There’s no left or right in telecom, only pragmatism

05 Jul

On the surface of it, it seems the debate over various telecommunications issues often boils down to a case of right versus left – the market purists versus regulation aficionados. People seem to either fall on one side of an issue or the other and therefore into one of these two camps, and never the twain shall meet.

That’s too bad because, as with all idealism, sticking to one possible solution is unrealistic. It’s especially true in telecom because a) it’s a very expensive game to play, b) it’s an industry that is still transitioning from its days as a government-controlled beast, and c) it’s therefore next to impossible to have an ideal situation. There simply has to be a middle ground.

That’s why in the past I’ve argued to allow pure market forces to do their job on some issues and suggested stronger regulation on others. This sort of centrism, I believe, is part of what defines the Canadian identity – despite what idealogues on both sides say, the majority of Canadians fall somewhere between the hard-line free marketeering of the U.S. and the nanny state socialism of Europe.

Of course, that doesn’t preclude us from dreaming of the proverbial ideal situation. Perhaps some day, we’ll achieve a level of telecom equilibrium that everyone can be happy with. For months, I’ve written about various possible moves that could get us closer to such a day. Here then, through the lens of a centrist, are the steps that could be taken to achieve it.

1. Ditch usage-based billing. The CRTC launches its “back-to-drawing-board” hearings on usage-based internet billing on July 11. The hearings to revisit the issue, the result of a very public government spanking, are expected to last a week, with the regulators making a final decision some time by the end of November. As a quick reminder, the CRTC’s jurisdiction over this issue is limited to the terms that big ISPs such as Bell Canada are able to set on their smaller wholesale customers, such as TekSavvy. So, even if the regulator reverses itself and disallows Bell’s UBB proposals, only about 5% of Canadians will continue to get effectively unlimited internet usage. The government clearly wants UBB scrapped and has indicated to big ISPs that they may want to do the same for the other 95%. Shaw and Telus have already taken action out west and boosted usage limits dramatically. Other Canadian ISPs are likely going to have to follow or risk government action.

Getting rid of UBB, both at a wholesale and retail level, is key for competition. If Canadians can use the internet as much as they like, they are free to adopt so-called over-the-top services that compete with those offered by telecom companies, such as Netflix and Skype.

Right or Left? This is a tough one to call. The internet wholesale regime at the centre of this issue is pretty clearly leftist, as is support for government intervention. On the other hand, removing one particular regulation and not replacing it with another is rightist. Let’s call it a tie.

2. Refrain from regulating new media. Another matter the CRTC is currently deliberating is whether the over-the-top services mentioned above should be regulated. The answer is an emphatic “no.” Subjecting Netflix, YouTube and the rest to Canadian-content rules would be the height of insanity. As I’ve written before, this would open up a giant morass from which Canada would never escape. While it may be possible to enforce regulations on companies that willfully do business here, such as Netflix and YouTube (Google), how would such rules be enforced on, say, internet radio stations broadcasting out of the Czech Republic? Looked at another way, what if YouTube chose to ignore the regulations? Would the CRTC block Canadians from accessing it? Yeah, good luck with that.

The irony is that the CRTC is only considering regulating Netflix et al after whining from the same telecom companies who incessantly talk about how the free market should be left to its own devices. But when the free market delivers a new player that they simply can’t compete with, all of sudden they want Ma Regulator to do some cracking down. There is, of course, the fairness issue, where traditional telecom/broadcast companies must contribute millions of dollars to propping up Canadian content while the over-the-top guys don’t have to, but that’s a separate issue.

Right or Left? Opposing regulation of new media is about as right as it gets. Hail Milton Friedman!

3. Strengthen net neutrality rules. A few years back, the term “net neutrality” made headlines. The issue arose from Bell Canada slowing down certain uses of the internet and eventually prompted a CRTC hearing, which resulted in an internet traffic management framework being issued. For the most part, people of all stripes were happy with the rules – which prohibit undue discrimination against certain internet applications – but some gripes remain. For one, Bell’s internet throttling continues even though the company has not proven the need for it. Other abuses, such as Rogers’ failure to comply with disclosure rules, have happened, followed only by a slap on the wrist from the regulator. As the old joke about toothless British police goes, the CRTC is basically yelling “Stop! Or I’ll yell stop again!”

To fix this, the regulator should move from a reactive role – where it only looks at complaints when they are submitted – to a proactive one, where it regularly and randomly monitors ISPs for compliance. Yes, such a move would probably require more staff, but they could be paid for by introducing another measure that the CRTC has been asking the government for: the ability to issue large fines, also known as Administrative Monetary Penalties.

Strong net neutrality would combine with the first two steps above to create a truly level and vibrant playing field on the internet, where services that compete with those offered by telecom companies could flourish and thereby make a whole bunch of other regulations unnecessary.

