Incumbency in Telecommunications: Lies Your Carrier Tells You

crtc legislation and policy lawyerI am spending a second week of being glued to CPAC, watching the CRTC telecommunications wholesale access proceedings. One interesting aspect is the seeming sincerity with which the incumbent telcos and cablecos have repeatedly told the Commission that, when it comes to FTTP (fibre to the premises), the dominant carriers do not have the advantage of incumbency.

The argument of the incumbents is that, as they (by and large) do not have fibre to the home networks today, there is a level playing field between them and any would be third party FTTP provider. Indeed, the incumbents go so far as to assert that their current copper drops work against them.

It should be obvious to even the most casual observer that the incumbents have huge advantages over any third party wire line competitor.

First, any newcomer would have to attract huge capital to invest in a fibre to the home investment. Who can do that? Incumbency, with a subscriber base and predictable subscriber revenues, clearly favours an incumbent carrier. It is difficult to imagine any non-incumbent going to the financial markets and raising the billions of dollars necessary to finance the initial investments. Would even a giant with vast network rollout experience, such as Verizon, be able to attract capital to invade Canadian markets by building from scratch? I very much doubt it.

Second, any would be FTTP provider faces the realities associated with the construction activity necessary to get a network up and functioning. In this context, the congestion of utility rights of ways poses significant challenges for non-incumbents. In many cases, it is impossible to get access to municipal rights of way, both as a result of safety codes, regulatory policies and the reservation by owners and incumbent licensees of any extra capacity for their own future use. This gives the incumbents a huge head start: the incumbents only have to reconfigure their use of existing rights of way; any third party provider would have to negotiate access to those rights of way (where available at all), overcome local political resistance, and actually install physical plant.

Any incumbent, faced with the threat of third party fibre, would take advantage of the window of time to beat a competitor to installation of FTTP, and doubtless attract subscribers through interesting pricing to foreclose competition.

Third, there is the customer loyalty factor. There are millions of people who have been receiving services from the incumbents, and most of those have some trust in those who have served them over the years. While customer loyalty may be in decline, it is nonetheless present and will often prove decisive when a consumer must choose between a known provider and a new competitor with no record of local service.

To think for an instant that the incumbents do not enjoy a huge advantage just by the fact of their incumbency is spurious. It does not stand up to minimal scrutiny.

Let’s hope we don’t see the CRTC fall for this particular fairy tale.

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