TORONTO — This year’s regulatory blockbuster panel at the Canadian Telecom Summit on Tuesday turned into a bit of a public hearing on wholesale telecom rates as the Big Three carriers’ pricing structures came under fire from TekSavvy and Wind Mobile.
Calling wholesale network access rates “crazy”, Bram Abramson, TekSavvy’s chief legal and regulatory officer, said wholesale prices can vary among telecom providers by as much as 700%. With the current pricing schemes of the large, vertically integrated incumbents, TekSavvy is unable to offer higher-speed services to its customers because it couldn’t be price competitive, Abramson said.
“TekSavvy is not the large well-heeled mansion on the hill… we’re the scrappy competitor who has somehow ended up having nearly all of its eggs in the lowest margin possible sector of residential commodity service,” Abramson said.
On the wireless side, Wind Mobile’s chief regulatory officer, Bob Boron, said his company has faced challenges in offering national roaming services “when the wholesale rates are exorbitantly high, much higher than any retail rates out there.”
“They decided that the markets were not doing the job, because of the market powers held by Bell, Rogers and Telus.” – Bob Boron, Wind
Boron added the CRTC recently issued “a very good policy decision on wholesale wireless services” when it announced in early May it would regulate the wholesale wireless rates charged by the big three. “I think it’s very noteworthy that for the first time in decades, the CRTC has chosen to regulate wireless services, because they decided that the markets were not doing the job, because of the market powers held by Bell, Rogers and Telus,” he said.
Naturally, the regulatory experts from Bell, Rogers and Telus on the panel took issue with how their wireline wholesale pricing regimes were characterized by Abramson.
“Essentially, all of that is the same resale argument that has been made since 1979,” said Ted Woodhead, senior vice-president, federal government and regulatory affairs for Telus. “What I think Bram is really getting at here is his company buys capacity from our various companies and he doesn’t like the price, the price is regulated (by the CRTC) and he wants a discount on it now, because the retail market has responded because of competitive facilities-based players and other resellers at the retail level.”
Woodhead said he believes resale models for telecom services (which is what Teksavvy is based upon) are not sustainable and not durable, but complaints about wholesale prices will continue year after year. “We’ll be here every year until I retire, having this same discussion with somebody else sitting over there and they’ll say, ‘I’m paying too much for my wholesale access,’ and it’s only because the retail market is competitive,” Woodhead said.
Mirko Bibic, Bell’s chief legal and regulatory officer, went on to explain that with a regulated rate for capacity-based billing, when compared to a network operator’s 10-year cost study, the wholesale customer benefits from a fixed rate that initially is lower than the cost projected for the first few years. But eventually, as network access costs fall, the wholesale customer’s fixed rate is then higher than what it would have been under an unregulated price scheme.
“That does not incent investment by those who are building those networks.” – Mirko Bibic, Bell Canada
“You’ve had the benefit of the lower rate for the first two or three years. When there’s that crossover, don’t then come and say the rates are too high,” Bibic said. “That’s what’s constantly happening here, and that does not incent investment by those who are building those networks.”
He said that “a fully functioning, modern and robust digital economy is critical to any modern economy”, and, in his view, Canada’s regulatory and government policies need to continue to encourage facilities-based competition, which has always been the goal of the politicians and the Regulator. Network operators also need regulatory predictability to make good investment decisions, Bibic said.
“It’s hard to plan for capital investment, if the framework and the rules aren’t predictable and reliable. The one example that always comes to mind for me is capacity-based billing. We’ve gone through a number of regulatory hearings and battles on capacity-based billing, and then there’s constantly an application coming on changing the rate,” Bibic said. “We have the right model, we set the rate, the rate is based on a 10-year cost study. All we ask for is predictability.”
David Watt, interim senior vice-president, regulatory, for Rogers Communications added Canadian consumers demand a vast array of content and services, which puts more pressure on carriers’ networks. “Networks are insatiable,” Watt said. “We continue to invest almost $2 billion a year in our networks. That’s just to handle the demand for traffic. So there is clearly a cost to traffic, and it must be paid.”
