CRTC changes could affect enterprise

The Canadian Radio-television and Telecommunications Commission (CRTC) is proposing changes to the rules governing phone service prices that could hit enterprises squarely in the pocketbook.

The Commission on Thursday said it’s reviewing “price floor safeguards” to ensure competition in the telecom industry. Price floors are regulatory constraints on price decreases that keep telcos from undercutting competitors.

The CRTC said the current price floors for services by incumbent local exchange carriers (ILECs) like Bell Canada and Telus Corp. might make it hard for competitive local exchange carriers (CLECs) like Allstream Corp. and Call-Net Enterprises Inc. to compete. For instance, as the rules stand today Bell could start up a new service and offer it to customers with zero per cent mark-up.

“Competitors, on the other hand, obtain certain components of the retail services from the incumbents, for which they must pay a minimum mark-up of 15 per cent,” the Commission said in a press release, pointing out that this makes it difficult for competitors to match the incumbent’s price.

“In addition, the large incumbent telephone companies currently have the flexibility to engage in targeted price discounting of their service bundles,” the CRTC said, adding that this state of affairs is part and parcel of the price floor review.

If the incumbents have to work with higher price floors and they’re unable to offer discounts on service bundles, however, that could mean higher prices for their business customers.

“That’s exactly what will happen,” said Brownlee Thomas, a Forrester Research Inc. analyst in Montreal. “You’ve got an enterprise client, maybe a government or an institution. It’s got a contract with, say, Bell or Telus. It’s really good. It’s volume based – maybe a five-year contract. There may be a lot of other services pulled in. I don’t want to call it a bundle. I’ll call it a ‘multi-service’ contract. Now the CRTC is saying, ‘We don’t think so.’ Bell and Telus would be legally bound, legally required to come back and say to [the customer], ‘I have to charge you more because the regulator says so.'”

Thomas said the review process could harm the ILECs in other ways. For example, in the interest of disclosure, “how much detail will the CRTC reveal about existing contracts? It’s very easy for the competitors to figure out who won a contract. If they see the actual bid proposals or the final contract, they’ll know exactly why they lost. They’ll know exactly what to do to win in the future.”

Still, the Commission says it’s watching out for competition and corporate Canada. For example, today ILECs can vary prices depending on the volume and length of contracts for certain services. “The Commission is concerned that the incumbents can target high-volume, long-term users, possibly at the expense of other customers,” it said, pointing out that long-term customers might get price discounts on the backs of other clients, who must deal with the heavier price tags required to make the service viable.

The Commission said it’s proposing two changes to the price floor mechanism: the imputation test, which proves a service isn’t under-priced; and the way it determines prices for service bundles.

“In our view, the weak state of competition in local telecommunications services can be attributed to a number of factors; however, for competition to evolve on a sustainable basis…the existing price floor safeguards may need changing,” said Charles Dalfen, CRTC chairman, in a statement.

The Commission invites comments on modifying price floor safeguards. Deadline is Nov. 24. For more information, visit the CRTC Web site at