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