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    Primus Telecommunications Canada Inc.doc.doc Primus Telecommunications Canada Inc.doc.doc Document Transcript

    • Primus Telecommunications Canada Inc. E. (Ted) Chislett 5343 Dundas Street West, Suite 400 President and Chief Operating Officer Toronto, Ontario Email: M9B 6K5 15 September 2005 VIA EMAIL Mr. Allan MacGillivray Executive Director Telecommunications Policy Review Panel Secretariat 280 Albert St. Room 1031 Ottawa, Ontario K1A 0C8 Dear Mr. MacGillivray: Subject: Second Round Submission – Telecommunications Policy Review Primus Telecommunications Canada Inc. (Primus Canada) hereby submits its second round submission in the Telecommunications Policy Review process pursuant to the directions set out in the Telecommunications Policy Review Panel’s Consultation Paper, dated 6 June 2005. Once again, Primus Canada would highlight the fact that it is one of the signatories to the submissions filed by the Coalition for Better Competition. This submission is intended to complement the views found in those submissions. Yours truly, E. (Ted) Chislett
    • 3 Executive Summary 1. In its consultation paper, the Panel invited parties to comment on the likelihood that the telecommunications market will evolve into “a form of duopoly (i.e. incumbent local exchange carriers (ILECs) versus cable companies.” 2. In response, as one might expect, the ILECs and the cable companies suggest that if the market does evolve in this manner, it may not be such a bad thing. A duopoly, one cable company argues, would be a definite improvement over a monopoly. 3. What surprised Primus Canada, however, was the attitude of the Canadian Radio- television and Telecommunications Commission and the Competition Bureau. Both these government agencies signal that an ILEC/cable company duopoly could be a good thing for competition in Canada and for end-customers. Primus finds this extremely troubling. 4. Primus Canada believes that those TSPs that compete with the ILECs and cable companies have a great deal to offer end-customers in Canada and, as they have in the past, will continue to be the source of innovation for cutting-edge new services in the future. The introduction of VoIP into the Canadian market is the best example of this. Canadian consumers were not introduced to VoIP by an ILEC or a cable company. Canadian consumers were introduced to VoIP by the competitive industry. 5. While a duopoly may be better than a monopoly in some respects, Primus Canada submits that settling for a duopoly will stifle innovation, seriously harm competition and
    • 4 ultimately change Canada’s telecommunications industry from a leader to follower on the world stage. 6. The Panel’s recommendations to the government must recognize the danger of settling for a duopoly and highlight the continuing contribution of the competitive industry. Its recommendations must also make strong recommendations that these competitors should have both economic and operationally workable access to the ILECs’ and cable companies’ networks and broader access to capital to fund growth, via the removal of the foreign ownership restrictions.
    • 5 Introduction 7. In its first round comments, Primus Canada focused on three key issues from its perspective as a national service provider that also happens to be a reseller: • There must be a workable wholesale access regime. This regime must provide competitors with a workable economic structure and a workable operational structure (Issues A.3, A.4, A.5, A.6); • Criteria for post forbearance re-regulation must be established. Competitors need the assurance that when the conditions for forbearance are no longer present, appropriate steps will be taken by the regulator to guard against the exercise of market power (Issues B.6, B.8, B.9); and, • The foreign investment restrictions should be removed. Government policy should focus on market behaviour and the use of telecommunications networks and not on the source of capital used to fund these networks (Issues E.4, E.5, E.6, E.7). 8. Nothing Primus Canada has read in other parties’ first round submissions in this process have altered its position on the importance of each of these areas. Primus Canada remains convinced that regulatory and legislative action is required to ensure that each of these issues is addressed so that competition can flourish in Canada.
