Telecom |
![]() |
Tell us your story!
Please contact us with your stories and questions.
|
EXECUTIVE SUMMARY OF THE PRE-FILED EVIDENCE OF JOHN TODD AND GREG MATWICHUK
for ARC et al, BCOAPO et al, CAC/MSOS & The City of Calgary
in re: CRTC PN 2001-37: PRICE CAP REVIEW
1. The purpose of this proceeding is to develop an appropriate design for the second generation of price caps in the Canadian telecommunications industry. In order to get this design “right” it is critical to first establish a clear vision of the regulatory objectives that it is intended to meet.
Public Notice 2001-37 identified objectives for the second generation that include:
In addition, our review of the broader regulatory objectives of the Commission indicate that the price cap regime should provide incentives for:
1.It appears that the existing price cap regime has fallen short of its goals. In particular, it has not resulted in rates and profitability levels that are reflective of the expected performance of a competitive industry exhibiting comparable productivity gains. The implication is that the benefits of the price cap regime have not been divided equitably. Residential customers, in particular, have gained little from the regime, in part because effective competition in the local telephone service market in Canada remains an elusive goal relative to other market segments. The rate reductions required under the cap have been enjoyed almost exclusively by the market segments that are more susceptible to market entry.
2.Competition has struggled and gained only a very small foothold in the market for a number of reasons. The ILECs appear to have a significant competitive edge due to their initial dominance of the market. The price cap regime both has enabled the ILECs to achieve very high profit levels, making them powerful competitors and has permitted them significant pricing flexibility which has enabled them to consolidate their dominance by targeting competitors and making entry unprofitable for those who have braved the hostile environment.
3.It is becoming increasingly evident that the price cap regime has not approximated the results of an effectively competitive market. In competitive markets, only exceptional firms earn above-average profits. In this market, ILECs earn high profits and competitors fail. This experience, however, is consistent with the experience in other jurisdictions where initial target productivities have frequently been found to be too conservative and have therefore been increased over time.
4. The proposals of the ILECs will further entrench their dominance by making non-competitive services even more lucrative; thereby, enriching the “war chest” used to challenge new entrants.
5. In order to avoid this result, it will be essential that the second generation regime maintain the conceptual link between prices and underlying costs. The price cap should ensure that capped prices move in line with the expected downward cost trend due to continued strong productivity growth. The cap should not be designed on the basis of the perceived customer tolerance for rate increases, which has nothing to do with underlying costs. The fundamental principle that just and reasonable rates are reflective of costs has not been altered by the introduction of price caps.
6. The recommended price cap regime is intended to be competition-friendly and to produce price-cost relationships that are truly reflective of the outcomes that would be expected under effective competitive market conditions. Namely, normal performance should result in a normal return. Only superior performance should be rewarded with superior returns. The essential elements of such a regime are reflected in our fouir recommendations.
Recommendation 1 (Baskets): There should be separate baskets, with the price cap formula described below applying separately to each basket, for (i) basic residential services in HCSAs, (ii) basic residential services in non-HCSAs and (iii) basic business services.
Recommendation 2 (Formula): The Price Cap for each residential basket (HCSA and non-HCSA) of capped services should be constrained to increase by no more than GDP-PI – X%, similar to the current cap, where X is significantly higher than the current 4.5% figure. The only constraint required on local business services is the constraint on individual tariff items as discussed below.
Recommendation 3 (Basic Residential Constraint): Increases in basic residential services rates should be constrained so that the cumulative rate increase does not exceed the cumulative increase in the GDP-PI in the previous years of the second generation price cap regime. For example, an increase could be implemented in the third year that does not exceed the increase in the GDP-PI during the first two years of the second generation term.
Recommendation 4 (Basic Business Constraint): Increases in local business rates should be constrained so that the cumulative rate increase for each individual tariff item does not exceed 10% in any 12 month period.
EXECUTIVE SUMMARY
OF THE TESTIMONY OF DR. TREVOR ROYCROFT
FOR ARC et al, BCOAPO et al, CAC/MSOS
IN RE CRTC PN 2001-37: PRICE CAP REVIEW
August 20, 2001
EXECUTIVE SUMMARY
OF THE TESTIMONY OF BARBARA ALEXANDER
FOR ARC et al, BCOAPO et al, CAC/MSOS,, and MKO
IN RE CRTC PN 2001-37: PRICE CAP REVIEW
August 20, 2001