Mark Goldberg


www.mhgoldberg.com





Fox Group Dispatch

The economics of Canadian telecom

Earlier this week, Cartt.ca wrote “All I want for Christmas is a telecommunications price comparison report.” Over the next couple of weeks before the Christmas holidays, we expect to see 3 indicators of communications services pricing: the CRTC’s Telecommunications Monitoring Report, the OECD’s Digital Economy Outlook Data and ISED’s annual international pricing benchmark study.

As such, it is especially timely to see a report released this morning by the School of Public Policy at the University of Calgary, entitled “The Economics of Telecommunications in Canada: a backgrounder.” The report, by authors G. Kent Fellows and Mukesh Khanal, “examines the role of the telecommunications sector in Canada’s economy, including the role of investment in the sector, related labour statistics, how the telecom sector supports the activities of other sectors and the services telecom provides directly to individual households.”

The report sets important context for the pricing studies that will be released over the next two weeks, observing that, while expenditures on telecom services exceeds $50B annually, the underlying value to consumers is significantly higher than that. Further, the telecom sector is among the top 5 sectors for investing in its infrastructure, responsible for 5% of private sector industrial capital expenditures in Canada. 

When it comes to the very things that policy-makers do seem more likely to show interest in, namely the prices, service and value that telecom companies provide to Canadian households, there in fact seems far less cause for concern. Consumers continue to find significant value in the internet and mobile services they are buying and are increasingly choosing higher quality services that involve higher costs and prices.

In summary, the services that the telecom sector provides are not only important for Canadian households, but are also critical for every other Canadian industry. One often overlooked fact is that virtually every other Canadian sector employs a significant value of telecom products as an input, thus making telecom a critical keystone of the Canadian economy.

The service providers are investing in upgrading technologies, delivering faster networks and services, and Canadian consumers are making the choice to buy those higher priced services.

As the report notes, telecommunications services are not only important for Canadian households, but are also critical for every other Canadian industry. “One often overlooked fact is that virtually every other Canadian sector employs a significant value of telecom products as an input, thus making telecom a critical keystone of the Canadian economy.”

Failing consumer interests

The Wire Report says seven consumer groups have now decided not to participate in the CRTC’s Telecom Notice of Consultation 2018-422 “Call for comments – Proceeding to establish a mandatory code for Internet services” [the Internet Code], blaming a lack of time and resources to participate effectively.

Joining the Public Interest Advocacy Centre (PIAC) are:

The actions follow the CRTC rejecting a request by PIAC for an extension to the December 19 deadline for initial comments.

Within a day of the original request for an extension, FRPC was able to pull together a 6-page letter supporting the PIAC application, complete with 22 footnotes. CAC-Manitoba provided a 2-page letter of support. I was unable to find any letters to the CRTC from the other organizations requesting extensions of the deadlines or providing support for the PIAC request.

The groups had time to announce to the media they would not be participating, but many of the groups failed to send a note to the CRTC supporting PIAC’s original request for an extension. In its letter turning down PIAC’s request, the CRTC said “the Commission is not convinced that the current schedule, which allows 40 days before initial submissions are due, does not provide sufficient time for all parties to make their initial comments.” Had these groups actually taken a few minutes to write a letter a support for the PIAC application, indicating their specific resource difficulties, perhaps the Commission might have reached a different conclusion. Interestingly, in the same procedural letter sent to PIAC, the CRTC approved a request for an extension for the Canadian Association of the Deaf, stating CAD “has demonstrated that it requires a party-specific adjustment to the deadlines set out in the Notice”.

Now, I might have argued that the CRTC consultation is premature, given that the Commission has not yet made a determination on its TNC 2017-450, a proceeding that will identify what companies need to register as internet service providers. As such, we don’t yet know if “private Wi-Fi connections, such as those in coffee shops, in airports, on public transportation, and in shopping malls” are considered to be internet service providers. That consultation has been closed for a year without a decision. So, there may be large groups of companies that will need to register with the CRTC as service providers, but these companies have no idea that there is a regulatory code of conduct being developed without their participation.

The Internet Code notice of consultation itself has a description of Internet service that ignores transient connections: “Internet access services can be categorized as either fixed services (Internet services) or mobile wireless data services (mobile wireless services).” Yet consumers often are asked to pay for other internet access services, such as in venues like hotels and airports and convention centres. Shouldn’t users of these relatively high priced services be able to avail themselves of the same consumer protection codes?

The notice of consultation cites the Policy Direction, saying “When the Commission implements non-economic regulatory measures (such as industry codes or participation in the CCTS), the Policy Direction requires the Commission to implement these measures in as symmetrical and competitively neutral a manner as possible.” Data from the Commission for Complaints for Telecom-television Services (CCTS) indicates that a disproportionately large number of complaints are generated by some of the smaller service providers, yet the preliminary view of the Commission is for the Code to apply only to large service providers (Bell; Cogeco; Eastlink; Northwestel; Rogers; SaskTel; Shaw; TELUS; Videotron; and Xplornet).

