TPIA wholesale fee decision must account for art, and science
By Len Katz
WHEN IT COMES TO the federal government’s response to the appeals of a CRTC order which, yet again, set final rates to be paid by internet service providers who lease network access from the cable and telecom companies’ networks, some well-respected industry experts have said the CRTC should just stick to its original decision.
They say the Commission should ignore the recent statement from the federal government that the Regulator should take into account potential negative impacts on network investments, especially in rural Canada, as part of a review already underway. Their logic appears to be the CRTC role is to determine the “costs” of the service and nothing more need be considered.
Simply ignoring the government’s input, however, would be a mistake. While the CRTC’s 2019 order was intended to conclude years of costing battles involving wholesale service providers, incumbent carriers and the general public as represented by consumer interest groups, they may have overlooked the other critically important factor that must drive any CRTC decision: Government public policy as set by our elected federal officials of the day.
Having worked at the Commission and in the industry for many years, I can say with confidence network costing used to set wholesale rates – and the multiple network components that go into it – has historically been as much an art as a science, partly because of that public policy component.
Costing inputs have different degrees of sensitivity and when incorporated into a model, can yield different results. For instance, the CRTC implemented a 10-year costing model in 2011 and after making revisions to those rates in February 2013 declared, shortly after I left the Commission, “We are pleased to finally close this chapter after a careful examination of wholesale rates.”
“The government has sent an important reminder that Commission decisions must reflect public policy.”
Then, just five years into the 2011 model and three years after the 2013 decision, wholesale rates were made interim and some reduced. Three years after that, in 2019, the costing model and related wholesale rates changed again, hurling us down a path of additional (and multiple) appeals.
We are constantly reminded how time and uncertainty create risk. And more risk means large corporations may be driven to reduce or delay spending, smaller private investors may opt to avoid further investment instead choosing to stay dependent on the infrastructure of the larger carriers they lease from, and consumers may be more reluctant to buy from an ISP who leases network access for fear the company will go out of business.
By voicing its most recent concern the CRTC did not strike the right balance between supporting investment and ensuring a competitive wholesale market, the government has sent an important reminder that Commission decisions must reflect public policy – that it must apply the art, not just the science.
This means, like measures specifically designed to support a vibrant competitive market, supporting network investment in rural and remote areas is a policy objective set by our elected government which must be included as part of the equation. The very real challenge facing the Commission, as always, is to somehow make potentially competing priorities work – to find the right balance.
The question we must also ask is whether there is a faster and better way forward than using the current costing model as a principal tool for setting wholesale rates.
In recent years the CRTC has relied on Final Offer Arbitration (FOA) to mediate wholesale disputes in the broadcasting sector. Parties are free (and incented) to negotiate mutually beneficial arrangements before turning to the CRTC to set final rates. FOA comes into play after negotiations fail and all parties are required not just to submit their final offers to the CRTC but to also include all the facts in support of their respective positions, thereby allowing the Commission to deem its final determination on wholesale programming rates just and reasonable.
Could this work in the wholesale Internet market? Interestingly, the CRTC has a proceeding underway right now that is looking at alternatives to the traditional cost-based rate setting approach and FOA has been raised as a possibility.
It’s a timely proceeding, and if it delivers a system for wholesale rates that is more definitive (and less uncertain) and results in quicker decisions
as compared to what we have today, we will all be much better off.
Len Katz (right) has been involved in Canada’s communications industry for 45 years and served as CRTC vice-chair of telecommunications from 2007 to 2012 and briefly as interim chair
