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.