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Newsletter – September 1996, Vol.2, No.2

IN THIS ISSUE

Competition in Cable TV Pending!
Local Phone Service – Will You Have a Choice?
Survey Shows Importance of Telephone Service
Negative Option Marketing – Is It Dead?

Competition in Cable TV Pending!

On May 17, 1996 the CRTC issued a call for comments (CRTC 1996-69) on new rules which will permit competition in cable television. PIAC is representing the National Anti-Poverty Organization (NAPO) and the Fédération Nationale des Associations de Consommateurs du Québec (FNACQ) for this proceeding.

The new regulations are supposed to create competition in traditional cable distribution as well as with new interactive services, such as online video games, Internet, etc.. The new rules will apply to the existing cable companies and new competitors offering service using cable, telephone wires, wireless and satellite technologies.

We feel that some of the CRTC’s proposals fall well short of the necessary steps to permit the development of competition which will benefit consumers. The proposed rules do not ensure that Canadians will have choice over who they get service from or that cable service will be available at lower prices.

The CRTC has proposed moving to a regional licensing approach. For example, a company could get a license to operate on a provincial instead of a local basis. While this may be one approach to spur competition, the CRTC has failed to adequately address issues relating to:

  • an obligation to serve all customers in an area, not just those in the highest profit centres;
  • the possible abandonment of existing small markets which may be seen as not profitable enough by cable companies;
  • ensuring that support for traditional community channels is maintained, especially by those who operate and are licensed regionally rather than locally;
  • ensuring that regional licensees, if this approach is taken, carry the signals of local stations for local subscribers.

We are also asking the CRTC to define basic service. Cable companies have stretched the definition of basic to include many services that subscribers don’t want and have raised rates to pay for these. It is time that the CRTC ensures that the basic package meets users’ actual communication needs and the objectives of the Broadcasting Act. At the same time, Canadians should also have more choice over the other programming that they receive and how they pay for this.

Both the incumbent cable companies and large telephone companies are eyeing the money pot of cable profits. Both are proposing to rework the community cable tv channel into a commercial product they can use to achieve advantage in the competitive marketplace. This is a public resource that should not be used as fodder in the upcoming war between cable and new competitors. Instead, the control and management of community channels should be turned over to locally run not-for-profit organizations. The public should be in charge of this public resource!

The CRTC is also proposing that all competitors contribute a minimum of 5 per cent gross revenues to pay for Canadian content (3%) and community channels (2%). Both the cable and telephone companies would like to see more of this money go to their souped-up community channel.

We are proposing that companies be required to contribute 6 per cent of gross annual revenues. The NAPO/FNACQ position is that the money should be used to support the public not-for-profit community channels (1.5%), a neutral Canadian content production fund (2.%), and a new fund to help develop and sustain community not-for-profit computer networks (2.5%).

Most governments and many of the companies are planning to provide information and new services online. It is likely that some of these will only be available online. It is our position that these services should be accessible and affordable for all Canadians and that community networks are one means to help achieve this goal. All companies should make some contribution from revenues to help make this new form of community channel or public space available and sustainable.

The CRTC has also proposed that cable companies will continue to be regulated until a new competitor is available to 10 per cent of customers in a market area. This does not mean that a new competitor will even have that many actual subscribers, but just be available to 10 per cent of customers. We feel that this will not lead to competition for the simple reason that the cable companies will start a price war to kill competition before new companies have a chance to make it in the market.

Instead we are proposing that the CRTC adopt a proper test to determine if sustainable competition exists in each local market before the traditional cable companies are cut loose. Under the CRTC’s plan, new competitors will also likely flock to the high density urban markets and ignore the rest of Canada. Even then, they may not survive given cable’s advantage.

We have also argued on behalf of NAPO/FNACQ that the CRTC should continue to regulate pricing where competition fails to develop so these customers don’t end up paying for the competitive losses of companies elsewhere or for new services which these subscribers may not use.

The CRTC will be conducting an oral hearing on its proposals commencing October 7. NAPO and FNACQ have asked to appear at this hearing. New draft regulations will be released publicly by the CRTC for further comment in the new year.

Local Phone Service – Will You Have a Choice?

What happens to your telephone number if you decide to let the cable company provide local phone service? Will rural customers get the benefit of local phone competition?

