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.

A political focus on subsidizing telecom infrastructure is just so easy. There are multiple photo opportunities (at the announcement, the cheque presentation and the system activation), happy mayors, happy voters. It gets to be portrayed as economic stimulus, direct job creation and consistent with progress on digital economic development.

But while it may feel satisfying politically, I question the effectiveness of continued broad government subsidies based on geography, rather than taking a more focused approach based on need.

That is what drives my view that our attention needs to turn to subsidies with more precise targeting aimed at those who can’t afford a computer or the connectivity. The approach to date has been trying to level the prices charged in urban and rural markets, without regard to whether that price point is consistent with increased rates of adoption. As an aside, I wonder if there are studies that show that subsidized infrastructure in rural Canada increases broadband adoption more than targeted income-based subsidies would have.

It is within this context that I read an OpEd by Susan Crawford in the weekend New York Times. The piece opened with a paragraph that has since been changed. Here is how the original read:

FOR the second year in a row, the Monday after Thanksgiving — so-called Cyber Monday, when online retailers offer discounts to lure holiday shoppers — was the biggest sales day of the year, totaling some $1.25 billion and overwhelming the sales figures racked up by brick-and-mortar stores three days before, on Black Friday, the former perennial record-holder.

This has since been changed, realizing that Cyber Monday wasn’t the biggest shopping day of the year – just the biggest on-line shopping day:

FOR the second year in a row, the Monday after Thanksgiving — so-called Cyber Monday, when online retailers offer discounts to lure holiday shoppers — was the biggest online sales day of the year, totaling some $1.25 billion and overwhelming the sales figures racked up by brick-and-mortar stores three days before, on Black Friday, the former perennial record-holder.

Both versions continue “Such numbers may seem proof that America is, indeed, online.” But the correction results in the entire opening making no sense. As mighty as the sales were on Cyber Monday, they were only about one-tenth the volumes of sales on Black Friday. In what way did this overwhelm the sales figures of brick-and-mortar stores? I just wrote about Digital corrections. Having the premise of the article destroyed by the opening inaccuracy, it is tough to read through the rest of the piece – at its core, the OpEd was a tired argument for strong government intervention in the communications marketplace.

A blog post by ITIF research fellow Richard Bennett does a great job destructing Professor Crawford’s “old-school analysis.”

Her vision of future applications is utterly pedestrian. She says: “Within a decade, patients at home will be able to speak with their doctors online and thus get access to lower-cost, higher-quality care” without acknowledging that doctors already use e-mail, can use video calling in many cases, and have been reachable by phone for several generations.

Similar misguided calls for “structural separation” have also been heard in Canada – ignoring a regulatory framework that already enables competitors to access facilities and services from the facilities-based carriers. A competitive services marketplace continues to ignore the challenge of connecting households that don’t even have a computer.

Solutions for bridging the digital divide need to look beyond the myopic focus of infrastructure. How do we address adoption among identifiable groups – the most glaring being low income households? That should be a broadband target for the coming year.

Michael Sone and I are launching a new website today for The 2012 Canadian Telecom Summit. The event will take place June 4-6 in Toronto and we have already confirmed a number of sponsors and speakers.

The Canadian Telecom Summit is Canada’s leading telecommunications industry event and we are marking the event’s 10^th anniversary.

For three full days, The Canadian Telecom Summit delivers thought provoking presentations from the prime movers of the industry. The Canadian Telecom Summit gives you the chance to hear from and talk with them in both a structured atmosphere of frank discussion and high octane idea exchange and schmooze in a more relaxed social setting of genial conversation.

This year’s event will explore Competition and Innovation: Celebrating our Legacy, Developing the Future. In-depth panels will examine the Social Networking phenomenon, Cloud Computing, Mobile Commerce, the implications of Multiple Screens on Consumers and Business, the critical issues surrounding Privacy & Security, Unified Communications, the upcoming 700 MHz spectrum auction, and, of course, the not-to-be-missed Regulatory Blockbuster. We have also scheduled a special session to explore the ongoing development of the ever elusive National Digital Strategy.

We look forward to hearing from you with suggestions for the program. The registration system is open and available. To help manage your 2011 budget – you can pay on-line and receive a receipt right away.

Be sure to mark the dates on your calendar: June 4-6, 2012.