Update to CRTC Telecommunications Monitoring Report - 24 September 2007

Section 4.2 b) ii) Wireless number portability, the first paragraph is replaced with the following:

Wireless number portability (WNP) came into effect nationally on 14 March 2007, where wireline local number portability was in effect.⁴⁹ This allows consumers across Canada the ability to switch between TSPs, either wireline or wireless, and retain the telephone number of their previous provider.⁵⁰

Section 4.6 e) Regulatory developments, the first 2 paragraphs are replaced with the following:

Wireless number portability (WNP) came into effect nationally on 14 March 2007, where wireline local number portability was in effect.¹²⁰ This allows consumers across Canada the ability to switch between TSPs, either wireline or wireless, and retain the telephone number of their previous provider.

For all other locations¹²¹ where local number portability (LNP) does not exist, WNP would be introduced within Commission-approved time periods upon wireless carrier notification to an incumbent TSP.

Table 4.6.4 Wireless subscriber market share by province¹²⁹ (2006) is replaced with the following:

_____________________

⁴⁹ Implementation of wireless number portability, Telecom Decision CRTC 2005-72, 20 December 2005

⁵⁰ For all other locations where local number portability (LNP) does not exist, WNP would be introduced within Commission-approved time periods upon wireless carrier notification to an incumbent TSP.

¹²⁰ Implementation of wireless number portability, Telecom Decision CRTC 2005-72, 20 December 2005.

¹²¹ Due to correction, this footnote is no longer required.

¹²⁹ Due to correction, this footnote is no longer required.

The following version of the CRTC Telecommunications Monitoring Report reflects the corrections mentioned above.

CRTC Telecommunications Monitoring Report

Status of Competition in Canadian Telecommunications Markets

Deployment/Accessibility of Advanced Telecommunications Infrastructure and Services

July 2007

Canadian Radio-television and
Telecommunications Commission (CRTC)
Les Terrasses de la Chaudière
Central Building
1 Promenade du Portage
Gatineau, Quebec

Mailing Address:
CRTC
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Canada
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Telephone: 1 (877) 249-2782 (toll-free)
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This publication is available electronically on our website at www.crtc.gc.ca

This publication can be made available in alternative format upon request.

Ce document est également disponible en français.

Acknowledgements

The Canadian Radio-television and Telecommunications Commission (the Commission) wishes to thank all service providers that completed the CRTC data collection forms, without which this report would not have been possible. The Commission would also like to acknowledge the assistance provided by Industry Canada in the analysis of broadband deployment as it related to the rural communities in Canada and to Statistics Canada for the various supplementary data used in this report.

Executive summary

Telecommunications is an important component in the social and economic fabric of Canada. It is universally available with over 98% of Canadian households subscribing to landline and/or mobile phone service. In 2006 the Canadian telecommunications service industry continued to grow with mobile phone and Internet services driving the growth. The number of mobile phone subscribers increased 10% in 2006. Canadians continued to embrace technologies including broadband access to the Internet as the number of residential subscribers to high-speed Internet services increased by 16%.

The competitors of the incumbent telephone companies which include incumbent telephone companies when operating outside of their traditional territories, continued to gain market share primarily due to the dramatic growth in local competition. Competitors had strong growth in their number of local lines; both in the residential market, essentially from cable companies,¹ where competitor lines increased 89% and, to a lesser extent, in the business market, where competitor lines increased 13%.

In December 2006, the Governor in Council issued a Policy Direction to the Commission that, among other things, directed the Commission to rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives. At that time the Commission estimated that 30% of telecommunications revenues were subject to economic regulation. With the issuance of the Forbearance Order² that established a framework for forbearing from regulating local exchange service and the Commission's High-Speed Digital Service Decision³ there are now frameworks in-place for forbearing from regulating the remaining major regulated retail services. With these frameworks in-place, the percent of telecommunications revenues subject to economic regulation is expected to decline significantly in the coming year.

GROWTH

Total telecommunications service revenues were $36.1 billion in 2006, an increase of $1.6 billion or 4.5% over the previous year. The vast majority of this increase is directly attributable to the 15% and 18% revenue growth of mobile phone and high-speed Internet services, respectively.

