Mark Goldberg


www.mhgoldberg.com





Fox Group Dispatch

Unintended consumer consequences

The Don’t Lock My Freedom website purports to represent consumer interests, when it is quite possible the net effect of its advocacy will be to raise initial phone prices and long term service costs. 

An article on Cartt.ca highlights these key flaws in the overly simplistic viewpoint that appears to have motivated the proposal to require wireless service providers to unlock phones.

The organizers of the website and the legislative supporters ignore the fact that there are already lots of alternate channels for people to buy phones without locks. There are service providers who have announced that they will unlock phones for their subscribers. Thanks to on-line third party sites like Tiger Direct, anyone who wants can buy unlocked phones, even if they aren’t in major metropolitan areas. Do a search for “unlock codes” and you will find lots of options at pretty low prices.

In other words, the marketplace is working without government intervention to dictate specific business models to the service providers. Now, I know that some will argue that most phones are being bought from the wireless service providers and have contracts associated with them. Maybe that is because people like the subsidies that they are receiving? Or they appreciate the ability to call the service providers’ technical support lines and have them recognize the model number and provide help.

Michael Geist is quoted in the Cartt.ca article saying:

In certain respects, this was an odd question to even have to ask. No one would ever question whether consumers have the right to tinker with their car or to use the same television if they switch providers from cable to satellite, yet the wireless industry somehow convinced the public that unlocking their phones – consumers’ own property – was wrong.

How many people who buy a Chevy expect a Mercedes dealer to fix their transmission for free? Or vice versa? Would a Ford dealer even be expected to be able to diagnose what is wrong with your Lambourgini? Is the next private member’s bill going to force car dealers to get rid of their oil change and service departments?

The metaphor for TVs just doesn’t hold up to scrutiny at all – unless Professor Geist has figured out a way to use his Bell TV set-top box for Rogers cable service, or vice versa. Maybe that is another private member’s bill.

If a phone that was sold by Rogers is unlocked and now is getting used on the TELUS network, which customer service line should the consumer call to find out how to load a Facebook application? When the TELUS representative has to spend extra time trying to learn the menu system for a model that was never sold by them, who should pay for that call?

How many consumers will be told to take their phones back to the original store for help with the software?

Should you be able to unlock a phone is a very different question from the government dictating a specific business model that requires all phones to be unlocked. The right to unlock phones is part of the copyright reform act, Bill C-32.

The Cellular Freedom Act appears to be naively motivated and could ultimately inconvenience most consumers.

Unintended consequences

Last week, Bell and Bell Aliant filed a cabinet appeal saying that a consequence of the CRTC’s Cybersurf speed-matching decision is to discourage investment in next generation FTTN networks. That appeal is similar to one filed the evening before by TELUS. There was also an appeal filed by MTS Allstream of 2 different CRTC decisions, dealing with wholesale access to unbundled ethernet. [Links to the various decisions can be found here.]

A general concern associated with regulation is the potential for unintended consequences to arise from intervention in the marketplace. This is why it is Canada’s official policy to rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives.

In his February speech to the Canadian Film and Television Production Association’s Prime Time conference, CRTC Chair Konrad von Finckenstein commented that the Commission is always particularly concerned about unintended consequences associated with its actions. Earlier this week, in the New Media proceedings, the Chair commented:

You know, we, like everybody else, avoid unintended consequences and when you just look at things through one lens, like in this case the broadcasting, you may have produced some consequence you didn’t want to because you didn’t look at the overall picture or you didn’t have jurisdiction for it.

The CRTC determination on matching speeds may have made sense through the lens of Section 27(2) of the Telecom Act:

No Canadian carrier shall, in relation to the provision of a telecommunications service or the charging of a rate for it, unjustly discriminate or give an undue or unreasonable preference toward any person, including itself, or subject any person to an undue or unreasonable disadvantage.

Keep in mind that Not all discrimination is forbidden. There is such thing as “just” discrimination.

In May 2006, the CRTC found that TbayTel had discriminated against its competitor, Superior Wireless, but its actions did not constitute ‘unjust discrimination’ under the Telecom Act. TBayTel was found to have treated the customers of Superior Wireless differently from the way it treats roaming customers of other carriers, however there was no ‘unjust’ discrimination, when considering the degree of competition in wireless services.

