BUSINESS/ECONOMY

Long distance at a discount

Jack McGowan May 28 1984
BUSINESS/ECONOMY

Long distance at a discount

Jack McGowan May 28 1984

Long distance at a discount

BUSINESS/ECONOMY

Jack McGowan

Two Vancouver-based phone companies have reached out and struck a nerve in the giant B.C. Telephone Co. by threatening its monopoly on long-distance calls. And the rest of the nation’s telephone industry is monitoring the situation attentively. The unprecedented fight for the B.C.-U.S. long-distance market started when Longnet Telecommunications and CamNet Communications challenged B.C. Tel’s rates by offering Vancouver-area businesses and consumers reductions of 15 per cent and up on calls to U.S. destinations. And aggressive new companies elsewhere in Canada support the move as a means to open competition on longdistance calls, which are now the preserve of Canada’s 11 major provincially and federally regulated phone monopolies. Customers of the new service also applauded. Said Michael Routtenberg, Longnet’s 26-year-old president: “People are really excited about it.”

The companies have managed to offer the lower rates by routing calls from Vancouver through a switching system in Washington state, less than 100 km away. Calls are then linked up with

lower priced services in the U.S. market. To use the system, a customer simply picks up his phone and dials a number to reach a switching station in Washington which then completes the call. The customer pays B.C. Tel 20 cents a minute for using its line to the switching system but then pays a cut rate for the completion of the call by the U.S. company offering the lower rate. A subscriber to Longnet, which begins operations this week—Cam-Net has been operating since April—can make a 5.4minute call to Anchorage, Alaska, for $6; B.C. Tel’s charge is $11.66 for six minutes. A Longnet caller to Los Angeles could shave about $1 off B.C. Tel’s $5 charge for the same call.

B.C. Tel made a hasty application to the Canadian Radio-television and Telecommunications Commission (CRTC) to prohibit the two companies from using B.C. Tel lines. But the CRTC asked for public submissions on the issue, which will likely be considered at October hearings.

Both Longnet’s Routtenberg and Cam-Net president Alan Harris are convinced that they have fired the opening shot in a campaign to break the monopolies of federally regulated B.C. Tel and Bell Canada, a subsidiary of

Montreal-based Bell Canada Enterprises. They believe that if other companies enter the fray, the issue could escalate into a cut-throat fight, which will hit the established phone giants right in their profit centres. Already, Longnet says that if its service attracts enough business, it might establish other operations across Canada.

But any such move would be closely watched by other potential competitors, including CNCP Telecommunications, a Toronto-based company that provides a voice and data network to business users. CNCP has been a leading advocate of wide-open competition in the long-distance market, and last year it applied to the CRTC for permission to begin a longdistance service between a number of cities in Ontario, British Columbia and Quebec. A CRTC hearing on that application is scheduled for October. Another potential competitor is Toronto-based Canadian Telecommunications Group (CTG), which already is leasing and selling telephone equipment Canadawide. CTG president Edward Lavin, a vocal proponent of long-distance competition, said, “We have the facilities, the connections and the underwriters waiting in the wings.” Although Lavin says he would match the sort of operation pioneered in Vancouver, he would prefer to see a CRTC ruling that permitted open competition in Canada. Understandably, B.C. Tel and Bell Canada are reluctant to give up their hold on the lucrative long-distance market, which they have used to subsidize losses on local calls. In answer to the demands for long-distance competition, they have called for the licensing of Local Measured Service, under which they would charge users according to the length and frequency of local calls. That issue, too, must be decided by the CRTC.

But whatever the CRTC rules on that question, the system started by the Vancouver firms is a much more immediate and nettlesome problem. In response to the firms’ new service, B.C. Tel threatened to ask the CRTC to authorize increases in local rates to compensate for lost long-distance revenues. According to William McCourt, B.C. Tel’s vice-president of network marketing, long-distance profits now restrain local rates. Said McCourt: “The loss in local calls last year was $350 million, and that was all offset by long-distance revenues.” Bell Canada is also very concerned about the potential spread of the new service. Said Donald Cruickshank, a Bell vice-president: “It is a very real and present threat.”

Both Longnet and Cam-Net believe that they will beat B.C. Tel on legal grounds. Their lawyers argue that the new service does not break any Canadian laws. Routtenberg contends that because the calls are transferred to a different company in the United States, and not in Canada, the issue falls outside the jurisdiction of Canadian authorities.

Hudson Janisch, a professor of law at the University of Toronto, agreed. He said the upstart firms’ legal advice is sound and even if the CRTC halts the resale operation, the public would object. Said Janisch: “It’s hardly an antisocial activity for people to try to get the cheapest rate they can for their long-distance calls through the United States.” Janisch argued that it was inevitable that the move to deregulate industries in the United States would trouble Canadian companies. Indeed, he pointed out that the stream of Canadian airline passengers flowing south to U.S. departure points to take advantage of cheaper flights aboard U.S. carriers prompted Transport Minister Lloyd Axworthy to propose deregulation of the Canadian industry earlier this month. Said Janisch: “It must be realized that the electronic boundary is even more porous.” The two Vancouver firms are hoping to take profitable advantage of that situation.

Diane Luckow