Competition in Canada Could Cut Calling Costs
LONG distance rates in Canada are as much as five times higher than in the United States. But that could change. Bell Canada, the monopoly telephone company, may be about to get some competition. A company called Unitel Communications Inc. plans to ask permission of federal government regulators to get into the long-distance business.
Unitel is a new name for CNCP Telecommunications, a telegraph/telex operator. Unitel is owned by Canadian Pacific Ltd., the railway conglomerate, and Rogers Communications Inc., the largest cable TV company in Canada. Rogers owns and operates Cantel, the largest cellular telephone system in Canada in direct competition with Bell Cellular and other services.
Unitel says it wants to offer long-distance rates 15 percent below where they are now. It already offers some bulk long distance lines and has a fiber optics network in central Canada, much of it run alongside the railway tracks of the Canadian Pacific.
A high-speed private line for data communications, used mostly by governments and large businesses, costs US$12,000 to $16,000 a month in the US. The same line in Canada costs US$61,685 a month from Bell Canada but $59,150 from Unitel. Since Unitel was allowed to compete in bulk lines three years ago it has captured 35 percent of this market, Unitel says.
Now Unitel wants the individual, small business, and other business long-distance business as well.
``We believe individual Canadians and Canadian businesses are paying too much for long-distance telephone service,'' says George Harvey, president of Unitel. As a publicity stunt, Mr. Harvey was wearing red boxing gloves at the launch of his newly named firm.
In its application to the telephone regulatory board, Unitel says it plans to offer long-distance service to 20 million Canadians, or 80 percent of the population, within six years. In its first year the company would cover 57 percent of the population.
Bell Canada has a monopoly on telephone service in Ontario and Quebec. It also controls telephone companies in the Maritime provinces. At stake is the country's long distance business, worth US$5 billion a year.
This is not the first time Bell's monopoly has been challenged. In 1985 CNCP (Unitel without Rogers Communications) was turned down in its application to get into the long-distance telephone business.
``The application will be incomparably better this time,'' says Frank Hoelsch, vice president of the Transition Group, a Toronto market research company. One thing that makes it different is the addition of Rogers Communications. The company is cash rich and Edward Rogers, the man who built it, has vowed to break the ``Soviet-style'' phone system.
Bell Canada is fighting back, saying Unitel is only going for the cream of the long-distance market. For instance, Bell has to provide local and rural telephone service at a loss and subsidize it with higher long-distance charges. Bell is ready to compete as long as the same rules and obligations apply equally to all parties, says Jean Monty, president of Bell Canada. He says the Unitel proposal ``would lead to higher local rates for everyone, customer confusion, service disruptions and more regulations, not less.''
Unitel says it would be willing to set aside a percentage of its profit to subsidize local telephone charges. Canadian local phone rates are US$10 a month, compared to US rates of $14 to $20 a month. If residential subsidies were removed in Canada the local rate would rise to about $14 a month.
Long-distance rates in Canada have been falling because Bell has been making so much money on the service. ``Bell has exceeded its regulated rate of return of 13 percent so rates are coming down,'' says Ian Angus who has his own telecommunications consultancy in Toronto.
Mr. Angus points out that while competition from Unitel would lower rates by 5 percent to 25 percent, Canadians should realize they are moving from a monopoly to a duopoly - not that great a step. But Angus figures the only chance for lower long-distance rates for individuals and small business is regulatory approval of the Unitel application to compete with Bell Canada.