Right or Left? Calling for more powers, staff and resources for the regulator? Obviously left (but with a right-wing goal in mind).

4. Ditch foreign ownership restrictions on telecom. With telecom being an expensive game to play, it’s inexcusable that Canadian companies – particularly new ones – are denied access to big foreign dollars, which usually carry ownership stakes with them. The problems this has created are well documented; foreign players have stayed away for the most part, making it hard for new local companies to start up and compete, thereby creating a captive market for the likes of Bell, Rogers et al. While there is debate over whether Canada is behind in things like cellphone prices and internet speeds, there certainly is no question that it is behind in liberating its foreign ownership rules.

Successive Liberal and Conservative governments have waffled on the issue because it could potentially get thorny. It would have been easy for opposition parties to raise the spectre of the selling out of national interests and the potential job losses that might incur, despite the fact that the parties themselves might actually secretly support the move. Now, with a majority Conservative government, there are no excuses.

For what an opened up Canada might look like, check out the analysis I wrote a while back. Some of that might be different now because many of the large telecom companies now also own broadcasters, but so what? If we still want to maintain ownership restrictions on broadcasters, it’s not rocket science – anyone who want wanted to buy Bell/CTV, for example, would have to split off and sell CTV. Simple. But, as mentioned above, the real reason to remove the ownership limits isn’t to facilitate the buyouts of big companies but to ease the start-up or survival prospects of new ones.

Right of Left? Since foreign ownership restrictions represent the biggest regulation inhibiting competition in Canada, removing them is most definitely right.

5. Create set-asides in the next spectrum auction. There’s been a lot of bluster from Rogers and the rest about the next upcoming auction of spectrum, which are the airwaves that cellphones need to work. In the last auction, the government reserved 40% of the licenses exclusively for new companies, which of course netted the likes of Wind, Mobilicity, Videotron, etc., in order to spur more wireless competition. (That was, of course, a very interventionist move for a Conservative government.) This time around, the old guard are saying they need more spectrum to roll out 4G services, so there should be no similar set-aside.

To anyone with a brain, those arguments are complete bull. The only reason incumbent companies don’t want set-asides is so they can reach into their deep pockets to buy up all the spectrum and thereby shut out and cripple newer competitors. Think about it: if Wind has to bid against Rogers for spectrum, who’s going to win that auction?

The proof, ultimately, is in the pudding. New carriers are most definitely wringing every bit of usage they can out of the spectrum they got in the last sale. The incumbents? Not so much. If wireless airwaves were tangible objects, they’d be sitting and collecting dust in the closets of Bell, Rogers and Telus.

Removing foreign ownership limits would likely help in this regard. Big, deep-pocketed foreign players could buy the likes of Wind and Mobilicity and then compete in a no-holds-barred auction against the incumbents, but there is no guarantee of such acquisitions happening, and certainly not in time. As such, the pragmatic move is to give the new carriers another chance to build their businesses. Setting the big guys loose on them in the auction will surely kill them.

Right or Left? Providing special benefits to some companies but not others is most definitely left.

6. Refrain from regulating vertical integration. The first three steps above will cement internet-based services as real and legitimate competitors for “bricks-n-mortar” telecom/broadcast companies. The fourth step could make things even more interesting as some of the vertically integrated companies could be broken up. If Comcast wanted to buy Rogers, for example, it would have to sell off its CityTV stations. Either way, all of those steps would enact effective counters to the potential negatives of vertical integration. For more on that, check out a post from a few weeks back.

I’m pretty convinced that vertical integration is an overall bad idea for the companies involved. Nobody has really made it work yet – Time Warner and AOL are perhaps the best example of an integration that did nothing for no one – and it generally takes the company’s eyes off what it does well in the first place. In business, expanding outside of one’s so-called core competency only rarely pays off.

Right or Left? This is an easy right.

7. Start planning shared networks. What?!?! Shared networks? We might as well start waving little red books and saluting statues of Mao, that’s how far left that idea is, right? Well, no. Shared networks, whether they’re wired or wireless, make all kinds of sense, so much so that they transcend ideology. In the U.K., big-time broadband competition has been the norm since regulators firmly suggested years ago that BT spin off its network as a separate company. The result is that tons of ISPs compete on equal terms against each other, providing customers with lots of choice and low prices. Australia and New Zealand liked the results so much, they followed suit – and then took it a step further with each respective government building its own shared network, to be run as separate companies from the incumbent ISPs.

I know, I know, that sounds like a whole lot of leftist government/regulator interference, doesn’t it? But, as I’ve pointed out many times before, Bell and Telus obviously saw the benefits of a shared network when they decided to jointly build their new wireless network. Shareholders loved it because each company saved a ton of cash and both can now compete on the same level as Rogers.

