Speech by Jean-Pierre Blais, Chairman, Canadian Radio-television and Telecommunications Commission

To the Canadian ISP Summit

Toronto, Ontario
November 5, 2012

Check against delivery

 

Thank you for the opportunity to be with you this evening. The Summit offers me a wonderful chance to get to know many of you better.

Let me begin by telling you what a privilege it is to speak as the Chairman of the Canadian Radio-television and Telecommunications Commission (CRTC). Being appointed to the position was a tremendous honour for me. I’m approaching each day with a heavy sense of responsibility and excitement about what lies ahead over the next five years.

The CRTC has developed a road map for where we will be heading between now and 2017. I would love to provide more details about it, but I realize that I’m holding up your dessert. So, I’m going to limit my remarks to a few issues I know are particularly relevant to you as Internet service providers (ISPs).

You can, however, find out more about our road map by reading the speech I gave to the Canadian Chapter of the International Institute of Communications a week ago. My speech is available on the CRTC’s website.

As the head of the CRTC, I’m only one part of a much bigger team: a team armed with the dedication, expertise and professionalism of my fellow Commissioners and Commission staff.

I think it’s fair to say that our team can sometimes be widened to include you. As representatives of business and government, we have a collective responsibility to meet the changing needs and demands of Canadians. We have a collective responsibility to promote competition, innovation and choice. We have a collective responsibility to provide the services consumers want, while promoting competition in the marketplace.

And, more often than not, we have to carry out that collective responsibility together.

Vinton Cerf, one of the “fathers of the Internet,” said it well: “At some point, you can’t lift this boulder with just your own strength. And if you find that you need to move bigger and bigger boulders up hills, you will need more and more help.”

What he meant, of course, is that we can’t do everything ourselves. The CRTC can’t regulate competition, innovation and choice into the marketplace. As representatives of businesses, you can’t ensure competition, innovation and choice will thrive. We all have to do our parts. We all have important roles to play. We all have collective responsibilities to fulfill.

This is the theme I’d like to develop over the next few minutes: the important role ISPs play in helping the CRTC to ensure Canadians have access to a world-class communication system. To do that, I’d like to:

  • Highlight the contributions ISPs make to Canadian society, and
  • Update you on three key issues that, when resolved, will account for the opportunities and challenges facing your sector while advancing the interests of Canadians.

The contributions ISPs make to Canadian society

We all know that the Internet defines how Canadians live, work and play. It is part and parcel of almost every aspect of our lives.

Accordingly, the services you provide enhance the economic, social and cultural health of our nation.

  • They boost productivity by facilitating the economic and financial transactions Canadians consumers undertake every day.
  • They enrich our culture by multiplying the number of ways by which Canadian content can be listened to and watched.
  • They empower Canadian creators, allowing them to share their work with friends down the street and people around the world.
  • They enable social relationships to flourish, as Canadians of all walks of life can span the thousands of kilometers that may separate them and communicate face-to-face.
  • And, they enhance the flow of information available to Canadian citizens—a flow that is improving our education systems, and offering health care professionals the chance to improve the quality of our lives.

As you continue to offer Canadians even more innovative services and even more choice, just think of the benefits our society will reap in the years to come.

Consider this. Leading American ISPs, technology companies and not-for-profit organizations have started a program to bridge the growing disparity between the “digital-haves” and “digital have-nots.” By providing hardware, broadband access and digital literacy training to low-income Americans, rural Americans, seniors and minorities, they are helping those caught in the socio-economic divide to capitalize on the benefits of the Internet.

Why? How? Evidence shows that students who have a computer and broadband Internet connection at home are more likely to succeed at school. Online consumers can save a substantial amount each year by shopping smarter. And, more than 80% of Fortune 500 companies require potential employees to apply for jobs online. The flip-side is also true: none of these benefits can be realized without access to the Internet.

Evidence like this begs the question: Could Canadian ISPs do more to meet the growing demand for broadband access in every corner of our country?

How could all Canadians—especially those from traditionally disadvantaged, or rural, remote and Northern regions—gain access to the right tools to sustain economic, social and cultural development in their communities?

How could we empower the millions of Canadians with disabilities with better access to online services they need?

Certainly, many of you are already partnering with different levels of government to build and sustain networks across the country. I sincerely commend you for your work. But, there is no doubt we can, and must, do more.

When the business community takes its corporate social responsibilities seriously, both Canadians and shareholders are the better for it.

I appreciate that the challenge can be much greater for the smaller independents. And yet, you have clearly shown you have what it takes. You have shown that while being a Giant may help you win the 2012 World Series, it doesn’t mean smaller players can’t get ahead or make a difference on another playing field. You have shown that by carving out niches and putting an emphasis on initiatives like customer care, you too have roles to play and ways in which to contribute.

Renewing our focus on Canadians

It’s no secret Canadians are demanding more from their communication services all the time.

As businesses, you have to respond in ways that are innovative, reliable, affordable and competitive.

As a public institution, we have to respond by demonstrating that our regulatory approaches reflect their interests. And the CRTC is trying to do that by renewing its focus on Canadians, including the needs and interests of Canadian consumers.

I’d like provide updates on three key issues that, once resolved, will help to put Canadians at the centre of our work, while reflecting the opportunities and challenges ISPs deal with, as well.

(1) Capacity-Based Billing

The first is capacity-based billing.

