Canadian Telecoms Deregulation

A recent Canadian government commission concluded that we need telecommunications deregulation in order to maximize the role of the market. This is supposed to increase competition for consumers and result in increased innovation in Canada. There are some real problems with these claims. The coverage in the Globe & Mail has been particularly uncritical.

A cursory examination of the experiences of other countries makes it clear that deregulation is no substitute for good regulation. For example, Telecoms regulation in the United States is much weaker. According to the logic of deregulation, we should expect to see greater competition, lower prices, and wider availability of services such as broadband Internet, mobile telephone, cable TV, and local and long-distance telephone. In fact, the situtation is quite the opposite: broadband Internet is cheaper and more widely available in Canada.

The situation with regards to cell phones is even more dramatic. North America is years behind Europe and Japan in terms of cell phone technology, pricing, and access. Customers here a stuck with phones that are locked to a specific provider, phone numbers that they lose when they change providers (at least in Canada – US regulators took swifter action on this issue), and standard multi-year contracts creating vendor lock-in. Sure, there’s competition up to the point when you buy a phone. After that, the costs of switching destroy any semblance of a free market. So much for deregulation.

Perhaps most dangerous of all is the notion that deregulation will produce more money for telecoms providers to spend on innovation. I think it should be clear by now that telecoms is the wrong place to look for innovation. Quite the opposite: these companies have fought tooth & nail to prevent innovation from threatening their favorable dominant positions.

There is talk about deregulated telecoms increasing bandwidth and eliminating network neutrality. The fact is, there was a tremendous build-out of bandwidth (“dark fiber”) during the dotcom era which is going unused today because there isn’t sufficient demand from users of the technology. That demand will be created by innovative applications and services, which are not about to be provided by the cable companies and telcos. One of the big areas right now is voice over IP. The telecoms would dearly love to shut down this competition with their business; reportedly some Canadian ISPs are already charging premium fees for Internet users who use Internet telephones.

The other eternal dream of the telecoms is television on demand, whose promise, they claim, justifies eliminating the network neutrality upon which the existing success (and free market) of the Internet depends. Even if this lives up to expectations, can convenient television compare to the impact of the truly revolutionary uses of the Internet, from auctions to online reviews, email, personal blogs, and instant messaging? As it is, several companies are beginning to provide such services – Apple, Google, and Yahoo for example, companies which have developed truly useful and interactive online services. Yet these are also the companies who support the continuing application of network neutrality.

The fact is, free markets and regulation are not opposites. Free markets depend on regulation. Without it, they tend towards oligopoly and monopoly – regimes which are hardly regulation-free, only then the most powerful companies create rules according to their own self-interest. Placing regulation and the market in opposition, as does the Globe, reveals either a failure of understanding or an ideological motivation.

2006-03-24

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