The Hacker's Encyclopedia 1998

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The following was received from BCTel Feb. 20 1991. It's original WordPerfect formatting has been removed. The original layout formatting may have been altered in this conversion process, but the text has not been altered either in content or it's original order. -JC- Feb 20 1991 ****************************************************************** November 29, 1990 QUESTIONS AND ANSWERS ON LONG DISTANCE COMPETITION Why is the potential for long distance competition an issue in Canada today? In May of this year, Toronto based Unitel Communications formerly know as CNCP filed an application with the Canadian Radio-television and Telecommunications Commission (CRTC) for the right to offer competing long distance service. In July, B.C. Rail and Lightel (BCRL) joined forces to file a similar application. Who will decide whether or not long distance competition should allowed? It is the CRTC's responsibility to determine whether long distance competition is in the best interests of the public. The Commission has scheduled public hearings to begin April 15, 1991 in Hull, Quebec. Regional hearings will be held prior to this date. Is B.C. Tel for or against competition? B.C. Tel is in favour of competition where it makes sense. However, we do not believe applications by either Unitel or BCRL are in the best interests of the Canadian public. Why don't you believe long distance competition makes sense for Canada? Most importantly, the type of competition being advocated in Canada today is not genuine competition. Unitel is asking for a 15 percent price differential. This company is able to afford the differential because it doesn't want to pay its fair share toward subsidizing the cost of local service. BCRL is even less willing to subsidize local rates adequately. In addition, BCRL wants to establish a network which serves only the most lucrative long distance routes, thereby skimming off revenues B.C. Tel uses to maintain affordable local prices. Far from establishing a competitive environment, such artificial advantages would instead create merely the illusion of competition. 2 Furthermore, the Sherman Report concluded that only a small percentage of Canadians would benefit from competition. According to this study, nine out of ten customers would have higher monthly telephone charges if there were alternative long distance services. The Sherman Report also examined the impact of long distance competition in countries where it already exists. From the American experience, researchers found that: most customers pay higher phone bills; lower long distance prices are mostly due to regulatory action, not competitive entry; while competition provides extra choice to customers, most are more confused about service and offerings; and, there is no evidence that competition improves productivity. Why would most Canadians pay more with competition? Entry by either Unitel or BCRL would erode B.C. Tel's long distance revenues the same revenues we use to subsidize lower local rates. This erosion is compounded by the fact that neither applicant is willing to pay its fair share toward maintaining affordable local prices. The combination of these two factors makes higher local rates inevitable. This has certainly been the case in both the U.K. and the U.S. where the introduction of competition has been followed by significant increases in local rates . To what extent do long distance revenues subsidize local service? Approximately fifty percent of the costs of local service are still recovered from long distance revenues. Put another way, 60 percent of long distance revenues continues to be used to subsidize local service. The subsidy today from toll to local is about $20 per line per month. If this subsidy were removed, residential customers in the Vancouver area for instance could pay local rates of over $30 a month. Considerably more than the $13.60 they are now billed. Commissioned by the Federal-Provincial-Territorial Task Force on Telecommunications; published December 1988 How do increases in the price for phone service in B.C. compare to increases in prices for other goods and services? Telephone service in B.C. is actually one of the best consumer "buys." The last general increase in the price of basic local service was in 1985. What other good or service has not gone up in price in over five years? As for long distance service prices have plummeted over the past four years. The table below lists the average rate decreases (July 1987 December 1990) for calls to various locations in and out of B.C. since July 1987. Calls east of Alberta 50% Calls to the U.S. 17% Calls to Alberta 36% Calls to Hawaii 27% Calls within B.C. 36% Calls to Alaska 26% Do you have any more reductions planned? B.C. Tel has proposed two different scenarios for decreasing long distance rates over the next decade. The first involves long distance cuts without any increases to local rates; the second calls for more extensive long distance decreases accompanied by modest increases in the price of local service. With no increase in local rates, B.C. Tel would implement the following additional reductions: 35 percent off calls to provinces east of Alberta 20 percent off calls to Alberta 35 percent off calls to the U.S. B.C. Tel also plans to introduce further discounts of up to 50 percent for high volume long distance calling. With modest increases in local rates, the company would be able to slash the price of long distance service even further over the same period. If local rates were increased at the rate of inflation for one year, and at half the rate of inflation for the next seven years, B.C. Tel could instead implement the following reductions: 47 percent off calls to provinces east of Alberta 33 percent off calls to Alberta 47 percent off calls to the U.S. 18 percent off overseas calls B.C. Tel would also introduce further discounts of up to 50 percent for high volume long distance calling. Which scenario do you favour, and why? B.C. Tel favours the second scenario which calls for modest increases in local rates accompanied by deep cuts to longdistance prices. Having already