PIAC participates in National Broadband Task Force

The National Broadband Task Force was established in 2001 by the Minister of Industry. Its mandate was to map out a strategy for achieving the federal government’s goal of making broadband services available to all Canadians by 2004. PIAC counsel Philippa Lawson was a member of the Task Force.
The Task Force’s report, issued in June 2001, is available via this link or in hard copy upon request.

The End of (Traditional) Regulation?

THE END OF (TRADITIONAL) REGULATION? A RESPONSE TO PROFESSOR RICHARD SCHULTZ
Speaking Notes, Philippa Lawson, Public Interest Advocacy Centre
pippa@web.net; http://www.piac.ca
“Breaking the Mould: Reconceiving Telecommunications Regulation” Conference
Faskin Martineau/University of Toronto
February 17, 2000
Richard, let me begin by summarizing your position. I heard you say 6 important things:

• To the extent there’s any kind of telecom policy in this country, its overriding goal should be competition
• Competition only works in the absence of regulation. So the CRTC has to go.
• The way to deliver universal service is through direct government subsidy—so it can be ladled out by MPs just before an election.
• Anybody, from any country, ought to be able to own Canada’s phone system.
• Incumbent carriers, who are trying to compete in the new multimedia world of communications with highly vertically integrated international competitors, should be stripped of their long distance businesses
• Once the competitive Nirvana arrives, we can all relax—general competition law will keep everything running smoothly.

I think you won’t be surprised to hear that I think all of these propositions are a little dubious.
Instead, I’d like to put forward an alternative thesis: that, yes, traditional regulation has run its course, and that new models are needed for the new competitive environment – new models in which pro-competitive specialized regulation complements general competition law. This necessary shift has largely been recognized by the CRTC and is reflected in the dramatic regulatory transformation to which you have referred. But first, let me respond to Richard’s arguments.
Richard has made an impassioned case for establishing competition as the overriding goal of telecommunications policy, to which all other goals are secondary. Competition, for competition’s sake. Ideology substituting for rational, objective thinking informed by economic history – a history that proves the inability of market forces alone to achieve prosperity for anyone other than the corporate elite.
It’s this religious embrace of market forces as the be-all and end-all that leads him into contradictory arguments:
On one hand, we must get rid of the CRTC in order to achieve full competition. On the other hand, we need to keep the CRTC around until competition is sufficiently robust and assured to survive without a specialized regulator.
On one hand, we need to minimize interference with market forces, while on the other hand, we should be actively promoting competition through various interventionist means.
On one hand, we should sit back and let the “creative energies” of the market “forge new corporate alliances”, but on the other hand, we should be wrenching apart those corporations which are only doing what market forces compel them to do.
This fixation on competition, I submit, is precisely what has led to the airline debacle. We forced competition onto an industry which simply could not sustain it.
The fact is that healthy, sustainable competition is not possible in all locations or in all industry sectors. Remnants of natural monopoly, inadequate market forces, and other thorny issues often exacerbated by competition keep rearing their ugly heads.
Even where effective competition is possible, it is rarely achieved in the form that economists promise. Persistent market dominance by the incumbent tends to muddy the clear waters of academic theory. And forcing the incumbent to divest itself of long distance operations won’t provide much relief to local competitors.
Finally, where effective competition is achieved, it will be fragile and vunerable to sabotage by corporate mergers brought about by global forces over which we have little control. Thus, having forborne, the regulator must be ready to step back in if and when the need arises – it must not totally abdicate.
Competition is too elusive, too fragile to be considered our sole end goal. It is, rather, a preferred means to an end. So what is that end?
This is where Richard has left us in the lurch – there’s an unstated assumption in his thesis about what competition will deliver. I can only presume that this ultimate goal is prosperity, a higher standard of living, a better life for all. In other words, competition is secondary to these ultimate goals – it is merely our preferred means of achieving them. So, in fact, Parliament’s error was not in failing to make competition an overriding goal of telecom policy, but rather in giving competition the status of a goal in the first place.
In any case, Parliament has spoken – there are a number of objectives of Canadian telecommunications policy, reflecting a conscious decision to treat telecommunications as a social and economic enabler, not just another utility. Deride these objectives if you wish, but they reflect a national consensus that universal service is a primary goal of telecommunications policy – not just because we want to be nice to poor people, but because we recognize the tremendous positive social and economic externalities that this particular networked industry has the potential to deliver, to the benefit of all Canadians, including our corporate brethren, and to the benefit of Canada as a nation.
Are long term competition and regulation enemies, as Rick suggests? Absolutely not.
Competition can coexist with regulation. Indeed, they must co-exist in order both for competition to thrive and for the other goals of telecom policy to be achieved. A new regulatory model is being developed, one that permits healthy competition, while filling in the gaps that market forces leave behind.
These are difficult issues. It’s no easy task to turn a regulated monopoly into a competitive market, especially when the product in question is an essential service. With difficult issues comes a human tendency to seek out simple answers. And where better to look than economics. Just step out of the way, let those market forces work, and we’ll all be happier for it. Works in theory, right?
It’s reassuring to hear that Rick Schultz does not entirely buy into this long discredited notion – at least he recognizes that taking away regulatory barriers doesn’t guarantee competition. He recognizes that without appropriate regulation the existence of dominant players tends to distort markets and impede the development of competition. That much is obvious to even the most hard core disciples of neoclassical economics.
Beyond this short term, narrowly circumscribed, role, though, the free marketeers seem to me to be astounding naive with respect to the way markets work in practice. They downplay or simply ignore policy goals other than economic efficiency, and they’re blind to the possibilities for more nuanced, sophisticated approaches to complicated problems.
Getting rid of the CRTC will not get rid of the many forces that tend to undermine the development and maintenance of effective competition in a previously monopolized market. It will not make dominant firms any less dominant. It will not get rid of the remnants of natural monopoly in this still highly capital intensive industry. It will not change the fact that consumers – the basis of market forces – in fact often act quite irrationally, contrary to the assumptions of economic theory. It would, in my submission, be disastrous for competition in telecommunications.
It would also be disastrous for Canadians, who have come to rely upon affordable, accessible telecommunications services wherever they live. Which leads me to the question of whether telecommunications is still unique.
Telecommunications is unique in a key respect: it is a networked service, whose value depends upon its universality. Unlike electricity, transportation, housing, or other industries providing essential services, telecommunications is based on connecting people to each other. The value of the network is only as good as its universality. This is what sets telecommunications apart, and what justifies the policy emphasis on universal service.
Richard argues that competition is suffering because of an outdated approach to funding universal service, that we should end the industry contribution scheme once and for all, and leave it to government to deal with the fall-out through the tax system. This is not an unreasonable argument, but it does ignore some important realities.
Let’s just acknowledge, first, what Richard is actually proposing. Under this approach, people living in Iqaluit, for example, would face basic monthly rates of $90. Farmers in Saskatchewan, outport fishermen in Newfoundland, social workers in Yellowknife would have to pay $50 or $60 per month. Some areas would probably be left entirely unserved. What would happen to these communities? What businesses would want to locate there? And who would qualify for subsidized rates? Those on welfare? What about the working poor? Don’t fool yourselves about the efficacy of targeted subsidies – they help some, but not all.
What does Richard’s argument ignore?
It ignores the fact that universal service enhances the value of the network and thereby benefits the industry that provides it. It’s not just taxpayers that benefit from a strong, ubiquitous telecommunications system linking Canadians to each other, it’s also the industry that profits from universal service.
Moreover, while the government may well be at fault for not providing more specific guidance to the CRTC in policy matters such as the extent to which rural and remote areas should be subsidized out of industry-generated funds, it has in fact spoken through the recent amendment to the Telecom Act explicitly providing the CRTC with powers to establish and administer an industry fund through which to “support continuing access by Canadians to basic telecommunications services”. (s.46.5(1))
So it appears the argument we are having is purely academic – the government neither wants nor intends to take over the challenge of ensuring universal service in telecommunications.
It is not uncommon for revolutionaries to ignore thorny problems raised by the new regime they propose. We know all too well the problems with the existing regime. Why are we so naive as to suppose that similarly serious problems won’t result from a new system? Take Rick’s proposal for a government sponsored telecom subsidy – How do you determine eligibility for the subsidy? How do you ensure that it is spent on telephone service and not food? How do you make sure that everyone who needs the subsidy gets it? And that those who don’t need it, don’t get it? The fact is that in programs such as this, people always fall through the cracks, and the result is greater suffering, marginalization, and increased social costs.
This would of course run completely counter to the government’s agenda of “Connecting Canadians”, under which efforts are being made to address the digital divide, to ensure that less privileged Canadians are not only connected by phone, but also have access to the Internet.
Finally, telephone service is not a government sponsored benefit, like OAS or the child tax credit. I doubt that government would want to start using the tax system to dole out money intended for the payment of specific services. The issue here is not income supplementation; it’s affordable service.
Aside from passing the buck on the universal service issue, and making competition an overriding policy goal in the Telecom Act, Richard proposes that we “aggressively promote” competition in two concrete ways:

• Reduce or eliminate foreign ownership restrictions, and
• Force the incumbents to divest themselves of their LD (or local) operations.

I’ll leave the issue of foreign ownership to tomorrow’s panel, other than to say that the current restrictions don’t seem to be much of an obstacle to foreign investment in Canadian telecommunications – I suspect that we have more foreign ownership of telecom carriers in Canada than in most other countries.
The divestiture argument, however, does demand a response. I would have agreed with Rick on this five years ago, but the telecom world has been transformed since then. We are now into a new world of global competition, in which the name of the game is corporate merger, so as to combine integrated data, voice, multimedia, and IP-based services. The trend in the US and elsewhere is RE-integration, “one-stop shopping”, providing the full suite of services. We’re way past the local/long distance problem.
Look at AT&T, now hooked up in Canada with Metronet, Rogers and Videotron. It’s become, in the new world, perhaps the ultimate example of a vertically integrated incumbent, providing not just long distance, but local voice in some markets, wireless (Cellular One), Internet (WorldNet), business data and voice services, network outsourcing, web hosting, ecommerce entertainment, and cable (TCI) services.
Divestiture may be an appropriate response to competitive abuses by incumbents, but those who were the incumbents in the old world of telecommunications may not be the incumbents of the new world. I submit that the greater danger that we face in the form of these corporate behemoths is the combining of content and carriage functions under one roof. That’s where divestiture may prove necessary in order to maintain a vibrancy and diversity in the telecommunications marketplace
Finally, I come to Richard’s argument that the CRTC should be dismantled and replaced with, in his words, “a more sophisticated tool-kit of public remedies” including competition law, trade regulation and copyright law. Mindful that these subjects will be addressed by later panels, I wish only to make a few points about the so-called sophistication of competition law, and why it cannot substitute for specialized regulation.
Even our official cheerleader of competition and competition laws, Mr. Von Finkenstein, would be loathe, I suspect, to characterize general competition law as “sophisticated”, especially in comparison with specialized sectoral regulation. It is precisely the unsophisticated nature of competition law that renders it inadequate to safeguard the development of competition in the telecommunications industry.
First, general prohibitions don’t catch all forms of anti-competitive conduct – for example, predatory pricing rules applied under general competition law do not account for the high ratio of fixed to variable costs in the telecom industry, which inhibit entrants from leaving the market during below-cost pricing by a rival. The “revenue recoupment test” does not take account of the strategic benefits to a telecom industry predator of establishing a reputation for toughness and deterring innovation and investment by its rivals.
Second, enforcement of competition law tends to be slow and expensive, whereas specialized regulators can issue directions based on specific regulatory powers in a matter of days, providing a clear signal of the regulator’s view of the conduct in question even if not giving rise to direct liability.
And third, even if general competition laws are successfully invoked, suitable remedies may not be available. A Court, for example, is unlikely to be able to set an appropriate interconnection charge in the way that the regulator can.
We have only to look to New Zealand to see the folly of total reliance on competition laws – millions of dollars and several years were spent in protracted negotiations and lawsuits during which the incumbent carrier was able to delay the introduction of competition and the resolution of competitive disputes. Surely that lesson has been learned.
Australia has attempted to avoid the New Zealand fiasco by empowering its competition authority to act as a specialized telecoms regulator as well. The Australian Competition and Consumer Commission (ACCC) remains in charge of general competition law, but has since 1997 been empowered with specialist knowledge and specific responsibility in respect of telecommunications competition. Telecom staff in charge of carrier competition issues at the old telecom regulator, Austel, were simply transferred to the ACCC. Australia has thus recognized that general competition law and telecoms-specific law are not mutually exclusive choices, but rather, are complementary tools.
This is also recognized by our Commissioner of Competition, who advocates leaving specific regulatory functions regarding interconnection and access with the CRTC. As the Assistant Deputy Commissioner of Competition has emphasized, “competition is not a substitute for regulation”.
So, are facing the end of traditional regulation? Clearly, yes. Traditional quasi-judicial, command and control regulation is not likely to work in an era of rapid change. This has been recognized by the CRTC, and is reflected in its move from hands-on regulator to referee, and from top-down regulation to negotiated rule-making.
Are we facing the end of specialized telecom regulation? No. There will likely always be a role for a specialized telecoms regulator, to deal efficiently and effectively with interconnection disputes, access issues, and universal service subsidization. The CRTC will not go out of business; it will continue to adapt its regulatory approach and procedures to suit the changing marketplace.
But will it adapt appropriately, or sufficiently? A new paradigm of regulation is needed, one which puts more emphasis on cooperation between the CRTC and competition authorities, which focuses on consumer protection, and which takes on a more proactive approach to industry monitoring and consumer information.
My concern is that the CRTC may be too short-sighted and reckless in its desire to please those whose self-interest is in complete forbearance. The Internet of 1999 may not need to be regulated – but who knows about the Internet of 2005? I, for one, am not willing to bet that regulatory intervention in new media will never be needed. The AOL/TimeWarner merger is just a sign of things to come.
I’m also concerned that that CRTC doesn’t appreciate the need for its continued presence not only as a referee of competitive disputes, but also as an information gatherer and distributor, so as to provide consumers with the information they need to make informed choices. We need more regulation by information.
We are in the process of reinventing telecommunications regulation in Canada. What we need is not free market evangelism but rather imaginative and sensible approaches to pro-competitive regulation which are informed by history and guided by a vision of the future in which everyone, not just the corporate elite, benefits.
Thank you.
 

