Mark Goldberg


www.mhgoldberg.com





#CTS20

Permissionless innovation: is regulation penalizing infrastructure investments?

The MEI think tank has released a new paper calling “for the CRTC to stop overregulating the telecommunications sector and penalizing infrastructure investments.” The MEI paper argues in favour of a presumption of competition for policy making and against the presumption of regulation.

In the context of the continuing discussion on telecommunications service pricing, we often forget that Canada has top quality telecommunications infrastructure, that the MEI claims is despite a regulatory framework that is very restrictive for the sector.

Canada’s mobile speeds are among the fastest the world, thanks to investments per connection that are nearly twice as high as in Europe. According to the MEI press release, “Canada’s relatively high prices are explained in part by the country’s low population density, by the quality of the infrastructure, and by the substantial investments that are made.”

“Canada does well despite its regulatory framework, not because of it. The country could do even better!” according to Gaël Campan, Senior Associate Researcher at the MEI and author of the publication, “Permissionless Innovation: For an End to the Presumption of Regulation in Telecommunications”, written in collaboration with Daniel Dufort, Director of External Affairs at the MEI.

The easy to read report is divided into 3 main chapters, as listed below with some highlights:

  • Chapter 1 – Innovation, Growth, and Regulation
    • The main source of growth in an economy is figuring out new approaches for being more productive with the same resources: in a word, innovation
    • By making it more expensive to run a business, or invest in a new technology, regulation delays projects, or diminishes the chances that projects will be undertaken
  • Chapter 2 – Regulation by Default: A Misconstrued Approach to Markets and Competition
    • Consumers commonly substitute across markets, as when cellular phones — originally considered separate and distinct — came to offer a compelling alternative to fixed line telephone monopolies, eliminating the market power of legacy network providers.
    • Customers of fixed line providers in an industrialized country aren’t captive at all, since alternative services (such as satellite, mobile, and cable operators) are already available and improving fast, but also because of the emergence of “third places” such as coffee shops offering good Wi-Fi speed.
    • The number of mobile and fixed operators has not changed much over the past few years, but the number of their suppliers has decreased drastically, with a few equipment manufacturers becoming giant players, and their bargaining power increasing significantly.
    • Equipment manufacturers, terminal manufacturers, internet service providers (whether wireless, wireline, or cable companies) and content providers all belong to the same ecosystem, and must adapt their strategies to each other’s progress, always driven by what the general public is willing to pay for.
  • Chapter 3 – Reintegration of the Telecommunications Industry under the General Competition Regime
    • Rescinding the specific regulation of the telecommunications industry will create immediate economic value, as some financial and human resources currently devoted to compliance matters will be freed up and made available for productive use.
    • Commercial offers which were banned by the regulator even after having already found their customers, such as the zero-rating practices banned by the CRTC in 2017, will likely be reinstated if possible.

The MEI argues that as a sector specific regulator, the CRTC can have a tendency “to see the state of the market and of competition as a fixed reality, rather than an evolving one.” In calling for regulatory humility, the MEI expresses its concern that regulations can slow investment and create a drag on technological and service innovation as well as new business models. “The CRTC must rescind its special regulatory policies as soon as possible and let the sector fall under the general competition regime in order to enjoy the proceeds of unhampered competition.”

Your comments are welcomed.

Should the CRTC be phased out?

According to the Montreal Economic Institute (MEI), the CRTC has outlived its usefulness.

“Since Canada has successfully transitioned from monopoly to competition, there is a case to be made that the CRTC should be phased out as Canada’s telecommunications regulator.” That is one of the conclusions of the 5th annual edition of “The State of Competition in Canada’s Telecommunications Industry,” released today by MEI [pdf]. Instead of a sector specific regulator, the report says oversight of the telecommunications industry could move to a more general regulatory framework under competition law.

The report also contends that, despite what it calls “simplistic and misleading” comparisons, Canadian wireless prices are competitive.

“The average bill that Canadians pay for their wireless and internet services keeps increasing not because they have to pay more for the same services, but because they are paying more for more and better services.” The MEI report cites numerous international metrics that Canada has some of the highest quality wireless networks in the world, and comparisons of prices rarely account for service quality.

According to the report, “Wireless carriers in Canada invested on average US$78 per connection between 2010 and 2016, almost twice as much as their European counterparts, which only invested $40.”

Looking at the regulatory framework, the report observes, “The main concrete difference so far between the FCC’s and the CRTC’s approaches to net neutrality has been the steadfast opposition of the Canadian regulator to zero-rating. … In banning innovative and pro-competitive targeted pricing plans, the CRTC has not protected the integrity of the internet; rather, it has raised prices for certain consumers and lowered prices for no one.” This is a familiar refrain to my readers for whom I have made the same observation over the years.

