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Speech

Notes for an address

by Charles Dalfen

Chairman, Canadian Radio-television
and Telecommunications Commission

to the 2006 Telecommunications Summit

Toronto, Ontario

June 14, 2006

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Good afternoon.

I'm pleased to be with you today.

May I also congratulate Mark and Michael for the excellent job they have again done in organizing this conference, with an array of speakers across a wide range of topics of interest to the industry. The attendance again speaks for itself.

I have just returned from the Banff World Television Festival where the Honourable Bev Oda, Minister of Canadian Heritage and the Status of Women announced that the government will draw upon the expertise of the CRTC to examine the future technological environment facing the Canadian broadcasting industry. She indicated that the CRTC Report will complement the picture of technological change started last spring when the Telecommunications Policy Review Panel reviewed Canada's telecommunications policy and regulatory framework.

Yesterday, the Honourable Maxime Bernier announced at this conference that the government had tabled in Parliament a proposed policy direction to direct the CRTC to rely on market forces to the maximum extent feasible within the scope of the current Telecommunications Act.

Both these developments reflect the clear intention of the government to take an active role in policy formulation in both of these vital sectors.

Minister Oda also indicated that she would be working closely with Minister Bernier so that the government's work across the broadcasting and telecommunications sectors would be in her words “coordinated, comprehensive and collaborative”.

Minister Bernier has expressed the same position on a number of occasions.

The Commission welcomes these developments which are fully envisaged in our governing legislation and which will allow the government and the CRTC to play their appropriate roles on a coordinated and accountable basis.

We look forward to ongoing cooperation with both Ministers and their departments.

Canada is a world leader in the strength of our telecommunications and broadcasting systems, in large part because telecommunications and broadcasting have always played such a vital role in linking our vast country together and allowing us to communicate effectively with one another wherever we live.

As I said in my address to this summit a year ago, we have an industry that is committed to innovation and investment, entrepreneurs who are keen to test the waters of competition, and sophisticated consumers who demand the best in terms of both the quality and variety of services. This remains the case today.

The federal government has also played a vital role both in promoting the deployment of the latest telecommunications facilities and services across the country, and in maintaining consistency of policy and regulatory direction. The announcements of our two ministers over the past few days can only enhance that consistency.

The Commission's contribution has come from, among other things, a firm commitment to sustainable competition, a willingness to remove obstacles to competition – by allowing appropriate access to telco and cable infrastructure, to multiple unit buildings and to municipal rights of way – and at the same time a continual willingness to refrain from regulating when markets become sustainably competitive.

The Commission has also consistently been mindful of the situation faced by vulnerable, disadvantaged and rural Canadians and, of the need to ensure their access to telecommunications services on an affordable basis. In this regard we were pleased to note in Minister Bernier's speech yesterday a recognition of the importance of protecting the needs and rights of consumers, in particular, of Canadians living in remote areas.

As I also said a year ago and would reiterate today, together we have built one of the most innovative, consumer-oriented competitive and productive telecommunications sectors on the planet.

How do we assess the success of a policy framework and a regulatory regime? It seems to me that this judgment must be based – at least in part – on international comparisons. However, care must be taken in making such comparisons not to focus unduly on institutional arrangements in different countries without having regard to the facts on the ground in those countries that have resulted in part from those institutional arrangements.  

Put another way, it would seem to me that institutional arrangements in another country would be of interest where that country's relevant benchmarks show higher performance levels than one's own and less interest where they do not.  

It is ultimately therefore to these benchmarks that one must look.

Let me share with you now some comparative data from the OECD on Canada's telecommunications industry in relation to the United States, the United Kingdom, and Australia. These are the latest complete data available.

In wireline residential pricing, the Canadian average is about 40 percent below Australia, 30 percent below the US, and roughly equivalent to the UK.

In wireline business pricing, Canada is close to 50 percent below Australia, 40 percent below the UK and 30 percent below the US.