The CRTC notice created a template for participation, with 19 questions referencing a 17 page “Internet Code Working Document.” There were other options available to these groups. Remember, these organizations typically have applied for cost awards to cover participation in CRTC proceedings. Outside legal counsel, students and consultants could have been engaged to augment groups’ internal resources for preparing filings. I would have liked to see the groups work together (as many have so frequently in the past) to prepare initial submissions to meet the initial December 19 deadline in accordance with the timelines, and provide additional clarifications in the reply due at the end of January.

By ‘boycotting’ the CRTC process, these groups aren’t standing up in the interests of consumers. They failed to make their case for an extension to the CRTC and now, they are failing their constituents.

#CTS19: Registrations are now open

The new registration system is now up and running for The 2019 Canadian Telecom Summit, taking place June 3-5, 2019 in Toronto.

Now in its 18th year, The Canadian Telecom Summit is Canada’s leading ICT event, attracting the most influential people who shape the future direction of communications and information technology in Canada.

For 3 full days, The Canadian Telecom Summit delivers thought-provoking presentations from the thought leaders of the industry. If your interests are in the Telecommunications, IT or Broadcasting sectors, you need to attend The 2019 Canadian Telecom Summit.

The Canadian Telecom Summit is pleased to announce that we have entered into a partnership with Macgregor Communications to program the 2019 and 2020 events. Macgregor Communications produces world class conferences, tradeshows, and digital media. Michael Sone and I will be working closely working with Richard Jirka of Macgregor Communications to produce The 2019 Canadian Telecom Summit.

Early bird rates are now in effect through the end of February. Save more than $200 by reserving your place now. For more information, contact Richard or me.

Join us June 3-5, 2019 for The 2019 Canadian Telecom Summit.

Building bigger bureaucracies?

Last week, the Auditor General of Canada released a report on “Connectivity in Rural and Remote Areas” that concluded, among other things, that the government “did not implement its Connect to Innovate program for broadband improvement in a way that ensured the maximum broadband expansion for the public money spent.”

So I found it interesting that in the same week, we learned the CRTC will be adding 60 people, at an annual cost of $10M, just to manage its new $150M per year broadband fund.

Recall, when the CRTC release its Decision 2018-377: Development of the Commission’s Broadband Fund, the CRTC concluded “The Commission acknowledges that the use of its own expertise, staff, and institutional capability for the implementation and operation of the selection process, as well as the monitoring and enforcement of the conditions of funding, would be efficient, cost-effective, and timely.”

Before reaching its conclusion, the CRTC acknowledged “Many parties… suggested either assigning ISED as the project manager or leveraging ISED’s expertise through collaboration between ISED and the Commission. These parties argued that leveraging the Commission’s and/or ISED’s resources would be efficient, avoid duplication and unnecessary delays, and result in more money being available to fund broadband projects.”

Sixty new people, at a cost of $10M per year, to implement the Broadband Fund. Remember, this is what the CRTC says is the “efficient, cost-effective” approach.

Yet another regulatory cost that ultimately drives higher consumer prices.

Don’t prejudge the solutions

Homes don’t subscribe to fibre. People subscribe to high speed internet, which is sometimes delivered over fibre. It can also be delivered over a host of hybrid technology solutions.

I have made this point before when I wrote:

Most people define problems in terms of solutions. Many people say that they need nails when what they really need is to hold two pieces of wood together. The difference between defining problems in terms of requirements versus preordaining a solution.

This principle came to mind again this morning, when I read about the challenges being faced by Southwest Airlines in delivering reliable on-board WiFi service to its passengers. There are generally two ways to connect an aircraft to the internet (neither involves a 3,000 mile long spool of fibre): from above via satellite; or, from below using air-to-ground (ATG) mobile wireless. Each has its own advantages and disadvantages. Satellite provides coverage over oceans, but has higher latency because of the tens of thousands of miles covered on each leg of the connection. ATG uses towers on the ground and somewhat conventional cellular technology with antennas pointed up, so that a dozen and a half or so towers covers virtually all of the air routes within Canada. But ATG doesn’t work on overseas flights.

Airlines need to make technology choices for each of their aircraft. The on-board equipment requires Transport Canada and FAA approvals with separate certification for every model type of aircraft, and the equipment cost is non-trivial. Most airlines have separate fleets of aircraft for their North American and overseas routes, enabling more flexibility in choosing the best solution, depending on the requirements.

The key: define requirements on terms of what is needed for the particular application, not in terms of comfortable solutions.

I have written before that many people say that they need to buy some nails when they go into a hardware store, but what they really need is to hold two pieces of wood together. There are a lot more possibilities that can be considered when you define the problem in terms of requirements, not solutions.