A little over a week ago, I asked on Twitter “What if #CRTC had given market forces a chance to work?”

MEI points out the irony of the CRTC, having an agenda of increasing competition in Canada’s wireless marketplace, ended up banning an innovative pricing plan from a new entrant (Videotron). According to MEI, that ultimately hurts Canadian consumers. Similarly, the report takes aim at the CRTC’s overly prescriptive Wireless Code as having “reduced consumer choice and limited the ability of carriers to develop innovative customer offerings.”

In this instance — as in many others — Canadians would have been better off if the CRTC had relied on market forces instead of attempting to manage the competitive process.

The report points to the December 2017 wireless price war sparked by Freedom Mobile’s $50 per month 10GB plan as evidence of the market’s competitiveness. Quoting the 12-year old report of the Telecom Policy Review Panel (TPRP), MEI says “the Canadian telecommunications industry has evolved to the point where market forces can largely be relied on to achieve economic and social benefits for Canadians, and where detailed, prescriptive regulation is no longer needed in many areas.”

It has been more than 12 years since the TPRP’s report was issued and, as discussed above, the CRTC has shown few signs of restraint in its approach to telecommunications regulation. While it has abandoned its prior focus on retail regulation, it has also expanded mandatory network access schemes, created policies that dull incentives to invest, and rewarded product imitators instead of product innovators. If maintained, these policies are bound to hurt Canadian consumers in the long run.

Although dismantling Canada’s telecommunications regulator might meet with stiff opposition from partisans of continued heavy-handed regulation, it would be of net benefit to Canadian consumers and to Canada’s economy. The CRTC—while a necessary actor in Canada’s telecommunications landscape during the transition from monopoly to competition—has outlived its usefulness.

No doubt, the assertions made in the MEI report will feature prominently in the Regulatory Blockbuster at The 2018 Canadian Telecom Summit, taking place June 4 – 6 in Toronto. The Regulatory Blockbuster will feature leading advocates from Bell, TELUS, Rogers, Teksavvy and Ice Wireless.

Have you registered yet?


[Update: May 8, 11:50am] The MEI report author has an opinion piece on the Financial Post website, entitled “The CRTC should celebrate its 50th birthday by giving up telecom regulations entirely” with the caption “Martin Masse: You may be wondering why exactly we still need a dedicated telecommunications regulator. We don’t”.

An internet of things or services?

In the wake of this year’s Consumer Electronics Show, Geoffrey Fowler’s recent piece in the Washington Post (reprinted in the Toronto Star) caught my eye. “How gadget-makers have gotten off track, and how tech can be great again” suggests that connected devices need to solve actual problems. “Putting a refrigerator on the internet isn’t in itself useful — it’s just more expensive.”

His article suggests 4 ways to make gadgets great again:

  • Respect our time: “I’m heartened to find products starting to explore not how to fill more of our time, but rather help us spend our time better.”
  • Security is not our job: “When I buy a car, I don’t have to purchase seatbelts and bumpers on my own — I trust the automaker took care of making it safe. But the electronics industry puts the responsibility for security largely on us, selling way too many smart products that are the equivalent of cars with zero-star safety ratings.”
  • Focus on the “Internet of Services,” not the “Internet of Things”: “Putting a refrigerator on the internet isn’t in itself useful — it’s just more expensive.”
  • Don’t lock us in: “I’ve got four different talking assistants on various devices in my house, but unfortunately my virtual staff doesn’t communicate well with each other.”

Fowler reflected some overlapping themes about system security that were raised by NY Times writer Zeynep Tufekci [reprinted in the National Post]: “We built our digital world too fast, and cut too many corners“.

Modern computing security is like a flimsy house that needs to be fundamentally rebuilt. In recent years, we have suffered small collapses here and there, and made superficial fixes in response. There has been no real accountability for the companies at fault, even when the failures were a foreseeable result of underinvestment in security or substandard practices rather than an outdated trade-off of performance for security.

He concludes noting that we continue to suffer through hack after hack, security failure after security failure.

If commercial airplanes fell out of the sky regularly, we wouldn’t just shrug. We would invest in understanding flight dynamics, hold companies accountable that did not use established safety procedures, and dissect and learn from new incidents that caught us by surprise.

And indeed, with airplanes, we did all that. There is no reason we cannot do the same for safety and security of our digital systems.

We will be exploring these issues and much more at The 2018 Canadian Telecom Summit, taking place June 4-6, in Toronto. Early bird rates are now available. Save more than $200 by registering before the end of February. Why not register today?

Innovation and regulation

I spend a lot of time thinking about unintended consequences that emerge from telecommunications regulations.

A year ago, I wrote a piece asking “Will regulation inhibit innovation?”

That article was looking at technology solutions to deal with unsolicited calls from telemarketers. In response to a CRTC notice of consultation asking “what regulatory measures, if any, should be established,” at the time I observed, “Each time a regulatory measure is introduced, there are limits imposed on the degrees of freedom for innovation.”

