The CRTC is opening the north to competition in May, 2012. On Wednesday, I wrote about part of the CRTC’s regulatory framework Decision for Northwestel. In that post, I talked about the performance improvement plan that the Commission is imposing, requiring Northwestel to prepare and file detailed capital plans to upgrade aging infrastructure.

The other side of the Decision is starting the process to open the final frontier to competitive entry by alternate local phone service providers. Initially, the communities of Fort Nelson, Inuvik, Iqaluit, Whitehorse and Yellowknife will be required to offer number portability within 6 months of a competitor’s request. Number portability is expected to be introduced in remaining communities as the network is upgraded.

While there will be competitive pressures on Northwestel’s top line revenues, the CRTC denied a request to raise local rates for business and consumers, requiring Northwestel to apply cost reductions and efficiency gains instead.

Who will want to compete in these small, remote markets? Watch for SSi to take the lead. It has expressed a willingness to start with line side interconnection in order to get off to an early start. Jeff Philipp, SSi’s founder said in response to the CRTC Decision:

SSi strongly believes competition should be open across Canada, for the benefit of all.  With today’s decision, the CRTC has clearly ruled on the side of of choice and innovation.

Headquartered in Yellowknife, SSi has been offering broadband services in more than 60 northern communities. Expect SSi to take the lead in offering a range of alternative services, perhaps in partnership with familiar players from larger urban centres in the south.

The CRTC is threatening disconnection of a service provider for failure to comply with registration requirements.

In a Public Notice, the CRTC is hauling Brama Telecom, a Richmond Hill, Ontario based service provider, to a public hearing to be held in Gatineau on March 22, 2012 for having failed to comply with the requirements to register with the Consumer Complaints Commissioner. It was just over a year ago that the CRTC expanded the scope of the mandate for the CCTS, requiring registration for virtually all telecom service providers, regardless of their size and including internet services.

The CRTC’s is using the tools available to it for enforcement of the requirement. Brama will have to show cause:

• why the Commission should not order disconnection of Brama’s telecommunications services for failure to comply with the requirement to become a member of the CCTS, as set out in Telecom Decision 2010-921 and Telecom Regulatory Policy 2011-46; and
• why the Commission should not issue a mandatory order pursuant to section 51 of the Act with respect to Brama’s failure to submit information to the Commission as required by subsection 37(2) of the Act.

Section 51 of the Act says:

51. The Commission may order a person, at or within any time and subject to any conditions that it determines, to do anything the person is required to do under this Act or any special Act, and may forbid a person to do anything that the person is prohibited from doing under this Act or any special Act.

Subsection 37(2) says:

37. …

(2) Where the Commission believes that a person other than a Canadian carrier is in possession of information that the Commission considers necessary for the administration of this Act or any special Act, the Commission may require that person to submit the information to the Commission in periodic reports or in such other form and manner as the Commission specifies, unless the information is a confidence of the executive council of a province.

What makes a service provider operate with such defiance of the rules? The Public Notice indicates that Commission and CCTS staff held discussions with representatives of the service provider in August, and in a subsequent letter, the Commission ordered Brama to produce by August 24:

• proof that it had become a member of the CCTS or arguments demonstrating that Brama does not provide services within the scope of the CCTS’s mandate; and
• identification of the service providers from which Brama obtained service from as well as a list of the services provided to it.

It has not complied.

So now, it has been ordered to Ottawa on March 22, 2012. In addition, all service providers in Canada have effectively been told to check their records to see if they are providing any services to Brama and if so, describe the services to the CRTC by February 2.

Will Brama show up in March or risk finding itself in Court?

The CRTC has decided that “additional regulatory oversight is required” for Northwestel, in the wake of the Commission’s review of its regulatory framework.

The Decision is unusually harsh in its tone, with such statements as:

The Commission is concerned that Northwestel’s shareholders have benefited from the price cap regulatory framework to a far greater extent than its customers. Since 2007, Northwestel has received over $20 million in annual subsidy for the provision of service in remote communities and its annual income from operations has nearly doubled to $69.3 million in 2010. Despite this, the company has failed to make the necessary investments in its network. Northwestel’s infrastructure is aging and services comparable to those provided in the rest of Canada are unavailable in many remote communities. The Commission is also concerned that this situation has likely affected the quality, reliability, and choice of services available to customers, as evidenced by a number of outages in various communities and the lack of service options.

As a result, the CRTC is going to be putting Northwestel through what can best be described as a performance improvement plan. The first part of that process appears to be the first telephone company construction program review that I can remember in about 20 years. Gather round, kids. The old man is going to tell tales of when he was younger.

Back in the olden days, telephone companies submitted their capital program for regulatory review. Since companies’ rates were based on an allowed rate of return on their capital assets, the regulator wanted to be assured that the spending was appropriate. The public would be represented by various interest groups who would pore through mountains of paper and cross-examine technologists on why various lines of spending were necessary. Afterwards, the CRTC would make a change here and there and issue a finding phrased in the double negative: “we are unable to find the program to be unreasonable.” I use to enjoy the process, and there were a few restaurants in Vancouver and Ottawa that benefited from my participation in the old Bell and BC Tel review meetings.

