Collapse of telecom suppliers troubling

Mark McNeil
Hamilton Spectator
August 18, 2001

  One senses a new harshness in the deregulated world after a Hamilton Spectator story this week about a lawyer representing Union Energy firing off a letter to a customer abruptly demanding $1.53.

The letter said: “My instructions are to file a lien against your home … garnish (sic) your wages … seize your banks accounts.” And it turns out the the owed money was a mistake. It had already been paid.


Deregulation is supposed to bring lower prices, efficiencies and more innovative products to the marketplace. But it can sometimes leave consumers without essential services and suffering unforeseen costs. That’s what happened this month when about 40,000 customers learned their upstart communications supplier had gone into receivership.

The collapse of Axxent Corp. and Norigen Communications Inc. forced thousands of business customers to search for alternative telecommunications suppliers, who in turn were overwhelmed by the demand.

As it stands now many of the displaced clients – mostly in the Toronto area, although Norigen had a small operation in Hamilton – will be unable to re-establish telephone and other communications services by the time they are cut off next week. And this could be devastating for many of the businesses.

“I was never, frankly, happy with the (Bell) monopoly situation before,” said Jack Chute of John Chute and Associates, one of the Toronto companies affected by the failure of Norigen. “But you certainly become aware of the problems that deregulation can bring to the forefront. We have certainly seen a few of them here.

“When you deregulate an industry, there has to be some sort of oversight to make sure the players … are watched from an ability-to-deliver-the-services perspective … you can’t just turn the sharks loose at the beach.”

But one wonders whether the Axxent-Norigen experience should be viewed as yet another major setback in the deregulation movement in Canada.

Over the past several years, Canadians have experienced deregulation in the airline, natural gas, telecommunications and hydro industries.

And not everyone is happy about the results.

“I would expect that most people who are informed would be highly skeptical and suspicious about deregulation given the experience over the past decade in Canada,” said Philippa Lawson, counsel with the Public Interest Advocacy Centre. The nonprofit group provides legal representation and research on issues that involve utilities, government programs and services.

“I think we are seeing what many of us have known all along – it is not that simple. You can’t simply deregulate a monopoly industry that supplies an essential service that everyone gets and expect to have competition and expect consumers to be well-served.

“Effective regulation is better than ineffective competition. The problem is there has been too much ideology and far too much enthusiasm around the whole deregulatory agenda, almost a religious zeal.”

But proponents of deregulation and increased competition argue it is necessary in a global marketplace. David Colville, the interim chairman of the Canadian Radio-television and Telecommunications Commission, says that competition for long-distance telephone service in Canada has led to cheaper rates in this country compared with the U.S.

He says some Canadian cities are starting to see competition for residential local telephone service leading to less expensive charges for consumers. In some areas cable companies are offering telephone service.

A CRTC steering committee, he said, is studying ways to protect customers in future failures.

“(With the Axxent-Norigen failures) we didn’t have a set of guidelines and rules that would handle a quick and smooth transition of the customers from a failed company to other existing stronger companies,” he said.

“When you open any new market to competition, you are bound to have many new players come into market. The market will stabilize. Some will succeed and some won’t.”

Asked whether he sees parallels between the telecommunications deregulation and the experience with deregulation by Canada’s airlines, he said: “We certainly don’t want to see that happen in the telecommunications business and I am confident that it won’t. I think strong major players will emerge and some strong niche players as well.”

The airline industry in Canada was deregulated in 1988 and it led to the cut-throat competition through the ’90s. It drove down air ticket prices for a time but eventually led to Air Canada swallowing its main competitor, Canadian Airlines, and higher prices. WestJet and some other smaller carriers have since arrived on the scene, and are taking a run at the Air Canada dominance.

Others are worried about how deregulation in hydro will play out, whether the province will end up with California-style power disruptions. The provincial restructuring effort has been evolving in stages and competition will be introduced in the sector next May.

In the new system, businesses and consumers will be free to buy electricity from any of a number of suppliers, at unregulated prices. Previously the only choice, generally, was municipal utilities.

Is there a possibility that a Norigen-style failure in the hydro sector could leave people, or businesses, without electricity?

Experts say no.

Art Leitch, president and CEO of Hamilton Utilities Corp., says “the way it is being set up is that Hamilton Hydro will always be what is called the default supplier so that no matter what happens customers can be assured that there is always going to be someone supplying them with power.”

In other words, if the direct marketing company you bought hydro from went bankrupt, Hamilton Hydro would be obligated to take you back as a customer. And there wouldn’t be the administrative complications that happened with Norigen.

Tom Adams, executive director of Energy Probe, says : “I am concerned about many problems in Ontario’s electricity restructuring, but I don’t believe that marketer failure is one of those problems.

“If there is a danger to our security of supply, it is because of our high reliance on the nuclear plants that historically have been very unreliable.”

Asked to summarize Energy Probe’s view of deregulation and restructuring in the hydro industry, he said: “The old electricity system we had was fundamentally screwed up and we absolutely have to come up with a better system. Initially, we had a lot of confidence in the new electricity market but now we have become quite alarmed about where several of the key issues have drifted. We think that consumers are now headed for some major financial impacts both from the point of view of taxpayers, ordinary electricity consumers, but also from an environmental perspective.”

Asked about increased costs, Leitch said: “I’m hard pressed to see how it would be any different than the former situation where utility commissions used to run the hydro utility on behalf of the municipalities. I don’t see any more risk or exposure to the taxpayers.”

Adams believes competition in the natural gas industry has been good for the consumer.

“Natural gas was a huge win for consumers. It gave customers a lot of options in terms of how to purchase gas and people in Ontario saved money in the continent-wide gas shortage last winter,” he said.

Ontario’s gas consumers suffered the least of any consumers in North America, he said, because the province has more clients hooked up to long-term fixed price contracts.

But one senses a new harshness in the deregulated world after a Hamilton Spectator story this week about a lawyer representing Union Energy firing off a letter to a customer abruptly demanding $1.53.

The letter said: “My instructions are to file a lien against your home … garnish (sic) your wages … seize your banks accounts.” And it turns out the the owed money was a mistake. It had already been paid.


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