Industry consolidation causes concern for PIAC, cautions Competitor Bureau

Michael Janigan, executive director and general counsel for the Public Interest Advocay Centre, tells the Competition Bureau of Canada that consolidation in the telecom industry has led to a duopoly and that isn’t good for consumers. In a letter to commissioner Sheridan Scott, Janigan says the bureau should "exercise vigilance" over the increasingly concentrated telecom industry. I am writing you on behalf of the Public Interest Advocacy Centre (PIAC) to express concern at recently announced mergers and takeovers in the telecommunications services sector of the economy. Today, there are essentially three, and in a few cases four, paths into a consumer’s home that can be used to provide telecommunications services. These are (1) the incumbent telephone company (ILEC) twisted copper wire pair (2) the incumbent cable company’s co-axial cable (3) mobile access from wireless service providers (WSP), and (4) in some cases, a new entrant (CLEC), typically using local loops rented from the ILEC or, more rarely, provided by itself or by a third party. With the acquisition of Clearnet by Telus a few years ago and of Microcell by Rogers last fall, there are no more "independent" wireless service providers. All of them are now arms of ILECs or cable companies. That means that, absent the presence of CLECs, the local telephony market is now essentially a duopoly. It is true that the advent of VoIP allows a large number of service providers to offer local telephone services, provided the customer already subscribes to high-speed internet access. However, at present, high-speed internet access is generally only available from the ILECs or cable companies. While some independent providers do exist, they either resell ILEC or cable company high speed internet access service, or are highly dependent on leasing their underlying facilities so as to provide service. The high-speed internet access will likely retain the characteristics of a duopoly. In addition, the price of high-speed internet service is currently quite high, on the order of $45 for stand-alone service. It is also available from ILECs or cable companies through "bundles" of services, but the bottom-line price is, of course, even higher. For those people who do not wish or cannot afford to subscribe to high-speed internet access on its own merits, therefore, VoIP is not a realistic competitive option. As a result, in the absence of new entry by local exchange carriers, i.e. CLECs, customers of local service will be faced with a duopoly for the foreseeable future. Unfortunately, the experience of duopolies in telecommunications is not reassuring as regards prices to customers. Indeed, the original duopoly in mobile services between Rogers and the ILECs led to very high prices and very slow diffusion rates. Since the consolidation of the wireless recently, price discounts have been disappearing and customers are experiencing what many characterize as unacceptable levels of service. The one promising development for customers, especially customers of residential basic exchange service, is entry and expansion into the local market by CLECs, as contemplated by the CRTC in its Decisions 94-19 and 97-8. These landline service providers provide their own facilities, either by building them, or by leasing from the ILEC or some third party. In taking this approach, CLECs assure themselves some measure of independence from the ILECs and cable companies, and so are more free to compete with them. Unfortunately, the number of actual and potential CLECs is decreasing. Few of the first wave of CLECs has survived. For example, Norigen went bankrupt in 1999. Others have pulled back from the local market, e.g. the company that was originally Unitel, and that subsequently became AT&T Canada, then Allstream, and that now has merged with MTS, the ILEC in Manitoba. Now we learn that the largest remaining independent CLEC, Call-Net (doing business under the name of Sprint Canada) is about to be acquired by Rogers, the largest cable company. PIAC finds this consolidation of the telecommunications service industry to be very troubling. The fear is that residential customers will be facing a duopoly of ILEC and cable company, with few if any prospects for new entry. Even the availability of independent VoIP suppliers will merely move the focus of the duopoly, from voice telephony itself, to the provision of the underlying high-speed internet access, which, instead of being an optional service, will now become a necessity, for those wishing to rely on VoIP for their telephony needs. Duopolies are seldom satisfactory, in themselves, as a way to curb abuse of market power and to protect consumers from service providers, when the service is a necessity, with extremely low price elasticity of demand, as local telephony is. PIAC urges the Bureau to exercise great vigilance over this industry, and to carefully consider proposed mergers and acquisitions in the light of the concerns expressed above.

Industry consolidation causes concern for PIAC, cautions Competitor Bureau

News | 05/25/2005 4:00 am EDT

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