To a lesser extent, overall industry revenues continued to benefit from the revenue growth of the newer data services that meet business customer requirements for increased speed, functionality and cost efficiency. These services now represent over 60% of the data protocol revenues, with data services such as Ethernet and Internet Protocol (IP) based virtual private networks (VPNs) having revenue growth of 29% and 73%, respectively.

The telecommunications industry's earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $12.4 billion to $13.1 billion, a $0.7 billion or 5% increase. The increase was due to the mobile phone service providers, whose EBITDA increased from $4.4 billion in 2005 to $5.6 billion in 2006, a $1.2 billion or 27% increase. Capital expenditures increased from $5.6 billion in 2005 to $6.9 billion in 2006, a $1.3 billion or 24% increase.

BROADBAND

Among the G8 group of countries in 2006, Canada had the highest broadband subscription rate with 60% of households subscribing to high-speed Internet service, as over 93% of Canadian households were able to subscribe to broadband service. It's important to note that 87% of Canadian households have a choice of technology and service provider for the provision of broadband service. Another 10% of Canadian households subscribed to dial-up Internet service. This positions Canada well to take advantage of the services, opportunities and benefits that the Internet has to offer.

COMPETITION

The competitors' share of total telecommunications revenues, including landline and mobile phone service revenues, continued to increase and reached 38% or $13.7 billion in 2006. The competitors' market share included the incumbent telephone companies' activities when operating outside of their traditional territories (11%), other facilities-based competitors such as cable companies and hydro utility companies with telecommunications activities (22%) and resellers (5%).

Traditionally there have been two separate and independent landline networks in Canada that accessed Canadian homes; the local telephone network and the cable distribution network. The major cable companies have evolved their networks to deliver not only advanced cable services but telecommunications services as well, such as Internet access service and more recently local telephone service. These companies are major providers of high-speed Internet service, as they had approximately 54% of high-speed residential Internet subscribers in 2006. In 2005, they started to provide local telephone service generally over a managed network and by the end of 2006, they captured almost 12% of local residential lines to become major competitors of the incumbent telephone companies in residential markets.

Table of contents

1.0 Introduction
      1.1 Purpose of the report
      1.2 Data collection and outline of the report

2.0 Overview of regulation and the impact of competition on access to the PSTN
      2.1 Regulatory oversight of Canadian telecommunications markets
      2.2 The Commission and competition
      2.3 Access to the PSTN

3.0 Overview of the telecommunications service industry
      3.1 Market providers
      3.2 Telecommunications service providers and the markets
      3.3 Canada and the world
      3.4 Industry evolution

4.0 Status of competition
      4.1 Financial review of markets segments
      4.2 Local and access
      4.3 Long distance
      4.4 Internet service and broadband availability
      4.5 Data and private line
      4.6 Mobile wireless

Appendix 1 Data collection and methodology analysis
Appendix 2 Classification of Canadian telecommunications service providers
Appendix 3 Summary of Canadian telecommunications markets subject to Commission forbearance rulings
Appendix 4 Status of local forbearance - Residential and business exchanges
Appendix 5 Promising means for accelerated broadband deployment

List of tables

Table 2.3.1 Canadian penetration rates - Wireline and wireless subscribers
Table 2.3.2 Service improvement plans - Status

Table 3.2.1 Total telecommunications revenues by type of service provider
Table 3.2.2 Wireline telecommunications revenue market share by type of service provider
Table 3.3.1 International Indicators
Table 3.3.2 International Telecommunications - Industry Comparison
Table 3.4.1 Personal Computer Ownership and Connections
Table 3.4.2 Telecommunications Service Providers - 2006 Revenue Sources by Market and Type of TSP

