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Newsletter – April 1997, Vol.4 No.1

IN THIS ISSUE

CRTC Abandons and Privatizes Community Channel
Railway Abandonment Delayed
Cable Competition
Telephone Access: Key Survival Tool in Danger

CRTC Abandons and Privatizes Community Channel

On March 11, 1997, the CRTC released its much awaited new competition policy for broadcast distribution undertakings – (television broadcasting involving cable and Direct-to-Home Satellite signals). This Decision (Public Notice CRTC 1997-25) sets the policy framework for opening the cable industry to competition. Later this year, the CRTC will issue for comment draft regulations that will be used to put this new policy framework into practise. It is expected that the new regulations will come into effect in January of 1998.

While the Decision offers some benefits for consumers (see Cable Competition below), the CRTC has also abandoned the Community Channel. All companies will now have the option whether to offer a community channel or some other form of community expression, or do nothing. Existing cable companies who choose to keep the channel, can now run this as a private channel to boost their competitive advantage in the broadcasting marketplace, rather than meeting the needs of the public for participation and local expression. Cable companies now have absolute control over the content and access by the public to the community channel. Most companies will be permitted to contribute up to 2% of their gross annual revenues for local expression.

The CRTC has offered a confused explanation about this change which reflects a misunderstanding about what the “public interest” actually is, and the ability of cable companies to provide this without public oversight or direction. On the one hand the CRTC states that community programming and community expression will continue to be “vital components of components of the broadcasting system”, but continuing, says that “it does not intend to require any distributor to provide an outlet for local expression”. Then, ignoring that the “public interest” includes the interests of the public as well as cable companies, the CRTC observes that the “community channel provides cable operators with a highly effective medium to establish a local presence and to promote a positive corporate image for themselves”. This amounts to using the channel for an advertising vehicle for cable, not “community expression”. The CRTC is once again assuming that the public interest is the same as cable’s interests.

PIAC, representing FNACQ and NAPO for this proceeding, argued that in a competitive market, no one company should be in control of this important public resource, and that the community channel should not be used as competitive fodder in the battle for market share in the broadcasting market. We also argued that all existing community channels should be managed and controlled by a not-for-profit community organization run by community groups. In this way, all competitors could contribute to and work with community organizations in providing a community channel that existed to meet the public’s needs. In five years will we have to ask: what happened to the community in the community channel?

Railway Abandonment Delayed

PIAC provides ongoing legal advice to Transport 2000, a national citizen’s organization dedicated to the public interest in transportation. Most recently, PIAC has assisted Transport 2000 with efforts to preserve a historic and vital railway link running though Levis, Quebec. The Montmagny subdivision of CN’s railway system has been slated for abandonment for some time now. With PIAC’s help, Transport 2000, and local citizens have managed to delay the abandonment. They are working hard to ensure that this railway line continues to be maintained and operated for the benefit of everyone, local residents and businesses as well as tourists.

Cable Competition

The CRTC’s Decision on competition for cable television was released on March 11, 1997, in Public Notice CRTC 1997-25. Some of the highlights of this decision:

  • The best part of the decision is that it opens the cable market to competition. Consumers have long been held hostage by the cable monopoly. Without extensive price regulation by the CRTC, competition is the only other option to try to get prices down and give consumers more choice.
  • New competitors will be free to set prices for all levels of services. This may lead to rate reductions for some consumers.
  • Under the new rules, existing cable companies will have the basic rate regulated until a competitors service is available to 30% of the households in an area (this could be made available by Direct-to-Home satellite or a land-based competitor) and the existing cable company loses 5% of its basic subscribers. Given that DTH service will apparently be priced around $35 a month, which is about the same for existing cable for many consumers, it is not clear that competition will bring down prices. Consumers may only get more choice in program packages and choice of supplier, especially in the core urban areas. The CRTC is hoping there will be real price competition as more players enter the market.
  • Consumers will have the option of owning their inside wire. This will give them more choice in which company they can connect to for service.
  • There will be no obligation to serve by new competitors, or by existing providers once an alternative service is available and the existing provider loses 5% of its basic subscribers. With the startup of DTH, the first condition has been met. The second condition should be easily met with some consumers switching to DTH and through market churn.

For the remaining 95% of subscribers in such markets, a number of questions are still outstanding:

  • why is there no protection against prices going up, especially where a provider wants to cross-subsidize its competitive losses in another market?
  • will the rural services benefit from service upgrades if most of the competition is focussed in the lucrative urban markets, or if no local competition develops?

