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Structural separation: not just for marriages anymore

26 Apr

Liberal MP and tech critic Marc Garneau really kicked opened a can of worms a few weeks ago when he hosted an online chat to discuss the digital issues Canadians are concerned about during this election. Garneau, chatting with University of Ottawa professor Michael Geist and Open Media’s Steve Anderson, made a number of promises during the hour-long chat (you can read the transcript here).

Perhaps the most important – definitely the most surprising – was his statement that the Liberals support functional separation of telecommunications companies. In plain English, that means they are in favour of effectively splitting companies such as Bell and Rogers into two units: one side would manage the phone and internet networks owned by the company while the other would sell associated services to customers.

Many telecom companies will argue they already have this sort of separation, although they often willfully confuse it with simple accounting separation – where different units are tracked separately –  so there’s no real point to it. However, functional separation usually requires separate staff in each division and is often the first step toward operational or structural separation, which are more severe. Full-on structural separation usually means the network-management unit must be spun off into its own separate company that is not owned by the parent. So Bell or Rogers, for example, could technically lose ownership of their networks if Garneau or other supporters wanted to seriously move down this path.

The idea behind splitting up companies in this way is simple. The separate network unit sells fair and equitable access to that network to all comers, including small independent internet service providers as well as the parent company’s own retail ISP division. This way, everyone has access to the same network and can compete on things like prices, speeds, monthly usage limits and so on. Big companies such as Bell and Rogers thus lose their network-owning advantage and anti-consumer measures such as throttling and usage-based billing are unlikely to happen. If one ISP were to implement low usage caps, for example, customers could have the choice of several other companies that offer more generous limits. That differs from the current situation in Canada because big ISPs usually move in lockstep with one another and force their practices onto smaller ISPs as well.

As the International Telecommunications Union states, separation is usually only necessary when a country has difficulty attaining a competitive telecom market through other means. I wrote about this topic and how it might apply to Canada two years ago in a story that predicted what’s happening now. With evidence – including stats from the OECD and the World Economic Forum – mounting that Canada’s telecom markets are indeed uncompetitive and with the continuing souring of relations between network owners and the small ISPs who need them to survive, it was inevitable that talk of separation would follow.

But are the Liberals serious? Garneau’s comments struck me as throw-away pandering to an already partisan online crowd, given that it was really the first time the Liberals had suggested the idea of separation. It certainly isn’t in the party’s published platform. To be honest, I’m not sure Garneau knows what he’s talking about or that he has thought about the issue at any great length. I’d love to hear him questioned more on it.

Tony Clement, the current Conservative Industry Minister, lambasted Garneau on his comments, telling the Wire Report that it’s “completely unrealistic” for the Liberals to support functional separation. More tellingly, he said “the whole industry is going to convergence, not splitting off,” which seems a pretty clear indication that separation is nowhere near being on Clement’s and the Conservatives’ agenda.

That’s really disappointing because it shows Clement doesn’t understand the fundamentals of the situation either. The telecom industry is indeed converging, which is the whole point of separation – it converges networks more than it splits them off, which is a cheaper and more efficient way of doing business and getting better services. Even telecom companies themselves are coming to understand this – it’s why Bell and Telus jointly built a cellphone network and it’s why the top executives of several large telecom firms in Europe are voluntarily suggesting the idea of structural separation. Clement has made several poignant comments in the media over the past few months that he understands there are deep problems in Canada’s telecom market, yet he seems clueless as to how to fix them.

Separation would indeed be the closest thing to a silver bullet for solving Canada’s telecom woes. The problem here, which hasn’t really been encountered in any other country where separation has been done, is that it would be more complicated to do. Most other countries have simply split up their big phone incumbent – if this were to happen in Canada, it would also have to be done to the cable companies (in the interest of fairness).

Catherine Middleton, the Canada Research Chair in Communications (not the royal bride-to-be), has just released a report studying the possibility of separation in Canada. In it, she argues that getting separation with phone and cable companies would be tough to do and take a long time, so much so that “by the time it was implemented, it is not clear how many independent ISPs will remain to benefit from this change to the wholesale regime.”

Indeed, that’s why separation – although a great ideal – is not something I’ve harped on much. The much easier thing to do, which is something I’ve been incessant about, is to lift foreign ownership restrictions so that deep-pocketed international players can come in and compete. That, coupled with good and strong regulation (which is another topic for another day), would probably suffice in giving Canada a competitive telecom market.