    • 6 9. After having reviewed the submissions of a number of parties, Primus Canada has chosen to focus its comments in this second round submission on one area of concern relating to its first point as set out above. More specifically, Primus Canada’s comments will focus on a number of parties’ attitudes towards the possibility of a duopoly in the telecommunications market, as found in their responses to Issue A.5. Primus Canada notes with some concern that two key governmental stakeholders in this discussion signal a certain contentment with the prospect of a duopoly in the Canadian market. Primus Canada wishes to be absolutely clear that a duopoly cannot result in market conditions that are in the best interests of the Canadian public. An ILEC and Cable Company Duopoly 10. The Panel’s Issue A.5 is set-out as follows: Is the Canadian competitive environment in telecommunications likely to evolve into a form of duopoly (i.e. incumbent local exchange carriers (ILECs) versus cable companies)? If so, what would be the implications for the telecommunications and ICT markets? What would be the implications for the regulatory framework? (emphasis added) 11. At the outset, Primus Canada would like clarify the exact nature of its concern. As discussed in its first round comments, Primus believes that there will always be an assortment of Telecommunications Service Providers (TSPs) offering service in the retail telecommunications market. This group of TSPs will be made up of both resellers and Canadian carriers. The retail situation at the TSP level is not the main source of Primus’ concern in this submission. Primus’ concern goes deeper into the local network and ends
    • 7 at the outside walls of most residences in Canada where the network termination points for two separate and distinct access networks can be found: the copper twisted pair belonging to the ILECs and the coaxial cable belonging to the cable companies. These two networks are currently the only ubiquitous access networks capable of reaching the entire residential market in Canada and will likely remain so for some time despite potential for wireless access or broadband over power lines to emerge. 12. Primus Canada is very concerned over the implications for competition in the telecommunications market in the absence of a workable wholesale access regime to both these ubiquitous access networks. 13. As an aside, Primus Canada would like to take the opportunity to discuss the phrase “a form of duopoly” as used by the Panel in its consultation paper. As noted above, Primus Canada does not believe that there will be a duopoly of retail service providers in Canada that meets the strict economic parameters of the term. Furthermore, Primus Canada does not believe that there will be a pure duopoly situation in the access network in all segments of the market. 14. That being said, Primus believes that the Panel’s phrase “a form of duopoly” describes the situation that currently exists at the network access or “last mile” level in the ILECs’ and cable company networks. Primus Canada believes that “a form of duopoly” could also come into existence in the retail market if the appropriate competitive safeguards are not put in place. Primus Canada notes that at paragraph 42 and 43 of its first round comments the United Telecom Council of Canada states:
    • 8 … UTC Canada does see some signs of a duopoly forming between the ILECs and the cable companies in at least some segments of the residential and business local telephone high-speed Internet markets. This is apparent from their ownership of broad-based incumbent networks and their rapid roll-out of high-speed Internet access services. They clearly have a large head-start over all other players and their revenues dwarf the rest of the industry. Great care will therefore have to be taken to ensure that they do not collude in an express or behavioral manner to either limit competition between themselves or by third parties. Having said that, UTC Canada does not see a pure duopoly developing… (emphasis added) 15. Primus Canada believes that for at least the next ten years, the ILECs and the cable television companies will be the only noteworthy and widespread providers of last mile network facilities to the comparatively larger group of TSPs. While there are other potential technologies that may in time be widely deployed, this will only happen somewhere down the line in Canada due, in part, to the difficulty competitors experience in accessing capital (this relates to the foreign ownership issue). Therefore, this “form of duopoly” will continue to exist at the network access level and it will continue to have a negative effect on competition if not addressed. 16. Primus Canada would like to highlight the fact that it finds itself in a regulatory no- man’s-land with regards to fitting into the Commission’s agenda of facilities-based competition. Due to the foreign ownership restrictions, Primus Canada is unable to build