Table 4.1.1 Retail and wholesale telecommunications revenues
Table 4.1.2 Telecommunications revenues by market segment
Table 4.1.3 EBITDA by type of TSP
Table 4.1.4 Capital expenditures by type of TSP
Table 4.2.1 Total local and access revenues, and lines
Table 4.2.2 Local and access revenues by market segment
Table 4.2.3 Local lines by market segment
Table 4.2.4 Incumbent TSP local retail market line-share by province
Table 4.2.5 Incumbent TSP retail market line-share by Major Centres
Table 4.2.6 Local residential revenues
Table 4.2.7 Local residential lines
Table 4.2.8 Local business revenues
Table 4.2.9 Local business lines
Table 4.2.10 Local wholesale revenues by major component
Table 4.2.11 Local wholesale revenues
Table 4.2.12 Local wholesale lines
Table 4.3.1 Total long distance revenues and minutes
Table 4.3.2 Long distance revenues by market segment
Table 4.3.3 Large incumbent TSPs' retail long distance - Revenue market share by region
Table 4.3.4 Residential long distance revenues
Table 4.3.5 Residential long distance minutes
Table 4.3.6 Business long distance revenues
Table 4.3.7 Business long distance minutes
Table 4.3.8 Wholesale long distance revenues
Table 4.4.1 Internet revenues
Table 4.4.2 Internet access and transport service revenues
Table 4.4.3 Internet retail access service revenues by type of TSP
Table 4.4.4 Top four retail Internet companies' revenues
Table 4.4.5 Residential Internet access revenues by type of TSP
Table 4.4.6 Residential Internet access revenues and market share by access technology
Table 4.4.7 Residential Internet subscribers by type of TSP
Table 4.4.8 Internet plans and pricing
Table 4.4.9 Business Internet access revenues by type of TSP and transport
Table 4.4.10 Business Internet access revenues by access technology
Table 4.4.11 Wholesale Internet access and transport revenues
Table 4.5.1 Data and private line revenues
Table 4.5.2 Data protocol and other revenues
Table 4.5.3 Data protocol retail and wholesale revenues by service category
Table 4.5.4 Revenue market share by data protocol service category
Table 4.5.5 Private line service retail and wholesale revenues by service category
Table 4.5.6 Private line - Short-haul and long-haul revenue market share
Table 4.6.1 Wireless and paging revenues and number of subscribers
Table 4.6.2 Wireless and paging revenues components
Table 4.6.3 Post-paid and Pre-paid Wireless Revenues
Table 4.6.4 Wireless subscriber market share by province
Table 4.6.5 Average revenue per user (ARPU) by province
Table 4.6.6 Average monthly churn rates

Table A.5.1 Summary of provincial government broadband deployment initiatives and investments
Table A.5.2 Summary of programs for broadband deployment initiatives and investments

List of figures

Figure 2.3.1 TPI v. CPI

Figure 3.2.1 Total telecommunications revenue market share by type of service provider
Figure 3.2.2 Distribution of telecommunications revenues and number of service providers by type of service provider
Figure 3.4.1 Emerging Service Revenues - As a percent of total telecommunications revenues
Figure 3.4.2 BDU and high-speed Internet subscriptions and availability as a percent of the number of Canadian households
Figure 3.4.3 Number of Homes Passed and Subscriptions - Four Largest BDU Companies
Figure 3.4.4 Incumbent TSP and cable BDU non traditional service revenues - As a percent of total wireline revenues

Figure 4.1.1 Telecommunications revenues and percent annual growth
Figure 4.1.2 Annual revenue growth by market segment
Figure 4.1.3 Distribution of telecommunications revenues by market segment
Figure 4.1.4 EBITDA margin by type of TSP
Figure 4.1.5 Capital expenditures as a percentage of revenues by type of TSP
Figure 4.1.6 Wireline inter-carrier expenses as a percentage of revenues by type of TSP
Figure 4.2.1 Alternative TSP local retail lines by type of facility
Figure 4.2.2 Alternative TSP local residential and business lines by type of facility
Figure 4.3.1 Total long distance revenue market share by type of TSP
Figure 4.3.2 Residential and business ARPM
Figure 4.3.3 Retail long distance revenue market share by type of TSP
Figure 4.3.4 Average monthly residential long distance revenues and minutes per local line
Figure 4.3.5 Comparison of monthly long distance revenues per household
Figure 4.3.6 Residential long distance revenue market share by type of TSP
Figure 4.3.7 Business long distance revenue market share by type of TSP
Figure 4.3.8 Wholesale long distance revenue market share by type of TSP
Figure 4.4.1 Residential and business Internet access revenues market share by type of TSP
Figure 4.4.2 Residential Internet access technology mix
Figure 4.4.3 Broadband availability
Figure 4.4.4 Broadband availability (Urban v. rural)
Figure 4.4.5 Broadband availability v. subscriptions
Figure 4.4.6 Broadband access in OECD countries per 100 inhabitants
Figure 4.5.1 Data and private line revenue market share by type of TSP
Figure 4.5.2 Data revenue market share by type of TSP
Figure 4.5.3 Data protocol service revenues - Legacy v. Non-legacy
Figure 4.5.4 Private line revenue market share by type of TSP
Figure 4.5.5 Alternative TSPs' private line revenue share - Short-haul and long-haul
Figure 4.6.1 Wireless revenues to total telecommunications revenues
Figure 4.6.2 Wireless revenues, subscribers and revenues per subscriber (excluding paging)
Figure 4.6.3 Wireless revenue and subscriber growth rates (excluding paging)
Figure 4.6.4 Revenues by major component (excluding basic voice)
Figure 4.6.5 Percent of pre-paid and post-paid subscribers
Figure 4.6.6 Capital expenditures and Average capital expenditures per user
Figure 4.6.7 Retail and Wholesale Revenue Split
Figure 4.6.8 Wireless TSPs' subscriber market share
Figure 4.6.9 Wireless TSPs' revenue market share

