The World of Computer Software/World_Of_Computer_Software-02-387-Vol-3of3.iso/t/tc13naft.zip/TC13NAFT.TXT

Text File | 1993-03-06 | 24KB | 454 lines

·       From: TELECOM
·    Subject: NAFTA Implications For Telecommunications in Canada

Paper forwarded by to telecom by Sid Shniad, Burnaby BC
<[e-mail]>:

       THE TELECOMMUNICATIONS WORKERS' UNION, FEBRUARY 1993

             THE NORTH AMERICAN FREE TRADE AGREEMENT
AND ITS IMPLICATIONS FOR THE TELECOMMUNICATIONS INDUSTRY IN CANADA

"A TRADE DEAL SIMPLY LIMITS THE EXTENT TO WHICH THE U.S. OR OTHER
 SIGNATORY GOVERNMENT MAY RESPOND TO PRESSURE FROM THEIR CITIZENS."

         --Michael Walker, Executive Director of the Fraser Institute

INTRODUCTION

  The North American Free Trade Agreement will have a potentially
devastating effect on major sections of the Canadian economy,
including the telecommunications industry.  Yet neither our political
leaders nor the members of the general public have been given
sufficient substantive information on which to base a reasoned
assessment of the agreement's contents.  What is shaping up instead is
yet another public relations exercise on the part of the federal
government, designed to overwhelm popular opposition that is based on
concerns about the agreement and the detrimental effects it is likely
to have on our society.

   It has been our experience that the federal government's secretive,
selective airing of issues related to NAFTA is entirely consistent
with its handling of other policy matters, including those affecting
the Canadian telephone industry.  In this area, as in so many others,
the federal government is taking its lead from the corporate sector,
ignoring arguments raised by people who point to the disastrous
effects that telephone deregulation has had south of the border.

   What are those effects?  Since the early 1980s, as deregulation
tore apart the American phone system, the US experienced an
unprecedented series of local price increases, cutbacks in service,
and the loss of tens of thousands of jobs as competing telephone
companies narrowed their focus to satisfy large corporate customers
located in major urban centres.

   Aware of the disastrous effects of telephone deregulation in the
States, an alliance of Canadian unions, consumers, community groups,
antipoverty organizations, and provincial governments has attempted to
stave off similar developments in this country.  Instead of taking the
concerns expressed by members of this alliance to heart, however, the
Conservative government has chosen to go through the pro forma motions
of consultation before proceeding with its predetermined agenda.

   The handling of Bill C-62, the federal government's draft
telecommunications legislation, illustrates what it is that we are
talking about.  The government chose a period in late February 1992,
when the country was preoccupied by debate on the constitution and the
federal budget, to table Bill C-62.  If passed, this sweeping piece of
legislation would effectively deregulate this country's telephone
system.

   It would be difficult for the public to participate in a full
airing of this comprehensive piece of legislation under the best of
circumstances.  But the fact that the government tabled it in the
midst of the turmoil over these other matters forces us to conclude
that the goal was to sneak the legislation through Parliament with a
minimum of debate.

   This was not the government's first dubious venture into the field
of telecommunications deregulation.  Even before Bill C-62 was tabled,
the Cabinet put enormous pressure on the CRTC to allow a new class of
companies, known in the industry as resellers, to function without
regulatory supervision.  The Commission ultimately succumbed to this
pressure, liberalizing the terms it applies to resellers.

   As a result, resellers' operations are having a devastating effect
on the industry's regulated rate structure.  If their operations
expand even faster as a result of being deregulated, it will be a
matter of time until the existing regulatory regime unravels and it
becomes impossible for government to exercise meaningful control over
Canada's telephone industry.  Given the text of Chapter 13 in NAFTA,
we conclude that this is exactly what the government intended.