The CRTC’s former Vice-Chairman of Telecommunications, Len Katz, spoke at last year’s ISP Summit on the very day we released our decision on capacity-based billing. Let me briefly recap some of the key elements of the decision.

Our objective was to inject more competition, innovation and choice into the marketplace for consumers.

Two billing models were chosen as the best ones to achieve our objective: (1) capacity-based billing and (2) flat-rate billing. In our view, those two models best enabled independent ISPs to set their own rates and design service plans that were different from those of the incumbents. They also struck the best balance between an appropriate level of risk and flexibility for independents, and the opportunity costs borne by the incumbents when upgrading their networks.

Some of you have since asked the Commission to review and/or re-consider certain parts of the decision. Some of you have also been wondering why it is taking so long to get a response.

Mel Cappe, former Clerk of the Privy Council, had a great line in response to pressure to make an important decision quickly: “The speed of the public interest is not the speed of the Internet.”

Our world of instant communication has raised expectations that decisions can be made in “Internet time,” with just the click of a mouse. But, in this case, the CRTC has to ensure due diligence by studying the issues carefully. Quite frankly, the issues are too complex and the cross-section of interests too wide, to do otherwise.

We understand that the limited costing information that was made available contributed to the number of review-and-vary applications that were submitted. After all, it’s difficult to have faith in wholesale rates if you can only guess at how we arrived at those numbers.

(2) Decision on confidentiality of information used to establish wholesale service rates

This brings me to the second issue I’d like to raise: our recent decision on the confidentiality of information used to establish wholesale service rates. It is clearly linked to the timeliness of our decisions.

Let me take a minute to explain our current rate-setting process for wholesale services.

The current process is designed to allow the Commission to set fair, reasonable and competitive rates in an accurate, timely and transparent manner.

For the most part, we rely on an incremental costing approach, known as “Phase II costing,” to assess the incumbent carrier’s costs of providing wholesale services to competitors. Cost assessments are based on information provided by the incumbents, which can be designated as confidential upon request.

We then apply a markup to these incremental costs to determine wholesale service rates. The markup contributes to the incumbent’s fixed and common costs – costs that haven’t already been included.

Last March, the Commission initiated a process to consider if additional cost study elements and markups could be disclosed.

Our decision was released on October 26. The overriding objective was to advance the public interest through increased transparency and the development of as full and complete a record as possible for future wholesale service rate proceedings. We decided there should be an increased level of disclosure to provide greater transparency in the rate-setting process.

What does that mean for future applications?

It means that the Commission will apply more extensive disclosure guidelines when wholesale service applications are filed. Disclosure guidelines will apply to cost information filed in support of all mandated wholesale services, regardless of service category or markup. They will include cost information for proposed and final markups. And, they will include expectations for disclosing cost study elements like demand forecasts, corporate cost factors and financial parameters.

Incumbents will still have the right to request that some information be designated as confidential. Intervening parties will still be able to request disclosure of such information.

Nevertheless, the bottom line will be greater transparency as wholesale service rates are set.

Why do we believe this is in the public interest?

Greater transparency will help to minimize delays, and decrease the likelihood of regulatory games. Greater transparency will allow competitors to use their expertise and provide more informed comments when costs are examined and markups are set. Greater transparency means that parties may want to develop counter-proposals to those of the incumbents. Greater transparency means the entire industry can have confidence in the wholesale service rates we set. And, greater transparency will allow all of us to get on with the job at hand: ensuring Canadians have access to a world-class communication system.

(3) Future wholesale pricing review

The third issue is an idea that was mentioned in our Three-Year Plan.

We are planning to review how we price wholesale services in 2013-14. We will be looking at whether there are different approaches we should be using and, if so, how they could be put into practice.

As I said, the idea is still in its infancy. Nothing concrete has yet been decided. Nevertheless, we are considering whether and how to review issues related to pricing methodology, process improvements and specific costing methods. Our intention would be to look holistically at how we set rates to make sure our models and processes remain relevant and sustainable, and continue to respond to the needs and interests of Canadians. To look at questions like:

  • Is our current cost-based model always the most appropriate method?
  • Should a different pricing approach be taken for certain classes of service providers?
  • What impact would any change to the pricing approach have on the accuracy or transparency of the resulting price?
  • Could some procedural changes reduce the incentive for regulatory gaming?

When the pricing review gets underway, it would certainly offer every ISP a great opportunity to work in partnership with us, offering suggestions and feedback on how our current approaches are applied. You clearly have a stake in the design of the rules, and we are looking to you to be part of the solution. We want you to be confident in the rates we set.

Conclusion

I began my remarks by talking about the CRTC as a team and the ways in which the CRTC often works alongside industry players to bring more competition, innovation and choice into the marketplace.

We all have important roles to play, roles which also bear significant responsibilities.

We need to continue working together, looking for new ideas and approaches that will boost your competitiveness and enable Canadians to benefit from a world-class communication system.

So I leave you with one final thought.

I grew up in Montreal in the 1960s, and to this day vividly recall Expo ’67. In particular, I remember visiting the Bell pavilion, with its promises of wireless and visual telephony. Those were the dreams of future magic! That summer, when I was 7, I travelled the world on man-made islands in the middle of the St. Lawrence River.

Today, it is you, the ISPs, with that promised wizardry of the Bell pavilion, that bring, in the blink of an eye, all the civilizations of the world to our living rooms or to the palms of our hand. You are the great Globe Theatre. You are the stuff which dreams are made on.

Thank you.

 

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