Figure A.5.1 Communities with and without broadband access

Maps

Population Density, 2001 by Dissemination Area
Presence of wireless facilities-based service providers

1.0 Introduction

1.1 Purpose of the report

The Canadian Radio-television and Telecommunications Commission (the Commission) has found that monitoring reports are useful in helping it fulfill its mandate under the Telecommunications Act (the Act). Monitoring reports⁴ have become an invaluable source of information on the Canadian telecommunications industry and provide the Commission and stakeholders with an efficient and effective tool to assess the extent to which the Commission's regulatory frameworks and determinations are fulfilling the Canadian telecommunications policy objectives set out in section 7 of the Act.

The information gathered as part of its data collection process enables the Commission to monitor (a) the state of competition, (b) the effect of the market on services to residential and business customers, and (c) the service providers' compliance with regulatory requirements. The Commission's monitoring activity is not limited to the data captured by its data collection activities but includes other data contained in, but not limited to, company financial statements, industry reports and statistical reports compiled by other government departments and agencies and international organizations.

The data from international organizations allows the Commission to assess how the Canadian telecommunications service industry is performing relative to other countries. In many instances, the issues addressed by foreign telecommunications regulators are similar to those in Canada.

The Commission is largely responsible for the implementation of the Act that came into force in 1993. Certain objectives of the Act, set out in section 7, are directly or indirectly tied to the notion that competition is in the public interest. For example, subsection 7(f) of the Act explicitly states that the Canadian telecommunications policy has as an objective "to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective." In December 2006, the Governor in Council issued a Policy Direction⁵ to the Commission requiring it to rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives.

The Commission collects information related to Canadian telecommunications markets in order to monitor the status of competition. As there is no single or simple way of assessing the state of competition in a market, the Commission examines various elements or factors, including among other things: (i) the market size and market share according to criteria, such as revenues and number of subscribers, lines and minutes; (ii) the number and description of service providers in the market; (iii) lists of available services, pricing levels and trends; and (iv) corporate financial conditions.

Specific elements of the monitoring exercise change over time to take into account new regulatory issues or market developments, such as new technologies, changes in the market structure or in domestic or international regulations or agreements, or the introduction of new or evolving services. Such changes serve to ensure that the monitoring reports continue to be useful tools for all stakeholders, including regulators, customers and industry players, both incumbents and competitors.

1.2 Data collection and outline of the report

Although there are various means for measuring competition, good quality data is critical if the monitoring process is to be accurate and useful. For the most part, the Commission uses its own data collection system in order to gather detailed and timely information.

This report is based on the responses to the Commission's data collection forms which have been issued annually since 2001 (referenced as CRTC data collection), internal analyses, data collected from other sources, including Statistics Canada, Industry Canada, and company-specific financial reports and information previously filed with the Commission. International comparisons or analysis is based on data obtained from recognized international organizations such as the Organisation for Economic Co-operation and Development (OECD) as well as from the telecommunications regulatory agencies in other countries such as the Federal Communications Commission (FCC) in the United States and Ofcom in the United Kingdom.

