Mark Goldberg

Cross subsidies in a competitive marketplace

The issue of communications industry cross subsidies has come to the fore with the Government’s introduction of Bill C-10, “An Act to amend the Broadcasting Act and to make consequential amendments to other Acts”, legislation that authorizes Canada’s communications regulator, the CRTC, to impose a wide range of regulations and fees on internet content.

Canada has come a long way from its original approach to internet content, as set out in May 1999. At the time, in “Regulation of the Internet in Canada”, I wrote “The CRTC has become one of the world’s first regulators to clearly enunciate a “hands off” policy toward the Internet – allowing market forces to drive development of content and increase levels of accessibility for users.”

A few years ago, I wrote “Regulating the internet: what happened?”, observing “The past 5 years have seen Canada apply an increasingly heavy regulatory hand. A search for “Regulating internet” on my blog turns up a number of posts expressing concern about government intervention.” Citing an earlier post, I noted: “Will Canadians see greener Internet pastures in the USA?”, observing Orwellian euphemisms of “openness” and “choice” to characterize greater government control. Canada’s current approach to internet regulation contrasts diametrically with our neighbours to the south.”

Much of the focus on Bill C-10 has been on the proposal to impose fees on global internet technology companies in order to contribute to Canadian content development.

In some ways, this is reminiscent of a discussion in “The future of communications cross-subsidies” from 6 years ago. The government has long used the communications sector as an alternate tax and wealth redistribution system, with fees from urban phone subscribers subsidizing rural, business subsidizing residential, broadcasting subsidizing content production. In a monopoly era, there was little harm and great political benefit. Social objectives could be attained without impact on the government budget. Politicians could take credit for achieving goals with others footing the bill. Inflated communications bills could be blamed on the industry.

But with competition, especially internet-based competition, an increasing amount of revenue leaks out of the cross-subsidy system. For a given level of subsidy, an ever increasing percentage of revenues was required for those portions that remained in the system, accentuating the cost advantages for industry participants operating outside of the “system”.

In such circumstances, it seems to me there are two ways to level the playing field: try to capture more players inside the cross-subsidy system; or, move responsibility for funding government objectives to the general tax base. In choosing the former, Bill C-10 continues along the path of increasing regulation of the internet.

The United States has followed a different path. As Canada’s neighbours to the south prepare to transition to a new administration, it is again worth examining what FCC Chair Ajit Pai told The 2017 Canadian Telecom Summit:

In short, America’s approach to broadband policy will be practical, not ideological. We’ll embrace what works, and dispense with what doesn’t. That means removing barriers to innovation and investment, instead of creating new ones. That means taking targeted action to address real problems in the marketplace, instead of imposing broad preemptive regulations. And that means respecting principles of economics, physics and law, and acting with humility as we regulate one of the most dynamic marketplaces history has ever known. This vision will unleash the massive investments that the digital world demands.

Should Canada approach internet regulation with a greater sense of humility?

Do such policies sufficiently consider whether they are imposing or relaxing barriers to innovation and investment?

CTS2020: Closing remarks

The theme of this year’s Canadian Telecom Summit was developed a year ago, long before anyone had heard about a strange new virus. “Transforming our Digital Lives: Managing Disruption in an Intelligent Connected World” turned out to be more appropriate than we ever could have imagined.

The world has transformed, with the virus induced lockdowns serving as a catalyst for everyone to try to maintain a semblance of normality through digital connectivity. And of course, that meant that we also had to transform the conference into a digital online format, leveraging the intelligence of our connected world.

As the first virtual Canadian Telecom Summit wraps up, let me share a few initial reflections.

Each year since his appointment as Minister of Innovation, Science and Industry, the Honourable Navdeep Bains has delivered an address to the Canadian Telecom Summit. This year’s address can be viewed in the embedded video.

It is always a challenge for conference organizers to confirm the participation of so many leading industry stakeholders. In some ways, the virtual format may have made it a little easier, enabling digital participation for many of the speakers over the three day event. Over the past three days, speakers and delegates participated from around the world, joining the conference from their homes and offices using their broadband connections.