A HISTORY OF THE GOVERNMENT'S PROMOTION OF TELEPHONE DEREGULATION:

   The Canadian law governing telecommunications is the Railway Act.
It requires all companies to file tariffs with the CRTC and have these
tariffs approved before a new service can be offered.  In the mid-
1980s, the CRTC chose to disregard this part of the law when it
allowed CNCP to sell certain services without filing tariffs.

   The CRTC and CNCP were taken to court over this matter, on the
grounds that the regulators violated the Railway Act.  The court
challenge was successful; CNCP was required to file tariffs and the
CRTC was instructed that it could not exempt the company from this
requirement.

   A unanimous decision of a three-judge panel of the Federal Court of
Canada, written by Justice Louis Marceau, stated the issue clearly:

   [T]he very scheme of the Act is at stake and a reconsideration
   of the scheme must come from Parliament, not from this Court
   or the Commission's own conception of how the statute should be
   rewritten in light of changed circumstances.

   Justice Marceau's statement captures the essence of the issue.
Opponents of telephone deregulation do not believe that it is in the
public interest.  It is our position that if the government deems it
desirable for Canadian telecommunications to be deregulated, then such
a change should be made through legislation that has been subjected to
the scrutiny of full Parliamentary hearings and passed by the House of
Commons.

   We were not pleased when the government brought forth Bill C-62.
But the fact that it was before Parliament gave us and other opponents
of telephone deregulation the opportunity to analyze its weaknesses
and organize opposition to it.  We have pointed out that this draft
legislation was designed to enshrine telecommunications deregulation
in legislation and to reduce the status of the CRTC to that of a
rubber stamp for federal Cabinet decisions.  While we believe that
such sweeping changes to the regulatory framework governing Canadian
telecommunications should be subject to the scrutiny of the
Parliament, the manner in which the federal government has handled the
bill has made a full debate of its merits impossible.

   Despite the federal government's attempts to ram the legislation
through, the Parliamentary committee on communications and culture,
which is reviewing Bill C-62, received such a volume of substantive
criticism of the draft legislation that to date, the legislation has
not been brought for second reading.

   The promotion of telephone deregulation in Canada has taken many
forms.  In Telecom Decision 1985-19, which turned thumbs down to long
distance telephone competition, the CRTC ruled that the above-
mentioned resellers were not "companies" under the Railway Act and
that they were not, therefore, obliged to file tariffs for regulatory
approval.  In 1991, following on the earlier Federal Court decision in
the CNCP case, application was made to the CRTC, asking it to review
and vary this part of its 1985 decision.

   In June of last year, the CRTC issued Telecom Decision CRTC
1992-11, which reversed the earlier finding.  In this latest decision,
the Commission found that resellers are "companies" under the terms of
the Railway Act after all.  It ordered them to file tariffs.

   These challenges to the actions of the government and the CRTC were
part of the ongoing campaign to prevent the introduction of American-
style telecommunications deregulation in Canada.  Given the
degradation of service, the increase in the cost of service, and the
massive loss of employment that has rocked the US phone industry over
the past 10 years, Canadians have been anxious to avoid a repetition
of that experience in this country.

   The federal government's promotion of telephone deregulation are
clearly opposed to the popular effort to ensure that the development
of our world class telecommunications industry continues to reflect
the needs of Canadians in all walks of life and in every part of the
country.  Instead, the Conservative government has repeatedly
intervened to compromise what little independence the CRTC has
exhibited, in order to speed the introduction of telephone
deregulation that will benefit the largest corporate users of
telecommunications services.

   Order in Council P.C. 1988-265 illustrates the singlemindedness
with which the current government has promoted the deregulation of
Canada's telecommunications sector.  In that order, the Governor in
Council overturned a CRTC decision against the Call-Net company, in
which Call-Net's operations had been found to be in violation of
Commission regulations.

   The fact that Call-Net was operating illegally was not in dispute.
In fact, the Regulatory Impact Statement written by the Department of
Communications and appended to the Cabinet decision acknowledged as
much, stating that "It is considered in the public interest to allow
Call-Net to continue operating in contravention of existing regulatory
policy."

