TELECOMMUNICATIONS REGULATION: PAST, PRESENT AND FUTURE

1
TELECOMMUNICATIONS REGULATION PAST, PRESENT AND
FUTURE
Department of Systems Computer Engineering SYSC
4700 Telecommunications Engineering March 27,
2007 Carleton University, Ottawa Fred G. Bigham
2
Origins of Public Utility Regulation

• Doctrine of Justum Pretium - Just Price (St.
  Thomas Aquinas 1225-1274)
• Common Law Facilities designated to serve the
  public cease to be private and are affected with
  the public interest (Lord Matthew Hale, 1670)
• Adam Smith (1723-1790) accepted these common
  callings where his laissez-faire proposals could
  not be expected to protect the public interest

3
Examples of Public Utility Regulation

• Electricity
• Gas
• Water
• Telephone
• Railroads
• Intercity Transportation
• Local Transit

4
Public Utility Regulation The Basic
Approach from 1880-1980

• Canada and the United States Private Ownership
  of the Utilities Regulated by a Government Agency
• Rest of the World Government Ownership of the
  Utilities with Mandate to Function in the Public
  Interest

5
Public Utility Regulation A Growth
Industryin last 20 years of 20th Century

• Why more Regulators ( 112by 2002) along with
• telecommunication market liberalization
• and calls for deregulation?
• Regulatory intervention needed to
• gt authorize or license new operators
• gt remove barriers to entry
• gt ensure interconnection of entrants
• gt ensure expanding universal access
• See ITUs Trends in Telecommunications Reform
  March 2002

6
Public Utility Regulation WTO
Reference Paper , 1998

• Over 70 countries have signed the agreement
• Six Sections
• Competitive Safeguards
• Interconnection
• Universal Service
• Public Availability of Licensing
  Criteria
• Independent Regulators
• Allocation and Use of Scarce Resources
• See Appendix A of Telecommunications Regulation
  Handbook edited by Hank Intven www.infodev.org/pro
  jects/314regulationhanbook

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COMPETITION IN TELECOM MARKETS
WHY BOTHER?

• Ensures a Growing Per Capita Income
• Effective Allocation of Resources in Response to
  Changing Economic and Social Goals
• Encourages Companies to Seek out and Use
  Efficient Production Processes
• Fosters Choice and Market Knowledge Among
  Consumers
• Rewards Innovators and Shares Gains with
  Consumers
• Eliminates Persistently Inefficient Companies,
  Products and Processes

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STAGES OF CANADIAN
TELECOMMUNICATIONS REGULATION

• First steps towards public regulation
  1880-1906
• Formation of regulatory ground-rules 1907-1927
• Quiet and benign regulation 1928-1968
• Regulatory renaissance and competition begins
  1969-1992
• Federal regulatory jurisdiction confirmed and
  Telecom
• Act 1989-1993
• Regulatory framework revised to fit
  competition 1993-1997
• Disputes, appeals, price caps, forbearance,
  rate
• rebalancing, unbundling 1997-2005
• Call for comprehensive deregulation in
  Telecommunications
• Policy Review Report and related
  Ministerial initiatives 2006

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POLICY AND REGULATORY ROLES IN CANADA
Industry Canada - Telecommunications -
Radiocommunications Canadian Heritage
- Broadcasting Canadian Radio-
- Telecommunications television and -
Broadcasting Telecommunications Commission
Industry Canada - Radio Spectrum

Policies Regulation
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CANADAS TELECOMMUNICATIONS ACT (1993)
POLICY OBJECTIVES

• Promote orderly development of a
  telecommunications system that strengthens the
  social economic fabric of Canada.
• Ensure access to affordable reliable services
  in both urban and rural areas.
• Enhance efficiency and competitiveness of
  Canadian industry.
• Promote Canadian ownership and control of the
  infrastructure.
• Promote use of Canadian transmission facilities.
• Foster reliance on market forces and effective
  regulation if required.
• Encourage research and development in Canada.
• Respond to users economic/social requirements.
• Protect privacy of persons.