    • 9 its own transmission facilities that would enable it to lessen its reliance on the networks of other carriers. The foreign ownership restrictions, therefore, require Primus to continually increase its reliance on the networks of Canadian carriers as it grows, further contributing to the precarious competitive situation of reliance on leased network facilities in an era when the Commission’s stated policy is to promote facilities-based competition. It is a vicious circle into which Primus Canada is legislated to remain. 17. The restriction on owning or operating transmission facilities can also have significant operational impacts on companies such as Primus Canada. For example, Primus Canada recently launched a local switched telephony service that relies on not one underlying carrier, but two. Since Primus Canada cannot co-locate in ILEC central offices and lease loops to provide POTS, it relies on arrangements with a CLEC that is co-located in ILEC COs across the country. Primus Canada is the retail point of contact for the end- customer and handles marketing, sales, provisioning, billing and customer service. Primus Canada, therefore, takes the customer’s order for local service, relays the order to the CLEC, which in turn, leases a residential loop from the ILEC. 18. This is an very complex process to administer and a situation in which Primus Canada finds itself powerless in the face of service problems at the ILEC. The TELUS strike has resulted in an almost complete cessation of new order installation. Recently, internal post-Entourage strike decisions by Bell Canada have resulted in incredibly poor performance on its part. As a result, Primus Canada customers often become upset and decide to go back to the ILEC. Therefore, the awful performance of the ILEC’s wholesale division results in significant new business for the ILEC retail division. This is patently
    • 10 unfair and seriously impedes Primus Canada’s business growth. Primus Canada is frustrated by the fact that it has no direct avenue with the ILEC to address this unfair situation and, because it is a reseller, it is not even entitled to any of the QoS rebates to partially compensate for this poor performance. Reliance on carriers’ networks to this extent is not Primus Canada’s first choice. It is, however, Primus Canada’s only choice and this continues to be a significant obstacle to Primus’ growth. 19. Primus Canada will now turn to some parties’ first round submissions. Those companies that form the current access duopoly are not greatly concerned by the prospect of a duopoly. For its part, Rogers actually concedes that such a duopoly exists, and states that it’s not such a bad thing: In the residential market, there are generally two wireline facilities providers, the ILEC and the cable company, into every home at the current time. … The question asks what the implications would be if the market evolved as a duopoly. Rogers submits that the evidence shows that two firms can provide the benefits of a competitive market. … The principle objective for Canadians is to ensure that the market does not evolve into a monopoly in the broader residential communications market by virtue of the ILECs leveraging their monopoly local telephone power
    • 11 into other adjacent service markets. A duopoly is to be much desired in comparison to a monopoly.1 20. For its part, Bell Canada states: Even if the industry does not evolve into a duopoly of cable and telco network facilities, it does not necessarily follow that such a structure would be problematic from a competition standpoint. First, it is likely that, as they are doing currently, ILECs will continue to build facilities and services out- of-territory, such that non-cable facilities-based competition will grow. Second, significant meaningful competition from resellers is possible. As a result, while telcos and cablecos would own the networks, there is the likelihood of vigorous competition in retail markets, and even wholesale markets. 21. These are, quite frankly, the type of self-justifying positions one would expect the ILECs and cable companies to assume. Primus Canada spent a large portion of its first round comments highlighting the economic and operational problems with using both the ILECs and cable companies last mile networks and will not repeat those comments at this point in time. 22. What became troubling to Primus Canada as it read other submissions, however, was that the two key arms-length government agencies involved in this debate, the CRTC and the Competition Bureau, appear to agree that a duopoly at the retail level, consisting of 1 Rogers’ Submission to the Panel, 15 August 2005, paragraphs 93, 97 and 98.
    • 12 those companies that operate the duopoly networks at the access level, could actually be a good thing for consumers. For example, at paragraph 144 of its submission the CRTC states: While facilities-based competition in the local wireline market has been slow to develop, it has been successful in the wireless and long distance markets, which have been forborne from rate regulation for some years now. Even in the local wireline market, we may now, eight years after the decision to open the market, be on the verge of realizing the goal of broad- based facilities-based local competition. This is the promise of cable television companies’ entry into the local telephone marketing using either circuit-switched networks to deliver traditional telephone services, or high- speed broadband networks to deliver VoIP services, in competition with the telephone companies. If this promise materializes, Canada may find itself in the very enviable position of having two competing broadband networks to a significant number of Canadian homes and businesses, and all of the competitive services that can run over those networks. (emphasis added) 23. For its part, the Competition Bureau states the following at paragraphs 24 and 25 of its submission: Assuming for the purposes of this question, that the market does evolve into a form of duopoly between Incumbent Local Exchange Carriers (ILECs) and cable companies, the implications for the telecommunications
