Last week’s CRTC hearing to examine differential pricing practices related to internet data plans highlighted many areas of confusion among Canada’s regulatory professionals.

Outside of the ISP community, many people seem to think that data tiers (often erroneously called “caps”) were created for traffic management. The misunderstanding may arise from the CRTC’s approval of such retail pricing mechanisms as a traffic management tool. As described by Xplornet (among others) tiers are not defined by the network organizations; rather they are primarily a creation by marketing departments to create a range of product options for consumers at different price points.

Data tiers are a very coarse method of managing congestion, in that they can be seen, especially on the wireless side, to constrain demand. Rogers explained last week, “traffic incurs costs, causes costs. So if you had unlimited traffic, in effect you would have unlimited cost.” Data tiers are a means to monetize the network investment in a way that those who want the capacity for more traffic pay more toward those costs. Of far greater import is the popularity of data tiers when unlimited plans are available. for example, Eastlink told the Commission that the vast majority of its wireline internet subscribers had unlimited data plans. Rogers said 40% of its wireline internet subscribers are signing up for unlimited plans.

Despite wide availability and high levels of adoption of unlimited data plans, there are some consumers who choose a lower priced option. Such tiers existed before the CRTC’s internet traffic management decision in 2009 and continue to exist as a means of price differentiation so that consumers can select which plan is best suited for their situation.

Open Media wants to deny that choice to consumers, asking the CRTC to ban data tiers. That makes no sense. At any price point for an unlimited plan, there will be consumers who would benefit from a lower priced option that includes some lower level of data. How can consumers benefit from losing choice? And, as a number of parties indicated to the CRTC, eliminating data tiers would result in price increases for the majority of customers.

Another area of misunderstanding was whether negotiations were required in order for an ISP to cease charging “per byte” for a particular application, a practice known as “zero-rating”. The confusion may have arisen from a casual read of the submission by TBayTel, where it says “This type of arrangement is possible to negotiate when the ISP has sufficient scale and market power but not for small providers like Tbaytel and many others.” However, TBayTel was refering to “sponsored data” with that statement, the practice where “ISPs are compensated by the application providers”. To zero-rate a particular app or data stream, no negotiations are required. The ISP simply stops charging for those bytes for a certain class of users. TBayTel has offered zero-rating to its customers, with a $15 flat rate for Blackberry users to have unlimited social networking.

TBayTel had been cited by a number of parties as saying it was too small to negotiate arrangements for zero-rating plans. The Independent Broadcast Group told the CRTC that TBayTel said it doesn’t “have the resources really to go out and put together an unlimited music type service or similar things that the big guys could do.” In reality, any ISP could implement zero-rating plans as a promotion without consultation or negotiations with the relevant applications.

Videotron said:

Écoutez, on ne niera pas que certains de nos concurrents seraient peut-être plus rapides ou d’autres moins rapides à pouvoir nous copier ou pouvoir lancer quelque chose de semblable, mais je vous répondrais que c’est un peu la dynamique de marché et que tant mieux.

Differential pricing is a means of offering targeted promotional pricing to attract or retain a certain demographic of customers. In a competitive marketplace, differential pricing provides increased choice. Such plans are optional and do not limit customers from accessing any other content. As I wrote before (see A matter of choice), Open Media’s claim that the practice “makes websites they don’t like slower” is simply not true. This false claim was part of its campaign to solicit support for its position in the proceeding. Given the false premise, one might question the support it garnered to oppose a pro-consumer choice practice.

As I have said many times before, differential pricing does not inhibit access to any content, it raises prices for no one and reduces costs for some. Banning the practice will reduce choice in the marketplace, raise prices for some and lower prices for no one.

Last month, I wrote Competition, investment and innovation, announcing my plans for a series to highlight ways that innovations originating in the communications sector have made a positive impact on our daily lives, as part of the lead up to The 2017 Canadian Telecom Summit, which will take place June 5-7.

Starting this past Tuesday (November 1), each day at 9:00am (Toronto time) I have been highlighting an invention or innovation that has emerged from the telecom sector.

I am collecting these tweets here.

Ten years ago, I wrote a piece called “4 degrees of impersonal communications.” In it, I describe how people say things in emails that they would never say to someone over the phone. And, over the phone (especially in a voice message), we seem willing to speak in ways that one would never consider saying face-to-face.

I wrote that piece before the popularization of social media which can, in some cases, be somewhat anti-social.

Yesterday was a good example. I was asked if I was “congenitally incapable of accurately representing ppl’s views that you don’t agree with“, in response to my observation that a witness was evading answering a direct question from the CRTC.

This followed a pattern of abusive tweets that I have generally ignored for many months. He seemed surprised to have been blocked, throwing in a jab or two in response.

The miracle of modern communications allows me to follow the CRTC Differential Pricing hearing from halfway around the world, commenting and engaging with others in real time – chirping from the sidelines, as some might say.

Other than fundamental disagreements on a number of issues, I don’t know what I did to set off a history of ad hominem tirades. I have met this person exactly once, a number of years ago as we were both guests of the CRTC at a dinner in Ottawa. We sat at different tables, so I am pretty sure that I didn’t accidentally use his bread plate, or take his napkin.