achieved universal service, we believe it is now crucial to offer the maximum amount of long distance reductions possible in order to make Canadian business more competitive in the global marketplace. The current cost/price imbalances in the system have generally benefited residence and business customers who make fewer long distance calls at the expense of high volume long distance users. By paying long distance rates that are far above cost, heavy users of this service have contributed disproportionately large amounts toward keeping local rates at prices far below cost. Accordingly, B.C. Tel believes that it would be most appropriate to take the funds available to reduce long distance rates and focus rate reductions on the services used by higher volume customers. In the first scenario, how are you able to make these long distance cuts without any corresponding increase in local prices? B.C. Tel has proven its ability to lower long distance rates without raising the price of local service. In the past four years, the price of calling long distance has gone down by an average of 37 percent. This has been accomplished largely through significant productivity gains which have been passed onto our customers. These same gains are forecast to continue in the future, making further reductions possible. In the second scenario, how much would local rates increase? By the year 2002, local rates would have increased by only 21 percent. What impact would competition have on local rates? Depending on the terms of entry and the number of entrants, local rates would increase by at least 20 to 44 percent. How does Canada compare with other countries in terms of universal service? Canada ranks second only to Sweden for the highest levels of universal service in the world. More than 98 percent of households from Victoria to Goose Bay have affordable telephone service. This compares to a penetration rate of only 93 percent in the U.S. Isn't it really the threat of competition which is forcing you to reduce rates? No. B.C. Tel has been reducing long distance rates for four years long before either Unitel or BCRL applied to enter the long distance market. Significant productivity gains have enabled us to pass our savings onto our customers in the form of lower long distance rates. Provided the existing system is unchanged, the company fully intends to continue lowering long distance rates. What happens if competition is introduced? Will you still put your planned rate reductions into effect? B.C. Tel would expect to continue offering reduced long distance rates as planned. However, due to the negative impact of competition on revenues used to subsidize local service, local rate increases of up to 44 percent over ten years would be required. Why don't you lower local rates instead of long distance? There already is an imbalance between long distance and local prices when compared to their respective costs. Long distance rates are held artificially high and the revenue used to subsidize local rates at prices far below their actual cost. B.C. Tel believes these rates have to be more reflective of the costs of providing service. We feel a number of economic and societal benefits will flow from lower long distance prices, including increased communication and a strengthening of the provincial economy. Don't Americans pay a lot less for telephone service? Canada has among the lowest overall telephone rates in the world lower than those in the U.S., the U.K. and Japan. However, our prices are structured differently than in the U.S. Our residential rates for local service are extremely low by comparison, while most of our long distance rates especially long haul are more expensive. In Canada, this structure has been viewed by governments and regulators as socially desirable, designed to ensure that all Canadians have access to universally affordable local telephone service. Although Canadians have historically paid higher long distance rates than their American neighbours, this is changing. Since 1984, Canadians have actually experienced greater reductions in the price of calling long distance. Not only that the priceof local service in Canada has gone up less over the same time. The average decrease in U.S. inter-state long distance rates over the past five years (1984 - 1989) has been 29 percent; intra-state rates have gone down by only 8 percent. Local charges in the U.S., however, have increased by 31 percent during this time. In B.C. over the same period, local rates have gone up only 9 percent (due to expansion of calling areas rather than general rate increases), whereas prices for long distance service have decreased by an average of 30 percent. How have cable rates changed over the past few years? Since 1984, cable TV rates in the Vancouver serving area have increased an astronomical 98.5 percent. Isn't it true that competition brings greater technical innovation? Not according to the Sherman Report. This government-commissioned study states that: "Canadian telephone companies appear to have kept pace with international technological developments, and they have built one of the most modern and functionally efficient tele¼communications networks in the world." B.C. Tel in particular has a strong record of technical and service innovation. This record encompasses a number of "world firsts," including the introduction of a variety of voice and data services as well as a leadership role in the application of digital technology. What about productivity? Aren't the U.S. telephone companies more productive in a competitive environment? Studies show that Canadian telephone companies have productivity growth rates that are significantly greater that those of their American counterparts. Wouldn't competition stimulate demand for long distance services? If this were true, the U.S. market would have grown more rapidly than the Canadian market. This has not been the case. Analysis indicates that growth in the demand for long distance services in the Canadian market has matched that in the U.S. When will the CRTC decide whether or not to allow long distance competition? The CRTC's regulatory process should extend through the end of next year.