Depending on who you talk to, telecommunications competition in Canada either needs regulatory first aid or is unfolding as intended, though not as rapidly as some hoped.
Not surprisingly, many competitors take the first view, while major incumbent carriers tend toward the second.
incumbents are still leveraging their position,”” says Michael Stephens, vice-president of marketing for competitive local carrier GT Group Telecom Inc.
“”The regulatory system the CRTC has adopted is the right model to promote sustained long-term competition,”” says Lawson Hunter, executive vice-president of Bell Canada parent BCE Inc.
The issue is local service, which has been open to competition for more than five years, but most of the competitive local exchange carriers (CLECs) that sprang up in the late 1990s are history now. One significant survivor, Group Telecom, emerged from bankruptcy early this year to be bought by Vancouver-based 360networks Corp.
Along with Group Telecom, competitors in local business telephony include the major competitive long-distance carriers, Allstream Corp. (formerly AT&T Canada) and Call-Net Enterprises Inc. The western incumbent, Telus Corp., also competes with Bell Canada in parts of Quebec.
Real competition won’t necessarily come from telcos
Residential local service is even less competitive. Call-Net is the only sizeable non-incumbent in the market; Allstream abandoned it several years ago and most CLECs have focused on business customers. A few cable companies and electrical utilities have taken advantage of existing networks and rights-of-way to get into local service. For instance, the Halifax-based Eastlink group of companies competes with incumbent Aliant Inc. in parts of Nova Scotia and Prince Edward Island. Some local hydro companies have subsidiaries offering phone service. Yet the incumbents — Aliant, Bell Canada, MTS, SaskTel and Telus — carry well over 90 per cent of local traffic.
Competitive startups in the telecom field have had a rough time in the years since local competition began, admits Lawrence Surtees, senior telecom and Internet research analyst at IDC Canada Ltd. in Toronto. “”If we think that those are the only competitors, we get a pretty horrific picture in our minds.””
But Surtees contends the real competition in local service will come from companies that are new entrants in telecom but well-heeled incumbents in their own industries. Those would be cable companies, electrical utilities and possibly IT service firms. Commercial service based on Internet Protocol (IP) could be reality within two years. Add to that the fact that the largest incumbents — Bell Canada and Telus — are making cautious forays into each other’s home territories — and some say you have a recipe for healthy competition in time.
Incumbents like to add that wireless service already competes with traditional local service.
“”In the not-too-distant future, perhaps a year or a little bit longer, there will be more wireless phones in Alberta and B.C. than there are wireline phones,”” predicts Willie Grieve, vice-president of public policy and regulatory affairs at Telus.
Most Canadians have a choice of wireless carriers. As their volumes rise their costs decline, Grieve says, making them more competitive.
The telecom ventures of electrical utilities, while small potatoes so far, could lead to bigger things. “”You can laugh off little local companies,”” Surtees says, but municipal operations in Quebec are banding together, buying in bulk and targeting the telecom market. Such alliances could become significant competitors to the incumbent telcos.
The major cable companies are clearly interested in the local market, and would probably play primarily in residential service. Ken Engelhart, vice-president of regulatory at Rogers Communications Inc., says a few technological pieces still need to be put in place for his company to compete in telephony, but they will be there soon. Rogers has raised regulatory issues the company feels would put it at a disadvantage, and Engelhart says its future plans depend partly on the CRTC’s response to those concerns.
While electrical utilities and cable companies are widely talked about as potential local phone competitors, Surtees suggests there is another dark horse in the race. Major computer services companies like IBM Canada Ltd. and Electronic Data Systems Corp. are increasingly providing communications services to large corporate customers.
Meanwhile, the most significant local competitors today are the major competitive long-distance carriers, Allstream and Call-Net, along with Group Telecom.
Unbundling of DSL a victory for competitive carriers
Analysts and some competitors say the CRTC has moved to promote competition more aggressively in recent months. For years the commission made rules but paid little attention to policing them, says Robert Yates, co-president of Montreal-based LeMay-Yates Associates Inc. Since Charles Dalfen took over as chairperson at the beginning of 2002, the CRTC has taken a more activist role in enforcing its rules, Yates and Surtees agree.
But competitors want more.
“”We need more change, and we would like that change faster,”” says Chris Peirce, senior vice-president of regulatory and government affairs at Allstream.
In particular, CLECs have asked for restrictions on bundling services, limits on the steps incumbents can take to lure back customers and a better deal on facilities the competitors lease from incumbents.
Competitive carriers won a victory in July when the CRTC ordered incumbent carriers to unbundle Digital Subscriber Line (DSL) Internet access from residential phone service. (For more information please see page 17).
Both Rogers and Eastlink have asked the commission to stop incumbents from bundling local service with other services, arguing such bundles hurt competition in both local service and other areas. With three or four services bundled together, says Engelhart, “”it just gets more complicated if you want to go to another competitor.””
Competitors complain about special facility tariffs
In May, Call-Net submitted to the CRTC a request for several actions to “”jump-start competition in the residential telephone market.”” Call-Net alleged incumbent carriers are not equitable in handling cutovers from their services to the competitors. For instance, incumbent carriers will do residential installations for their own customers on Saturdays but won’t do the same for customers switching to Call-Net said Bill Linton, Call-Net’s president. And cutovers don’t always happen as quickly and smoothly as they might — for which the customer inevitably blames the competitive carrier. Ted Chislett, president of competitive carrier Primus Canada, adds that charges for cutovers vary widely across the country.
Call-Net also asked regulators to prohibit incumbents from contacting customers for a year after they switch to a CLEC — up from a three-month moratorium today. Linton says the increase would give CLECs time to build relationships with new customers before incumbents could offer them “”sweetheart deals”” to return. BCE’s Hunter counters that extending the prohibition would hurt consumers by temporarily stopping carriers from competing to offer them the best deal. Grieve at Telus agrees, saying the CLECs “”want to hamstring the ILECs.””
Call-Net also wants a two-year reduction in charges for services CLECs must buy from incumbents and for a public-education campaign to make consumers more aware that competitive local service exists.
Peirce says pending CRTC decisions about what services incumbents must offer to competitive carriers at cost will be important for his company. “”We can’t hope to replicate in their own territory the networks that Bell and Telus have,”” he says, “”because those networks were built over the better part of century in a guaranteed-rate-of-return environment.””
Peirce also wants the commission to crack down on what he says is a trend toward Bell and Telus offering services without filing formal tariffs. They have done this, he claims, by describing the services as unique offerings for single customers, thus qualifying for special facility tariffs and keeping the details secret from competitors. And he wants the CRTC to deal with competitive issues faster.
“”We have often suffered a significant degree of harm by something that’s going on the marketplace that isn’t appropriate by the time we are able to persuade the regulator of that fact,”” he says.
With all these claims and counterclaims, one could forgive regulators for feeling overwhelmed. The solution, Yates says, is to look at the whole picture and develop a blueprint for making competition work. “”The reaction of the CRTC should be to have a proceeding on competition,”” he says. A very Canadian solution.