Telecom Trends

Might want to also check out Finn Poschmann's (Director of Research and the C.D. Howe Institute) oped piece about a possible Telus-Bell merger entitled "It Doesn't Have to Stifle Competition"in today's Globe and Mail. Here's an excerpt:

"....the proposed combination of Bell and Telus makes (the issues of forebearance in the local services market, foreign ownership and the AWS spectrum auction) thorny for the CRTC, the competition authorities and Industry Minister Maxime Bernier, who oversees the regulators. After all, the combined firm would be the largest supplier of wireless phone service in every province except Manitoba and Saskatchewan, and would hold an overwhelming share of land-line telephone service in most of those same provinces.

Consumer groups worry that big market share will stifle competition and raise prices. To be sure, Mr. Bernier has been reluctant to use regulatory tools to set prices and terms of access. His clear preference is for competition in the market. Whether he can maintain this hands-off stand is the new question, if the number of visible competitors shrinks.

Should consumers worry, and should the minister temper his reliance on market competition to keep discipline over pricing? Or is there a case for less regulation, rather than more, in pursuit of market discipline?

I think the answers are no, no and yes. Here's why.

In a dynamic industry such as telecommunications, the number of competitors in a market is a lot less important - in keeping prices down and keeping service quality up - than is the ease with which potential competitors might seize a dominant firm's lunch. That simple observation carries many implications.

First, price regulation, which we still have for most local phone service, is probably a bad idea. Business needs to be profitable, not comfortable. The potential profits that a business might win by charging into a market with a new technology, a new network, or a new service, and driving out big sleepy firms, is what attracts innovation, stimulates R&D and keeps dominant firms awake and innovative themselves. Pricing rules make people comfortable and sleepy.

Second, a competing business or technology must be able to seriously challenge a dominant firm, and existing networks pose a hurdle. Getting over that hurdle takes ideas, technology and money. It might mean linking up with networks and technologies elsewhere - and that means openness to foreign competition in Canadian markets. The telecom ownership restrictions should go, and soon, to ensure that the big players, now and in the future, must always worry about well resourced competitors moving in with novel technology.

Third, if radio airwaves are to be auctioned off, they should probably go to whoever thinks they can get the most out of it. That will typically be the player who is willing to pay the most. Tempting as it is to set aside spectrum for the sake of having competitors - as Telus has suddenly indicated it is willing to encourage - it is not the presence of competitors that matters. What matters is the market discipline they might offer, including by threatening to take over the market entirely. Simply awarding spectrum will not generate the necessary incentives.

.....Sticking to a hands-off regulatory program will serve the Industry Minister well, as the market sorts out what services which companies provide and at what price. How much, and which parts, of the telecommunications system should belong to what players is not a question governments can answer. Dynamic competition, in an open market, will deliver the best communications services for Canadians to connect to now and in future."