Monday, December 11, 2006

Tread carefully with deregulation of phones

On the way home from whatever I was doing today, I heard on the radio that the federal government is planning to -- finally -- deregulate the local phone business in Canada. For people in most major urban centres, this is supposed to mean lower phone bills.

I'm not so sure that's going to happen.

When long distance was deregulated and competition was allowed, those rates went down, so much so that the traditinoal telcos were forced to match the rates or improve their quality standards. The problem was the higher long distance rates meant that they were subsidizing local phone service. With the cap gone, the rates went up substantially, hitting people with fixed incomes the most.

I find it very difficult to believe that in an environment where shareholders demand maximum returns, they would tolerate cuts in local rates. After all that would mean less profit and therefore lower dividends. The only way the phone companies could make it sustainable is to dramatically increase rates for people in rural areas. They are compelled, by CRTC fiat, to provide 99% of communities with access to at least one locality with a local dial-up Internet connection. That explains why, for instance, the hamlet of Jarvis, in another area code, is a local call for Hamilton but the much closer Six Nations is not (they're in Brantford's local area) or why Dunnville is local but Oakville is long distance. (Oakville is much closer, by the way, but for historical reasons it falls under Toronto's local area.)

The fact is we in the big cities are subsizing the services in smaller areas -- equality of sacrifice, which is fair because we don't want farmers to get stiffed. And there's no way rural people will want to pay more for the limited local access they already have. So who gets to pay? People in the cities, and we will wind up paying more.

The only way I could support this is if deregulation also allows the phone companies to resurrect the plans the CRTC deep-sixed during the 1990s to greatly expand the local calling areas of the largest centres -- for Bell's territory, that would be Toronto, Ottawa-Gatineau and Montréal. The fact is, places like Hamilton and Oshawa are very much in Toronto's shadow, and it's not fair that neighbouring towns can call Toronto locally while we have to pay long distance charges or use a rerouter or VoIP to make it "local." It'd be nice to keep in touch with many of my friends by voice rather than the e-mail I have to rely on without having to move.

I hope they tread carefully with this one ... and make sure the results are in fact better service and more reasonable rates.

Interesting they're saying that the one major city that could get really screwed, even presuming this works the way it's supposed to, is Halifax. Guess it's Harper's way of punishing the city for sticking with the Liberals and NDP through thick and thin.


(no name)11/12/2006 9:14:06 PM
You are missing the point entirely. Currently the Telcos (telus, bell, etc) are not allowed to reduce their local phone rates below the legislated rates. This is allowing non-telcos such as Shaw, Rogers (historically cable companies) to offer web phones for rates far less than the Telcos because they are not affected by the minimum price legislation. Therefore, the shareholders of the Telco's risk losing market share as they cannot match the prices of the cable companies. This deregulation will enable telephone ompanies to lower their local connection charges to compete with the Cable co's in order to maintain market share. Furthermore, this deregulation does not affect smaller markets where there is less than 3 providers available.

BlastFurnace11/12/2006 10:15:02 PM
You do raise some good points, Matt. True, the telcos are losing marking share, but there will always be a core group of customers who stick with the big guys because they simply don't trust the alternatives -- much in the same way people stick with their traditional gas or electric utility after competition is allowed. My concern is that even if they do cut the rates, they won't cut them enough to stop the slide. After all, it's the telcos that maintain most of the lines and switchers and other parts of the infrastructure -- and their overhead is much higher than the competitors. With phone companies being allowed (thanks to another Cabinet decision) to also compete equally in the VoIP market, could there be a point where old-style landline phones become irrelevant?

In my opinion, it should be a two way street. Since there is equal access for long distance, the same should apply for local service, Internet access, etc. Someone I know who doesn't have cable has to pay a surcharge to have a cable modem over and above what cable customers pay. Similarly, most ISPs tack on a surcharge if someone uses a competitor's VoIP. Equal access should mean exactly that -- no surcharges, period.

I'll admit, I'm not well versed in all of the fine points involved here. However, the American experience is instructive. It took years after deregulation and the breakup of Ma Bell's monopoly for the rates to get within reason -- and now they as well as the cablenets are trying to get back at the customers by trying to destroy Net Neutrality. That, plus skyrocketing rates, is the last thing we need from loosening the rules, is the last thing we need and that's the point I was trying to make.

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