In wireless, with respect to pricing, the OECD compares the lowest-priced provider in each country across three categories of user: low, medium and high. For medium users, the lowest-priced Canadian provider is 14 percent cheaper than its US counterpart, and nearly 30 percent cheaper than its British and Australian counterparts. In the other two user categories we also compare quite well.

In broadband penetration –measured by subscribers per capita – we are about 30 percent ahead of the US, 40% ahead of the UK, and nearly 60 percent ahead of Australia. However, our wireless penetration, again measured by subscribers per capita, is more than 50 percent below the UK, over 40 percent below Australia, and about 25 percent below the US.

The OECD also looked at capital expenditure in each country as a percentage of telecom revenue. The numbers show that Canada's capital investment ratio is nearly double the ratio in the UK, exceeds the US ratio by about 40 percent, and is slightly ahead of Australia's.

I'm not suggesting, by any means, that the CRTC should take the credit for this positive picture. But we have played a role, and I'm proud of our record. More importantly, this record has been achieved by this industry over a long period of transition from full monopoly to mixed monopoly and competition. Some of these benchmark successes were achieved under full or partial regulation, others in a forborne environment. Which of course illustrates the point that competition – however strong our commitment to it is – is not an end in itself but is a means to an end, a means that is in most markets superior to regulation, but still a means. The end is a universal, high quality state of the art telecommunications system accessible and affordable to Canadians wherever they may live in our country and whatever their economic situation or abilities or disabilities.

With regard to investment and innovation, as I said last year and repeat again, this is one of the hallmarks of the Canadian telecommunications sector. And while we sometimes hear that our approach to regulation disincents or even stifles investment, the evidence – whether from the OECD or elsewhere – would tend to support the opposite conclusion.

As I have said on a number of occasions, at the CRTC we have a firm and ongoing commitment to removing obstacles to competition and to refrain from regulating where markets become sustainably competitive.

Over the past three decades, we've moved from a fully regulated industry with a monopoly structure to an industry where competition is alive in every major service category and where only 30 percent of the total telecom market – measured by revenue – remains subject to economic regulation.

From the time that I took up the job of Chairman in 2002, much of our effort on the telecom side of the Commission has been devoted to removing the remaining obstacles to robust competition in local telephone services, with the aim of ensuring that Canadian consumers can benefit from real choice in the provider of telecommunications services.

Two points are important to note in regard to these obstacles, and to our efforts to try and address them. One is that they are intended to foster competition, not for the benefit of the competitors but for Canadian telecommunications consumers and businesses, particularly small businesses

The second is that the obstacles have been erected not only by the incumbents, but also by third parties – such as municipalities, building owners, and sometimes by the Commission itself through undue regulatory delay.

In regard to third parties, the Commission has attempted, with a view to offering consumers a choice of telecom service providers, to facilitate access by competitive providers to municipal rights of way, support structures and multiple unit dwellings.

In respect of the ILEC's, the Commission has attempted to ensure that competitors can have access to the services and facilities they require to offer their services on fair and reasonable terms, and at a level of quality that incumbents provide to themselves. We have also sought to ensure, through a variety of price-related safeguards – that incumbents do not compete in the retail marketplace at prices below cost and with measures that unfairly target their competitors.

In a network based industry, where the entrant firm must interconnect with the incumbent former monopoly in order to compete at all, where the incumbent has billions of dollars invested in a ubiquitous network, where the incumbent has supplied virtually every customer in the market and accumulated the information which goes with that universal presence, and where the incumbent has a brand and distribution network known to every customer, promoting competition has required a number of regulatory measures.

Finally, we have imposed on ourselves a set of measures directed at minimizing regulatory delays. Some of these measures assist the competitive efforts of incumbents – for example, streamlined procedures for tariff submissions, and approval of tariffs for Bell Canada's Digital Voice Service that sets confidential ranges of prices within which incumbents can offer services. Others – such as the introduction of expedited dispute settlement and our encouragement of dispute settlement via mediation – apply to all service providers.

