ON APRIL 5, 2012 COGECO FILED its comments on the Association des Compagnies de Téléphone du Québec Inc. and the Ontario Telecommunications Association (the ACTQ/OTA) petition addressing the three reliefs requested by the ACTQ/OTA, as well as addressing the propaganda campaign being spearheaded by the ACTQ against Cogeco since January 2012 in Quebec.
Cogeco cannot ignore the misinformation and propaganda campaign directed against it. The David and Goliath scenario advanced by the ACTQ, where Cogeco will come into a small incumbent local exchange carrier (SILEC) territory causing its inevitable bankruptcy, is highly exaggerated and without any basis in fact.
Far from facing bankruptcy, the SILECs’ integration and expansion into their territories is well-established. In their petition, the ACTQ/OTA make a point of noting that SILECs offer services of “comparable or superior quality” to those provided by large ILECs. In fact, SILECs are already fierce competitors in their respective markets. SILECs have been offering bundled services (telephone, Internet and television services) for several years now, an offer that competitor cable companies have not had the benefit of, and therefore a situation serving to solidify the SILECs’ strong position in the marketplace.
This is specifically the case for Cogeco, who has been and continues to be adversely impacted by this unlevel playing field, a situation that has been ongoing since Cogeco formally stated its interest to interconnect, in May 2008, with 8 SILECs. To illustrate: from 2009 to date, whereas Cogeco saw a 20% gain in its Internet subscriber base and a 2% gain for television service on the whole throughout its territory, in SILEC territories the number of Internet subscribers increased by only 4%, while the number of television subscribers decreased by 27%.
This is proof positive that SILECs have not been sitting passively, waiting for Cogeco’s entry in these markets before engaging in fierce competition. SILECs have been offering their triple-play bundle for years, while Cogeco has been barred from deploying its own triple-play, which is already available throughout 90% of its footprint in Quebec and Ontario.
Most importantly, the petitioners unrealistically over-estimate the success Cogeco could have in these markets. Undoubtedly, SILEC clients will not be so easily persuaded to change service providers, nor will SILECs let them go without deploying everything they have to retain, or even win-back, their clients. Clearly, competition will be to the benefit of consumers in SILEC territories, as it is everywhere else in Quebec and Ontario.
Moreover, given the limited network presence Cogeco has in SILEC territories, these SILECs will continue to benefit from a substantial revenue stream. On the one hand SILECs will continue to benefit from the generous subsidy regime specifically tailored for SILECs in TRP 2011-291 which aims to mitigate the potential financial impact that could be created by the introduction of local competition and to maintain residential rates at levels below cost, particularly in rural areas.
Specifically, a SILEC will only cease receiving subsidies for the customers they serve once a wireline competitor in an exchange is capable of serving at least 75% of the number of residential local exchange service lines that the SILEC is capable of serving. Currently, Cogeco can serve approximately 49% of total residential and business NAS (Network Access Service) served collectively by the eight SILECs in question, i.e. between 40% and 64% of homes for each SILEC.
On the other hand, as sole wireline providers of telephone service, it is worth highlighting that for several years still, SILECs are guaranteed to receive non-contested revenues generated by half of the homes in their territories.
The ACTQ/OTA asked that the GIC order the CRTC to oblige new entrant competitors in SILEC territories to pay the start-up costs associated with the introduction of local competition. This concession has already been granted to SILECs with fewer than 3,000 NAS. The petitioners want this requirement to apply to all SILECs.
In practice, the competitive reality revealed that this measure is nothing short of a barrier to entry. Taking into consideration this new requirement, Cogeco concluded that it would not be economically feasible to add telephone service to its Internet and television services in territories served by the telephone companies in Lambton, St-Victor, St-Éphrem and Upton serving fewer than 3,000 NAS. Consequently, on 3 February 2012, these four companies were notified that Cogeco was ceasing its interconnection activities necessary to provide local telephone service.
Without a doubt, extending the obligation to reimburse start-up costs to SILECs serving more than 3,000 NAS would likely deter Cogeco from pursuing interconnection activities for the purpose of providing competitive telephone service in territories served by CoopTel, Guèvremont, Sogetel et Téléphone Milot. Furthermore, it is certainly worth noting that these companies are not only strong competitors in their own territories, but they have also acquired an undeniable level of expertise as CLECs, either directly or via their affiliated companies, in several telephone exchanges that are not within their monopolistic service territories.
This situation has gone on long enough. It is time to put an end to the innumerable dilatory tactics used by SILECs over the course of recent years to delay as much as possible the introduction of local competition in their territories. Healthy competition and consumer choice are being held hostage by the current monopolistic situation that exists in SILEC territories, and this, in spite of the CRTC decision allowing local competition since 1997. This delay is to the undeniable benefit of small independent telephone companies and to the detriment of Cogeco. As long as Cogeco is prevented from entering as a competitor in these markets, the small independents further solidify their already strong position.
There is no regulatory mechanism that can assure the long term viability of a telecommunications carrier in a competitive context. Nor is it the role of the Commission to do so. The CRTC’s role is to establish fair and equitable rules that favour sustainable competition in all Canadian telecommunications markets including in SILEC territories, in furtherance of the government’s Policy Direction, which is precisely what it has done. The petition should therefore be rejected and Cogeco asks the GIC to render its decision as soon as possible.
René Guimond is vice-president, public affairs and communications at Cogeco Cable Inc.
