Five telecom rulings that will shape the industry

The federal telecommunications regulator, the Canadian Radio-television and Telecommunications Commission, is often called upon to make major decisions. Last year it made four of them, while a fifth was upheld by the federal cabinet.
But thanks to a cabinet decision, two will come back to the commission this year. So already 2010 promises to be one of the commission’s biggest years in telecom. To find out why, here’s a look at the importance of those decisions last year, the role of the CRTC, and what it will handle in 2010.
The five decisions:

Can network owners engage in Internet traffic management? (Yes, a win for incumbents)

–Do network owners have to offer matching speed options on their new networks to wholesale buyers? (Yes, said the commission, a win for independent service providers. However, the cainet sent this back to the commission for a re-think.);

–Can network owners impose usage-based billing on wholesale buyers of connectivity? (Yes, a win for incuments.);

Are Ethernet services still essential services that have to be delivered by incumbent operators. (No, a win for incumbents. The commision decided in this in 2008, but the ruling was upheld on appeal this year by the federal cabinet).

–And finally, is new wireless entrant Globalive Wireless Management Corp. under Canadian control? (No, a huge but temporary win for incuments. It turned into a big loss when the commission was over-ruled by Ottawa.)

See the sidebar for more details and links to the rulings.

Small wonder Ken Engelhart, vice-president of regulatory affairs for Rogers Communications Inc. says that ‘in general, they (the commission) are on the right track.”

And small wonder that Tom Copeland, chairman of the Canadian Association of Internet Providers, which represents a number of ISPs, says his members are “incredibly frustrated” with the commission’s recent rulings.

“If you would have asked me in November, I would have taken the position that it’s time for the CRTC to whither away,” says Iain Grant, managing director of SeaBoard Group, a Montreal-based telcommunications consultancy.

Vibrant telecom competition is increasing, he explained, so the need for a regulator was receeding. On the other hand, in his opinion the commission had issued a few “odd and bizarre” opinions.

What changed his mind about the commission’s future were two December cabinet decisions, one that surprised, the other that delighted incuments:

The first was a complete reversal of the Globalive decision, which allowed Wind Mobile quickly to start operations. It was a stunning loss for incumbent wireless carriers who didn’t want to face a well-funded new opponent. Plus it confused the foreign ownership laws.

Separately, cabinet told the commission to take another look at its speed-matching decision, which forces incumbents Internet providers to let wholesale buyers (independent service providers, or ISPs) match any Internet speeds incumbents offer their own retail customers. In making its order, cabinet said the CRTC now had to consider whether speed mathching might “unduly diminish” the incument’s willingness to invest in new network infrastructure. What the commission’s hearing in May will turn into is an broader examination of what essential services incuments have to offer competitors.

Now Grant, who felt the CRTC was right on Globalive and that cabinet is medling, looks differently at the commission. “I am coming around to the view there may well be a role for a specialized entity that actually understands something of the industry dynamics,” he says.

“Whether you agree with the CRTC on certain issues, they know whereof they speak.”

It’s a trying time for the regulator, which is facing new forces from increased competition and technology that challenge its mandate. This month, for example, it acknowledged in a report that the convergence of broadcasting and telecommunications may mean new tools and approaches are necessary for the commission to fulfil its obligation to protect Canadian content. New unregulated players have entered the market, while telcos and cabelcos are engaged in horizontal and vertical integration.

It has noted these trends before, but the report devles deep into the challenges. The report is typical of the commission’s work since the appointment of former federal court judge Konrad von Finckenstein as its chair. The commission is closing in on the completion of its latest three-year plan to examine everything it does, trying to take a more focused approach to its work. Among the benefits, observers note, is that the commission is making more consistent decisions and more quickly than before.

Well, sometimes. Take the so-called ‘Pole case’ involving Rogers, Bell Aliant and the New Brunswick power corporation which has Rogers’ Engelhart wrapped up in knots. Briefly, it’s a dispute involving Rogers right to use telephone poles of the telcos which the commission is trying to referee.