Directory Assistance Appeal

Canadian Radio-Television and Telecommunications Commission
Ottawa, Ontario
K1A 0N2
Attention: Mr. John Keogh
Secretary General
Dear Mr. Keogh:
Re: Telecom Order CRTC 99-741: Bell Canada Directory Assistance;
Part VII Application for a Review and Variance of Order 99-741
1. This is an application made pursuant to section 62 of the Telecommunications Act for a review and variance of paragraphs 16, 17, 18, and 19 of Telecom Order CRTC 99-741.
2. This application is made on behalf of Action Réseau Consommateur (ARC), the Consumers’ Association of Canada (CAC), and the National Anti-Poverty Organization (NAPO), hereinafter referred to as “ARC/CAC/NAPO”.
3. On July 29, 1999, the Commission issued Telecom Order 99-741, in which, among other things, it permitted Bell Canada to begin charging for unsuccessful directory assistance requests (unlisted numbers, or listings that are not found). It is this part of the Order that ARC/CAC/NAPO appeal.
4. According to the Commission’s Guidelines for Review and Vary Applications (Telecom Public Notice CRTC 98-6), applicants under section 62 must demonstrate that there is substantial doubt as to the correctness of the original decision.
5. In its decision, the Commission cited two reasons for permitting Bell to charge for unsuccessful directory assistance (“DA”) requests:
(a) “it is reasonable that the costs incurred with respect to unsuccessful requests should be borne by those who use the service” (para.17); and
(b) “the removal of this exemption is an important factor in optimizing the efficiency of Bell’s DA service” (para.18).
6. ARC/CAC/NAPO respectfully submit that there is substantial doubt as to the correctness of both of these rationales, for the reasons set out below.
7. The Commission did not explain why “it is reasonable that the costs incurred with respect to unsuccessful requests should be borne by those who use the service”, other than to note that “an unsuccessful DA request can occur when the requested number is either an unlisted number or does not exist or when the request is not sufficiently precise” (para.17). It thus appears that the Commission neglected to consider the possibility that at least some unsuccessful DA requests are caused by an error on the part of Bell Canada (in the directory listings) or on the part of the operator.
8. As noted in the dissent of Commissioner Langford, there are numerous possible causes of an unsuccessful request, including error in the directory listings, or on the part of the operator. It is fundamentally unfair to allow Bell to charge customers for a service not rendered when it was as a result of Bell’s fault that the service was not rendered.
9. Bell provided no evidence as to the statistical breakdown between customer-caused and system-generated failures in respect of DA service.
10. In order to get some idea of the existing failure rate in respect of Bell’s DA service, PIAC conducted an informal survey of Bell’s DA service on August 23rd, 1999, using 100 known listed names and numbers. In all cases, subscriber error and unlisted numbers were thus ruled out. Of the 100 requests made, a total of 24 were unsuccessful. In 9 of these cases, the operator told the caller that there was no such listing.
11. This informal survey likely underestimates the rate of company error in respect of unsuccessful DA requests, given that the callers in question spoke fluent English and French, and knew the correct names of the institutions and individuals whose listings were requested. Many DA requests will require more effort on the part of the operator in order to understand the caller’s request or to assist the caller with a difficult but reasonable request.
12. Moreover, if Bell is equally reimbursed for failure and success, there is no financial incentive for it to minimize errors in the provision of DA, and its current error rate is therefore likely to increase.
13. ARC/CAC/NAPO submit that it is unreasonable to charge DA callers for a service not rendered when the failure to render was due to error on the part of Bell Canada. Until Bell Canada can separate customer-caused from company-caused failure, it should not be permitted to charge for unsuccessful DA calls. It may be reasonable to impose a user fee on DA callers whose requests are inaccurate or insufficiently precise. It is not reasonable to impose a user fee on DA callers who bear no fault, and who have already suffered the frustration of an unsuccessful request due to company error.
14. There is a third category of unsuccessful DA calls, which is neither customer-caused nor company-caused: that of unlisted numbers and truly non-existent numbers where the request was precise and reasonable. In these cases, neither the company nor the customer is at fault. However, a cost is incurred. Who should pay?
15. ARC/CAC/NAPO submit that it is inappropriate to charge customers for unsuccessful DA calls unless the customer is at fault. As Commissioners Langford and Cardozo both point out in their respective dissents, it is unusual in service industries for customers to be charged for a service not successfully rendered. The costs of such efforts are normally considered to be part of the general costs of doing business. They should likewise be considered a normal cost of providing DA service.
16. The majority’s second rationale for permitting Bell to charge for unsuccessful DA requests is that “removal of this exemption is an important factor in optimizing the efficiency of Bell’s DA service”.
17. Again, it is not clear from the decision how charging in this instance would improve the efficiency of Bell’s DA service. If accuracy or responsiveness have anything to do with efficiency, the decision will in fact have the opposite effect, since Bell will have lost the financial incentive to minimize error in DA service. Charging in this instance will certainly improve the revenue/cost ratio of the service, but net profit does not equate with efficiency. Efficiency, rather, has to do with cost and productivity.
18. ARC/CAC/NAPO can only speculate that this part of the Commission’s reasoning was based on Bell’s confidential PWAC study figures, provided in Table 4.5.1 of the Attachment to its application. Bell may be suggesting here that the cost per DA call will fall due to a reduction in difficult and time-consuming DA requests, as a result of the new charge. If this is the case, ARC/CAC/NAPO submit that further evidence of such an effect is required before Bell’s demand assumptions are accepted.
19. Unfortunately, Bell has not made public the costs of DA service. All that we know is that the Company’s Study Report on the Resource Cost for DA and ADACC “shows that the proposed service will provide a net economic benefit to the Company”, and that “the proposed rate has been set to recover costs” (Bell’s letter of application, p.2). In the report, Bell refers to “its current high and unacceptable operating costs resulting from the existing tariff” (para.23). And in its reply to PIAC’s initial comments on the application (para.8), Bell refers to “the necessity of off-setting its costs with commensurate revenues”.
20. ARC/CAC/NAPO infer from these statements that Bell was claiming in its application that the existing DA service did not cover its costs. There is evidence, however, suggesting otherwise.
21. In its Part VII application of January 29, 1999 regarding Bell’s operator services, the Communications, Energy and Paperworkers Union of Canada (CEP) stated the following:
19. Bell Canada has claimed for many years that its Operator Services division is not profitable and has used this claim as a basis for seeking wage and other concession from its operators. For its part, CEP has taken the position that Operator Services is not a loss centre and has resisted Bell Canada’s pressure for concessions.
20. In order to resolve this fundamental disagreement, CEP and Bell Canada undertook a joint study in 1997 of Bell Canada’s Operator Services division. The study was prepared by a joint committee of CEP and Bell Canada personnel and examined all relevant costs and revenues associated with the division. Unfortunately, due to a confidentiality agreement between CEP and Bell Canada, CEP cannot provide the Commission with a copy of the report at this time. However, CEP can disclose that the conclusion of the study was that the Operator Services division is profitable, contrary to Bell Canada’s earlier claims. This fact has been confirmed by Bell Canada’s Chief Executive Officer, Jean Monty: “Bell Canada met l’eau dans son vin”, Le Devoir, January 19, 1999.
22. ARC/CAC/NAPO submit that the existence and conclusion of this report cast doubt on any claim by Bell as to net losses incurred by its DA service. If the Order in question was based to any extent upon such a claim, it is incumbent on Bell to produce the joint CEP/Bell study and to explain any conflicting evidence as to the profitability of its DA services.
23. Finally, ARC/CAC/NAPO submit that the fact that two Commissioners dissented on this issue is evidence enough of substantial doubt as to the correctness of the majority’s decision.
24. For all these reasons, ARC/CAC/NAPO request that the Commission review its majority decision to permit Bell to charge for unsuccessful DA requests, and vary the decision so as not to saddle customers with the costs of reasonable but unsuccessful DA requests.
All of which is respectfully submitted this 31st day of August, 1999.
Philippa Lawson
Counsel for ARC/CAC/NAPO
cc: CRTC Legal Branch – Allan Rosenzveig
Bell Canada – Theresa Muir
BCT.Telus – Willie Grieve
MTS – Roy Bruckshaw
MT&T/Island Tel – Don MacDonald
NBTel – Richard Stephen
NewTel – Edmond Burry
NWTel – Araya Vivorakij
AT&T Canada – Peter Barnes
Call-Net – Jean Brazeau
Clearnet – Parke Davis
Paytel Canada –
CARP –
CRTCHQ –
Mr. Chris Wong –
FORM 12
FORM OF ENDORSEMENT ON APPLICATION UNDER PART VII NOTICE
This application is made jointly by Action Réseau Consommateur, the Consumers’ Association of Canada, and the National Anti-Poverty Organization (“ARC/CAC/NAPO”).
TAKE NOTICE that pursuant to section 59 of the CRTC Telecommunications Rules of Procedure, the respondent is required to mail or deliver his answer to this application to the Secretary General of the Canadian Radio-television and Telecommunications Commission, at:
John Keogh
Secretary General
Canadian Radio-television and Telecommunications Commission
Ottawa, ON
K1A 0N2
and to serve a copy of the answer on the applicant by October 1, 1999.
Service of the copy of the answer on the applicant may be effected by personal delivery or by ordinary mail. In the case of service by personal delivery, it may be effected at the address set out above.
If the respondent does not file or serve his answer within the time limit prescribed, the application may be disposed of without further notice to him.

Residential Consumers and the Transition to Competition in the Long Distance Market

Still A Long Distance To Go

Residential Consumers and the Transition to Competition in the Long Distance Market
By Angie Barrados
This study measures the effects of the first five years of long distance competition on residential consumers. It examines how competition theory has informed the development of competition in the long distance market, and contains a quantitative analysis of the extent to which residential consumers have benefited from long distance competition. The study documents that the real benefits the average Canadian has experienced from changes in the long distance market are surprisingly modest.
100 pages $20
February 1999

Executive Summary

When long distance competition was being considered, its major promoters were big business and its representatives. Since competition was introduced, long distance rates for big business have plummeted. Typically, when the success of long distance competition is discussed, it is the success of long distance competition in the business long distance market that is being referred to. This study shows that the real benefits the average Canadian has experienced from the changes in the long distance market are surprisingly modest. To date, residential long distance users have been the poor cousins of big-business users.
Regulators thought that competition would provide important benefits to residential consumers, such as lower prices and increased choice, without sacrificing the achievements of universality and network reliability attained under monopoly regulation. These ideas, used to justify and shape policy towards competition, have not been tested by empirical study. The aim of this study is to fill this gap by measuring the effects of long distance competition on residential consumers.
The study has two parts. The first examines how competition theory has informed the development of competition in the long distance market. A review of the major decisions on long distance competition, which considers the main concepts and debates in competition theory, is provided. The most recent events in the long distance market are also considered.
This review of competition theory related to the long distance market shows that the CRTC has been quite optimistic in its view of how strong competition is in this market. The CRTC has not fully taken into account the degree to which market flaws can reduce positive outcomes for consumers. Some of the key market flaws that are present to some extent in the residential long distance market are market segmentation and consumer inertia. Also, the large regional telephone companies still dominate the long distance market, a situation that is known to aggravate market flaws. The analysis strongly suggests that the actual outcomes of long distance competition for residential consumers should be verified to ensure that the market is operating effectively.
The second part of this report is a study measuring the extent to which residential consumers have benefitted from long distance competition. The study period covers the five years between June 1992 (when facilities-based competition was permitted) and July 1997. Indicators were selected to measure both the benefits and the costs that residential consumers have experienced from changes in the long distance market over this five-year period.
The findings of the study lead us to believe that the overall savings for residential consumers are far less than for business consumers, though overall actual price reductions enjoyed by residential consumers are difficult to quantify. Price reductions were available over the study period, and enjoyed by some customers (most of whom stayed with a Stentor company and received 15% discounts, while a smaller portion switched to competitors and received higher discounts). But a surprisingly large number of customers, more than half of Canadian households, did not appear to enjoy any price reductions at all, and were still charged the high “DDD” rates. Not only are these high prices unfair to the consumers being charged them, but they also dampen competition by allowing the dominant firm to exploit a market flaw.
The results of this study show that the overall phone bills for most Canadians have increased significantly over the study period, because of increases in local rates. Most low-income Canadians, who can least afford the increases, have had significantly increased phone bills. There is no evidence that the overall benefits to the economy stemming from long distance competition have helped low-income people to afford these increased prices for telephone service.
In the absence of competition, the price reductions, while lower in magnitude, would have been equally distributed amongst residential consumers. This situation would have offered more savings to many Canadians that did not receive any benefits during the study period. High users of long distance are better off with competition, but most Canadians would have lower telephone bills without competition.
Without competition, consumers would not have had choice. But, during the study period, choice was a mixed blessing for consumers. Significant transaction costs, and lack of knowledge counterbalanced the benefit of choice. Also, the competitive environment increased annoyances such as telemarketing, and disruption of service.
The recent price war suggests that residential customers may have been able to benefit more from the long distance market in 1998 than between 1992 and 1997. It would be quite unwise, however, to conclude that all the issues raised in this study have been solved. Indeed, this study shows that the presence of discounts in a market in transition from monopoly does not automatically lead to consumer benefits.
The findings of this study point to two main areas in which action should be taken by the federal government. The first main action area is monitoring of the long distance market, a theme that emerges at many points this study. The state of the long distance market should be monitored, so that policy-makers and the public have information about the status of the transition from monopoly to competition. Regulatory decisions of the past should be evaluated so that lessons can be learned in the future.
Monitoring is important so that there can be some public scrutiny of trends in the market. Public scrutiny in itself can be a deterrent to undesirable business practices. Monitoring also allows market failures to be identified early, and addressed before they become major problems. It is very unfortunate that no government agency seems to be taking responsibility for monitoring the long distance market, or even collecting basic data on residential long distance prices and usage.
The second action area involves considering some corrective action to ensure the benefits of long distance competition are more widely distributed in the residential market. Widespread consumer inertia has meant that many consumers have not had any savings on long distance in the first five years of competition. Also, it means that market forces in the residential market as a whole are weak, perhaps too weak adequately to protect consumer interests. The amount of consumer inertia should decrease as competition unfolds. It is important that consumer behaviour is monitored to ensure that this indeed happens. If consumer inertia does not decrease, or is replicated in the local service market once local competition is underway, the CRTC should reconsider the need for public information programs.
The study concludes that the overall experience of residential consumers during the first five years of long distance competition illustrate the need to ensure that the potential benefits of competition in a formerly monopolized market actually materialize for all consumers. In long distance, business consumers benefitted from competition, but many residential consumers were left behind. Now that competition has been in place six years, it is time to implement the monitoring and public information policies that will ensure that the benefits of competition are more widely distributed throughout the residential market.
Loin des yeux, loin du compte
La concurrence dans le marché de l’interurbain et les abonnés résidentiels

