Telus and Aliant most recent incumbents to attack AT&T Canada price cap appeal

Two more ILECs have jumped into the fray to tell Cabinet why an appeal by AT&T Canada Inc. should be denied. One claims the competitor did not look at regional issues; the other dismisses the entire bedrock on which the appeal is based. The CLEC launched its appeal of Telecom Decision 2002-34, the price cap ruling, in late summer (NL, Aug. 27/02). Among other requests, it wants to have rates slashed by half in the interim. The company claims that ILECs have regularly overstated Phase II costs and a decrease in rates until a final Cabinet ruling is justified. The country’s second-largest incumbent disputes this. "To support this charge that the ILECs overstate their Phase II costs for competitor services, AT&T relies on examples of prices being reduced by the CRTC. But these are not examples of costs being overstated," Telus Corp. says in its response to the filing . "This distinction between prices and costs is crucial to understanding the failure of AT&T’s examples to justify its demand for a 50 per cent discount." Willie Grieve, Telus’ VP public policy and regulatory affairs, does not mince words at any point in the 40-page document. He makes his point early on in the response. "When stripped of its rhetoric of competitive neutrality, AT&T’s petition is in actuality nothing more than a demand that the Governor in Council do something to save AT&T from its own flawed business decisions without any regard for the irreparably damaging effects AT&T’s request would have on the entire telecommunications sector in Canada," he writes in the second paragraph. Aliant Telecom Inc. narrows the focus even more. Although it signed on to a response filed by Bell Canada (NL, Oct. 8/02), the regional ILEC offers a separate submission highlighting its specific concerns."AT&T’s proposal is ill-considered and self-serving," the company writes. "More alarming still, acceptance of AT&T’s proposal would throw the Atlantic Canadian telecommunications sector into turmoil." In its original petition to Cabinet, AT&T Canada declared that Call-Net Enterprises Inc. is the only major competitor in the local residential market. "This statement clearly demonstrates AT&T’s ignorance of the reality of the Atlantic Canadian tele-communications market," Aliant rejoins. The regional telco says about one-third of people in the four Atlantic provinces have access to local competition; in Nova Scotia that figure jumps to 60 per cent. One significant rival is EastLink Telephone, the telephone subsidiary of cable operator EastLink Cable Systems (NL, Sept. 27/99). The Aliant filing cites a magazine article in which Lee Bragg, the co-CEO of the cableco, claims that it is achieving 30 per cent penetration in some telephony markets. It also quotes CRTC vice-chair David Colville, who told industry analysts how vigorous competition is in Halifax. (For more on EastLink, see the Aug. 15/02 issue of NL affiliate publication Canadian Communications Reports.) "Another provider, Group Telecom, is providing approximately 5,000 lines in Newfoundland and Labrador, to one major customer," the Aliant submission adds. "It is noteworthy that during the price cap review proceeding, Group Telecom argued against expanding the number of ILEC services provided to competitors at reduced rates." In its petition to Cabinet, AT&T Canada quotes deputy prime minister John Manley from his days as Industry minister. "I expect that the CRTC will consider very carefully every opportunity to foster competition through its regulatory decisions, keeping an eye on the future of competitive tele-communications in Canada," Manley said in June 2000. Grieve seems perplexed by the inclusion of this quotation by the CLEC. "Even if one could characterize the minister’s comments, to which AT&T refers, as being somehow an order or directive to the CRTC, there is simply no evidence that the commission has not carefully considered ‘every opportunity to foster competition through its regulatory decisions.’ Of course, the minister’s comments do not constitute a direction or order to the commission," Telus concludes. Telus accuses AT&T Canada of making many misstatements in its petition. It declines to list all of them, but does refer to the Bell response. (While all the major ILECs have pronounced themselves on the merits of the appeal, none of the CLECs have yet. Both Call-Net and Group Telecom tell Network Letter they have not yet decided when or if they will file responses.) Telus concedes that it has had disagreements with CRTC rulings in the past. It cites the examples of promotion of resale over facilities-based competition and the prices set for unbundled facilities. Favouring resale would limit the range of competition, the telco maintains. "But AT&T’s petition would go too far," Grieve writes. "It would foreclose facilities-based competition because investors would be unwilling to support competitive facilities when incumbents are mandated to make the facilities available at prices that have no regard to cost. This would abrogate the commission’s policy of balanced competition and, in fact, would allow only resale competition. The result would be only one underlying network." Aliant worries that adoption of the CLEC’s request would set a domino effect into motion. First, competitors would stop building facilities, halting investment and job creation in the Atlantic provinces. The CLECs could then sell ILEC services at prices significantly lower than what Aliant is able to do. The telco estimates that its rival would be able to resell local access at an 80 per cent profit while undercutting the incumbent by 10 per cent. Aliant predicts it would lose customers while still being forced to supply services to its competition. "Facing such an outcome, the company would soon have to appeal directly to the CRTC or the federal government to intervene in order to prevent the collapse of the Atlantic Canadian telecommunications sector," the telco argues. "Such an event would cause further upheaval and turmoil in an industry already hard-hit by the current economic climate – in a region of Canada that can ill-afford any deterioration of its economy." Improving AT&T bottom lineBoth ILECs raise a point that Telus executive VP Jim Peters made to Network Letter shortly after the appeal was filed – that AT&T Canada has embarked on this course as a smokescreen to disguise its own precarious financial situation. "The company submits that none of these goals will benefit the industry as a whole, nor are they designed to benefit consumers," Aliant offers. "In fact, the only purpose of the AT&T petition to mitigate its own unsuccessful business decisions and improve its own chance of financial survival. AT&T did not find any support for its proposal from among the interested parties during the price cap proceeding because it is clear that the AT&T proposal does not serve any other purpose than to improve AT&T’s bottom line." Telus points out that the telecom boom has gone bust in Canada and globally. The downturn has hit wireline and wireless carriers, ISPs, cablecos, equipment manufacturers and software vendors, the company states. Telus says AT&T Canada’s claim that all its problems may be blamed on the CRTC is "simplistic and selective," since it ignores the fact that many factors are external. "AT&T offers an equally simplistic solution that would in fact ruin – not ameliorate – the telecommunications industry in Canada resulting in a rapid decline in retail rates and yet further demands from AT&T for more relief," Grieve writes. Telus raises concerns that approving the AT&T Canada appeal would undermine the authority of the CRTC. Cabinet could unwittingly force the commission to reverse its original policy objectives and lead to a system relying on regulation rather than market forces, the ILEC says.

Telus and Aliant most recent incumbents to attack AT&T Canada price cap appeal

News | October 21, 2002

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