Telecom Trends

Videotron’s announcement that it had attracted over 400,000 customers to its cable telephone service should not have come as a surprise to anyone. As Eric Reguly pointed out in his column in the Globe and Mail on February 6th ("Wires Turned Quebecor Around: Can Wireless Be Far Behind?"), the company had 1.55 million cable customers and 344,000 phone customers at the end of its third quarter and the number of customers was rising by 60,000 a quarter.

What is interesting about Mark Evans’ post is his prediction that, once the deregulation of the local telephone market kicks in, Bell will sell its service for whatever price it wants. I presume he meant that Bell would cut prices. With the local telephony market being close to an oligopoly pretty well right across the country (the traditional regional ILEC and the regional cableco sharing the bulk of the customers with an out-of-territory ILEC and the Vonages and Primuses of the world picking up the rest via VoIP) what motivation is there to cut prices? It would become, as Reguly pointed out in his column, a negative sum game.

One only has to look at the wireless market, which also displays characteristics of an oligopoly, to confirm that there isn’t much likelihood of price competition in the local telephony market once it’s deregulated. There we have Bell and Rogers in the east and Telus and Rogers in the west being the dominant players with Bell in the west and Telus in the east and a bunch of resellers picking up the slack in each area. Has this supposedly ‘brutally competitive’ situation (the industry’s words) led to price cuts? Far from it – when was the last time we saw an ad from any of the wireless players promoting a cut in rates or a phenomenally large number of minutes at a super low price? Not recently – instead the ads promote the phones and their features. If it’s so competitive, why did Bell feel comfortable enough to recently jack up its monthly system access fee by 29%?, why has Rogers made almost 50 cents in EBITDA for every dollar in revenue in the third quarter? and, why do Canadian wireless carriers receive almost twice as much revenue for every minute of airtime as U.S. providers do?

So, if the supposedly brutally competitive, but really oligopolistic, deregulated wireless market hasn’t produced price competition recently, I’d be interested in knowing how Mark Evans came to predict that Bell would cut prices when the local telephony market is deregulated. After all, that market displays the same oligopolistic characteristics that the wireless market does and the same players are involved. So, why would they get into a negative sum game?