In order to minimize response burden on the industry, make more efficient use of resources and promote coherence of the Canadian statistical system, the Commission and Statistics Canada have been working to eliminate overlap in telecommunication's industry data collections and to employ common concepts and definitions where possible. Statistics Canada streamlined its annual survey of telecommunications by removing all questions concerning network infrastructure, client base and traffic. Statistics Canada will rely instead on similar information collected by the Commission. More recently it redesigned its quarterly survey of telecommunications in order to align it more closely on the concepts of the Commission's annual data collection. The medium term objective is to terminate Statistics Canada's Annual Survey of Telecommunications and Annual Survey of Internet Services Providers by integrating some of the remaining questions into the CRTC data collection, in particular those questions that collect data essential to the production of national and provincial economic accounts.

Certain figures published in prior years' monitoring reports may be restated to be consistent with data displayed in this report. Other figures may change as a result of some service providers resubmitting prior years' data. In addition, certain data may be reclassified to better reflect the market segments or industry developments. All revised numbers are identified by means of a number sign (#).

This report is divided into a number of sections and appendices. An overview of regulation and the impact of competition on access to the public switched telephone network (PSTN) is provided in Section 2. Section 3 provides a review of telecommunications service providers. It also provides an overview of telecommunications revenues by type of service provider and a discussion of major industry or market developments. A review of financial information, including revenue, capital expenditures and other operational data for various sectors of the industry is contained in Section 4. It also examines the status of competition in each of the major market segments, including local and access, long distance, Internet and broadband, data and private line, and wireless.

A description of the data collection methodology and analysis is provided in Appendix 1. Appendix 2 discusses the classification of the telecommunications service providers. A summary of Canadian telecommunications markets subject to forbearance rulings is provided in Appendix 3. The status of local forbearance applications in residential and business exchanges is provided in Appendix 4 for major centres as of 1 June 2007. A review of the status of promising means for accelerated broadband deployment in rural and remote areas of the country is contained in Appendix 5.

2.0 Overview of regulation and the impact of competition on access to the PSTN

2.1 Regulatory oversight of Canadian telecommunications markets

The Commission has the mandate pursuant to section 47 of the Act to exercise its powers and perform its duties with a view to implementing the telecommunications policy objectives set out in section 7 of the Act, and ensuring that rates Canadian carriers charge are just and reasonable and that, in relation to the provision of telecommunications services, Canadian carriers do not discriminate unjustly or accord any undue or unreasonable disadvantage.⁶ In addition to regulating the rates, terms and conditions under which telecommunications services are provided, the Commission has the power to forbear from regulating telecommunications services or classes of service where it finds, among other things, that there is sufficient competition to protect the interests of users.⁷

The Policy Direction to the Commission came into effect on 14 December 2006. The Policy Direction requires, among other things, that the Commission rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives and when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.

2.2 The Commission and competition

In exercising its statutory powers under the Act and predecessor legislation, the Commission has over the years gradually and in an orderly manner opened up monopoly-based markets to competition. The Commission also strives to ensure the provision of reliable and affordable services of high quality accessible to both urban and rural area customers, to foster facilities-based competition, to provide incumbents with incentives to increase efficiencies and be more innovative, and to adopt regulatory approaches, where necessary, that impose the minimum regulatory burden possible.

In Decision 94-19,⁸ the Commission established a three-step process by which it could determine whether a market is, or is likely to become competitive for the purpose of considering forbearance applications: (a) identify the relevant market; (b) determine whether the applicant has market power with respect to the relevant market; and (c) determine whether, and to what extent, forbearance should be granted.

As outlined in Appendix 3, over time the Commission has forborne from regulating a number of services including mobile services, retail Internet services, long distance and international services, various data and private line services, terminal equipment and inside wiring, satellite services and services provided by non-dominant carriers. More recently, frameworks have been established for the forbearance from regulating local services. The Forbearance Order⁹ established a framework for forbearing from regulating local exchange service and the High-Speed Digital Service (HSDS) in Decision 2007-35¹⁰ established a framework for forbearing from regulating high-speed intra-exchange digitial network access (high-speed DNA) services and metropolitan wavelength services (MWS). In this decision, the Commission also forbore from regulating Bell Canada's high-speed DNA services in a number of wire centres and from regulating the company's MWS in the Toronto, Montreal and Ottawa census metropolitan areas.

