CRTC introduces deregulation agenda for local markets

Following the Telecom Policy Review Panel’s report to the federal government in March that recommended deregulation of the telecommunications market, the CRTC has set the wheels in motion to deregulate local exchange telephone services – the last regulated telecommunications market in Canada.

The CRTC issued a decision in early April that requires two things before it will deregulate an incumbent local exchange telephone company (ILEC): Competitors in the region must have a minimum of 25 per cent market share; and the incumbents must provide access to their networks for six months. ILECs include Bell Canada, Telus, MTS Allstream, Aliant, Telebec and Sasktel.

Ronald Gruia, a telecom analyst with Frost & Sullivan in Toronto, said the ruling could potentially give the cable companies like Rogers free rein on the market.

“It’s almost like the incumbents are being constrained, while the cablecos can do whatever they want,” he said. “The small guys will have a window there but after a while who’s to prevent what the ILECs could do? Who’s to say the cablecos won’t do the same to the smaller guys?”

Bell Canada immediately released a statement calling the CRTC’s ruling a “profound disappointment.”

“Today’s decision underscores the urgent requirement for the government to act on the recommendations of the Telecom Policy Review panel,” said Bell’s chief corporate officer Lawson Hunter in the statement. Hunter identified the review panel’s recommendations which had called for a more laissez faire approach to regulation — particularly the rules around promotional activities for incumbents.

“What we received was a framework for a continued, heavy-handed and costly regulation,” said Mirko Bibic, Bell’s director of regulatory affairs in an interview. “The decision isn’t very well reasoned from an economic point of view.

“Markets don’t protect competitors,” he said. “You’ve got to make sure the competitive process is healthy but protecting or ensuring the sanctity of the competitive process is quite a different thing than protecting competitors, which has no economic basis nor is it how market forces work.”

The Commission has put in place several safeguards to protect customers should the incumbents be eligible to apply for deregulation of rates on the local services. ILECs, for example, will be required to provide basic residential service to customers who do not have a competitive alternative for service or those who are disabled.

The Commission also weighed in on the “win back rule,” by reducing the timeframe before an incumbent can contact a competitor’s new customer after they have left the incumbent — from 12 months to three. Once competitors have achieved a 20 per cent market share, the Commission will remove the winback rule completely.

“The only gravy in it for the incumbents is the win-back rule,” said Brian Sharwood, analyst with The Seaboard Group who noted that once an incumbent has seen its market share dip by the proscribed 25 per cent, it could be a while before they’re able to adapt to the shift in market forces.

“By the time they’ve hit that mark, it’s a year and a half later,” he said.

Sharwood estimates that 75 per cent of Bell’s revenue comes from its consumer business. The company’s enterprise business is growing, said Shaw, but “not in the way Bell wants it to. The enterprise margins are getting thinner and thinner . . . because they’re getting squeezed by (companies such as) IBM and HP.”

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