Considering this is supposed to be a dispute about competition in the long- distance telephone market, we sure seem to be spending a lot of time discussing local service. But then, that's only the first of many oddities and absurdities on display as the vast, ungainly circus of Canadian Radio-television and Telecommunications Commission hearings on proposals to abolish Telecom Canada's long-distance monopoly officially begins.

Not that there's any real debate taking place on the local service issue. All sides seem to agree that long-distance tolls should continue to cross-subsidize local rates: the only question is whether this will occur under competition. Bell Canada and the eight provincial phone companies in the Telecom Canada consortium insist it won't; the two challengers, Unitel Communications and the Lightel-B.C. Rail joint venture, are equally adamant it will.

But everyone involved concurs on the principle of cross-subsidization, because it serves the interests of all of them to do so. Bell likes it, because it hopes to use the spectre of high local rates to sway the CRTC, and more importantly public opinion, against the competition. Unitel likes it, because it buttresses the company's proposal for regulated competition, in which the price of its own service would be guaranteed to be 15% lower than Bell's.

In effect, Unitel simply wants to divide the current monopoly profits - which regularly place Bell among the biggest earners in the country - among two or perhaps three companies, rather than duke it out in a competitive market. But it too can justify this in the name of providing the wherewithal to subsidize local rates. And of course the CRTC loves this idea, because that way it gets to go on regulating.

Without getting too deeply into the minutiae of the debate, there are at least three reasons why we should doubt whether we need or should accept this as a concern. First, there is no defence, either on efficiency or equity grounds, for cross-subsidization. Whenever you price anything below its cost, society loses: more scarce resources are devoted to the activity than the value derived from it. And the equity gains in redistributing income from all long-distance users, rich or poor, to all local service users, rich or poor, are murky: particularly when it's simple enough just to compensate low-income users directly instead.

Second, it's not clear just how much cross-subsidization is really going on. The social value of cross-subsidization is the universal justification for monopolies of all kinds, from postal service to bus routes. But monopoly accounting tends by its very nature to be somewhat arbitrary. Costs in one area of operation are often the revenues in another. How to assign fixed costs to different areas is also problematic. The truth is generally buried deep in the numbers - so deep in fact, that often the company itself doesn't really know.

So although Bell claims to devote 67 cents of every dollar in long-distance revenue to subsidizing local rates, there's room for some skepticism here. Long- distance rates have dropped 40% in the last five years, without necessitating any sharp increase in local rates, and Bell promises to drop long-distance charges another 40% in the next five years, again without any substantial rise in local fees.

That 40% figure also represents the discount on Canadian long-distance rates Americans enjoy in a competitive market. While local rates have risen about 50% in the U.S. since the deregulation of the early 1980s, most analysts attribute this more to the costs associated with the breakup of American Telephone & Telegraph than to the advent of competition. Even at that, 50% in seven years, after inflation, isn't a great deal, which may explain why the percentage of U.S. households with phones has not dropped appreciably.

But, as a third point, if we are concerned about rising local rates, there's another way of keeping the lid on, without having to extort funds from captive long- distance callers. It's called competition. In both the U.S. and Britain, where long- distance competition is also the norm, local service is seen as the next frontier for markets. While the huge costs of wiring every home once made this seem a natural monopoly, the rise of the cable television industry - the very people now challenging to provide long-distance service - has made this obsolete.

We may well find that local service costs under competition do not need to be so high as under monopoly, narrowing the gap between costs and prices. And of course, with everyone furiously rewiring with fibre optics cables, which can carry both voice and video, another intriguing possibility opens. As long as we're letting the cable companies compete with the phone companies, why not let the phone companies into the cable TV monopolies?