The Triumph Of Choice – Telecommunications Deregulation

Commentary, Disruption, Frontier Centre

Two recent developments in the telephone industry will benefit consumers.

One is the fall of the last regulatory domino. As of January 1, Teleglobe Canada will lose its 50-year-old monopoly on offshore calls. The Canadian Radio-television and Communications Commission (CRTC) ruled so this fall, redeeming a commitment Ottawa made to the World Trade Organization a year ago.

The ruling completes the liberation of long-distance services from the murky world of captive markets and regulatory overheads. It all started five years ago when the CRTC broke the domestic long-distance companies' monopoly by forcing them to allow competitors access to their lines. Rates have fallen 70% since then, and they will now tumble in the $1 billion-a-year international long distance market.

The decision has also scrapped all routing restrictions. Telephone companies will no longer have to use Teleglobe's network. They will be able to move calls through American carriers, forcing Teleglobe to compete immediately on price and quality of service.

Yet a decision that might seem damaging to Teleglobe may actually strengthen it. The privatized monopoly has considerable assets, most notably a world-class network of undersea cables and satellite contracts that interlink most of the world. It has the potential to draw considerable new business through low rates between Europe and Asia. Teleglobe is in the last stages of a merger with Excel Communications, a major American phone company, and they are seeking licences to offer long-distance service to dozens of other countries.

The CRTC's motives for deregulating have nothing to do with a change of heart at the long-in-tooth agency. They could better be described as a surrender to the inevitable — to the need to co-operate with technological reality.

Accelerating electronic innovation provides a dazzling array of options that have obliterated the traditional telephone monopolies' cosy sinecures. Voice and Internet capability over cable-TV lines will become widely available within a year. Wireless phones can already bypass old-style networks entirely; it's estimated that they will originate half the calls in the world by 2005. In a few years electric companies will join these carriers because Northern Telecom has discovered how to send electronic traffic through power lines.

The same logic applies to the CRTC's moves to open up local telephone service. Sixteen Canadian companies are now preparing to invade these markets and take on high-cost, high-priced local providers.

The second major development? The merger of BCTel and Alberta's Telus, Canada's second and third largest telephone companies. It's the beginning of a long competitive dance in which regional providers will attempt to strengthen themselves for the imminent assault. The threat to their market share comes not just from small upstarts, but also from eastern giants. Bell Canada has already purchased a fibre-optic network in the West, and in the new year it will start to build a national, Internet-based one through a subsidiary. In 1999, AT&T will offer local services in Saskatchewan, of all places.

SaskTel, an ideological orphan as Canada's last government-owned telephone company, has a special exemption from CRTC regulation which ends soon. Compliance with CRTC rules will cost SaskTel $6 million a year. Both this Crown and the recently privatized Manitoba Telecom Services are particularly vulnerable to invasions of their turf. Don't be surprised if they co-operate in a defensive strategy.

What these changes mean for customers is falling prices as telephone companies shed inefficient practices. It will no longer cost $60 an hour to get a new line installed. Where prices for basic service will land is anybody's guess.

But you can be sure that with deregulation and its offspring, competition, the direction will be down.