CRTC lowers rates, but appeal underway

While long-distance providers and carriers will be seeing some savings due to a recent price slash by the Canadian Radio-television and Telecommunications Commission (CRTC), an appeal has been put before the government for those companies to get some additional money back.

The CRTC announced in March that the direct connection rate of 0.7 cents per end, per minute, would be cut to 0.3 cents. The decision was made as a result of an application made to the commission from long-distance competitors and phone companies together, according to the CRTC’s vice-chair of telecommunications, David Colville.

While Colville noted the rate change might seem small on a per-minute basis, “if you add up all the minutes it can add up. So what it really does is reduce the cost for the competitors of providing long-distance service by that amount per minute. It reduces their cost by (almost) a cent a minute for providing long-distance calling. That’s a real cost to the competitors and it’s a real cost to the competitive end of the phone company’s operations.”

Companies such as Call-Net Enterprises and AT&T Canada are pleased with the decision, and said the move will help ensure everyone pays their fair share.

“Hopefully this is the beginning of a good trend in the regulatory arena,” said Ian Dale, a company representative for AT&T Canada Inc.

Jean Brazeau, the senior vice-president of regulatory and government affairs at Call-Net Enterprises Inc., said Call-Net was pleased the CRTC acted so quickly on the application. “We thought this was pretty important because access charges (comprised) a significant part of our carrier costs and lowering them would make us that much more competitive in the market place,” he said.

Odds are this will have no effect on the amount both residential and business customers pay, according to analyst Jordan Worth of Toronto-based IDC Canada Ltd.

“There will be no effect on customers’ prices because the minimal amount of money involved here simply goes to address accounting issues,” he explained.

Both long-distance companies said Canada already has the lowest long-distance rates in the world.

But while the companies applauded one CRTC decision, they are fighting another. While the connection cost was reduced, the telephone companies were given what CRTC’s Colville called an exogenous factor in the price cap formula.

“We allow them to — over and above the other rules around the price cap regime for the local utility side of the business — recover what would otherwise be lost revenue,” he said. “We approved this reduction in the direct connect charge or the switching and aggregation charge, but we denied an opportunity for the telephone companies to recover this cost. That aspect of this is under appeal by the phone companies.”

A contribution subsidy is paid by long-distance providers, according to AT&T’s Dale, to subsidize local service. While he said AT&T has “no issues with the policy goal of making local service affordable to all Canadians, what we are concerned about is the mechanism that collects that subsidy has a host of problems with it.”

The rules are basically rewarding the former monopolies, and punishing the new entrants, he said.

“Because of the significant increase in minutes generated by the new calling plans, and given that we pay on a per-minute basis, the increase in the number of minutes generated more revenues than was needed in order to continue to subsidize local phone service,” Call-Net’s Brazeau explained. “All we wanted was our money back, and the CRTC decided the telephone companies were allowed to keep the extra money — we just believe that was blatantly unfair on their part.”

Worth said he is unsure if the companies involved with the appeal will get their money back. Part of the problem, he said, is when Sprint (Call-Net) created a price war, more traffic was created for everybody and everybody had to pay for the extra carriage of the minutes. While the revenue went down, a sinkhole was created.

The appeal process will take at least another month before all the facts in the case can be addressed, according to the CRTC.