Telephone Access: Key Survival Tool in Danger

Over the last few decades, telephone service has evolved from a luxury item to an essential service. It is now widely recognized that access to basic phone service is necessary for full participation in Canadian society, and that it is particularly important for people seeking employment, for the elderly and housebound, and in general, for the efficient and effective functioning of communities. This recognition is evident in s.7 of the federal Telecommunications Act, which lists as the first two objectives of Canadian telecommunications policy:

(a) to facilitate the orderly development throughout Canada of a telecommuni-cations system that serves to safeguard, enrich and strengthen the social and economic fabric of Canadaand its regions; and

(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada.

These policy objectives set telecommunications apart from other public utilities: that it is a network-based service. The more people that are on the network, the more valuable the network is. This justifies a more active regulatory role in ensuring accessibility and affordability to all.

Until recently, telephone service was delivered to households by a single monopoly provider in each geographical region. Rates and terms of service were usually controlled by an independent tribunal, whereby private companies were assured of a reasonable profit, while consumers were protected against excessive rates.

With competition, “hands-on” monopoly regulation no longer makes sense. Market forces need more regulatory freedom in order to operate. These market forces, however, do not always operate in the public interest. In particular, they create strong pressures to increase basic local rates, and to exacerbate geographic disparities.

“Rate rebalancing” is a term coined by the telephone companies to mean increasing monthly local rates while lowering usage-based long distance rates. Rate rebalancing benefits heavy users of long distance (such as big business), while raising overall bills for most residential customers. Despite strong consumer resistance, it has been implemented by the CRTC in order “to enhance the efficiency and competitiveness …of Canadian telecommunications” – another of the policy objectives set out in section 7 of the Telecommunications Act.

Instead of spreading the large fixed costs of the network over all services, including long distance, the CRTC decided that economic efficiency requires loading all of those costs on the basic monthly rate. Hence, the $2/month increases that all residential customers across Canada experienced first in 1996, and again in 1997. More increases are expected for 1998.

Low income consumer advocates have led to battle to stop local rate increases, arguing that the public interest is being unnecessarily sacrificed at the alter of economic efficiency, and that an increasing number of households simply cannot afford any further increases to the basic rate. In the event that further increases are allowed, they advocate the establishment of special discount rates for households with incomes below the poverty line.

While approving of this “targeted subsidy” approach should an affordability problem develop, the CRTC recently ruled that current local rates are affordable even for the poorest households. In doing so, it cited Statistics Canada figures that over 98% of Canadian households have telephone service, and promised to reconsider the issue if and when the statistics indicate that more households are doing without service for affordability reasons. In other words, the CRTC equated having telephone service with being able to afford it, rejecting the argument that many low income households maintain telephone service not because they can afford it, but rather because it is essential to survival in today’s society.

The CRTC did, however, commit to monitoring the affordability issue, and invited interested parties to inform it of the availability of any additional data, studies or surveys which could assist it in monitoring the affordability of future rates. It is important that we give the CRTC the information it needs to act – write to the CRTC, Ottawa, Ontario, K1A 0N2, or fax (819) 994-0218.

Competition is now gearing up to enter the local telephone market. Many industry players argue that local rates must rise further, in order to make local competition economically feasible. Competition ideologues are thus faced with an embarrassing conundrum: instead of leading to lower rates, competition in local phone service is raising the price to consumers! This irony appears to be lost on many of our politicians and policy makers, whose almost religious belief in market forces takes precedence over social and economic realities.

With the move to competition, the CRTC is replacing rate of return regulation with “price cap” regulation. Beginning January 1, 1998, the major phone companies will be freed from earnings regulation, but will have to keep basic rate increases below a certain level. While the CRTC has yet to set the cap, many believe that local rates will continue to rise over the next few years, possibly to the $30/month level. In the longer term, competition may bring rates back down again – but it remains to be seen whether the Canadian market can support widespread competition in this very capital-intensive industry.

In the meantime, access to communications services remains a key issue for the federal government. It knows that a free market approach may well lead to a greater gap between the “information haves” and “the information have-nots”, and has therefore stated that “where market forces fail to provide this [universal] level of access, the government is prepared to step in to ensure affordable access to essential Information Highway services for all Canadians, regardless of their income or geographic location.” (Industry Canada, Building the Information Society: Moving Canada into the 21st Century, 1996). We are left wondering how exactly the government will step in, and what it will take to prompt such action. Hopefully, not a crisis.

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