Mark Goldberg


www.mhgoldberg.com





The Canadian Telecom Summit

Fox Group Dispatch

Zero-rating is “pro-competition” and “pro-innovation”

Zero-rating is “pro-competition” and “pro-innovation” according to FCC Chair Tom Wheeler.

In an article under a banner of “Ministry of Innovation / Business of Technology”, Ars Technica reports that Tom Wheeler praised T-Mobile’s program that exempts certain online video services from data caps, under its new Binge On service.

If anyone were to file a complaint against T-Mobile’s video exemption, Wheeler doesn’t seem likely to stop the practice.

“Its clear in the Open Internet Order that we said we are pro-competition and pro-innovation,” Wheeler said today. “Clearly this meets both of those criteria. It’s highly innovative and highly competitive.”

The CRTC is currently holding an inquiry into whether to prohibit Videotron’s “Unlimited Music” offering that exempts data metering of certain music services. In January 2015, the CRTC shut down mobile TV services from Bell and Videotron that offered video programming on the basis of flat rate charges per hour rather than charging for data consumed.

A few years ago, I wrote

It is difficult to understand how consumers can benefit from restrictions in the types of offers available to them.

How can it possibly be in the interest of end-users to have only one price structure in the marketplace?

In another post, “Zero is better than nothing“, I wrote “Consumers can benefit greatly from creative, competitive, targeted pricing plans. Regulators need to be careful imposing restrictions on the evolution of business models.” Those words came out 2 weeks before the CRTC took away choice for Canadian consumers to have mobile TV.

Banning zero rating has the result of raising prices for some consumers and lowering prices for no one.

The FCC is making it clear that it won’t stand in the way of innovative pricing models. A month ago, I asked “Does CRTC policy inhibit investment“?

Will the CRTC continue to deny Canadian service providers the opportunity to offer consumers the choices of services available to Americans?

Zero is still better than nothing

Roslyn Layton posted an article this morning “Zero rating: Who bears the cost of bans?” that is a worthwhile read.

…those who wish to ban zero rating assert that all mobile plans must be “affordable full access,” and that anything less would be robbing consumers of the complete Internet experience. But this is tantamount to mandating that everyone fly first class.

Clearly, this one-size-fits-all attitude ignores the fact that consumers have widely varying needs and preferences. In the same way that people want to pick and choose their cable channels, they want the same freedom when it comes to their Internet service.

Earlier this year, I wrote about “Intellectual purity of technology over people” and “Connecting the unconnected“, taking a look at a variety of approaches being pursued to provide introductory internet connectivity to people who cannot otherwise afford devices or broadband service.

Should carriers and applications be restricted in exploring business models that increase adoption of digital technology and services? Or, as [Facebook founder, Mark] Zuckerberg asks, will an “extreme definition of net neutrality” put “the intellectual purity of technology above people’s needs?”

A few years ago, in a piece called “Restricting trade“, I wrote “It is difficult to understand how consumers can benefit from restrictions in the types of offers available to them.”

Almost 2 million Canadian households still don’t have a broadband connection and most of them are located in urban centres. As I wrote in May, “Affordable broadband isn’t just a rural issue“.

Canada continues to have a problem with broadband adoption in low-income households, whether urban or rural, despite government programs continuing to define digital adoption as a problem framed in terms of geography, not affordability. Pricing discrimination, including zero-rating, should be considered as we recognize the challenges of broadband affordability among low-income households.

It is going to take creativity from all stakeholders to develop solutions for universal connectivity; why would we limit the options under a guise of “intellectual purity”?

Zero is better than nothing

Should service providers be allowed to offer access to certain applications for a flat rate – or free?

That is a question receiving considerable attention, thanks in part to a piece written by Harvard visiting professor Susan Crawford, who said “On the surface, it sounds great for carriers to exempt popular apps from data charges. But it’s anti-competitive, patronizing, and counter-productive.”

Uh, oh.

“Anti-competitive, patronizing, and counter-productive” sounds pretty bad. But there’s more. Professor Crawford goes on to say “Zero-rating is pernicious; it’s dangerous; it’s malignant.”

Wow. Who would even consider offering such services?

Actually, there are a lot of consumer benefits that could accrue from such services. For example, 7 years ago I suggested that Netflix might want to enter into an arrangement that is effectively the same as toll-free (1-800) calling, to reverse the charges for data usage.

Boston College law professor Dan Lyons says “Professor Crawford’s argument is premised on the notion that consumers need access to all Internet content at all times on all devices at the same price.”

He writes that offerings such as social media packages or a streaming media service help consumers. Some customers may be willing to pay $12/month for mobile Facebook access but would not pay $60/month for a broader wireless broadband plan. “Eliminating [such options] forces those customers to choose between two suboptimal choices: either pay a higher price to get services the customer is uninterested in purchasing, or go without the service the customer wants to buy.”

What about data consumption for Video Relay Services? As I wrote last January, “Could such a “toll-free” data model enable more equitable treatment of data use by Video Relay Service consumers?”

Seniors are among the least likely demographic to have a smartphone (and therefore, a data plan), but these are the people that could be among the most attractive targets for health monitoring apps. Do we really want regulations that preclude targeted pricing strategies? Should carriers be able to offer restricted flat-rate, zero-rated or sponsored data plans to encourage more widespread adoption of health monitoring applications and devices?

More than 7 years ago, I asked a similar question in relation to a toll-free model for home internet:

Are there some applications that might lend themselves to a toll-free model in order to reach the rest of the market?

