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.

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  • Mark G

    Actually, the Post article you link to has a balance of the two views, including a cite of the same Veritas report that looked at the history of cable satellite.

    The difference with local dial tone is the number of competitors and the ability to compete across a range of access vehicles: wireless, twisted pair, coax and over-the-top IP. That’s why I think it will more closely follow the model we saw in long distance.

  • b

    The new policy doesn’t give telcos complete flexibility in pricing. It maintains the cap on basic local services, so even in forborne markets there will be limits to their ability to raise prices. (It does give them new flexibility on features, however. Get ready for more expensive voicemail.)

    How this will work out should be interesting. Given that there are really only two viable wireline options (telco and cableco), and that the wireless options are all owned by one of those two, the market won’t look anything like long distance did in the 1990s (and to some degree, still does).

    However, you shouldn’t expect any rush by your local telephone company to lower prices. Instead, they will focus on the new options provided by “winbacks” and by offering very targeted discounts that only go to those threatening to switch. In other words, if you want better pricing, call up your local provider once forbearance is granted and threaten to leave. If you just sit back and keep paying your bill, don’t expect to get anything in the near future.

    Finally, what happens in your local market will depend on how the local competitors decide to behave. People served by Videotron have had much better pricing (from both Videotron and Bell) for the last two years. If Rogers continues to offer modest discounts to the legacy Bell service, don’t expect a price war… and be prepared for increases wherever each side feels the other will play along.