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CRTC Price Cap Review – Consumer Groups call for end to local phone rate increases

In a hearing starting today, Canada’s largest phone companies are asking the Canadian Radio-television and Telecommunications Commission (CRTC) to approve significant increases in local residential rates over the next four years. Consumer groups, however, object, pointing to record profits earned by the companies in recent years, and noting that while costs of providing service have fallen, local rates have increased at many times the rate of inflation over the past several years. Instead, they say, local rates should, if anything, be decreased.

“To ask for more money from captive ratepayers at the same time that they are making record profits is unjustified,” said Philippa Lawson, counsel for a coalition of consumer groups. “There is no public policy reason to increase basic rates to $30 per month as they are proposing.”

Data submitted by the companies to the CRTC shows profit levels for their regulated local services ranging from 16.6% to a breathtaking 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.

For the last four years, local phone rates have been regulated through a “price cap” regime that sets indexed caps on rates. The price index takes into account inflation and industry-wide declining costs. Under the current price cap, telephone companies have reduced business rates substantially, while continuing to increase residential rates.

Consumer groups do not oppose price cap regulation per se, but argue that the current regime has failed to ensure that residential customers enjoyed any benefits of industry’s productivity gains. “It’s time for a consumer dividend. Now that local service has become profitable for the industry, it’s time for residential rates to start reflecting the industry’s declining costs”, declared Ms. Lawson.

Industry players argue that rate increases are needed in order to stimulate competition. Lawson objects: “Consumers have been footing the bill to get competition in this industry – now it’s time for us to see some benefits. If competition means never-ending price increases, what’s the point of it?”

The consumer groups are also calling for a mechanism to penalize companies for sub-standard quality of service performance. Bell Canada has proposed such a mechanism, but consumer groups say that the penalties proposed by Bell do not adequately offset the strong cost-cutting incentives which are inherent in a price cap regime.

In addition to monthly rate increases, Bell Canada and TELUS are asking for the right to charge 50¢ for pay phone calls (Bell would, however, keep outdoor pay phone rates at 25¢). In Alberta, TELUS is already charging 35¢ for pay phone calls. Bell argues that without such increases, it could be forced to close down its payphone operations entirely due to declining revenues. Consumer groups are calling for a separate proceeding on pay phones, given the importance of this issue to Canadians. Pay phones still provide a critical lifeline service for many Canadians, both in urban and rural areas.

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FOR MORE INFORMATION, CONTACT:

Philippa Lawson, Public Interest Advocacy Centre 613-562-4002 x.24, cell: 613-282-4673

Jean Sébastien, Action Reseau Consommateur and Fédération des ACEF 514-521-6820 x.22

Robert Sexty, Consumers’ Association of Canada 709-737-4514

Bruce Tate, National Anti-Poverty Organization 613-789-0096

Byron Williams, Public Interest Law Centre (Manitoba) 204-985-8533

Jim Wachowich, Counsel for CAC cell: 780-699-4137 office: 780-429-0555

Pat MacDonald, BCPIAC 613-232-2000

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