Let me turn now to the Report of the Telecommunications Policy Review Panel. We are, as a matter of priority, preparing a review of its many recommendations that pertain to us. Where there are recommendations that we can implement expeditiously, I expect that we will do so.

We believe this process affords us an opportunity for internal examination and renewal.

Indeed, changes in a number of areas addressed by the TRP are already underway.

We have launched a working group with the Competition Bureau for the purpose of trying to ensure that decisions by either agency affecting the telecommunications sector are informed by the expertise resident in both agencies. One of the initial tasks of the working group will be to develop recommendations on a definition of essential services that can be applied by both agencies and provide greater consistency for the telecom industry.

Any change to the CRTC's definition will be put out for public comment later this year.

We are also seeking ways to increase regulatory flexibility for incumbents in markets that are not yet ready for forbearance. For example, we have placed the issue of rate de-averaging on the agenda of the third Price Cap Review. We also approved provincial rate de-averaging in the case of Bell Canada's Digital Voice Service, and have approved tariffing with a confidential range of prices for that same service. In addition, we have just issued a public notice seeking comment on the applicability of confidential ranges to primary exchange service generally.

The report of the Telecom Policy Review Panel concluded that in telecommunications markets that remain regulated, the CRTC should move from ex ante to ex post regulation, no longer requiring prior tariff approval but allowing ILECs the freedom to introduce services or change prices as they wish. Only if they then fail to comply with regulatory requirements should the CRTC intervene – after the fact.

As I have said on other occasions, I agree that ex post regulation has much to recommend it. It would virtually eliminate the administrative burden of regulation for ILECs who comply with the rules, while also lightening the Commission's workload.

But if ex post regulation is going to provide effective protection of consumers' interests, then the CRTC must also be given the power to levy meaningful fines – “administrative monetary penalties”, to use the formal term – on carriers who are found, after the fact, to be non-compliant. While it is unlikely that these penalties would have to be imposed very often, they would have a deterrent effect without which consumers would be left unprotected. The TPR report wisely suggested a combination of ex post regulation with a meaningful fining power for the Commission.

When I became CRTC Chairman, a major preoccupation of mine was that we should accelerate the emergence of robust facilities-based competition in local services, so that we could break down the last major barrier to deregulation in telecommunications. The building blocks were already there when I took office. The measured approach taken by the Commission since the Local Competition decision in 1997 and into the new millennium paved the way.

Our Local Forbearance decision provides a small number of clear signposts on the road to deregulation, and I believe that we will soon be able to forbear from regulating local business and residential services in a number of major cities.

We have also indicated that we would accept applications in anticipation of the forbearance criteria being met in order to remove any regulatory lag in the process.

And there's a further factor – wireless substitution – that could make it reasonable to imagine even shorter timeframes.

The record available when we made the local forbearance decision indicated that the number of Canadians using wireless as a full substitute for local wireline service was not significant enough to allow us to include in our calculations of incumbent market share loss those customers who substitute wireless for wireline phones.

Recent Statistics Canada data, however, show that the number of households subscribing to mobile service only, though still small as a proportion of all wireless subscribers, is growing rapidly.

We are accordingly issuing a Public Notice calling for comments on whether or not wireless numbers should be included in the calculation of incumbent market share loss for purposes of local wireline forbearance.

I'm very proud of my colleagues at the Commission and our hard working, able and steadfast staff, a number of whom are here today, who have helped bring us to this point.

And I speak on their behalf when I say that the CRTC owes a debt to the many parties who have contributed their ideas and experience to the many public proceedings that have guided our work.

I'm confident that the telecommunications industry will continue to thrive and innovate in an environment where the government and the Minister – both our Ministers – assume a new and significant policy role, and that Canadians will continue to reap the benefits of one of the finest broadcasting and telecommunications systems in the world.

Thank you very much!

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This document is available in alternative format upon request.

Date Modified: 2006-06-14

 

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