Telecom and the Public Good:Are Market Forces the Answer?

Philippa Lawson

Executive Director & General Counsel

CIPPIC, University of Ottawa

www.cippic.ca

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Purposes of Regulation

- to discipline monopoly, dominant players(substitute for competitive market forces)

- to ensure level playing field in transition to competition- to ensure delivery of essential services- to ensure achievement of other policy goals:

- affordable and fair rates - quality of service- consumer privacy- 911 service, access to disabled, etc.

- to provide consumers with information and tools needed for them to create effective market forces

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What are our policy goals?

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Currently

• s.7, Telecommunications Act:

“It is hereby affirmed that telecommunications performs an essential role in the maintenance of Canada's identity and sovereignty and that the Canadian telecommunications policy has as its

objectives: (a) to safeguard, enrich and strengthen the social

and economic fabric of Canada and its regions;

(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;….”

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TPRP Proposed “Canadian Telecommunications Policy and Government and Regulatory Guidelines”

“7. It is hereby affirmed that telecommunications performs an essential role in enabling the economic and social welfare of Canada and that Canadian telecommunications policy is based on the following objectives:

(a) to promote affordable access to advanced telecommunications services in all regions of Canada, including urban, rural and remote areas;

(b) to enhance the efficiency of Canadian telecommunications markets and the productivity of the Canadian economy; and

(c) to enhance the social well-being of Canadians and the inclusiveness of Canadian society by: (i) facilitating access to telecommunications by persons with disabilities; (ii) maintaining public safety and security; (iii) contributing to the protection of personal privacy; and (iv) limiting public nuisance through telecommunications."

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Changes

Current“It is hereby affirmed that telecommunications performs an essential role in the maintenance of Canada's identity and sovereignty and that the Canadian telecommunications policy has as its objectives:

(a) to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions;

(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;

…(h) to respond to the economic and

social requirements of users…(i) to contribute to the protection of

the privacy of persons.”

Proposed“It is hereby affirmed that telecommunications performs an essential role in enabling the economic and social welfare of Canada and that Canadian telecommunications policy is based on the following objectives:

(a) to promote affordable access to advanced telecommunications services in all regions of Canada, including urban, rural and remote areas; ……(c) to enhance the social well-being of Canadians and the inclusiveness of Canadian society by:

(i) facilitating access to telecommunications by persons with disabilities; (ii) maintaining public safety and security; (iii) contributing to the protection of personal privacy; and (iv) limiting public nuisance through telecommunications."

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What’s missing from TPRP Proposal?

• no goal of strong social/economic fabric– instead, “enhance social well-being of Cdns and

inclusiveness of Cdn society”

• no quality of service/reliability goal• limited purposes of “social regulation”:

– affordable access to advanced telecom– access by persons with disabilities– public safety and security (911 service)– privacy– public nuisance (telemarketing)

• what about protection of consumers from industry abuses? other possible issues?

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Other policy goals ditched:

• “to promote the ownership and control of Canadian carriers by Canadians”;

• “to promote the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside Canada”;

• “to stimulate research and development in Canada in the field of telecommunications and to encourage innovation in the provision of telecommunications services”;

• “just and reasonable rates” req’t (s.27(1))• general rule against unjust discrimination (s.27(2))

– would “allow for too much discretion”;

– should replace with more specific measures (TBD) aimed at consumer protection and control of anti-competitive conduct

• e.g., right to access publicly available Internet content (Rec.6-5)

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Policy Goals

• Whether to regulate hinges on whether regulation is necessary to achieve policy goals – hence, statement of goals is critical– should reflect Canadian values

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Decima Poll, 2005

• Importance of federal government responsibilities (% respondents who rated it impt or very impt):

96% - to protect privacy of telecom users

96% - to ensure disabled access to telecom services

91% - to ensure reasonably priced telecom services

91% - to ensure good quality of telecom services

86% - to ensure low income affordability/access

82% - to ensure adequate number of competitors

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Competition as preferred means

Telecommunications Act, ss.7(f):• Reliance on market forces as a goal of telecom policy

TPRP would change from goal to preferred means:

"7.1 The following guidelines shall be applied in implementing the telecommunications policy objectives:

(a) market forces shall be relied upon to the maximum extent feasible as the means of achieving the telecommunications policy objectives;

(b) regulatory and other government measures shall be applied only where:

(i) market forces are unlikely to achieve a telecommunications policy objective within a reasonable time frame, and

(ii) the costs of such measures do not outweigh the benefits; and

(c) regulatory and other government measures shall be efficient and proportionate to their purpose and shall interfere with the operation of competitive market forces to the minimum extent necessary to meet the objectives."

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Limits of Competition/Market Forces

– may not be economic everywhere• some areas/markets may never be competitive

– takes time to develop• need to ensure level playing field

– can disappear over time• need to monitor and be prepared to re-regulate

– can’t deliver all goals• need regulation to fill gaps

– assumes consumers have full information • need to ensure full and accurate information

– leads to new problems for consumers• need to curtail marketplace abuses

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Examples of market “failures” to achieve policy goals

• Availability:– high cost (rural/remote) areas

• national subsidy scheme

– accessibility to persons with disabilities• e.g., phonesets, MRS, TTYs, internet standards?

– availability of payphones– 911 service via wireless and VOIP– Unbundled basic service offerings:

• basic; no features• local only

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Examples of market “failures” to achieve policy goals

• Affordability:– Basic local rates

• median consumers paying more overall for same service than before competition (1992-2002 PIAC study)

– Bill Management Tools• LD/900 service blocking• Instalment pyts

– Late Payment charges– waiver of 1st unauthorized 900 service bill– Disconnection policies– Security Deposit policies

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Examples of market “failures” to achieve policy goals

• Just & Reasonable Rates – in relation to telco earnings?

• not any more!

– price discrimination• no problem

– under a model based on market forces, rates are assumed to be “just and reasonable”

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Examples of market “failures” to achieve policy goals

• Quality of Service– Decima survey:

• 23% dissatisfied with customer service

– anecdotally, esp. in rural areas, significant dissatisfaction with service

– directory assistance• incomplete, inaccuracies

– concerns about VOIP services

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Problems with reliance on market forces

• Consumer’s redress = to change provider• but will that make any difference?

• Cost of switching high in many cases• no wireless no. portability• Internet – email address• bundled services• LT contracts

• No body to act on complaints (e.g., ombudsman)

• only recourse = courts

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Problems with reliance on market forces

• Can’t make informed choice among providers– advertising = main source of info. on options– marketing focuses on price vs. quality of service

• companies willing to sacrifice QofS for price

– lack of comparative data (eg. complaints records)– too complicated to compare

• impossible to make informed, rational decision

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Marketplace abuses: who will discipline?

• Misleading advertising– hidden fees– failure to disclose important terms– use of ambiguous language (eg., “unlimited access”)

• Charges for unauthorized/unintentional services– modem hijacking– 900 service – “cramming” by service providers

• “Bait and switch”– no intention of maintaining advertised rate or service levels

• changes in HS Internet service, 2003

• Slamming– unauthorized transfer to new service provider

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TPRP/Government Approach

• Blind faith in market forces– default favours the strong– onus on those least able to exercise it

• Too much onus on those seeking to justify regulation– cost/benefit analysis

• Incomplete set of policy goals– no consumer protection goal– exclusive set of “social objectives”; no room to add– “affordable” ≠ “just and reasonable”

• Risk of widespread unjust discrimination– depends on rule(s) adopted

www.cippic.ca