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How did government and regulatory developments affect TELUS in 2007,
and what is coming up in 2008?
The Canadian Radio-television and Telecommunications Commission (CRTC) and Industry Canada made a number of pronouncements pertaining to telecom operators in 2007.
An updated price regulation regime, announced April 30, gave TELUS more pricing flexibility to respond to residential competition by allowing greater price de-averaging and more relaxed rules for the pricing of bundles, options and features. The price cap framework regulates retail telephone services pricing by incumbent telecommunications carriers where competitive forces do not yet justify full deregulation.
An announcement in April by Industry Canada allowed telecommunications companies to apply to the CRTC for deregulation in communities where significant residential and business local competition exists. The move freed TELUS from having to seek ongoing approval from the CRTC before making changes or introducing new home phone services in deregulated markets. This allows TELUS to be faster and more agile in meeting client demands and responding to competitive market conditions. TELUS has been granted forbearance in markets covering approximately three-quarters of residential customers and two-thirds of business lines.
In November, Industry Canada announced the policy framework for an advanced wireless services (AWS) spectrum auction planned for May 2008. TELUS was disappointed that the federal government went against previous policy pronouncements to rely on market forces, rather than regulation, to the greatest extent possible in the telecom industry. Notable elements included spectrum set-asides for new entrants, as well as mandated roaming and tower sharing. While TELUS remains in a strong position to compete, this announcement created uncertainty regarding the level of competitive intensity going forward, which negatively impacted share values of TELUS and other wireless carriers.
Regulatory decisions to monitor in 2008 include:
Clarification of the AWS spectrum auction process, which is expected in the first quarter of 2008, prior to an anticipated May auction. At the conclusion of the auction, there will be a clearer view as to how many new competitors may enter the market as well as their approach to entry.
A decision in the second quarter to determine what wholesale services are considered essential facilities, what pricing principles should apply and the transition plan for phasing out the regulation of non-essential services. TELUS has argued for a significant reduction in the scope of facilities that must be provided on a mandatory basis to our competitors.
Decisions on two appeals to the Federal Court of Appeal on whether deferral account funds should be used for broadband expansion. The CRTC has already endorsed broadband expansion to 234 communities in B.C., Alberta and Quebec (including 59 First Nations communities) using accumulated funds in TELUS' deferral account. The CRTC also approved initiatives to enhance accessibility to telecommunications services for persons with disabilities.
Recommendations from the Competition Review Panel to the Minister of Industry by the end of June on various issues related to investment and competition including mergers and acquisitions, foreign ownership restrictions, talent development, labour policy, public and private partnerships and national securities reform.
Local forbearance approvals for residential and business customers in more geographic areas. We also expect that business services in addition to basic telephone service may be forborne.
In summary, TELUS supports the federal government's push for a stable regulatory environment based on a mandate to rely on market forces where feasible. For more information, see Section 10.3 of the Management's discussion and analysis in the TELUS 2007 annual report - financial review.
Janet Yale
Executive Vice-President, Corporate Affairs
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