Ottawa proposes greater deregulation of local phone services

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The federal government has announced it wants to speed up deregulation of local phone services by basing it on “presence of competitive infrastructure” in a specific geography rather than market share.

Going by this new characterization, a competitive market – and consequently, one exempt from regulation – would now be one where two or more major phone, wireless or cable companies operate. This formulation – expected to cover around 60 per cent of the population – is widely expected to lead to lower local phone service prices – at least in the short term.

The proposal by Maxime Bernier, Minister of Industry, on Monday afternoon, reverses an earlier Canadian Radio-Television Commission (CRTC) decision.

The CRTC ruling had required big telephone companies to lose a sizeable chunk of their market share in a specific geography before the local telephone services they provided in that area would be exempt from CRTC regulation.

The CRTC had placed limits on how much monopolies such as Bell Canada, Telus Communications Co. and other telecom giants could lower prices in areas where they control more than 75 per cent of the local phone market.

A statement released by Bernier’s office yesterday said the minister is proposing that the CRTC’s “market-share test” for forbearance – or exemption from regulation – be replaced by one that emphasizes the presence of competitive infrastructure in a given geographical area.

“The government’s proposal is intended to stimulate competition and innovation among local telephone service providers so that Canadian consumers and businesses will benefit from even more choice, improved products and services, and lower prices,” Bernier said in a statement.

”Canada’s new government has an ambitious policy agenda for the telecommunications sector, the essence of which is a new regulatory framework that is more modern, flexible and efficient,” the minister said.

Consumer groups and small local phone companies have expressed reservations about this flavour of deregulation.

They argue that such deregulation does not really bring down prices in the long run, as big telecos could lower their prices to extinguish the competition – and once that goal is achieved – hike them again.

“I hope we don’t end up throwing the baby out with the bath water,” said Philippa Lawson, executive director and general counsel for the Ottawa-based Canadian Policy and Public Interest Clinic (CIPPIC).

Lawson conceded there is a need to apply the same rules to all players in the telecommunication field, but cautioned that deregulation does not always benefit the consumer.

“Deregulation does not always lead to lower prices and provide more choices, in fact there have been instances when the elimination of regulations led to the opposite,” said Lawson.

At least one Canadian telecommunication analyst, however, welcomed Bernier’s announcement.

“It’s going to be a free for all,” said Roberta Fox, principal of Fox Group Consulting in Mount Albert, Ont. Fox said the advances in technology has adequately leveled the field to allow deregulation. She said the argument against deregulation may have held some three or two years ago, “when traditional analog phone technology still held sway.”

She said it appears that Bernier wants to deregulate the retail area where consumer-type services are being offered.

The move, she said, will provide consumers with more choices and eventually drive down the price of services offered by all providers. “Initially the likes of Rogers and other wireless providers had an unfair advantage since they could offer lower prices, now the big players can do that too.”

The new playing field will also push service providers – even those offering Internet Protocol (IP)-based phone services – to “be more creative with their offerings to attract customers,” said Fox.

A top ranking executive for Internet telephony provider Vonage Canada expressed some of the same thoughts, but called for assurances that large telcos will not take advantage of the situation.

“We want to make sure that as the market deregulates, large telcos will not take any anti-competitive action against the smaller players,” said Joe Parent, vice-president, marketing and development, Vonage Canada.

He said Bernier’s announcment opens the floor to a host of questions about implementiation.

“The devil is in the details. We need to find out what rules, penalties, or fines will be put in place to prevent anti-competitive behaviour.”

CIPPIC’s Lawson echoed Parent’s concerns.

She said it will be too easy for large companies to take advantage of consumers’ shortage of information, lack of time to research ideal services, and weak bargaining power.

“We need to strengthen consumer protection and I don’t see him (Bernier) doing that,” said Lawson.

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