As a telecommunications event taking place in the year of the COVID-19 pandemic, it was somewhat appropriate for The Canadian Telecom Summit to use the same technology upon which so many of us have relied to stay in touch with family, friends, schools and workplaces for the past 8 months. Still, I’m looking forward to the return to face-to-face meetings, with the frank, off-the-record discussions and unscheduled meetings over coffee or cocktails.

Looking at the participants at this year’s event, no one has a better understanding of the importance of universal connectivity; no group of people have done more, invested more, worked harder to introduce solutions to make telecommunications accessible to as many Canadians as possible.

Years before anyone thought kids might be learning from home, Canada’s communications sector developed programs to get connected computers into the homes of low income families with school-aged children. And as the pandemic was declared earlier this year, the industry took action on its own.

In his address to The 2020 Canadian Telecom Summit, CRTC Chair Ian Scott said, “No one asked you to do so. Government certainly didn’t tell you to do so. You did so with the knowledge that what you were doing was the right thing to do.”

He listed some of the actions of the industry participants:

  • You kept retail locations open for appointment-only visits for customers who needed in-person support.
  • You put a halt to service suspensions and disconnections for customers who paid late or who weren’t able to pay their bills at all.
  • You worked with customers to make payment arrangements that made sense for them.
  • You waived fees for data overages or removed data caps, and removed late-payment penalties.
  • You offered free channel previews and waived fees for educational content that was normally subscription based.
  • You donated devices and service plans to schools, students from low-income families, hospital workers and patients, and at-risk populations such as women in shelters.
  • Broadcasters created new content for distribution and gave away free airtime to local businesses that were struggling to survive.

“Those actions speak loud at a time when our digital lives have been transformed. Canadians depend on the services you provide to manage their way through this great disruption and to stay connected with their friends and families, their co-workers and their civic institutions.”

In his remarks, Minister Bains referred to these industry actions as well. He closed his address saying, “I want to close by saying that these have not been easy times, but they have shown just what Canadians and our industries are made of. At no time have I been more proud of being the Minister of Industry. Thank you for your partnership.”

Fitting words to close this year’s event.

A question of public importance

How do you get to argue a case at Canada’s Supreme Court? First, one must seek ‘leave to appeal’, permission to argue the case itself, by demonstrating that the case involves a ‘question of public importance’ to be settled by the Court.

If leave is granted, then the case itself gets to be heard.

Last Thursday, in separate filings by Bell and a nationwide consortium of Canada’s major cable companies, the Supreme Court received applications for leave to appeal the CRTC’s August 2019 Decision on Final rates for aggregated wholesale high-speed access services.

The Decision was appealed using all three channels legislatively set out in the Telecom Act: to Cabinet, to the Commission, and to the Court.

Cabinet issued its determination on the appeal in a highly nuanced Order in Council, stating “Canada’s future depends on connectivity”. While Cabinet did not explicitly refer the matter back to the CRTC, the Order clearly sent a signal that “the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high-quality networks… Incentives for ongoing investment, particularly to foster enhanced connectivity for those who are unserved or underserved, are a critical objective of the overall policies governing telecommunications, including these wholesale rates. Given that the CRTC is already reviewing its decision, it is unnecessary to refer the decision back to the CRTC for reconsideration at this time.”

The CRTC has not yet issued a determination on the review of its own decision.

In September, the Federal Court of Appeal dismissed the judicial appeal, which is giving rise to the proposed appeal to the Supreme Court. The judicial appeal route can only examine questions of law or jurisdiction. In this instance, much hinges on whether the CRTC’s ruling conformed with the government’s 2006 Policy Direction.

The Policy Direction requires “the Commission, when relying on regulation, should … specify the telecommunications policy objective that is advanced by those measures and demonstrate their compliance with this Order.”

The Federal Court of Appeal agreed that the CRTC has a “statutory reasons requirement”, an obligation to include sufficient detail in its decisions to enable a reader, and a reviewing court, … to fairly understand the reasoning of the Commission”.

