by Ian Munro
AIMS Director of Research
It’s easy to complain about the way in which certain government agencies serve us, but at least it’s generally pretty clear what the mission is: the post office delivers the mail from here to there, the transportation departments get the roads paved, and the bureaucrats with the label fetish make sure we’re told exactly how much potassium we’re getting in our bran every morning.
But did you know that one of the main preoccupations of late of your telecommunications regulator, the CRTC, has been to ensure that telephone companies cannot easily offer you a lower phone bill?
Thankfully, federal Industry Minister Maxime Bernier is trying to put an end to this type of “protection” by accelerating the pace of local telephone service deregulation and loosening the constraints that prevent Canada’s telephone companies from offering you lower – that’s right, lower – prices.
This is positive news. Consumers will win when all players – telephone companies, cable companies, wireless operators, and Internet-based service providers – fight tooth and nail to win their loyalty with low prices and innovative service offerings. (Customers in rural or remote areas where competitors are not yet present will continue to be protected by price cap regulation.)
Last April the CRTC ruled that for deregulation of local phone markets to be considered, the incumbent phone company must have lost at least 25 percent of the customer base in an area, but it also pre-defined these areas and made them quite large. The CRTC defined the entire province of Prince Edward Island as a single area for this purpose and it provides an interesting example.
The population of PEI is approximately 140,000 and the population of Charlottetown is approximately 65,000. Suppose a competitor entered the Charlottetown telephone service market and captured 51 percent of the customers so that it now was the largest service provider in the city. By CRTC rules, the Charlottetown market would remain regulated (because the 25 percent threshold for all of PEI had not been met) and the incumbent telephone company, now the number two service provider in the city, would still have restrictions on its marketing and pricing decisions, unlike its now larger rival.
The new proposal properly overturns this CRTC approach by focusing on more localized areas (Charlottetown, rather than all of PEI) where the degree of competition can be assessed more meaningfully, and by looking at the number of competitors, not just customer share numbers.
A remarkable degree of competition has developed in the market for local telephone services over the past several years. Huge numbers of customers have opted to move their local telephone service to cable companies (like EastLink, Vidéotron, Rogers, and Shaw) or to Internet-based providers such as Vonage. As well, a growing number of customers are giving up their landlines and relying solely on cellular telephones.
However, as the telephone companies have bled away market share, the CRTC has limited their ability to respond to their rivals. For example, while competitors are free to use any means at any time to inform any potential customer about their services and prices, if you indicate an intention to switch service providers, the telephone company is not permitted to make you a counter-offer for three months. It’s sort of like a touch football game where one team has to count three Mississippis, but the other side also has to throw in a Tennessee and a pair of Carolinas.
Furthermore, the telephone companies are prevented from dropping prices without first going through a lengthy regulatory approval process because the CRTC has feared that they would engage in what economists call “predatory pricing”: the reduction of prices to an unsustainably low level in order to drive competitors out of the marketplace, after which, the theory goes, the incumbent telephone company would jack prices back up to customer-gouging monopoly levels.
This scenario just isn’t realistic. First, Canada’s cable and wireless companies already compete vigorously with the telephone companies in the video delivery and Internet service markets and they are not going to turn tail at the first sign of a fight. Second, no matter what pricing tactics a telephone company might employ, the competing infrastructure – millions of dollars worth of cable networks, cellular towers, etc. that already is sunk in the ground – would not be going anywhere. The notion that all competitors would be driven permanently from the marketplace is simply not credible. As well, “selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor” remains an offence under Canadian competition law.
Mr. Bernier’s actions to repeal marketing prohibitions and allow for deregulation decisions on the basis of more localized areas are positive pro-competitive steps that will benefit consumers.
Ian Munro is the Director of Research for the Atlantic Institute for Market Studies, a non-partisan public policy think tank based in Halifax, NS. He was born and raised in Charlottetown.