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Canadian Business Telecom Users Question Local Measured Service.

One of the principal reasons why the Canadian Industrial Communications Assembly (CICA) has become more active on the regulatory front in the last few years is that in too many cases, tariff revisions have been presented for approval that have a hidden agenda to them that may prejudice uses or competing suppliers. This has become particularly true as we work through the implications of increased competition in all sectors of communication services.

The first point that deserves study is the real reason for the introduction of local measured service (LMS). In reviewing carrier mateial, we see two major reasons put forward for the introduction of LMS. The first is that it makes sense from an economic perspective in that the people who cause increased network use should be the ones required to pay for it. The second reason has to do with the presentation of universality, since LMS permits a pricing approach to local service that will allow low-usage customers to gain access to the network at reasonably low rates. Thus, universaility can be ensured even if there is increased competition in sectors that hav ebeen arguably providing a cross-subsidy to local residential rates.

However, speaking on behalf of business users, we can see that the carriers have another reason for promoting LMS. That is that it may introduce a system that will provide for rate increases without ever having to come back to the regulator for further approval. The estimates of how much increased local usage is likely to occur each year vary.

At the low end, we see in ome of the numbers between a one-and-a-half to two-percent increase per line per year. On the high end, I notice a projection that local usage may increase as much as seven percent per year; that is, it would effectively double within 10 years. The impact of this approach would be dramatic to carriers. In effect, they would achieve an automatic rate increase of between two to seven percent year on the local side. And if, as is quite likely, much of hte increase in local usage ocurs not in peak hours but in off-peak hours, the result is quite dramatic. The carrier will in effect increase its revenues without ever having to increase its costs. This must give considerable concern for users.

In many ways, this reminds one of the approach to rate increases that was so useful to the telephone companies in the 1960s, a time when hardly any of them went before the regulator for rate increases. One of the reasons for this was the increased revenue from long-distance usage that became much more productive with direct distance dialing and lowered microwave unit cost. But a second major contributor to revenue increases was the steady progression of communities into higher rate groups with the addition of new homes in new suburbs. This had dramatic results for revenue increases without any necessity to go back to the regulator with cost justification.

A second concern we have with the apparent rationale for LMS is the suggestion that this is somehow the quid pro quo for increased competition. With increased competition, there is no question that rates will become much closely related to costs. To the extent that means that those who caused the costs must pay for them, it will increase productivity and efficiency and give correct economic signals to users. We have no problem with that general theory. However, we have a great deal of concern with the derivation of these costs and the methodology employed in deriving them. A lot of the argument about likely increases in local rates and the possible peril to universality are based on figures that are virtually impossible to audit. discrimination Against Business Users Turning to another matteR, I think that it should be underlined that business users have largely taken it on the chin in local rate structures. The business to residential ratio, at least in Bell and BC Tel territory, is substantially higher in Canada than is the situation in the United States, so far as we can tell. In addition, the discrimination against business users is further increased by the use of other network rate features--such as direct inward dialing, equivalency or overline features and touch dialing rates. The recent decision on debundling of main telephones from network access lines has further increased the discrimination against business. In the major markets, the ratio of business to residential rates now exceeds 3.5 to 1.0, and if you compare PBX rates with residential single-line rates, the ratio is now over six to one. Three Important Points to Consider

Now, in reviewing those ratios, it is obviously fair to note that the usage placed by business on local lines is generally higher than residential, and this may justify some differential. Howevr, I think that it is important to make three points in this regard.

The first is that, so far as we can tell, some three-quarters of the cost of local access has nothing to do with usage at all, but is completely non-traffic sensitive. The percentage of local costs that can be properly attributable to traffic-sensitive features is relatively small. I am not suggesting that this traffic-sensitive cost should not be reflected in a usage feature in local rates. However, I think it is important to stress that a flat per-line access rate will continue to be appropriate for the largest portion of local-access charges, given the principles of cost causation.

A second point I should make is in regard to a business use that needs underlining. First, the average holding time for a business call is half that of a residence call. And this is despite the computer-to-computer horror stories often raised. a Second, given the alternatives of private acces lines and other bypass alternatives, particularly for high-speed data or other high use needs, I think it will be essential to have a maximum cap for local rates, such as the $30 cap introduced in the Illinois trials. The problem with a pricing system based on usage is that, when you are really trying to recover costs that are largely non-traffic sensitive, at some point you begin to charge costs that are vastly in excess of those of a fully dedicated line. Once this occurs, you send incorrect economic signals because of the encouragement for local bypass.

At the same time, I should underline that business users would not necessarily oppose local measured service if it is approached on an equitable basis, without a hidden agenda for the carriers and with all of its implictions for rate structures taken into account.
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Author:Davies, J.
Publication:Communications News
Date:Aug 1, 1984
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