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Canada Gazette Part I, 14 September 2002 Telecommunications Act Notice No. DGTP-008-02 Petition of AT&T Canada Corp. To

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Canada Gazette Part I, 14 September 2002 Telecommunications Act Notice No. DGTP-008-02 Petition of AT&T Canada Corp. To Canada Gazette Part I, 14 September 2002 Telecommunications Act Notice No. DGTP-008-02 Petition of AT&T Canada Corp. to Her Excellency the Governor in Council Dated 27 August 2002 Telecom Decision CRTC 2002-34 Regulatory Framework for Second Price Cap Period Further Response Aliant Telecom Inc. Bell Canada MTS Communications Inc. and Saskatchewan Telecommunications 17 December 2002 Table of Contents Page 1.0 INTRODUCTION.............................................................................................................1 2.0 THE STATE OF COMPETITION .....................................................................................3 3.0 THE COMPETITION BUREAU........................................................................................8 4.0 CALL-NET.....................................................................................................................13 4.1 Canadian Telecommunications Policy................................................................14 4.2 The Role of the Regulatory Process...................................................................15 4.3 End-User Price Levels and Investment ..............................................................17 4.4 Facilities-Based Competition and Resale...........................................................20 5.0 PRIMUS AND DISTRIBUTEL........................................................................................21 6.0 RCI................................................................................................................................24 7.0 REQUESTS SHOULD BE REJECTED OUTRIGHT ......................................................26 Appendix: Revised/Updated Appendix 4 to the Companies 19 September 2002 Response 1.0 INTRODUCTION 1. On 27 August 2002, AT&T Canada Corp. (AT&T) filed a Petition to the Governor in Council seeking to overturn Telecom Decision CRTC 2002-34. 2. In accordance with the Canada Gazette, Part I, 14 September 2002, Telecommunications Act Notice No. DGTP-008-02, Petition to the Governor in Council, Aliant Telecom Inc., Bell Canada, MTS Communications Inc. and Saskatchewan Telecommunications (collectively, the Companies) filed their Response to the AT&T Petition on 19 September 2002. 3. The Competition Bureau (the Bureau) has called on the Governor in Council to deny the AT&T Petition, because AT&T's request "would impair the development of facilities-based competition and its benefits".1 However, the Bureau goes on to suggest that Cabinet direct the Commission to study and report on other measures to foster competition. Review of the Bureau's response suggests that there is still some confusion as to the nature of the Commission's competitive framework. In this Further Response, the Companies provide additional clarification. 4. Call-Net Enterprises Inc. (Call-Net) has filed a Response which does not support the relief requested by AT&T, but instead asks the government to direct the CRTC to make future decisions that favour competitors.2 In this Further Response, the Companies also address certain matters raised by Call-Net. 5. Primus Telecommunications Canada Inc. (Primus) and Distributel Communications Limited and Communication Télosystème Inc. (Distributel) have filed Responses which purport to support the AT&T Petition.3 At the time Decision 2002-34 was issued, neither Distributel nor Primus objected to the Decision. Indeed, Primus praised the Decision noting that "[t]he CRTC's decision in balance represents a reasonable approach to meeting the objectives of all participants in the Canadian telecommunications marketplace, including 1 The Competition Bureau, 4 December 2002. 2 Call-Net Enterprises Inc., 21 November 2002. 3 Primus Telecommunications Canada Inc., 18 October 2002; and Distributel Communications Limited and Communication Télosystème Inc., 1 November 2002. - 2 - residential and business customers, competitive providers and incumbent telephone companies".4 6. The Call-Net, Primus and Distributel Responses are symptomatic of the mischief caused by the AT&T Petition. As is made clear below, there is no conceptual framework which would support the requests made by these parties. Without a clear signal that telecommunications policy in Canada is to be guided by sound economic principles, one can expect yet more pleas for financial assistance and distortion of market forces as in the case of the AT&T Petition. Rejection of AT&T's Petition is a crucial opportunity to provide that clear signal. 