Canada currently ranks near the very bottom of the OECD in terms of fibre broadband (see table 1l here), which means Canadian telecom companies are simply not spending the big bucks and rolling out next-generation networks like their peers in other countries. Unless some of them decide to do otherwise – which is something shareholders really won’t like – Canada is likely to fall further behind. A shared network looks very much like a pragmatic way to keep the country’s infrastructure up to snuff, ensure good competition and keep shareholders from hyperventilating over massive capital expenditures. Everybody wins.

Left or Right? Alas, the desired competition would only happen if all comers had access to the shared networks, which would only happen through government or regulatory action. Still, a shared network is an economically efficient idea. On this one, as the post title says, there’s no right or left, only pragmatism.


Posted by on July 5, 2011 in internet, telecommunications


9 responses to “There’s no left or right in telecom, only pragmatism

  1. russellmcormond

    July 5, 2011 at 10:43 am

    Not surprising, there could be a large debate on which is left and right policy for each of these. The government creating exceptions to property rights to allow wired phone/cable companies to put down cables without having to get permission or make payments to the owners is in my mind a pretty socialist concept. This makes companies like Bell and Rogers creations of the state, and thus discussing their business practices in terms of a “free market” is always a big joke. Bell and Rogers are about as right-wing pro-free market private sector as CUPW.

    A center or center-right government should be trying to minimize the harmful effects of the right-of-way government granted monopoly on the marketplace. In my mind that would tend towards structural separation into the government created (and adequately regulated) monopoly right-of-way connections and the rest of the market that runs over-the-top of that which can more honestly be considered private sector.

    But… that’s not how the socialist CRTC sees things as they claim that mandating open access to the last mile and relevant interconnections is somehow anti-free market. Up is down, left is right, and “We’ve always been at war with Eastasia”.

    As an amusement a little while back I authored “Is there a copy left vs copy right?” when some people who otherwise self-identified with the left were promoting themselves as the “copy right” against the “copy left”.

    It’s all about the framing… Frame the question, and you get to decide where the all too easily manipulated left-and-right ideologues will fall on a given question.

  2. hfiguiere

    July 5, 2011 at 11:23 am

    It is not shared infrastructure that is needed. It is treating the infrastructure as a utility. Like water for example, or electricity.

    When a new subdivision is created in the city, the utilities, water, electricity, are put down at the same time. The pipes, the wires, etc. I believe cities should put down fiber as well. Dark fibers, with possibilities to connect individual pairs to whomever. Then you could get service with whomever and that whomever would pay a fee to the fiber owner (the city) to provide the service to the customer. This would lower the barrier of entry to provide value added service (the ISP / TV / phone / etc) and more universal access to the technology.
    This is equivalent to what happens in Europe where the local loop is unbundled and incumbent monopolies are required to make room for third-parties to provide service on this local loop. That allow to provide much better value.

    Currently the telco/cableco “fight” to get exclusive access to the new development (when there is choice) and lead in the end to no choice whatsoever.

    This is not ideological. This is based on what happens and what we want to achieve: proper competition on service where they can compete and eliminate the dominant position abuse that is being the norm in the industry with Bell, Telus, Videotron, Shaw, Rogers to mention the main one.

    • russellmcormond

      July 5, 2011 at 12:19 pm

      In Ontario it was the Mike Harris Conservative government that split up the energy monopoly into distribution (highly regulated government monopoly) and generation (minimally regulated free market). The problem is recognizing that Bell and Rogers are no more “private sector” than Ontario Hydro was, and to enact the same modernizing policy for communications as we did for energy. Many of the current Harper Government ministers came from the Harris government, so they should remember all the appropriate market-based justifications for this inevitable modernization.

  3. Marc Venot

    July 5, 2011 at 1:14 pm

    Politicians have four main reasons to act:
    – to extract money.
    – to promote culture (aka nationalism).
    – to ensure order.
    – to promote their good.

    It’s difficult for them since with the digital (numeric) evolution the domain is changing quickly and internet by essence blur national borders. We are still in a situation of shortage and inadequacy of the technics (for example IP and its packets) for streaming but that will change and already a way to circumvent that in the francophone world have developed the podcast offer so much more than in the anglophone one.

    In Canada with the last federal election in principle the spectrum became more dichotomic. Let those parties say as clearly as possible what are their option or opinion about this.

  4. Yuv

    July 8, 2011 at 1:53 am

    Mostly good points! I’ve lived in Canada for the past seven years. Prior to this I lived in Europe. Until recently I got worse service at higher price here in Canada than I got in Europe ten years ago! My friends in Paris/France are mostly on ADSL2+. Finally Teksavvy started cable internet here and now I get somewhat decent service (I refuse to use ADSL because the dry-loop-tax makes it uneconomical for me and gives the incumbent telco an undeserved profit stream).

