Hold the Phone

Atlantic Canada's newly merged telephone companies, coming off their most profitable year in recent history, want federal regulators to let them boost rates to their most poorly served customers by 20 per cent.

Aliant Telcom - parent company of MTT, Island Tel, NewTel and NBTel - made a 17.4 per cent return on shareholders' equity last year from regulated phone service. It made a 16.6 per cent return the year before.

That's half again the 11 per cent return regulators deemed reasonable when approving the rate structure four years ago. The excess profit works out to $28.26 per year for every phone line in Atlantic Canada - a total of $44-million in 2000 alone.

Despite this record of windfall profits, Aliant wants the right to increase basic phone rates to urban customers in line with inflation, and to rural subscribers - 39 per cent of its customers, or pretty well everyone outside metro and Sydney - by $5 per month over the next three years.

Under Aliant's scheme, rural subscribers, who suffer frequent outages and sluggish repairs, would pay $60 per year more for service that limits Internet connections to the speed of a tortoise and denies access to enhancements such as Mpowered and call display.

Aliant doesn't think service quality should enter the calculation of basic phone rates. Applying logic worthy of the Soviet Politburo, it wants to base rates on the cost of providing service - or, rather, on Aliant's subjective estimates of the cost.

Americans scoff at this model. The U.S. Telecommunications Act mandates "reasonably comparable rates ... for reasonably comparable service."

If Nova Scotia governments of the last century had followed Aliant's logic in providing electrical service, vast stretches of the province might still be without power.

The company's reasoning has more holes than a block of emmenthal cheese.

First, allowing a regulated utility to base its rates solely on the cost of providing service eliminates any incentive for efficiency. If Aliant knows it can recover its costs plus a reasonable profit, there is no great advantage - indeed there may be a disadvantage - in cutting costs. Second, the cost-of-service model leaves phone subscribers at the mercy of self-serving accounting practices. The record of the last four years, in which every regulated phone company in Canada made profits substantially higher than the 11 per cent benchmark set by the Canadian Radio-television and Telecommunications Commission (CRTC), shows that phone-company cost estimates cannot be relied upon. Across Canada in the year 2000 alone, excess profits totalled nearly half a billion dollars.

Third, unlike some utilities, phone service does not consist of individual subscribers whose service, or lack of it, has no bearing on any other subscriber. It is an interactive network whose value depends on its near-universality. If I have a phone and you don't, the value of my phone is diminished. That's why basic phone service costs the same, no matter where you live in Nova Scotia.

Fourth, telecommunication in the twenty-first century consists of a number of services: basic phone, long distance, phone cards, Internet connection, cell phone, pager - that are almost invariably bundled in packages tailored to individual subscribers.

As Bell Canada, Aliant's parent firm, said in part of its submission to the CRTC phone-rate hearings, a phone company should recover its costs "from the totality of its services, not from any particular service."

Nova Scotians should not be fooled by Aliant's claim that it has not actually applied for any rate increase. The CRTC is conducting a review of basic phone rates that will set new rules for setting rates. Once the rules are in place, increases will be fast-tracked with no formal hearings to air the contrary views of subscribers and consumer groups.

Nor should phone subscribers let Aliant frame the issue as a conflict between urban and rural Nova Scotians. It is a conflict between phone subscribers and phone-company shareholders.

"This is an enormous cash grab by monopolies who are already showing very healthy financial returns," said Philippa Lawson, counsel for a coalition of consumer groups intervening in the CRTC proceeding.

"They want to be able to exploit their most captive customers, without any requirement to share the benefits of a declining cost industry with their ratepayers, and without accounting for their profits."

It won't be easy to defeat.

Rural municipalities, businesses, volunteer fire departments, other community groups and individual telephone customers can fight Aliant's proposal by writing the General Secretary, CRTC, Ottawa, Ont., K1A 0N2, or by e-mail to procedure@crtc.gc.ca, before October 15. Groups and individuals can arrange to appear via teleconference at the October 1 hearing by writing the same addresses before September 20.

Five years ago, small Nova Scotia charities forced MTT to back away from a plan to bilk non-profit groups for higher rates. If they organize, rural groups can defeat Aliant's brazen cash grab, too.

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