    • 13 market could be substantial improvements over the monopoly conditions that have, for so long, dominated this sector. The Bureau considers that the potential positive outcomes of a cable/ ILEC duopoly include a decreased likelihood for unilateral effects (i.e., that a firm could profitably raise prices above competitive levels) due to the degree of rivalry between cable companies and the ILECs. Aggressive price competition and innovation are other potential benefits that could be expected since most of the costs of service provision (i.e., network costs) by either the ILECs or the cable companies are fixed and sunk, the cost to provision VoIP would be incremental and the service offerings would be of similar quality. (emphasis added) 24. Primus Canada finds these statements by the CRTC and the Competition Bureau troubling to say the least. Primus Canada hopes that instead of merely adopting the views of these two government agencies the Panel will recognize that such an outcome is simply not in the best interests of Canadian consumers. Primus urges the Panel to make strong recommendations to the Minister that the rights of all TSPs to access the networks of the ILECs and the cable companies must be guaranteed and that access to those networks must be economically and operationally workable to the extent that all TSPs are able to offer bundles similar to those offered by the network owners (i.e. a workable wholesale access regime applicable to both ILEC and cable networks). 25. Primus believes that the most compelling reason to reject blithe assertions that a comfortable duopoly can work in the interest of Canadian consumers is that a duopoly
    • 14 situation, in any form and to any degree, will impede competition and therefore impede innovation in the market. The best and most recent example of the ability of competitors to innovate is the introduction to the Canadian market of VoIP services. 26. Canadian consumers were not introduced to VoIP by an ILEC or a cable company. They were introduced to VoIP by reseller TSPs. 27. In January 2004 Primus was the first company in Canada to launch a residential VoIP product, followed a few months later by Vonage in March 2004, and by YAK in September 2004. Primus Canada cannot speculate on when the ILECs and the cable companies would have launched these services in the absence of the competitive pressure brought to bear by these three companies. 28. Primus Canada submits that an unworkable wholesale and access regime governing duopoly networks will actually slow the pace of competitor innovations over time and may actually reduce the numbers of TSPs in the market. 29. For example, the power of network owners in the absence of a mandate to unbundle is currently being experienced afresh in the United States2. In a news article titled “DSL: Deregulated to Death”, journalist Andy Dornan writes: ISPs and their customers were quick to condemn the FCC’s August decision that reclassified DSL as an information service rather than a 2, dated 1 September 2005.
    • 15 telecom service. Because RBOCs will no longer have to carry competitor ISPs’ traffic, it’s almost certain to mean price increases and reduced choices. However, the decision is merely the final step in the long process of restoring the RBOCs’ monopoly over the telecom infrastructure. Back in February 2003, the FCC announced a three-year plan to loosen restrictions on what RBOCs can charge ISPs for the use of copper wires. The result is that it’s already impossible for independent DSL providers to compete on price in most areas. Once the new rules come into effect in September 2006, the RBOCs will theoretically be able to eliminate the other ISPs entirely, though most will probably choose not to. They already regard small ISPs more as resellers than competitors. (emphasis added) 30. In its first round comments Primus Canada noted the recent consolidation of the Canadian carrier industry.3 The elimination of 360 Networks/Group Telecom and Call-Net as independent carriers has put more pressure on the remaining competitors and placed them in a situation where they have no choice but to make greater use of the ILECs’ networks. This aggravates the severe competitive and operational issues mentioned earlier in these comments. 31. Those TSPs that compete with the ILECs and cable companies across the various telecommunications markets have a great deal to offer end-customers in Canada and will continue to be the source of innovative new services in the future (if they survive). To 3 YAK makes the same observation in its first round submission at paragraph 17.
    • 16 maintain this momentum, Primus Canada and these other TSPs need economic and operationally workable access to the networks of both the ILECs and the cable companies. The Canadian government should not be satisfied with some form of duopoly in retail market and to avoid this, will have to ensure that access to the de facto access duopoly is an on-going reality for competitors. Without access to additional capital streams via the elimination of the foreign ownership restrictions, it will be difficult for Primus Canada or any other reseller to move in the facilities-based direction so prized by the Commission. The danger Primus Canada sees is that if government agencies settle for a duopoly at the access level, competition and the benefits thereof will be significantly reduced and Canada’s leading role in the world telecommunications market will be reduce to that of a follower. Conclusion 32. In conclusion, Primus Canada urges the Panel to reject the those arguments that duopoly at either the retail or access network level in Canada will be adequate to protect the interests of end-customers. The level of competition in the market can only be sustained or increased via the presence of a significant number of competitors to the ILECs and the cable companies. Moreover, given the current legislative and regulatory framework, it is clear that economic and operationally workable access to the networks of the ILECs and cablecos is a requirement to ensure that the larger group of TSPs is able to compete effectively in the market. Primus Canada respectfully calls on the Panel to issue recommendations that promote such access to these networks.