    Ditch the CRTC in its current incumbent-friendly setting and with the outdated foreign-ownership and Canadian content rules.

    Promotion of Canadian content/culture has its budget in the ministry of cultural affair, not in an industry regulator.

    Let the Competition Bureau take over competition regulation with some clear and simple rules to prevent big money from monopolizing spectrum. Make sure new entrants get enough share of the airwaves to enable sound competition, e.g. by preventing any single provider from licensing more than 20% of the airwaves. if they need more, they will buy wholesale from the other license-owners.

    Unbundle the local loop. Transfer ownership of the last copper mile (that has long been paid for) to homeowner and let ISPs compete for their business at the exchange. Stop taxing the dry loop.

    Rather than forbidding UBB and traffic management (which I personally hate. Until recently I had no choice but be subject to such restrictive limitations), let the market decide upon them:
    1. service providers can choose if they want to be a utility/pipe or control the network.
    2. with control comes responsibility: if they implement UBB and/or traffic management, they should be made fully responsible for everything that comes out from their network: viruses, spam, illegal material.
    3. if they decide to be a utility, they can claim not to know what is traveling over the pipe and thus be free of the liability.
    4. impose and monitor (competition bureau) adequate disclosure. ISP should state prominently if their service is controlled or not, so that customers have a simple choice between controlled and uncontrolled.

    Given the performance of the CRTC, I would not want to see more power (i.e. bigger fines) in its hands. The Competition Bureau is better placed for that.

    • Daniel Friesen

      July 11, 2011 at 12:29 am

      Interesting points, however I disagree on implementation of UBB and/or traffic management triggering responsibility for what goes through the network. UBB and traffic management are purely related to the data quantity and class. Neither of which has anything to do with whether something is a virus, spam, or illegal. Large volumes of e-mail don’t necessarily mean someone is sending spam. Bittorrent is NOT illegal, you can get illegal stuff with it just like you can download illegal stuff over HTTP, but there are valid legal things available over p2p as well. Linux disk ISOs, sharing of large datasets, there was one movie that was produced and legally made available through bt iirc, games and video chat use p2p too, etc…
      Making UBB/traffic management require responsibility for the content being transmitted forces the ISP to do something we really don’t want them doing. Deep inspecting every single thing you send spying on you, and killing your internet connection when they think you’re doing something wrong, with no defense when you aren’t. Not to mention it’s as useless as DRM, for the people actually sending out viruses, spam, and doing illegal things, it’s trivial for them to encrypt what they are doing. And how malware creates botnets on innocent people’s computers which are then used to do things like DDoS, send spam, and used as proxies to hide the real source of illegal activities. With that innocent people would start losing their Internet connection because a single computer in their household got a piece of malware on it.

      • Yuv

        July 14, 2011 at 2:50 pm

        We can probably agree on many things: I am a long time contributor to Open Source, I watched Elephant Dreams via bittorrent, I keep a complete Ubuntu archive. And I dislike throttling, as you probably do too.

        No need to argue the legality of large volumes and p2p. Would you make the same argument for a car? And yet a car can be used for illegal purposes, in which case it can be impounded. It’s not the mean, it’s the purpose.

        Assigning responsibility actually protects the “innocent people”: if the source of their computer’s infection is through their ISP, their ISP will be on the hook for all consequential damages.

        In a free market it is OK for a business to ditch a customer, and if the market is really playing, there will be niche competitors specializing in catering profitably to those customers that mainstream businesses can’t handle. Where there is a need there is a market.

        In a world of “controlled” and “uncontrolled” ISPs, the “controlled” ISP is a sort of insurance for the innocent people: they will have a right to expect that everything that comes from their ISP is clean, and if somebody will be punished for an infection of their PC from the net and its consequences it will be their ISP.

        Technically, if I can prove that the “innocent people’s” IP address is the source of my PC’s infection, I can sue them for damages already today; the same way copyright holder can sue them for damages if it can be proven that the illegal distribution of content was coming from their IP address, no matter what technology was used.

        In a controlled environment, they would be still liable for what they put on their PC, but if the infection arrived on their PC from their ISP, it would be their ISP’s liability.

        You are right: UBB and traffic management are related to data quantity and class, and my model of controlled vs. uncontrolled service is an over-simplification.

        In the current context, unfortunately, UBB and traffic management are first related to anti-competitive business practices and their technological relation takes a back seat.

        Bell uses “large volumes” as a negative argument, most recently this week at the CRTC hearings, instead of seeing growing volumes as a business opportunity.

        This is clearly a monopolist stance and should flash the red alert lights of any self-respecting market regulator: produce a lower volumes than what the market needs and maximize profits. In a free market the volume is a function of supply and demand and no market player alone is strong enough to influence volume. Fair competitors like growing volumes because it means that the cake they must (reluctantly) share becomes bigger to the benefit of everybody.

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