While the Commission has forborne, and continues to forbear, from regulating a growing number of services, the Commission regulates an increasingly smaller percentage of telecommunications service revenues where competition has not been found to be sufficient to protect the interests of users. In the case of large incumbent telecommunications service providers (TSPs) [including Bell Aliant Regional Communications, Limited Partnership (Bell Aliant), Bell Canada, MTS Allstream Inc. (MTS Allstream), Saskatchewan Telecommunications (SaskTel) and TELUS Communications Company (TCC)], these services currently include residential basic local services, business single and multi-line local services, local calling features and options, pay telephone, digital network access, local channels, and competitor services. The regulation of these services for these companies has shifted away from an earnings-based to a price level-based form of regulation.¹¹ The percentage of revenues that are subject to regulation is expected to decline significantly in the coming 18 months as the large incumbent TSPs have filed applications for the Commission to forbear from regulating local exchange service in 430 exchanges representing 423 residential and 327 business markets and pursuant to the HSDS forbearance framework, the Commission will consider such applications for forbearance from other incumbent TSPs.

Non-forborne telecommunications services provided by Société en commandite Télébec (Télébec) as well as those provided by TELUS Communications (Québec) Inc. (TCQ) (now part of TCC) were made subject to price cap regulation as of August 2002.¹²

The price cap regimes were recently reviewed and modified¹³ and do not contain a fixed review date for the regime. Now a single price cap regime encompasses all of these companies except Télébec.¹⁴

Non-forborne services provided by small incumbent telephone companies were made subject to a simplified form of price regulation effective in January 2002.¹⁵ Non-forborne services provided by Northwestel Inc. (Northwestel) were made subject to price cap regulation in February 2007.¹⁶

Regulatory streamlining initiatives

The Commission has put in place a range of mechanisms to ensure effective and efficient regulation. These include:

1) the CRTC Interconnection Steering Committee (CISC) process that provides a forum for interested parties, with the assistance of Commission staff, to resolve competition issues of a technological, operational or administrative nature;

2) third-party mediation or staff-assisted dispute resolution to encourage and promote bilateral negotiations;

3) expedited procedures¹⁷ for resolving competitive issues that are factual in nature, and generally relate to established rules, and not to the creation of new ones. This process is an efficient and effective way of dealing with disputes. The expedited hearings generally result in decisions being issued within a week. It is noted that an increasing number of applications scheduled for an expedited procedure are being withdrawn as the parties resolve their issues, sometimes with the assistance of Commission staff, prior to the expedited hearing. As parties are opting to use less formal staff-assisted dispute resolution, fewer expedited procedures have taken place in 2006 in comparison with previous years;

4) expedited processes for retail tariff filings. The Commission recognizes the need for timely disposition of tariff applications by incumbent TSPs for new or amended services. Initiatives were taken to streamline and expedite the processing of retail tariff filings¹⁸ and the processing of applications concerning the withdrawal of services for which new technologies are employed and for which there are replacement services.¹⁹

5) approval of price ranges within which incumbent TSPs can offer certain services such as local exchange and related services²⁰ as well as voice over Internet Protocol (VoIP) related services. This permits the incumbent TSPs to respond to market forces by providing pricing flexibility and eliminating the need for regulatory approval of price changes within the range.

In Decision 2006-15,²¹ among other things, the Commission set out the details of the framework for forbearance from the regulation of local exchange services including the local forbearance criteria such as a 25% market share loss threshold. The Commission determined that residential local exchange services and business local exchange services are in different relevant markets for the purpose of the local forbearance framework. The Commission also outlined the scope of forbearance to be granted under the local forbearance framework. The Commission determined it to be appropriate to retain only those powers and duties that are strictly necessary to protect the interests of customers, particularly uncontested and vulnerable customers, and to further competition. The Commission also determined that those powers and duties that relate strictly to economic regulation should be removed in a forborne environment. The Commission adopted certain transitional measures to aid in the development of sustainable local competition.

