The CRTC said on Thursday that it could deregulate 86 of Canada’s markets on a case by case basis, depending on the level of competition within each area.
Following the Telecom Policy Review Panel’s report to the federal government last month 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 late Thursday afternoon 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 to three months. 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 market forces.
“By the time they’ve hit that mark, it’s a year and a half later,” he said.
Thursday’s decision follows the one of the panel’s key recommendations in its 392-page report to Industry Canada last month. In it, the panel, which is comprised of Dr. Gerri Sinclair, Hank Intven and Andre Tremblay, recommended amendments to the Telecommunications Act that would possibly allow for the deregulation of the market to “promote reliance on market forces to the maximum extent possible” and to “limit the use of regulation to instances where market forces are unlikely to achieve these goals.”
In the short term, Bell and the incumbents may be relatively unscathed by the CRTC’s decision, said Sharwood. Rogers, for example, hasn’t been as aggressive on home telephony as it could have been. “Ted (Rogers) takes a look at Bell’s pricing and undercuts them a little bit,” 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 be. The enterprise margins are getting thinner and thinner . . . because they’re now getting squeezed by people like IBM and HP.”
Bell has 30 days from the day of the CRTC’s decision to file an appeal with the Federal Government. Bibic said an appeal is a definite possibility.
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