Telecommunications Service in Canada: An Industry Overview

Section 1: Contribution to Overall Economy

1.5 Price Trends for Telecommunications

In 2004, Statistics Canada's telephone services price index (Footnote 4) remained relatively stable, increasing 0.3 percent from 2003, while the all-items Consumer Price Index (CPI) increased by 1.9 percent. Between January 1992 and December 2004, the CPI for all items increased at a Compound Annual Growth Rate (CAGR) of 1.8 percent per year, while the basket for telephone services increased at a CAGR of 1.4 percent per year (Figure 1-6).

Figure 1-6

The effect of local telephone rate increases (rate rebalancing), especially for the major telephone companies, is clearly shown in Figure 1-6. These rate increases were implemented at the beginning of 1996, 1997, and 1998 in order to make the prices for local residential service better reflect the cost of providing local service. Rate rebalancing was a necessary pre-condition to the introduction of competition in the local segment. The rate rebalancing increases are represented in the graph by the jumps in the telephone services price index line beginning in 1996. (Footnote 5)

The reductions in the telephone price index starting in 1998 can be explained by price declines, predominantly in long distance services, in the face of increased competition in this market segment. In 2000, there was a further increase in the cost of local service in all regions of the country, and including catch-up rate rebalancing by smaller telephone companies. Since 2000, the price index for telephone services has stabilized and, only recently, has diverged from the CPI for all items in the Canadian economy.

Footnotes

4. The telephone services price index is a composite of prices for basic local telephone charges, other local charges, installation and repair charges, telephone equipment charges, and long distance charges. Basic local charges and long distance charges make up the majority of the index.

5. For additional information, please see Section 6.