TELECOM UPDATE SPECIAL ISSUE
Exclusive interview:
CRTC CHAIR RESPONDS TO FORBEARANCE CRITICS
Number 525b: April 18, 2006
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INTERVIEW WITH CHARLES DALFEN: The CRTC's "local forbearance" decision has been widely criticized in the press and elsewhere. In this exclusive interview, Telecom Update editor Lis Angus asks CRTC Chairman Charles Dalfen to respond.
ANGUS: Some have said the forbearance decision shows that the CRTC is opposed to relying on market forces. Do you agree?
DALFEN: No. The opposite is true. We believe in market forces and deregulation. In the past few years we have deregulated sector after sector in the telecom industry -- in fact, local phone service is the final frontier for deregulation.
But the Telecommunications Act says the CRTC can only "forbear from regulating" when and where there is enough competition to protect the interests of users. The purpose of this proceeding was to set criteria for deciding when that stage has been reached in local phone service.
We set two key criteria: the incumbents have to have lost 25% of the market within a local forbearance region, and they have to have met all competitor Quality of Service indicators for six months. In addition, they have to have a wholesale ADSL tariff, and have to show that there is rivalry in the market.
ANGUS: The CRTC only issues its competition report, including market shares, once a year. Do carriers have to wait for that annual report to apply for forbearance?
DALFEN: No. They can apply at any time. They can even apply before they have entirely met the thresholds -- so forbearance could be approved conditional on meeting the criteria.
ANGUS: How long will it take the CRTC to process applications for local = forbearance?
DALFEN: We expect to turn around forbearance applications in four months -- and after the initial few applications, probably even faster.
ANGUS: When will we likely see local services deregulated?
DALFEN: I expect that most business markets -- in major cities at least -- will be forborne in the next 18 months. As for residential service, Aliant has met two of the criteria in Halifax already, market share loss and rivalry. The other criteria -- filing a wholesale ADSL tariff and meeting the competitor QoS indicators -- are under Aliant's control. I expect Montreal and Toronto will soon qualify as well.
ANGUS: Why did you use lines in service as the measure of market share, rather than revenues?
DALFEN: Lines is the measure of competition used around the world. It is a straightforward and simple measurement. Tracking revenue is more complicated, with a lot more bookkeeping. People wanted clear criteria and that's what we set.
ANGUS: Would you be open to a forbearance application based on revenue?
DALFEN: We'd probably be open to a case being made on revenue as a measure of market share, if for some reason there is a big discrepancy between lines and revenue.
ANGUS: Why did you set 25% as the market share loss figure?
DALFEN: As every party to the proceeding acknowledged, setting the level of ILEC market share loss to be used as criterion for forbearance is not a precise scientific exercise. We think that 25% is a fair level.
ANGUS: Why did the CRTC set different deregulation criteria for local phone service than it did for cable TV? Cablecos can apply for deregulation when they've lost only 5% of their customers
DALFEN: When we set the criteria for cable deregulation, the competition was from satellites. By definition, satellite competitors had facilities in every market, while cablecos did not have ubiquitous coverage. In local phone service the situation is reversed: the incumbents have near-universal coverage in their territories, while competitors have much less.
Also, in the local phone market, competitors--even the cablecos -- depend on the incumbents for essential services such as phone numbers and interconnecting trunks. Some also require local loops and other services. Satellite TV providers don't need any facilities from the cablecos.
ANGUS: Why do you require the phone companies to meet certain quality standards for services they provide to competitors? Isn't this just protecting competitors?
DALFEN: No. It's about protecting customers. There's no point to "sustainable competition" if it's just about the providers. The point is that consumers need choices. We have to ensure that the incumbents can't use their position to inhibit competition, leaving consumers unprotected.
ANGUS: Why does the CRTC require the incumbents to provide wholesale ADSL to competitors, including naked DSL, before they can apply for forbearance?
DALFEN: This ensures that competitors who want to offer a bundled VoIP-over-broadband service can get necessary facilities from the phone companies, and that their customers can choose to cancel the incumbent's phone service without losing the right to have broadband.
ANGUS: But isn't it true that the telcos' main competitors -- the cablecos -- don't use the incumbents' infrastructure?
DALFEN: Firstly, as I said, all local service competitors, including the cablecos, need some essential facilities from the incumbents, such as phone numbers and interconnecting trunks. Secondly, the cablecos aren't the only competitors -- resellers and other competitors need a variety of other facilities from the telcos.
We had a whole proceeding to establish the minimum standards required to allow competitors fair access to essential services. The incumbents have been failing to meet these standards.
Meeting these standards is entirely within the phone companies' control. It's neither acceptable nor fair to argue that those standards are not important.
ANGUS: A recent Financial Post editorial claimed that the CRTC makes it "illegal for the phone companies to cut prices." Is that true?
DALFEN: No. I don't know how anyone can draw that conclusion. The incumbents can't raise residential prices, but they can certainly reduce them if they wish -- as long as their prices don't drop below cost.
ANGUS: The Telecom Policy Review report recommended relying on market forces as much as possible, and -- where regulation is still required -- relying on complaints-based enforcement instead of requiring prior approval of tariffs. Do you agree with that recommendation?
DALFEN: The TPR report also recommended that the CRTC have the power to impose fines. Without that power, after-the-fact regulation is toothless.
Before the recent election, the government introduced a bill that would have given the CRTC the power to impose meaningful fines if carriers violate their tariffs or other regulations. If the new government passes such a provision, I could see the logic of complaints-based enforcement for retail services rather than requiring advance approvals.
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