Northwestel seeks new financial rules

Telecommunications legislation must be changed, says Northwestel. The Bell Canada-owned telco went public with its message last week, issuing a news…

Telecommunications legislation must be changed, says Northwestel.

The Bell Canada-owned telco went public with its message last week, issuing a news release making a presentation before the Utilities Consumers’ Group annual general meeting.

The company, which serves Yukon, NWT, Nunavut and Northern BC, wants Ottawa to approve its new business plan.

Northwestel wants restrictions on its profit margin removed. Instead, it wants restrictions on its ability to raise rates.

The change would improve profits, bolster competition in northern markets and improve service, according to a company release.

Currently, Northwestel is regulated by a rate-of-return system.

Customers are protected by limitations on the company’s earnings, according to spokesman Scott Roberts, director of the company’s regulatory framework project.

“The theory is, if we don’t make too much, we’re not charging too much,” Scott told the Utilities Consumers’ Group.

The rate-of-return system is onerous, said Northwestel chief financial officer Raymond Hamelin.

It requires the Canadian Radio-television and Telecommunications Commission to scrutinize all the company’s financial documents on a regular basis — a time-consuming process that makes it difficult for Northwestel to respond to its customers, said Hamelin.

Rate-of-return is also outdated.

Northwestel is the only telephone company in Canada that still uses it. All others have already switched to a price-cap model.

The new regime, as the name suggests, would be driven by price rather than profit.

The radio-television and telecommunications commission would set floor and ceiling prices for services offered in a certain time frame.

Rates would be determined by looking at factors such as northern economics, Northwestel’s financial information and the current inflation rate.

“It’s much simpler,” said Roberts.

Once price limits are set, everything else is left to the market, he said.

Such a system also allows Northwestel to reap higher profits.

For example, if it cut costs or recruited new customers the company would keep those earnings.

“We have these incentives to be better,” said Roberts.

Currently, Northwestel can make no more than 10- to 15-per-cent profit a year.

Any extra cash has to be repaid to customers in some form, such as a direct refund or a discount price on a service.

The company is also suggesting a variety of changes to the way subsidies finance telecommunications in the North.

Certain initiatives, such as data services that businesses often use, cost too much.

“We need to fix that,” said Roberts. “There is real pressure (for businesses) to go elsewhere.”

Reducing rates under a price-cap system would benefit all northerners, he added.

“We’re trying to keep business revenue coming in to fund services for everybody.”

Northwestel also wants to drop the carrier access tariff, a charge set by the commission.

Other telecom companies pay the tariff to Northwestel for use of its infrastructure.

The fee is high.

Potential long-distance providers pay seven to 14 cents per minute, depending on how the call is routed.

Dropping the carrier fee to less than a penny will encourage more competition in the long-distance market, according to Northwestel’s plan.

“Anybody who came up here to compete in the long distance market would not likely build or duplicate the infrastructure that we already have in place; they would use ours,” said Northwestel director of public affairs Anne Kennedy.

While high-end services for businesses, long-distance rates and carrier fees are slated to take a dive under a price-cap system, the cost of residential and business phone lines would rise.

Yukoners and residents across the North would shell out $2 more per month, while businesses would hand over an extra $5.

When asked why residential rates were on the rise, Roberts answered that prices had remained the same since 2001.

With southern companies subsidizing northern services by millions of dollars each year, it is important to show the North is contributing as well.

“We felt we had to do something,” said Roberts.

Consumers still pay well below cost for home telephone lines.

While a single line costs Northwestel about $56.04 a month, users pay $29.33.

“Residential service still is not compensatory,” said Roberts.

“The challenge is, our cost is $56.”

Companies down south are making money at $22, he said.

Northwestel’s proposal has been sent to Ottawa. The commission will have to approve the proposal.

If the company is given the go-ahead, Northwestel will launch the price-cap regime in January 2007.

Northwestel’s request for a more hands-off approach to regulation echoes recommendations from a major federal review panel that recently examined telecommunications in Canada.

The telecommunications policy review panel’s 400-page report recommends a massive revision of laws governing the industry.

It highlights deregulation of telephone, internet and cable services and examines increasing foreign ownership, opening service rates to market prices and offering tax breaks to businesses looking for telecom upgrades.

However, in remote northern communities, the report supports government intervention to ensure all Canadians have access to cutting-edge services and technology.

Whitehorse is hosting a public meeting, with video-conferencing to Yellowknife, Iqaluit and Fort Nelson, to discuss Northwestel’s application.

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