The CRTC hampers competition and choice

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The Article

Competition is the driver of a successful market economy. Yet in Canada today, two of the most important and innovative areas of our economy, telecommunications and broadcasting, remain hobbled by a regulatory body that restricts choice and limits competition: the Canadian Radio-television and Telecommunications Commission. This raises the question: In 2006, does Canada really need the CRTC?

The issue is again in the public eye this week as the federal Cabinet entertains an appeal by Bell Canada of a CRTC decision that regulates the industry developing around voice over Internet protocol (VoIP). For the less technologically savvy, VoIP is a new technology that transforms phone conversations into digital packets that are then shipped over the Internet or carriers’ networks and reassembled at their destination.

On May 12, 2005, the CRTC ruled that VoIP-based local phone service would be regulated just like ordinary telephone lines. Dominant players in the market such as Bell Canada and Telus were told they that cannot discount their local VoIP as they wish and must submit their prices to the regulator for approval. New entrants into the market such as Rogers, Sprint and Vonage can, however, set their rates as low as they want.

This theory of increasing competition by restricting competition has been a hallmark of CRTC decisions in recent years. In another decision rendered just three weeks ago, the CRTC maintained its policy that incumbent carriers’ market share must continue to decline considerably before they are allowed to offer their customers greater discounts on telephone services and bundles. Bell and Telus are thereby effectively forced to subsidize their competitors, on the theory that their former monopoly position continues to give them an unfair advantage in the market.

This approach reflects a poor understanding of the nature of competition and economic efficiency. Modern economists do not cling to a model of “perfect” competition. The number of competitors in one sector of the economy is less important than the presence, or not, of market rules and the legal possibility of free entry. Competition stems not only from the potential entry of new competitors but also from the supply of similar products and services, satisfying the same consumer needs, from firms in other sectors of the economy.

This more realistic concept of competition calls for less regulation from public authorities. Yet, the CRTC ignores it and still persists in its impossible attempts to ensure a high number of telecommunication providers in order to artificially stimulate “perfect” competition.

Telecommunications is not the only area in which the CRTC decisions are distorting the market. In the area of television and radio broadcasting, the regulator has been heavily criticized for rulings that restrict freedom of choice for consumers. In June 2004, for example, the CRTC refused to renew the radio station licence of Quebec City’s CHOI-FM, based on the fact that “the station’s hosts were relentless in their use of the public airwaves to insult and ridicule people.” (Obviously, most listeners didn’t seem to mind, as the station was the most popular in its market). The CRTC also dragged its feet on approval for television station Fox News, which was finally allowed to broadcast in Canada, though only as part of a specialty cable package. And, as illustrated by its recent licensing of Rainbow Radio in Toronto, the regulator even short-circuits what little competitive process exists, by not requiring a general call for applications when issuing new licences.

At the outset of the broadcasting industry, Canadians had just one national television and radio network – the Canadian Broadcasting Corporation. Today, they have thousands of choices, and many different ways to access them – through cable, satellite, Internet and cellular telephones. The very ability to control all of this is not only anti-competitive, but illusory, as illustrated by the CRTC’s decision earlier this year not to regulate television programming transmitted through cellphones.

In a truly competitive marketplace, it is the consumer who is king, able to choose from a wide variety of services and products offered at the lowest possible price. Yet today, in both telecommunications and broadcasting, the CRTC is hampering the general principle of choice and competition. None of this is productive for the Canadian economy. If Canadians are to make use of the latest technological innovations in telephony, these need to be available at true market rates – i.e., as cheaply as possible, without price regulation. If Canadians are to exercise true choice in television and radio programming, broadcasting needs to be open and unfettered, not regulated at the whim of a squad of taste police in Ottawa.

It’s time for the new federal government to ask the important question: Does Canada really need the CRTC? In 2006, the answer increasingly is no.

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