CRTC price ceilings are killing competition: report

The C.D. Howe Institute last week released a report saying the CRTC‘s tightly regulated pricing of local residential services has hurt the growth of competition and delayed

new services for consumers.

The report argued that regulatory bodies cannot control pricing in an industry faced with rapid technological change because these costs don’t reflect the need to make new investments and do research, said Bill Robson, C.D. Howe’s senior vice-president and director of research in Toronto.

In the past, BCE Inc. has argued that keeping residential prices too low has an impact on competition because new entrants see few opportunities and high risks, said Lawson Hunter, executive vice-president. He said a study conducted last summer indicates Canadian residential phone costs are 50 per cent to 75 per cent lower than those in the U.S.

Jean Brazeau, senior vice-president of regulatory and government affairs at Toronto-based Sprint Canada, believes the C.D. Howe Institute’s report benefits only telcos like Bell Canada that dominate the market and stand to gain the most from a price increase.

Brazeau said, if the CRTC removed price restrictions and new technology were available tomorrow, it would still be difficult for new competitors to tackle the old monopolists. “”Because of the advantages that they’ve had as an incumbent carrier, in order to overcome those advantages . . . you would have to build a lot of facilities and you would need to have some pretty deep pockets in order to get 20 per cent of the market share.””

Although the political environment has embraced a policy of price regulation of residential services, the price for the residential user should be set higher, Robson said, adding that those who could not afford a price hike to basic service could qualify for a compensatory tax credit.

“”The tax system bristles with special credits. You can think of ways of trying to put some money back into the hands of people in that situation to make them whole.””

Hunter — noting unnamed government staffers have told him Canadian prices are too low but “”there’s nothing they can do about it”” — explained the earliest opportunity to examine residential prices is 2005, the date of the next price-cap hearing. Leading up to the discussions, it needs to be considered whether the price point at the retail level is right or whether retail prices needed to be governed at all, he added.

Pricing of residential phone services also raises issues about the pricing of new technological advances like voice over IP, said Lawson. He said the CRTC has to focus on what these services will mean for consumers and telco players, “”and I’m not sure that they’ve got their head wrapped around that just yet.””

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