These are just some of the questions that the CRTC is attempting to answer in the current proceeding that is now underway on the rules needed to get competition into the market for local phone service. PIAC has been active at these proceedings representing the Fédération Nationale des Associations de Consommateurs du Québec (FNACQ) and the National Anti-Poverty Organization (NAPO). PIAC is also working closely with the Consumers’ Association of Canada (CAC) to ensure that the needs and interests of ordinary residential customers are met in the new competitive environment.

We remain sceptical that competition can result in lower local phone prices, or for that matter, maintaining a consistently high quality network. The US and British experiences, to date, present a very mixed set of results.

Nevertheless, competition is currently the flavour of the day and our job is to make competition work. This is what we hope to do:

  • identify where there is competition and where there is not, to ensure that adequate protection exists for those ratepayers who only have one local provider;
  • show what competition can deliver and what it can’t deliver, making sure that consumer are protected where market forces are unlikely to achieve policy objectives on their own;
  • suggest rules that will lay the groundwork for real competition – the kind that benefits small customers, as well as big business;
  • make sure that all telephone services pay their fair share in the form of contribution. In a competitive environment, this is necessary to keep rates for the basic service and the universal network affordable to all Canadians; and
  • keeping the same extent and quality of telecommunications service that Canadians are used to.

The US experience with competition in the telephone industry has resulted, to a large extent, in real problems for local networks particularly in smaller populated areas. PIAC is working to make sure that competition in local service does not simply mean more choice for high end users and higher prices for ordinary customers.

Survey Shows Importance of Telephone Service

In January of this year, PIAC together with other consumer, public interest groups, and labour unions sponsored a national survey to help with representation of consumer interests at upcoming CRTC hearings. There has been much industry hoopla concerning the need for competition and to raise local rates. PIAC was concerned that decision makers might forget that phone service is not just a commodity like any other. Not surprisingly, 86% of respondents said they could not manage without telephone services. In addition, despite the telcos enthusiasm for local measured service (pay-per- call) most Canadians came down of the side of fixed monthly rates for unlimited local calling. The majority also felt that providing services to low income households at a cheaper rate was a good idea.

The survey is thought to be the first in depth independent sample of customer attitudes concerning telephone service. The results are now available in publication form: Local Telephone Service Pricing Options For Canada $8.00 to order by phone: (613) 562-4002 ext. 40, by fax: (613) 562-0007, by e-mail: PIAC@WEB.NET, by mail: 1 Nicholas Street, Suite 1204, Ottawa, ON, K1N 7B7

Negative Option Marketing – Is It Dead?

The great Canadian cable consumer revolt of January, 1995 demonstrated the folly of the CRTC turning a blind-eye to the marketing practices of the cable company, in order to establish new Canadian channel services. In the immediate aftermath, politicians, cable operators, and bureaucrats were all wringing their hands saying this could not happen again. We wonder.

The practice of negative option marketing had been a wildly successful ploy by Canadian cable companies. In 1990, Canadian cable companies sold their Extended Basic Service package to customers through negative option marketing. All basic service cable users were provided with extended basic and billed for the same unless they called to cancel. By 1993, a survey showed that 66% of Canadian cable consumers still thought they were receiving the lowest priced basic service package, while, in reality, only 8% continued to do so.

The CRTC, for years, has been indifferent to the anti-consumer aspects of this practice, preferring to see it as something harmless that enabled Canadian programming services to be established. “What consumers didn’t know wouldn’t hurt them”, was the implicit suggestion.

This myth exploded in January 1995, when consumers lined up in droves to cancel cable service and to voice their displeasure at being treated like sheep.

A private members bill, Bill C-216 was introduced this year by Roger Galloway, M.P., that would outlaw these practices. Predictably, Bill C-216 has run into opposition from the usual sources. The cable industry claims it will freeze programming. Producers of speciality programming are afraid that it may prevent the CRTC from foisting channels without the consumers consent onto a cable package.

There is nothing wrong in ensuring Canadian content and a preponderance of Canadian programming on cable. However, to remove consumer choice by implicit exploitation of the market, is not right and should be stopped. PIAC has twice attended before the House of Commons Heritage Committee to argue for Bill C-216’s adoption.

Bill C-216 goes before the House of Commons for a third reading in September. Contact your local MP to urge that he/she support Bill C-216. The government has been quick to support competition and choice where the customers are the powerful business interests. Lets make sure they do the same when the customers are ordinary Canadians.

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