Mark Goldberg


www.mhgoldberg.com





#CTS20

Will Canadians see greener Internet pastures in the USA?

This commentary appears on CARTT.ca

It is almost a defining characteristic for Canadians to distinguish ourselves from our neighbors to the south. The untrained ear may think we speak English somewhat similarly, but Canadians emphatically define ourselves as “not American” while we roll-up-the-rim-to-win.

That doesn’t keep us from wishing we had American prices for gasoline, milk, eggs, airfares, clothing and alcohol. It is springtime, and it is natural for us to look wistfully at greener grass growing on the other side of the border. We can add the USA’s unlimited mobile data plans to the list, prompted by one of the first acts by Federal Communications Commission (FCC) Chair Ajit Pai of dropping an investigation into zero rating practices by US carriers. The removal of that regulation resulted in every major carrier launching an offering of unlimited data plans.

Now, Chairman Pai has teed up the restoration of the free and open internet as he recently announced his plan to restore the light touch regulatory approach that helped make the Internet great.  Not a moment too soon. New research indicates that the misguided Title II regulation in the United States and the general pro-regulatory black cloud that has hung over the FCC in recent years, has deterred some $30-40 billion of internet investment annually in the US.

Canada’s current regulatory environment is reminiscent of the Obama administration’s FCC in which the Orwellian euphemisms of “openness” and “choice” characterized greater government control. Currently, there is an official telecom policy direction requiring the Canadian Radio-television and Telecommunications Commission (CRTC) to “rely on market forces to the maximum extent feasible” and “when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary.”  Still, a growing number of CRTC regulations (including price controls on internet access and regulating the internet) have served to reduce differentiation between service providers, such as with mobile video services, such as NFL Mobile and Bell Mobility.

The CRTC claims that its increasingly heavy hand “relies on market forces to the maximum extent feasible, seeks to remove barriers to entry, and is a measure that is efficient and proportionate to its purpose.” But it is unclear that the CRTC’s policy would survive an independent audit of compliance to certify whether its direction is consistent with market-based policy. I have written before about the cost of regulation in Canada [here and here] and have often asked, how will we measure success? We don’t know. The CRTC offers no measurement.

As one long-time observer of the Canadian regulatory scene recently asked, should we expect capital to migrate to Canada because of our improved rules? If we look at the rate of startups in Canada versus the rate in the US, should we expect that rate improve in Canada relative to US? I think not. Investment is pouring into the US as a result of a return to its pro-competition and pro-consumer approach. In spite of the net neutrality policies meant to improve innovation in Canada, Canadian entrepreneurs continue to flock the US.

In general, the world is siding with the US, not Canada, on this issue. Courts in Netherlands, Sweden, and Slovenia have struck down heavy handed net neutrality regulation and price controls that restrict zero-rating and free data policies. With any luck, the bold and much-needed moves from the FCC in the US will provide the needed example to the CRTC in Canada and help us restore internet freedom again.

Internet Freedom is certain to be among the topics discussed at The 2017 Canadian Telecom Summit on June 5-7 in Toronto.

Join in the discussion.

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Differential pricing is about consumer choice

Why would groups that claim to represent consumers argue against the choice of services that can help save money?

I really don’t get it.

The CRTC is preparing for its “Examination of differential pricing practices related to Internet data plans,” with an oral hearing opening on October 31. Differential pricing refers to the practice by some Internet Service Providers (ISPs) to apply different metering rates to some data. Examples may be for certain types of data to be carried for free (such as customer account inquiries, anti-virus software or operating system updates, or emergency messaging) or for some applications to be flat rated (such as certain social networking apps, or some music or video programming).

Intellectually, I can somewhat understand the arguments from architectural purists who simplistically believe that all bits are the same, none should ever be blocked and all must be priced the same. I disagree with that perspective and lots of counter-examples can be identified that shatter the purity of their model to the point where their argument should be considered to be quaint and out-dated.

At the root of their argument is a view that all data plans should be unlimited and prices should be lowered to the point that limited free or flat rated plans are meaningless.

I can understand that argument. It is simplistic and impractical in the real world, but at least I can understand their argument.

But when this same argument is adopted by “consumer groups”, it confuses me.

The “Equitable Internet Coalition”, composed of the Consumers’ Association of Canada, the Council of Senior Citizens Organizations of British Columbia, the British Columbia Public Interest Advocacy Centre, the National Pensioners Federation and led by the Public Interest Advocacy Centre (“PIAC”) submitted an intervention to the CRTC that argues: data caps are an un-necessary evil; data caps are becoming more difficult to justify; data caps do not address issues of congestion; and, data caps do not ensure pricing fairness. The coalition says “differential pricing plans are not a sign of, or response to, competition, but instead they may be a symptom of a lack of competition, manifested in the existence of data caps in the first place.”

