The CRTC is to blame for the lack of competition in the local residential telephony market, a new report from the C.D. Howe Institute concludes. Released earlier this month, Dynamic Competition in Telecommunications: Implications for Regulatory Policy states that the regulatory body made a series of miscalculations that not only haven’t enhanced the level of local residential telephony competition, but actually made it more difficult for potential new entrants to succeed.  The think tank says it was wrong for the CRTC to base its policies on the assumption that the greater the number of competitors in the market, the greater the level of competition. The group states that it is in fact more important that competition come from other technologies. The Institute notes that the commission neglected to take into account the impact of technological change and the introduction of newer technologies in promoting greater competition. "Policies designed to promote entry using the current facilities and technology will reduce incentives to invest in new technologies and to compete for the market, which will limit the long-term benefits to Canadian consumers," reads the report.  "Investment in new technologies and services allow a firm to compete with existing technologies may provide greater benefits than competition among providers of the same technologies and services in the market. Competition from potential providers of local access (such as cable, wireless and satellite-based technologies) will force firms already in the market to invest in order to preserve their market position," writes Neil Quigley, the report’s author.  The report singles out Voice over Internet Protocol (VoIP) as a technology that could provide additional competition in the local access market. But mobile wireless is already proving to be a viable competitor. A recent Bell Canada-Decima Research study indicates that 20% of wireless users are displacing traditional wireline usage with wireless (RoW, Oct. 21/03).  Microcell Telecommunications Inc. began offering its CityFido wireline replacement service last October, and people showed up at Fido stores in droves according to anecdotal evidence (RoW, Oct. 7/03; it’s unclear what type of impact the Microcell offer is having since the company has said it won’t break out subscriber additions gained from the program.)  The state of competition in the local telephony market is more likely to depend on the presence of alternative technologies that could potentially supplant fixed wireline access than it does on competitors’ low market share of the local residential market. The introduction of newer technologies forces the incumbent providers to match these investments or risk losing market share, says the Institute. "Competition is more likely to come from cable, satellite and wireless providers than wireline telecommunications companies," concludes the report, adding that this competition will likely be part of a strategy to provide a complement of voice, data and video services. "More important, convergence implies that competition cannot be increased by subsidizing providers of local access; rather, competition is enhanced by the race between wireless and wireline providers to offer customer integrated telephone, data and entertainment services."  The paper highlights the negative impact that mandated low residential prices have had on the stimulation of local competition. Quigley also says the commission’s practice of mandating low residential pricing has only created an environment that has prevented the entry of viable competition. In this type of regulatory environment, only the most efficient telcos will be viable, adds the report.  " … Such policies inhibit investment in competing technologies and delay the introduction of new services to consumers. Thus, in seeking to understand the reasons for the limited extend of competition in residential local access, the CRTC should look first and foremost at its own pricing policies," concludes the paper.