There are many people with whom I engage, without either party resorting to personal attacks about each other’s integrity. I cannot and will not tolerate such.

Let me digress for a moment. As many frequent readers know, I enjoy watching football, especially the Denver Broncos. I don’t follow the sport as much as I would like to, but there are aspects of almost every game that keep me coming back every Sunday in the Fall and early Winter. At the end of each game, I like seeing the players from both sides gather on the field, shaking hands with opponents and in some cases hugging and sharing long conversations. Moments earlier, these gladiators were ferociously attacking each other, clawing with their fingernails for every inch of the field. But when the final whistle blows, they are able to remember to be civil.

There are no referees on the field in Twitter; no red flags for unsportsmanlike conduct; no personal fouls.

Some have quit Twitter after getting bullied by anti-social behaviour – it is a recognized problem on that platform. But encouraging words from some and inspirational words from others will keep me coming back, sharing my observations, adding up those inches to make a difference.

Some people may need to cut down a little on their caffeine intake and try eating more bran.

I’ll be taking a little unscheduled time away for the next couple weeks for some important family time.

Unfortunately, the timing means I will be out of the country when the CRTC begins the oral phase of its “Examination of differential pricing practices related to Internet data plans.”

I have written extensively about those kinds of issues over the past few years. Links to many of those posts can be found in my piece from last week, “Differential pricing is about consumer choice.”

A variety of events have been making me think about “My Back Pages”, written by this year’s Literature Nobel Laureate Bob Dylan in 1964. In my view, the best performance of that song was when Bob Dylan joined Roger McGuinn, Tom Petty, Neil Young, Eric Clapton and George Harrison at the 30th anniversary concert in October, 1992 at Madison Square Garden. That evening gathered quite a mix of artists and I highly recommend the concert video.

Last week, I marked 36 years since I started working full time in telecommunications. By the time I started work in the fall of 1980, this composition was already 16 years old.

Ah, but I was so much older then, I’m younger than that now.

As Heritage Minister Joly continues to explore a range of options as part of the “Canadian Content in a Digital World Consultation,” we understand that most options are still on the table, but certain schemes – such as a “Netflix tax” – have already been ruled out.

Still, it seems extremely unlikely that there will be a new tax on internet access services, but quite possible to see the federal government apply its Goods and Services Tax (a value added sales tax) on all foreign digital services. This would align with a global trend to uniformly apply taxes on digital services – foreign and domestic. This would bring revenues into the federal finance department and then disbursements would presumably also come from the overall government budget.

The CRTC currently oversees a number of funding programs, on both the telecom and broadcasting side, that operate somewhat independently of the government’s plans and priorities.

For example, there has been an explicit subsidy regime, the National Contribution Fund, that was established to tax telecommunications services and distribute the funds to subsidize local phone service in high cost areas. Last year, the CRTC decided to allocate $5.5M from that fund in order to pay for Video Relay Service.

On the broadcast side, we have a variety of funds that tax revenues from broadcast distributors and subsidize Canadian media development, as well as a form of tax applied on broadcast acquisitions known as Tangible Benefits.

Is the CRTC administration of funding for social priorities an outdated artifact of a long past monopoly era?

When there was just one phone company and one cable company in an area, it didn’t make a difference who collected the tax revenues or who distributed those funds. Adding a few percent to the cost of monopoly communications services was a way for the government to fund related social programs without raising income or sales taxes.

But with so many sources of competition for voice and video communications, the CRTC’s taxation system is not applied uniformly. There are lots of voice services that are exempt from paying into the contribution system; there are lots of video services (such as Netflix and YouTube) that are exempt¹ from funding Canadian content creation.

Why aren’t these subsidies being administered by the relevant government departments?

We have recently seen the situation with the launch of Video Relay Services where the Minister of Sport and Persons with Disabilities said:

We believe people with disabilities should be able to fully participate in Canadian life as easily as anyone else. I understand what a difference it makes in a person’s life when they have the tools they need to succeed. So I am very pleased to see the launch of Canada’s Video Relay Service. This is a big step in the right direction.

There is no question that Video Relay Service is an important tool enabling many people to participate more fully in Canadian life, and it is reassuring to see the Minister affirm the Government’s support. That makes me wonder why the funding didn’t come from the Minister’s departmental priorities. Instead, we effectively have an internet app being funded by a tax generated from legacy telecommunications services.

The CRTC funding systems depend on artificially increasing the cost of old world services, creating a further incentive for consumers to migrate to new media and internet-based substitutes that aren’t paying into the tax system. As more users migrate, the funding comes from an ever shrinking pool of people, continuing to increase the per-user charge, further fueling migration.

As the government explores changes to its tax system to deal with digital services, perhaps it is time to end the pseudo-taxes being applied and distributed by the CRTC. Let the relevant Departments and Ministries administer the social subsidies and programs and level the play ground for competing services. And why don’t we leave tax collection to the finance department.

Notes:
¹ The Digital Media Exemption Order (DMEO), revised last year, exempts services such as Netflix and YouTube, and hybrid services such as Crave TV and shomi, from most obligations imposed on traditional broadcasting services.