Almost exactly a year ago, the cover story on the September 15, 2005 issue of The Economist was entitled “How the internet killed the phone business.” If that was so, over the past year, we have seen various signals that indicate a reincarnation.

I think it would have been more accurate to talk about ‘energizing’ the phone business, not killing it. Indeed, it isn’t just the internet that is catalysing change, we see wireless technologies, computer processing, entertainment and societal behaviours also driving a renewal of investment and employment growth.

TELUS has just announced a capital program to upgrade its high speed infrastructure to support TV and other bandwidth intensive services. Earlier this week, Toronto Hydro Telecom launched its downtown WiFi umbrella.

Bell is investing in extending its Optimax offering to more cities, pushing optical nodes closer to the home. Last week, Rogers entered into a multi-media marketing arrangement with Maple Leaf Sports. Most Canadian cable companies have been raising the speed of their basic internet services – in some cases to 10Mbps.

All signs point to active, vigorous rivalry in the market. Prices (at least per bit per second) are falling, at least for wireline services. We have written over the past month or so about the vitality of some companies, investing in new buildings, offering innovative new bundles.

On the periphery, there are IP-enabled companies, some small and some very large, offering voice and TV services riding over customer provisioned internet access streams. A recent CATA/Monster report says that the telecom sector has among the greatest number of job postings.

To paraphrase Mark Twain once said, reports of the demise of the phone business have been greatly exagerated.

Update:
Mike Urlocker has a good post-script that looks at The Economist story a little more and asks some good questions.

So what is going on at the CRTC with the Local Forbearance file? The CRTC set rules for loosening regulation in local phone service in an April 6 Decision. Last week, the CRTC decided to review that Decision, for the second time in 5 months.

Mark Evans asked Did the CRTC Goof? when it is looking at the rules again after less than 5 months?

Paul Vieira of the National Post suggested the CRTC is defying Ottawa on VoIP, while starting a fresh look at the local forbearance Decision. In his article on Saturday, he quotes Ken Engelhart, who said he is pleased the CRTC stuck to its VoIP ruling, but at the same time dismayed with the move to review the rules governing local deregulation.

It is hard when companies like Rogers make massive investments based on one set of rules, and then the government keeps changing those rules in the middle of the process. We are a bit disappointed by that.

In April, the CRTC decided deregulation could occur in a specific region once monopoly phone providers lose 25% of their market share. Until that time, incumbent services are price regulated. Why have a fresh look at the 25% market share loss criteria?

When the CRTC picked the 25% number, it said

In the Commission’s view, setting the level of applicant ILEC market share loss to be used as a criterion for the purposes of the local forbearance framework is not a precise scientific exercise; nor did any of the parties to the proceeding pretend that it was. The Commission considers that the level of applicant ILEC market share loss should be set at a sufficiently high level that the Commission can have confidence that a critical mass of customers have decided to receive their local exchange services from competitors, and as a consequence there is a wider acceptance by customers within a relevant market of the reality of local exchange service competition, and an openness to trying competitive alternatives. In short, the Commission considers that the applicant ILEC market share loss level should be set at a level that, when taken into consideration with the other criteria, demonstrates that competition in that relevant market is sustainable.

[p. 247, Decision 2006-15]

What has changed since April? We really need to see what has changed since the end of 2004, the data period upon which the CRTC based its Decision in April 2006.

The CRTC sought a number that would enable it to “have confidence that a critical mass of customers have decided to receive their local exchange services from competitors” prior to forbearing from price regulation. It says that its selection of 25% was based in part on high churn rates at the time. In the Commission’s view, high churn is reflective of customers not having “wider acceptance … of the reality of local exchange service competition.”

The fact is that the bar was set too high last April for consumers to see a forborne marketplace in most of the country. Business customers are another matter.

The CRTC is finally on a path to getting out of the way of full competition between the cable companies and telephone companies. Its Local Forbearance Decision started to unravel the day it was released when Statistics Canada showed that it had better data on the state of competition and released its report the same day. The local forbearance decision had problems that had to be fixed – the CRTC had to choose whether to open it up on its own, or force the Cabinet to order them to give it a fresh look.

As unappealing as it is to have such instability in the regulations, it is worse to have the wrong rules in place. My next question is whether the Commission is reviewing enough elements of the Local Forbearance Decision.

We’ll look at that tomorrow.