Duelling consultants argue over true state of competition in Canadian telecom

True competition in the telecom sector revolves around technology, not the number of entrants, a new paper says. But a leading analyst worries that proposals contained in the paper could lead to increased prices for consumers. Last month the C.D. Howe Institute released Dynamic Competition in Telecommunications: Implications for Regulatory Policy. Author Neil Quigley posits that the pace of technological change means competition can’t be measured strictly by who’s in the marketplace. "I conclude that the CRTC does not place sufficient weight on competition resulting from investment in new technologies, its impact on competition for the market, rather than in the market, and the welfare gains resulting from these elements of dynamic competition," the university professor writes . "As a result, the CRTC is understating both the extent of the existing market discipline on incumbents and the vigour of the competitive process in local telecommunications." Ian Angus, president of Angus TeleManagement Group, agrees that competition goes beyond traditional limits. The future of telecom does not exist in reselling local loops but in other technologies. But he questions Quigley’s basic thesis. "He seems to treat innovation as all by itself a good thing," Angus tells Network Letter. "In fact he does and he says that even though they’d pay higher prices, consumers would get the benefits of innovation, which is the big benefit of competition presumably. Well, innovation by itself isn’t a benefit. It’s nothing. Innovation has to deliver something of value to people." The two analysts disagree over the effect of competition on underserved districts. Quigley condemns the regulatory framework for being inefficient. "Regulatory policies that force incumbents to reduce prices for existing technologies or, worse, that require cross-subsidies for certain categories of consumers (such as those in rural areas) may have a substantial negative impact on consumer welfare by making the business case less attractive for potential entrants," he writes. "Regulatory policies that require pricing at incremental cost or subsidized prices delay the point at which new technologies and services become economically viable and make competition for incumbency less attractive." Angus thinks that version ignores history. He sees no reason to think past patterns would change. "What we saw in the first price cap period in Canada was that the phone companies basically concentrated all their rate increases on the areas where there was less competition, that is the rural and remote parts of the country and typically lowered rates in all the areas where there was competition, in the big cities and the business services," he explains. "I think he can argue all he wants that they have no incentive to misprice services and so on. The fact is that’s what they did and that’s likely what they would do. So you would practically have the phenomenon that instead of urban services subsidizing rural services, folks out in rural areas would be subsidizing the coming of competition in urban areas." The veteran consultant faults Quigley for his comparisons of Canadian telephone rates with other jurisdictions, especially the United States. The C.D. Howe study is weighing apples against oranges. "He makes an assumption that an awful lot of Canadian analysts make that I just don’t agree with and that is if prices are higher than the U.S., then the U.S. must be right and we must be wrong. And basically his argument that Canadian rates are too low is based on the statement that rates in other countries are higher," Angus opines. "Well, first of all none of the Canadian tele-phone companies is particularly having trouble with profitability right now." The C.D. Howe report suffers from having been overtaken by recent events. It claims, for example, that Shaw Communications is not planning to enter the telephony market "in the foreseeable future." Since the study was written the western cableco has announced plans for a rollout.

Duelling consultants argue over true state of competition in Canadian telecom

News | 03/03/2004 5:00 am EST

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