Gartner: Canada’s New Rules Won’t Change the Telecom Market

On 30 May 2002, the Canadian Radio-television and Telecommunications Commission (CRTC) issued new consumer-oriented rules for network service providers (NSPs) in Canada. The wholesale price incumbent carriers can charge competitive carriers for local lines will fall by 15 percent to 20 percent. The price of basic local service will stay the same as long as inflation remains low – a benefit for consumers.

First Take

These new rules do not include any dramatic changes, but that means the competitive carriers have lost an opportunity to gain ground. Investors agreed, at least initially. They bid up the price of incumbent carriers’ stock while the share prices of the competitive carriers fell, except struggling AT&T Canada. Its stock price wasn’t buoyed by the CRTC, though, but by U.S. parent AT&T saying it would set aside $2.25 billion toward the possible purchase of the 69 percent of AT&T Canada it doesn’t already own.

Incumbent NSPs such as Bell Canada and Telus will lose tens of millions of dollars a year in revenue from the wholesale price change. Although the incumbents will complain, Gartner believes these revenue reductions will have little impact on these dominant players, which have a large base of customers and steady revenue from local operations. The incumbents avoided a larger cut in the wholesale rate that the CRTC was expected to mandate.

Competitive carriers such as AT&T such as AT&T Canada and Call-Net Enterprises (Sprint Canada) asked the CRTC to lower wholesale rates by 40 percent to 70 percent. The smaller 15- to 20-percent cut still means they will have to pay tens of millions of dollars less each year to the incumbents. Nevertheless, these savings will not dramatically change how the market will continue to unfold. Since 2001, that has meant minimal or no growth. As a result, Gartner expects the challengers to revisit their business plans.

One or more of the carriers could appeal all or part of the CRTC’s new guidelines, but they will not succeed in winning any meaningful changes (0.7 probability).

Enterprises will not see dramatic price changes from the new guidelines in the short term. By the end of July 2002, Gartner believes the competitive carriers must demonstrate to the market that they have viable long-term business plans based on the new rules. Accordingly, the challengers must change their business plans. Before renewing contracts, therefore, customers of the competitive providers should determine whether they are comfortable with these new plans.

Analytical Source: Bob Hafner, Gartner Research

Reference Material and Recommended Reading

“AT&T Canada: At the Mercy of Others?” (E-15-5007). Gartner believes AT&T Canada will exist well beyond 2003; however, a large percentage of the ownership will have changed. By Bob Hafner

“Teleglobe Seeks Bankruptcy, Make Sure Your Service Continues” (FT-16-6813). Enterprises with international facilities should contact their local NSP to determine whether Teleglobe is the wholesale provider and to place the onus on the local provider to ensure that service will continue with no problems. By Bob Hafner and David Neil