The Canadian Radio-television and Telecommunications Commission has turned down a request from Bell Canada Inc. to deregulate 56 of 58 local phone markets.

In issuing its decision on Tuesday, the CRTC said the 56 markets — most of which are small towns in Ontario and Quebec — are not competitive enough, so Bell will continue to have its services regulated. Bell will therefore need to continue seeking approval from the CRTC to change rates on local phone service.

Bell had applied for deregulation, also known as forbearance, in 58 markets. The CRTC did grant the company forbearance in Hamilton and Bethesda, Ont., which means the company can raise or lower phone rates as it sees fit in those areas.

In rejecting the other 56 markets, the CRTC said Bell did not pass the required competition test, which demands that at least three independent network-owning companies offer local phone service within a given market. This can include one other wireline provider, such as a cable company, and one wireless operator.

Many of Canada's major metropolitan areas were deregulated earlier this summer amid protests from consumer groups. The Public Interest Advocacy Centre called for a delay to any deregulation until a proper consumer ombudsman could be established. Critics also said there was no guarantee that phone companies would lower prices, while the risk of actual increases was real. No major phone company has yet to announce it is lowering prices.

The issue of phone deregulation sparked controversy back in April, when then Minister of Industry Maxime Bernier changed the rules on how it happens. Before the change, a phone company had to prove it had lost 25 per cent market share to a rival, such as Rogers Communications, before it could apply for deregulation.

Bernier changed the competition test from one based on market share to one based on the number of competitors in a given area, which is much easier to pass.

Under the new rules, phone firms only had to show that three independent companies offered service in a residential market, or two in a business market. A spokesman for Bell said one of the problems with the new rules is that it is not always apparent when the required number of competitors are present in a given market.

"We had to apply based on our own assumptions but a lot of the info isn't publicly available," he said. "In some cases, we just had to go for it. We can't tell that until we apply."

A spokesman for the CRTC said there would be additional decisions coming later this week for business phone markets.