With that said, a Canada with structurally separated phone and cable companies – and without foreign-ownership restrictions – is a telecom utopia we can only dare to dream of. Canada wouldn’t just benefit from the enhanced competitiveness that separation brings in, it would get it two-fold by having two different separate network companies competing against each other. Under this scenario, new ISPs might actually start up, as opposed to existing ones continually worrying about how they’re going to pay their bills from month to month. Canada could actually become one of the most competitive telecom markets in the world.

Such moves, however, would take strong, visionary leadership, not to mention a majority government. Unfortunately, those things are currently in short supply.

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8 Comments

Posted by on April 26, 2011 in government, internet, telecommunications

 

8 responses to “Structural separation: not just for marriages anymore

  1. Sam Davies

    April 26, 2011 at 7:10 am

    With one week left (pun intended), and with Layton climbing in the polls, it might be time to take the NDP position more seriously, no? Should hell freeze over and the Liberals be knocked down to #3, if the gov’ts 1st budget is defeated, we’d possibly be looking PM Layton, which no doubt makes many polarized pundits sick to the stomach. As a non partisan Canadian who actually enjoys politics, I very much like the idea of a game changer – the same old has not been working for quite some time, and I have great doubts of the benefits of a Harper majority. The Liberals are a mess, both from the active members and supporters, and a tough loss would force them to take more drastic steps to redefine and rebuild.

    But enough of my rant – I think you are correct in your assessment of the Liberal position. If anything, they are pandering, and don’t have the balls to take a real stance and include this in the platform. With that said, doing such would certainly be a vulnerability that would leave them open to various attacks.
    Many parties adopt platform positions that they have no intention of following through on (sometimes they even intend to do the exact opposite) – its all about optics.

    Have not read the report on separation, and am looking forward to doing so. While it may take more time, I can’t help but feel that it is worthwhile in the long-run.

     
    • petenowak2000

      April 26, 2011 at 9:16 am

      Sam – I think I would agree with you. I’m all for shaking things up so it’d be a real hoot to see Layton in charge (for a little while, at least). I actually had him as a city politics professor back at Ryerson – he was a terrible teacher who showed up to class less than many of his students. In any event, the NDP would surely be in favour of separation but, as you mentioned, against the lifting of foreign ownership restrictions. I’m no NDP basher by nature, but those priorities seem backwards to me.

       
      • Chris

        April 26, 2011 at 8:00 pm

        I agree with pete on this one 100%. We are still stuck between a rock and a hard place. The NDP has time and again clearly stated that it is STRENUOUSLY against lifting foreign ownership rules. Without this, there is NO WAY we will be able to resolve this most irritating aggravation in many Canadians’ lives, the usurary cost of telecommunications services in Canada.

        Sam, if you haven’t seen this gravest of drawbacks in their platform, I strongly suggest you take a good look at their platform before shooting yourself in the foot.

         
  2. bwalzer

    April 26, 2011 at 11:11 am

    The separation issue has a technical component. It makes a lot more sense when there is enough bandwidth available to the user to allow more than one service at the same time. I don’t think that separating transfer from content is all that important for stuff like DSL and cable internet. It is very important for FTTH/FTTP. A simple and cheap policy hack could work to ensure that the fiber based stuff is structured in such a way as to allow third parties access to it. This might have the effect of discouraging the larger telcom entities from installing fiber for new development but it is hard to see how they could somehow become more discouraged at this point.

     
  3. Marc Venot

    April 26, 2011 at 1:56 pm

    Next september the TV will be digital (numeric) only, thus its analogic bands will be available.
    Today Novus (http://www.novus-tele.net/) will have an open house in my building in Vancouver. Even if not exactly what I wish to get it seems they are bringing some challenge to the main telco companies.

     
    • Hub

      April 26, 2011 at 9:07 pm

      Novus does not really try to redifine the market. They just follow it. Back then when I asked why they have caps, they said “everybody does it”. I went with the one that does not: Teksavvy (moving my service from Quebec). No point of have 10Mbits if the caps are reached at lightspeed.

      I don’t see Novus innovating. Just them as a smaller version of the incumbent, that is tied to a builder… to block the incumbent (Shaw).

       
  4. Hub

    April 26, 2011 at 9:10 pm

    I think that separation has to be reached by making the infrastructure a public utility – mostly the last mile part. All the telco use public right of way as well and private access to provide the service. Have them compete on the actual value added service.

     
 
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