Telecom Competition in Canada and the U.S.:
The Tortoise and the Hare

Abstract

Willie Grieve
Barrister and Solicitor

Stanford L. Levin
Professor of Economics
Department of Economics
Southern Illinois University at Edwardsville

Many governments and telecommunications regulators around the world have
already permitted competition in a variety of telecommunications services
and are now taking actions to introduce competition into the local switched
voice telecommunications market. This market, like the long distance,
enhanced services and terminal equipment markets before it, often had
regulatorily-imposed barriers to competition and was, until recently,
believed to be a natural monopoly market. In the United States, a number
of the states have been introducing competition into local telephone
service for several years. The U. S. Congress, with great fanfare, passed
the Telecommunications Act of 1996, with the stated purpose of promoting
competition and reducing regulation in order to achieve lower prices,
higher quality services and rapid deployment of new technologies for
Americans. It set out, in considerable detail, the way in which the local
markets were to become competitive, and the FCC implemented the provisions
of the Act with a series of even more complex and detailed orders.

At the time the Telecommunications Act of 1996 was passed, the Canadian
Radio-television and Telecommunications Commission (CRTC) was engaged in a
regulatory proceeding to establish rules for the introduction of local
competition in Canada. The CRTC released its decision on May 1, 1997.
While long distance competition began in the U. S. in the 1970s, it was not
until 1990 that the CRTC permitted some long distance resale and 1992 that
the CRTC permitted facilities-based long distance competition. Canadians
were slow off the mark but the speed with which long distance competition
developed exceeded all projections. The story with local competition is
similar. While many states began introducing competition into local
telecommunications markets some years ago, the CRTC declared the local
markets open to facilities-based competition in 1994 and took until 1997 to
issue an order setting out the rules and establishing the target date for
implementation of January 1, 1998. The models used in the United States
and in Canada are quite different, however. This paper argues that
although the United States began the race to a fully competitive
telecommunications market quickly and took a big lead on Canada, the
Canadians, by working slowly and methodically through the competition
principles will cross the finish line first while the United States
languishes in the shade tree of the Telecommunications Act of 1996, a shade
tree which distorts the notion of competitive telecommunications to such an
extent that it may actually entrench monopoly and market power in the local
networks of the incumbent local carriers.

In order to explain why this is the inevitable outcome of the two
countries' policies, this paper will first explore what competition is,
what a truly competitive telecommunications market might look like, and
what regulatory or deregulatory policies need to be in place so that full
local competition can emerge. The paper will then illustrate the
connection between the development of competitive markets and regulatory
policy by analyzing "competitive" policies in the United States and Canada.