In Order varying Telecom Decision CRTC 2006-15, Order in Council P.C. 2007-0532, issued 4 April 2007 (the Forbearance Order), the Governor in Council, among other things, replaced the Commission's market share loss criterion with one that emphasizes the presence of competitive TSPs and it replaced the geographic regions by incumbent TSP exchange boundaries. The Forbearance Order also modified the competitor quality of service indicators for forbearance purposes and eliminated the winback rule which determined when an incumbent telephone company could contact customers that were switching to their competitors and removed the competitive safeguards for promotions which addressed issues such as the availability, timing, duration and limitations of the promotion as well as the price of the service promoted.

In an effort to deal with local forbearance applications as expeditiously and fairly as possible, the Commission issued Timelines for submissions regarding local forbearance applications, Telecom Circular CRTC 2007-13, 19 April 2007, to set out the timelines for submissions regarding local forbearance applications. In addition, the Commission also issued letters to the incumbent and alternative TSPs to notify them of the type of data and level of detail to be provided in local forbearance applications or proceedings.

With greater reliance on market forces, the monitoring function will continue to be a valuable tool to assess the extent to which the telecommunications policy objectives as set out in section 7 of the Act are being met.

2.3 Access to the PSTN

Penetration rates provide a useful indicator of consumer access to the PSTN. Penetration rates are measured by identifying the percent of households that subscribe to various local services that utilize or access the PSTN such as wireline local telephone service and wireless telephone service. Table 2.3.1 summarizes these results in the following categories: wireline, wireless, wireline and/or wireless and wireless only, covering the 2001 to 2006 period.²²

The penetration rate of wireline and/or wireless services remained relatively constant over the 2001 to 2006 period, at approximately 98.6% of households. Wireline penetration gradually declined over this period from 97.4% to 93.6% of households. In contrast, over this period, wireless penetration increased from 47.6% to 66.8% of households in 2006. The penetration rates in Table 2.3.1 indicate that 5.0% of Canadian households had only wireless service in 2006, up more than four-fold from 1.2% in 2001.

Table 2.3.1
Canadian penetration rates
Wireline and wireless subscribers
(per 100 Households)

Source: Statistics Canada
n/a: not available

Service improvement plans

To maintain a high level of telephone service that meets the basic service objective (BSO)²³ as established by the Commission, and to continue to expand local telephone service in Canada, in 1999 the incumbent local exchange carriers (ILECs) or incumbent TSPs were directed to file service improvement plans (SIPs)²⁴ for Commission approval. These SIPs outlined how, over a four-year period, the companies proposed to improve or upgrade telephone service, and to expand service in high-cost and non high-cost serving areas.²⁵ In some cases, SIPs were extended beyond four years due to the identification of additional households or delays in the roll-out of the plans.

The SIP programs in high-cost serving areas are funded from the National Contribution Fund.²⁶ Under the contribution regime, all TSPs that exceed a certain revenue threshold are required to contribute to the fund. SIP programs in non high-cost serving areas are funded from the incumbent TSPs' deferral accounts.²⁷

Table 2.3.2 provides the cumulative results of the SIP program since 2002. During this time, the Commission reviewed and approved SIPs from both the large and small incumbent TSPs involving both unserved and underserved²⁸ premises. SIPs have improved the level of local service. The impact of the SIPs is demonstrated by the fact that 19,951 households identified as unserved, as well as 37,626 households identified as underserved, could subscribe to local service by the end of 2006 that met the BSO.

Table 2.3.2
Service improvement plans - Status

Source: ILECs' approved SIP filings for 2006 and previous years.

Telephone price index and the consumer price index

In Figure 2.3.1, the telephone price index (TPI) which reflects the price changes experienced by a household for a basket of telephone services is compared to the consumer price index (CPI) for the period 2001 to 2006. The basket of telephone services reflects a weighted average of consumer expenditures on basic local service, other local services (such as options and features), and long distance, installation and repair services. They do not, however, include wireless or Internet service expenditures.²⁹

Throughout the 2001 to 2006 period, the TPI remained below the CPI. In 2001, the rates for basic residential local service increased in most urban and rural areas, consistent with the first price cap regime established by the Commission's 1998 price cap decision³⁰ which applied to the large incumbent TSPs (except for SaskTel, Télébec and TCQ) and generally limited price increases to the rate of inflation less a productivity factor of 4.5%.

Figure 2.3.1
TPI v. CPI