Call-Net Enterprises Inc
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In the Matter of Canada Gazette Part I, September 14, 2002 Telecommunications Act Notice No. DGTP-008-02 Petition of AT&T Canada Corp. to Her Excellency the Governor in Council Dated August 27, 2002 Telecom Decision CRTC 2002-34 Regulatory Framework for Second Price Cap Period Comments of Call-Net Enterprises Inc. November 21, 2002 TABLE OF CONTENTS I. OVERVIEW _______________________________________________________ 1 II. THE ROLE OF THE GOVERNMENT OF CANADA _____________________ 8 III. INDUSTRY REPORT CARD ________________________________________ 13 (a) The ILECs’ Remain Dominant __________________________________________ 13 (b) CLECs Are Exiting the Market __________________________________________ 14 (c) Low Price Levels ______________________________________________________ 15 (d) Declining Investment in Telecommunications Infrastructure__________________ 17 (e) No Silver Bullets on the Horizon _________________________________________ 18 (f) Conclusions __________________________________________________________ 19 IV. IMPLICATIONS FOR CANADA_____________________________________ 21 V. REGULATORY REFORM __________________________________________ 24 (a) Prioritizing Policy Objectives____________________________________________ 24 (b) Rethinking Facilities-Based Competition __________________________________ 26 (c) Reforming Pricing of Telecommunications Services _________________________ 29 (d) Pro-Competitive Regulation of Telecommunications ________________________ 31 (i) Regulatory Lag_____________________________________________________________ 32 (ii) ILECs Abusive Marketing Practices ____________________________________________ 35 VI. THE PATH FORWARD ____________________________________________ 38 (a) Policy Direction _______________________________________________________ 38 (i) Competition is the preferred means of achieving the socio-economic objectives in section 7 of the Telecommunications Act _______________________________________________________ 38 (ii) The CRTC must assess the competitive impact of all of its decisions to ensure that they enhance the competitiveness of Canadian telecommunications_____________________________ 39 (iii) New Entrants should not bear the risks of regulatory lag_____________________________ 39 (iv) In fostering competition, the CRTC must develop cost-based rates for ILEC services and facilities that competitors identify as being vital ________________________________________ 40 (v) Competitor Access to ILECS’ Operations Support System (OSS)______________________ 40 (b) Investigation and Report on Pricing ______________________________________ 41 (c) On-Going Policy Role __________________________________________________ 41 I. OVERVIEW 1. These comments are filed by Call-Net Enterprises Inc. in response to Canada Gazette Notice No. DGTP-008-02: Petition to the Governor in Council by AT&T Canada Corp. (AT&T Canada). 2. Call-Net Enterprises Inc. (Call-Net) is a leading Canadian integrated communications solutions provider of local and long-distance voice services as well as data, networking solutions and on-line services to businesses and households through its subsidiary Sprint Canada. Call-Net, headquartered in Toronto, owns and operates an extensive national fibre network. Sprint Canada is unique in providing national local residential service to more than 130,000 customers across Canada. 3. AT&T Canada has requested the Governor in Council to exercise its powers under section 12(1) of the Telecommunications Act (the Act) to review and vary certain aspects of Telecom Decision CRTC 2002-34, Regulatory Framework for the Second Price Cap Period (the “Second Price Cap Decision”). More specifically, AT&T Canada has asked the Governor in Council to modify portions of that Decision which relate to the pricing of services which competitors purchase from the incumbent local exchange carriers (ILECs) such as members of the Bell Canada Alliance and Telus. AT&T Canada has made this request because of its concern that, unless the Governor in Council intervenes, it is doubtful that a significant competitive alternative to the ILECs will survive and prosper. AT&T Canada says that such an outcome would constitute a major reversal for the pro-competitive policies that the Government has pursued since 1992. 