   In short, despite the fact that both the CRTC and the federal
Cabinet have chosen to ignore the spirit of Justice Marceau's
enjoinder, the TWU continues to believe that if it is deemed desirable
for the Canadian telecommunications system to be deregulated, this
should occur through legislative changes deliberated and passed by
Parliament.

NAFTA:  ENSHRINING TELEPHONE DEREGULATION IN AN INTERNATIONAL TREATY

   The text of NAFTA shows that while Bill C-62 was being deliberated
in Parliament and while a range of matters related to
telecommunications were still before the CRTC and the courts, the
Conservative government's trade representatives were signing off
clauses in NAFTA that will introduce de facto telecommunications
deregulation in Canada regardless of what Parliament decides.

   Chapter 13 in the new North American Free Trade Agreement deals

with telecommunications.  Paragraph 2 (c) of Article 1303 in the new
deal specifies that "A Party [i.e. Canada, the US, or Mexico] shall
not require a person providing enhanced or value-added services [i.e.
telecommunications companies] to file a tariff."

   This passage makes it illegal for the Canadian government to
require resellers providing enhanced or value-added services to file
tariffs.  So if NAFTA comes into effect in its present form, any
company that adds a technical bell or whistle to its services and then
labels them "enhanced" or "value-added" will place itself beyond the
regulatory scrutiny of the CRTC.  This provision of NAFTA complements
what the Cabinet was doing by issuing unilateral deregulatory
decisions and promoting Bill C-62.

   Clearly a major purpose of agreements like the Canada-US Free Trade
Agreement and NAFTA is to tie the hands of our courts and our elected
representatives in the manner described by Michael Walker of the
Fraser Institute.  The purpose of provisions like those contained in
Chapter 13 is to make it impossible for our elected governments to
ensure that Canada's telecommunications industry continues to operate
in the public interest.

   This section of NAFTA grants foreign companies access to or use of
Canadian telecommunications networks and services on "reasonable and
nondiscriminatory terms and conditions."  In other words, these terms
and conditions can be no less favourable than those accorded to
Canadian companies.  This neutral-sounding terminology establishes
formal equality between the mouse and the elephant--Canada's telephone
companies and American giants like AT&T.

   But sections of Chapter 13 go even further, limiting the terms and
conditions that Canadian governments can impose on telecommunications
companies in the future.  While cross-subsidization between transport
services will still be allowed under NAFTA, our legislators will be
required to ensure that prices charged for telephone services are
based on the economic costs "directly related to providing such
services."

   Read together, these two passages mean that while our government
can still require our phone companies to cross-subsidize certain
services, our governments will not be able to require foreign-owned
resellers to make the same kind of contribution payments that are so
necessary to support universal service.  Since the category of
reseller includes foreign subsidiaries of giants like Cable &
Wireless and AT&T, the threat posed by this clause is clear.

   Paragraph 6 in this Chapter goes further, preventing Canada from
imposing any condition on foreign resellers' access to the use of
Canadian networks unless such a condition is necessary to safeguard
the technical integrity of the network or phone companies' ability to
provide service to the public.  In other words, Canada will not be
able to restrict foreign resellers' operations or their ability to
connect to our private and public networks unless we can demonstrate
that such connections would pose a technical threat to Canada's phone
companies or impair their ability of to provide service!

   Now that wide open resale of virtually all services has been
permitted by the CRTC, this part of NAFTA will give foreign companies
like AT&T and Cable & Wireless the right to demand the same regulatory
treatment that is currently enjoyed by Canadian companies like
Call-Net and Cam-Net.

   Consider that fact in light of the following.  In June of 1992, the
CRTC gave Unitel permission to compete in the sale of long distance
voice service in Canada.  During a telecommunications conference that
was held in Toronto in the fall of 1992, Unitel president George
Harvey and other industry executives were asked what they planned to
do in the event that foreign companies were given access to the
Canadian telecommunications market on the same terms as those that the
CRTC granted Unitel.  The atmosphere at the conference immediately
changed from jovial to somber.

