Competition Bureau decries CRTC reliance on facilities-based competition

Canada’s competition watchdog wants the CRTC to move away from promoting facilities-based competition as the only means of promoting telecommunications competition in the country. In comments to AT&T Canada Corp.’s appeal to Cabinet of the price cap decision (Telecom Decision 2002-34), the Competition Bureau notes that telecommunications competition hasn’t worked under the current facilities-based framework and the commission should consider implementing a hybrid model combining resale with facilities-based competition. The bureau’s comments closely mirror those made in the past by wireless industry heavyweight Mike Kedar, who called on the CRTC to force the wireless carriers to open up their networks to resale operations. Several years ago, Kedar, who helped found Microcell Tele-communications Inc. and Call-Net Enterprises Inc. and was a leading player in the introduction of telecom competition in Canada, unsuccessfully lobbied the commission to force wireless carriers to open up their networks. In its appeal to Cabinet (DGTP-008-02), AT&T Canada argued that relying only on facilities-based competition did not reflect the government’s policy objective of fostering increased reliance on market forces set forth in the Telecommunications Act. The bureau agrees with the struggling telco, adding that the 1997 local competition decision (Telecom Decision 97-8) narrowed the chances for alternative competitive models to be proposed at the commission. In that decision, the commission used "facilities-based competition" as the primary competition policy goal for the first time. "The current policy favouring facilities-based competition ignores the benefits that resale competition can have for Canadians who do not have access to competing networks. The bureau believes that the commission should abandon its goal of facilities-based competition and instead focus on a more realistic goal (of) a hybrid model – i.e. a balance between facilities and resale competition – to ensure most, if not all, Canadians benefit from local competition," the bureau writes in its December 4 comments. Section 7 of the Telecom Act doesn’t place any limitations on the type of competition that the CRTC may introduce, notes the competition watchdog, adding that it actually requires the commission to "embrace all forms of competition to ensure that consumers benefit to the maximum extent possible." The incumbents’ ability to offer bundled or packaged communications services was also singled out by the Competition Bureau as a significant barrier to entry for new entrants in the local market. Their ability to provide consumers with local and long distance, wireless and high-speed Internet "places these firms at a substantial competitive advantage vis-à-vis new entrants who lack a local telephone service product. Indeed, this barrier may be so large that the latter may find it impossible to compete without such a service," it writes. The competition watchdog suggests that local telecommunications competition could have evolved in a much better manner if the commission had chosen to adopt mandated resale on an avoidable costs basis in its 1997 decision on local competition. The bureau supported the adoption of mandated resale in comments to the local competition proceeding. It notes that since local rates in non-high-cost serving areas no longer require subsidization, "the commission’s objection to the adoption of this policy is no longer valid … and mandated resale could be introduced in these markets for the benefit of consumers." The bureau does agree with the commission that in the long term facilities-based competition will provide the maximum benefits to consumers and to carriers alike. But, it argues, "it is unrealistic to believe at the outset of opening local markets to competition that facilities-based competition will actually occur. Rather, it is more likely that Canada will have a hybrid model of facilities and resale well into the future." The Competition Bureau highlights the commission’s own assessment of local competition as "non-existent" and "is unlikely to change in the foreseeable future." Reaffirming its comments in the original price cap proceeding, it concludes then that a primary focus on facilities-based competition is not the right strategy. "Clearly alternative models of competition are required if all consumers are to benefit from the government’s desire for a competitive telecommunications industry," it notes. As a solution, the bureau recommends that the Governor in Council direct the CRTC to report back within eight months on short- to medium-term policies that could facilitate local telecommunications competition during the transition to facilities-based competition. More specifically, it recommends that the CRTC: Report on the feasibility and competitive benefits of mandating the resale of incumbent local telecommunications services (on an avoidable costs basis) in those parts of Canada that are unlikely to benefit from facilities-based competition; Identify and report on measures, other than mandated resale, the commission might take to encourage competition in local telecommunications markets. (These are just two of the six recommendations the Competition Bureau made in its comments.) Wireless facilities aren’t specifically highlighted in the Competition Bureau’s comments, but it stands to reason that any moves to change the commission’s focus on facilities-based competition would affect the wireless industry. The CRTC also has to maintain technology neutrality in its decisions. Kedar ultimately lost his battle to force the wireless carriers to open up their networks for resale, as the commission wouldn’t mandate it (RoW, Nov. 23/98). In an interview with Report on Wireless earlier this year, however, Kedar held out hope that this would change. "I think that the new chairman of the commission (Charles Dalfen) and the whole economy and industry being the way it is with lots of bandwidth, I can’t believe keeping access closed or bottlenecked the way it is, is something that is sustainable. I’m not the only one talking about it, there are many other people that are going to push," he said.

Competition Bureau decries CRTC reliance on facilities-based competition

News | December 20, 2002

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