Mark Goldberg


www.mhgoldberg.com





Keeping out of the way

“The past was never as good as some people would have you believe. And the present is never as bad.”

That quote was in an article I read this week by Roy Peter Clark about US politics. But the quote jumped into my mind as I read an opinion piece in yesterday’s Globe and Mail that mistakenly claims “Canada is reverting to its pre-1992 telecom conditions“. The piece was co-authored by telecom entrepreneur Michael Kedar and Stéphane Gagnon, a professor of business technology management at the University of Quebec in Outaouais.

The article claims that “The evolution from 100-per-cent monopoly to today’s regime benefited Canadians tremendously. It brought the cost of that $1 call to a few pennies, owing to the entry of competitive companies such as CallNet, Unitel, Clearnet, Microcell and others. Most of those competitors are long gone, though, purchased by the dominant players. And the benefits of equal-access competition, introduced in 1992, have been eroded to the point where they are nearly gone, too.”

I remember the days before the CRTC’s landmark decision in 1992 very well. I was part of the lead off panel that testified in the oral hearing in that proceeding. Many people don’t realize that we had to prove the case for competition to the CRTC. In fact, I still have my briefing book on the shelves in my office – one of the tabs in that binder highlights why we used the term “equal ease of access”, not “equal access”. The CRTC used our terminology in their decision.

The benefits of equal ease of access have eroded mainly because the marginal price of a minute of long distance voice communications has fallen so precipitously close to zero. I speak to my overseas family on a daily basis, still marveling at the ability to be using a mobile phone traveling 100 kmph on a highway, traversing overseas lines and speaking to my daughter riding on a high speed train home from work – and there are no charges per minute.

Who needs equal ease of access when so many calls are now effectively free with your monthly plan?

While Kedar and Gagnon claim that most of the competitors were purchased by “the dominant players”, they neglect to mention that many were acquired out of bankruptcy or on the verge of financial disaster.

We shook up the telecom market back in the early nineties – what business school profs might say was an early instance of disruption in the technology arena.

There were a lot of failed business models. A number of companies took advantage of arbitrage opportunities and made a lot of money in the early days, but struggled as the bigger players adjusted. When retail prices fall toward zero, profitable arbitrage opportunities are tough to find.

The survivors are those companies that have anticipated and driven changes in the marketplace, investing in new technologies, to develop innovative new products and services.

Kedar and Gagnon say “Today, more than 90 per cent of the spectrum and revenues are held by the three former monopolies – Bell, TELUS and Rogers.” The authors claim “They were the only players with a 100-year head start in the infrastructure deployments necessary for building wireless networks.”

Really?

In what field did Rogers have a 100-year head start? Apparently the authors forgot that Rogers was actually one of the competitors, a key investor in the group that led the battle to create Canada’s competitive telecommunications landscape that started in 1992. It didn’t have a head start.

Kedar and Gagnon say “Ubiquitous interoperability and high quality of service are essential, and are not to be entrusted to private monopoly providers.”

What monopoly?

One might ask what were the factors that led these companies to compete against each other? Why did these companies succeed in expanding their geographic scope to operate nationally while other telephone and cable companies kept to their original territories? Bell, TELUS and Rogers were not the only companies of their kind in 1992. Why Rogers and not Videotron or Shaw? Why Bell and TELUS and not MTS or SaskTel?

In any case, it is completely inaccurate to refer to Bell, TELUS and Rogers as “private monopoly providers”. Even the application of the term “incumbents” is an artifact of linguistic gymnastics by the government in defining who qualifies as a “new entrant” bidding for spectrum set-asides.

Pre-1992, there was the phone company, a single company in each area. In many parts of the world, that telephone monopoly was in the hands of a government agency, often part of the post office (the PTT – postal, telephone and telegraph). Those of us who ever dealt with a PTT do not remember them fondly and they were generally not noted as models of customer service excellence. Would Kedar and Gagnon prefer a return to the days of state-owned government monopolies?

The past was never as good as some people would have you believe. And the present is never as bad.

In my briefing book, the word “choice” is highlighted over and over again. One of the messages that we were trying to deliver was that competition in long distance would lead to improved consumer choice.

None of us had any idea of the number and kinds of choices that consumers would enjoy 25 years later. Speaking through instant messaging applications? Watching football games on a mobile phone?

We didn’t know that cable companies would offer voice calling, that wireline communications would no longer be an automatic choice for households. That phone companies would stop installing copper lines.

Kedar and Gagnon say “It is elected government, devoted to the public interest, that is entrusted with ensuring equal and fair access to promote innovative participation by all.”

