COLUMN

David and Goliath dial a busy signal

A tiny Canadian telecommunications firm wants to give small business a break, but giant Bell Canada is fighting it all the way

DIANE FRANCIS April 3 1989
COLUMN

David and Goliath dial a busy signal

A tiny Canadian telecommunications firm wants to give small business a break, but giant Bell Canada is fighting it all the way

DIANE FRANCIS April 3 1989

David and Goliath dial a busy signal

COLUMN

A tiny Canadian telecommunications firm wants to give small business a break, but giant Bell Canada is fighting it all the way

DIANE FRANCIS

Michael Kedar lives under a business death sentence. His company, CALL-NET Telecommunications Ltd. of Downsview, Ont., has been condemned by the federal regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), but the federal cabinet has commuted the sentence several times. That is because CALL-NET’S crime is highly debatable. All it has been doing since 1986 is competing against the telecommunications giants by offering the same type of discounted long-distance rates to small businesses that the large firms offer to their big-business phone users. But Bell Canada Enterprises Ltd. and the Telecom Canada phone consortium have successfully convinced the CRTC that CALL-NET should be driven out of business.

Kedar’s battle, which has cost his fledgling company nearly $1 million in legal fees since 1986, illustrates how regulatory red tape feeds on itself, stifling consumer choice, opportunity and the ability of Canadian businesses to compete under free trade. It is also a measure of the influence in the process itself of Ma Bell, and of a philosophical clash between cabinet and its autonomous regulator, the CRTC.

The nature of what Bell calls CALL-NET’s “threat” is hard to conceive. CALL-NET is a captive Bell customer. Its business consists of buying time on Bell’s telephone system at a wholesale rate, then reselling it at slightly reduced retail rates to small businesses after enhancing the service by allowing businesses to monitor and record all their long-distance calls. CALL-NET buys about $600,000 worth of telephone time from Bell each month for its 1,000 subscribers and in 1988 lost a small amount of money after racking up annual revenues of $8 million. By comparison, Bell makes $6 million in profits every two working days.

It all began in 1984 after the CRTC liberalized rules designed to create more competition by stating that “regulated carriers [Bell and the Telecom Canada consortium] will be required to permit the resale of their services by compa-

nies wishing to provide enhanced services.” But the CRTC narrowed the meaning of enhanced to make it more difficult for firms like CALL-NET to survive. Kedar, a computer consultant, came up with the CALL-NET proposal, and the CRTC said that it would make a ruling, but only if it received complaints. Bell did complain, but at a formal hearing in 1986 the CRTC ordered it to hook up CALL-NET’S system.

But Bell continued its objections and on May 22, 1987, it convinced the CRTC that CALLNET’s service was too similar to that offered by Bell and it had to be shut down. Bell also argued that CALL-NET’S plan would disrupt the decades-old policy in Canada of setting long-distance rates high enough to subsidize local rates. Under the current system, phone rates are a trade-off. A small business will pay 90 cents a minute to make a long-distance call from Toronto to Calgary, while a residential user in the evening will pay only 36 cents a minute.

But in June, 1987, the federal cabinet intervened with the first of a series of extensions to give CALL-NET time to develop services that would clearly set it apart from Bell. The government, unlike the CRTC, was listening to arguments by CALL-NET that Canada’s small

businesses were bearing the lion’s share of the long-distance subsidy burden. Big corporations, with special rates from Bell, paid less for that Toronto-to-Calgary call than did residential callers through special wholesale rates—a mere 20 to 30 cents a minute compared with as much as 90 cents a minute. Said Kedar: “Small business is the cash cow to subsidize IBM, General Motors and residential users. How do you think we will fare going into free trade with that kind of a handicap? A trucking company in Toronto drumming up business in Buffalo will pay up to 50 per cent more for his phone service than his Buffalo competitor.”

Not surprisingly, the small-business lobby group, the Canadian Federation of Independent Business, waded into the issue to support CALL-NET. “The current rules run counter to government policy and discriminate against small-business users unfairly,” said a federation brief tabled with the CRTC.

A year later, in June, 1988, the CRTC imposed another death sentence but invited submissions as part of a review of its “enhanced” service policy. Cabinet extended the deadline until Aug. 19,1988, when the review could be completed. Some 80 interveners came forward, mostly in support of CALL-NET, and by Aug. 16, 1988, the CRTC altered its “enhanced” policy and said that only co-operatives or “sharing groups” could tap into Bell’s lines at big-business rates.

CALL-NET reorganized its affairs so that it would merely act as an agent for its customersubscribers, collecting fees for providing call logging, printout and other enhanced services. Bell’s lawyers fought back, arguing that CALLNET’s restructuring was a sham designed to circumvent the new rules. They said that its subscribers were not really a co-operative because CALL-NET offered to provide an insurance policy indemnifying them from financial risk. On Aug. 25, six days after the execution date, Bell cut CALL-NET’S lines, but the CRTC ordered them restored pending a review.

CALL-NET sued Bell, and six weeks later, on Oct. 17, 1988, the federal cabinet intervened, ordering Bell to back off and restore services until the lawsuit was concluded. Now, months later, Kedar, his 70 employees and 1,000 subscribers continue to live in the shadow of the gallows. In December, CALL-NET lost its first court round against Bell and has applied for leave to appeal to the Supreme Court of Canada. In January, the CRTC decided to conduct hearings again into the whole issue of reselling and sharing and is allowing CALL-NET to continue for one more year.

Clearly, Kedar is a man caught in the middle of a policy muddle, and his company deserves to live. The CRTC cannot seem to make up its mind, and cabinet seems unwilling to simply reverse the CRTC’s decisions, which it can do. Instead, it merely prolongs the policy conundrum as small-businessmen are asked to shoulder an unfair portion of the long-distance subsidy burden. Said Kedar: “If I had known what was involved, I don’t think I would have done this.” But Kedar says the final solution may only come if Bell Canada’s monopoly is smashed.