Sommaire

À l’époque où l’on étudiait la question de la concurrence dans le secteur de l’interurbain, la grande entreprise et ses porte-parole s’en faisaient les principaux partisans. Or, depuis l’arrivée de la concurrence, ce sont précisément les tarifs de l’interurbain pour la grande entreprise qui ont chuté. Lorsque l’on parle de réussite dans le cas de la concurrence sur le marché de l’interurbain, on fait généralement référence à la concurrence dans le marché d’affaires de l’interurbain. Contrairement à ce qu’on pourrait croire, la présente étude démontre que les avantages réels dont le simple citoyen a pu bénéficier en raison des changements effectués au sein du marché de l’interurbain sont somme toute modestes. Jusqu’à maintenant, les clients résidentiels de l’interurbain sont traités en parents pauvres par rapport aux clients de la grande entreprise.
Les autorités réglementaires ont pensé que la concurrence se traduirait par d’importants bénéfices au profit des abonnés résidentiels, dont une réduction des tarifs et un choix plus diversifié, sans pour autant sacrifier l’universalité et la fiabilité du réseau établi durant la période du monopole. De telles hypothèses, qui ont servi à justifier et à orienter la politique devant nous mener à la concurrence, n’ont jamais été éprouvées dans le cadre d’études empiriques. La présente étude vise à combler cette lacune en mesurant les effets de la concurrence dans le marché de l’interurbain sur les abonnés résidentiels.
L’étude se divise en deux parties. La première examine comment la théorie de la libreconcurrence a influencé l’instauration de la concurrence sur le marché de l’interurbain. On y fait l’examen des plus importantes décisions en matière de concurrence dans le marché de l’interurbain, reprenant les principales thèses et les grands débats de la théorie de la libre concurrence. On y note également les plus récents développements dans le marché de l’interurbain. Cet examen de la théorie de la libre concurrence appliquée au marché de l’interurbain démontre que le Conseil de la radiodiffusion et des télécommunications canadiennes a entretenu une vision plutôt optimiste de la force qu’aurait la concurrence dans ce marché. Le CRTC n’a pas tenu suffisamment compte, en effet, des irrégularités de marché et de leur rôle dans la réduction des avantages positifs qu’en tireraient les consommateurs. Au nombre des irrégularités que l’on retrouve en partie dans le marché résidentiel de l’interurbain, on compte la segmentation du marché et l’inertie des consommateurs. D’ailleurs, les grandes compagnies régionales de téléphone dominent toujours le marché de l’interurbain, une situation qui accentue comme on le sait les irrégularités de marché. L’analyse laisse supposer que les résultats concrets de la concurrence sur le marché résidentiel de l’interurbain doivent être vérifiés, pour veiller à ce que le libre marché fonctionne comme prévu.
La seconde partie du rapport se consacre à une étude devant mesurer les bénéfices tirés par les abonnés résidentiels du régime de concurrence dans le marché de l’interurbain. L’étude couvre une période de cinq ans entre juin 1992 (moment où l’on autorisait la concurrence au plan des équipements) et juillet 1997. On a choisi des indicateurs permettant de mesurer sur cette période autant les avantages que les coûts reliés aux changements dans le secteur de l’interurbain pour la clientèle résidentielle.
Les résultats de l’étude donnent à croire que les économies globales réalisées par les abonnés résidentiels sont très inférieures à celles réalisées par les clients d’affaires, bien que le total des réductions de tarif dont bénéficient les abonnés résidentiels soit difficilement quantifiable. Des réductions de prix sont survenues au cours de la période couverte par l’étude, réductions dont certains abonnés se sont prévalus (la plupart ayant conservé le service offert par une compagnie membre de Stentor et bénéficiant d’une réduction de 15 %, tandis qu’une minorité a profité d’une réduction plus substantielle en changeant de fournisseur). Or, un nombre surprenant d’abonnés, soit plus de la moitié des ménages canadiens, n’ont en apparence bénéficié d’aucune réduction de prix et continuent de devoir payer les tarifs élevés de type “DDD”. Des tarifs aussi élevés que ceux-là sont non seulement injustes pour les consommateurs qui doivent les acquitter, mais ils nuisent également à la concurrence en permettant à l’entreprise dominante de profiter d’une irrégularité du marché.
Les résultats de la présente étude démontrent qu’en raison de la hausse des tarifs locaux, la facture globale pour les services téléphoniques chez la plupart des ménages canadiens a considérablement augmenté au cours de la période de l’étude. La plupart des ménages à faible revenu, ceux qui ont le plus de mal à absorber les hausses de coûts, ont fait face à une facture de téléphone considérablement plus élevée. Rien ne démontre que les bénéfices économiques globaux issus de la concurrence en matière d’interurbain ont aidé les ménages à faible revenu à absorber ces hausses de prix du service téléphonique.
En l’absence de concurrence, les réductions de prix, bien que d’une importance réduite, auraient été réparties également entre les abonnés du secteur résidentiel. Cette situation aurait offert des économies plus substantielles à bon nombre de ménages canadiens qui n’ont récolté aucun bénéfice au cours de la période étudiée. Si les grands consommateurs de communications interurbaines s’en tirent à meilleur compte avec la concurrence, la plupart des ménages canadiens auraient au contraire vu leur facture de téléphone diminuer si la concurrence n’avait pas été introduite.
Sans cette concurrence, les consommateurs n’auraient pas eu de choix. Toutefois, en ce qui concerne la période étudiée, ce choix s’est révélé être un bien pour un mal en ce qui concerne les consommateurs. Des frais de transaction non négligeables et l’ignorance ont annulé les avantages de ce choix. De plus, l’environnement concurrentiel a augmenté les nuisances comme le télémarketing et les interruptions de service.La récente guerre des prix pourrait laisser penser que la clientèle résidentielle a pu profiter davantage du marché de l’interurbain au cours de l’année 1998 que ce n’avait été le cas entre 1992 et 1997. Il serait cependant prématuré d’affirmer que tous les problèmes soulevés dans la présente étude ont été réglés. L’étude démontre en effet que l’existence de rabais dans un marché en transition entre le monopole et la concurrence ne se traduit pas nécessairement par des avantages pour les consommateurs.
L’étude révèle deux domaines d’intervention principaux où le gouvernement fédéral devrait prendre des mesures. Le premier domaine d’intervention se situe dans un suivi du marché de l’interurbain, un thème qui revient souvent au cours de l’étude. Il faudrait surveiller la situation sur le marché de l’interurbain, de sorte que les décideurs et le grand public puissent savoir à quel stade nous en sommes dans la transition entre le monopole et la concurrence. Les décisions prises par le passé en matière de réglementation doivent faire l’objet d’une évaluation afin que nous puissions en tirer les enseignements qui s’imposent pour l’avenir. Un suivi est important afin de pouvoir débattre publiquement des tendances observées sur le marché. Le débat public pourrait en lui-même dissuader un certain nombre de pratiques commerciales indésirables. Le suivi permettrait en outre de cerner rapidement les irrégularités du marché et d’y remédier avant qu’elles n’occasionnent des problèmes importants. On doit déplorer le fait qu’aucun organisme gouvernemental ne se charge d’effectuer un tel suivi du marché de l’interurbain, ni même de colliger des données de base sur les tarifs et l’utilisation de l’interurbain dans le secteur résidentiel.
Le second domaine d’intervention concerne l’étude de certaines mesures correctives pour veiller à ce que les avantages de la concurrence dans le secteur de l’interurbain soient plus équitablement répartis dans le marché résidentiel. L’inertie généralisée des consommateurs en a privé un grand nombre de toute forme d’économie au chapitre des communications interurbaines au cours des cinq premières années de la concurrence. De plus, une telle situation dénote la faiblesse des forces de marché dans le marché résidentiel, une faiblesse qui se révèle probablement trop importante pour assurer la protection adéquate des intérêts des consommateurs. L’inertie des consommateurs devrait normalement diminuer à mesure que s’instaure la concurrence. Il importe toutefois de bien suivre l’évolution des comportements des consommateurs afin de vérifier si cette hypothèse se confirme. Si l’inertie des consommateurs ne devait pas s’estomper, ou s’il s’avère que le phénomène se reproduit avec l’introduction de la concurrence sur le marché local, le CRTC devra se pencher de nouveau sur la nécessité d’offrir des programmes d’information publics.
L’étude en vient à la conclusion qu’au cours des cinq première années de concurrence sur le marché de l’interurbain, un marché auparavant détenu par un monopole, l’expérience générale des abonnés résidentiels démontre la nécessité de veiller à ce que les avantages potentiels de la concurrence se matérialisent véritablement pour l’ensemble des consommateurs. En ce qui concerne l’interurbain, on constate que la clientèle d’affaire a bénéficié de la concurrence, tandis que bon nombre d’abonnés résidentiels sont restés en plan. Après six années de concurrence, il est maintenant temps d’instaurer des politiques de suivi et d’information publique qui assureront une meilleure répartition des avantages de la concurrence dans l’ensemble du marché résidentiel.

Can the Competitive Model of Telecommunications Deliver the Goods?

By Michael Janigan (Speech to Pacific Telecommunications Council)
Pacific Telecommunications Council ’99

Introduction

By now, few of us have not been exposed to the visionary rhetoric that has accompanied the dawning of the so-called information age. Fortunately there is no amount of cynicism engendered by the hype surrounding the Information Highway that can fully extinguish the sense of awe that most of us have when we contemplate the potential of the new communications technologies. On a worldwide basis, these technologies are establishing an infrastructure that is transforming the way we do business and, to a large extent, the way we live.
For public interest advocates, the allure of these technologies has not been their ability to change a resource based economy to an information based economy, a change largely effected by the marriage of the computer and communications technologies. The attraction is rather that these technologies offer an opportunity to deliver societally important public goods and services in dramatically more effective ways, both domestically and internationally. These new methods of delivery connote an opportunity to better everyone’s lot.
But as we all know, the delivery of these new goods and services does not take place in a governmental or regulatory vacuum. First of all, the technological advances themselves have served to rebut the notion of the telephone system as a natural monopoly. Developments in digitization, transmission and traffic switching technology enabled new entrants to challenge incumbent hegemony in telecommunications services.
However, the advent of the digital age has also served to focus industry dissatisfaction on the alleged shortcomings of the traditional methods of communications regulation. It is particularly interesting how the potential application of the new technologies has been used a lever to advocate for dramatic changes in the regulatory environment. Despite the fact that reliance on market forces is largely at odds with the broad based social goals promised by the new technologies, there has been a consistent clamour, particularly from the former incumbent monopolists, to be released from the chains of regulatory oversight.
It would be hyperbolic to claim that the regulatory models currently evolving are solely the result of the aggressive posturing of telecommunications players to the effect that fantastic new developments cannot be achieved under existing regulation. However, it is important to note that the promise of seductive new technologies and new services on the horizon has been successfully married by industry spokespersons with the plea to be set free from regulatory “bondage.”
The question that policymakers and public interest advocates must confront is whether the competitive model of communications oversight currently espoused will be capable of delivering the goods in the form of universal affordable access to those communications technologies and services that are recognized as socially useful and necessary. It is first perhaps necessary to look at the essential components of the conceptual competitive model. The talking points of this model will certainly vary by jurisdiction. For the purpose of this paper, its development is primarily predicated on the Canadian experience. However, even given its country specific limitation, the description of this model will be admittedly general and broad brush. In fairness, it is likely that no industry actor ever finds its position itself entirely within the construct of this model as elaborated herein. However, the description of the model does serve a focus the discussion as to whether the full implementation of the model would broaden or narrow access to the services enabled by the new technologies.

The essential features of this model are:

