The Canadian Radio-television and Telecommunications Commission (CRTC) might change the rules governing phone service prices, but some say the amendments could hit the enterprise squarely in the pocketbook.
“Large-business customers are probably going to be faced with some kind of price increase,” said Mark Quigley, an analyst at The Yankee Group Canada.
The Commission in October said it’s reviewing “price floor safeguards” to ensure local service competition. Price floors constrain price decreases, so big telcos can’t undercut their smaller competitors.
The CRTC said the current price floor situation makes it hard for competitive local exchange carriers (CLECs) like Allstream Corp. to compete against incumbent local exchange carriers (ILECs) like Bell Canada.
For instance, as the rules stand, Bell could start 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. 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 bundled service costs are part of the price floor review.
“For competition to evolve on a sustainable basis…the existing price floor safeguards may need changing,” said Charles Dalfen, CRTC Chairman, in a statement.
If the incumbents have to work with higher price floors, and they’re unable to offer discounts on service bundles, however, that could mean increased costs for business customers.
“For sure, large businesses and enterprises do take advantage of those bundles to get discounts across the board,” Quigley said. “The only thing fortunate about this is none of this is backward-looking. Contracts that exist today are going to remain in place. But it certainly does put a hammer on…Bell Canada and Telus and other ILECs to be creative in terms of how they approach their customers.”
Lawson Hunter, executive vice-president of Bell’s parent company BCE Inc., said it’s “mystifying” that the CRTC would focus on competition in the hotly contested enterprise market.
“This might benefit a couple of resellers to the great detriment of potentially thousands of large users,” he said.
But the Commission says it’s watching out for customers. 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 clients might get price discounts on the backs of others, who must pay higher prices to make certain services viable for the ILEC.
David Colville, vice-chair, telecommunications of the CRTC, said that in light of recent regulatory missteps on the part of incumbents, the Commission must act to make sure Bell and other ILECs do not price competitors out of the market.
“We found in a number of instances…Bell and Aliant were selling their services below cost. Nobody can compete if the incumbent is selling its service at or below cost.”
Colville said some business-class products might be more expensive at the end of the review, “but I don’t know that it would increase any or a lot of prices beyond what they are today. It’s hard to predict what the incumbents may do with pricing as a result of this.”
Allstream welcomes the review, said Chris Peirce, the firm’s vice-president, regulatory and government affairs. He said it’s good news for customers.
“No one would argue but that competition has been a boon for the enterprise market, in terms of innovation, price, choice of provider….The only thing that brings competitive discipline to the monopolies, now former monopolies, are competitors.”
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. It’s looking for comments. Deadline is Nov. 24. Visit the CRTC Web site at www.crtc.gc.ca for more information.