What constitutes a “sufficient degree of competition” in the services being examined? How can we be certain that there is an adequate measure of the degree of competition and that the statistics are reliable?

Had a similar lens been applied to examine internet services as the Commission used for mobile wireless in Decision 2006-33, would the outcome of the decisions under appeal have been the same?

What problem are we trying to fix?

An Economic Note [pdf, 871 KB] from the Montreal Economic Institute (MEI) is challenging the premise for elements of mobile wireless policy deliberations in Canada. Whether it is consideration of a spectrum set-aside for “new entrants” or ordering the CRTC to revisit its refusal to mandate resale for WiFi based MVNOs, the MEI study says “the minister’s justifications for the proposed change are groundless”.

The Economic Note challenges the preamble of Order in Council 2017-0557, where it claims “Canada has among the lowest adoption rates for mobile wireless telecommunications services among industrialized countries.” MEI says:

This assertion is drawn from a misleading OECD comparison based on the number of SIM cards per inhabitant (as opposed to the proportion of wireless users in the overall population). In many countries, users have more than one card for the same device in order to save money, which results in absurdly inflated “penetration rates,” in many cases far above 100%. The fact is that the vast majority of Canadians (81.6%) had a wireless device in 2015, a proportion that keeps increasing. Canadians are among the biggest users of data on tablets and smartphones (sixth out of 21 countries surveyed by Cisco for both categories). Moreover, in terms of smartphone market penetration, Canada ranks third out of 21 countries surveyed with a total of 83% of mobile subscribers using smartphones. And it ranks fourth in terms of the proportion of mobile users connected to the fastest network.

In its press release, MEI warns “Innovation Minister Navdeep Bains runs the risk of discouraging investment in the telecommunications industry”. The report contrasts reseller investment levels of just $30 million per year with the $11.3 billion being invested by national and regional carriers.

As Canada has one of the best wireless infrastructures in the world, and Canadians are among the most avid consumers of data in the world, there is no need to intervene in order to catch up with other countries.

The Montreal Ecoonomic Institute says its Regulation Series of reports “aims to examine the often unintended consequences for individuals and businesses of various laws and rules, in contrast with their stated goals.” I have written frequently about this kind of effect, such as “Driving costs higher” as an unintended outcome of a number of government measures originally meant to benefit consumers.

A few weeks ago, MEI commented in the Financial Post about the plans for a set-aside in the next spectrum auction. “Experience has shown that such measures essentially constitute public subsidies that are either lost to weak new entrants that consistently fail, or wasted on established regional players that would have had the means to bid for the full value of the spectrum.”

Whether it is a spectrum set-aside or ordering the CRTC to have a fresh look at its decision on resale versus facilities based competition, the Montreal Economic Institute report again challenges the premise that appears to be motivating increased government intervention in Canada’s mobile marketplace.

Earlier this year, FCC Chair Ajit Pai observed that “Building 5G networks will require huge capital expenditures–spending best incentivized with light-touch regulation.”

Canada needs to carefully consider the potential unintended consequences of further intervention in its mobile sector. To date, the facts show that Canadian carriers are investing, our networks are world leading in coverage and speed, and Canadians are among the world’s top users of mobile data.

What problem are we are trying to fix?

Controlling communications content

I hate getting those calls as much as the next guy. You know the ones I’m talking about: a static beep followed by the background noise of a call-centre boiler-room and the familiar words “air duct cleaning”; or, maybe it’s Jeanette from Credit Card Services with my last chance to save; or, the computer technical support department; or, the $999.99 credit I won toward my Mexican vacation resort.

Despite all the best efforts of legislation and regulation, authorities have not been able to stop the fraudsters, scammers and spammers.

In August, the FCC hosted the launch of “the Robocall Strike Force, an industry-led group that is committed to developing comprehensive solutions to prevent, detect, and filter unwanted robocalls.” Earlier in the summer, FCC Chair Tom Wheeler pledged to cut off robocalls, saying “Robocalls and telemarketing calls are currently the number one source of consumer complaints at the FCC.” At the final meeting of the Strike Force the update identified a number of areas where work activities remained open, including:

  • Consumer Access to Free Call Blocking & Filtering Solutions
  • Development of Network-to-Device Information Sharing Framework
  • Deployment of VoIP Caller ID Authentication

In Canada, the CRTC launched a consultation in July 2015, “Empowering Canadians to protect themselves from unsolicited and illegitimate telemarketing calls.” That resulted in the production of a summary database of “options and features that are currently available to help Canadians protect themselves from unsolicited and illegitimate calls.” Let me know what you think of the usefulness of that website.