“We’ve had four wildly contradictory decisions from the commission, all of which have as a unifying theme the fact that Rogers loses,” Engelhart fumes. From his point of view, it’s a simple matter of contract law “that any law student could figure out.”

Rogers is, again, appealing the latest ruling.

And while the incumbents have recently largely been getting their way, it isn’t enough for some. Although the commission often bows to the 2006 cabinet directive on market forces, Mirko Bibic, Bell’s senior vice-president of regulatory and government affairs says there’s “still far too much regulation.” In particular, he said the speed matching decision, which Bell lost, was “disconcerting.”

Still, when incumbents win they are nothing less than effusive. Engelhart declares the commission’s Globalive ruling “crisp, clear, logical and well-reasoned.”

Similarly, Bibic said the commission’s decision to allow network operators largely a green light in traffic management was “the way a decision by a policy regulator ought to be set up.”

Telecom consultant Mark Goldberg saw merit in an overlooked commission ruling involving a Public Works contract won by Telus Corp. to replace Bell as a federal managed service provider. Telus couldn’t take over as fast as the contract specified and needed two extensions. Like the pole case, it turned into a contract dispute the commission had referee. What it did, Goldberg said, was establish rules to safeguard competition, not a particular competitor.

On the other hand, consultant Grant says the commission’s Ethernet services ruling was “wrong with a captial W.” The CRTC found Ethernet services – increasingly in demand by business — are no longer essential services that have to be offered by incumbent telcos because they can be duplicated by other service providers. Unlikely on a national scale, retorts Grant, because of the cost. The ruling “essentially eroded the entire competitive base for Canadian business to look for alternatives to the incumbents,” he says. He doesn’t believe organizations understand the significance of the ruling: There won’t be wholesale access to essential facilites on incumbents’ new fibre networks.

Despite cabinet’s endorsement, the commision hasn’t seen the last of this issue, Grant predicts.

Looking ahead, the commission has already scheduled two major hearings: At the end of May, a five-day session will be held after cabinet tossed back the speed-matching decision. The commission’s ruling favoured independent Internet providers (ISPs), but the upcoming hearing could overturn the entire definition of what essential services incubents have to offer competitors.

“It’s going to be huge,” predicts CAIP’s Copeland. The hearing will ultimately determine whether comptitive service providers have access to the next generation fibre optic networks of the phone companies. “We’ll be able to get into the triple play services, where we have television, Internet and phone available.”

That will be bitterly fought by incumbent telcos and cablecos. Listen to Bell’s Bibic for a taste of what will come: “I see no public policy justification for forcing us to provide access to our competitors to our brand new networks that we’ve invested in … It doesn’t make any sense.” Instead, let them build new networks, he says.

Goldberg notes that cabinet has told the commision it has to reconsider is whether the speed-matching requirements “unduly diminish” the incentives of incuments to invest in new network infrastructure. That, he noted, will be a challenge because of the many alternatives – satellite, new wireless entrants such as Globalive – organizations can chose from.

If this looks big, the commission has set aside two weeks in October to look at what basic phone services should be mandated in this era of technolgical upheaval. It (again) promises to pit ISPs against incumbent telcos.

To ensure that high cost rural areas have access to the same services as people who live in urban areas, in 2000 the commission created a set of basic phone services for which telcos were entitled to a local service subsidy. The subsidy is paid for by revenues collected from telecommunications service providers. One of the basic services is dial-up Internet access. However, high-speed access is the expectation of subscribers today. Should the definition of basic service be changed? More importantly, given cabinet’s 2006 directive that the commission should favour market forces, and that competition in telecom services is greater today than it was 10 years ago, is a defined basic service and a subsidy necessary? These and related questions will be before the commission.

It’s been just over four years since the cabinet  told the commission to rely as much as possible on market forces when making decisions. Combined with the 2007 appointment of a chairman Konrad von Finckenstein, the result has been an agency that  largely favours facilities-based operators.

Consultant Mark Goldberg believes that won’t change this year.

“I believe the CRTC is contining to endorse a vision that facilities-based competition provides the most sustainable choice to consumers. And while resale of essential facilities will be mandated, it’s in the pursuit of the end – facilities-based competition.”

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