Beyond the rates themselves, a key element of the applications seeking leave to appeal is the question of transparency. “How must administrative tribunals satisfy their duties of transparency and accountability in considering and implementing legally binding legislative and executive policy directives… and how should a reviewing court scrutinize decisions of tribunals that do not satisfy their mandatory duty to consider and implement legally binding legislative and executive policy directives, and explain the manner in which they have done so?”

A year ago, the Supreme Court released decisions on a number of matters related to judicial reviews of administrative tribunals, in what McCarthy’s called a “Super Bowl trilogy.” Those cases clarified a number of matters including a requirement for the decisions of administrative tribunals to be held to a standard of correctness, not simply reasonableness.

A heading in one of the applications describes the current appeal, seeking a standard of transparency, as completing the work of the Court in those 2019 cases.

In my opening remarks at The 2018 Canadian Telecom Summit, I said “In my view, Canadian consumers would be better off if the Policy Direction is a guiding principle in decision making, not just a boilerplate afterthought in decision writing.”

As one of the sets of leave documents states “The unorthodox approach taken by the Federal Court of Appeal in its judgment upholding the Decision gives rise to pressing issues of national and public importance that go to the very heart of the modern Canadian administrative state.”

The issues raised by the proposed appeal are profoundly important. They must not be left unanswered. The stakes are too high, both for the future of the modern administrative state, and for the future of the internet in Canada.

There is no specific timetable for the Supreme Court to Act. It is quite possible, indeed quite likely, the CRTC will issue the decision on its own review prior to the Court even making a determination on whether this case raises “questions of public importance.”

In any case, it seems certain we will see less of a boilerplate affirmation of Policy Direction compliance appended to the end of CRTC Decisions.

Broadband: how fast is fast enough?

How fast is fast enough for broadband?

While there is no question that, all else being equal, faster is better, a new report from ITIF – The Information Technology and Innovation Foundation – challenges the myth that universal fibre should be on the national agenda.

All else being equal, more bandwidth is better than less, and investment that drives fiber deeper into access networks is welcome. But there is no need to radically change the competitive system that continues to expand network capacity.

The problem is that all is isn’t equal. Most people living in large and medium sized urban markets in Canada have access to (and are subscribing to) broadband services with speeds that are already far in excess of Canada’s objective of 50 Mbps down and 10 Mbps up. In fact, Ookla is showing Canada’s national average speed in September, 2020 was 145 Mbps down and 60 Mbps up. Unfortunately, CRTC figures show that 1 in 5 rural households couldn’t even access a 10 Mbps service.

Just last week, Barb Carra, CEO of Alberta’s digital technology agency Cybera told, “A goal of 50 Mbps upload/10 Mbps download is too low. You can barely run a video meeting on a 50 Mbps connection.” In fact, 50 Mbps is about 25 times the requirements for Zoom and Skype. It is double the requirements for Netflix 4K or YouTube 4K.

It is great to aspire to have universal access to even faster internet speeds. Unfortunately, universal broadband is not commercially viable without government financial support. Those government programs have budgetary limits. CRTC Chair Ian Scott recently told the ISP Summit that its latest call for funding proposals attracted “600 applications with a combined ask of more than $1.5 billion”, far outstripping the available funding.

We should be focusing efforts – and finite levels of public funding – on raising the quality of connections for those who are the most behind. A couple years ago, I wrote in “Isn’t some broadband better than nothing?”, “When some Canadians are wanting for any kind of affordable broadband, it takes a certain kind of arrogance to proclaim that 25Mbps just isn’t good enough.” It is premature to be calling for an even more aggressive target, especially since we are just beginning to allocate funds to meet the 50/10 objective.

The ITIF report shows that the vast majority of consumers in countries that have near universal access to gigabit speeds, like Singapore and South Korea, don’t subscribe to faster speeds because lower speeds are sufficient.

ITIF observes that the question of broadband speed requirements to yield societal economic benefits has been studied for years.

