Telephone deregulation has brought Canada higher prices, worse service and the loss of thousands of jobs! There IS an alternative

From OTEU, 29 September 1997

When phone competition was introduced in 1992, the CRTC said it would be "consumer friendly." The Commission meant that local rates wouldn't increase as they had when long distance competition was introduced in the States. At the same time Unitel, the major promoter of phone competition, promised that its entry would generate hundreds of jobs in major centres across Canada.

Five years into the new competitive regime, the gap between what was promised and has been delivered is huge and growing. Contrary to what the CRTC promised, Canadians have experienced unprecedented local rate increases, with more still to come. And contrary to what Unitel promised, it didn't _create_ jobs. In fact, the company _laid off_ nearly 1,000 workers. Faced with the loss of market share to the new competitors, Canada's phone companies responded by laying off and downsizing thousands of their employees.

When it become obvious that Unitel couldn't survive even on the highly favourable terms granted by Canada's corporate-friendly federal government, the company was put up for sale. By the time the smoke had cleared, the Royal and two other Canadian chartered banks had purchased two-thirds of Unitel's voting equity and the New York-based telephone giant ATfT bought the remaining third. Completing the transformation, Unitel was renamed ATfT Canada.

The company then moved its head offices from Toronto to Halifax, where it incorporated as an _unlimited liability corporation_. This unusual legal status allows ATfT Canada to operate in the red as part of ATfT's global strategy of gaining market share. This is possible become U.S. tax law allows American companies to claim the financial losses of their foreign subsidiaries on their American taxes; any losses incurred in the battle for market share in Canada can be written off in the U.S.

In other words, the arrangement approved by Canadian governments allows ATfT's Canadian operations to sell long distance service as a loss leader, taking market share from carriers operating in Canada, while its bargain rates are subsi- dized by the American taxpayer. Is it any wonder that ATfT can offer deep discounts on its long distance rates?

There's more. When ATfT took over Unitel's operations, it cancelled the purchase of $150 million in central office switching equipment that was scheduled to be bought from Northern Telecom for use by Unitel. In its place, ATfT substituted switching equipment manufactured by its subsidiaries in the U.S. Meanwhile, workers from the company's American operations were brought into Canada to install switching systems for ATfT Canada at a time when Canadian employees of the company were being laid off. This is part of a larger strategy in which many of ATfT Canada's computerized functions and the related jobs are being transferred to the U.S.

The government of Canada pays lip service to the ideal of universal, affordable service. But it periodically signs substantial long distance contracts with ATfT Canada and other alternate long distance companies. These contracts reduce phone companies' long distance revenues and thereby their ability and their inclination to provide local and rural service at affordable rates. Many competitors are adding nothing to the system. They are merely capitalizing on the existence of the regulated price advantage granted them by the CRTC.

Meanwhile, the government of Nova Scotia recently announced that it is giving ATfT Canada $12 million to establish a call centre and create jobs in Nova Scotia. This strategy of bribing companies to lure workers employed elsewhere in Canada to move from other provinces was pioneered by New Brunswick Premier Frank McKenna. Whether or not it actually generates an increase in overall Canadian employment remains to be seen.

It is bad enough when provinces try to bribe corporations to behave in a socially desirable manner. But Ottawa is currently negotiating the terms and conditions of the Multilateral Agreement on Investment which could make it _illegal_ for provinces and other levels of government to require companies to provide jobs in exchange for receiving government subsidies! In other words, under the MAI companies will be able to demand money from governments, without governments being able to extract concessions in exchange.

The terms and conditions of this "uniquely Canadian" model of telecommunications competition are really amazing. This country used to have a unitary system in which long distance revenues subsidized the price of local and rural services and workers benefited from the stable, well-paying employment that was generated in providing that service. In the five years since competition was introduced, everything has changed: local rates have risen dramatically, thousands of jobs have been lost, and taxpayers' dollars are subsidizing the prices of foreign corporations like ATfT, while jobs are siphoned out of the country.

Many industry observers predicted that competition and deregulation would make a mess of Canada's world class phone system. Unfortunately, their predictions have been proven correct. The contrived competition in Canada's communications industry has generated enormous benefits for the corporate sector while the rest of us pay more for less.

Contrary to what big business and their apologists in government would have us believe, there is an alternative to this one-sided model. While there is much that remains to be done, elements of this alternative have been put in place in British Columbia's Electronic Highway Accord. The BC Accord is designed to benefit _all_ segments of society, not just big business. This alternate model is based on governments leveraging their purchasing power to ensure that all participants in the communications sector share the responsibility for providing access to affordable communications services to Canadians in all walks of life, living in every corner of the country.

Companies can and should be expected to more than maximize their profits with no regard for the consequences. But they won't do this on their own. By using their enormous purchasing power selectively, Canada's governments can reward companies that provide service on a universal, affordable basis and the jobs that go with it. By the same token, they can withhold their patronage from companies which refuse to make service available on a universal, affordable basis and which compound Canada's employment crisis by getting rid of productive employees.

Canadians deserve better. It is time for us to put a stop to the clichés about the wonders of the unregulated market. Governments can play an important role in protecting Canadians' interests. It's time they got on with it.