WHEN IT COMES TO the introduction of local competition in areas served by Canada’s independent phone companies, the CRTC is doing it all wrong and needs to be stopped, say those companies.
In fact, those telcos are so sure the Commission’s recent moves to introduce competition for local phone and broadband customers are so far off base that they will file an appeal with federal cabinet tomorrow (Friday) over it as well as seek a stay of the CRTC’s recent rulings on the matter.
“We’ve known for a long time that the Commission is keen on getting competition going in SILEC (small incumbent local exchange) territories, but we think that the CRTC has still got a lot of things wrong with regards to the regime that it wants to set up,” the Ontario Telecom Association’s executive director Jonathan Holmes told Cartt.ca in an interview. The OTA represents 23 of the independent telcos, 21 of which are signing onto the petition to cabinet. Quebec’s ACTQ (Association des companies de telephone du Québec) and its nine members is also partnering with the OTA on the petition.
Last week, the Commission approved, by majority vote, and with modifications, the implementation plans for local competition from Bruce Telecom, CoopTel, Téléphone Guévremont, Hay Communications, La Compagnie de Téléphone de Lambton, Téléphone Milot, Mornington Communications, Sogetel, Le Téléphone de St-Éphrem, La Compagnie de Téléphone de St Victor, Tuckersmith Communications, La Compagnie de Téléphone Upton and Wightman Telecom.
Each similar decision references a larger cable or telecom provider which wants to begin to provide service in these previously protected regions. In each decision, the Commission made modifications to the proposals from the SILECs, whether it was to the amount of start-up costs to be covered or the annual ongoing costs for implementing local competition connectivity to the incumbent small telcos.
The Commission also decided that the new costs would be covered in a variety of ways, partially from direct payment by the new competitors, the ability to increase rates to customers or a reduction in the rate component used in the SILECs’ subsidy calculation, effective the date that local competition is implemented.
None of this is right, says Holmes.
“Up to this point, SILECs have been able to provide what we consider ‘city-level’ telecom services – telephony, high speed broadband to virtually all the customers – some are doing TV services – and when (the Commission has) gone to introduce competition in SILEC territories, they’ve really applied the cookie cutter, ILEC approach to doing that,” he explained.
(Cable companies say, however, if the SILECs are allowed to offer TV in their cable regions, it's only fair the cablecos should be able to offer phone to protect themselves. One former operator said this aspect of the regulatory regime forced him to sell his rural cable operation.)
“We think the rural reality is different, and what works in the city isn’t going to work in SILEC territories. There are a couple of reasons for that. One is that in the ILEC model, each company is responsible for its own start-up costs and for small companies those start-up costs are pretty substantial – and we don’t think that the SILECs should have to pay for it. At the same time, the Commission has said that ‘we’re going to reduce your subsidy amounts that you get from the central fund, and you can increase your local rates if you want to get that money back’.
“So we’re really in a situation where the SILECs have to increase their local rates when they’re faced with some pretty heavy-hitting, large, well-funded cable companies coming in – whose rates aren’t regulated – and they come in on their existing plant and get access to a pretty wide swath of our customer base fairly easily,” he added.
So, on Friday, February 3rd, the OTA and ACTQ member companies (who together represent about 150,000 service lines) will file a petition to Cabinet saying they want the CRTC to restore the old system (that is, keep the subsidy mechanism that was in place prior to the “Obligation to Serve” decision). The SILECs also want to change the local competition regime so that the new entrants that pay all the start-up costs when they trigger local competition in the SILECs’ operating territories.
The OTA will also file a stay with the Commission on Friday in order to put these local competition plans on hold until the Cabinet or Commission deals with who should pay the start-up and how the on-going costs of local competition are funded. This regulatory process has been delayed before.
Besides, the competitors which look to enter these rural markets could result in the hollowing out of the SILECs’ customer bases. “When the cable companies come in, typically their plant is focused in the core area of an exchange, where there are a lot of customers, and that’s the only place that we anticipate that they’re going to offer service,” Holmes notes. “So they’ll come in and probably be able to win a fair share of customers based on that, but they won’t be able to offer their services outside of the core – we call that the doughnut effect. So potentially what could happen is that those customers outside of the core won’t get a competitive offer, and they may be dealing with a weakened SILEC who won’t be able to serve them as well because they’re going to have to focus their efforts and resources on competing in the core – and that may lead to an erosion of service in the fringe of the doughnut. That’s a key concern for us, that hollowing out of the doughnut.
“Another things that makes SILECs a little bit different in terms of facing local competition, is the large ILECs typically have large urban markets that they can cross subsidize themselves with internally,” adds Holmes. “Typically the largest towns (among the OTA member companies) are between 100 to 200 houses, so SILECs just don’t have the same financial depth as the large ILECs do. So imposing the same model on us doesn’t really make much sense.”
– Lesley Hunter and Greg O’Brien
