OTTAWA – Three of Canada’s largest telecommunications service providers agree that it’s time to review the nearly 10-year-old contribution regime and make changes to the local subsidy that better reflect the reality of today’s telephony landscape.
Their comments come after the CRTC issued a consultation on the contribution regime and other related matters last week (Telecom Notice of Consultation 2010-43).
The current contribution regime, established back in 2000 (Telecom Decision 2000-745), requires all TSPs with revenues greater than $10 million to provide a portion of their earnings to a national pool that would be made available to telecom providers in high-cost serving areas. The money, which hit $1 billion at one point, would go towards subsidizing the cost of providing telephony services in those areas. Since it came into force, the Commission has lowered the amount each TSP had to contribute and by the end of 2009, the national fund was at about $200 million.
Bell Canada, Rogers Communications and Telus believe that the current regime has outlived its original purpose and competition has to a large degree rendered the local subsidy ineffective.
Michael Hennessy, senior vice-president of regulatory and government affairs at Telus, says the effect of competitive entry combined with the local subsidy has allowed cable companies to target the most attractive part of a region, while leaving the outlying areas to the incumbent telco.
“You have competitors using the subsidy to effectively cream-skim the best part… and that leaves those with the obligation to serve stuck with the remaining customers who are in high-cost areas,” he said.
The Telus exec adds that the Commission should consider making the money only available to TSPs willing to serve those areas. “As a beginning matter of principle, given that the obligation to serve increases proportionately to the amount of subscribers lost to competitors, then we’re probably at a stage where only companies willing to meet an obligation to serve should be entitled to any subsidy at all. Otherwise in our mind the system is going to collapse,” Hennessy added.
For Bell, the costs are simply too high.
Mirko Bibic, chief of regulatory affairs at Bell, notes that contribution is the single largest government fee it has to pay and that overall on an annual basis it gives government about $200 million.
“Imagine how much more we could invest in next-generation networks if we had that $200 million a year to plow back into our services and our networks. That’s why we think it should be looked at afresh,” he said. “Our firm position is that costs of contribution need to be ramped down significantly and quickly. There are ways to do that though and the modalities need to be thought through.”
Rogers believes that the subsidy should be eliminated altogether. Ken Engelhart, senior vice-president of regulatory affairs, said telcos such as Bell Aliant don’t need the subsidy because some of the areas it serves are its most profitable.
The small incumbent telcos , however, believe that the local subsidy remains as relevant today as it was when it was first introduced in November 2000.
“In the proceeding we will be arguing that the subsidy was the quid pro quo in the regulatory bargain that was struck to ensure that all customers in an operating territory were served – and that bargain is still vital today to ensure quality services continue to be available for all customers in high cost serving areas,” said Jonathan Holmes, executive director of the Ontario Telecommunications Association.
In addition to the local subsidy, the Commission plans to delve into telcos’ obligation to serve and the basic service objective. On these latter two issues, Engelhart says it’s time to do away them as well, noting that in a competitive environment these two regulations don’t make sense.
“It just seems to me that everywhere that we offer phone service the phone company already offers phone service, so it doesn’t make sense to have an obligation to serve if it’s a competitive marketplace,” he explained. “The whole obligation to serve idea made sense in a monopoly era and we just think it’s time has passed. Even there in the deferral accounts process, Bell wants to serve a bunch of rural and remote communities with broadband using their HSPA network, not using their wireline phone network at all, so that’s just more evidence of the fact that this idea of the twisted pair network as a monopoly service is an obsolete idea.”
Bell also wonders why in a competitive environment with wireline and wireless covering nearly the entire country, one provider would have obligations that others don’t.
“I think that as a general concept we do need to wonder why in an era of competition with more than one provider in most areas that one party needs to be saddled with an obligation to serve when another doesn’t,” Bibic says.
The Commission is also going to consider adding broadband to the basic service objective, too.
Bell, Rogers and Telus say that including broadband as a basic service objective is misguided and that there are other more effective mechanisms to expand broadband to currently unserved rural and remote areas.
As Bibic explains, “It’s much better to subsidize the build out of broadband in the areas that don’t have it and the marketplace won’t deliver it through direct funding programs by the government than through these indirect sector specific regimes.”