1. Internal subsidies to enable network access are sought to be eliminated.
2. Individual components of network access are, to the greatest extent possible, unbundled and repriced.
3. Consumer choice and individualized programs of service are a network priority.
4. Market forces are sufficient to ensure service quality.
5. Universal public access is a public goal to be ensured with public monies.
6. Telecommunications objectives are best achieved through competitive means.
7. Consumer protection is best achieved through competition or anti-trust policy rather than regulatory oversight.
1. Internal subsidies to enable network access are sought to be eliminated.
I do not intend to revisit the debate of the last two decades concerning who should pay the costs of network access. The impact, however, of the migration of greater costs in telephony to local basic service has had two principal effects:
I) savings, particularly for high volume customers of competitive services such as long distance
ii) a substantial escalation of the basic costs to get on the network.
For competitive model adherents, this reallocation of costs reflects simple market realities and allocates costs to telecommunications services using the network in a market-based fashion.
To consumer and public interest advocates, the costing results are decidedly subjective, geared more to ensure competitive entry by service providers than allocative efficiency and value. (One wag has termed the process the evolution from cost based pricing to price based costing).
Whatever the merits of the different applications at this principle, it is undeniable that its impacts is most heavily felt by those with the least ability to pay. Access to advanced applications of communications technologies may be a moot point if a subscriber has already dropped off the network. On the other hand, a rebalancing of network costs may make start-up and delivery of new applications on the network more cost effective.
2. Individual components of network access are, to the greatest extent possible, unbundled and repriced.
In a competitive telecommunications universe, there is a perpetual squeeze between the desire for a return on investment and the fulfilment of the important telecommunications objective of maintaining basic universal service. In Canada, consumer and public advocates have seen a wholescale attack in telephony on the collaterally important functions of the telephone system that were either formerly or realistically part of a package of basic services. Network functions such as local information services, long distance information services, repairs to subscriber lines and touchtone service are classified as services additional to local basic service for which the telcos assess an additional fee. Other U.S. jurisdictions have allowed the introduction of local measured service. The erosion of the content of basic network service that ensures functional access to the communications network and full participation in the community of interests served by the local network presents a substantial irritant, if not a road block to establishing or maintaining universal accessibility.
3. Consumer choice and individualized programs of service are a network priority.
The discipline of competition has meant a quicker and better response by industry participants to those customers whose consumption of services represent a significant market share to be obtained or retained. As well, new providers of communication services have been able to enter and provide services to emerging markets particularly through the use of wireless technologies where traditional networks could not have been implemented. The presence of competing players in the communications market does present possibilities for expanding access to consumers whose needs cannot be met in the traditional monopoly environment.
4. Market forces are sufficient to ensure service quality.
While competition has produced increased efficiencies and choice for consumers in desirable markets, it has also had the effect of inducing ambivalence by network providers concerning markets whose economies of scale or scope, or net revenue, make them unattractive for industry participants. This is particularly been evident in US jurisdictions where the local network provider has in many instances virtually abandoned its responsibility to provide local service and failed to address service quality problems in a suitable fashion.
In Canada, the CRTC has been non compliant with requests from local service providers that they be exempted from accountability on quality of service matters, and resistant to the claim that market forces can provide incentives to ensure that quality of service is maintained. The CRTC, as the national telecommunications regulatory body, has insisted upon the maintenance of appropriate quality standards in that “market forces are not sufficient incentives to ensure that quality of service with respect to essential utility segment services and bottleneck facilities does not deteriorate…”(1)
The experience to date in Canada and the United States, arising in jurisdictions where regulation has not been completely ceded to market forces, represents a significant counsel of caution to those who would advocate an abandonment of the maintenance through regulatory authority of quality of service network standards as a result of the introduction of competition.
5. Universal public access is a public goal to be ensured with public monies.
While there is agreement by government, industry and consumers that the telecommunications networks of the present and future represent a substantial national and public interest, there is an ever widening divergence of views between industry and public interest advocates as to the responsibility for ensuring network access. While the industry players continue to publicly highlight the importance of the applications of new communications technologies as the lifeblood of future economic development, the responsibility to ensure delivery of access to all elements of society is looked upon by industry as a non-network cost.
In Canada, we appear to be committed to access as an objective, yet we are indefinite as to how access will be achieved in the current environment without government subsidy. Clearly the most successful efforts to promote access, to new technologies outside of industry pilot studies have involved direct federal funding.
The Canadian government’s Information Highway Advisory Council recognized the critical necessity for developing access to the Internet and ensuring equitable participation in a knowledge society. It’s September 1997 report contained far-reaching recommendations to enable such participation. Through the Community Access Program, the federal government is committed to the goal of connecting up to 5,000 communities across Canada by 2001 through the establishment of public access sites in low cost public locations. The SchoolNet program is a collaborative effort sponsored by federal, provincial, and territorial governments and takes in about half of Canada’s 16,500 schools with hundreds of on line services.
While the government has been forthright in its desire to put money into range of partnerships to expand access to new telecommunications services, the traditional industry players have resiled from their longstanding notion of stewardship over network access to a position of “show me the money”.
In a current CRTC proceeding examining service to high cost serving areas in Canada, the submission by the Stentor Resources Centre Inc., the alliance of Canada’s local telephone companies, contains the following statements:
“Stentor believes the following principles should apply in achieving the objectives of this proceeding:
First, market forces should be relied on to achieve public policy goals whenever possible. Second in cases where it is determined that market forces are insufficient to achieve public policy goals relating to accessibility, then governments should accomplish such goals directly through spending and tax measures.”
I do not quote from this document to illustrate that Stentor is callous or indifferent to the needs of Canadian society. It is rather that some of the goals associated with the implementation of a competitive model of telecommunications are difficult to reconcile with the notion of expanding access by consumers in undesirable markets. As a matter of policy, you are unlikely to accomplish access goals simply by reliance upon market forces, notwithstanding the promise associated with some of the new technologies.
In Canada, it is also interesting to note that the ongoing debate concerning the achievement of other important national communications goals is taking on the same characteristics as the struggle to ensure public access. The touchstone of Canadian communications and broadcasting policies for more than half a century has been the maintenance of Canadian content in creation and distribution. However, a verity of equal importance in the regulatory arena, has been the continual, and occasionally successful, whining from the non-governmental providers of broadcasting services that the content restrictions constitute an unacceptable straightjacket on their ability to earn an acceptable rate of return.
As I write this paper, the news media is covering a squabble between the two main private networks concerning Canadian content programming. One network is accusing the other of profiting by maintaining smaller Canadian content quotas. Predictably, the response from the network accused of such delinquency is “if you are going to regulate free enterprise in the private sector, you’ve got to give them some room to do well”(2).
In Canada, the traditional telecommunications players have increasingly focused on the prospect of providing services that would be traditionally looked upon as broadcasting through their own networks. These services have been principally enabled by new developments in Internet streaming audio-video technology. However, similar to the industry attempts to winnow down the statutory responsibilities of ensuring public access in local telephony networks, the framework of Canadian broadcasting policy emphasising maintenance of Canadian content is under increasing attack from the high powered aspiring new entrants.
In a remarkable discussion paper issued by Stentor in March of 1998, there is an attempt to revisit all of the largely successful themes that have been played in the telecommunications market.(3)
First of all, the promise of flourishing Canadian industry created by the new technologies and the intersection of telecommunications and computing in the creative content industries is provocatively dangled before government policymakers. However, after whetting the appetite with the carrot of the economic promise of the brave new media world, the stick is applied when it is stated that investment in new media services requires minimal regulatory intervention to expedite new entry and to limit the application of longstanding licensing requirements.
To assist in the bulldozing of the current regulatory framework, the viewing preferences of Canadians are attempted to be enllisted.
“Changes in consumer behaviour and technology will demand a economic framework aimed at promoting rather than protecting and encouraging access rather than relying on barriers as the means to success”(4)
In any event, the discussion paper predictably that government funding and tax incentives should be used to assist Canadian content creators for new media services and certainly no further financial demands should be put upon the providers of new services.
When all else fails, the admonition of potential impotence is given to government policymakers.
“A number of changes in the market – in consumer attitudes and technology and international agreements are raising questions with respect to our ability to maintain such restrictive (ie Canadian content approaches), all be it for a public policy purpose that continues to be important to Canadians.”(5)
Now one can scarcely expect that traditional telecommunications companies, about to embark upon new ventures will embrace schemes of national regulation which may prove burdensome to their bottom line. But it is important to note, it is implicit in their approach that the creation of a competitive framework which may enable the new technologies to deliver services does not guarantee the achievement of national goals such as Canadian content and public access particularly without public finance. In fact it may create an aggressive lobby for the alteration of the national public goals.
6. Telecommunications objectives are best achieved through competitive means.
Most governments are now of the belief that market forces represent the preferable way of achieving telecommunications goals.
For example, in Canada, the 1993 Telecommunications Act explicitly instructs the national regulator, the CRTC, to forebear from regulation where a service or class of services is or will be subject to competition sufficient to protect the interest of users.(6) In addition, the Act recognizes as an objective
“To foster increased reliance on market forces for the provision of telecommunication services and to ensure that regulation where required, is efficient and effective”(7)
The current framework of Canadian communications governance has evolved from a series of decisions that permitted entry into the local market by striving to ensure that the right economic and technical conditions existed for open access. A price cap regime has subsequently put in place governing local network services until competition is established. Finally the CRTC has recently forborne from regulating long distance services offered by the former monopoly telcos.
While the introduction of competition as a principal tool of industry governance is not controversial, its establishment as the only tool certainly is. The former incumbent monopolists are anxious to hasten the transition to what is termed “a fully competitive communications market”. A recent study by the Stentor companies concluded:
“Regulation in a fully competitive communications market will be considerably different. The market failures which required industry specific economic and technical regulation will no longer be present as new players compete aggressively for customers.”(8)
In Canada, Stentor’s enthusiasm for unrestricted competition does not have industry-wide enthusiasm. A wireless competitor notes:
“As competition is introduced into markets still dominated by telephone companies whose actions and positions have been influenced by the regulated past, it is important to evaluate carefully then correct for the ways in which these markets are distorted by the lingering effects of the past.”(9)
As well, the claims of some that allowance of market entry has obliterated the vestiges of monopoly power, has attracted the expressed disbelief, attention of industrial economists. As a recent study notes:
“The hope that monopoly and dominance will quickly disappear are contrary to industrial experience. …New entry is actually a complicated process; it is rarely a strong force in mainstream markets that is able to discipline incumbent dominant firms.” (10)
The efforts of the Regional Bell Operating Companies to enter the long distance market following passage of the 1996 Telecommunications Act in the United States has also spurred renewed interest in the examination of whether workable competition in the local market actually exists notwithstanding the regulatory seal of approval. In a petition filed by the American Association of Retired Persons, the Competition Policy Institute and four other state based public advocates, the FCC was requested to ensure that consumers have a realistic choice of alternative local telephone companies before any assumptions were made concerning competitive entry into the local markets.
The significance of the lingering effects of monopoly in a deregulated environment are devastating for the constituencies that formerly relied upon regulation as their consumer protection. Without sufficient market power to ensure the best value for the best price, vulnerable consumers will struggle to maintain their current access to networks, let alone expanded levels of services and technologies.
7. Consumer protection is best achieved through competition or anti-trust policy rather than regulatory oversight.
In many utility markets, there has been a marked tendency on the part of the former incumbent monopolist to embrace the concept of oversight only by anti-trust or competition policy authorities. This idea is trenchant, as it appears to logically coincide with the use of competition as a principle tool of protection.
It is undeniable that competition law and policy has a significant place in maintaining the level playing field upon which all industries including the communication industry must play.
“The anti-trust laws…are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental freedoms”(11)
However, there are significant differences between the approach of a tribunal implementing competition policy and those that are concerned with the responsible delivery of telecommunication services in the public interest. Some of the difficulties inherent in the proposal to substitute competition policy for regulatory oversight include the following:
1. Enforcement of anti-competitive statutory prohibitions tend to be isolated episodes of intervention rather than maintenance of a particular industry end state (hence its attraction for a dominant industry player). In competition or anti-trust policy, the goal is to intervene, fix the problem, and exit. This works well when there is a particular instance of preferential pricing or restrictions to deal. Its application is more problematic where a pattern of industry behaviour has created market conditions which stifle competition in important market segments. Such problems may call for timely and repeated intervention and monitoring – a function which is not always compatible with the mandate of the competition or anti-trust authorities.
2. The economic underpinnings of competition policy are not universal static equations which are easy to apply, particularly with respect to the concept of market power. In Canada, our Competition Bureau has been far more successful in rooting out competitive injurious conduct brought about by the conduct of multiple firms rather than the problems of market dominance by a single firm. This is largely because remedial action associated with market dominance questions in competition or anti-trust law involves the removal of market entry barriers. In large part, the theory of contestable markets holds sway in relation to the solution of barrier removal as a principal remedy. The theory is that if it is easy for firms to enter the industry then the firms already engaged in the industry will be unable to raise prices above the competitive levels lest such entry occur and the increased industry output will cause prices to fall. However, as critics have noted that empirical evidence for this is weak(12).
For national telecommunications regulators, the rather abstruse debate among economists concerning different methods to affect price must be more than a matter of philosophy. The migration from regulation to competition requires workable competition in order to protect consumers in the delivery of essential services. It is important that a regulator entrusted with public goals has the ability to monitor and implement regulatory process to effect publicly desirable results when market failure occurs.
3. National goals do not fit neatly into competitive policy analysis. It is all well and good to theorize on a basis of competition economics that prices will eventually fall to enable network access. The real question lies whether there is a higher societal cost associated with the denial of access while we are waiting for competition policy doctrine to do its stuff. One commentator has objected to reliance upon competition law to regulate telecommunications policy as follows:
“Competition law is a blunt instrument, mainly designed for manufactured goods, such as toothpaste, cameras and gasoline, where many companies compete. To the contrary, communications is a public utility, an essential infrastructure, where a range of economic, social cultural and political objectives must be satisfied.”(13)

Conclusions

I do not intend that the message of this paper to be that the increasing reliance upon market forces to deliver new communications technologies is a mistaken policy. The difficulty is that, there is considerable, and sometimes intentionally, generated confusion about what a competitive model of telecommunications governance can deliver and what it can’t. While the new technologies, particularly in wireless fields, hold the potential of being able to engender enormous cost efficiencies in the maintenance of universal networks, competitive providers will implement these technologies to maximize returns without the presence of protections to ensure public access and other desirable national goals.
In Canada, we have been able to effect significant inroads in broadening access to new technologies by negotiating with providers of new wireless technologies to “set aside” for public lanes in which access by non-commercial providers of communications content are assured. This strategy represents a symbiotic confluence of competition policy and the national goals of access which cannot be replaced by a simplistic call to obliterate telecommunications regulators.
As well, critical governmental choices loom on the horizon as the principal providers of telecommunications services evolve from their heretofore paternalistic roles as the monopoly trustees of the national interest, to market participants with a steadfast devotion to shareholder expectations. The current policy solution that seems to be provided by these transformed companies, is that any vestige of their former public interest role should be provided and funded by national governments.
However, most governments find themselves in a position where there is fierce competition for their scarce resources. Before wholly embracing the chief tenets of the competitive model elaborated above, we would suggest that government policymakers may wish to ensure that there is a regulatory framework in place that can satisfy public goals without the necessity for extensive public subsidization.
1. Telecom Decision CRTC 97-16 para.37
2. Globe and Mail, August 6, 1998
3. New Consumers, New Technologies and New Media: An Opportunity for Canada SRCI., March 1998
4. New Consumers New Technologies and New Media an Opportunity for Canada, page 8, March 1998
5. Ibid at p. 22
6. Section 34(2) Telecommunications Act S.C. 1993 chapter 38
7. Sect 7 (f) Telecommunications Act
8. Competition and Regulation in the Canadian Communications Market Stentor Telcom Policy Inc. 1998
9. From Monopoly to Mediation New Roles for the Regulator In Competitive Communications Markets, Dean Proctor, Microcell Communications, Toronto, April 13, 1998
10. Deregulation From Monopoly Only to Dominance Telecommunications Railroads and Electricity, William G. Sheppard, NRRI Quarterly Bulletin, Summer 1996
11. United States v Topco Associates Inc. 405 U.S. 596 610 (1972)
12. Determining When Competition Is Workable, David Chesler, PHD, National Regulatory Research Institute, July, 1996
13. Communications Regulatory Agencies for Canadians, page 6, Andrew Reddick, (PIAC), 1998

A Consumer Advocate’s View of the Experience with Telecommunications

CANADIAN BAR ASSOCIATION CONFERENCE ON
CURRENT DEVELOPMENTS IN ADMINISTRATIVE AND EMPLOYMENT LAW
November 13 & 14, 1998
PROCEDURAL FAIRNESS AND DEREGULATION: A CONSUMER ADVOCATE’S VIEW OF THE EXPERIENCE WITH TELECOMMUNICATIONS

INTRODUCTION

The Canadian telecommunications industry has undergone dramatic changes during the last decade – changes in technology, market structure and regulatory regime. The CRTC has opened virtually all markets (local and long distance) to competition, has forborne from regulating companies where sufficient competition exists (e.g., long distance, terminal sets), and has completely revamped the regulatory regime applicable to those companies now facing the prospect of local competition.
No longer do the traditional methods of regulating a public utility apply. Rate base, rate of return regulation has been replaced in all but exceptional cases with a combination of forbearance (reliance on market forces), regulatory back-stops, and price cap regulation. Oral public hearings, which used to be a standard element of public utility regulation, have become rare – indeed, almost non-existent. Formal proceedings are now conducted in writing, with increasing reliance on the Internet to exchange and publish information. Many more issues are handled through informal proceedings and working groups, as the Commission attempts a more cooperative approach to decision-making.
Yet, basic telephone service remains an essential service for Canadians. Indeed, together with newer telecommunications services such as Internet, phone service is becoming increasingly essential. Consumer and public interest groups are more interested than ever in telecommunications policy and regulation.
The following comments address the recent evolution of procedures used by the CRTC in its regulation of telecommunications where the ratepayer interest is involved.(1)

PROCEDURAL FAIRNESS IN THE CONTEXT OF DEREGULATION

It is now well-established that the principles of natural justice and fairness apply to public bodies making non-legislative decisions which affect the rights, privileges or interests of an individual.(2) While the content of these principles will vary depending on the nature of the decision, the type of administrative body, and the effect of the decision on the individual’s rights,(3) they can be summarized as:
1. The requirement to provide affected individuals with an adequate opportunity to be heard before a decision is made affecting their interests; and
2. The requirement for independence and impartiality on the part of the decision maker.
Included in the requirement for an adequate opportunity to be heard is adequate notice, as well as an adequate hearing (whether oral or in writing). “Adequacy” of the notice and the procedure will depend on the legitimate expectations of the affected individuals,(4) as well as the three factors listed above.
Public utility regulators such as the CRTC have long respected these principles in the exercise of their powers, even when engaging in what could be argued to be legislative decision making (e.g., establishing rules of conduct binding on the industry at large). Quite properly, regulatory decisions which affect a large and indeterminate number of individuals or companies are not treated as exempt from the requirements of procedural fairness simply because there is no significant individual interest at stake. Indeed, while the effect of such decisions on any one individual ratepayer may be minor, the effect on ratepayers as a whole (vs. company shareholders, for example) may be enormous. In any case, the CRTC’s Telecommunications Rules of Procedure,(5) which apply to all proceedings before the Commission,(6) clearly reflect the Commission’s desire to ensure that all parties to a proceeding are given an adequate opportunity to be heard.
A simplistic view of deregulation might lead one to believe that, once the monopoly is cracked, the regulator has no more business being involved, and any necessary protections should be left to market forces, subject only to the intervention of competition authorities under the Competition Act. However, even a cursory examination of telecommunications will reveal a much messier reality, requiring ongoing regulatory oversight for the foreseeable future. While increased reliance has been placed on the Competition Act, even the Director of Investigation and Research (Competition Bureau) acknowledges that there are some important statutory policy goals (e.g., providing universal service) that neither market forces nor competition law can address, and that some competitive issues (e.g., interconnection and access) require the technical expertise of an industry regulator, such that specific regulatory functions will remain indefinitely with the CRTC.(7)
This points to an important procedural consequence of deregulation that has potential impacts beyond the confines of natural justice: as the CRTC forbears from regulation, determining where its jurisdiction ends and that of the Competition Bureau begins can be problematic. While courts have held that business conduct undertaken pursuant to a valid scheme of regulation is deemed to be in the public interest and, therefore, beyond the application of the Competition Act,(8) it remains unclear exactly how this principle is to be implemented.(9) To whom should consumers (or competitors) complain? From whom can they obtain redress? The uncertainty and confusion over which authority has jurisdiction in a semi-competitive, semi-regulated environment is a problem for business and consumers alike, and needs to be addressed in a coordinated fashion by both agencies.(10)

NEW APPROACHES TO REGULATION

Coincident with the transition from monopoly regulation to management of an increasingly competitive industry, the CRTC has adopted a number of new procedural approaches in an effort to accomplish its regulatory tasks in the most effective and efficient manner.(11) Recognizing that its traditional quasi-judicial processes were no longer appropriate for the resolution of complex, often highly technical issues in a tremendously dynamic industry, the CRTC has all but abandoned the use of oral hearings, and is relying increasingly on “streamlined regulation”, ADR-type procedures, and industry self-regulation. Each of these three developments is discussed below.

Streamlined Regulation

In an attempt to achieve greater efficiency, and to comply with new statutory requirements for timely decision making,(12) the Commission approves numerous tariff applications on an interim basis, sometimes ex parte. While interested parties are provided with an opportunity to comment on the application before it is finally approved, the practical consequences of denying an application once it has been approved on an interim basis cannot be ignored, and undoubtedly contribute to an unwritten presumption in favour of final approval. It would appear that efficiency in this case may be taking precedence over fairness.
As noted above, oral hearings in telecommunications matters have become rare; virtually all Commission proceedings are dealt with in writing. At the same time, and presumably to mitigate any perceived lack of openness as a result of this trend, the CRTC has been conducting open consultations with the public on an ad hoc basis, as well as sessions with regular interveners to obtain feedback on the Commission’s practices and procedures (see below). While there is no legal requirement, per se, for oral hearings, the trend toward paper proceedings has not happened without protest: on a number of occasions, parties have expressed their concern about the lack of opportunity to cross-examine adverse witnesses on controversial evidence and to make their case orally..
Such protests have been acted upon in only one instance to this author’s knowledge: when the Commission attempted to extend the application of a rate rebalancing decision to the Manitoba Telephone System (“MTS”) and its customers, without any public hearing. A lengthy public hearing had been held with respect to other companies, but MTS was not subject to CRTC jurisdiction at the time. Once MTS came under its jurisdiction, the Commission proposed to apply the decision to MTS without any additional public proceeding. MTS customers took their complaint to the Federal Court, arguing that the CRTC’s failure to hold a public proceeding with respect to MTS, inter alia breached their legitimate expectations and was otherwise contrary to the requirement of natural justice. Unfortunately, the court never had an opportunity to rule on this case.(13) However, the episode does point to a perceived need for full and proper proceedings where ratepayers stand to be directly affected.

