It has now been a year since Videotron launched its cable telephone service, offering consumers an affordable alternative to the residential phone service provided by the major telephone companies such as Bell and Telus. The Canadian Radio-television and Telecommunications Commission (CRTC) has allowed competition in local telephone markets since 1997 but this is the first real breach in the big phone companies’ age-old monopoly.
Jumping into a market in which giants such as AT&T and Sprint have foundered meant a massive investment in infrastructure and technology for Videotron, and of course a big risk.
The response from the marketplace has been loud and clear: consumers had been waiting for a real choice in local telephone service and were enthusiastic about the new alternative.
Reasonable limits to promote competition
This competitive reality is what led the CRTC set reasonable limits on the market practices of the phone companies in a policy statement issued in May 2005. The CRTC rules are designed to prevent the phone companies from abusing their dominant position, long enough to give viable, sustainable competition a chance to take root.
The regulatory agency basically imposed two restrictions on the phone companies: they are not allowed to sell local telephone service using the Internet Protocol (commonly known as VoIP service) at less than cost price and they have to wait 12 months before trying to convince their former customers to switch back to their service.
These are modest restrictions considering that the telephone companies are still virtual monopolies with unparalleled financial power compared with other VoIP providers.
Undue pressure
Nevertheless, the telephone companies appealed to the federal Cabinet and the Federal Court of Appeal to overturn the CRTC decision. Bell also convinced the Prime Minister’s Office to set up a Telecommunications Policy Review Panel. In its brief to the panel, Bell questioned the relevance of the CRTC as a regulatory body.
The backroom maneuvering by Bell seems to have rattled the CRTC. During the last few months, the CRTC has granted Bell and the other phone companies advantages that could undermine the May 2005 policy statement, which was intended to pave the way for genuine competition in local telephone service. Here are a few examples.
Special favours for Bell
While it used to take the telephone companies up to several months to get approval for new rates, the CRTC is now guaranteeing that it will deal with their rate applications within 10 days. Most disturbingly, the phone companies can now file their rate applications ex parte, i.e. without other interested parties being informed. No cable company has ever received this type of confidential treatment for its rate applications and supporting arguments.
What’s more, under this new closed-door process, Bell has convinced the regulator to authorize a rate range, which has been kept secret. This is a first in the history of the CRTC.
Finally, in September 2005, Canada’s most powerful telecom company got the CRTC to let it charge two different rates for its new digital local telephone service, one in Québec and another in Ontario, the better to compete with Videotron. So the CRTC gave in to the pressure and is letting Bell pick off the competition as it appears.
Meanwhile, last summer, Bell started contacting former customers who had switched to Videotron’s local telephone service, a flagrant violation of CRTC rules. We filed a complaint on September 12, 2005 and we are still waiting for a response from the CRTC.
Competition without competitors?
It seems Bell is ready to face competition in local telephone service, as long as it has no competitors! When the chips are down, it would rather pressure the regulatory agencies by pulling political strings than play by the rules.
The high-handed attitude born of Bell’s monopolistic corporate culture has several unfortunate effects. First of all, it hurts consumers. In any market, viable, sustainable competition is the best guarantor that consumers will be well served.
From a business point of view, Bell’s attitude is distinctly unhelpful to efforts to boost Canada’s prosperity and maintain its leadership in the telecom industry. A modern society needs to have effective, state-of-the-art telecommunications services. In today’s knowledge-based economy, telecommunications is a core industry, and one in which massive investments will be required in the years ahead. The public interest demands financially healthy competitors in this field, not frail and vulnerable players.
The CRTC’s two modest restrictions do not prevent Bell from cutting its prices, introducing innovative products, offering consumers attractively priced bundled services, or using its advertising and marketing power to communicate with consumers. There is nothing to keep Bell from engaging in tough and aggressive competition.
But the minute competition appears on the horizon, Bell prefers to pour resources into trying to twist the arm of the regulator that has sheltered it for more than a century. Why does Bell refuse to accept healthy competition? Is it a victim of its own monopolistic legacy?
Robert Dépatie is president and CEO of Videotron