Twenty years ago, permission-less innovation, sometimes in the form of spoofed calling identifiers, helped bring down the cost of delivering international long distance calls using line side connections. If caller ID had been verified, many low cost calling arrangements may not have emerged.

I continue to be troubled by the CRTC’s decision on differential pricing practices (Telecom Regulatory Policy CRTC 2017-104) issued last April. The language in the decision seems to ignore the potential for interference in service innovation. For example, the CRTC provided a specific direction, explicitly favouring certain types of innovation over others: “Rather than implementing marketing practices such as zero-rating, ISPs in the retail Internet access services market should focus on innovating by enhancing, for example, the speed, coverage, capacity, security, and reliability of their existing networks, for the benefit of Canadians.”

Early in the decision, the CRTC quoted a witness who asserted “that differential pricing practices would end the era when entrepreneurs are free to innovate without permission, which is a core net neutrality principle that has fostered innovation up until now.”

While the decision claimed to establish an ex-post complaints based regulatory regime for evaluating differential pricing innovations, it simultaneously established a regime for service providers to have the regulator pre-authorize innovations:

If an ISP is unsure as to whether a differential pricing practice would be consistent with the framework, it may file an application seeking a Commission determination prior to implementing the practice in question.

to encourage ISPs to seek a determination in advance of offering a differential pricing practice as appropriate, the Commission, in dealing with a complaint about a differential pricing practice and in accordance with its powers under section 72.003 of the Act, may consider imposing an administrative monetary penalty.

I sense an imbalance in permission-less innovation. In the early days of smart phones, differential data plans were the norm, with offers of low priced, flat rate access to popular applications intended to get people to try out mobile internet. None of these plans needed to be reviewed in advance by the regulator. We might want to consider whether any would have survived a review under the current Canadian regulatory framework. Yet, did the practice of favouring certain social media and messaging applications reduce incentives or opportunities for entrepreneurs to innovate without permission?

Hardly. These pricing practices encouraged more people to get online.

Can we do better anticipating the risks and opportunities that arise from intervention in the marketplace in order to avoid unintended consequences? Can regulators avoid the temptation to intervene and allow the marketplace to decide which business models will succeed?

How can policy makers ensure Canadians have the opportunity to derive the full benefits from innovation and disruption in an increasingly digital economy?

The theme for The 2018 Canadian Telecom Summit [June 4-6, Toronto] is “Innovation and Disruption in ICT: reinventing and securing our business and personal lives.” Save more than $200 by registering before the end of February. Why not register today?

Building an affordable digital world

To mark World Consumer Rights Day 2017, Canada’s Public Interest Advocacy Centre (PIAC) asks “How do we build a digital world that is affordable for everyone?

Are governments and policy makers in Canada and the rest of the world ensuring everyone can get online? PIAC believes much more can and must be done, especially to ensure low-income families – those who could benefit most from being online – can affordably access broadband.

PIAC notes that low income households are far less likely to subscribe to home internet service, as regular readers of this page know. PIAC says that cost was the number 2 reason cited by respondents for not subscribing. Lack of interest was the primary reason given, but other surveys have found this to be a euphemism affordability for families that are having trouble putting food on the table or paying for shelter.

As I wrote last month, during the hearing that led to the Basic Service Objective determination, CRTC Chair JP Blais interrupted the proceeding and said “Every day that goes by without a more robust Canadian broadband strategy means a Canadian who is socially and economically vulnerable continues to be profoundly disadvantaged.” Still, as PIAC notes in its press release, “the CRTC decided not to address affordability for low-income households at all, and instead asked the Canadian federal government to add this issue to its forthcoming Innovation Agenda.”

Since 2008, my opening remarks each year at The Canadian Telecom Summit have called for government and industry to work together to help increase adoption of broadband services in low-income households. TELUS and Rogers have stepped up to offer significant discounts on broadband service as well as low-cost computers, technical support and literacy training. But the government missed an opportunity to make such a program even more widely available as part of its approval of the Bell / MTS acquisition.

PIAC writes, “Affordable broadband will not only be a challenge in Canada but for all low-income consumers wishing to go online around the world. It is a challenge all governments and policy makers must recognize and urgently address.”

As I have written before, I support creative initiatives, such as Facebook’s “Free Basics,” as a way to encourage increased digital participation. In another post, I wrote that “Zero [rating] is better than nothing.” PIAC may differ on some elements of how to implement solutions to increase broadband adoption among low income households, but I unreservedly endorse PIAC’s concluding remark:

Universal digital participation is key to innovation and to building a digital world consumers can trust. For World Consumer Rights Day 2017, we believe Canada needs to ensure there is affordable broadband internet for all.