ADR-Type Procedures

A number of different types of proceedings have been used in recent years by the CRTC to obtain public input, to build consensus among competing interests, and to achieve more effective decision making through the active involvement of industry and consumers. Consumer groups have been involved in three distinct types of procedure: consultations, workshops, and a novel form of negotiated rule making.
(a) Consultations
The aim of consultation by an administrative body is usually modest: to provide a forum for input to the decision maker. Consultations may be open or closed, bilateral or multilateral, held within a proceeding or on issues that are not the subject of an existing proceeding. There is no attempt to reach consensus on issues; rather, the objective is simply to provide the decision maker with informed input and/or to permit interested parties an opportunity to be heard.
The CRTC uses bilateral consultations, but generally only with respect to issues that are not already before it in a proceeding. It is felt that, for reasons of fairness and due process, any discussion of matters before the Commission should occur on the record of the relevant proceeding. These consultations take two forms: open, public forums in which anyone is invited to speak their mind, and closed, invitation-only sessions between the invited party and the Commission. In this way, the Commission is attempting to improve its understanding of public concerns and of industry it governs, and thereby to improve the effectiveness of its decisions.
Consultations are a valuable tool for the CRTC, and can be conducted at minimal cost (for example, in the case of open, public consultations, by piggybacking on existing Commission hearings so as to avoid the cost of a separate trip). As long as the Commission does not compromise the integrity of existing proceedings by allowing the consultations to venture into matters already the subject of an established proceeding, and as long as the consultations are open and preceded by adequate notice, the requirements of natural justice will likely be met.
However, the practice of closed, one-on-one consultations on matters of both public and private interest raises concerns about both elements of natural justice. The Commission must be especially careful to provide an equal opportunity to all stakeholders to be heard in this manner. It must also ensure that such consultations do not degenerate into lobbying sessions. The pursuit of effectiveness through greater dialogue with stakeholders must not compromise the need for procedural fairness, impartiality and the appearance of impartiality on the part of the regulator.
(b) Workshops/Roundtables
One step beyond consultations, workshops have been used by the CRTC to bring together various interested parties in order to build consensus, clarify issues, and resolve potential problems before they arise. Workshops are different from consultations in that they allow for the exchange of ideas and views between stakeholders with a view to achieving greater understanding, cooperation, and ultimately, consensus among the parties. Workshops may be open or closed, held within or outside a proceeding, and presided over by either a Board member or staff person.
The CRTC has used workshops (also referred to as “roundtables”) in at least two instances: (a) to identify and define issues in a particular matter, before commencing a proceeding through a public notice,(14) and (b) “to provide an opportunity for individual participants, interest groups, associations and the industry to consult and discuss issues of concern relating to public participation in Commission proceedings”.(15)
In the first case, the Commission invited a limited number of industry participants (those directly affected by the issue in question) to a “Round Table Consultation” chaired by the Commission Vice-Chair. As stated in the subsequent Public Notice,
An important aspect of this consultative process was to seek clarification and industry input on the extent of the problems associated with the current contribution mechanism, and to identify alternative solutions, if required, that would foster competition and, at the same time, maintain both affordable basic local service and the reasonable financial health of the independents. The Commission noted that it intended the round table to be a consultative rather than a decisional process and that it intended to initiate this proceeding subsequently, wherein all interested parties would be invited to participate and make submissions.(16)
A number of uninvited parties, upon learning of the intended closed consultation, requested that they be permitted to participate, and were so allowed. However, questions were raised as to the fairness and propriety of such closed door sessions, even for the limited purpose of facilitating a subsequent public proceeding. In this case, efforts to achieve greater effectiveness seemed to run up against the demands for procedural fairness.
The second example of CRTC experimentation with workshops was a one day, staff-conducted workshop on public participation in Commission proceedings. Two months in advance, invitations were sent to those consumer groups and other public interest organizations who had previously participated in Commission proceedings, as well as to the associations representing the Commission’s regulated industries. Participants were asked to provide brief written submissions in advance, outlining their concerns and proposed solutions. These submissions were then used by Commission staff to develop an agenda for the meeting. After the meeting, staff reviewed and evaluated the various oral and written submissions, and made recommendations to the Commission, many of which were subsequently implemented.(17)
The use of workshops (or indeed consultations) for the purpose of evaluating and revising general procedure and practice is sensible and involves minimal risk. Everyone “wins”: the Commission obtains helpful input, while parties have an opportunity to assist the Commission in the development of its general operational practices. Because decisions on practice and procedure are quasi-legislative, they do not require the same degree of due process as those involving substantive policy.
(c) Negotiated Rule Making
Of all the various ADR-type procedures, this is one of the most useful for regulators such as the CRTC, whose mandate involves detailed oversight of a complex and constantly changing industry. It is also finding favour among regulators of monopoly utilities, as a means of reducing the number of issues to be addressed in traditional, adversarial rate hearings.
The term “negotiated rule making” is used here to mean a multilateral bargaining process designed to achieve consensus among interested parties on regulatory policy and related matters. Where, as in the case of the CRTC, the tribunal has exclusive jurisdiction to make these kinds of decisions, the parties to the negotiation have no decision-making powers – they can only make recommendations to the decision-maker.
For negotiated rule making to operate effectively, a number of criteria must be met: the regulator must not delegate its exclusive decision-making powers, all stakeholders must have a full and fair opportunity to participate, there must be clear rules of engagement and a clear agenda, and each party must participate in good faith.
The CRTC has blazed new trails in negotiated rule making over the last few years, with its use of industry working groups to develop the detailed (often highly technical) rules for local competition in telecommunications. Under the oversight of the CRTC Interconnection Steering Committee (“CISC”), and a Coordinating Committee with one representative from each interested party, over 20 working groups have been established to address specific tasks required for local interconnection.(18) Participation in any working group is open to any and all interested parties, and can be active or passive.
One or more CRTC staff members is assigned to each working group, but staff does not participate in the group’s work unless requested. Each working group identifies and defines tasks within its mandate, then works toward a consensus resolution of each task. Once the group has achieved consensus on a given outcome, it files a consensus report with the CISC Coordinating Committee and the Commission. The consensus report is reviewed at the next Coordinating Committee meeting, at which time parties who were not involved in the working group may raise objections. If no objection is raised, the consensus report is filed with the Commission for approval. Where objections are raised, the matter is sent back to the working group. Approval of consensus reports is not automatic; the Commission reviews each matter on its merits and issues a ruling either approving the consensus as submitted, modifying it, or dismissing it.
Where consensus cannot be achieved, a formal dispute is initiated. Each party to the dispute submits its position, in writing, to the Coordinating Committee and CRTC staff, as well as to the working group members. A final effort is made to achieve consensual resolution of the issue, with CRTC staff participation. If this effort is unsuccessful, the dispute is filed with the Commission, and discussed at the next Coordinating Committee meeting. Another effort at resolution is made at this level. Staff may issue a non-binding opinion at this stage, to assist in a negotiated resolution. If this fails, the matter is left in the Commission’s hands. The type of process then invoked by the Commission will depend upon the nature and history of the dispute, and may involve anything from rendering a decision based on the record before it, to issuing a public notice on the disputed matter and inviting public comment.
While there is little doubt that this process has been effective in terms of minimizing disputes, achieving industry “buy-in”, and reducing the Commission’s workload, a number of procedural concerns arise. First is the issue of adequate notice. Aside from the original public notice which was issued in 1996, notice of the subsequent establishment of working groups, together with the minutes, reports and other recorded output of each working group, is published on the CRTC’s website. It is therefore up to interested parties to monitor the website in order to be aware of CISC developments. Even diligent monitoring, however, can fail to uncover the existence of an important issue if it has not been made the subject of a specific task, or if the working group did not post the information in a timely manner.
Thus, aside from the active involvement of one consumer representative in the working group in which end-user issues were most concentrated,(19) consumer advocates have relied upon other parties and Commission staff to bring to their attention issues arising in other groups which raise end-user concerns. This provides an interesting contrast to the manner in which the Commission provides notice on other, non-CISC issues: tariff applications, for example, are more reliably posted to the CRTC website for public review, and, where considered sufficiently important or controversial, are made the subject of a public notice by the Commission. In other words, consumers can rely on the Commission to actively notify them of important issues arising out of ordinary tariff applications. This is not the case with important issues arising out of CISC deliberations, unless and until the issue is filed with the CRTC as a formal dispute.
A second procedural concern with the CISC process has to do with the ability of interested parties to participate. The CISC process is an enormous undertaking, requiring enormous effort on the part of its participants.(20) Its theoretical openness is of limited value to resource-strapped stakeholders, who quickly find that effective participation in negotiated rule making requires far more than explaining and defending one’s position. In order to be part of the negotiation, and to have their views reflected in the group’s output, parties must be prepared to negotiate – to engage in discussion with other stakeholders, to listen and attempt to understand opposing interests, to consider alternative approaches, to be creative, and ultimately, to compromise where doing so is in the public interest. They must be prepared to attend lengthy meetings, travel where necessary, and stay involved until the issue has been resolved.
This is a far greater burden on participants than is the traditional, adversarial-style proceeding in which parties make their case, ask and answer questions, make their case once again, then leave it to the Commission to decide the issue based on the record before it. Indeed, the opportunity to participate in negotiated rule making processes such as CISC may be no more that – an unrealized opportunity – for those groups who simply don’t have the requisite resources.

Industry Self-Regulation

A third development that commonly accompanies deregulation is increased reliance on industry self-regulation. Despite obvious concerns about putting the fox in charge of the chicken coop, enthusiasm remains high for this approach to dealing with government cutbacks and minimizing heavy-handed regulation. The CRTC has been forthright about its desire to foster industry self-regulation,(21) and currently does so in at least two areas: customer complaints regarding cable TV service, and customer complaints in respect of certain long distance telephone companies. In each case, the Commission’s practice is to refer complaints to the relevant body, as appropriate.
With competition in long distance telephone service came a flurry of new consumer complaints about confusing and deceptive marketing, aggressive sales practices, and unauthorized transfers (“slamming”) by a number of the new providers. Neither the Commission nor the Bureau of Competition were able to respond effectively to these complaints. By1996, the problem had become serious enough that some industry players(22) established the “Telecommunications Customer Service Foundation” (TCSF), developed a Code of Ethics binding on members of the Foundation, and hired an Ombudsman to oversee administration of the Code and to provide a fair and timely process for the resolution of their customers’ complaints. The Ombudsman, who has been active now for two years, reports to the TCSF, which is an exclusively industry body with no consumer or other participation.
The cable TV experience with self-regulation provides an interesting contrast to the industry-initiated TCSF. First, unlike the industry-initiated TCSF, the CRTC initiated and supervised the development of cable TV standards, through a series of public proceedings.(23) Early on in this process, the cable industry, with the encouragement of the CRTC, established a body known as the Cable Television Standards Foundation (CTSF) to implement the expected standards and codes. By 1991, a set of standards was approved by the Commission, and in 1992, the CRTC began referring customer complaints to the CTSF.
Second, the cable TV industry recognized the importance of public accountability: it set up an independent body known as the Cable Television Standards Council to administer the various standards, codes and guidelines. Although appointed by the industry, the three Council members are selected specifically to ensure a broad representation of interests. The Council chairperson has judicial experience, one member represents the consumer interest, and the other is from the cable television industry.
Third, while the Commission appears to follow the same practice of complaint referral in each case, it has publicly explained its approach only in respect of the CTSF. Presumably responding to concerns about improper delegation, the Commission emphasized in a public notice that while it intended to refer complaints to the CTSF, “any interested party may, at any time, choose to approach the Commission directly”, that it would “carefully monitor the activities of the Council in carrying out its new responsibilities”, and that it would continue to deal with breaches of the Cable Television Regulations as well as with complaints about matters not covered by the Standards.(24) No such clarification has been made in respect of the TCSF.
Both experiments in industry self-regulation appear to have been successful in terms of improving customer satisfaction with the complaints process: the industry bodies tend to provide faster and more effective resolution of customer complaints than does the CRTC. Moreover, the standards themselves are considered reasonable, likely because they were in each case developed through consultations with consumer representatives. However, concerns remain about ultimate accountability residing with the industry itself, and in particular about the lack of any consumer representatives on the TCSF Board.

CONCLUSION AND RECOMMENDATIONS

The process of deregulating a public utility industry inevitably involves changes that raise a number of fairness and other administrative law concerns. These concerns include: uncertainty and confusion as a result of overlapping jurisdiction between the industry regulator and the Competition Bureau, regulatory gaps, improper delegation of decision-making and complaints handling to industry bodies, inadequate distance between the regulator and its subjects, and the predominance of efficiency concerns over fairness considerations. Even where the regulator is not breaching the rules of natural justice, its legitimacy will be enhanced the more open and fair its procedures are perceived to be.
In light of these concerns, the following recommendations are provided:

• The CRTC and the Competition Bureau should work together to develop clearer guidelines as to which agency will take control in the case of overlapping jurisdiction.
• The CRTC should treat as legitimate (i.e., refer complaints to) only those self-regulatory bodies whose codes were developed with adequate public input, and that are themselves structured in a manner that assures public accountability.
• Where the only form of public notice is via the CRTC’s webpage, greater efforts should be made to ensure timely posting and easy monitoring by interested parties.
• Consensus recommendations by industry working groups, as well as disputes arising from those groups, should be made the subject of Public Notices, or at a minimum set out on the CRTC webpage in a timely and effective (i.e., easily accessed) manner.
• When engaging in closed consultations, the Commission must be especially careful to provide an equal opportunity to all stakeholders to be heard in this manner, and must ensure that such consultations do not degenerate into lobbying sessions.
• The Commission should continue its practice of not discussing ongoing proceedings with interested parties outside the (open) proceeding.
• ADR-type procedures used in the context of substantive decision-making must be designed with appropriate safeguards against the exclusion of any interested party. This should include provisions for the funding of resource-poor interveners where necessary to ensure adequate public participation.

