegates that the CRTC will hold hearings on Phase II cost methodology, on the establishment of permanent rates for the access and the link components of Digital Network Access (DNA), and on the establishment of permanent rates for Access Tandem services. "Striking the right balance between producer and consumer and between incumbent and competitor is never easy, but it is an objective the regulator must aim to achieve in the best way possible," he said at the Toronto conference. One point obscured in the initial analysis of the weighty price cap decision is how the commission is treating DNA. While some early reports suggested the CRTC was imposing a 40 per cent reduction in the rates ILECs may charge their competitors, in fact only the link portion, not the access side, falls under this provision. Another aspect of the decision little mentioned to date is the creation of deferral accounts. The commission has decided to create the accounts to offset adverse effects on local competition that may arise from mandated rate reductions. The CRTC maintains by applying the mechanism only to revenues from residential local service in non-high cost serving areas, it has toned down any regulatory or financial uncertainty. ILECs are incensed and bewildered by the creation of deferral accounts, particularly because the actual details of the system have not been decided upon. Bell Canada chief regulatory officer Sheridan Scott told the Toronto conference the proposal "has us scratching our heads," adding "the CRTC should hold back from managing our business." "We don’t know what the CRTC is going to do with the deferral account," Willie Grieve, VP government & regulatory affairs for Telus Corp., stated. One possible option was noted by Ken Engelhart, VP regulatory affairs at Rogers Communications Inc. He explained how the Ontario government underlined its tax cut program by issuing rebate cheques to eligible taxpayers. It would not surprise him if the CRTC followed the same procedure, distributing rebates to residential customers, Engelhart offered. That could be problematic, Scott countered. "The idea of the regulator winning a popularity contest is disturbing," she stated.For their part, the CLECs are anxiously awaiting the start of the Phase II hearings. William Linton, Call-Net Enterprises Inc. president/CEO, went on the offensive early during a speech to the conference delegates. "Phase II costing is the greatest gift of all to the ILECs," he said. "So there we were forced to pay high costs to access the network built by the incumbents during their hundred-year head start, and paid for by consumers many times over while competing with them for customers." He expanded on those remarks while commenting with reporters immediately after his speech."We’re of the opinion, and we’ll actively participate in that proceeding, that Phase II costing must be linked to financial costing, so there must be a direct linkage between what they report in their financial results and what we have to pay," he noted. "It should be independently audited if possible. And we need to look at the underlying assumptions." In his presentation on the second day of the conference, Ian Scott, Call-Net’s VP government affairs, gave a review of major CRTC decisions affecting competition. He was particularly critical of the original 1997 price cap ruling and others arising out of it, arguing that they left a large number of technical and operational issues unresolved and granted the incumbents too much flexibility in pricing. The costing system was totally incorrect, he maintained. John McLennan, AT&T Canada Corp. vice-chair/CEO, took the same tack when discussing the Phase II regime in a speech. He plans to be involved at the CRTC hearings and suggested the commission itself realizes the mechanism needs an overhaul. "In the absence of any understanding whatsoever of what the costs are per service within a telephone company, you can’t fall back on an arcane costing system that I think they want to revamp themselves later in the year and say that it is meaningful," he offered. "Therefore you’ve got to stand back and look at the overall financial statements of the telephone companies. I think I referred to how well they’re all doing. Bell Canada has the opportunity to be the most profitable, successful telco on earth, given this decision and given where it’s going." Ian Scott said that 2002-34 showed "a lack of faith in competition." The commission placed greater emphasis on protecting consumers through regulatory means rather than promoting competition, he averred. "While some progress has been made, the decision is still pre-occupied with the ILECs’ financial well-being," he said. As proof of this, he pointed out that ILECs are still permitted win-back promotions and operational delays. Both the ILECs and the CLECs are sifting through the price cap decision to determine the full impact on them. While it was anticipated that someone might announce an appeal by now, possibly even at the telecom conference, none have been submitted as yet. The companies have until the end of the month to launch a legal challenge, which observers say is not likely, and the end of July to appeal to Cabinet.

Price cap ruling – Telcos still grumbling about CRTC price cap ruling, appeals likely

News | June 18, 2002

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