q & a
questions & answers
What are the key regulatory issues investors should keep an eye on?
The regulatory framework remains a part of life for TELUS and other telecommunications companies and could represent a positive or negative impact for us going forward. TELUS has certain mandated local revenue “price cap” reductions in our wireline business, and regulatory rulings will likely continue to remain somewhat unpredictable. TELUS has the advantage from our non-incumbent local exchange carrier (non-ILEC) operations, which provide a partial hedge against adverse ILEC rulings. Overall there is increasing pressure in Canada for the federal regulatory bodies to consider greater deregulation as competition and technology convergence increases.
TELUS’ telecommunications and broadcasting services are regulated under federal legislation by Industry Canada, as well as the Canadian Radio-television and Telecommunications Commission (CRTC), which reports to Parliament through the Minister of Canadian Heritage. Areas of regulatory and policy developments that TELUS investors should keep an eye on include:
- Forbearance decision – The CRTC’s pending decision on local forbearance will signal how long it will be before, and under what conditions, ILECs obtain more freedom and flexibility to compete with cable-TV and other providers, which are not regulated. A decision is anticipated in the first half of 2006.
- Deferral account – A decision on how the CRTC treats the use of ILEC deferral account funds for rural wireline serving areas was released in February 2006. The decision indicated TELUS had a preliminary liability balance of $130 million. The company is to submit applications to fund uneconomic portions of the network backbone and access infrastructure to provide broadband services to rural areas of B.C., Alberta and Eastern Quebec. After provincial consultation, projects are to be submitted to the CRTC for approval by June 30, 2006. Use of the funds to support the extension of broadband connectivity to rural areas allows customers in these areas to benefit from TELUS’ high-speed Internet services, and responds to government policies to expand high-speed Internet availability. Approved projects, for example capital expenditures, will result in revenue recognition by TELUS spread over the life of the assets.
- Price cap review – The CRTC plans to undertake a review in 2006 of the existing price cap regime in place since 2001 to determine how local services and services provided to competitors will be regulated beyond June 2007. While the results of this review will not be applied in 2006, it will attract significant attention and speculation in 2006 as the outcome will set the regulatory framework for price-capped services for an extended period of time.
- Wireless number portability and spectrum – Of particular
interest for the wireless business is wireless number portability
(WNP). In December 2005, the CRTC set out the
implementation timetable for WNP directing that full number
portability must be implemented by TELUS, Rogers and
Bell by March 2007 in those areas of B.C., Alberta, Ontario
and Quebec where wireline local number portability is currently
available. Other carriers and other regions of Canada
are to follow suit by September 2007. Investors may consider
what the net impact could be from increased competitive
churn compared to the benefit of being more effective in
marketing to the business market in Central Canada where
TELUS is under-represented.
There is a possibility that Industry Canada could ask for comments on setting up a new mobile wireless spectrum auction in the future. TELUS, at this point, has adequate spectrum for a number of years.
- Telecom policy review – The Telecom Policy Review Panel, formed in April 2005, is expected to report to the new Minister of Industry in the first half of 2006, and to provide recommendations to the government on many issues including foreign ownership restrictions and structural changes in the way communications companies are regulated. Observers will consider how quickly a minority federal government will be willing or able to act to create new policies and if the recommendations signal a less interventionist regulator and telecom policy moving forward.
As noted above, there are a number of regulatory issues that could affect TELUS and the telecom industry in general in 2006. TELUS supports the CRTC’s facilities-based competition framework. While we are strategically focused on less regulated data and wireless growth markets on a national basis, we welcome any relief or change in regulation in our incumbent markets that may enhance our competitiveness and allow for more innovative product offerings for consumers and business.
Janet Yale
Executive Vice-President,
Corporate Affairs
Member of the TELUS Team