AT&T Canada and CallNet (Sprint Canada) have publicly stated their displeasure with a frozen surcharge on long distance minutes designed to fund local phone services.
“While we endorse this concept of subsidizing affordable local service, in some instances we’re finding ourselves paying half of the money we get from the customer to the incumbents. When you have to pay half of the money you’re getting to the people you’re supposed to be competing with, we think that’s not sustainable,” said Chris Peirce, vice-president of government affairs for AT&T Canada in Toronto.
The CRTC’s frozen contribution rate policy, scheduled to be in place for another two years, dictates that all long distance carriers, including incumbents such as Bell and Telus, pay a per-minute charge to a Central Fund. According to Peirce, the fund administrator then clears out the fund every month by giving a share to each local player in a given area.
“They divide up the money in this fund according to the proportion of lines. So if, in a given territory, Bell had 96 per cent of the local lines, they’d get 96 per cent of the money in that pot,” said Peirce.
The problem is the increased number of long distance minutes combined with the decreased rates means long distance companies feel they are overcontributing and hurting themselves in the process.
“We had said (to the CRTC) look, when you instituted this frozen contribution rate policy, here is what the incumbent companies said they needed to subsidize local service. Since then we’ve had the flat rate calling plans and a huge growth in the long distance minutes in Canada and because your frozen contribution rate policy means we have to pay a set amount for each one of those minutes, the amount of contribution is way beyond what they said they needed and is only going to grow more…
“The revenue that companies like us are getting from long distance has declined seriously, but the amount they have to pay per minute in contribution has stayed exactly the same,” said Peirce.
He said in 1999, the fund collected around $800 million, “and we figure it over-collected between $150 million and $200 million.”
At the end of 1999, the CRTC rejected the request to lower the contribution. David Colville, vice-chair of telecommunications for the CRTC in Ottawa, explained that once the numbers were scrutinized, the commission found that the difference in payment was negligible.
“Although it’s true that the calling volumes went up, they went up in the evenings mostly, because these were largely residence packages. The calling went up when the contribution is actually a considerably lower amount, so the amount of money increased wouldn’t be as much as one might think it would be.
“Secondly… while there was an increase in contribution from the long distance plans, there was actually an offsetting decrease in contribution, given the way it’s calculated, for international traffic. When we netted it all out, the net increase in the fund was about a one per cent increase on a national basis, so our conclusion was that was not significant enough to unfreeze it,” Colville explained.
Peirce said AT&T was also annoyed that the CRTC does not dictate how the incumbents must spend the money they receive. Colville confirmed that there is no direction on the spending other than it is meant for local services.
Although the theory is that companies like AT&T Canada could share in the pot as well if they were providing local service, Peirce said other CRTC decisions have made that unfeasible.
“A new entrant has to pay to incumbents if it wants to get into local competition… In our view, there is just no way you’re going to see local competition in Canada for the foreseeable future until you can get to houses in a different way other than using the wire of local companies,” said Peirce.
But the CRTC’s Colville said the whole issue of contribution may be moot anyway because the commission has undertaken a review to determine if it’s fair that only long distance providers are subsidizing local telephone service.
“Should that burden, if you want to call it that, be shared among all the players in the telecommunications business, whether you’re providing long distance service or not? Should it be a cents-per-minute charge on calling, or should it be a tax on gross revenues, or what? That whole issue is up for grabs,” Colville said.
The review is expected to last until the end of the year, at which time a proposal could be made to change the system in any of several ways, including passing a charge onto the consumer, Colville said.
