The BCE / CTV decision from the CRTC reveals the importance of full disclosure in regulatory proceedings.

Broadcasting Decision CRTC 2011-163 received a lot of attention because of the interest in Canada’s increased level of vertical integration, which will be the subject of a hearing in June.

There are a couple lines in the BCE / CTV Decision that merit mention because they indicate the benefits of full disclosure when asked by the CRTC to produce evidence.

During the oral hearing, the CRTC asked for the financial model [around line 399 of the transcript] used by PwC in developing the valuation of the transaction. PwC said that the model was its intellectual property and that it does not normally release the spreadsheet:

It’s policy at PWC that we do not distribute the actual financial models that we prepare as part of our valuation work unless it is explicitly contemplated that provision of the model is part of our engagement.

The model was used to allocate the purchase price between TV and radio, which is important, since TV attracts a 10% “tangible public benefit” and radio only attracts 6%. Since the model was said to have a 10% range of accuracy, the CRTC adjusted the allocation by that tolerance, shifting more than $32M from radio to TV. The four percentage point differential appears to have resulted in about $1.25M in additional tangible benefits being allocated.

It leads one to wonder if it would have been less costly to adjust PwC’s engagement to permit sharing the model with the CRTC.

I’ll say it: on a retail level, maximizing profit should be how broadband prices are set.

Why is profit a dirty word?

Look at the messaging from the “Stop the Cap” group protesting plans by AT&T to introduce a new usage sensitive component to its pricing for broadband.

Stop the Cap! has been reviewing AT&T’s financial reports looking for justification for imposing usage controls on the company’s customers. Most providers who enact these kinds of pricing schemes claim they are about controlling heavy users, reducing congestion, and covering the costs to provide the service.

But after reviewing some of AT&T’s financial reports, the only explanation apparent for these limits is a quest for additional revenue and profits from subscribers.

Whew. I am glad to hear that. I was worried that AT&T was raising prices in order to quash demand and scare away customers. Instead, they seem to be doing it in order to have more money, which is what businesses are supposed to do. Money that lets AT&T pay salaries to its nearly 300,000 employees, pay $10B in dividends to the pension plans and individual shareholders who invested in the company and pay billions in taxes to the government. Oh, and let’s not forget that AT&T is using $20B of its cash to invest in more capacity.

The so-called investigation by Stop the Cap! appears to be a witch hunt against corporations doing what they are supposed to be doing: making money. Of course, as consumers we all prefer to pay less. Shop around. If you think the big carriers are making too much profit, buy their shares.

Wholesale is a completely different matter. But as far as retail is concerned, what is wrong with profit?

What are the rules for doing evil in social media? The Star Tribune explores this question in a story entitled “In social media, why let facts get in the way.”

One Facebook user, angry over a dispute with a neighbor, ridicules her online as a thief and a liar. On Twitter, someone accuses a murder suspect of being a killer. A blogger discloses sensitive details about a political candidate’s personal life.
…
Court actions involving users on youth-dominated social media remain surprisingly low, suggesting a new outspoken culture that’s more tolerant of lies, rude behavior and character assassination.

The article deals with US cases, but raises the universal point that “A lot of people recognize that these unaffiliated bloggers don’t have a lot of financial resources.”

On the other hand, in some cases, the defamatory postings are made from their places of employment by people who can be easily identified. Last week, a federal government employee landed in hot water for writing an email bashing a Sun Media writer (and Sun Media itself).

What policies do you have in place for employee use of corporate facilities for personal activities? This theme continues to remind me of a piece I wrote more than 4 years ago: “4 degrees of impersonal communications.”  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. What people say things in anonymous comments add the further dimension.

 

A silly tweet: “it’s funny how all these ISPs claim it’s a capacity issue but if you pay them more money they magically have more capacity” demonstrates the lack of understanding of the core issue in the usage based billing discussion.

Everyone seems to agree that the best way to deal with congestion is to add more capacity. Even the oft-reviled CRTC said this clearly in its landmark internet traffic management policy (2009-657). Of course that is the right answer.

The issue is how to fund that capital investment. Do you spread it across the entire base of customers or do you charge more to people who are using more resources?

So my reply to the tweet – “When you pay ISPs, they can invest in more capacity. Not magic, just network engineering.” Of course, my network engineering friends like to make everyone believe they are magicians.

This posting appears in today’s Financial Post as an OpEd, under the title: Net pricing means service flexibility: No network can ­handle every user around the clock

Internet pricing has become front page news in the wake of a CRTC decision (now being revisited) that changed the wholesale cost for some of the smaller service providers. In the confusion, the question of retail pricing for our home Internet service has become the subject of a parliamentary committee meeting, editorials and countless online debates.

For most Canadians, there is a choice between two large Internet service providers — the local or regional telephone and cable companies — that have built extensive fibre networks coupled with wire connections to 95% of our households. In addition, the CRTC estimates that there are 500 other Internet service providers of all sizes offering increased choice. With two large players and many others sharing a smaller position, it is a marketplace somewhat similar to the soft drink industry.

Just as we want Internet service providers to have the flexibility to offer unlimited plans should that be their business model, we need to ensure that there remains the flexibility for them to offer a variety of price plans that target other users, including low-cost entry level price plans.

About one in five Canadian households still have no connection to the Internet. More than half the homes in Canada’s lowest income quintile have no computer. Flexibility in Internet pricing is needed to give all Canadians, including those with lower levels of disposable income, an opportunity to participate in a digital future.

When we have a broadband connection to the Internet, it is accessing a shared resource. People choose from plans that offer a range of speeds that determine the maximum rate that data can flow between your computer and the rest of the world. These speeds contribute to how fast you receive your files and how high a resolution you see when streaming video.

As a shared resource, the quality of your connection also depends on how much other people are using their service and the level of investment being made by your service provider. The major phone companies and cable companies in Canada are investing billions of dollars each year, trying to stay ahead of demand that is growing by 50% each year as more of us consume more rich media over our Internet connections.

We have changed the assumptions that helped network engineers create affordable access. At one time, 20 or more households could share a high-speed connection without noticing any impact on their service. As more households adopt more advanced services, like streaming movies, more investment is being made to meet the demand. No network has ever been engineered to handle every user using the service around the clock. To do so would be irresponsible; we know that different users have different needs at different times and we can take advantage of that, statistically, to build networks more economically.

As the parameters change, the networks have evolved. For many of us who have been on price plans in the $40-$50 per month range, the speed of our broadband service has quadrupled over the past 10 years, delivered for about the same price. Lower-priced plans have appeared for people who don’t yet need the higher speeds and in many areas, ultra high speeds are being offered to the leading edge users who are the early adopters of what will seem commonplace in a few years.

Flexibility in pricing allows each of us to choose a service that matches our needs, priced to match our willingness to pay. Flexibility in pricing models means more choice and more opportunities to deliver options for Canadians who want to be part of Canada’s digital future.

There are more than 500 Internet service providers in Canada; there is no need for the government to regulate how I choose to buy my Internet service.