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TUCoPS :: Phreaking Technical System Info :: q_a.txt

Questions and answers on long distance competition





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
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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 price
of
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
tele¬communications 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.




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