Mark Goldberg


www.mhgoldberg.com





#CTS20

Tax it, regulate it, subsidize it

In his remarks to the National White House Conference on Small Business in 1986, Ronald Reagan said “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

“Tax it, regulate it, subsidize it” comes to mind when I look at how we seem to be approaching too many elements of Canada’s digital economy.

Last Friday, I read an opinion piece in the Wall Street Journal written by former FCC Chief Economist (and current professor of Economics at Clemson) Thomas Hazlett, “A Lesson for Today’s Tech Trustbusters”. In it, he writes of the angst caused by the $183B acquisition of Time Warner by AOL in 2000.

Regulators feared AOL’s acquisition of Time Warner would stifle innovation. University of Michigan economist Jeffrey MacKie-Mason, who wrote the Federal Trade Commission’s report, said that the combination “will horizontally and vertically increase AOL’s power in the market for internet online services,” which would have anticompetitive effects and harm consumers.

As Hazlett notes, executive mismanagement and clashing corporate cultures are generally cited as reasons for the failure of the merged companies, “But the episode holds lessons for politicians and antitrust regulators, who too often view market rivalry too narrowly.” His article describes the regulatory measures to force AOL to open up its instant messaging platform and how it was quickly superseded by technology. “Texting, Skype, FaceTime, WhatsApp, Facebook Messenger, Twitter and Instagram displaced AOL’s chatting program. None of these new entrants connected with Instant Messenger, or one another, and it didn’t seem to matter.”

Hazlett also notes that this example was hardly isolated. “In 2005 the Bush administration prevented Blockbuster from acquiring Hollywood Video on antitrust grounds: The merger would threaten to monopolize video rentals.”

Consider what is happening in Canada. Recall the CRTC’s interventions into how streaming services Crave TV and Shomi should be offered to consumers? Was regulatory action required or couldn’t the marketplace figure it out?

Why is the CRTC continuing to interfere with service providers seeking to lower monthly device payments for consumers? As I have written before, some aspects of the Wireless Code raised the monthly cost of mobile and removed an important choice from consumers.

What purpose is actually served by limiting device amortization to 2 years?

Customers can still switch at will anytime during the contract period. They just have to pay off the balance owing. With higher device costs, people have hefty balances owing anyway, whether it is a two or three year contract.

Eliminating the regulatory restriction on longer contracts could lead to carriers offering direct consumer incentives to switch: “Come to us and we will pay up to $600 of your remaining balance.”

Once the Commission allowed consumers the right to leave a carrier by simply paying off the remaining balance, what purpose is served by the further regulation of how long the amortization period could be?

If the CRTC gets out of the way, surely the marketplace can solve the challenge of consumers wanting to switch service providers before their payments are complete. If new entrants find it tough to lure customers away, they can always pay off the device balance for the new customer and take over the loan. Was there sufficient evidence of a failure in the marketplace to develop a solution before the CRTC intervened so dramatically to remove the choice of a longer amortization period?

Last week, I wrote “Hindsight may be 20/20, but as so many investment prospectuses warn, past performance is no guarantee of future results.”

When we develop policies, we need to resist politically expedient routes and think 3 moves ahead, playing the game more like a chess master than a novice. Communications policy issues are complex and often benefit from looking at secondary and tertiary impacts, trying to contemplate unintended consequences.

As Hazlett has written, there are lessons to be learned from looking at market rivalry or defining the market too narrowly.

“Tax it, regulate it, subsidize it.”

You don’t need to look very hard to see how so many elements of Canada’s digital economy strategy fall into one or more of these categories.

Can we consider a better approach?

Twice before, I have written posts entitled “Getting out of the way” [July 9, 2012 | April 6, 2016]. I wrote another entitled “Keeping out of the way”.

I continue to think “the future will be brighter for Canadian innovation if the government would try harder to get out of the way.”

Free from online discrimination

What does it mean for Canadians to have the ability to be free from online discrimination including bias and harassment?

In the mandate letter for Minister of Innovation, Science and Industry Navdeep Bains, he is told to “Work with the Minister of Justice and Attorney General of Canada and the Minister of Canadian Heritage” to deliver that as part of advancing Canada’s Digital Charter. There is a similar section in the mandate letters for the Minister of Justice and Attorney General of Canada, and for the Minister of Canadian Heritage.

Work with the Minister of Justice and Attorney General of Canada and the Minister of Canadian Heritage to advance Canada’s Digital Charter and enhanced powers for the Privacy Commissioner, in order to establish a new set of online rights, including: data portability; the ability to withdraw, remove and erase basic personal data from a platform; the knowledge of how personal data is being used, including with a national advertising registry and the ability to withdraw consent for the sharing or sale of data; the ability to review and challenge the amount of personal data that a company or government has collected; proactive data security requirements; the ability to be informed when personal data is breached with appropriate compensation; and the ability to be free from online discrimination including bias and harassment.

There is a lot packed into that paragraph. For now, let’s look at just the last clause: “the ability to be free from online discrimination including bias and harassment.”