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CANADAS TELECOMMUNICATIONS ACT (1993)
REGULATORY POWERS

• Government may direct Commission on broad
  policy matters (s. 8)
• Conventional powers approve all tariffs and
  agreements ensure rates are
• just and reasonable but, form of
  regulation may be changed (s. 23-33)
• Broad powers to gather information (s. 37-39)
• Exemption for classes of carriers public
  hearing/conditional (s. 9-10)
• Forbearance mandatory if sufficient
  competition exists
• discretionary if objectives met (s. 34)
• Network interconnection orders (s. 40)
• No carrier content control unless authorized by
  Commission (s. 36)
• Prohibit/regulate unsolicited
  telecommunications (s. 41)
• Administer the Canadian Numbering Systems
  (s.46)
• Establish rules for the International
  Telecommunications Regime (s.67)

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The Path to Competition in Canada
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CRTCs TELECOMMUNICATIONS MONITORING
REPORT, JULY 2006

• Total 2005 telecommunications service revenues
  were 34.5 billion and competitors share of
  wireline wireless market reached 35
• Long distance revenues continued to decline from
  5.6 to 5.1 billion but internet revenues
  increased from 4.2 to 4.5 billion
• Incumbents telephone companies had 43 of the
  internet market and cablecos had 42.
• Wireless revenues increased from 9.5 to 11.0
  billion or 32 of the industrys revenues
• Report available at http//www.crtc.gc.ca

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Market Segment Revenues 2002
2005(Billions) with 2002-2005 CAGR
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Incumbents vs.Competitors
Total Long Distance Minutes (Millions) in 2005
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THE CHANGING LANDSCAPE OF TELECOMMUNICATIONS
REGULATION

• Report of Telecommunications Policy Review Panel
  (TPRR) March 2006
• Proposed Order-in- Council December 2006 which
  substantially varies Telecom Decision CRTC
  2006-15 as issued in April 2006
• Skype VoIP Network Neutrality Next Generation
  Networks What are the Implications for
  Telecommunications Regulatory Arrangements?

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TELECOMMUNICATIONS POLICY REVIEW
REPORT (TPRR), MARCH 2006

• Report of four hundred pages with 127
  recommendations.
• Essentially argues for more reliance on
  competitive market arrangements and a much
  reduced reliance on CRTC regulatory hearings and
  associated rulings.
• Argued that there was a vacuum of Government
  policy guidance in recent years and that vacuum
  was filled inadequately by the CRTC.
• The Report called for a Government Public Notice
  setting out an approach to implement the Reports
  recommendations.

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FEDERAL GOVERNMENTS RESPONSE TO THE
TPRR

• In June 2006, the Minister of Industry tabled a
  proposed policy direction to the CRTC indicating
  the governments intention to direct CRTC to rely
  more on market forces.
• Then, in December the Minister published a
  proposed Order-in-Council (OIC) which
  substantially modified the CRTC Forebearance
  Decision ( Telecom Decision CRTC 2006-15, April
  6, 2006).
• That Decision had set out a framework for the
  price regulation of local telephone service
  provided by the telephone companies.

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FEDERAL GOVERNMENTS RESPONSE TO THE
TPRR

• The OIC proposed to replace the CRTCs
  market-share test with more streamlined criteria
  to reduce unnecessary regulatory burden and
  delay.
• This has prompted much commentary National Post,
  March 13th Let the phone firms compete by
  Terence Corcoran followed by Commentary the next
  day New telecoms will be wiped out.
• The OIC must be confirmed by April 6th ..
• watch the newspapers.

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OTHER NOTEWORTHY INTIATIVES

• Competition Bureau seeks comments on its draft
  bulletin (September 2006) on the abuse of
  dominance in Telecommunications.
• The press release notes that the telecom industry
  is in transition from sector-specific regulation
  to more reliance on laws of general application
  (i.e. Competition Act).
• CRTC is conducting a review of its regulatory
  framework for wholesale services and the
  associated definition of essential services.
• The record of the proceeding will be completed by
  November 9, 2007 and the Decision is expected by
  April 2008

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MEANWHILE TELECOM SERVICE APPLICATIONS AND
RELATED TECHNOLOGY DO NOT WAIT FOR GOVERNMENT
REPORTS DECISIONS

• Skype and VoIP
• Network Neutrality Debates
• Next Generation Networks
• Next Generation Regulation???

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Skype VoIP Implications for Telecom
Regulatory Arrangements?

• VoIP is a technology that enables voice calls
  using broadband internet connection instead of
  traditional phone lines.
• A computer, adaptor or specialized phone is
  required.
• Disadvantages? Service may not work in a power
  outage may not be connected to emergency 911
  service and, may not have access to directory
  assistance.
• Skype is a peer to peer Internet telephony
  network with 9 million users as of January 2007.
  Traffic volume is small compared to 264 billion
  VoIP minutes but Skype did approximate 4.4 of
  total international traffic in 2006.
• Regulatory responses (1) Put VoIP under
  traditional PSTN regulatory restraints (2) Limit
  VoIP calls to protect income generated by state
  owned telecommunications companies

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Network Neutrality Implications for Telecom
Regulatory Arrangements?

