Can Anyone Say "Telephone Price War"?
The deregulation of Canada's $10-billion local telephone market took a big-time move forward today when the federal government unveiled a new structure that will let incumbent carriers set prices however they wish to compete against new and fast-growing rivals such as the cablecos (Rogers, Shaw, Videotron, Cogeco, Eastlink, etc.) and independents such as Vonage.
The decision overturns a CRTC ruling earlier this year that stipulated carriers couldn't have competitive freedom in a particular market until they lost 25% of the market. This decision was badly flawed because it failed to take into account wireless customers - many of whom don't have a local line - and the reality cablecos could pick off the carriers' best customers to the point where they could have 30% or 40% of total market revenue while still staying under the 25% market share threshold (based on customers).
So what does it mean? For carriers such as Bell and Telus, they will now have much more freedom in markets where there is another facilities-based network (aka a cable network) to use price as a competitive weapon to retain and attract customers. Of course, carriers are scrambling to grow/maintain revenue so they may be somewhat reluctant to reduce prices. Then again, when Videotron is winning major amounts of market share in Quebec with prices as low as $16.95 a month, Bell may have little choice but to fight on price.
Nevertheless, the decision will level the competitive playing field between the carriers and cablecos. The winners could be consumers IF a price war breaks out (that's a big if given the cablecos have embraced pricing “discipline” in the VoIP and wireless markets). You have to remember local phone service is seen as the key element within a consumer bundle so if you have/can keep a local phone customer, you'll likely be able to sell them lots of other services.
Now, let the games begin!
More thoughts: You can argue until the cows come home whether there is healthy competition within the local market, and whether the non-carrier players will be able to survive/thrive now that Bell, Telus, et al have more pricing freedom. Truth be told, the cablecos are well armed for battle so there's no reason not to let true competition happen. Who knows, maybe competition will lead to benefits other than lower prices such as new, innovative services as the cablecos, carriers and others battle for customers. For other thoughts, check out Mark Goldberg.
December 11th, 2006 at 9:45 pm
This will be a battle between the telcos and the cablecos. Everyone else will be crushed. There have already been casualties. AOL Canada's VoIP was terminated early this year or last year I believe. Primus is going nowhere with their VoIP and Yak Communications got so mortally wounded that it was bought out by a company a third of their size. The lesson is you have to have scale, momentum and dollars to play this game. You can try to build it yourself like Vonage or resell someone elses service and network like Yak but in the end you have to big $$$ backing you.
December 11th, 2006 at 10:51 pm
Given that the companies competing are the same companies that run our unregulated cellphone and cable companies, no price war will break out. The companies will simply find more creative ways to market you more crap you don't need for a higher price. Just look at cell phones. 3 year contracts, hidden service fees, ridiculous hours to get your “evenings” savings. Air time that “expires”. All to save 20 bucks on a Free MP3 email camera phone that only costs the company 10 bucks in the first place.
Or cable companies, they take all the decent channels away from the basic packages so you've got virtually no choice but to pay for “digital high definition” I'm sorry, I've never onced sat down in front of my 200 dollar T.V. and said this picture quality just won't do. Most of the time the programming just sucks.
If there were other companies involved I would say we have a chance at fair and open competition. However given the history of the Bell/telus/rogers and the massive profits they are making from their cellphones,
Who's gunna get screwed……you the consumer.
December 11th, 2006 at 11:33 pm
This is getting ridiculous. So far Bernier's fiat's have established that:
- access-independent Voice-over-Internet is the same market as access-dependent Voice-over-IP-over-DSL. Except that only makes even a little sense if Bell and TELUS practice strict network neutrality — they haven't promised any such thing.
- wireless service is totally substitutable for wireline. Except, news flash: I can't grab a mobile phone, roam about my basement, and get exactly the same service as I could with a wireline phone, nor PIC my LD provider. Nor do cell phones hew to Quality of Service standards for local telephony. Yet, somehow, it's all the same market.
What's the biggest joke of all is that Bernier likes to trumpet economic rationalism — then goes and overrules market definition decision, without providing any economic analysis whatsoever. You can agree or disagree with the CRTC's decisions but, for God's sake, tell us where they went wrong! This is simply regulation by government fiat.
We understand that he's got a hate-on for the CRTC and is flexing his ministerial muscles to pursue his little vendetta. But, well, we're all about to get screwed in the process. Price deregulation notwithstanding the clear exercise of market power by dominant providers? Well so far we've tried that with cell phones, which has resulted in dramatically higher pricing than anywhere else, and with cable TV, which has resulted in clear linear price hikes ever since deregulation happened.
I'm very dubious about all this, as you can tell. It just does not add up.
December 12th, 2006 at 12:02 am
I just hope that, somehow, this will bring us closer to being able to get SkypeIn service here in Canada.
December 12th, 2006 at 9:49 pm
This smells of the government paying the phone companies back for the income trust thing a few weeks ago.