Competition May Not be Consumer-Friendly

The Canadian government’s announcement earlier this week to push forward with the deregulation of the $10-billion local phone market is being sold as a good thing for the industry and consumers. Industry Minister Maxime Bernier told the Globe & Mail that: “This reform will bring more competition that will be good for consumers”.

Bernier, a devout believer in free market forces, is obviously counting on the idea that more competition will lead to lower prices and/or better services. The reality, however, is that more competition may be a bad thing for consumers. Why? For one, the incumbent carriers (Telus, Bell, etc.) will no longer have to seek regulatory approval for their prices, which have been kept in check – and arguably artificially low – for decades. With the ability to finally establish prices the way they want, carriers – who are hungry for revenue growth – may, in fact raises prices for local services. And while consumers may be pissed off, the carriers will likely see little competitive pushback from cablecos, who have priced their digital telephone service at a much higher level (Videotron being the major exception) since getting into the market in recent years.

The dirty little secret within the cable and telephone industry in Canada is there’s very little real competition happening. Look at pricing in the wireless, high-speed Internet and television markets. With everyone focused on growing revenue and ARPU, you rarely see aggressive, consumer-friendly marketing campaigns. Don’t be surprised if the local phone market evolves into a similar kind of beast.

Note: For some reason, the Financial Post believes deregulation of the local phone market could lead to price wars. Ha! I’ll believe it when I see it.