What we actually need is a government that promotes investment by the private sector. We need government to promote measures that enable and encourages the private sector to experiment with different models, some of which will succeed and some will fail, but all will continue to deliver more choices to consumers.

The past was never as good as some people would have you believe. And the present is never as bad.

I continue to look optimistically to the future. As I have written before [such as here and here], the future will be brighter for Canadian innovation if the government would try harder to get out of the way.

Getting out of the way

The CRTC is putting Canadians at the centre of their communication system.” At least, that is what the Commission’s press release proclaimed in announcing its latest 3-year plan.

The reality is that the CRTC is still stuck in the middle of Canada’s communication system. Everything Canadians want to watch, even on the internet, goes through the CRTC. Everything.

Recall that the Chair of the CRTC made this very clear in admonishing a witness during the Local TV hearing in January in reference to YouTube:

  1. THE CHAIRPERSON: You see and maybe your difficulty of seeing that is based on — and you’ve repeated a number of occasions in your oral representation of always referring to the unlicensed element of the broadcasting system as unregulated, as opposed to what it really is and that is unlicensed.

And let’s not forget the run-in with Netflix and YouTube last fall, when those companies refused to acknowledge the CRTC’s authority to order production of data for the TalkTV hearing. The CRTC Chair told Netflix “You operate subject to an exemption order that requires you to provide information. Failure to provide information puts at risk your exemption order.”

Rather than have its powers tested in court, the CRTC ordered the destruction of the transcripts and struck all YouTube and Netflix evidence from the record of the proceeding. Thankfully, CPAC has preserved the video record of the exchange. It is an important piece of Canada’s regulatory history and it (together with the second part) will hopefully be archived. The interaction (beginning at at 22:30 of the video) is compelling viewing.

The CRTC has also put itself into the middle of commercial contracts for programming, most notably NFL football broadcasting, not only for the Super Bowl but for a mobile football app. The CRTC is also investigating pricing models of mobile services, despite having forborne from regulating such prices.

Earlier this week, the CRTC decided that a competitive Canadian TV distributor, VMedia, would not be allowed to carry an American shopping channel, QVC, that would be a consumer alternative to Rogers owned TSC.

Although there is no evidence of QVC establishing any physical premises in Canada or having bank accounts or employees in Canada, it is clear that QVC intends to do business with Canadians located in Canada. Specifically, it intends to sell its products to Canadians on a continuous basis and to ship them directly to Canadians. As well, its toll-free number can be dialed from a Canadian telephone.

While there are programming services on the list that sell products to Canadians, unlike QVC, these are not dedicated to teleshopping services funded primarily by retail sales to viewers.

Buffalo’s PBS station, WNED, promotes itself with “Toronto” and the Canadian flag as part of the station’s logo. WNED actively solicits “donations” with its sales of DVDs and other items. The “Canada” page of the station’s website states “More than half of WNED | WBFO’s membership is Canadian”. The CRTC cited a 2003 decision that found “insufficient evidence on the record to show” that allowing QVC into Canada “would benefit Canada and Canadian consumers.” So much for putting Canadians in the centre of our communication system.

All of which raises the question of why, in an era of global internet content and competitive distribution, do we need regulation of any broadcaster that isn’t using over-the-air spectrum? If “The CRTC is putting Canadians at the centre of their communication system” maybe it should look at simply getting out of the way?

On June 8, one of the panels at The 2016 Canadian Telecom Summit is “Personalizing Entertainment & Information”, looking at the ongoing video revolution. It is certain to be discussing these kinds of issues and more. Have you registered yet?

Getting out of the way

Twitter forces a discipline in writing. With only 140 characters, I have learned to review my tweets, removing extraneous words like “that” or future perfect sentence structures. There are some who write tweets that read like old classified ads; I lack the patience to decipher these. Others who write extended tweets marking them 1/4, 2/4… as though we follow them – and only them.

So I have an appreciation for Tweets that are especially concise in expressing a thought, such as Karen Selick’s exchange last night with Jesse Kline:

I have precisely this concern with the national digital strategy.

Over the past few years, I have written about the potential for unintended consequences when government tries to pick winners, such as: “Weaning Canadians from government intervention“; and, “Toronto ICT plans“. I am continually troubled by the inequities of government handouts to certain businesses, which inevitably mean that one industry participant is receiving a subsidy from their competitors. I hate seeing Ministers flying coast to coast handing out cheques, while spending as much (if not more) on the photo op itself.

What are the areas that truly need the leadership role or guiding hand of government? Will government be able to resist the temptation to intervene in areas that should be left alone? Can we see leadership without increased spending?

