Phone, internet resellers stave off execution

By Peter Nowak

Smaller phone and internet-access companies such as Yak and Primus avoided execution on Monday as the CRTC ruled that many of the services they resell to customers, often at a discount, will continue to be regulated.

Such companies are dependent on regulation for survival because they generally do not own their network infrastructure and instead rent lines from providers such as Bell Canada Inc. and Telus Corp. The smaller firms then resell services — which include local phone lines, long-distance calling and high-speed internet access — to customers. Because companies such as Yak are smaller, they often sell their services for less than the big providers in order to attract customers.

The Canadian Radio-television and Telecommunications Commission ruled that network owners will have to continue offering many of those services to smaller competitors, but also announced that certain other services will be phased out of regulation over the next three to five years.

The CRTC broke existing wholesale services into six groups:

• Interconnection, which guarantees that phone networks from different companies can communicate with each other.
• Public good, which includes emergency services.
• Essential, which are services required by competitors to provide their own telecommunications services and which are controlled by a company that could use its market power to lessen or prevent competition.
• Conditional essential, which are the same as essential but will only be regulated until there are sufficient and comparable alternatives.
• Conditional mandated non-essential, which are not vital to competing firms' business, but are closely related to essential services.
• Non-essential subject to phase out, which are services that will no longer be regulated in three to five years, depending on the service.

Among the important services the CRTC chose to continue to regulate was the offering of unbundled loops, which are the connections between homes and telephone exchanges. Access to the loops is important because it allows third parties to avoid building their own expensive and impractical networks, which often require the digging up of streets.

The CRTC forces phone companies to rent access to their networks to other firms at cost, plus a profit mark-up of 15 per cent. The other firms then use that access to sell phone and internet services to customers.

The regulator, which deemed unbundled loops a conditional essential service, said that deregulating that access would lead to a lessening of competition in phone and internet markets. It said the loops would continue to be regulated until sufficient alternatives arise, and noted that although cable companies have built their own competing networks, they are not reselling access to them the same way phone firms do. Choice for resellers, therefore, is limited.

Network owners were not pleased with this ruling and said it will continue to provide disincentive for companies to build their own competing infrastructure.

"Those prospects have taken a step back by maintaining the status quo," said Mirko Bibic, chief of regulatory affairs at Bell Canada. "It's certainly an opportunity missed."

Long-distance phone companies, including those that offer services through calling cards, will also continue to enjoy business as usual. The network owners had tried to derail these companies by asking the CRTC to increase their interconnection requirements, but the regulator rejected the request.

The CRTC did, however, place a number of services on the "to-be-deregulated" list, many of which are minor. These include card-swipe access and the use of towers and buildings for antennas, of which resellers have plentiful selection, the CRTC said.

Some of the key services to be deregulated, however, include ethernet access and transport, which will affect high-speed internet services offered by resellers. The CRTC chose to deregulate these services because it said resellers generally had a sufficient choice of suppliers. Resellers will now have the choice of signing unregulated deals with firms offering these services, or build themselves.

Foreign-owned companies such as Primus Telecommunications Canada do not have the option of building, however, because other regulations prohibit them from owning infrastructure. Even if the company could build, the three-year deadline is too short, said Primus Canada president Ted Chislett.

"It's a pretty significant risk," he said. "Three years is a very short time in the telecom world to try and build things."

The CRTC began its review of wholesale services after a recommendation from the Telecommunications Policy Review Panel to do so in 2006, and after then-Minister of Industry Maxime Bernier in 2007 urged the regulator to adopt a more hands-off approach.

Overall, industry experts said the CRTC ruling was balanced. There was a fear that if the regulator went too far with its hands-off approach, the business cases for resellers such as Yak and Primus could have been torpedoed.

"They're preserving the status quo, which is predictable at least," said telecommunications consultant Mark Goldberg, who added that major changes would have to have been predicated by big changes in the markets. "The industry simply hasn't had that significant change in circumstances."