Partners in telecommunications, Vol.4, No 1,
Magazine for Bell Employees in Quebec
January/ February, 1996
Everyone agrees that competition in the telecommunications industry is a success story. Long distance rates are dropping faster than expected and new services are being rolled out at lightning speed. And yet, all the players, including Bell, are experiencing financial problems. So just what is the outlook for competition?
The Canadian long distance market is worth $8 billion. This seemingly inexhaustible source of wealth created a “gold rush” mentality, according to Ian Angus, a telecommunications consultant in Toronto. Many companies believed it was simply a matter of decrying the “abominations” of the former monopoly regime in order to win over customers. However, an excess of competitors in Canada divided the available venture capital between too many players, and the amateurism of certain competitors quickly disqualified them.
Unitel is quick to associate its name with the competition, affirming that it was the company that broke Bell's monopoly in long distance following the CRTC's June 1992 decision. This is false. The long distance market was opened up to competition in December 1986 when Call-Net launched Call Detail Account Recording, a personalized billing system. A simple error in facts? Not quite.
In believing that it was opening up the long distance market in 1992, Unitel miscalculated the state of the market. It considered Call-Net and the 30 other resellers already operating in the long distance market as negligible players that would surely disappear now that the “real,” facilities-based, competitor had arrived. However, the resellers' were quick to disprove this vision of things. Today, Call-Net, since renamed Sprint Canada, follows hot on the heels of Unitel and threatens to dislodge it from its second place behind Bell.
There is no reason to believe, however, that Unitel will cease being a player. Despite its losses of $30 million a year, Unitel has a Canada-wide fiber network valued at over $1.2 billion and, more importantly, has the backing of AT&T.
Last September, after the withdrawal of its two main owners—CP and Rogers Communications—Unitel received $250 million from AT&T and a consortium composed of the Royal Bank, Toronto-Dominion Bank and Scotiabank. Today, 46 percent of Unitel is owned by AT&T and 54 percent by the financial institutions.
It is very likely that we will soon seen the birth of a new Unitel, rebaptized AT&T Canada or some other name inspired by its American partner's corporate name. AT&T's determination should not be underestimated. The US giant has set out to conquer the world market, and a breach in its northern flank will not be tolerated.
Is there a reseller in the house?
There is a long-standing division between facilities-based competitors and long distance resellers. Michel Thériault, Analyst at Bell Canada and coordinator of the competitive advantage team, explains: “Since the CRTC's September 1995 decision, Canada has had two categories of telecommunications companies: Bell and the others. Bell's rates continue to be regulated, while the other companies do not need to have their rates approved, barring a few exceptions.”
In the marketplace, however, there are many differences between the various resellers, whose numbers climbed from approximately 30 in 1992 to more than 200 in 1994, and finally dropped to 150 in 1995. The dramatic bankruptcies of NorthQuest and TelRoute cast a shadow over reselling, while the poor service offered by certain other players was a determining factor in other customers returning to Bell.
However, two companies, Sprint Canada and Fonorola, are proudly leading the reseller pack. Sprint Canada is constructing a complete fiber network in Québec and Ontario, and has also purchased INSINC, a small Vancouver reseller that specializes in private networks for large corporations. As such, Sprint Canada is leaving behind its image of being a supplier for small business and is increasingly associating itself with the quality image of its American partner.
Fonorola's image has always been that of a top-of-the-line company. Its alliance with Charles Sirois' Optinet allowed it to establish ties with the president-owner of Teleglobe. Furthermore, Fonorola recently concluded an agreement with CP for operating the rail company's optic network, thereby becoming, like Sprint Canada, a hybrid company: part reseller, part facilities-based operator.
No other competitors are on the same scale as Sprint Canada and Fonorola; however, this doesn't mean that they are all lame ducks. Some are successful in certain market sectors—for example, ACC in the university market. But the playing field is a niche market, and competitors who spread themselves too thin have already disappeared or are on the verge of doing so. With 150 telecommunications companies, the Canadian market is still overpopulated.
The difficulties faced by entrants to the long distance market are not due to their inexperience alone. The force of Bell's reaction caught everyone off guard. Whereas in the US, AT&T hung on for dear life to its monopoly for years after the courts had decided to open long distance to competition, in Canada, Bell dove head first into the battle for market share.
The decrease in long distance rates deprived Bell's adversaries of their main argument. But primarily, it enabled the Company to completely change the image it projects to its customers. Through an intense information, training and promotion effort, Bell transformed its employees from public servants into sales representatives accustomed to the market rules.
Today, rates are no longer the key to success, and this will be even more so tomorrow. Michel Thériault explains: “Competition has led to a fragmentation of the market. However, users don't want to have to deal with three or four companies in order to satisfy their telecommunications needs. They want one-stop service.”
A strategy of alliances
Knowing that it can't be everything to every customer, Bell is advancing on two fronts. First, the Company is aiming to serve all available markets—nationally and internationally. The December 1995 alliance between Stentor, the US long distance company MCI, and the previous British monopoly British Telecom is intended to offer uniform international service.
Secondly, the increasing presence of the information highway obliges Bell to become involved in content development. MediaLinx was therefore created with the purpose of fostering a culture focused on the development of content related to the telecommunications networks. And, undoubtedly, other moves will be made toward the multimedia industry.
Competition and operation diversification are reshaping the face of Bell. Out of it will come an increasingly international, dynamic company where technology, no longer the determining factor, will have to harmonize with the varied multimedia content in an increasingly aggressive marketing context.