Research consistently shows that, as one might expect, broadband does have a positive impact on productivity and economic growth. However, the important factor needed to achieve economic growth from broadband is in reaching a critical threshold of penetration of basic broadband that’s able to perform common functions. Regression analysis of U.S. broadband data indicates that “compared to normal-speed broadband, faster broadband did not generate greater positive effects on employment.”

ITIF warns us to be wary of broadband advocates calling for universal access to fibre. “Their goal is not gigabit networks; their goal is municipally government-owned networks. They oppose corporate broadband providers on an ideological basis.”

In the wake of last week’s announcement of Canada’s Universal Broadband Fund, ITIF’s conclusion is especially applicable to Canadian policy makers and the administrators of rural subsidy programs:

We do not need to shift to government-owned infrastructure across the country to ensure broadband continues to advance and exceed current and upcoming needs. Nor should rural subsidies stipulate fiber as a necessity. Fiber can be the most cost-effective way to build a new network, but considering the great diversity of challenges facing rural connectivity, all different access technologies—fiber, fixed-wireless, upgrading copper, and satellite—should be on the table.

Fibre is a great technology, but it is not as cost effective as other technologies in certain applications. Canada’s low population densities and challenging climate and topography should lead us to consider all of the technologies available to deliver fast broadband.

5G spectrum policy drives economic growth

A new study [pdf] from the GSMA looks at the expected economic benefit to Canada to be derived from the transition to fifth generation mobile technologies. The study sets out to “evaluate Canada’s readiness for 5G, assess the expected macroeconomic impacts from the introduction of the technology, and identify key barriers for the rollout of 5G in Canada to reach its full potential and drive future economic growth.”

“5G and economic growth: An assessment of GDP impacts in Canada” says that 5G will contribute US$150 billion in additional value add to the Canadian economy over the next 20 years.

To put the number in perspective, GSMA says “the additional yearly economic activity generated by 5G in Canada will be similar in size to the value add generated by the aerospace industry every year, and will be significantly larger than the GDP contribution of many other sectors in the country.”

However, GSMA warns that policymakers and the industry need to address a number of barriers in order to obtain the full macroeconomic dividends that can be brought by 5G, including a policy environment that includes the appropriate incentives to support the level of capital investment needed for these next-generation networks.

The report highlights the new spectrum, across all bands, required by 5G operators to provide widespread coverage, and to support all potential 5G use cases. GSMA observes that by the time Canada conducts its 3.5 GHz spectrum auction, 37 other countries will have already assigned that band. Further, the International Telecommunications Union (ITU) has recommended at least 100 MHz per operator; Canada has designated just 200 MHz in total with 50 MHz set aside for ‘new’ operators.

For more than a decade, Canada’s spectrum policy has focused on set asides to promote the growth of regional mobile operators; GSMA observes “there are clear trade-offs that the government needs to recognise when formulating spectrum policy – in particular, the likely impact this could have on network operators’ ability to invest and on the consumer experience and the economy more broadly.”

GSMA contrasts Canada’s limited spectrum release with the spectrum plans by the US (360 MHz), Japan (500 MHz) and most European markets (300–400 MHz). According to GSMA, “We estimate that bringing 5G spectrum policies in Canada in line with international best practice would deliver well in excess of a total of $30 billion in additional GDP growth for the entire period 2020–2040.”

Compared to 4G networks, 5G networks will deliver 10 to 100 times faster data rates, at signal response times up to 10 smaller. These next generation networks are also required to accommodate addressing and connectivity for the massively higher density of connected devices expected in the near future.

The complete report examines the projected benefits brought by 5G to a number of key economic sectors in Canada, including agriculture, and oil & gas. It is perhaps notable that TELUS announced the launch of TELUS Agriculture, seeking to optimize food production and contribute to a better yield of food supply. A report [pdf] conducted by Accenture for CWTA also cited agriculture as a key 5G use case.

The GDP impact projected by the Accenture report [$40B by 2026] appears to be in line with the $150B figure over 20 years in the GSMA study.

The report concludes with an emphasis on the importance of getting spectrum policy right: “Countries that make sufficient spectrum available in a timely fashion will facilitate the investments needed and deliver greater benefits to consumers, businesses and the overall economy sooner.”