Monday, January 03, 2011

Canada - NGO found consumer benefits promised by major players have not been achieved

[tele-management] The Public Interest Advocacy Centre (PIAC) has concluded that the consumer benefits promised by the major incumbent telcos and the government have not arrived. As well, the CRTC’s failure to use traditional procedural rules, such as cross-examination, has resulted in consumers being shut out of the regulatory process.

The PIAC, an Ottawa-based consumer organization, claims in its 218-page report, “Waiting for the Dream, The Consumer Brief for Telecom Reform 2010”, that the Canadian Radio-television and Telecommunications Commission (CRTC) has used “questionably low thresholds for competition” in exercising forbearance.

As a result, ordinary consumers are still not getting the benefits promised to them by industry competition. In particular, consumers have received few benefits from the policy decision in December 2006 by then Industry Minister Maxime Bernier that ordered the CRTC to use market forces to the maximum extent possible, and ensure that regulation was minimally intrusive.

PIAC’s report principally recommends that “policy makers and the regulator stop trying to make decisions based on untested economic theories and make sure that markets actually work for consumers”.

Not only did the report conclude that Canada has had a mediocre performance in broadband and wireless, the deregulation of cable and satellite services from deregulation of basic service has delivered the opposite effect to consumers that one would have expected from competitive markets.

PIAC’s report recommends that the government rescind the Policy Direction of December 2006, and establish a licensing regime for all carriers with codes of conduct in place for all licensees. It also recommends reforms to the CRTC operations, including the establishment of more powers and resources recommended by the Government’s Policy Review Panel Report of 2006.

The results promised at the time, including lower local telephone rates, have failed to materialize, the report says. The report does not advocate a return to regulation in the telecommunications industry. Rather, it recommends the government allow foreign competition and more liberal rules for small market players.

Three new wireless services have recently launched in Canada, Wind, Mobilicity and Public Mobile, but PIAC claims that none has captured any substantial share of the market. This view counters recent reports that, in fact, the wireless start-ups are hitting the incumbents hard, having picked up one-third of all new cellphone subscribers.

Mobilicity claims to have already gained 50,000 wireless subscribers in the quarter, with Wind Mobile chairman Anthony Lacavera claiming his company would be “well north of 200,000” subscribers by the end of 2010. Overall, analysts estimate that by the end of this quarter Wind will have grown by 75,000 subscribers, Mobilicity by 70,000, Public Mobile by 40,000.

Stakeholder interest has affected pricing and service landscape

In addition to encouraging more competition, the report suggests mandatory licensing for all phone companies with appropriate codes of conduct and meaningful enforcement.

The report says the average monthly cellphone cost in Canada, including voice, text and data, is C$67.50, compared with C$59.99 in the United States and C$32.40 in the United Kingdom. In Europe, there are also ceilings on roaming charges when mobile phone users travel from country to country.

However, one could argue that some progress has been made: Telus's broadband internet service, which starts at C$22 a month, is about half the price of what dial-up service cost 10 years ago. Wireless can start at C$20 a month.

The report concludes that the failure of the regulatory reform of the last two decades to deliver the goods for ordinary residential consumers is not one that has its roots in theory, but in practice. Here, the interests of powerful stakeholders have affected the service landscape.

In the same way that incumbent players used their political and economic influence and regulatory capture to get their way in the monopoly era of regulation, the winners have used the market-based system to their advantage, the report says. As a result, neither regulation nor deregulation will help if the decision making process is skewed by conditions and assumptions that favour some stakeholders over others.

Most importantly, says PIAC, the governance and regulation of the telecommunications industry in Canada must respond to results. For the most part, the restructuring of telecommunications has been guided by untested economic theories, largely provided by experts engaged by the largest stakeholders. The relatively poor performance of telecommunications service for ordinary consumers should have long ago engendered a review of the regulatory framework and market structure that is producing the same. In the last five years, the only acknowledged measure of success has been how fast telecommunications services have been deregulated, with predictable market results.

The solution – new models

According to PIAC, the solution is not a return to old regulation but new models. First of all, there are a variety of consumer issues associated with basic rights for information, quality of service, security of service, disconnections, privacy etc. that should be met by all carriers whether they are incumbent or not. Basic service, obligations to serve, complaints resolution, and burdens of service in uneconomic areas have to be in place for all players. The best way to ensure that this occurs is for mandatory licensing for all carriers, with appropriate codes of conduct and enforcement with meaningful force in the form of administrative monetary penalties. The Telecommunications Act should be amended to reflect these improvements.

The report argues that the CRTC has never examined whether the interests of users remain protected by competition in forborne markets where the evidence seems otherwise (BDUs and Internet). While incumbent providers are continually agitating for change where the results are not favourable to their interests, consumers have had no such opportunity.

As a result, PIAC concludes that the Policy Direction is an impediment to achieving fair, balanced, results-based regulation and should be rescinded. The sections of the TPR Report recommending the primacy of market forces are, at least in practice, problematic for fixing real market consumer problems. As well, there should be no winnowing down of the objectives in the Telecommunications Act, rather a clarification of their importance in relation to the specific powers of the CRTC.

While the report is in favour of efforts at liberalization of foreign ownership telecommunications rules for new entrants or small market players, it also warns that it is no solution to all consumer problems particularly those associated with quality of service. As well, current merger rules should be tightened to prevent any competitive benefits from flowing away from Canadian consumers.

Finally, the report endorses the recommendations of the TPR Report in terms of improving the research and professionalism of the CRTC. It also notes the importance of the adjudicative function of the Commission and recommends the use of traditional procedural rules such as cross-examination where the facts and issues at stake warrant. Public participation in telecommunications policy making requires more structural support by the regulator and the government. In broadcasting, there is a critical need to level the playing field for non-commercial public and consumer interests by resourcing representation at broadcasting hearings in a similar way to the practice in telecommunications.

Unproven economic models hurting Canadian consumers

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