ENDNOTES

1. As telecommunications becomes more competitive, the CRTC is increasingly acting as a “referee” between disputing service providers. Staff assisted resolution and staff mediation (see Telecom Public Notice CRTC 95-51 for an explanation of these terms) have been used on a number of occasions to date, with some success. While there are important private interests at stake in these proceedings, ratepayers are not usually affected.
2. Nicholson v. Haldimand-Norfolk (Regional Municipality) Commrs. of Police [1979] 1 S.C.R. 311, 88 D.L.R. (3d) 671, 23 N.R. 410; Martineau v. Matsqui Institution, [1980] 1 S.C.R. 602.
3. Knight v. Indian Head School Division No. 19, [1990] 1 S.C.R. 653, 69 D.L.R. (4th) 489, 43 Admin.L.R. 157, 83 Sask.R. 81.
4. Where the decision maker promised that a specific procedure would be followed, or acted in such a way as to reasonably create such an expectation, affected individuals have a right to that procedure on the basis of their “legitimate expectation”: Old St. Boniface Residents Assn. Inc. v. Winnipeg (City), [1990] 3 S.C.R. 1170, 46 Admin. L.R. 161, [1991 2 W.W.R. 145, 75 D.L.R. (4th) 385, 116 N.R. 46, 69 Man.R. (2d) 134.
5. SOR/79-554.
6. Ibid., s.3.
7. See Remarks by Konrad von Finckenstein, Director of Investigation and Research, Competition Bureau, to the International Bar Association Conference, Vancouver B.C., September 15, 1998.
8. Reference re: Farm Products Marketing Act, [1957] S.C.R. 198, 7 D.L.R. (2d) 257; R. v. Canadian Breweries Ltd., [1960] O.R. 601, 126 C.C.C. 133 (H.C.); A.G. Canada v. Law Society of British Columbia, [1982] 2 S.C.R. 307, [1982] 5 W.W.R. 289.
9. For example, does conditional forbearance constitute a regulatory scheme, under which conduct is subject to CRTC regulation?
10. Some problems arising from the introduction of competition have eluded the regulatory powers of both authorities: neither considered itself empowered to deal effectively with consumer complaints of “slamming” by unregulated telephone service providers (the practice of switching a customer between carriers without the customer’s consent). While affected individuals may have had their concerns “heard”, the lack of any effective recourse is of concern.
11. The Telecommunications Act, subs.7(f), requires that regulation by the CRTC, “where required, is efficient and effective”.
12. Section 26 of the Act requires that the Commission decide on tariff applications (or provide reasons why such a decision is not being made) within 45 days of filing.
13. Manitoba Society of Seniors Inc. and the Consumers Association of Canada (Manitoba) Inc. v. the CRTC and MTS,, Notice of Motion filed Dec.5, 1994, Federal Court File A-657-94. On the eve of the court hearing, Cabinet issued Order-In-Council P.C. 1994-2036 staying the rate rebalancing ordered by the Commission in Telecom Decision CRTC 94-19 and referring the rate rebalancing decision back to the Commission for reconsideration. Hence, the Manitoba case become moot.
14. The Public Notice in question was Telecom Public Notice CRTC 97-41: Review of the Contribution Regime of Independent Telephone Companies in Ontario and Quebec.
15. Staff-conducted workshop on issues related to public participation in the Commission’s broadcasting and telecommunications proceedings, 16 June 1997.
16. Para.8, Telecom Public Notice CRTC 97-41.
17. Indeed, implementation of the recommendations is being tracked through a “Report Card”, published on the CRTC’s web site. A further meeting of interested parties is being held via teleconference to assess progress on the workshop suggestions.
18. These groups cover such areas as customer transfer processes, ordering and billing, emergency services, network operations, building access and inside wiring, and master agreements.
19. The Customer Transfer sub-working group developed rules and processes for customer transfers between local service providers, along with processes for the resolution of disputes over the authorization of such transfers.
20. Indeed, some participants have questioned whether the CISC process is any more efficient than a more traditional proceeding. If anything, it appears to have substantially shifted the resource burden of decision-making from the Commission to the industry.
21. See, for example, the Commission’s Vision statement “From Vision to Results at the CRTC”, (revised, May 1998).
22. Members of the Competitive Telecommunications Association, led by AT&T Canada, Sprint Canada, and ACC Long Distance.
23. See Public Notice CRTC 1988-13: Guidelines for Developing Industry-Administered Standards; Public Notice CRTC 1991-60: Cable Television Customer Service Standards; and Public Notice CRTC 1992-22: Cable Television Standards Council.
24. Public Notice CRTC 1992-22.
 

Consumer Charter for A Connected Canada

CONSUMER CHARTER FOR A CONNECTED CANADA
WHEREAS telecommunications is an essential service for Canadians, and is increasingly essential to the social and economic well*being of Canada and its regions;
WHEREAS telecommunications has replaced postal service as the primary method of distance communication in Canada, with the same need for equitable and affordable access;
WHEREAS “to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of the country” is a key policy objective set out by Parliament in s.7 of the Telecommunications Act;
WHEREAS on June 12, 1998, the Federal, Provincial and Territorial Information Highway Ministers of Canada recognized that “access to the Information Highway in rural and remote areas, at affordable prices and service levels reasonably comparable to those in urban areas, is a fundamental goal of economic and social policy”;
WHEREAS many rural Canadians continue to lack affordable access to high quality telecommunications services;
WHEREAS the introduction of competition in all aspects of telecommunications has rendered impossible the historic subsidy from urban business and long distance revenues to rural local rates, making an explicit subsidy scheme necessary;
BE IT AFFIRMED THAT THE CANADIAN GOVERNMENT HAS A RESPONSIBILITY TO ENSURE:
THAT the benefits of competition should flow to all Canadians, through a mandated subsidy designed to support affordable rates and high quality service in rural and remote areas;
THAT all Canadians have access to a defined set of basic telecommunications services, including, but not limited to, private telephone service, flat rates for local calling, and local access to the Internet at speeds that meet contemporary standards;
THAT the definition of “basic service” be reviewed and revised on an ongoing basis, through a public process;
THAT minimum quality standards for basic service be enforced through the use of regulatory incentives and penalties;
THAT the price of basic telecommunications service be affordable to all Canadian households; and
THAT rural rates be comparable to urban rates for the same service and that the quality of service in rural areas be comparable to that in urban areas.
DATE: November 3, 1998
Group Signatories to the “Consumer Charter for a Connected Canada” as of January 20, 1999

• ACEF Amiante*Beauce*Etchemins

• ACEF de Granby

• ACEF de l’Est de Montréal

• ACEF de Lanaudiere

• ACEF de l’Outaouais

• ACEF de la Peninsule

• ACEF des Bois Francs

• ACEF du Grand Portage

• ACEF du Nord de Montréal

• ACEF du Sud*Ouest de Montréal

• ACEF du Grand Portage

• Action Réseau Consommateur

• ADQR des Moulins

• ADQR section Brandon

• AFEAS ST*Cuthbert

• AFEAS ST*Jean*Baptiste

• Alberta Council on Aging

• APIC Cote*Nord

• AQDR Ste*Melanie

• Assistance aux femmes de Montréal

• Assoc. Québecoise de Defense des Droits des Retraites et

• Assoc. des pers. Handicapees phys. et sensorielles, secteur

• Assoc. des Familles Monoparentales et Recomposees “La

• Association Coopérative d’économie familiale (ACEF)

• Association de la sclerose en plaques de Lanaudiere

• asynchrOne, Montreal

• B.C. Community Networks Association

• B.C. Coalition for Information Access

• B.C. Old Age Pensioners’ Organization

• Canada’s Coalition for Public Information

• Canadian Federation of Students

• Canadian Pensioners Concerned, Nova Scotia

• Carrefour d’Entraide Drummond

• Centre Petite Enfance Belle*Bulle

• Centre des Femmes de la MRC du Granit

• Centre communautaire du Vieux*Manège

• Centre Residentiel Correctionnel La Maison (Corporation)

• Centre d’action benevole Leonie Belanger

• Chisasibi Telecommunications Association

• Cible Famille Brandon inc.

• CIRCCO Charlevoie*Ouest

• Comite regional d’educ. pour le develop.international de

• Commission scolaire de la Baie*James

• Communaute urbaine de Québec

• Confederation des syndicats nationaux (CSN)

• Consumers’ Association of Canada (Manitoba)

• Consumers’ Association of Canada

• Cooperative de services multiples de Lanaudiere

• Corporation de Developpement Communautaire des Deux*Rives

• Corporation de Developpement Communautaire Nicolet*Yamaska

• Corporation de Developpement Communautaire de Longueuil

• Corporation municipale de St*Barthelemy

• Corporation municipale de St*Cleophas de Brandon

• Corporation municipale St*Norbert, Paroisse

• Council of Senior Citizens’ Organizations of B.C.

• Cree Nation of Chisasibi

• Cree Nation of Mistissini

• Cree Nation of Nemaska

• CRIC de Port*Cartier

• End Legislated Poverty, Vancouver B.C.

• Entr’Elles Granby inc.

• Entraide Benevole des Pays*d’en*Haut

• Federated Anti*Poverty Groups of B.C.

• Federation des Unions de Familles

• Federation des Associations de Familles Monoparentales et

• Federation des Associations Cooperatives d’Economie Familiale

• First Nation of Namaska

• Fisheries Institute of Nova Scotia

• Grand Council of the Crees of Quebec / Cree Regional Authority

• Green Party of Canada

• Groupe de Recherche en Animation et Planification Economique

• James Bay Cree Communications Society

• La maison de la famille

• La maison de la famille La Parenthese

• La Cle sur la Porte, Maison d’hebergement pour femmes

• Le Vaissequ d’Or des Moulins

• Le Centre Populaire De Roberval

• Le reseau comm. D’aide aux alcooliques et autres toxicomanes

• Maison d’hebergement L’Oree de Pabos

• Manitoba Keewatinowi Okimakanak

• Manitoba Society of Seniors

• MRC de Beauharnois*Salaberry

• MRC de la Vallee*de*la*gatineau

• MRC de Migamie

• MRC de la Mitis

• MRC de Maskinonge

• MRC de la Haute*Cote*Nord

• MRC de Charlevoix*Est

• MRC de Temiscamingue

• MRC de la Haute*Yamaska

• MRC Denis*Riverain

• MRC des Basques

• MRC du Bas*Richelieu

• MRC du Haut*Richelieu

• MRC du Nicolet*Yamaska

• MRC du Granit

• Municipalite de Saint*Jean*De*Matha

• Municipalite de Saint*Didace

• Municipalite de Sainte*Elisabeth

• Municipalite de Saint*Jacques

• Municipalite de Mc Watters

• Municipalite de Montbeillard

• Municipalite de Centon de Bergeronnes

• Municipalite de Saint*Charles*Borromee

• Municipalite de Saint*Charles de Mandeville

• Municipalite de Paroisee de L’Epiphanie

• Municipalite de Notre*Dame*des*Prairies

• Municipalite de St*Joseph de Clericy

• Municipalite de Saint*Gabriel de Brandon

• Municipalite de Notre*Dame*De*La*Merci

• Municipalite de Ste*Emilie*de*L’Energie

• Municipalite de Bellecombe

• Municipalite de Saint*Damien

• Municipalite de Rollet

• Municipalite de Notre*Dame*de*Lourdes

• Municipalite de Saint*Thomas

• Municipalite de Saint*Roch*Ouest

• Municipalité de St*Joseph de Clericy

• Municipalité de Montbeillard

• Municiplaite de Sainte*Beatrix

• National Anti*Poverty Organization

• Netchako Access Network Organization, B.C.

• North Caribou Community Skills Centre, B.C.

• Option Consommateurs

• Public Interest Advocacy Centre

• Regroupement des Usagers du Transport Adapte du Sherbrooke

• Regroupement des Aidants Naturels de Granby

• Regroupement des Femmes de la Region de Matane

• RougeNet

• Saskatchewan Association of Community Networks

• Senior Citizens, Association of B.C.

• Service Budgetaire Populaire de St*Felicien

• Soeurs de la Congregation de Notre*Dame

• Syndicat de la Fonction Publique

• Tatlyoko Think Tank, B.C.

• Tenants’ Rights Action Coalition, Vancouver, B.C.

• Transport adapte Vas*Y inc.

• Vancouver Community Network

• Ville de Berthierville

• Ville de Legardeur

• Ville de Cadillac

• Ville de Rouyn*Noranda

• Ville de Dolbeau*Mistassini

• Ville de Cadillac

• Ville de Roberval

• Waswanipi Communications Society

• West End Seniors’ Network

 

Inappropriateness of Spectrum Auctioning in a Canadian Context

Spectrum is the publicly owned radio waves used for broadcasting television signals, wireless telephone, wireless data and Internet, and different forms of radio services. This report provides the most detailed analysis available in Canada on auctioning spectrum.
113 pages $10.00

Executive Summary

As the designated federal government body to oversee the trusteeship of the publicly-owned radio frequency spectrum, Industry Canada is responsible for ensuring that the spectrum is used in the best interests of the nation, its users and the general public. The use of the spectrum is granted in the form of a licence or radio authorization in accordance with specified policies, regulations and procedures, which are readily available to the public.
Industry Canada has continued to review and update their various licensing processes on a regular basis through public consultation with industry and users. However, the introduction of auctioning signals a change in the consultation mechanism and the government-industry and user relationship.
Industry Canada is currently establishing the financial, administrative and procedural arrangements necessary to have the operational capacity to conduct auctions. Auction software has been purchased, staff is being trained and demonstrations have been and are continuing to be provided. According to Industry Canada officials, auctions are planned to be employed to select licensees for a second round of licensing for Local Multipoint Communications Services (LMCS) in 1998, and several other potential candidate services and frequency bands apparently have also been identified.
This study examines the exceptional and unique spectrum management program in Canada, the previous use of the public consultation process with industry and users, how radiocommunications has evolved through the successful use of the comparative radio licensing process.
It makes the point that the introduction and intrusion of spectrum auctions would be inappropriate in this environment, from a consumer and licensee point of view, at this time or any time in the future.
Auctioning spectrum is a bad idea whose time should not have come. It is nothing more than a tax grab by government that will mean less competition, higher consumer prices, and no public benefits such as job creation and research and development in Canada.
With auctioning, Industry Canada becomes the OPEC of spectrum, as the Minister can create spectrum scarcity and benefit from it.
Auctions are an American remedy to cure an American illness we’ve never suffered from – too much time taken to select licensees followed by legal challenges. Canada has benefitted from timely licensing and no legal challenges, and has no valid need to change the process.
The report’s findings are that the comparative selection process as opposed to the auction option should be the preferred process for licensing spectrum.
 