   "That's a very worrying scenario," Harvey admitted, explaining that
foreign companies like AT&T could price phone service at levels below
cost as part of a strategy designed to gain market share in Canada.
"Taken to an extreme," he stated, "it's a scenario in nobody's
interest."

   Harvey was referring to the fact that the existing American
telecommunications industry has more than enough spare network
capacity to handle all Canadian traffic right now.  All it needs is
the authority to proceed.  And it appears that NAFTA will provide
just such authority.

   In January 1993, it was announced that AT&T was going to purchase
a 20% share in Unitel.  This move seems to have quieted Mr. Harvey's
fears.  But the question remains:  what will happen to other Canadian
carriers when foreign telecommunications companies have the same
status in Canada that Unitel has?

   Canada's courts have found that the Railway Act requires resellers
to be regulated.  Will giant foreign companies be able to circumvent
regulation in Canada simply by adding "enhancements" to their basic
service package?  These NAFTA provisions appear to grant foreign
telecommunications companies the right to compete in Canada as
resellers, free from regulation and contribution payments, with no
responsibility to file any tariffs and no need to cost-justify rates.

   In short, if NAFTA is signed, it will be open season on the
Canadian telecommunications industry for powerful foreign
telecommunications giants.  These corporations will be free to do
their thing in this country.  And future Canadian governments will be
prevented from applying the kind of policies which ensure that this
all-important industry meets this country's communications needs.

CONCLUSION

   There has been a great deal of news lately about the disaster that
has befallen the Canadian airline industry.  Recently, as the federal
government was confronted by the impending collapse of Canadian
Airlines, it agreed to put up $50 million in loan guarantees for cash-
strapped PWA, Canadian's parent company.

   There are several aspects of this crisis in Canada's airline
industry that are of relevance to us here.  First of all, the trouble
in that sector stems from the same ideologically-driven deregulation
agenda that is being followed in the telephone industry.

   Not long ago, Canada enjoyed some of the best airline service in
the world at prices that were generally affordable.  This was a major
accomplishment, given the size of the country and its relatively small
population.  Now, after the industry has been ravaged by the effects
of deregulation, service has been cut back sharply, thousands of jobs
have been lost, the government is being forced to bail out one of the
two major survivors, and one of the conditions of the bailout is that
CAI will cut back further on service and raise its prices still more.
The situation is so grave that there is serious talk, at long last, of
reregulating the industry.

   Clearly, there is something fundamentally flawed in the
deregulation model.  Yet the federal government continues to pursue it
as if the evidence of flaws did not exist.

   Which brings us to the subject of telecommunications.  Canada's
telephone system and the services related to it are world class.
NAFTA will enshrine the deregulation of Canadian telecommunications in
an international trade agreement, making it impossible for our future
lawmakers to draft laws and regulations that conflict with the
provisions of this agreement.  Before this key sector is put at risk
by the application of the same deregulatory ideology that has
destroyed our airline system, our legislators should do everything in
their power to prevent NAFTA from being passed.

A POINT-BY-POINT ANALYSIS OF NAFTA CHAPTER 13:

Article 1302: Access to and Use of Public Telecommunications Transport
Networks and Services:

  -- Paragraph 1 obliges each Party to guarantee that companies have
  access to and use of public networks, including private line
  circuits, for the conduct of their business on a "nondiscriminatory"
  basis.

  -- Paragraph 3(a) requires that the services offered by operators of
  public networks be priced in a manner that "reflects economic costs
  directly related to providing such services."

  -- Paragraph 3 also says that "Nothing in this paragraph shall be
  construed to prevent cross-subsidization between public
  telecommunications transport services."