7. The very concept of mandating further discounts is extremely harmful to the industry. Discounting wholesale prices leads not only to lower revenues and lower investment by incumbents, but also to lower retail prices and lower overall industry revenues. As it emerges from a period of unprecedented downturn that some have termed the "Great Telecom Depression"5, the telecommunications industry needs to be able to grow revenues and foster investment. The last thing that should be contemplated is a public policy of giving further mandatory discounts to competitors. This would drive lower industry revenues generally and dampen incentives to invest. 8. Other parties have also filed responses to the AT&T Petition. Upper Canada Networks (UCNet),6 Mr. Francois Menard,7 and Rogers Communications Inc. (RCI)8 have used the occasion of Notice No. DGTP-008-02 to make comments that are not related either to the AT&T Petition, or in particular to the relief requested by it. However, the Companies address herein the comments of RCI because they seriously misrepresent the current and potential state of competition in the local telephony market and the actions and motives of Bell Canada and its affiliates in that market. 4 Primus Response, paragraph 20. 5 "After the Meltdown", Ian and Lis Angus, Telemanagement, No. 200, December 2002, page 5. 6 Upper Canada Networks, 25 October 2002. UCNet's Response concerns the pricing of retail services available from Bell Canada. 7 Francois D. Menard, 13 November 2002. Mr. Menard's comments relate to an application to the Commission on 12 November 2002 by the Independent Members of the Canadian Association of Internet Providers (IMCAIP). 8 Rogers Communications Inc., 15 November 2002. - 3 - 9. The Public Interest Advocacy Centre has filed a Response on behalf of the Consumers' Association of Canada, the National Anti-Poverty Organization, and l'Union des Consommateurs (the Consumer Groups).9 The Consumer Groups support the balance achieved by the Commission in the Decision and are concerned that Cabinet action on the AT&T Petition could adversely affect consumer interests. 10. The Companies, TELUS Communications Inc. (TELUS)10 and GT Group Telecom Services Corp. (Group Telecom)11 have recommended that the AT&T Petition be swiftly and categorically rejected. The requests for additional relief made by other parties should also be swiftly and categorically rejected. 2.0 THE STATE OF COMPETITION 11. At paragraph 51 of its Response, Call-Net paints a picture of what it characterises as "a healthy competitive marketplace". What Call-Net describes is a harmonious steady state where the prevailing market price is always above the average cost of all competitors, guaranteeing that all competitors are financially viable in perpetuity, regardless of their business plans and underlying cost structure. However, competitive markets seldom if ever reach this state, let alone remain in such a state. Call-Net's version of competition is static, overly simplistic and makes no mention of the process by which this state of Nirvana is to be attained. 12. In reality, markets are frequently in a constant state of turmoil with competitors entering and leaving as the ground shifts due to changes in technology, unexpected major events, sudden changes in the availability of capital resources, or other disruptions – particularly in an industry characterised by significant technological change. Clearly, by contrasting a competitive Garden of Eden with the reality, Call-Net hopes to persuade Cabinet to intervene in an attempt to micro-mange the outcome of the competitive process. However, government intervention is not warranted by the facts and would be inconsistent with the objective that Call-Net purports to advance – namely to foster reliance on market forces. Moreover, as will be discussed below, the measures proposed by Call-Net would damage rather than enhance the health of the Canadian telecommunications industry. 9 The Consumer Groups, 18 October 2002. 10 TELUS Communications Inc., 17 October 2002. 11 GT Group Telecom Services Corp., 8 November 2002. - 4 - 13. Call-Net presents a biased interpretation of the facts on local market share and concludes that competition in the local telephony market is fragile and re-monopolization in the future is a very real possibility. 14. To support its claims, Call-Net refers to the 4% overall market share of competitors in the local telephony market in 2001 and the 1% share in the residential portion of that market, and alleges that competition from cable technology, wireless or other technologies is not imminent. However, Call-Net is understating the degree to which competition does, in fact, exist, as well as the substantial competitive role of wireless providers and high speed access. Call-Net also ignores the convictions of those closest to cable technology that Canadian cable companies are well positioned to compete and that it is only a matter of a short time before telephone service becomes available through cable technology. 15. In their 19
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