4. In its Petition, AT&T Canada has painted a very bleak picture of the state of competition in the Canadian telecommunications market and, in particular, in the local exchange market which represents the largest segment of that market. It has highlighted the fact that new entrants have been frustrated in their attempts to obtain access to vital components of the ILECs’ networks at cost-based rates and have ended up paying the former monopolies hundreds of millions of dollars in inflated mark-ups. This has served to divert scarce financial resources away from the new entrants’ own networks, while enriching their principal competitors, the ILECs. AT&T Canada raises the specter of “remonopolization” by the ILECs as a likely outcome, if the problems are not fixed. It has cast the blame for this situation on the CRTC and, in particular, the CRTC’s failure to remedy these problems in its Second Price Cap Decision. 5. In response to AT&T Canada’s Petition, the ILECs (the Bell Canada Alliance and Telus) have tried to put a happy face on the industry. They highlight the inroads made by competitors in the local business market and raise the expectation of new entry in the residential local market by cable TV companies and wireless service providers. They blame the current woes of the industry on 2 the worldwide downturn in the telecommunications sector as well as bad business planning, and they continue to oppose any expansion of the limited segment of services and facilities that they are currently required to provide to competitors at cost-based rates. They endorse the CRTC’s focus on “facilities- based” competition and believe that the CRTC has struck an appropriate balance between the interests of the various stakeholders (the ILECs, new entrants and consumers). If anything, the ILECs believe that the CRTC has erred on the side of the new entrants and given them access to a broader range of cost-based facilities and services than the ILECs consider is justified. 6. What should the Governor in Council make of these two very different views of the state of competition in the telecommunications market and the impact of the CRTC’s Second Price Cap Decision on the development of effective competition? Is the local exchange market competitive or in crisis? Can the problems be fixed by varying certain aspects of the Second Price Cap Decision or does that decision strike an appropriate balance between the various stakeholders? 7. In Call-Net’s view, the facts support AT&T Canada’s position that the local exchange market is in crisis and that reforms are urgently required if the competitive local market is to survive and develop. However, Call-Net disagrees with AT&T Canada that the blame for this situation can be placed on the CRTC. While the remedies proposed by AT&T Canada would address some of our concerns, Call-Net believes that broader policy issues need to be addressed. 8. The CRTC has already put in place a proceeding to address certain short- comings in the Second Price Cap Decision identified by Call-Net and we are optimistic that these issues will be remedied by the CRTC itself. 9. AT&T has only focused on one aspect of one CRTC decision that affects the development of a competitive telecommunications market in Canada. In Call- Net’s view, limiting the remedy to revising that Decision will not foster the degree of competition that is necessary to achieve the competitive market objectives of Canadian telecommunications policy set forth in the Act. More pervasive regulatory reform is necessary and more direct involvement by the Canadian Government is required if these objectives are to be realized. This requires the Minister of Industry and the Governor in Council to step beyond the relatively restrictive role that they have traditionally played in the wireline telecommunications market, and that they begin to take a leadership role in addressing the regulatory reforms that are required to achieve a healthy and competitive telecommunications market in Canada. That market is undoubtedly in crisis and action is urgently required. The Government must become engaged in developing a solution, in providing policy direction to the CRTC and in giving positive signals to competitors that are on the verge of extinction. 3 10. Call-Net urges the Governor in Council to begin by examining the facts. What will become obvious when the facts are examined is that the state of competition in the Canadian telecommunications market is very fragile and that longer-term remonopolization by the ILECs is a very real possibility. 11. The local telephony market has been open to competition for approximately five years. During that period, new entrants have spent an estimated $8 billion on facilities and services to enter this market. Yet, at the end of this five-year period, the Incumbents (ILECs) still enjoy a 99.4% share of the local residential market, and a 96% share of the total local market.1 In the past 18 months, 11 new entrants have gone out of business, the first and third largest Competitive Local Exchange Carriers (CLECs) – AT&T Canada and GT Group Telecom – are currently in creditor protection and the second largest new entrant, Call-Net, has recently completed a financial reorganization that involved the