Also arising from that consultation, earlier this week the CRTC issued Compliance and Enforcement and Telecom Regulatory Policy CRTC 2016-442, stating “The Commission finds that the technical solutions available to Canadians to protect themselves from unwanted unsolicited and illegitimate telecommunications are not sufficient.” The CRTC has asked CISC (the CRTC Interconnection Steering Committee) to “develop practices to block blatantly illegitimate calls at the network level”, effectively providing a Section 36 authorization for Canadian carriers to block calls. CISC is to report back within 90 days – early February.

What are blatantly illegitimate calls?

Blatantly illegitimate calls include calls that purport to originate from telephone numbers that

  1. match the telephone number of the person being called;
  2. are “spoofed” with a number that is local to the person being called, in the case of an incoming long distance call; or
  3. do not conform to the North American Numbering Plan (i.e. are non-dialable telephone numbers [e.g. 000-000-0000]).

There are clear problems with this. The CRTC justified its definition with a bit of bizarre logic.

  1. These three specific circumstances account for up to 35% of all complaints filed with the National DNCL Operator in 2015. The Commission considers that universal blocking of these types of calls would be consistent with
    • the UTRs, which require telemarketers to identify themselves and provide a telecommunications number where the originator can be reached; and
    • Telecom Decision 2007-48, which states that telecommunications numbers must conform to the North American Numbering Plan in order to be registered on the National DNCL.

Hold on. What is with the second bullet? Getting registered in the Do Not Call List refers to me, the person receiving the call, not the person calling me. Decision 2007-48 effectively says that Canada’s Do Not Call List is for Canadian phone numbers. Further, with respect to the first bullet, the logic only makes sense if the originator is a telemarketer. What if it is my daughter calling me from overseas? The CRTC has no control over the phone company or app with which she makes her call and by definition, as an overseas call, the originating number cannot conform to the NANP. A caller ID from outside North America cannot and should not conform to the North American Numbering Plan. Incoming calls from various long distance companies, or from VoIP apps (such as Skype and others), can deliver a range of non-conforming caller IDs. Will these be captured by the CRTC’s blanket ban?

While the CRTC claims the “use of universal blocking to prevent calls with blatantly illegitimate caller ID information also strikes an appropriate balance between the protection of individual privacy and the need to permit legitimate uses of telemarketing telecommunications”, it appears that there are bound to be legitimate calls blocked that did not originate from telemarketers.

As the Commission itself recognizes in the discussion about universal blocking:

  1. A number of parties expressed concern that universal blocking could prevent legitimate calls from reaching their intended recipient…

  1. Eastlink, Primus, and trueCall argued that universal blocking, if implemented broadly, would not reflect the distinct preferences of individuals, given that all calls would be blocked at the network level (i.e. affecting all subscribers) and that the blocking could not be customized by the consumer…
  1. Carriers generally argued that universal blocking is ineffective at combatting nuisance calls from callers who constantly change the numbers that they display on caller ID, which makes it difficult to determine which calls should be blocked…

So the CRTC is sending this off to CISC:

  1. Accordingly, the Commission requests CISC to
    • identify and develop a comprehensive list of attributes of calls that indicate blatantly illegitimate caller ID information and that can be universally blocked;
    • identify potential unintended consequences of universally blocking calls based on the list of attributes identified above;
    • as required, develop redress mechanisms to prevent and remediate these consequences when universal blocking is deployed, and approaches for monitoring their effectiveness; and
    • provide a report of its findings on the above to the Commission within 90 days of the date of this decision.

A much bigger scourge is that of phishing, with scammers spoofing the originating source of emails. Ottawa Police is circulating an educational video as part of an education process for users to recognize fraudulent messages. Should the CRTC be ordering ISPs to block blatantly illegitimate emails?