He added that a significant challenge amid all this is to maintain the incentive to invest. “We will only invest if we think we can have a reasonable opportunity to see a return on that investment,” adding that the regulated vertically integrated companies need more flexibility to compete with emerging, unregulated players in the telecom and media space.
“New companies are leveraging our networks and they are flourishing. We need flexibility to face these unregulated competitors, and many of them are coming from outside our borders,” Watt said, referring to Netflix.
Woodhead added: “In an environment today where we face all kinds of global macroeconomic challenges, as Dave mentioned, competition from beyond our borders by companies using and leveraging our networks, I think it really is a time to pivot the conversation in this country to investment and innovation.”
In Wind Mobile’s view, more still needs to be done to level the playing field in Canada’s regulated telecom market, Boron said.
“While the government and the CRTC should be congratulated for moving things in the right direction, to an environment that is more friendly for consumers and more competitive in the marketplace… looking forward in this regulated industry, there’s more to do,” Boron said. “The job to level the playing field, to facilitate the viability and sustainability of a fourth wireless carrier, bringing the benefit of competition to Canadians, is not yet done.”
“You need spectrum. But you also have to buy it. And even when you are given an opportunity to buy it, if you don’t, I question why you need further regulatory assistance.” – Ted Woodhead, Telus
He explained Wind Mobile is in need of more spectrum, and in particular it needs access to more low band spectrum, which it hopes to work out a solution to with the regulator.
In response, Woodhead said: “To Bob’s point, you’re absolutely right, you need spectrum. But you also have to buy it. And even when you are given an opportunity to buy it, if you don’t, I question why you need further regulatory assistance.”
When asked by the panel’s moderator, Cartt.ca editor and publisher Greg O’Brien, how the sheer volume of recent regulatory and policy decisions by the CRTC and the federal government has affected the panellists’ day-to-day business operations, Boron said “it’s the nature of the beast”, but it underscores the importance of regulation in the telecom industry.
“The workload having been increased, or seeming to have increased over the last while from both a government policy perspective and a CRTC perspective, I think underscores that there’s a recognition that some of this stuff isn’t working in the free market,” Boron said. “Not to say that it won’t ever work in the free market, but we’re still in this phase of progressing to that point where there’s vigorous, free competition… I think it’s a recognition that there has to be at least some guidance here in terms of oversight of the industry.”
Watt added that many of the recent CRTC proceedings were reviews of previous five-year reviews (wholesale wireline, BDUs, Cancon obligations and rules, for example). However, the two novel things that Watt said had come forth in the last couple of years were the extent of public consultation undertaken by the CRTC and also the entry of over-the-top video players into the market and how that complicates the regulatory environment.
Woodhead said he was particularly encouraged by the position the CRTC took on MVNOs (mobile virtual network operators) in the wireless proceeding (the CRTC chose not to mandate MVNO access). “That gives me comfort that they understand that investment is not preordained and that it costs a lot of money,” Woodhead said. “If you mess around too much, I’m worried that investment will be reduced, as it has in many other jurisdictions.”
Going back to his point about the need for predictability, Bibic said one recent CRTC decision that was a sore point for Bell was the Super Bowl simsub decision, which it is appealing.
“You have a simsub regime that’s been in place for 40 years, you go away and you bid millions of dollars on an NFL contract, fully expecting that those rules are going to be in place. And if they’re not going to be in place, you don’t expect it’s only going to be removed for one event. But it any case, it’s multi-millions of dollars. Of course that’s going to affect the profitability and financial health of some of the local stations that we have that depend on the Super Bowl,” Bibic said.
Telecom providers base their business plans on a certain set of known factors, understanding that the rules can change in the regulatory framework, he added, “but when something comes in midstream and disturbs that plan in some way, it will affect investment.”
Photo by Michal Tomaszewski / Pinpoint National
