Mark Goldberg


www.mhgoldberg.com





#CTS20

Governments can’t run networks

Governments can’t run networks.

It seems that our collective memories are short.

There was a time that most of the world’s telephone networks were agencies of the government: PTTs – Posts, Telephone and Telegraph departments. Those agencies were real life examples of how effectively – actually, how ineffectively – communications services could be delivered by governments. Indeed, the migration to mobile, with high adoption rates outside of North America, was stimulated in part by citizens revolting against pathetic landline networks that were built and operated by their government-run telcos.

The Digital Economy consultation provided a predictable opportunity for some closet Marxists to put away their anti-corporate protest posters and call for a return to nationalized communications networks. [The submissions can be found here]

The submissions are more subtle – perhaps learning from the recent G20 that the public has trouble sympathizing with black-hoods rampaging through the streets – but the message from these folks is that big businesses are bad; only governments can make the necessary investments to do right.

WRONG!

Government may be have been great at initial investments – the oversized cheques create photo ops that are important for re-election – but one look at our roads and electric grid will hopefully remind you that the public sector does a lousy job at ongoing maintenance, repair, upgrading and continuing capital planning. It is partly because government accounting doesn’t distinguish between capital and operating expense – a buck is a buck – and partly because routine maintenance can be deferred in favour of emergency snow removal or sewer repairs.

And let’s not forget the multi-zillion dollar deficits that aren’t really conducive to massive capital investments in communications infrastructure and operations. All those in favour of tax increases, please board the next flight to Greece.

Anticipating a rush to find counter-examples, let me offer up Sasktel – Canada’s last provincially owned crown communications company. It is, sans doute, a leading performer in the sector. Sasktel offers a quintuple play: landline and wireless voice, internet, TV and premises security. It has always led in fibre optic deployment in its backbone and it offers broadband internet to every home and business in the province.

Which begs the question: why is this an exception? Why has Sasktel been able to succeed where so many others have failed? Academics – can we get some research on this?

That solitary counter-example isn’t sufficient to change the overwhelming pattern of failure of governments to run public works effectively. The power blackout in Toronto last week provides an exhibit of how public works most often just don’t work for the public. 

Those submissions that call for government investment in community networks are asking for our tax dollars to be bet on the spin of a roulette wheel. Those are lousy odds.

9 comments to Governments can’t run networks

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  • Jordan Richardson

    Calls for more government intervention in the telecom sector does not make one a “closet Marxist,” but I suppose I shouldn’t be surprised at your absolutism in terms of politicking. It’s pretty commonplace and it’s rare for you to resist an opportunity to ply your right-wing trade.

    The problem is that you apparently see the other end and conveniently neglect to mention the difficulties there, too. That we’ve left the controls of the telecommunications sector to “big business” is telling and problematic. We’re now faced with oligopoly that you seem obsessed with denying and Canadian consumers are less than thrilled with their “market choices.” The notion that the free market can lead to growth and problem-solving is, too, a relic of the past.

    A hybrid system of accountability and cohesion is necessary. Touting the sort of all-or-nothing approach and condemning those who want a little more government oversight to “Marxism” only shows your absurdity and irrelevance. It’s too bad that you can’t resist a single opportunity to travel that road.

  • C’mon Jordan – how many service providers will it take for you to stop considering the market to be an oligopoly? How many different technologies can serve you and how many different choices do you have for voice, video, internet. Cable, telco, satellite, wireless, independent ISPs, WISPs.

    I am not critiquing government oversight. My blog post dealt with government ownership of networks that various submissions called for.

    I say that the market is working, because the market is working.

  • Anon

    Government ownership makes sense only in the few corner cases where private investment won’t happen, or at least not without massive subsidies. Areas that are extremely isolated and/or have inhabitants unable to afford the services, like first nations communities.

    I agree with Mark that in Canada, we won’t see a government takeover of the telcos and cablecos, because it would be both unpopular and costly. The total market cap for the telcos and cablecos is tens of billions the government doesn’t have. It would also eliminate competition at the network infrastructure level and drive up labour costs (public sector unions!). It is competition at the equipment and infrastructure level that drives the advancement of new services and lowers costs per unit.

  • Jordan Richardson

    Mark, let’s define oligopoly:

    Wikipedia first: “…a market form in which a market or industry is dominated by a small number of sellers.” The Wiki goes on to note the Cournot-Nash model, which essentially suggests that the firms compete on the basis of quantity rather than price. Also, the firms make decisions based on the behaviours of the other firms. The last point, while relevant, isn’t specific to the operations of market oligopoly of course.

    Forbes defines an oligopoly as “a situation in which a particular market is controlled by a small group of firms.”

    InvestorWords says “an oligopoly is a market dominated by a small number of participants who are able to collectively exert control over supply and market prices.”

    I could go on, but I think you get the general idea. With the definition clearly in place, does Canada’s industry meet the requirements? Absolutely. The key principle in defining an oligopoly is not particularly the raw amount of companies or firms in a particular market; the key principle is that the market is “dominated” or “controlled” by a small group of firms. These firms “collectively exert control” over the market.

    In fairness, all industries tend towards oligopoly. It simply makes sense for the power to be in the hands of a few rather than for a pie to be sliced up into several pieces. Companies exist on the understanding that having to split 95% of market share between three is better than having to split less among more. It’s common market sense, Mark, and to suggest anything less is simply inaccurate.

    It should be noted that oligopolies offers pseudo-choices. Think of the Simpsons episode where Homer tours the Duff brewery and finds that various “brands” of Duff are all the same. It is the illusion of variety, offering the soft comfort of diversity by occupying space in the minds of consumers and providing “free choice.”

    Proponents of the status quo, such as yourself, suggest that we have TONS of choices as Canadian telecom consumers. You try to sell the illusion of variety, telling us that there are hundreds of independent providers just waiting to be tried and LOADS of options for us to get services. Yet how many of those providers are conduits for the Big Three? And how many of them offer legitimate market choice? Those are details you never go into and, when pressed on the issue as you have been in the past, you remain curiously absent from the further discussion.

    By sheer definition, Mark, Canada’s sector is an oligopoly.

  • Jordan Richardson

    Just additionally, Anon hits on a very good point but doesn’t take it quite far enough. We already know how the incumbents feel about reaching rural areas with certain services. It isn’t cost-effective for the companies to service, say, some First Nations communities because of their remoteness. Leaving the entire sector up to the glorious “profit motive” doesn’t curb this problem in the least. It, instead, leaves the entire telecommunications service to basic greed masked dotingly as market viability: “if it makes us money, we’ll do it. If we lose money, we won’t.”

  • AB

    I always find it interesting that we expect the telcos to service remote communities, with high speed broadband of all things, however we ignore that many of these environments are not well served by the basics: clean water, sanitation, housing, year round ground transportation links, stable power for heating etc.

    Think back to the clean water issues we have seen on reserves. It’s currently a govt. responsibility…

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