Fight over basic phone services starts this week

Local phone rates in small communities should rise and carriers should have to provide high speed Internet access as part of basic services, the federal telecommunications regulator will be told over the next two weeks.

Fundamentally the hearing — which starts Tuesday in Timmins, Ont. and continues next week in Gatineau, Que. — is about the fierce competition cable and wireless have brought to phone service in the past five years and whether the Canadian Radio-television and Telecommunications Commission (CRTC) should stand aside in the face of such forces.

Dubbed the‘obligation to serve’ hearing, at issue are the fate of regulations controlling residential phone service.

Under deregulation, most – but not all – of the rules are off in designated areas of high competitiveness because the incumbent local exchange carriers (ILECs), such as BCE Inc.’s Bell Canada, Telus Corp., Manitoba’s MTS Allstream and Saskatchewan’s SaskTel no longer have a monopoly.

Think Toronto, Vancouver, Montreal, Quebec City, Calgary, Winnipeg, Ottawa, Halifax and other cities with more than one local facilities-based phone provider.

However, some basic services or obligation to serve rules still apply in those areas to ILECs, usually in the form of a price cap.

To the dismay of the ILECs, cable companies and independent Internet service providers selling voice over IP phone service don’t have to meet any of the obligations.

That has led Bell in a pre-hearing written submission to demand that “all regulation relating to the obligation to serve … should be eliminated” in unregulated, or forborne, markets.

“In a competitive market, forcing only one of many [telecommunications] suppliers to meet an obligation to serve in the highest cost areas is not efficient, proportionate or completely neutral,” agrees Telus.

Meanwhile, in outlying areas small ILECs (SILECs) who have to meet basic services requirements are seeing competitors swipe away lucrative customers in their populated areas, leaving incumbents alone to face the costs of serving fewer subscribers in nearby surrounding high-cost rural areas. Some call this the ‘doughnut effect’ of competition.

There is a subsidy system in place for small ILECs, paid for by large carriers. But in a pre-hearing written submission to the commission, a Quebec association of independent telephone companies warned that allowing facilities-based competition “will have a devastating effect on the financial stability” of its members unless the subsidy regime is overhauled.

So two central issues in the hearing are what residential service obligations, if any, should incumbent phone companies have to fulfill, and whether struggling small local phone companies should be protected from more competition.

But also on the table is whether the CRTC should set a minimum broadband Internet speed phone companies have to meet – and if so, should big carriers pay into a new fund to help smaller telcos could afford to meet that standard. They already do to subsidize local phone service in outlying areas, the fourth issue the commission is examining.

“It’s a big hearing because there are four different issues,” says Mark Goldberg, a Thornhill, Ont.–based telecommunications consultant whose clients over the years have included some of big carriers.

While the hearing deals mainly with local home phone service, Goldberg adds, businesses also have a stake in the outcome for their phone charges will partly pay for any subsidy regime the commission establishes.

But business in outlying communities may also pay a price if the commission also decided to protect small incumbent phone companies from competition.

Looming over the hearing – as it has all CRTC decisions in the past three years – is the December, 2006 policy directive from the Harper government that the commission “rely on market forces to the maximum extent feasible.”

As a result, the commission started reviewing all of its regulatory measures including what has become broadly called the basic phone services.

For this hearing they include

–rules set up in 1986 forcing incumbent phone companies to provide certain services to customers (known as obligation to serve rules);

–minimum service targets set up in 1999 that ILECs across the country have to meet (known as the basic service objective). These include touch-tone service, access to long distance, directory assistance, emergency services and low-speed dialup Internet access;

–and a local service subsidy fund set up in 2000 so small ILECs can meet the basic service objective in high cost areas.

Few believe the commission will re-regulate in urban areas. Major carriers will spare no opportunity to remind the commission of the 2006 Harper cabinet market forces directive. On the other hand, both Manitoba telco MTS Allstream and Saskatchewan’s provincially-owned telco SaskTel will urge the commission to make broadband part of the basic service objective – but only in unregulated areas.

However, the questions the commission wants answered leaves the possibility open broadband could be a universal basic service.

Those questions are:

–Should the basic service objective and obligation to serve apply in forborne (that is, unregulated) or non-forborn markets, or be forgotten? If kept, should they be applied as they are now only to the ILEC or to every phone provider in the area? Can wireless voice providers meet these requirements or only wireline carriers?

–Should the commission modify the existing local service subsidy regime? Some small providers insist they can’t survive without it. Competitors say the assumptions underlying the subsidy are no longer valid.

–Should the commission protect small ILECs by forbidding competitors from entering their markets?

–Given how outdated the minimum dialup Internet service standard is, should the commission set a new broadband target? Should the CRTC mandate the provision of high speed where it isn’t provided now? Should it create a fund paid for by the industry to support that goal?

Big phone and cable carriers will argue broadband isn’t a basic service and that adding it will create serious funding problems. Note that in establishing the hearing the commission recognized Ottawa has already stepped into this area and is paying $225 million to a number of carriers to expand broadband in outlying areas.It didn’t say so, but the commission also knows Industry Canada is trying to formulate a national digital strategy which may include a broadband target.
Regulating the wireless industry was supposed to be part of this hearing, but the commission dealt with that separately earlier this year.

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