Bell decision reminiscent of past reaction to competition

Bell Canada’s quiet decision to limit its First Rate consumer long-distance calling plan sends an alarming message that the days of heady competition in the sector are over.

With no fanfare, Canada’s largest phone company sent industry analysts an e-mail under the heading, “FYI,” in early October saying that it has decided to impose a usage cap – or limit – of 800 minutes a month on its First Rate consumer long-distance plan and to shave two hours off the previous 12-hour discount period.

Bell downplayed the significance of that change by maintaining that the majority of its First Rate customers will continue to pay 10 cents a minute for Canadian evening and weekend calls that are direct dialled – up to a maximum of $20 a month. The phone company says only two per cent of its plan customers – an estimated 40,000 consumers – make more than 800 minutes (or 13.3 hours) of calls a month, and they will be charged 10 cents a minute for each additional minute.

Bell’s change is hardly surprising, given the toll exacted by several years of intense price wars and the impact of the phenomenal growth in both wireless and in Internet usage. Those same factors, which have made long distance a commodity business, have also led rival AT&T Canada to withdraw from the consumer market a year ago and been the source of Sprint Canada’s financial troubles.

Seen against that industry context, however, Bell’s decision is all the more disconcerting. And it is reminiscent of Bell’s past responses to competition in previous eras.

Consider, for example, Bell’s response to the advent of voice competition from the Federal Telephone Co. – an arm of mighty Canadian Pacific – in the business market in Montreal in 1888. After a three-year-long price war, Federal capitulated, selling its local exchange to Bell, and CP relinquished access to the long-distance market. With those rivals out of the way, Bell reinstated the higher prices – 30 per cent higher – that existed prior to competition.

Or consider Ma Bell’s response to new entrants in Peterborough, Port Arthur (now Thunder Bay, Ont.) and Dundas, Ont. a century ago. Bell declared those areas free exchanges and gave its local service away to defeat its rivals. Once competition was extinguished, Bell jacked the rates back up to their previous level.

None of this history would matter if competition remained in a permanently vigorous state. However, the history of the telecom sector teaches us that competition is a fragile rarity in this industry. And it reveals that, in the 154 years since the invention of the electric telegraph, the industry has entered the cycle of passing from competition to monopoly for a third time.

Little wonder, perhaps, that Bell chose not to provide customers with an advance billing insert or to alert the media with a news release about the First Rate plan change. While that change is tame, compared with the predatory actions of a hundred years ago, it reflects a further diminishment to the vitality of competition in the long-distance market.

Despite its subjective nature, the degree of vigour of competition is one of two critical tests used by federal policymakers to determine whether deregulation is warranted in a telecommunications market segment. The change to the First Rate plan, by itself, means little. But a different picture emerges when that action is examined not just with other moves by the dominant telephone carriers, but is seen along with the empirical indicator of a lessening of market share loss – and against the industry context of fewer entrants.

Seen in that light, regulators and consumer and business advocacy groups alike ought to take notice of the First Rate change. And it might not be too much of an exaggeration to rhetorically ask, how soon will it be until the phone company says customers must start using black rotary dial phones again?

Lawrence Surtees is the senior research analyst for telecom at IDC Canada Ltd. in Toronto. He may be reached at [email protected].

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