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:

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?

A Bloomberg article about the impact of system failures at Delta Airlines earlier this week said “Delta System Failure Marks Wake-Up Call for Airline Industry“.

In fact, I suspect Boards of Directors in every industry, not just the airline industry, are asking their CEOs for an assessment of the risk of their systems having a similar system-wide failure.

The Wall Street Journal is reporting that Delta’s CEO, Ed Bastien, is taking full responsibility for the outage:

Over the past three years, the nation’s No. 2 airline by traffic has spent “hundreds of millions” in upgrades and systems, including $150 million this year alone. Delta earlier this year named a new chief information officer and has brought in new leaders for its information technology and infrastructure team.

“It’s not clear the priorities in our investment have been in the right place,” Mr. Bastian said. “It has caused us to ask a lot of questions which candidly we don’t have a lot of answers for.”

Years ago, I spent a fair bit of time with an external auditor who wanted to understand more about how our network was configured. We talked about risks and ways to mitigate those risks. When negotiating fibre swaps, we looked at detailed maps to ensure that we were really getting improved physical diversity, not sharing the same railroad tracks, bridges, etc. As a result, physical failures from fibre cuts or power outages often have backups to restore service or, at worst, will generally result in a limited, somewhat localized outage.

Software changes often present the most substantial risk, with updates being rolled out system wide over a short period of time. How often have we seen failures arise from software failures that weren’t detected in the labs and did not materialize until subjected to peak traffic loads?

It isn’t enough to spend money on system resilience. Delta shows that money needs to be spent in the right places.

As more devices get connected in the Internet of Things, and with autonomous drones and cars, companies need to take a fresh look at system resilience, understanding the risk of failures and the costs that can arise.

Not every system has to be up all the time. But does your Board understand the cost of failure?

Sara Diamond, President and Vice-Chancellor of OCAD, and Karel Vredenburg, head of IBM Studios Canada, wrote a piece in the weekend Globe and Mail, entitled “There’s no innovation agenda without design thinking“.

Today, competitive success is determined by the ability to understand human needs and desires and to deliver richly imagined ways of addressing them. Many organizations recognize the importance of innovation, but they don’t know how to achieve it. The answer is design.

Now, of course the head of Ontario’s college of art and design will say that the “answer is design.” But there is merit to considering the need to include the arts, humanities and social sciences together with the typical focus on science, technology, engineering and mathematics.

A few years ago, I wrote “Is your recruiting smart enough?” in which I extolled the virtues of increased diversity in hiring. I recall that at Bell Laboratories, we had geography and music graduates working alongside engineering and mathematics grads as we designed new capabilities for the AT&T long distance network. Our customers weren’t all engineers; we needed to make sure that human factors were part of feature design work, not just engineering elegance. I wrote about how we used to recruit at Bell Labs in a post “A diversity of views“.

We need to do better leveraging the diversity that makes Canada such a great country. Our technology companies need to do a better job hiring from non-traditional areas including the arts, humanities and social sciences. And we should do a better job reading resumes from our military veterans, leveraging their experience and leadership develop under the most trying conditions.

As Diamond and Vredenburg write, “This would be a profoundly Canadian tack, using our creative talent and culturally diverse know-how to effectively address and build markets and ensure a competitive advantage against purely STEM plays in other jurisdictions.”

The CRTC has launched a Review of the Wireless Code, a proceeding that will culminate with an oral hearing in early February 2017.

The Wireless Code was created in 2013, “to address the clarity and content of mobile wireless service contracts and related issues”. The CRTC says its objectives are to:

• make it easier for individual and small business customers to obtain and understand the information in their wireless service contracts;
• establish consumer-friendly business practices for the wireless service industry where necessary; and
• contribute to a more dynamic wireless market.

In establishing the Wireless Code, the Commission had committed to measuring and reviewing the Code’s effectiveness within three years of its implementation.

392. The Commission considers it appropriate to develop an evaluation plan for to evaluate the effectiveness of the Wireless Code, including the WSPs’ compliance reports referred to above. The results of this evaluation will form part of a formal review of the Wireless Code following its implementation. The Commission considers that a three-year time frame for this review is appropriate to (i) monitor compliance with the Code, (ii) ensure the Code’s effectiveness, and (iii) correct any issues that may develop during the implementation process.

In the current review, the CRTC has asked for detailed comments on a range of issues:

• The effectiveness of the Wireless Code;
• The evolution of the retail mobile wireless market since the implementation of the Wireless Code;
• The content and wording of the Wireless Code;
• Consumer awareness of the Wireless Code;
• How the Wireless Code’s effectiveness should be assessed and reviewed going forward; and,
• The effectiveness of the Wireless Code.

But, the CRTC has already determined that a number of issues are out of scope, including “rates and competitiveness of the marketplace.”

What is less clear is whether the CRTC will consider the costs of the Wireless Code itself: how much are consumers paying for some of the provisions of the code?

Three years ago, I wrote about some of these “costs of regulation“, including the increased monthly charges associated with having to recover the cost of a device over 2 years instead of 3. There are other provisions in the Wireless Code that raise costs for consumers.

For example, the Wireless Code specifies a 15 day “trial period”:

250. Accordingly, the Commission considers that a requirement to provide a trial period lasting a minimum of 15 calendar days for contracts under which the consumer is subject to an early cancellation fee represents an appropriate balance between the needs of consumers and the burden that such a requirement places on WSPs.

