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ILECs and the Innovators Dilemma

Ron Gruia wrote a comment to my May 13th posting about the CRTC ruling, way back when I wrote the actual post.  It got trapped in WordPress’ authorization mechanism, for which I apologize Ron.  I didn’t even realize that it was there until today!

Ron’s assertion is that price is an element of competition, and the CRTC should not remove this tool from the ILEC arsenal, since the MSO’s have obvious market power and could choose to price predatorily against the ILECs.  In a pure commodity market-place, such would be absolutely true.  Generalizing, I contend that technology markets move rapidly, but consumers of voice services have only seen the benefit of those advances on one plane — price.

Fans of Clayton Christiansen’s The Innovators Dilemma will recognize the diagram below.  It shows the progression of competition from functionality to reliability to convenience to a commodity based competition based solely on price. That’s where we are today.  VoIP has the potential to either reset the cycle, and restore innovation as the basis for competition, or take us further down the price curve.  The CRTC apparently believes that unless they remove the incumbent’s pricing power, the reset to innovation won’t happen. Their decision forces Canadian ILECs to confront the Innovators Dilemma head-on, because the choice to compete on price alone would be their destruction.

It’s a bold strategy, to be sure, and as Ron and others point out, it’s not a strategy without risk.  The risk is that the incumbents can’t respond, and are destroyed in the subsequent price war. 

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