What the consumer groups failed to acknowledge is data volumes have variable incremental costs, most significantly pronounced on mobile networks; and, offering varying levels of data usage tiers (including unlimited data, in some cases) provides consumers with more options. logically, lower data usage tiers are priced at lower rates than plans that offer higher levels of data. So, when the coalition cites the United Nations Special Rapporteur on Human Rights on the importance of broadband internet access, I am confused that these representatives appear to want to remove lower cost options from the marketplace.

The coalition says “many low-income households struggle with the affordability of communications services”. With that, I completely agree. We need to find communications options that improve the affordability of communications services for low-income households. For more than 8 years, I have challenged the industry to develop sustainable solutions to help address this problem.

But, the coalition’s position, “without data caps, there would be no need for differential pricing practices” simply misses the mark. Abolishing data usage tiers results in reduced choice for consumers, reducing the ability to find lower priced options for consumers who don’t need or don’t want to pay for an unlimited plan.

Indeed, advocating to eliminate the option of various levels of data usage tiers seems to contradict a recommendation in PIAC’s July, 2016 “No Consumer Left Behind Part II” study [pdf, 3.5MB]. In Section 6, How to Solve the Affordability Problem, PIAC writes “Because affordability concerns a household’s control over their budget, affordability is also about choice which allows a household to access a service offering which meets their needs”:

Mandated service offerings can provide some assistance by offering a low-cost package based on features established by the regulator or elected officials to low-income users. However, these types of offerings do not take into account the diverse needs and levels of usage of low-income households. Rather, they tend to constrain low-income subscribers to a prescribed means of accessing and using communications services. This does not conform with the view of affordability as tied to the concepts of choice and control — low-income users should have the flexibility to choose the services and features which meet their household’s needs.

However, as communications services become more essential, mandated service offerings may — similar to the “skinny” basic television package — play a role in ensuring that a reasonably-priced entry-level package is available to all Canadians.

Let’s be clear. We can have an academic debate about the effectiveness of data tiers as a traffic management tool, but it would be absurd for the CRTC to ban such pricing models because it is a legitimate way for service providers to choose to monetize their investments: people who use more, pay more. Banning such pricing options will inevitably lead to higher prices for those who have elected to subscribe for limited data.

How can organizations claiming to represent “the interests of residential consumers, and in particular low-income groups” be acting to eliminate lower priced options for their stakeholders?

The Competition Bureau says:

Differential pricing can influence the fundamental choices that consumers make. When an Internet Service Provider (“ISP”) makes one product available at a lower cost than others, consumers may be incentivized to switch to that product. This is not always bad. In fact, discounting is an important strategy that businesses use to compete.

The Bureau says the CRTC should prevent ISPs from applying differential pricing that involves content with which the ISP is affiliated.

I have written extensively on these issues over the years:

As I wrote in 2011, “It is difficult to understand how consumers can benefit from restrictions in the types of offers available to them.”

There are other postings as well. In particular, it might be interesting to review “The state of connectivity,” posted February 29, 2016. That post describes a report released by Facebook and Analysys Mason that includes a description of key barriers to internet access.

Facebook submitted a short piece of evidence in the current proceeding, stating “Differential pricing – in particular, zero rating – is an important tool in the development of innovative offerings that can also help to address social needs such as bringing more unconnected people online.”

Facebook argues “there is no inconsistency between the core principles of net neutrality – including restrictions against operators blocking or throttling content – and permitting zero rating
arrangements.” Facebook says the CRTC should allow differential pricing arrangements to develop “using criteria that encourage innovation and protect consumers.”

While Facebook did not request the opportunity to appear at the public hearing, the Agenda indicates Facebook is scheduled for November 1.

The proceeding examining differential practices could impact the ability for service providers to innovate and offer choices to consumers.

It will be worth following.

Removing choice for low income

The Times of India reports that the Telecom Regulatory Authority of India, TRAI, is expected to issue an order this week that will prohibit differential pricing for data services, a move that will impact Facebook’s Internet.Org Free Basics service and Airtel’s Zero service.

I have written extensively on these issues over the years:

There are other postings as well.

As I wrote in 2011, “It is difficult to understand how consumers can benefit from restrictions in the types of offers available to them.”

I continue to have difficulties with the idea that consumers are somehow better off with fewer choices in the marketplace. Banning zero rating provides no benefits to anyone. Prices go up for some users and go down for no one. Consumers have less choice, not more.

More than 8 years ago, in a piece called “Leading a horse to water“, I asked “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.

