Thursday, November 02, 2006


Hey Evans: you talkin' to me?

A challenge! Pistols at dawn. Mark Evans asked what I thought about Videotron CEO Robert Depatie's comments yesterday in respect of a transmission tariff. It has been a while since I got dragged into Net Neutrality, so let's go, Mr. Evans. I'll meet you in the alley...

To start with, I don't believe the press has accurately reported what was said. The Globe and Mail said
Videotron boss Robert Depatie wants the federal government to slap a transmission tariff on providers — like the music and film industry — so they can shoulder part of the burden.
That isn't what he said, according to the speech I received. He didn't ask the feds to step in. The Globe's account would seem to fly in the face of his concurrent press release that called for cable deregulation and his "vibrant plea for free competition." M. Depatie said:
What is missing in this model is a way for the provider of content to share part of the content revenue stream for the use of the network. If the movie studio, say, were to mail a DVD – not a untypical scenario – they would expect to pay postage or courier fees – why should they not expect a transmission tariff.
He also spoke from his past business experience.
Before I worked at Videotron, I was in the food business – we were a 'content producer' in the parlance of today's communications business. To reach our customers, we dealt with a distribution channel, in our case, grocery stores.

To reach our customers we needed to convince our distribution channels to place our product in advantageous positions (end of aisles, eye-to-shoulder height on shelves – too high, or too low and sales suffered), and to help promote our product. We paid for that service. We compensated the distributor for his 'help' in making our product more successful.
Not all producers pay stores for product placement. And I have noticed that my neighbourhood grocery stores and drug stores give preferred placement to their house brands. But I don't see people shouting about food neutrality. There is no 'Save the soft drinks' movement. Although with winter approaching I would like to find Red River cereal more prominently displayed, I shop around until I find it. I'm not calling for a federal inquiry as to why Sugar Zombies are easier to find at every store.

There is limited shelf space next to the cash registers or at the end of each aisle. How do you think the decisions get made as to which products get displayed there?

If we are OK with Sympatico presenting MSN more prominently and Rogers presenting Yahoo because those companies struck appropriate business relationships, what is wrong with a movie distributor doing a deal in order to be able to deliver the goods over a faster pipe to its customers? I don't see him talking about blocking the other movie distributors.

Instead of movies, let's say that your business wants you to work at home. But they are concerned because at 3:30 each day, your neighbour's kid comes home and starts downloading all the TV shows and music his friends were talking about in school. So your connectivity gets spotty. Should you be able to subscribe to 'Bandwidth Plus' - a service that prioritizes your connection so you can keep working and getting paid?

Now, if you can subscribe to that Bandwidth Plus service, is there any reason why your office can't subscribe to that service for all of its telecommuting employees?

What if my internet brokerage wanted to buy the same service for me to make sure that I could trade my telecom stocks the second that I hear about another flip-flop on income trust rules? Shouldn't they be able to offer their best customers a way to make sure our trades get through?

Why is it any different for any other form of content?

We all want broadband providers to increase the size of the pipes coming into our homes. We want them to take on the multi-billion dollar risks associated with making that possible, trying to sort out how to recover the cost.

A business model that seeks to find ways to keep my monthly bill down to a manageable amount is just fine with me.

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if net neutrality means service ++ for people who are willing to pay for it (content providers, customers, etc.) as opposed to degrading the packets of companies that decline to pay a prioritization fee, i'm fine with it. of course, once you open the prioritization floodgates, there's room for abuse. if we're going to go down this path, we should be careful, that's all.
Mark, I'll bite.

1 - The Globe didn't actually say he made those comments in the speech (they expressly refer to an interview they had with him later), and since they were there and neither of us was, dollars to donuts he departed from prepared remarks or made those comments in the interview. But it doesn't matter, I'm just quibbling - that's not the issue.

2 - Ditto for the press release. We're pretty familiar with corporate pleas for special treatment at the same time as they're urging reliance on free market forces, aren't we? They're no more or less opportunistic than anyone else, certainly on that point. So I frankly doubt that a public plea for free competition is inconsistent with a plea for a government-imposed tariff on content providers (btw, how else would Videotron impose such a tariff on content providers if not by Government? - almost all major content providers are outside of Canada). But it doesn't matter, I'm just quibbling - that's not the issue.

3 - You don't see people complaining about food neutrality because (i) they don't care about product placement - it's a comparatively trivial concern; and (ii) the marketplace is competitive - if they don't like it, they can go elsewhere. They have choice. That choice enforces some discipline in the market. Large scale food distribution is not a very competitive market - we are in Canada, after all - but still, given those two issues this simply doesn't register for Canadians. It's not evidence of inconsistent or unprincipled behaviour.

4 - Net neutrality doesn't mean everyone has to be the same. I also don't object to Bell having a different logo than Rogers. I just don't care. Or any of the other infinite trivial differences between them. For example, I don't care that for DSL I need to configure my router with login information, and for cable I don't. Sympatico presenting MSN more prominently and Rogers presenting Yahoo simply doesn't matter to the vast majority of people, if it matters to anyone at all. Personally, I never go to either site, and I never use the bundled email offerings. The fact that it doesn't matter doesn't mean that all differences shouldn't matter - it means that this difference doesn't matter. Logically, there is simply no basis to argue that if customers don't care whether their ISP does a deal with MSN vs. Yahoo, they also shouldn't care whether packets are preferenced. Other considerations are relevant to that issue.

5 - Opponents of net neutrality always use the upside of the issue to advance their argument. So, for example, 'shouldn't one have the right to have faster access if one wants it.' This sounds perfectly reasonable. It's also quite perfectly, at least in my opinion, not the issue. It's like asking whether everyone shouldn't have the right to have a little ice cream now and then. Everyone likes ice cream!

The issue is whether, in a non-competitive market, we can allow private companies to make decisions that can potentially adversely affect the universality of the internet. Advantages to some may well mean disadvantages to others. The question is, in my opinion, will they allocate efficiently?

I personally don't believe there can be any credible basis for arguing that broadband delivery is competitive in Canada, and I doubt, even with wireless on the horizon (given its current owners), there is any plausible argument that there soon will be. As a result, we have no alternatives to turn to if the providers make choices for us with which we disagree. There is no market discipline that will force them to adhere to efficient behaviour. This is why so many are wary of the broadband providers making these choices, in my opinion.

Finally, I don't think there is any dispute that expansion is expensive. The issue is how to grow it efficiently in an inefficient market.

As for risk, I suggest to you that you're overdramatizing the risk to the providers from expansion. One might well argue that if Bell had gotten with the program 10 years ago and built out aggressively, it wouldn't be looking down the barrel of obliteration in local phone markets. Content is moving online. So are the customers. I suggest that Canadian providers are generally taking their time getting there because there is no race - no real competition - to get there. They each know, from abundant recent experience of tacit coop-etition, that they can milk the herd for a while longer and each get to it in time, keeping prices high and relative market share relatively stable.

My $.02.
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