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Consumers cheer cap on local phone rates

Consumer groups across Canada cheered the CRTC’s decision today to cap local phone service rates at current levels. Rates for basic residential service, before surcharges and taxes, currently range from $20 to $30 per month. The CRTC decision applies a complicated formula which will prevent further overall increases, assuming that inflation remains below 3.5%.

“This was the right decision to make”, stated Philippa Lawson, Counsel for the Public Interest Advocacy Centre, who represented a coalition of consumer groups in the CRTC proceeding. “The telephone companies have been making heaps of profit on local service: rates of return on common equity of these companies ranged from 16.6% to 27.7% in 2000, well above the 11% benchmark set by the CRTC in 1997, and well above the 9.5% to 10% considered fair for regulated gas and electric monopolies. Rates needed to be frozen, if not reduced, in order to achieve a fairer balance between ratepayer and shareholder interests.”

The CRTC’s decision follows weeks of hearings last fall, which pitted incumbent phone companies, led by Bell Canada and TELUS, against competitors and consumers. The Bell companies asked to increase residential rates to as much as $30/mo., while TELUS asked to increase them to as much as $35/mo. Competitors asked for big discounts on the rates they pay to the incumbent telephone companies for access to the network.

Competition has cost residential consumers more

While consumers have benefited from reductions in long distance rates over the past several years, rates for local services have steadily increased. Residential customers are now paying on average twice what they were paying in 1992 for basic local service. At the same time, services such as directory assistance and inside wire repair, are no longer free. “Many residential consumers – possibly most – are paying more overall for the same basket of telephone services than they were in 1992, before competition was introduced in this market”, said Ms. Lawson.

“It’s ironic that competition, which is supposed to bring lower prices and lower profits, has instead led to higher prices for local service, and higher profits levels for the telephone companies”, said Lawson. “Hopefully, ordinary consumers will now start seeing some benefits from competition in the local phone market.”

“This decision rights the balance among the three major stakeholders: incumbents, competitors, and consumers”, said Lawson. “It acknowledges that the past regime was overly favourable to the incumbent telcos, and shifts the balance so that both competitors and consumers share in the benefits of this highly profitable industry.”

The decision also establishes a quality of service penalty mechanism, under which substandard service quality will be punished by financial penalties of up to 5% of total annual local revenues. Until now, poor quality of service performance by the telephone companies has been tolerated without any penalty. “This incentive mechanism was badly needed in order to offset the tremendous pressure on the telcos to cut costs”, said Lawson. The Commission notes in its decision that the incumbent telephone companies have exhibited “ongoing, and for the most part, uninterrupted substandard performance in the years 1998 to 2000.” (para.706)

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Contact: Philippa Lawson, PIAC tel: 613-562-4002 x.24 (Ottawa)

Jean Sebastien, Action Réseau Consommateur 514-521-6820 (Montreal)

Robert Sexty, Consumers’ Association of Canada 709-579-3311 (St. John’s)

Pat MacDonald, BC consumer coalition 604-687-3017 (Vancouver)

Jim Wachowich, CAC 780-429-0555 (Edmonton)

Byron Williams, Manitoba consumer coalition 204-985-8533 (Winnipeg)

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