As a result, if you buy a phone from a wireless carrier, you can return it within 15 days and cancel the contract. The carrier has to accept the phone back and cannot charge a restocking fee. The carrier is now stuck with a used device. Note that if you buy the device from a big box retailer, there is no obligation for the retailer to take back your used device. The cost to the carriers of these trials is being borne by the overall subscriber base.

Measuring the effectiveness of the Wireless Code is important. Will the CRTC seek evidence to help measure the cost-effectiveness of each provision of the Wireless Code?

“The past was never as good as some people would have you believe. And the present is never as bad.”

That quote was in an article I read this week by Roy Peter Clark about US politics. But the quote jumped into my mind as I read an opinion piece in yesterday’s Globe and Mail that mistakenly claims “Canada is reverting to its pre-1992 telecom conditions“. The piece was co-authored by telecom entrepreneur Michael Kedar and Stéphane Gagnon, a professor of business technology management at the University of Quebec in Outaouais.

The article claims that “The evolution from 100-per-cent monopoly to today’s regime benefited Canadians tremendously. It brought the cost of that $1 call to a few pennies, owing to the entry of competitive companies such as CallNet, Unitel, Clearnet, Microcell and others. Most of those competitors are long gone, though, purchased by the dominant players. And the benefits of equal-access competition, introduced in 1992, have been eroded to the point where they are nearly gone, too.”

I remember the days before the CRTC’s landmark decision in 1992 very well. I was part of the lead off panel that testified in the oral hearing in that proceeding. Many people don’t realize that we had to prove the case for competition to the CRTC. In fact, I still have my briefing book on the shelves in my office – one of the tabs in that binder highlights why we used the term “equal ease of access”, not “equal access”. The CRTC used our terminology in their decision.

The benefits of equal ease of access have eroded mainly because the marginal price of a minute of long distance voice communications has fallen so precipitously close to zero. I speak to my overseas family on a daily basis, still marveling at the ability to be using a mobile phone traveling 100 kmph on a highway, traversing overseas lines and speaking to my daughter riding on a high speed train home from work – and there are no charges per minute.

Who needs equal ease of access when so many calls are now effectively free with your monthly plan?

While Kedar and Gagnon claim that most of the competitors were purchased by “the dominant players”, they neglect to mention that many were acquired out of bankruptcy or on the verge of financial disaster.

We shook up the telecom market back in the early nineties – what business school profs might say was an early instance of disruption in the technology arena.

There were a lot of failed business models. A number of companies took advantage of arbitrage opportunities and made a lot of money in the early days, but struggled as the bigger players adjusted. When retail prices fall toward zero, profitable arbitrage opportunities are tough to find.

The survivors are those companies that have anticipated and driven changes in the marketplace, investing in new technologies, to develop innovative new products and services.

Kedar and Gagnon say “Today, more than 90 per cent of the spectrum and revenues are held by the three former monopolies – Bell, TELUS and Rogers.” The authors claim “They were the only players with a 100-year head start in the infrastructure deployments necessary for building wireless networks.”

Really?

In what field did Rogers have a 100-year head start? Apparently the authors forgot that Rogers was actually one of the competitors, a key investor in the group that led the battle to create Canada’s competitive telecommunications landscape that started in 1992. It didn’t have a head start.

Kedar and Gagnon say “Ubiquitous interoperability and high quality of service are essential, and are not to be entrusted to private monopoly providers.”

What monopoly?

One might ask what were the factors that led these companies to compete against each other? Why did these companies succeed in expanding their geographic scope to operate nationally while other telephone and cable companies kept to their original territories? Bell, TELUS and Rogers were not the only companies of their kind in 1992. Why Rogers and not Videotron or Shaw? Why Bell and TELUS and not MTS or SaskTel?

In any case, it is completely inaccurate to refer to Bell, TELUS and Rogers as “private monopoly providers”. Even the application of the term “incumbents” is an artifact of linguistic gymnastics by the government in defining who qualifies as a “new entrant” bidding for spectrum set-asides.

Pre-1992, there was the phone company, a single company in each area. In many parts of the world, that telephone monopoly was in the hands of a government agency, often part of the post office (the PTT – postal, telephone and telegraph). Those of us who ever dealt with a PTT do not remember them fondly and they were generally not noted as models of customer service excellence. Would Kedar and Gagnon prefer a return to the days of state-owned government monopolies?

The past was never as good as some people would have you believe. And the present is never as bad.

In my briefing book, the word “choice” is highlighted over and over again. One of the messages that we were trying to deliver was that competition in long distance would lead to improved consumer choice.

None of us had any idea of the number and kinds of choices that consumers would enjoy 25 years later. Speaking through instant messaging applications? Watching football games on a mobile phone?

We didn’t know that cable companies would offer voice calling, that wireline communications would no longer be an automatic choice for households. That phone companies would stop installing copper lines.

Kedar and Gagnon say “It is elected government, devoted to the public interest, that is entrusted with ensuring equal and fair access to promote innovative participation by all.”

What we actually need is a government that promotes investment by the private sector. We need government to promote measures that enable and encourages the private sector to experiment with different models, some of which will succeed and some will fail, but all will continue to deliver more choices to consumers.

The past was never as good as some people would have you believe. And the present is never as bad.

I continue to look optimistically to the future. As I have written before [such as here and here], the future will be brighter for Canadian innovation if the government would try harder to get out of the way.