Presentation to the Standing Committee on Industry on Bill C-17

PRESENTATION TO THE STANDING COMMITTEE ON INDUSTRY ON BILL C-17: AN ACT TO AMEND THE TELECOMMUNICATIONS ACT AND THE TELEGLOBE CANADA REORGANIZATION AND DIVESTITURE ACT
BY
THE CONSUMERS’ ASSOCIATION OF CANADA,
LA FÉDÉRATION NATIONALE DES ASSOCIATIONS DE CONSOMMATEURS DU QUÉBEC, AND THE PUBLIC INTEREST ADVOCACY CENTRE
December 4, 1997
Madame la présidente, membres du comité, nous vous remercions de nous donner l’occasion aujourd’hui de nous présenter devant vous et d’exprimer notre point de vue sur les amendements proposés proposées à la Loi sur les télécommunications.
Je suis Marie Vallée, analyste et porte-parole en matière de télécommunications de la Fédération nationale des associations de consommateurs du Québec et avec moi, Me. Philippa Lawson du Public Interest Advocacy Centre.
Nous représentons aujourd’hui:

• l’Association des consommateurs du Canada, une organisation nationale san but lucratif qui représente les consommateurs résidentiels à travers leCanada;
• la Fédération nationale des associations de consommateurs du Québec, qui représente plusieurs groupes de consommateurs résidentiels du Québec; et

• le Public Interest Advocacy Centre, un organisme national sans but lucratif qui défend depuis près de vingt ans les intérêts des abonnés résidentiels du téléphone devant le CRTC et également dans d’autres forums.Nous sommes ici premièrement pour apporter notre support aux amendements proposés et en particulier aux amendements qui donneront au CRTC (Conseil de la radiodiffusion et des télécommunications canadiennes) et au Cabinet des pouvoirs plus larges pour atteindre les objectifs de la politique canadienne de télécommunications – objectifs comme une qualité élevée, un service fiable à des tarifs abordables – et de le faire dans un environnement de plus en plus concurrentiel. Nos commentaires portent sur certains articles seulement.
  Je passe maintenant la parole à Me. Lawson.
  PART IV.1 – s.69.1-s.69.5 Telecommunications Apparatus/Technical Standards
  We support the new provisions which would give the government control over quality, safety and technical standards in respect of telecommunications equipment sold in Canada. In an increasingly global market, such standards will be essential if we are to maintain the quality of service that we have achieved under the regulated monopoly system.
  s.46.1 – s.46.6 Telecommunications Numbering and Other Activities
  We support provisions extending the Commission’s powers to include regulatory oversight of third party administration of such matters as numbering (which is also a new power being handed over to the Commission), and the operation of a fund to support continuing access by Canadians to basic telecommunications services.
  The establishment and operation of a fund to support access to basic telecommunications services in the competitive environment is essential, if we are to respect the policy goals set out in section 7 of the Act. It is truly ironic that one of the first and most tangible effects of competition in this industry has been higher rates for basic residential telephone service. We commend the Commission on its recognition of the need for a fund through which to ensure that Canadians living in high cost areas face affordable prices for basic service, and on its recognition that a fund may be needed in the future to ensure that low income Canadians can continue to afford basic service. The Commission must have regulatory authority over whatever body is established to operate this fund – or these funds – and hence we fully support the inclusion of section 46.6.
  At this point in time, it is possible to identify numbering resources and high cost area funding as matters which may best be handled by a third party, over which the Commission should have regulatory oversight, in order that our policy goals are achieved in the most efficient and effective manner. However, other matters for which the exercise and/or delegation of Commission powers is appropriate, may well arise in the future.
  For example, it is clearly in the public interest to have a single, comprehensive directory assistance database for use by all service providers and customers. Such a database may be most efficiently and fairly administered by a neutral third party. As with numbering and portable subsidies, this is not explicitly provided for in the current legislation.
  Similarly, the provision of 911 emergency services in a competitive environment may be best handled through an independent body, subject to Commission oversight. But the existing statute does not provide for such an approach, even if it would be the most efficient.
  Another example is that of dispute arbitration between competing carriers. As competition increases, so will disputes between carriers. Industry groups are currently considering different approaches to dispute arbitration, one of which is for the Commission to mandate the use of a private arbitrator in the case of customer transfer disputes, for example. In such a case, the Commission may wish to delegate its powers of dispute arbitration.
  These are just a few examples that we can think of now, of valuable activities which may not be permitted under the existing legislation. Who knows what will arise in the future? Given the fast pace of this industry, we can assume that new matters involving the provision of telecommunications services, and for which the Commission’s existing powers are inadequate, will arise and demand action.
  If there is no provision allowing for the administration of such new activities by the Commission or for the delegation of Commission powers other than numbering and fund administration, then we may be limited to a less efficient, less orderly and less competitive telecommunications environment.
  For this reason, we support the proposed s.46.1(b). In addition, we think that the delegation power set out in the proposed s.46.2 needs to be broadened, to cover all existing Commission powers, not just those arising out of numbering or new activities under s.46.1(b).
  s.16.1 – s.16.4 Telecommunications Service Providers’ Licences
  The other area in which we wish to express our particular support is that of reseller licensing.
  We strongly support using this opportunity to provide the Commission with the power to regulate resellers, whether through licensing or otherwise. From the consumer perspective, there is absolutely no justification for distinguishing between different types of telecommunications service providers, when it comes to basic consumer safeguards.
  Under the existing legislation, the Commission considers that it does not have the jurisdiction to regulate resellers directly. So, while facilities-based service providers are required to respect rules protecting customer privacy, to provide certain important information to consumers prior to contracting for service, and to follow certain procedures when signing up customers so as to avoid transferring customers against their will, non-facilities-based service providers are free to ignore such requirements.
  This gaping disparity in consumer protections as between resellers and facilities-based carriers makes no sense. Consumers don’t generally know, let alone care, whether the company they are dealing with owns its facilities. Both companies are engaging in the same exercise, which involves the same risks to customer privacy, the same potential for insufficient or misleading information, and the same potential for error when it comes to transferring a customer’s line. Where the same potential problems exist, the same consumer protection regimes should apply. There is no reason why resellers should not be subject to the same consumer protections as are other service providers operating in Canada.
  It is therefore essential, in our view, that the Commission be provided with the tools to apply consumer safeguards to resellers.
  The proposed licensing power, drafted so as to cover both domestic and international resellers, as well as facilities-based carriers, provides such an opportunity, and therefore has our support. We do not believe that this section should be narrowed to cover only those providers of international services. That would leave the Commission in the strange position of being able to regulate facilities-based carriers and resellers of international service, but not resellers of domestic service.
  Nor do we think that the licensing provision should be narrowed to cover resellers only. The Commission should have as much flexibility as possible in determining the most efficient and effective way of regulating facilities-based carriers, where necessary.
  Should, however, the licensing power be redrafted so as to cover international service providers only, we submit that the existing section 24 should be broadened to cover resellers as well as facilities-based carriers. In this way, the Commission would be able to impose consumer safeguards directly on resellers. The domestic reseller gap would be covered.
  What is essential, from the consumer perspective, is that the Commission has the power to impose conditions directly on resellers, as well as facilities-based carriers, that it has the ability to enforce those conditions, whether through licence revocation, court orders, prosecution or other means.
  Définition de «services de télécommunications de base»
  En dernier lieu, nous ne pouvions pas nous empêcher de remarquer une omission plutôt béante, à savoir le manquement à définir un nouveau terme «services de télécommunications de base» .(Soit dit en passant le texte français a «oublié » le de base.) Nous croyons que la raison de cette comission est que ce concept est en constante évolution et ne doit donc pas être coulé dans le bronze. Nous sommes en accord avec le fait que le Conseil doit avoir la liberté de définir le concept comme il le juge approprié à un moment donné dans le temps. Mais nous croyons pertinent de spécifier cela dans la partie des définitions du texte de la loi. Pourquoi ne pas être plus explicite sur la notion d’un concept en évolution continue et sur le rôle du Conseil pour en assurer la définition? On pourrait pas exemple déclaré dans la Loi que:
  «Les services de télécommunications de base doivent être définis par le Conseil périodiquement, sur demande d’une partie intéressée ou à son initiative et devraient inclure les services nécessaires pour qu’une personne puisse participer pleinement à la société canadienne. »
  De cette manière , vous faites en sorte que le concept soit clairement ancré dans un principe de base d’accès, que les composantes du service de base seront modifiées de temps en temps et que le Conseil à le devoir d’assurer que la définition du service de base demeure actuelle.
  Nous vous remercions encore de votre attention et de nous avoir entendues.
  Nous serons heureuses de répondre à vos questions.

Basic Telephone Service in the Information Age: A Consumer Perspective

A Paper Prepared for Presentation to The Canadian Association of Members of Public Utility Tribunals (CAMPUT)

by Philippa Lawson, Counsel
Public Interest Advocacy Centre
1 Nicholas Street
Ottawa, Ontario
K1N 7B7

INTRODUCTION

Increasingly, telecommunications is seen as a strategic investment. There is no doubt that widespread and innovative uses of advanced telecommunications technology by Canadian business will improve our economic health. But in this enthusiasm to embrace the information age, we must not lose sight of the public utility function of the technology. As much as it has become a strategic investment, telecommunications remains a public utility, which should be available to all citizens regardless of income level.
A strategy designed solely to enhance the competitiveness of Canadian business will not benefit the ordinary consumer, especially if that consumer is stuck with the bill. Whatever benefits actually trickle down are unlikely to compensate the ordinary consumer who ends up paying more for some fancy technology or capacity he neither wanted nor needed in the first place.
Universality must not be sacrificed if we are to enter the information age ahead. The challenge is to guide our transition to the new economy in a way that brings everybody along, that spreads the direct (as well as indirect) benefits of shared investments among all ratepayers, and that requires only those who actually benefit from a given investment to pay for it.
The question you are asking, and which I am here to speak about today, is “universality of what?”. And I will get to that – but first, I feel compelled to say a few words about your role as regulators.
We have been barraged, in recent months, by a endless stream of academic and industry polemic (most of which is aimed at the CRTC’s regulatory review) on the evils of regulation and the wonders of the free market. The problem with this approach is that it compares apples and oranges – that is, it compares the current practice of regulation (which we all agree can be improved) with the theory of competition. What they – and you – should be comparing is the practice of regulation with the practice of competition. Or, perhaps even more appropriately, the theory of regulation with the practice of regulation.
If you do the latter, you will be reminded that regulation is a social, as well as economic, exercise. Efficiency, the ultimate concern of economics, is desirable, but it is not the only purpose of public utility regulation. Equity is at least as important, especially with a service as potentially crucial to individuals as telecommunications. When the two conflict, as they are bound to do, we often choose to sacrifice a little efficiency in order to gain greater equity. This is entirely appropriate in a democratic society, the proper functioning of which requires equality of opportunity.
[As it happens, equality of opportunity is one of the key assumptions upon which the theory of competition is based: we assume that everyone has full information. In the real world, of course, this is not the case: there are vast disparities in knowledge and expertise]
I urge you not to lose sight of the ultimate goals of regulation, which are primarily social. Economic tools should never become ends in themselves, no matter how desirable they may seem at a given point in time. Greater reliance on market forces seems to be a good thing right now, but will we find that it is always the best approach? Telecommunications is a rapidly developing industry. Who knows what is going to happen with the local market, with wireless technologies or with convergence of cable and telephone industries? And if we don’t know what the market is going to look like ten or twenty years down the road, how can we confidently say that one method of managing that market is better than another?

AN ESSENTIAL SERVICE

No one that I have met disputes that the telephone has become an essential service. Not one person that we have polled, in our informal survey of low income consumers, said otherwise. The only holdouts are people trying to escape society, and even they end up relying on someone else’s telephone for emergencies and the like.
Poor people who are unable to afford a telephone find that routine activities become complicated, and important messages don’t reach them on time. Job hunting without a telephone presents a real challenge. With current caseloads, welfare workers often have to use answering machines – and if you are calling with your last quarter, you’re not left with many options. Yet, strangely enough, welfare in most jurisdictions does not include an allowance for telephone service. And even if it did, that is no solution for the 1.4 million Canadians living below the poverty line, who don’t receive welfare.
A telephone in the home has become necessary to full participation in society. It wasn’t always the case, of course: the telephone began as a luxury good, and evolved into a sort of “fancy telegraph”, used mainly for emergencies and business transactions. Gradually, the use of telephones as means of maintaining social contacts and planning everyday events grew, to the point now where we rely on the telephone for all sorts of important things:

• social contact over the telephone is far more important than it used to be, with an increasingly mobile population, a high rate of family break*up, and a generally faster pace of life;
• businesses rely heavily on the telephone to stay competitive;
• voluntary organizations and individual volunteers are able to accomplish a great deal through telephone networks;
• disabled and housebound individuals are able to function more independently;
• Schools, health care practitioners, social agencies, employers and potential employers * all assume that their students/patients/clients/employees have telephones; and
• a sophisticated emergency response service is now available in most places over the telephone.

DEFINING BASIC TELEPHONE SERVICE

Where people differ is on the bundle of telecommunications services that they consider essential to daily life. For example, there are still a significant number of people who choose to stick with rotary dial telephones, despite aggressive marketing of touch tone by telephone companies: app.25% in the jurisdictions I have looked at.
Yet touch tone is becoming necessary for more and more applications: information services using interactive voice response, banking from home, utility metre reading, and so on. While none of these applications themselves may be essential to daily life for most people, they are becoming the norm. And as they become the social norm, those who don’t have access to them fall behind.
To what extent should the people who choose to remain with old technology be second*guessed? To what extent should a regulator decide that it is in their best interests to upgrade?
This is a difficult question, and I’m sure that you have wrestled with the answer. It will always be difficult, since new technology is not adopted overnight. There will always be a period of time during which a service improvement is neither a luxury nor a necessity. And there will always be holdouts – people who are perfectly happy living without a service that has become part of everyday life for most others.
The challenge is to provide all citizens with affordable access to those services they need to participate fully in society, without forcing those who don’t want fancy new services to pay for them.
The point of defining basic telephone service is to ensure that it, at least, is affordable to everyone, including poor people. I will discuss affordability later on * but first I’d like to talk a bit about content of basic service, now and in the future.
If we define basic service as that level of service required for full participation in society, then I would suggest that the following elements make up basic telephone service in 1993:

• Access to local and long distance
• Single Line Service
• Touch Tone Service
• Local Directory
• Directory Assistance
• Special Services for Disabled
• Operator Service
• Caller ID Blocking
• Call Trace
• 911 service (where available)

These services, whether bundled or not, should, taken together, be priced in such a way as to be affordable to everyone. (1% of average poverty line * 1% of 15K * $15?)
As technology and social norms evolve, so must the regulatory definition of basic service. One challenge for the regulator, as I have mentioned, is to move along right with the evolution; to be neither way ahead of it nor lagging far behind it. Another is to ensure that this evolution is driven by consumer demand, and not be telephone company interests nor by overly*eager advocates of a technology*rich information age.

Consumer Driven Evolution

If the evolution to the information age is to benefit everyone, not just the manufacturers and suppliers of the technology, or just the high*end users, then pricing is going to be key. The expansion of basic service to include a new service, such as touch tone or single line, must be accompanied by appropriate price adjustments, in order to keep the package of basic services affordable.
The current move to single line service and touch tone standards throughout the country is happening partly in response to consumer demand, but largely as a result of telephone company interests. Those interests are clear: to maximize revenue*generating opportunities. While there is nothing inherently wrong with this * it is normal, profit*maximizing behaviour * prices, as a result, do not necessarily reflect the essential nature of the service.
For example, while touchtone service is gradually becoming the service standard throughout the country, premiums for touchtone, generally in the $2.00 * $3.00 range, are still imposed. In other words, consumers are forced to pay extra for touch tone service even if they don’t want it. It’s appropriate to allow current rotary dial customers to maintain that level of service, and to do so at a lower price. However, it’s inappropriate to disguise a basic rate increase as a “premium”, which sounds optional to most people.
When approving the inclusion of what used to be an optional service into basic service, regulators should look closely at pricing implications, and should ensure that any consequent increase to basic rates is justified.
In this age of rapid and sometimes unanticipated technological development, it’s easy to allow ouselves to be led by the technology. The problem is that behind the technology are powerful companies, who of course have their own interests at heart. The onus is therefore on you – the regulators – to ensure that the evolution of basic telephone service responds to legitimate consumer demand and promotes social well*being.
Given that telco revenue potential is maximized when more people have access to new and enhanced services, I think it is likely that you, as regulators, will be responding to telco requests for basic service upgrades, as opposed to initiating such upgrades. I can’t think of a service improvement that the telcos would not want eventually to become standard.
For this reason, I think you should be wary of speculative social benefits put forward by telcos as the rationale for treating a new service as basic. We’ve been wrong in the past * just look at what has happened to 900 service: it’s become a depository for vendors of lewd entertainment. (While I don’t watch cable TV myself, I understand that late*night viewers are inundated with advertisements for erotic entertainment over the telephone lines).
These, therefore, are the criteria that I suggest you apply when faced with applications to upgrade basic service:

• that there be a demonstrable net social benefit (eg: applications that have been demonstrated as socially useful; value of the service outweighs its cost to all ratepayers); and
• that there be a certain level of consumer demand, definitely over 50% take*rates, and perhaps substantially higher.

Using these criteria, where might we be in terms of basic service ten years down the road?

