Local telephone customers will see increased competition for their business, with the federal government announcing plans Monday to deregulate the industry.

Industry Minister Maxime Bernier said Monday that the government intends to overrule a Canadian Radio-television and Telecommunications Commission (CRTC) decision that provides for regulation of local phone services.

The CRTC's mandate is partly to ensure that consumers have affordable residential service.

The current regulations, set last spring by the CRTC, prevent the former phone monopolies such as Bell or Sasktel from charging below cost for local service.

They were also banned from trying to win back customers by calling them up immediately after they switched services with tantalizing offers of rebates.

These measures were implemented in cities where former monopolies held 75 per cent or more of the local phone market.

The idea was to encourage new companies to gain a foothold in the market while protecting consumers.

Bernier's proposed changes would scrap those rules as long as there are at least a phone company, a cable company and a wireless company competing for business in a given community.

The Conservatives say the move to deregulate the industry will allow the market to set the prices by competing for business.

Bernier said the move was prompted after receiving a report from an expert panel last June.

The report told "us that it's time to deregulate and what we're doing right now, we're just accelerating the pace of deregulation in Canada for being sure the customer will benefit from that," Bernier told CTV's Canada AM on Tuesday.

The big phone companies, who have been lobbying for the end of local regulation, expressed their delight at the news.

Janet Yale, executive vice-president of corporate affairs for Telus, told The Canadian Press that prices have "nowhere to go but down."

"It's good news for consumers, because by relying more on the market we can really start making our best offers to customers, whether it's promotions, winbacks, the ability to waive service charges, bundled offers - the way we're regulated today gives us little freedom. . .," said Yale.

The major players argue that free competition will eventually mean lower prices and better service.

But whether or not the move will ultimately result in lower phone bills is up for debate.

Consumer groups and small companies delivering local service say there is no real competition.

Ted Chislett, president of Primus Canada, warned of a risk the dominating telephone companies will create two tiers of consumers.

"One class is those who have left the telco and get good rates to win back, and the other ones that have stayed with the telco and have never left and pay a higher rate," Chislett told CP.

Critics argue that bigger companies will just drive down prices to crush smaller competitors and then raise prices again.

Bell, Telus, Sasktel and the other former utilities hold 92 per cent of the local market nationwide.

"If you prematurely deregulate, you might first kill competition and then allow pricing at a level that consumers wouldn't ordinarily have to pay if there was a competition in the market," Michael Janigan of the Public Interest Advocacy Centre told CP.

"If you deregulate too slowly, there will be some burdens placed upon the incumbent, but they should be able to quickly overcome them once they are released into the competitive market."

Bernier dismissed those charges, arguing customers will ultimately benefit with a price drop.

"Shaw Communications and Rogers are not small players, and they're there in the market, and they're able to compete against Telus and against the former monopolies," Bernier said.

"So I think at the end, it would be beneficial for customers because when you have competition, you have innovation, you have better services, more choices and, at the end, lower prices," he said.

Linda Sims, CTV's business editor, told Newsnet there aren't many smaller competitors.

"Now the competition is other 'big, bad guys' like Rogers or Shaw. These are big companies that can manage to compete very nicely against the telcos," she said.

Bernier believes the move will be good for the pocketbook.

"You can just take the example of the long-distance calls when the CRTC deregulated that in 1993, the average rate for long calls across the country was 35 cents and now today it's only 10 cents a minute," he said.

The government said it will consult with Canadians, business players and federal agencies for the next 30 days on the proposed deregulation. The move does not require legislation.

With files from The Canadian Press