We need creative, market approaches to increase the levels of adoption of digital connectivity among low income households. Limiting choice, such as removing services like Free Basics, looks like a step in the wrong direction.

No such thing as a free lunch

Mark Zuckerberg of Facebook announced that Internet.org has expanded the availability of its Free Basics service throughout India. For the record, I think this is an outstanding project and I applaud the efforts to develop a creative, market approach to increase the levels of adoption of digital connectivity among low income households.

As I have written before, there are some activists that object to selective zero rating of services, under a belief that all applications should be treated alike by all access networks. Either all or nothing for free services.

I can’t figure out the business case that supports that view.

On the other hand, I can fully appreciate the free sample approach for Free Basics. Reports from Internet.org say that half the people on Free Basics upgrade to a paid full internet service.

50% of people who use Free Basics are paying for data – and access the internet outside of free basic services – within 30 days of coming online for the first time.

It isn’t surprising. “Try it, you’ll like it” was the tag line in early 1970’s advertising for Alka Seltzer. The fact is, it works. That is why there are sample tables at grocery stores.

No, Free Basics isn’t providing access to the entire internet. But, let’s be realistic. It is free. And as the name implies, the service provides some important basics.

Those free samples at the grocery store aren’t supposed to be a full lunch or dinner.

Maybe we need to approach zero-rated services is by remembering that not every service is supposed to take the place of a full internet access service.

I noticed internet packages on a cruiseship line that offer three levels of access: Social ($5 per day) offering access to Facebook, Twitter, WhatsApp and a handful of other messaging sites; Value ($16 epr day) with most of the web but no Skype or streaming services; and, Premium ($25 per day) with the full internet. Should passengers be filing complaints with regulators about network discrimination? Or, do we accept that the cruise line is offering choice. If you want full internet, it costs $25 per day, but if you can get by with parts, here are some lower priced alternatives.

As Zuckerberg says in his annoucenment, the latest expansion of Free Basics is another step toward connecting all of India. I have said it before, but it is worth repeating: banning zero rated services raises prices for some, reduces rates for no one while limiting choice for all.

With respect to retail services that are highly competitive, regulators might want to consider less intervention in order to allow innovative business models to emerge. Heavy handed ex-ante regulations are likely to inhibit innovation and ultimately deliver questionable consumer benefits.

Intellectual purity of technology over people

A few weeks ago, I wrote about “Connecting the unconnected“, taking a look at various strategies to provide introductory connectivity to people who cannot otherwise afford devices or broadband service.

Some of these strategies involve providing access to a limited number of “zero-rated” services, such as Wikipedia.

Through the years, carriers have used (and continue to use) zero-rated offerings as a way to get people to expand their use of services. To this day, many companies have “social plans”, providing limited access to some social networking sites for a flat monthly rate.

Internet.org is a zero-rated service being offered in less developed countries seeking to provide affordable access to a limited number of sites. “Internet.org is a Facebook-led initiative bringing together technology leaders, nonprofits and local communities to connect the two thirds of the world that doesn’t have internet access.”

Like flat rate services in Canada, activists have criticized Internet.org for violating “net neutrality”, favoring Facebook over other websites and services.

In a news story this morning, BBC quotes Facebook’s founder, Mark Zuckerberg, striking back at the activists:

But Facebook’s founder Mark Zuckerberg said it was “not sustainable to offer the whole internet for free”.

“It costs tens of billions of dollars every year to run the internet, and no operator could afford this if everything were free,” he said in an online video posted to Internet.org’s website.

Mr Zuckerberg said that people should not prevent others from using the internet in order to defend an “extreme definition of net neutrality”.

“Are we a community that values people and improving people’s lives above all else, or are we a community that puts the intellectual purity of technology above people’s needs?” he asked.

In announcing the Internet.org Platform, Zuckerberg says “For most people who aren’t online, the biggest barrier to connecting isn’t lack of infrastructure – more than 80% of the world’s population already lives within range of a mobile signal. Instead, the biggest challenges are affordability of the internet, and awareness of how internet services are valuable to them.”

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

Zero rating of services is certain to be raised by a number of the panels at The 2015 Canadian Telecom Summit, which opens in 4 weeks in Toronto. On Monday June 1, a panel of top telecom economists from Canada and the US will be exploring “Competition in telecom: net neutrality and innovation“. On June 2, the regulatory executives from Canada’s leading communications service providers will debate the full range of issues facing regulation and government policy. and, on June 3, two panels will related issues with “Hyper Connectivity: Shaping Personal & Business Digital Relationships” and “Coming to Any Screen Near You: The video revolution“.

Check out the full conference program. Have you registered yet?