In paragraphs 39-42 of today’s Decision, the CRTC has launched precisely this kind of review for Northwestel:

… additional regulatory oversight is required in the short term to allow for a more holistic review of Northwestel’s regulatory framework. Consistent with that determination and in order to address its concerns with Northwestel’s aging infrastructure, the Commission finds it appropriate to include an examination of Northwestel’s network modernization plan as part of that review.

I’ll have more on competitive aspects of today’s ruling later.

The CRTC has sent a strong message. The Policy Direction tells the CRTC “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 to meet the policy objectives.”

The measures in today’s Decision reflect a belief that light touch regulation has been unable to deliver telecommunications services of a quality consistent with the policy objectives set out in the Telecommunications Act.  Northwestel is on probation, under a heavy regulatory regime and while simultaneously facing new competition.

How will Northwestel respond? How long will it take for the company to redeem itself?

Today’s CRTC decision on Bell’s NFL/NHL mobile exclusives crystallizes the issues.

The CRTC found that it is anti-competitive for Bell to have exclusive agreements for carrying prime time NFL games, the Pro Bowl game, all playoff games (including the Super Bowl), NFL Network programming, NHL games and video highlights.

Canadians shouldn’t be forced to subscribe to a wireless service from a specific company to access their favourite content. Healthy and fair competition between service providers will promote greater choice for Canadians.

I respectfully disagree.

I certainly understand why other carriers would want to try to secure access to premium NFL/NHL content, but I disagree that this necessarily promotes greater choice for Canadians. Exclusives create greater choice, not all carriers carrying the same content. How competitive a marketplace is it if you can get the same content from all the service providers?

On the other hand, the more popular the exclusive content is on one carrier, the more the other carriers will have to compete on other features, services, content or price. Wouldn’t that make for a better consumer marketplace?

In a “real” competitive marketplace, consumers have to make tough choices, balancing price, features and service from one product or supplier against the different characteristics from another supplier. The risk of intervention is the appearance of protecting competitors, not competition.

The Bell / Rogers purchase of MLSE could lead to the end of foreign ownership restrictions in Canadian telecom.

Not for the reasons that are implicit in a couple tweets from Peter Nowak who wrote:

The longer that foreign ownership wall exists, the more likely it is that #Bell & #Rogers will own everything

followed by:

… If there were no foreign ownership regulations telecoms would spend $ elsewhere, like in telecom

I don’t buy into this line of thinking – that Bell and Rogers invested in MLSE because they operate in a protected environment. In fact, if you accept the stated intent of their acquisition, it would make even more sense as additional competition attacks their traditional core businesses. The nature of Canada’s communications business – offering content across more screens than most US carriers – could lead to greater success in content ownership than US cable companies were able to achieve. The Vancouver Olympics gave a preview of what can be done with cross-platform delivery of sports programming.

But I want to look at a different angle of last week’s blockbuster deal. Will it provide cover to the federal government to fully liberalize foreign ownership restrictions while keeping everyone happy at the same time?

It has been generally expected that the government wanted to lift the foreign ownership restrictions in the telecom sector, but did not want to face the possibility of Canada’s most iconic brands falling into the hands of foreign multi-nationals. If Saskatchewan’s potash mines were too strategic to go to a foreigner (pronounced “fuhr’ner”), how could high tech titans like Rogers or Bell be permitted to become “small” regional operations of an American, British, French or German carrier, let alone one from Russia or beyond.

That was why the federal government has been floating the idea of the small carrier solution – allow foreign ownership of carriers with less than 10% of the market. Using the rules set out in the last spectrum auction, the 10% solution really means: we’ll allow full liberalization for all carriers other than Bell, Rogers and TELUS.

Problem was that there is a certain unfairness with that kind of liberalization. Why would we penalize the 3 largest companies with a higher cost of capital, just because they are successful? Such unfairness doesn’t play well and it certainly isn’t consistent with Conservative economic principles.

Last week’s deal appears to provide the perfect cover for the government to do the right thing by lifting all restrictions on foreign direct investment in telecommunications. Bell and Rogers are now so fully invested in content for their broadcast assets, feeding their extensive multi-screen platforms, that the companies will not be able to separate out their telecom assets. The Toronto Maple Leafs are the perfect poison pill to prevent Bell or Rogers from falling into foreign hands.

No one is talking about liberalizing ownership restrictions for broadcasters. While people have correctly called for cable and direct-to-home satellite to be regulated as telecom assets, broadcasters like TSN and Sportsnet will continue to be Canadian. And with the Leafs as the marquee asset for delivery of those networks on your PC, your phone and your TV, there is no practical way to segregate the ownership of these conglomerates between the broadcast and telecom assets.

As a result, the federal government can now lift the restrictions for all, treating all players equally – just as Rogers has been requesting.

The Toronto Maple Leafs biggest play this season may be solving the political challenge of liberalized foreign ownership in telecom.