A Real Choice – Competitive Local Telephone Service

Commentary, Disruption, Frontier Centre

As you read this, an extraordinary transaction is taking place in any of a thousand desperately poor villages in Bangladesh. A local entrepreneur is charging a neighbour a modest sum for the single use of a cellular telephone.

Not a big deal, you say? To them, it is. The phone reseller, who typically purchases the tiny set with a loan from a bank, can augment his scanty income. The neighbour can save a lot of time and money when ordering seed grain or checking crop prices.

What's that got to do with us? Surprisingly, a lot. That modest contract in a Third World village offers us a parochial glimpse of the global revolution in telecommunications, a phenomenon that is shattering monopolies and pushing prices down everywhere.

The Canadian experience with this whirlwind started five years ago, when the CRTC forced telephone companies to compete for the provision of long-distance service. The telecoms had to offer large blocks of transmission time to resellers at a rate discounted for volume. So far, the cost to consumers for this service has fallen by about 70%.

Even the sturdiest defenders of monopoly and regulation had to admit that competition did its job, as consumer choice proliferated and prices nosedived. The established telephone utilities had to rethink their customer service and marketing practices.

But there was a worm in this brightly polished apple.

Under the politicized structure of regulation and oversight, the telecoms had kept the price of local service cheap by subsidizing it with their long-distance monopoly profits. They also nailed business customers with higher rates than residential consumers pay. (That discrimination merely brought ordinary people higher prices when they patronized businesses. But never mind — it looked good.)

Their sacred cash cows having been slaughtered, the telephone companies went back to the CRTC and begged for higher local rates. Their pleas were partly heeded, and that gave new life to the enemies of choice. Cries of "We told you so!" filled the air. "Now you'll have to pay!"

Maybe not. As of January 1, 1998, the CRTC has authorized local service competition. Challenges to the single seller have been mounted in half a dozen cities already, and more are on the way.

In Europe, where local monopolies also tumbled in the New Year, smaller players have already laid thousands of kilometers of new fibre-optic cables. Britain and New Zealand, which pioneered the new competitive model, have enjoyed enormous increases in productivity, falling rates and impressively better service — not to mention more employment and higher wages in the telecom industry.

Convergence in the provision of telephone, cable TV and electricity services means more pressure to keep rates affordable. In partnership with a British firm, Canada's Northern Telecom recently discovered how to send voice messages over electric wires. Voices can now travel efficiently like Internet transmissions, broken up into packets and moving on unused sections of bandwidth. A single line into a home will eventually handle all the traffic, without the current prohibitive cost of a dedicated phone line or the annoyance of toll charges.

If the threat of new technologies and alternate service from other wired carriers weren't enough to force prices down, the wireless option will finish the job. Fierce competition for the cellular trade has driven prices down steadily, and satellites promise to ring the world with reliable and inexpensive options for the chattering masses.

So don't worry about local phone rates. If we continue to deregulate, they will continue to fall.

You may not be able to have curried chicken from Dacca delivered to your door at a price you'd like to pay, but the call to order it will be cheap like borscht.