Timothy M. Denton

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Government should let the CRTC decide on wholesale prices

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This was published today in the Financial Post. It represents the position of the Internet Society, Canada Chapter.

 

The cabinet recently sent a message to the CRTC. In substance the cabinet declined to decide upon an appeal by the large carriers against a decision on rates for interconnection by smaller ISPs. But that is not the real issue. The fundamental question is how much competition will be allowed in Canadian telecommunications. The cabinet’s non-decision constitutes an improper form of nudging the CRTC by hint and nuance rather than by a legal directive, which it could have, but did not, issue.

 

“Resale”, as it is called, is a way of getting price competition without going to the expense of building superfluous facilities. Smaller carriers buy bulk access to networks at tariffed rates, and fashion their services on the back of the incumbents’ carrying capacity. Large carriers hate the idea. The consumers of Canada love the prices and services it can bring them. Government in Canada has neither been able to commit to resale, nor to kill it. The ambiguous state of affairs continues with Cabinet’s latest non-decision.

A year ago the Commission approved a new set of wholesale prices for interconnection to the larger carriers. These prices were based on costs, and the decision also ordered large retroactive payments, because the Commission thought the interim rates – which the larger carriers had been collecting - had been set too high. The CRTC decision criticized the larger carriers for setting their prices without regard to costing methods. The Commission ordered $350 million in retroactive payments be made to the smaller ISPs.

Naturally, the larger carriers objected: by appeal to Cabinet, to the Commission itself, and to the Federal Court. The Court has not yet ruled. The Cabinet declined to rule but sent messages.

The legal issue first. The Government’s legal powers are to issue Policy Directions of general application to the CRTC (which it did in 2006 and more recently last year) which the CRTC has to take into account in making its decision, or to “vary or rescind the decision or refer it back to the [CRTC] for reconsideration of all or a portion of it”. The Government does not have the authority to interpose itself in ongoing CRTC proceedings, yet that is exactly what it sought to do in this instance. Through its heavy hints that the CRTC had set wholesale process too low, it effectively put its thumb on the scales of current CRTC proceedings for which the records have closed and a decision is pending. Cabinet said, in effect:

a) Some wholesale rates were set too low, but it did not say which ones

b) the potential disincentive to investment was not given sufficient weight.

The CRTC will have to find a way either to say, no, we were right in our original decision, or find a way to backtrack on one or more elements.

 

For the CRTC to abandon its rates is to admit that the careful professional analysis of costs and the costing methodologies that have been in place for decades were somehow wrong.

A constant cry of the incumbents is “disincentives to invest”. There is always a reason why carrier profits have to be kept high, because carriers and their investors wish them to be that way.

We heard this refrain before in the speed matching decision, for example. In 2010 the Commission ruled that wholesale services had to be offered at similar speeds to smaller competitors as they were available to the large carriers. Investments continued apace. To those who live and die by regulation, the sky is always falling.

If the CRTC has been right in its methods for setting its prices, it should not retreat. If it believes it has set the right range of prices for wholesale access, then investments will have to match available means. All players in the industry must make investments. There is no reason to consider the investments of larger carriers to be somehow privileged.

The CRTC position was that the larger carriers owe some $350 million to the smaller ISPs. The larger carriers took the risk that they could overcharge and get away with it. If they succeed, then the regulatory regime is undermined by their calculated gamesmanship, and they will do it more.

The cabinet has placed the Commission in an awkward spot. It has tried to direct the Commission without using a legally valid method, thus inviting further legal trouble down the road. It has undermined the process in favour of large carriers. Consumers can only hope that the Commission believes in itself sufficiently to maintain its original decision. That in turn might force the government to reveal who is running telecom policy: large carriers, regulators, or cabinet.

 

 

Timothy Denton was a national commissioner of the CRTC from 2009-2013. He is the Chairman of the Internet Society, Canada Chapter.

 

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Timothy Denton is a lawyer by training who practices principally in telecommunications and Internet policy and domain name issues, with a strong concentration on explaining what the technology is and what it means.

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Guest Tuesday, 24 November 2020
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