THE FUTURE

We’ve already come a fair distance, from a time when mere access to the public telephone network was all that people expected. Now we demand private access to that same network * we’re making too many calls and we’re spending too much time on each call for sharing to work. Party lines are fine for people who use the phone for emergencies and quick calls only. They don’t make sense for people who rely on the phone for daily operations. We also now want to be able to access all the information and other services that touchtone opens up. This is POTS+.
What’s likely in the future? It seems to be pretty much agreed that we will, sooner or later, be demanding access to a much broader array of services, including video and data as well as voice communications. These will be interactive, not just one*way. They won’t necessarily all be offered over the same network, nor by the same company. But they are coming, one way or another.
Much of the necessary technology is already in place. Digital switching, in particular, will soon be universal. International standards have been set for ISDN * the new network intelligence that, in conjunction with digital compression, will enable multimedia services to be offered over existing transmission facilities.
The possible applications are endless:
In education, opportunities are opened up for distance learning, multimedia language instruction, specialized programs for advanced students or for students requiring remedial assistance, parent/teacher video*conferences, and on-line multimedia libraries. Learning possibilities for people with language difficulties or sensory disabilities would be greatly expanded, with computerized conversions between languages and types of media.
In the health field, video applications, in particular, offer new possibilities for patients and practitioners in remote areas. A specialist in Edmonton, for example, could diagnose and give instructions to a paramedic in Fort Vermilion. Or, indeed, a surgeon in Edmonton could actually conduct an operation on a patient in Fort Vermilion by remote robotics. This application, I am told by Bell Canada officials, is currently under trial.
New and enhanced databases, easily accessed, would make looking for a job much easier. Job training could also be greatly improved through the use of multimedia and remote imaging. Telecommuting and home*based businesses will be given a boost, providing greater flexibility to the work force.
Community applications are already evident in the growing number and size of community computer databases and billboards. In Ottawa, for example, we have a service called FreeNet, which is accessible at no charge to anyone with a computer and a modem, and which provides all sorts of community information, from weather and sports news to electronic messaging and information on local service organizations. It is, of course, in its infancy, but the fact that it is usually busy when you try to access it indicates that at least some consumers are ready for such new ways of getting and sharing information. Video conferencing will be next, allowing people to meet face*to*face over the public network.
Applications in the entertainment field may well lead the way, given the unprecedented success of Nintendo and other computer games. Multimedia games, interactive video and video on demand are virtually here, on the cable side. But telcos will have the same capabilities, once digital switch conversion is complete.
Of course, one of the great promises of these new services and capabilities is for disabled people, for whom the rhetoric of equal opportunity and accessibility may finally have some basis in reality. Public information may finally be available in alternative formats, at low cost.
There is not much debate that this vision will eventually be attained. There is debate, however, on how it should be achieved. This debate centres on three interrelated issues: How fast should the transition be? How should the new information age services be priced, initially? and What technology should be used?

SPEED OF TRANSITION

The Alliance for Public Technology in the USA argues for an aggressive, proactive approach to entering the information age. They argue that the inevitable evolution to a PANS service standard, if left to develop at its own pace, will be business*driven and will not serve residential consumers well. They warn of the development of an “information elite” if everyone, rich and poor, educated and uneducated, is not provided with the new technology up front. They also point out that these new technologies and services are far more likely to succeed, the more people are hooked up and using the system. Their agenda therefore includes universal provision of the new services, as quickly as possible, accompanied by a massive consumer education program, teaching people how to use their new equipment.
Others, including the Consumers Federation of America, argue that the transition should occur gradually, in response to demand. It is more important, they argue, to keep what we now consider to be basic service affordable. Ubiquity in the short term will require huge up front capital costs, which will have to be recovered through rates. The costs of building the social infrastructure (which is equally necessary if genuine universality is to be achieved), will also be large. Who is going to pay? Governments sure don’t have a lot of extra cash sitting around right now. Better to spread these costs over a longer period, they argue, in order to soften * or indeed eliminate * the rate impact.
Proponents of gradualism also point out that their approach is far less risky: even if everyone is hooked up, who is to say that they will all use it? An “information elite”, so to speak, will always exist; it is not simply a function of available resources. Computer literacy is not developed overnight * it will take time for people to adjust to a new way of communicating and accessing information. As long as public institutions such as schools, health centres, libraries and community centres are hooked up early on, so that people have access and begin to appreciate the uses of this new technology, predictions of worsening social inequality are overstated.
Also overstated, argue the gradualists, are the concerns that the new network, if not made initially ubiquitous, will leave consumers behind. Business applications have almost always preceded applications in the residential market. This is not necessarily a bad thing. As long as the public network is gradually upgraded in response to demand from both business and residential subscribers, there is little, if any, risk that consumers will miss out.

PRICING IN THE SHORT TERM

Proponents of immediate ubiquity always leave the question of who pays to the end. But surely this is the key question – few people would oppose modernization on a mass scale if it cost them nothing. The proponents argue that it won’t in fact cost so much, and that in any case, consumers are willing to pay the price. They argue for increased basic rates in order to cover the cost of upgrading the entire system. Every telephone subscriber would pay for the new capabilities, whether he or she uses them or not. Subsidies would be necessary for poor people and for regions where the cost of service is unusually high.
Consumer advocates disagree. They don’t want to have to pay for high-tech capabilities they neither want nor need. Before these new services pass the test of universality, or basic service, they should be offered on an unbundled basis at prices that cover costs, including a contribution toward access costs. As costs fall and as the new enhanced network becomes ubiquitious, PANS prices can fall, eventually becoming universally affordable. But until then, I agree with those who argue that POTS+ should remain affordable for all citizens, and should be offered as an alternative for those uninterested in PANS. In any case, revenues from POTS+ should definitely not subsidize PANS.

COMPETING APPROACHES TO THE INFORMATION AGE: UBN VS. N*ISDN

Most observers agree that broadband will eventually become the standard transmission medium throughout the network. Fibre optic lines already make economic sense for new installations, particularly in the interoffice and long distance network. But where experts disagree is on whether copper wire to the home needs to be replaced before it has reached the end of its useful life.
(i) The Ubiquitous Broadband Network (UBN) Approach
Proponents of a ubiquitous broadband network now argue that television*quality two*way interactive video is an essential part of the package of information age services that should be available to all. This capability is the only one that ISDN cannot now deliver over copper wire.
They argue that a univeral broadband telecommunications platform should be put in place as soon as possible, so as to provide to everyone at once a single network with multiple channels of switched interactive multimedia communications. (Optic switching is currently being developed to facilitate switched TV*quality video; it could not be provided immediately).
Consumers would have a choice of using their own personal computers to hook up with the network, or renting low*cost easy*to*use communication terminals, that would give them access to a variety of services.
Network intelligence would therefore be centralized in a public gateway, through which consumers would have to go in order to access the service they require. Information services could still be provided by private vendors, through the public gateway, but presubscription would not be required * the public gateway could handle billing.
(ii) The Widespread Integrated Narrowband Network (WINN) Approach
The other approach, favoured by those consumers concerned about price, is to rely on narrowband ISDN technology to deliver the same services. Mark Cooper, of the Consumers Federation of America, advocates what he calls a “Widespread Integrated Narrowband Network”, at least until the ubiquitous broadband network is achieved.
Using ISDN and compression technologies, virtually all of the services promised by broadband enthusiasts can be delivered over copper wire, at a fraction of the cost. Cooper has estimated the cost of upgrading to narrowband to be app.$300 per subscriber, versus app.$3000 per subscriber for an integrated broadband network.
In fact, good quality two*way interactive video is already being offered over copper wires. Just last week, Bell Canada demonstrated its current switched video capabilities to us in Ottawa, and the quality was very good, certainly adequate for conferencing, which is promoted as the big advantage of broadband for ordinary consumers. Furthermore, compression and other technologies are constantly improving, so that the the differential in the quality of video sent over fibre and over copper is constantly narrowing. Distance learning, remote imaging, teleconferencing * all are available over existing transmission facilities through the use of exisiting technology.
There are other advantages, besides cost (the big one), to relying on narrowband technologies to deliver information age services in the short term. WINN emphasizes computer skills, which are crucial for economic advancement in the decades ahead. By relying on decentralized intelligence * that is, in the customer premise and in the customer * it avoids problems associated with centralized computing, promotes competition in the delivery of information services, and capitalizes on the burgeoning computerization of society.
WINN also leaves open more room for cable companies to play a role in the delivery of information*age services in the future. Given the remarkable penetration of cable television in Canada (94% of television households are passed by cable; of these, 82% subscribe; in all, 77% of Canadian households have cable TV), it makes sense to leave something to the cable companies to provide.
The public network, with its captive base of ratepayers, is not the place to undertake risky ventures that have uncertain demand. The beauty of WINN is that it responds to demand; those who neither want nor need enhanced services aren’t forced to pay for them.
Digital switching (which is required for either a UBN or a WINN) and CCS#7 technology (which is required for much of the new capability) have been treated as common network costs over the objections of consumer advocates who questioned the benefit that POTS subscribers would get from them. Telephone companies will undoubtedly attempt to treat the much larger costs of ubiquitous broadband networks as common network costs, to be paid by everyone. In contrast, the incremental costs of ISDN services * upgrades, line cards and jacks * need not be spread over all users.
Whatever route you allow the telephone companies to pursue, clear policies will have to be put in place to ensure:

• least cost provision of service: a strict economic test should be applied to all deployment of broadband, so that ratepayers are not saddled with the financial burden of unnecessary capacity;
• competition: mass market*oriented tariffs and open access policies should be used to encourage decentralized information providers to develop and market consumer*oriented services;
• interoperability: common standards, like ISDN, will be needed to ensure easy translation between various systems; and
• usability: databases and directories should be user*friendly, and accessible to people with various types of disabilities.

h3.PRICING OF BASIC SERVICE
I mentioned earlier that the whole point of defining basic service is to ensure that everyone, regardless of income level, can afford at least that level of telephone service. But affordability means different things to different people; I don’t think it has ever defined in this context.
(i) Affordability
Affordability cannot be measured simply by whether or not one subscribes to the service * the fact that basic telephone service is so essential to daily life means that people will stretch themselves financially to keep it. Those on low budgets will cut back elsewhere * most likely on food * in order to hang on to their telephone. This is not affordable. Penetration rates are useful to see what is happening at the margin; they say little about financial hardship.
A better measure of affordability, I would suggest, is the percentage of income spent on the service. Obviously, at a given price, telephone service will consume a higher percentage of a poor family’s income than of a wealthy family’s income. And the same is true of price increases: poor people must put out a much greater proportion of their income for the increase than must wealthier folk.
This is illustrated in the following graph, which shows the total percent of income that households of varying income levels must spend on basic telephone service, as rates go up. High income earners spend no more than half a percent of total income on basic service, even when rates are $40/month. But low income earners, at the other end, have to put out more than six times that proportion of income to get the same service.
Clearly, lower income families are going to hit a limit long before higher income families. The question is: where is that limit? At what point does the price of telephone service become unaffordable?
It’s a difficult question, but it needs an answer, even if some form of targeted subsidy is put in place to ease the financial burden of higher rates on low income families.
(ii) Cost-Based Pricing
There is tremendous pressure on regulators right now to move from a regime of value-based pricing to what the telephone companies and their economists call “cost-based” pricing.
There are two big problems with cost-based pricing in an environment of inputs with mixed uses. One is the impossibility of getting it right. The other is that cost*based pricing comes into direct conflict with social goals.
Even as someone trained in economics, I have some difficulty with this concept in the field of telecommunications, where all services rely upon the maintenance of access facilities, and where a single piece of equipment such as a switch is used for all sorts of different applications. The CRTC’s Phase III Costing Methodology attempts to resolve these problems, and I think that it’s a noble effort. But when you are relying on the telephone company for the information on which the cost breakdowns are made, and when in many cases the breakdown is arbitrary, the validity of the results has to be questionable.
As discussed above, social goals such as equity are just as important to telecommunications policy as economic efficiency.
Cross-subsidies which achieve social goals are entirely appropriate in the context of a public utility. Even if the economists are right, and there is some efficency lost as a result of geographic price averaging, surely the equity gains outweigh the efficiency losses. Similarly, a policy of contribution from long distance revenues to the cost of access achieves a key policy goal in Canadian telecommunications: that of universality. It should not be dropped simply because the telephone companies find it a nuisance, and hire academic economists to tell you it makes no economic sense. If we lived by economic sense alone, we wouldn’t have telephone service in many rural and remote areas, we wouldn’t have a national telephone penetration rate of over 99%, and many of our less fortunate citizens wouldn’t have a service that both makes their lives more livable and better enables them to break out of poverty. In sum, we would have a very different society, one that I am not sure we would like.
(iii) Information Age Services as a New Revenue Source
Even if the telephone companies are right that they have to raise basic rates in order to make up for lost long distance revenues, how long will this situation last? Given new information services that the telephone companies can deliver now over existing facilities at minimal cost, there are likely to be all sorts of other sources of contribution in the near future. These new revenue sources will only grow in number and potential, if current forecasts prove accurate. We needn’t wait for broadband; we needn’t pad the ratebase with broadband: narrowband ISDN services can and should be treated now as a contribution source whose significance will grow quickly. Call Display, a tiny forerunner of what is coming in the next decade, has already shown that, with proper pricing policies, telephone companies can make significant amounts of money from enhanced services.
It may well be that telephone companies have neglected the development of narrowband ISDN capabilities because they would rather pursue the more capital*intensive route of broadband, which would give them a strong platform from which to enter the video entertainment market. Perhaps also telcos want to jack basic rates up while they can, before bringing new profitable services on stream. Such a strategy would of course make sense from a telco perspective, but any strategy which unnecessarily raises basic telephone rates cannot be socially beneficial.
(iv) Problems with Alternative Pricing Proposals
The telephone companies are not so uncaring ore impolitic as to ignore the effect of basic rate increases on low income families. They recognize the value in having as many subscribers on the network as possible, and have therefore proposed that some version of a discount service be made available to those who qualify or who have no other choice.
So-called “lifeline” programs were instituted in the United States as a way of softening the impact of the subscriber line charge and other local rate increases allowed by regulatory authorities. Such programs have operated for several years, with mixed results, depending on the nature of the program.
There are a number of problems with lifeline programs. First, lack of receptiveness from the target population. Many people view special rates for poor people as yet another stigmatizing public subsidy.
Second, lifeline programs tend not to reach a significant proportion of the target population. Participation rates among eligible groups in the United States averaged only 30% in 1989 (the last year this measure was taken). Whether because the subsidy was too small, or because of illiteracy, pride or simple lack of awareness, many poor people with and without telephones were not taking advantage of the programs.
Another problem has to do with the threshold that is chosen. There will always be a number of families and individuals who just barely fail to qualify. If the threshold is set low (eg: welfare recipients), then a large number of low income individuals who actually need assistance won’t get it. The determination of eligiblity criteria in Canada will be particularly difficult, since welfare reaches only 65% of Canadians living below the poverty line. If all needy citizens are to be eligible, lifeline programs cannot simply piggyback on other low income programs, as in the USA.
Self-certification programs, which provide assistance to those who assert that they need the help, get around this problem, but there may be a perception that they invite fraud. If verification of income is politically necessary, it will of course add to the costs of the program. Any sort of means testing is unacceptable to the target population and would therefore be counter-productive. If applicants must sign a consent, authorizing the telephone company to check their tax returns, the participation rate is likely to be further reduced.
In sum, lifeline programs and other targeted subsidies may raise more problems than they solve.
Local measured service has also been suggested as an alternative to universally affordable flat rates. The problem with this is that there is no evidence to suggest that poor people use local service any less than do higher income people. In fact, local measured service makes most sense for working people, who spend long days at an office from which they can make local calls free. It makes very little sense for people who are stuck at home with children or with disabilities, and for whom the telephone truly is a lifeline.
People who are unemployed, housebound or just plain poor need to make calls during peak hours just as much as, if not more than, other folk. Potential employers, government agencies, and other social services cannot usually be reached between 9pm and 8am. Offering local measured service as an option may increase consumer choice, but it does not respond to the needs of poor people.
For all these reasons, I caution you against buying into the telephone company’s theories that local rates have to rise in the long term, and that there is a better way of meeting the needs of low income citizens. Basic telephone service, whatever it includes at any given time, should be within the financial means of all Canadians.