Regulatory changes reassure Call-Net that competing with the ILECs is possible

Regulatory changes and improved financial results have given Call-Net Enterprises Inc renewed hope that local phone competition is possible in Canada. After pulling back from the residential services market last year (NL, July 4/00), the parent of Sprint Canada has re-entered the country’s largest metropolitan areas, and analysts predict that of all the CLECs, Sprint stands the best chance of competing against the incumbent telcos. The company may have lost 30 per cent of its LD phone customers over the past few years, but as one analyst notes, the 700,000 that remain are a good base from which to grow. "What Sprint Canada starts with as it goes into this business, they start with 700,000 consumer relationships. If Group Telecom were to start going into this business, they would start with zero," says Iain Grant, managing director of the Yankee Group in Canada. Sprint Canada is the only national facilities-based competitor to the ILECs that offers a local residential service. A year ago the CLEC seriously considered abandoning the residential market entirely to become a data and Internet company. A number of things have changed in the last few months, giving it reason to reconsider an aggressive foray into the $8-billion local phone market. "One is some recent CRTC decisions are certainly much more encouraging than the few decisions in the past, on contribution and loops and rebanding," says Jean Brazeau, Call-Net’s senior VP regulatory affairs. "And I think we got a sense there’s also a general change in attitude within policy makers and regulators as to the need to promote competition so we’re encouraged by that." According to Brazeau, Sprint was practically forced to expand its service, worried that the customers who remained would leave unless local was also an option. He estimates that Call-Net’s coverage area in Vancouver, Calgary, Toronto and Montreal gives it a footprint of 55 per cent of the lines in Canada. The company is looking at rollout in other cities but wants to assess the initial success in the major centres first. Unlike other CLECs, Sprint has a existing residential customer base, which gives it a solid base from which to add other services, such as local telephony and Internet access. Grant doubts that other business-oriented CLECs have an appetite for the consumer market. "If I’ve got 700,000 consumer relationships that are already spending 20 bucks a month, if I can offer them local telephone dial tone, I can make that 20 bucks turn into 50," he told Network Letter. "If I can offer them high-speed Internet as well, I can make that 50 bucks turn into 100. I have taken the same customer base and I have now quintupled the revenue." Brazeau doubts Sprint’s foray into the local phone market will spur other new entrants to follow suit. "We’re in a special situation. We still have a lot of residential LD customers, nobody really has that in the CLEC business," he notes. "Everybody’s focused on the same small- and medium-sized market segment. We’re certainly there also because we have a lot of those customers as LD customers. But as I said we have a lot of residential LD customers and we’re hoping to get a larger percentage of their spending and provide them with some bundled services." Grant agrees Call-Net had to expand to hold onto its current clientele. He notes how well the company managed to hold onto subscribers even as it ran into rough times. At its peak, it had about one million residential customers. Even a 30 per cent dip he describes as marginal, saying the base is large enough to take advantage of bundling. It would be prohibitively expensive for business-oriented CLECs to jump into the local phone market. One option is for larger firms like AT&T Canada and Group Telecom to scoop up smaller competitors like Futureway Communications and Primus Canada, which already offer local service.

Regulatory changes reassure Call-Net that competing with the ILECs is possible

News | June 18, 2001

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