Mark Goldberg

Canadian communications conjury

In anticipation of the release of another piece of the CRTC’s Let’s Talk TV proceeding, an article in the Toronto Star this weekend looked “Behind the scenes of Ontario’s campaign for a Netflix tax“. This week, the CRTC plans to release “The way forward – Creating compelling and diverse Canadian programming.”

The Star article predicts that “the CRTC is likely to side with consumers, effectively rejecting what had been an expensive Ontario government campaign to convince the regulator to establish a Netflix tax.”

Unfortunately, the Star didn’t share an alternative. While it is easy to ridicule a “Netflix tax”, serious thought needs to be applied to resolve the funding challenge.

The achievement of a number of social objectives in Canada is funded through surcharges on communications services, rather than through the general revenues of the government.

For example, there is a general tax on telecommunications services providers (TSPs) that is used to subsidize phone service in high cost serving areas. Broadcast distributors contribute to funds that support the development of Canadian programming.

In a monopoly era, it didn’t matter too much that these social benefits were funded by cable companies and phone companies rather than the government. There seemed to be an appropriateness to having people who can afford phone service in low cost areas pay a little bit more to help cover the cost of service in high cost areas. Nearly everyone had a phone, so the tax was pretty much universal.

Similarly, when nearly every Canadian household with a TV was paying for cable or satellite service, why wouldn’t those be the people who pay into a fund to finance Canadian production?

The problem is that now we have competitors providing these services, not all of which are captured by the subsidy system. For example, for administrative reasons, there is a minimum revenue threshold in order not to burden small companies with the extra financial reporting. Further, there are non-traditional substitutes for the traditional services, leading to fewer contributors as people “cut the cord.” Indeed, even the chair of the CRTC seemed to be encouraging people to exit the subsidy payment system with his pitch for digital tv antennas in late January:

I have with me today some special items. You could call them magic items. After all, they can make television service bills disappear into thin air.

What’s more, when you install them in your home or on your roof here in downtown London, they can give you access to eight Canadian television signals with a picture quality superior to anything delivered by a satellite or cable provider. Channels that show all the best local and national information, American entertainment and educational programming – for the low monthly rate of zero dollars.

It is basic mathematics that tells us that if there are fewer people paying a given amount, the total being collected will be smaller. Or if the total amount being collected is held constant, with fewer people from whom to collect, each one remaining will have to pay more. That increases the price of legacy services, further increasing the number of people who leave the system, which increases the price, and the vicious cycle continues.

We have these basic social objectives: support development of Canadian media production and support affordable access to communications services in higher cost serving areas. We have a transition in the market that sees fewer people buying the traditional services that currently fund these social programs.

In an era of tight government spending, we shouldn’t expect the government to pick up the funding obligations.

Last week’s Northwestel decision shows what can happen when there is failure to examine the obligations and the funding holistically. The CRTC ordered price reductions in internet services – services that were already being provided below cost – with no source of the funding. If the CRTC chair thought we should refer to digital antennas as “magic items”, then northern internet services must be thaumaturgic.

With the precedent of the US FCC declaration of internet service as a basic utility, it may be more palatable for the CRTC to explore treating all communications access services the same. Technology enables a variety of services to be delivered over an increasingly wide array of accesses.

Perhaps such matters will come up in the CRTC’s review of basic services, as was suggested in the Northwestel decision. I doubt it will go far enough. There is a tendancy for the CRTC to separate broadcasting and telecom issues, making it unlikely that funding of media production would be seen to intersect with telecommunications services. Still, if internet access is being considered to be part of the basic service obligation, is there a reason why it wouldn’t be considered for contributing to the various social obligations of other basic services?

The funding of social objectives is a broad area – perhaps yet another one of those matters that should be part of the long overdue comprehensive communication policy review.

Heading into a federal election later this year, the government could create precisely such an expert panel in advance of the formal campaigning. It would allow the government to deflect criticism of its skeletal Digital Canada 150 policy and demonstrate that it is seriously concerned with the digital economy. At this point, a Communications Policy Review panel could deliver a report no sooner than 2016 – fully 10 years after the report of the Telecommunications Policy Review panel.

Canadians deserve a comprehensive communications policy review, crafted with the depth and gravitas of the 2006 Telecom Policy Review panel. That’s nothing magical.

Canadian communications is all we talk about at The 2015 Canadian Telecom Summit, June 1-3, in Toronto. It is where leaders gather to talk about all aspects of the industry, policy and technology, improving service delivery and exploring the challenges and opportunities arising from new innovations. Have you registered yet?

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