For example, would home health care warrant installing a broadband connection as part of a monitoring service? The broadband access would be enabling underlying service, but the costs would be incurred by the health care agency, not the infirmed. Like toll-free calling, the application provider would pay the charges.

Your aging grandmother may have no idea that she would have a broadband connection coming into her apartment – perhaps complete with a wireless router. All she would know is that she can stay at home for routine monitoring check-ups.

Besides health care and elder-care, what other applications might “reverse-the-charges” for broadband access? Security services? Gaming? Entertainment? Energy management?

As Professor Lyons wrote,

Ultimately, it is consumers who should command policymakers’ attention – not the hypothetical “next Facebook”

Consumers can benefit greatly from creative, competitive, targeted pricing plans. Regulators need to be careful imposing restrictions on the evolution of business models.

Two sides to every coin

“The Government will encourage more private sector competition and investment in services that have become essential in a digital economy.” That is a quote from the letter of welcome sent to CRTC Chair Ian Scott last week by Heritage Minister Melanie Joly and Minister of Innovation, Science and Economic Development Navdeep Bains.

“All Canadians and Canadian businesses deserve high quality telecommunications services at affordable prices.” How do you increase competition to drive “affordable” service prices while simultaneously encouraging investment?

It is a delicate balance. How do we define and measure “affordable”? We all want lower prices for everything, other than our own wages, but when you add the modifier “high quality” to the product definition, it gets more difficult to implement.

What is the right way to increase competition? What is the right level of competition that provides pricing discipline, encourages innovation, and maintains the right incentives for continued investment in infrastructure?

A recent article by Rita Trichur in the Globe and Mail starts by saying

The three-year contract is dead, but monthly bills keep rising. Switching carriers is a nightmare, add-on charges multiply like cockroaches, and being off contract doesn’t guarantee that you’ll find a substantially better deal if you shop around.

Many blame the CRTC. The regulator has tinkered with the rules, but it has largely failed to keep major carriers in check.

Yes. Monthly bills went up precisely because the three year contract is dead, just as the CRTC was warned. The CRTC banning innovative pricing plans like zero rating also has led to less price competition and discouraging product differentiation. In the case of Videotron’s Unlimited Music, the CRTC prohibited a service innovation by a new entrant and denied consumers a chance to save.

On one hand, we want consumers to have more choice, on the other hand certain groups want the only competition to be on the basis of price. If a service provider doesn’t have market power, do we really need to regulate its services and products?

Two sides to every coin.

The issue of spectrum set asides is another one that is more complicated than the average soundbite portrays. On one hand, the new entrants want access to more spectrum in the lower frequency bands, as noted by Christine Dobby in her recent article, which is why they are seeking a set-aside in the 600 MHz auction. On the other hand, Canada’s new entrants in the mobile wireless sector are not start-ups; they are multi-billion dollar vertically integrated communications giants – Shaw and Quebecor.

Quebecor’s Videotron Ltd. now has 16 per cent of wireless subscribers in the province and, after wrapping up expensive investments in building an LTE network, the business now makes a healthy contribution to the telecom division’s free cash flow, which increased by almost $100-million in the first half of this year to $399.5-million.

While Quebecor CEO Pierre Karl Péladeau told The Globe and Mail that Rogers, Bell and TELUS “received swaths of low-band spectrum from the government at no charge when they first set up their cellular networks in the 1980s”, the other side of that issue is that the incumbents have been paying annual license fees for that “free” spectrum. In total, the three companies have paid more than three and a half billion dollars in license fees, with a present value of more than $8.5B in 2017 dollars. This is hardly swaths of spectrum for “no charge”.

Under such considerations, should we still have spectrum set-aside for “new entrants” in the upcoming auction? Is it noteworthy that just last week, Mr. Péladeau criticized a two-tier system for Canadian content obligations, saying it “is blatantly unjust.”

Two sides to every coin.

High quality services at affordable prices creates a difficult tension in implementing communications policy.

What is affordable for some is different than what is considered affordable for others. As I have written before, perhaps our focus should be looking at the issue of affordability by “Looking at who, not just where.”

That would require increased product and service flexibility and the ability for service providers to differentiate themselves. Do we really expect increased competition to emerge from heavy handed government regulation?

Reductio ad absurdum

Reductio ad absurdum [NOUN]: a method of proving the falsity of a premise by showing that its logical consequence is absurd or contradictory.

Consider this tweet for a moment:

The “toothless #CRTC Net Neutrality decision” to which this refers is Telecom Regulatory Policy CRTC 2017-104: Framework for assessing the differential pricing practices of Internet service providers, issued this past April.

One might challenge so many different parts of this tweet. For example, is the Know Roaming service even captured by the decision? While Know Roaming sells its service to Canadians, the service is for use when travelling outside the country.

More importantly, the tweet demonstrates the absurdity of a prohibition on zero rating. How is the public interest possibly served? What benefit can there be in denying consumers access to free WhatsApp when they travel? Where is the market power of a small niche provider like Know Roaming? Why would so-called “consumer advocates” continue to argue that a regulator should take away benefits from consumers who choose to shop around for alternative services?

Roslyn Layton recently released a paper summarizing her doctoral research project at the Center for Communication, Media, and Information Technologies at Aalborg University in Copenhagen, “Does Net Neutrality Spur Internet Innovation?

Spoiler alert: no, it doesn’t.

As new leadership comes to the CRTC, will the Commission add the net neutrality framework to the growing list of decisions it needs to review?