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Newsletter – December 1996, Vol.2, No.3

IN THIS ISSUE

CRTC Rejects Phone Company “Budget Services”
Consumers make splash in CRTC Proceeding on Local Phone Competition
CRTC Price Cap Proceeding – Can A Price Cap keep down local rates?

CRTC Rejects Phone Company “Budget Services”

Consumer groups celebrated a recent CRTC decision rejecting the notion that pay-per-use telephone service is an effective solution for households with affordability problems.

In Telecom Decision CRTC 96-10, released on November 15, 1996, the Commission directed Canada’s major telephone companies to provide all residential customers with free toll blocking options and improved instalment payment plans for connection charges, tools that PIAC and its clients have been advocating for years. In rejecting the telcos’ pay-per-use options, the Commission noted that such options do not address the calling needs of most Canadians.

“Representatives of various consumer groups, agencies and associations made it clear that flat-rate local calling and access to long-distance are considered essential elements of basic telephone service”, said the new CRTC Chairperson, Françoise Bertrand.

PIAC and its clients, the Fédération Nationale des Associations de Consommateurs du Québec, the National Anti-Poverty Organization, and One Voice – The Canadian Seniors’ Network, had presented to the Commission the results of two national surveys on this point.

Consumer groups were disappointed, however, with the Commission’s failure to recognize that the affordability of basic phone service is an issue for many households now, and that the fact that a household has telephone service reflects the essential nature of that service, not its affordability.

PIAC expects to be busy over the next few months assisting the Stentor companies with the task of developing an effective program to monitor the affordability of telephone service in Canada, and to ensure that households who could benefit from toll blocking or instalment payment options are informed of those options. The CRTC has asked the telcos to submit a concrete plan of action on these matters by April 30, 1997.

In its decision, the Commission agreed with FNACQ/NAPO/ONE VOICE that a targeted subsidy program is the appropriate solution to affordability problems. However, it found that “there is currently no conclusive evidence to suggest that local rates won’t remain affordable”.

Consumers make splash in CRTC Proceeding on Local Phone Competition

The CRTC proceeding looking at what rules are needed for competition to thrive in the local phone market ended this fall after a lengthy oral hearing.

Representing the Consumers’ Association of Canada, the Fédération Nationale des Associations de Consommateurs du Québec, and the National Anti-Poverty Organization (CAC/FNACQ/NAPO), PIAC made sure that the CRTC had before it a detailed proposal for consumer-friendly competition in the local phone market. The only other proposals before the Commission were designed by and for vested commercial interests.

At the heart of the CAC/FNACQ/NAPO proposal is a streamlined, competitively-neutral contribution mechanism, through which basic local rates can remain at affordable levels in all parts of the country. Without such a mechanism, rural rates in particular would soar. The consumer coalition also pressed for a certification process under which all competing service providers would be required to meet certain minimum service standards.

The CAC/FNACQ/NAPO proposal is contained in its Final Argument, dated October 8, 1996. This document can be obtained at no charge from PIAC.

CRTC Price Cap Proceeding – Can A Price Cap keep down local rates?

Consumer groups, under PIAC=s leadership, took a front row seat in the recent CRTC proceeding on how to design effective price cap regulation for the Stentor companies. This hearing, which took place in October/November 1996, will likely be the last big proceeding of its kind, if competition does indeed develop in this market.

CAC/FNACQ/NAPO teamed up with the B.C. coalition of consumer groups to argue for a fair and efficient price cap regime, one which recognizes that the Stentor companies will have substantial market power – especially in the residential market – for some time to come. Backed by substantial expert evidence, they challenged the telcos= estimates of expected productivity improvements, the alleged need to replace narrowband facilities before originally planned, and the need for further rate rebalancing.

The Consumer Coalition pointed out that market forces will not necessarily align themselves with Canadian socio-economic objectives, and that regulatory safeguards must therefore be maintained until effective, sustainable competition is proven to exist.

They challenged the Stentor companies= proposals for a low productivity factor, accelerated depreciation, and rate rebalancing, noting that they would amount to app. $1 billion/year of artificially high consumer prices in 1998 and beyond.

The regulatory model advocated by the consumer groups would treat ratepayers and shareholders symmetrically, and would not permit either to benefit unduly from estimation erros in the formula. It would involve a price freeze on basic telephone service as of January 1, 1998, continued contribution from toll and optional service revenues toward the cost of access, and an overall cap on local services of inflation less 6.2% (the Aproductivity offset@). Those companies that do not think they can make efficiency improvements of 6.2% per year could choose a lower offset, with the corollary requirement that they share any earnings above and beyond a certain level. The plan would be reviewed and adjusted as necessary after five years.

The Consumer Coalition stressed the importance of monitoring telco profit levels, in order to judge the reasonableness of rate levels. This was a particularly sensitive point with the phone companies, who argued that their profit levels are irrelevant to the question of whether rates are just and reasonable.

Copies of the Consumer Coalition argument are available from PIAC.

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