Ultimately, these efforts by the CRTC and by the police point to the ineffectiveness of legislation and regulation such as Canada’s Anti-Spam Legislation and the Unsolicited Telecommunications Rules. Hopefully, CISC will report back about the risks of blocking legitimate calls from ordinary citizens and we can move on. But we need to consider the unnecessary costs these rules have imposed on legitimate businesses while the perpetrators of fraud and genuine consumer annoyances continue their practices unabated.

While it would be nice to find a regulatory solution or a novel technology, I continue to believe the most effective way to deal with nuisance calls was invented more than 130 years ago. Just hang up.

Driving costs higher

The CRTC released its 2016 report comparing the price of telecommunications services in Canada to “select foreign jurisdictions.” Among the charts that seemed to attract the most interest from the media was the steady increase in entry level wireless rates in Canada:

Table D.2.1: International Wireless Telephony and Text Messaging Service (PPP-Adjusted CA$)- Level 1: 150 Minutes
Year Canada U.S.A. Australia U.K. France Italy Germany Japan
2008 $32.73 $40.92 $21.96 $26.57 $23.55 n/a n/a n/a
2009 $33.03 $42.51 $19.98 $24.33 $25.37 n/a n/a n/a
2010 $34.03 $40.43 $18.96 $23.31 $26.54 n/a n/a $24.20
2011 $33.73 $33.38 $20.95 $18.64 $26.13 n/a n/a $25.29
2012 $34.32 $33.78 $22.44 $17.21 $24.09 n/a n/a $25.53
2013 $30.71 $33.08 $21.82 $21.97 $20.24 n/a n/a $28.09
2014 $35.70 $30.34 $25.28 $26.46 $20.75 $10.85 $16.68 $28.88
2015 $37.29 $37.04 $25.35 $23.50 $14.26 $12.15 $15.23 $27.23
2016 $41.08 $27.00 $28.19 $20.84 $22.49 $17.70 $17.15 $29.06
CAGR 2.9% -5.1% 3.2% -3.0% -0.6% 12.0% 1.4% 3.1%

Looking at the point of inflection in 2013, I asked in a tweet earlier today, “Does anyone wonder what might have caused entry-level wireless prices to go up?”

In its zeal to appeal to consumers, the government has introduced measures that are actually increasing the cost of your phone service, not decreasing them.

I wrote about some of these a few years ago in a piece called “The cost of regulation“. I thought it might be time for an update.

Here are just some of the measures:

  • Removal of option for 3-year amortization on smartphones: It’s simple math: A $600 subsidy amortized over 2 years is 50% more than a $600 subsidy recovered over three.
  • 15 day trials: Under the Wireless Code, customers can get a new $1000 phone from a wireless carrier store and return it 15 days later, no questions asked. The wireless carrier now is stuck with a used phone that it cannot easily sell and it cannot charge a restocking fee. This adds costs to the carriers that are not incurred by competing retailers.
  • Banning paper bill charges: The government was shown that adoption of electronic billing was an order of magnitude higher in companies that pass on the increased cost of sending paper bills. Phone companies offered exemptions for people without internet, for seniors, and a number of other classes, including people with disabilities and veterans of the Canadian Armed Forces. Paper bills cost more, so your prices went up.
  • Disconnection rules: Under the Wireless Code, the CRTC has dramatically increased the amount of time that a wireless service provider has to continue to provide service to a customer who is not paying. The rules are reminiscent of the disconnection regime from a monopoly wireline world, when the local phone company was the only communications service provider. Is it unnecessarily raising the cost of service?
  • Regulatory proceeding cost awards: The Affordable Access Coalition filed a application for nearly half a million dollars to cover the cost of its participation in the CRTC’s recent Basic Service Obligation proceeding. Open Media asked for $170,000 for the same proceeding. That proceeding is just one of the hearings that attract cost awards, and it appears to be on track to set new records for the level of costs. If approved, these will be charged to all the telephone companies and can be expected to be recovered in your monthly bills.

Frequently, there are unintended consequences to measures that would or should have been predictable if only a bit of serious analysis was undertaken.

The CRTC has launched a proceeding to review the Wireless Code, with submissions due September 26 and an oral hearing in February 2017.

Will groups that represent the public interest seek to relax some of the regulatory measures that drive up costs for consumers?