A way out for UBB

As I mentioned yesterday afternoon, it is unlikely that we will see the elimination of usage sensitive pricing for the aggregated wholesale services that many internet services providers use to reach their customers. Usage is an efficient and fair cost allocation system for shared resources, as suggested in the National Post.

However, the currently mandated approach of applying charges on a per-user basis may need to give way to some form of aggregation in order to provide ISPs with sufficient flexibility to offer consumer increased choice among price plans.

A number of times, I have referred to the all-you-can-eat buffet metaphor. The local restaurant tolerates the football team because there are enough other customers that don’t eat quite as much. The challenge is that the current user-based pricing mechanism charges excess fees to the heavy eaters, even if there are lighter users who don’t consume their maximum.

So under the current regime, we could have a situation where an ISP has two customers, one who uses 30 GB in a month and another who uses 5 GB. Under the current plan, the ISP will pay excess usage for the customer who exceeded the 25 GB threshold. Another ISP may have two customers who each use 20 GB, putting a total load of 40 GB on the wholesale access network, but there are no excess usage charges. If UBB is supposed to help manage traffic loads, it is difficult to reconcile this anomaly.

This is where we could see a directive from the government that allows a resolution to the problem, but continues to preserve the economic efficiency of usage based cost allocation. My long time colleague, lawyer and friend, Ed Antecol, who heads up regulatory affairs at Globalive, believes the key to resolving this could be found in the third paragraph of the dissent to Decision 2010-255 by Commissioner Molnar.

I would note that I am not convinced that the Bell companies’ proposal to apply UBB charges based upon end-customer usage is the most effective Internet traffic management practice (ITMP) approach. Nor am I persuaded at this time that an aggregated usage model, if properly structured, would nullify the potential effectiveness of UBB as a means of managing network usage. Certainly, an aggregated usage model would have provided ISPs that subscribe to the Bell companies’ GAS (GAS ISPs) with greater flexibility to manage end-user pricing/service solutions.

Usage based billing across an ISP’s entire base of customers makes sense. The non-facilities based ISPs will be able to offer flexible service plans, including unlimited service, by balancing their customer base with innovative pricing models and services.

Along these lines, an aggregated model will help drive the alternate ISPs to possibly develop innovative solutions to attract people who are not yet internet users, because such users may start with lighter loads to help balance the overall traffic levels. This will contribute to increasing broadband adoption rates, and dovetails nicely with my drive to increase digital connectivity among lower income earners.

An aggregated usage regime enables the smaller ISPs to continue to be a source of competition, driving the entire industry to provide creative products and improved service, while preserving the incentives for continued capital investments by all industry participants. 

It is a solution worth careful examination by the Industry Minister.

An easy way to increase rural broadband speeds

In speaking with some operators of rural fixed wireless networks, it appears there may be an easy way for the government to help ratchet up broadband speeds.

A number of us in rural markets are using fixed wireless service. These days, one of the biggest challenges facing internet service providers (ISPs) is the heavy use by every user. While there may be enough capacity from the tower to home, many rural ISPs have capacity issues from the towers to the backbone network.

Ideally, those towers are connected by fibre, but in many cases, that umbilical is itself a wireless connection.

That is where Canada’s Department of Innovation, Science and Economic Development (ISED) may be able to help.

A year and a half ago, the Department undertook a “Consultation on Licence Fees for Fixed Point-to-Point Radio Systems”.

Recall, Canada’s high spectrum fees have been cited in the past as a contributing factor to higher telecommunications costs and prices compared to international peers.

Based on that consultation, in July 2019, the Department issued its “Decision on the Licence Fee Framework for Fixed Point-to-Point Systems”, dramatically reducing the license fees for rural point-to-point radio links by an order of magnitude.

The original consultation document contemplated starting the new licensing regime in April 2020. That should have been a good measure to help rural ISPs. However, when the final Decision was released, the implementation date was pushed out by a full year, to April 1, 2021.

Perhaps ISED can accelerate its timetable, making the new rates effective immediately, enabling ISPs to increase capacity and improve rural broadband services while the 2020 construction season is still a viable option.

The consultation is complete; the decision has been made. All that is left is for ISED to crank up the dial and implement the lower rates on its own original schedule. Even if ISED’s internal administrative systems aren’t fully ready for the new rates, there aren’t so many that license fees couldn’t be calculated manually.

This should be an easy fix. It’s a pricing change.

ISED should implement the new point-to-point spectrum pricing effective July 1, two weeks from now.

How many rural households could have access to faster broadband speeds and increased capacity in such an easy manner?

Could there be a simpler, more cost-effective, government stimulus program for rural broadband?