What did you do in the revolution, Daddy?

In October, Darren Entwhistle, CEO of Telus Corp., speaking to the Canadian Chamber of Commerce called for a "revolution" to overthrow the oversight of Telus’ regulator, the Canadian Radio-television Telecommunications Commission (CRTC). It was yet another salvo by one of Canada’s telephone giants in a no-holds barred campaign against the way they are currently regulated. The gist of their complaint is that meddling CRTC despots have hamstrung the big telephone companies with unnecessary regulation. The well-heeled insurrection scored a big victory with the Conservative minority government this week, when Industry Minister Maxime Bernier overturned a CRTC decision setting the terms under which the big telephone companies could apply for regulatory liberation. In practical terms, this meant that companies like Bell Canada and Telus didn’t have to wait until they had lost 25% of their market share before escaping pricing constraints. The criteria for deregulation in the future will be on the presence of competition rather than the strength of the competition.The fact of the matter is that this ministerial intervention was hardly needed. Contrary to the spin emanating from the government and the victorious corporate revolutionaries, the government reversal had nothing to do with competition, but rather who will win the competition. Bell Canada and the other big incumbents could already reduce prices on their regulated services; indeed competition has been allowed in these markets since the mid -1990s with little success. And, notwithstanding the rhetoric about regulatory indenture, all major telephone retail communications services except for local telephone service have been forborne from regulation by the CRTC. The CRTC has sensibly refused to depart from consumer protection oversight over rates and terms and service in local telephone market where the incumbent telephone companies such as Bell Canada and Telus currently have approximately 92% of the market.It is important to understand what the ersatz telco revolution is really about. The big telephone companies want to charge for their local services on the basis of demand rather than cost, and to have complaints about service resolved chiefly by telling consumers to find another supplier. The companies can then provide discounts in highly lucrative markets while maintaining high prices in smaller, less attractive markets without the annoyance of the public interest. Does anyone really think that important industries with similar freedoms, such as the banks and airlines, have provided better pricing and value for services than regulated local telephone companies? The central idea behind Minister Bernier’s announcement is that the strength of competition, measured by market share, is irrelevant when determining whether a market is competitive. This is, at best, a dubious proposition. Competition against established incumbents providing utility or public services is universally regarded as an expensive high risk proposition. A brief conversation with the financial backers of telecommunications challengers of recent vintage like Sprint, Unitel, Microcell, Clearnet et cetera might be instructive as to whether the appearance of competition is the same as the establishment of competition.More importantly, the benefits to consumers of the deregulatory busywork to date are increasingly obscure. The frequently cited poster children for successful deregulation, the wireless and the Internet industries are hardly consumer darlings. Wireless telephony mergers have eroded competitive market benefits and retail price discounts lag international markets. In Internet markets, a 2004 Pollara survey found overwhelming support for consumer protection rules for Internet services. The increasing advent of a duopoly in the delivery of broadband service is not likely to increase the public’s enthusiasm for the hands-off model. A September 2006 Pollara survey found that only 20% of Canadians agree with the position of Canada’s big telephone companies on deregulation.The new rules unfortunately speak to political rather than economic principles, and the formidable clout of Canada’s big telephone companies. And while the massive telco lobbying effort has evidently paid off, the political enablers of the well-financed revolution may ultimately find that the eventual results may be difficult to square with the pocket books of their constituents. Michael Janigan is the executive director and general counsel for the Public Interest Advocacy Centre.

What did you do in the revolution, Daddy?

News | December 21, 2006

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