  ANALYSIS: Paragraph 3 allows Canadian telephone companies to set
  prices for some services (e.g. long distance) higher than the cost
  of providing them in order to subsidize the provision of services
  (e.g. local) that lose money.  But if American resellers want access
  to Canadian public networks, Canada can't charge them prices that
  contribute to this cross-subsidization.

  The end result will be that foreign companies will be able to use
  our network to bleed off business from Canada's phone companies,
  undermining their ability to cross-subsidize.

  -- Paragraph 4 says that companies must be allowed to use public
  networks for the movement of information within or across borders,
  including intracorporate communications, and to have access to
  information in data bases located in any of the three countries.
  ANALYSIS: Taken together, Article 1302 Paragraphs 1 and 4, and
  Article 1310 (Definitions) mean that American companies must be
  allowed access to information in Canadian data bases from south of
  the border.

  This poses a direct threat to data processing jobs in Canada, to say
  nothing of Canadian sovereignty.  Furthermore, if American companies
  ship this data across the border and then change its "format,
  content, code, or protocol," they will be able to turn around and
  claim status as enhanced service providers whose operations cannot
  be regulated. This poses a threat to the Canadian telecommunications
  industry and to tens of thousands of related jobs.


  -- Paragraph 6 says that aside from technical considerations, no
  condition can be imposed on access to and use of public networks
  unless this is necessary to safeguard companies' ability to comply
  with their responsibility to make service available to the public.

  -- Paragraph 7(a) says that restrictions on resellers can only be made
  if these restrictions are necessary to protect access by the general
  public to telephone networks and services.

  ANALYSIS: No conditions can be imposed on access to or use of our
  networks or services unless it can be established that such access
  poses a technical threat to our network or that it would threaten
  the provision of service to the public.  Outside of these narrow
  considerations, there can be no restriction on resale and sharing or
  on the interconnection of privately leased or owned circuits.

  In other words, under NAFTA, transnational corporations will be able
  to provide their own data and enhanced service needs and to offer
  public telecommunications services!

  -- Paragraph 8 says that "nondiscriminatory" access (see Article 1302,
  Paragraph 1) shall be "on terms and conditions no less favorable
  than those accorded to any other customer or user" of similar
  services.

  ANALYSIS: Paragraphs 6 and 7(a) permit Canada to restrict resellers
  in certain limited circumstances.  But Paragraph 8 requires that
  such restrictions be applied to all companies equally.  Since Canada
  has opened up its long distance voice market to domestic resellers
  like Call-Net, Paragraph 8 prevents us from imposing different
  conditions on foreign resellers, like Cable & Wireless or AT&T.

Article 1303: Conditions for the Provision of Enhanced or Value-Added
Services:

  -- Paragraph 2(b) says that none of the three countries can require a
  company providing enhanced or value-added services to cost-justify
  its rates.

  ANALYSIS: Article 1302, Paragraph 3(a) requires that the services
  offered by operators of public networks be priced in a manner that
  "reflects economic costs."  In other words, their prices must be
  cost-based.

  But Article 1303 Paragraph 2(b) says that countries cannot require
  resellers to base their prices on their actual costs.  So while the
  members of Telecom Canada must justify the price of their services
  by proving that they are cost-based, Cable & Wireless -- a subsidiary
  of the giant British Telecom -- would be free to charge whatever it
  wants for its services.

  This provision of NAFTA offers international competitors the
  opportunity to pursue a ruthless, price-cutting, money-losing
  strategy in the Canadian market.  In case there is any doubt where
  all this could lead, just think of what has happened in our
  deregulated airline industry.

  -- Article 1303, Paragraph 2(c) says that resellers providing enhanced
  service cannot be required to file tariffs.

  ANALYSIS: Again, this part of NAFTA could be directly at odds with
  Canadian law.  It could prevent the TWU from forcing the likes of
  Call-Net and Cable & Wireless to be regulated.  This will give these
  companies a tremendous advantage over Canada's telephone companies,
  which are obliged to file tariffs and have them approved.


END text of TWU paper