Captive Customer, Captive Supplier – Captive Government?

Blog, Trade, Les Routledge

The discussion and debate related to usage-based billing of broadband communications essentially comes down to one problem.  Residential customers in Canada for the most part are captive customer of one, two or three alternative service providers due to the nature of their connection from the residence to the network.

What most people forget is those connections, whether they be twisted pair copper cables or coaxial CATV cables, were deployed under a regulated monopoly regime mandated and enforced by public policy.  When deregulation and competition was introduced into those sectors, the process did not include un-bundling that last mile link so that  open and vigorous competition could emerge for the demand of residential customers.

The situation with producers in the oil sands is somewhat equivalent to the situation in the broadband market in that they are captive suppliers to the northern part of the US market.  Their inability to access alternative refinery markets in the southern US and Asia exposes them to market distorting efforts of activists seeking the erection of barriers to open trade in the some American markets.  While the proposed pipeline connections to the refinery markets in the southern states goes part way to removing the bottleneck, the long term solution also has to include the development of competing systems to ship product from two or more ports on the Pacific coast.  To ensure security of supply, no one route, transportation service provider, or port operator should have a strangle hold on the trade of the exported oil.

Effective competitive markets for the production of oil sands ideally should combine demand from local refineries on the prairies, export customers across the entire continental USA market, and Asian customer who can select which among alternative ports and transportation options.   The key public policy challenge is to figure out how to create that competitive market environment over time.

The rail sector is another business that contains a bottleneck that creates a situation of “captive shippers” of bulk commodity products.  While discussions continue in Canada about the details of revenue caps and definition of service quality indicators, it is interesting that other countries such as Germany and Australia have moved beyond direct regulation of the market to intervening in the market to create more vigorous competition and choice.

The current business risk faced by potash exporters due to the threat of a strike illuminates a problem in our rail and port system’s operating model.  Why should one operator or one union within one operator be empowered to hold billions of dollars of trade hostage?  Is it possible for the government to move beyond stop-gap measures such as issuing back-to-work legislation or complex regulatory procedures to fostering the establishment of a competitive market structure and system that eliminates those points of disruption?

In an ideal world, the federal government would move beyond short-term firefighting actions such as setting aside decisions of the CRTC. lobbying USA politicians to overturn trade distorting policies, or passing back-to-work legislation by systematically creating the conditions that foster more open, dynamic, and vigorous competition in Canada.  It a certainty that strong vested interest such as unions or management of former government-mandated monopoly operators will object to this type of policy action, but at the end of the day, consumers, commodity producers and the entire country would be better off.  It is time for the federal government to move beyond being a captive government which is forced to react to the manipulative actions of vested interests.  It is time to pursue a pro-competition policy that maximizes the economic benefits for all Canadians.