The Criminal Code has a section that deals with Criminal Harassment. Is that what is being considered here? Is it the removal of content subsequent to a judicial finding of harassment? If so, then it is understandable that Canadians should have an ability to be free from online criminal harassment.

The idea of an ability to be free from online bias is more troubling.

What does it mean “to be free from online discrimination including bias”? Simply having a bias isn’t illegal and it should not be. We all have certain biases, frequently expressed through the newspapers we read or the political parties we favour. Commission of a criminal offence motivated by bias is a consideration for sentencing, but do we (or should we) have an “ability to be free from online … bias”?

If the mandate letters’ intent is to protect people from being defamed online, there is already a body of law that affords protections. A defamatory publication remains defamatory whether it is published in print, broadcast, or online. Republishing a defamatory statement, even online republishing, is in essence a new publication, and in most cases, the republisher becomes liable.

Will someone’s right to be free of online bias interfere with my right to express my thoughts, my beliefs, my opinions, despite my accumulated biases? As the Supreme Court of Canada found in 2008 in WIC Radio v Simpson,

“Chilling” false and defamatory speech is not a bad thing in itself, but chilling debate on matters of legitimate public interest raises issues of inappropriate censorship and self‑censorship. Public controversy can be a rough trade, and the law needs to accommodate its requirements.

A society that seeks to promote healthy debate should require evidence of a malicious motive before restricting the expression of opinions based on true facts that concern matters of public interest. It would protect spirited — but not mean-spirited — speech.

About a year ago, there was an article that called for the creation of a “Moderation Standards Council” to address how social media platforms deal with and moderate what is termed as “harmful content.” At the time, I expressed concerned about the proposal for such a body:

we need to take a look at whether a democratic country like Canada should be or even could be involved in creating a legislative framework to assert such authority over what might be termed ‘merely’ harmful content, as distinguished from illegal content. Canada’s Charter of Rights and Freedoms “guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.”

2. Everyone has the following fundamental freedoms: …

    1. freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication;

I noticed that the mandate letters are silent on the issue of “hate”. The Criminal Code has defined Hate Propaganda. Is there a reason that “bias” is explicitly included as an example of discrimination while “hate” is left out? It might have been easier to understand this part of the Ministers’ shared mandate had the examples been online speech that can be adjudicated by the Courts.

Aaron Sorkin wrote a line in An American President that I have quoted a number of times on Twitter and on these pages:

You want free speech? Let’s see you acknowledge a man whose words make your blood boil, who’s standing center stage and advocating at the top of his lungs that which you would spend a lifetime opposing at the top of yours.

As I wrote last year, we need to set a very high bar in defining what forms of speech are illegal, as contrasted with speech that someone merely feels is biased.

We need to protect spirited — but not mean-spirited — speech as we continue to promote healthy debate on issues.

20/20 vision

We have been told “hindsight is 20/20.” As a graying consultant, I like to think is helpful to have not just a rich knowledge of the past, but also a deeper understanding of that which has happened, to guide better decisions, like periodically glancing in the rear-view mirror as you drive forward.

Over the holidays, my friend Timo referred me to an interesting piece in the Financial Times, “Why the global telecoms dream turned sour”. There were a few parts of the article that resonated with me, including:

  • The discussion of the devastating impact of European 3G spectrum auctions reminded me of a piece I wrote 11 years ago (“Telecom investment in 2009”), saying “We need to consider the extent that capital investment in spectrum auctions impacts the ability of operators to build out their networks.” Also, recall what I wrote this past September (“The cost of spectrum policy”)”: “As Canada moves forward with development of auction policy for the next wave of spectrum, it is critical to consider the potential for unintended consequences to have significant impact on consumers.”
  • The article observes “Telecoms has been one of the worst performing sectors for investors over the past five years as global bets have failed to pay off. That has left companies with huge debts even as they are under intense pressure to invest in new 5G and full-fibre networks both in their home markets and across their still-sprawling networks.”

There are some pundits who have questioned the strategies of Canadian carriers to concentrate on domestic markets rather than globally. The FT article demonstrates that the seduction of global markets hasn’t produced the returns that many carriers sought. The article also recognizes the capital intensive nature of the business, historically and moving forward.

As an aside, I often find that many people look at carrier EBITDA margins and forget the need for that metric to service the “I” (interest) and “DA” (depreciation and amortization) portions of the financial statements.

There are also some industry commentators who don’t appear to understand that foreign investment restrictions have largely been removed, permitting foreign-owned companies the opportunity to purchase spectrum and build a competitive network in Canada. The only restriction that remains is one that prevents a foreign company from buying one of the existing major carriers (as defined in the Telecom Act §16(2) as a carrier with more than 10% of the annual Canadian telecommunications services revenues). One would think that if Canadian telecom profits were supra normal, there would be a better business case for market entry. But I digress.

We need to understand the extent to which Canada’s regulatory and policy framework contributes to the state of our current telecommunications marketplace. Is there a way to mitigate unintended consequences that have arisen from well-meaning regulatory and policy decisions of the past? How can Canada move forward to encourage investment in high quality networks, with a wide range of affordable service options? How do we expand our understanding of those factors that inhibit a more universal adoption of information and communications technologies and services?

