Global Insight Perspective | |
Significance | The CRTC has granted forbearance from regulation in a number of regions, heralding the start of the new regulatory approach. |
Implications | This is the first of a number of regions to receive forbearance in what will be a test of the utility of the free-market approach to competition in a former monopoly industry. |
Outlook | With prices for basic telephone competition capped, initially, at least, prices are likely to fall. Deregulation will also facilitate the introduction of new bundled-service packages but, in the longer term, lower levels of competition can be expected as it becomes more difficult to establish a foothold in the market. |
The Canadian Radio-television and Telecommunications Commission (CRTC) has announced that Telus and Bell Aliant have received forbearance from requirements for regulatory approval to set rates for local telephone services or to obtain permission for new services and bundled-service packages in Fort McMurray, Alberta, and in parts of New Brunswick, Nova Scotia and Prince Edward Island. Deregulated areas of these maritime provinces include Fredericton, Charlottetown and Halifax.
The CRTC also revealed that applications had been received for forbearance in regions covering 60% of residential telephone lines that will be deregulated in the near future if conditions are met. While the incumbent operators are now free to vary the charges for their services in these areas, prices for basic telephone services without any additional options, such as call waiting, have been capped at current levels.
A new body, the Commissioner for Complaints for Telecommunications Services (CCTS) was also opened on 23 July as recommended by the 2006 Telecommunications Policy Review Panel report. This was described by Maxime Bernier, Minister of Industry, as "...an independent agency with a mandate to resolve complaints from individuals and small business retail customers [which] is an integral component of a deregulated telecommunications market". This is a consumer and business complaints investigation body and is separate to the new powers to investigate and fine telecoms companies for "abuse of dominant position", which were handed to the competition tribunal, although it is likely to provide evidence relating to the cases put forward to the tribunal (see Canada: 8 December 2006: Competition Tribunal to Boost Anti-Competitive Powers). As previously described, the body is paid for by the industry and will attempt both to resolve complaints and develop industry codes of conduct and standards. It will also publish an annual report including details on the nature, number and resolution of complaints received about each provider, and will identify causes for concern warranting further action. The Consumer Agency will be constructed to ensure independence from the telecoms industry, with the majority of governing body members not affiliated with any telecommunications service provider; a chief executive appointed by the governing body will also have no such affiliation.
Outlook and Implications
The First of Many: These are the first markets to be deregulated, having received initial approval back in March. This will directly benefit the regional incumbents in these areas, Bell Aliant and Telus. However, at the time, the CRTC struggled to comply with the deregulatory approach mandated by Bernier and applied tests including the provision of "fair access to its network" to competitors, and the loss of 25% market share in any given market area before forbearance was finalised. The market-share test was one of the conditions specifically prohibited by Bernier as he moved instead to a “presence of competing facilities-based test” (see Canada: 28 March 2007: Forbearance Granted in Fort McMurray, Bell Canada Criticises Limitations and Canada:12 December 2006: Canadian Government Moves to Deregulate Local Phone Market). The facilities-based test requires the presence of three facilities-based operators owned by separate companies to operate in an area servicing residential markets—this includes wireline, cable, and (possibly fixed) wireless operators. Local business markets will also be deregulated, with the requirement set even lower, at two such operators, to elicit forbearance.
Next to Go: Bernier estimated that these facilities requirements cover areas including some 60% of the population—mainly urban areas, where the return on infrastructure investment is greater and has proved more attractive to new competitors. This matches with the applications for deregulation of an estimated 60% of residential telephone lines described by the CRTC. These are likely to cover areas for which forbearance applications were invited—Calgary, Edmonton, Halifax, Hamilton, London, Montreal, Ottawa-Gatineau, Quebec City, Toronto, Vancouver or Winnipeg, which would receive priority processing.
Targeted Offers and Price Curves: While basic services prices are currently capped, regulation has previously ensured that new competitors are able to compete with incumbents by preventing them from engaging in a price war to kill off competition. Forbearance can now be granted in any local exchange area where the facilities test is met. While the proviso that small competitors with less than 20,000 local exchange customers in Canada will be given at least 18 months to gain a foothold in a market was added, this makes it extremely difficult for new entrants to gain significant market share (see Canada: 5 April 2007: Canadian Government Acts to Speed Up Deregulation). This stage in the deregulation process could see prices falling in deregulated areas as incumbents compete to freeze out new entrants—particularly as 'win-back' rules have been removed allowing the targeted marketing of low-price services to switchers. It is not clear what will happen once small players fail and the facilities test is no longer met, but smaller competitors will fail in these regulatory conditions, reducing the overall level of competition and making new market entrants less likely to emerge, potentially allowing prices to creep up.
Competition Shakeout: The 3/2 competitors per-market level may have been intended as a baseline but over time this is likely to become the maximum number of competitors in each local exchange area. While they operate in largely distinct geographical regions, the regional incumbents will benefit. These include Bell Canada—including the Bell-Aliant subsidiary, Telus, and possibly Sasktel—though the latter and similar small incumbents operate more rural services that will continue to be more tightly regulated. Cable-TV and emergent voice player Rogers, which—along with Telus and Bell operates the national wireless networks—is likely to benefit the most through its existing scale and market positions. The effectiveness of the Competition Tribunal, previously derided as being after the fact and slow to act, may be tested.