Less Regulation in Canada; Less Competition

In today’s Globe & Mail, there is a small story with a big message on how the new chairman of Canada’s telecom and broadcasting regulator, Konrad von Finckenstein, wants to see more deregulation within the $30-billion telecom sector. This approach mirrors that of federal Industry Minister Maxime Bernier, who believes free market forces should play a key role in determining how the competitive landscape unfolds.

The fundamental problem, however, with deregulation in Canada is it comes after decades of micro-management by the CRTC, which has scrambled to achieve a balance of regulation (protect consumers from being gouged and competitiors from being blown to smithereens) and competitive. At the end of the day, however, there is little competition in Canada’s telecom sector. In many markets, you only have one or two choices for local telephone, high-speed Internet access and wireless service. And with service providers and investment analysts focused on average revenue per user (ARPU), prices are creeping up with nary a whimper from consumers who have little choice but to chew and swallow.

So what will deregulation mean in Canada? My guess is a less competitive environment because it will give the stronger players (carriers and cablecos) more flexibility than ever to prevent newcomers from establishing a foothold in the market. Look at Vonage Canada, which is seeing nowhere the kind of success it’s seen in the U.S. With deregulation of the local phone market, Bell Canada, Telus and other incumbent carriers will have more freedom to use price as a marketing tool. If you’re a major player and you can easily attack smaller competitors, don’t be surprised if the small competitors disappear.

Another competitive/regulatory issue is fair access to facilities. Take the high-speed Internet access market, for example. To encourage competition and choice, the CRTC has mandated the carriers and cablecos provide wholesale access to other service providers. While Bell has complied (although not too aggressively), the cabelcos have managed to put off the CRTC for nearly a decade. As a result, there’s little competition in high-speed. And if the CRTC and federal government really wanted competition in high-speed, they would have never approved the purchase of WiMax-based Inukshuk to Bell and Rogers. If you want competition without forcing new players to make major investments in new facilities/networks, you need to ensure fair access to existing networks.

In many ways, deregulation is something that, in theory, makes sense because it means a more competitive environment. In reality, however, deregulation in Canada and a focus on free market forces will see the stronger players get stronger, and the small players disappear or be marginalized. Going forward, keep in mind this adage: Be careful what you wish for because you might just get it”.

Update: For more thoughts on the competitiveness of Canada’s telecom landscape, check out Mark Goldberg and Balraj Dhillon’s Telecom Canada blog. Another telecom issue looming on the horizon is Net Neutrality, which the federal government appears NOT to support. See Michael Geist’s post for more.

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  • Eric

    I think you have a good point. Seems to me though, that whether we want to or not, deregulation is coming. Will this deregulation include some kind of loosening up of the foreign ownership rules, and if so, could this allow for some competition from some of those big us operations?

  • Mark Evans

    Foreign ownership could be the wild card within the competitive landscape – provided foreign investors/companies perceive an opportunity in Canada.

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  • Christopher Schmitt

    Mark, I don’t think a change in the foreign ownership rules would make much of a difference in the current competitive landscape. The investment in facilities required to compete with Bell and TELUS head-to-head is far to massive even for a foreign partner with deep pockets. As far as I know there are no alternative facilities-based technologies available today that would attract major investment because they are no better then what the cablecos and telcos already have. Inukshuk technology was (and still is) slow and expensive.

    The CRTC’s policies with regard to wholesale access to facilities have proven ineffective as well, particularly with regard to services and facilities required for effective Internet competition. The CRTC has not kept up with the times and has only mandated access to technologies that are now out of date (i.e. loops and T1s). The “wholesale” rates available today are set by the telcos and cablecos and that’s why these companies continue to control the market.

    It’s scary that the CRTC is thinking so much about deregulation without having first solved these problems. We need to encourage innovation in this country and that will only come from having lots of competition. As you point out very effectively the signs do not indicate that we have true telecom competition in this country. Hopefully the CRTC is thinking about how to increase telecom competitiveness before they get too far down the path towards deregulation.

  • Nolin

    Mark, I’m sad that you haven’t written at all here about WNP recently given that we’re only 16 days away from “March 14″. Is it some sort of conspiracy that not only are the telcos oddly quiet, but so is the media? :)

  • Mark Evans

    Thanks for the reminder. You’re right, there hasn’t been a lot of media coverage of WNP. My guess is the carriers aren’t going to push the idea because it will probably be a zero-sum game for them: they’ll lose some customers and gain some customers. Now, where is the media? :)

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