Which policies and regulations are actually raising prices paid by consumers? Will the CRTC begin to treat consumers as adults, able to choose for themselves between longer or shorter amortization periods to pay for ever increasing device costs, as I have written numerous times before? How will the government make more spectrum available for mobile network expansion, (both capacity and reach)?

How broadly will the Minister interpret his mandate?

These are just some of the issues I look forward to following in the coming year. Hindsight may be 20/20, but as so many investment prospectuses warn, past performance is no guarantee of future results.

Looking in the rear view mirror, the path may appear to be clear, but it doesn’t provide enough information to enable the drive forward, starting with the vision for where we want to go.

What should be the vision for Canadian telecommunications policy for the year 2020?

Spectrum policy in the race for 5G

Canadian spectrum policy will be taking a high profile this year as the government and industry prepare for the increased bandwidth requirements for 5G deployments.

In December, I wrote “Spectrum policy and auctions”, providing links to the videos and presentations from November’s Spectrum Policy workshop held in Ottawa by the International Telecommunications Society.

This past Thursday, Telecom Review magazine released a special report “Spectrum and regulatory policy in the Race for 5G”, examining what various countries around the world are doing to deliver 5G services. The report concludes with “an urgent plea to the politicians and regulators, if you do not allocate sufficient spectrum to the various operators, then you have delivered 4G and underserved your nation in this global 5G race.”

In the article, Italy is identified as an example of what not to do in releasing 5G spectrum:

Italy in our opinion offers a perfect example of what a regulator ought not to do. Italy’s communication regulator, AGCOM, has set its near-term 5G future up for failure in two ways. First, by offering incumbent fixed licensees a six-year extension of their 200 MHz licenses (in the 3400-3600 MHz band) originally set to expire in 2023, Italy limited itself to only being able to auction 200 MHz of spectrum in its 2018 auction, split among four players. Compounding this shortage was a globally recognized poor auction design which split the 200 MHz into two blocks of 80 MHz and two blocks of 20 MHz (with a 100 MHz cap). In doing so, Italy forced its bidders to fight desperately for an 80 MHz block, leading to exorbitant auction prices and a distribution of spectrum that only supports true 5G deployment on two networks.

Unfortunately, the article continues, saying “In North America, Canada appears set to follow Italy’s example”.

By way of contrast, the article highlights the way some regulators are moving away from auctions, favouring a direct assignment of spectrum.

In April 2019 Japan assigned 100 MHz each to four operators (including a new entrant) based on coverage and investment commitments. Similarly, in the UAE two operators were allocated 200 MHz each with potential plans of making an additional 100MHz available.

ARCEP, the French regulator, has proposed to allocate up to four 50 MHz blocks in exchange for a series of “optional commitments”, and the remainder of the 310 MHz band would be allocated in a traditional auction.

If a hybrid approach like France was tried here, what kinds of potential commitments might be sought by the government in exchange for spectrum?

In September, I wrote “The cost of spectrum policy” and I warned “There is a cost associated with spectrum policy, not all of which is financial. As Canada moves forward with development of auction policy for the next wave of spectrum, it is critical to consider the potential for unintended consequences to have significant impact on consumers.”

The mandate letter for Minister Bains already contains a clause on spectrum set-asides that appears to pre-determine a portion of what normally follows a public consultation: “Award spectrum access based on commitments towards consumer choice, affordability and broad access. You will also reserve space for new entrants.”

If Italy offers a perfect example of what a regulator ought not to do, then Canada should be concerned when an international report warns that “Canada appears set to follow Italy’s example.”

It bears repeating: There is a cost associated with spectrum policy, not all of which is financial.

Top 5 from 2019

Which of my blog posts attracted the most attention in 2019?

Looking at the analytics, these 5 articles had the most individual page views:

  1. Retooling Rewheel’s reports” [July 15th, 2019]
  2. A cautionary tale of political interference” [October 7, 2019]
  3. Where do you think the money comes from?” [August 22nd, 2019]
  4. The economics of Canadian telecom” [December 11th, 2018]
  5. Supporting junk science” [March 11th, 2019]

In fact, “Retooling Rewheel’s reports,” the post about the NERA Economic Consulting’s report saying policy makers and regulators should ignore the ‘fatally flawed’ Digital Fuel Monitor (by Finland’s Rewheel Research), was one of my most viewed pieces of all time.

I should give an honourable mention to “Maintaining incentives to invest” [March 4th, 2019] and “Better data leads to better policy making” [January 28th, 2019].

Some of my posts from the past were apparently being used as reference materials, such as “The Inside Wire: CRTC rules on telecom carrier access to buildings” [July 1, 2003] and “Unplug the digital classroom” [October 7, 2012]. I am happy to see that my archives are providing some value, in some cases more than 15 years later. Take some time to poke around through the archives found in “My back pages”.

Thank you for following me here on this blog (and on Twitter) and engaging over the past year.

Let me extend to you the very best wishes for health, happiness and peace over the holidays and in the year ahead.