• Network neutrality is best defined as a
  network design principle. The idea is that a
  maximally useful public information network
  aspires to treat all content, sites, and
  platforms equally. This allows the network to
  carry every form of information and support every
  kind of application. The principle suggests that
  information networks are often more valuable when
  they are less specialized when they are a
  platform for multiple uses, present and future
  (http//timwu.org/network_neutrality.html).

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Network Neutrality Implications for Telecom
Regulatory Arrangements?

• Net neutrality has been seen as a solution in
  search of a problem and a slogan to eliminate
  incentives to upgrade networks and launch next
  generation network services ( see Wall Street
  Journal, The Webs Worst New Idea, May
  18,2006).
• On March 22nd the Federal Communications
  Commission announced it will study the business
  practices of high-speed Internet providers and
  consider adopting regulations to ensure all Web
  traffic is treated equally.
• See also Craig McTaggarts Was The Internet Ever
  Neutral?, September 2006.

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Next Generation Networks Implications for
Telecom Regulatory Arrangements?

• Next Generation Networking (NGN) is a broad term
  to describe key architectural evolutions in
  telecommunications core and access networks that
  will be deployed over the next 5 to 10 years.
• NGNs are generally built around the Internet
  Protocol and therefore the term all-IP is
  sometimes used to describe the trend towards
  NGN. (Wikipedia)
• Or consider a recent OECD definition.

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Next Generation Networks Implications for
Telecom Regulatory Arrangements?

• NGN is a concept rather than a single network.
  It is a packet-switched network providing a range
  of communications services which uses transport
  technologies for several bandwidths and classes
  of service and in which service-related functions
  are independent of the underlying transport
  technologies. NGN covers multiple networks and
  layers serving fixed, mobile and nomadic
  users. It is a means of providing services across
  a range of technologies giving unrestricted
  access to different service providers. It
  supports general mobility, giving users
  consistent and ubiquitous service provision. At
  the heart of the concept is the integration of
  existing voice and data networks into a simpler
  and more flexible network using packet switch and
  IP protocols. This will enable voice,text and
  visual messages to be carried on the same network
  and for each type of message to be responded to
  in any of these formats on the network.
• (OECD Report, Rethinking Universal Service
  for a Next Generation Network Environment April
  2006)

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Next Generation Networks Implications for
Telecom Regulatory Arrangements?

• NGNs offer important advantages as they
  enable the following
• reduce the cost and complexity of
  network operations by pushing switch
  functionality to the edge of the network
• satisfy the need for voice and data
  convergence, giving network operators the
  flexibility to take advantage of emerging
  technologies and standards
• protect the existing network
  investments, while allowing network operators to
  cost-effectively deliver new services to new
  markets
• ( International Engineering Consortium
  http//www.iec.org/online/tutorials/next_gen/topic
  06.html)

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So, What are the Implications for
Telecommunications Regulatory Arrangements?

• Ofcoms Public Discussion Document , November
  2006 Regulatory challenges posed by next
  generation access networks.
• This paper explores the regulatory implications
  of the deployment of NGNs if the widespread
  deployment of new wireless technologies do not
  take place.
• There are two main policy challenges
• (1) as NGNs are being deployed
  traditional regulation will be challenged to
  choose between forebearance and the promotion of
  downstream competition through mandated access
• (2) Wider public policy will need to
  address how the deployment of NGNs is and will be
  impacting issues of social inclusion and the
  digital divide.

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A Concluding Overview and Statement
of Principles

• The world should strive towards global universal
  service and global access to the information
  superhighway,
• Development of the information infrastructure
  should be based on partnership and rules of fair
  competition and regulation, at both the national
  and international levels,
• The information revolution should be geared
  towards enhancing global citizenship and economic
  prosperity,
• A diversity of paths towards the achievement of
  national information societies should be
  respected,
• Policy for the development of an equitable global
  information society should be coordinated
  internationally so as to ensure the sharing of
  information and resources, and,
• The education of young people with regard to the
  skills needed for living in an information
  society should be prioritized
• South African President Nelson Mandela,
  ITU Telecom 95
• -

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Further Information Online

• Further information on Canadian
  telecommunications policy and regulation can be
  found at the following web sites
• CRTC http//www.crtc.gc.ca
• Industry Canada http//strategis.ic.gc.ca