Search Results for: incentives

According to the Montreal Economic Institute (MEI), the CRTC has outlived its usefulness.

“Since Canada has successfully transitioned from monopoly to competition, there is a case to be made that the CRTC should be phased out as Canada’s telecommunications regulator.” That is one of the conclusions of the 5th annual edition of “The State of Competition in Canada’s Telecommunications Industry,” released today by MEI [pdf]. Instead of a sector specific regulator, the report says oversight of the telecommunications industry could move to a more general regulatory framework under competition law.

The report also contends that, despite what it calls “simplistic and misleading” comparisons, Canadian wireless prices are competitive.

“The average bill that Canadians pay for their wireless and internet services keeps increasing not because they have to pay more for the same services, but because they are paying more for more and better services.” The MEI report cites numerous international metrics that Canada has some of the highest quality wireless networks in the world, and comparisons of prices rarely account for service quality.

According to the report, “Wireless carriers in Canada invested on average US$78 per connection between 2010 and 2016, almost twice as much as their European counterparts, which only invested $40.”

Looking at the regulatory framework, the report observes, “The main concrete difference so far between the FCC’s and the CRTC’s approaches to net neutrality has been the steadfast opposition of the Canadian regulator to zero-rating. … In banning innovative and pro-competitive targeted pricing plans, the CRTC has not protected the integrity of the internet; rather, it has raised prices for certain consumers and lowered prices for no one.” This is a familiar refrain to my readers for whom I have made the same observation over the years.

A little over a week ago, I asked on Twitter “What if #CRTC had given market forces a chance to work?”

MEI points out the irony of the CRTC, having an agenda of increasing competition in Canada’s wireless marketplace, ended up banning an innovative pricing plan from a new entrant (Videotron). According to MEI, that ultimately hurts Canadian consumers. Similarly, the report takes aim at the CRTC’s overly prescriptive Wireless Code as having “reduced consumer choice and limited the ability of carriers to develop innovative customer offerings.”

In this instance — as in many others — Canadians would have been better off if the CRTC had relied on market forces instead of attempting to manage the competitive process.

The report points to the December 2017 wireless price war sparked by Freedom Mobile’s $50 per month 10GB plan as evidence of the market’s competitiveness. Quoting the 12-year old report of the Telecom Policy Review Panel (TPRP), MEI says “the Canadian telecommunications industry has evolved to the point where market forces can largely be relied on to achieve economic and social benefits for Canadians, and where detailed, prescriptive regulation is no longer needed in many areas.”

It has been more than 12 years since the TPRP’s report was issued and, as discussed above, the CRTC has shown few signs of restraint in its approach to telecommunications regulation. While it has abandoned its prior focus on retail regulation, it has also expanded mandatory network access schemes, created policies that dull incentives to invest, and rewarded product imitators instead of product innovators. If maintained, these policies are bound to hurt Canadian consumers in the long run.

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Although dismantling Canada’s telecommunications regulator might meet with stiff opposition from partisans of continued heavy-handed regulation, it would be of net benefit to Canadian consumers and to Canada’s economy. The CRTC—while a necessary actor in Canada’s telecommunications landscape during the transition from monopoly to competition—has outlived its usefulness.

No doubt, the assertions made in the MEI report will feature prominently in the Regulatory Blockbuster at The 2018 Canadian Telecom Summit, taking place June 4 – 6 in Toronto. The Regulatory Blockbuster will feature leading advocates from Bell, TELUS, Rogers, Teksavvy and Ice Wireless.

Have you registered yet?

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[Update: May 8, 11:50am] The MEI report author has an opinion piece on the Financial Post website, entitled “The CRTC should celebrate its 50th birthday by giving up telecom regulations entirely” with the caption “Martin Masse: You may be wondering why exactly we still need a dedicated telecommunications regulator. We don’t”.

It likely comes as no surprise that phone bills and TV bills are bloated by fees to cover government programs.

Your phone bill subsidizes rural and remote communications services and access to emergency services. Your TV bill not only includes subsidies for Canadian content production, but also includes mandatory monthly fees for channels most of us never watch. And even though many of us tune into the Weather Network once in a while, most people likely have no idea that the monthly fee for that channel also covers the cost of operating the National Public Alert Distribution system.

Think about that for a minute as Canadians prepare to see the first test messages show up on our phones. The cost of distributing alerts to mobile phones is being borne by people who subscribe to cable TV.

The CRTC is currently reviewing the stations that qualify for 9(1)(h) “must carry” status. The term “9(1)(h)” refers to the section of the Broadcast Act:

8. require any licensee who is authorized to carry on a distribution undertaking to carry, on such terms and conditions as the Commission deems appropriate, programming services specified by the Commission.

I was struck by the presentations from a number of these stations, such as TV5 and APTN, that their programming is providing an important public service. It is understandable why these stations should be available on every broadcast distribution system in order to ensure availability of their programming to minority groups across the country. However, the issue in my mind is how these channels are funded.

In addition to any advertising revenue the stations may sell, every subscriber to a broadcast distribution system (cable or IPTV or satellite) pays a monthly fee whether they want those stations or not. Essentially, take the forecast for the revenue shortfall, divide by the forecast for TV subscribers and the result is what each subscriber is being asked to pay.

A visit to the websites of TV5 and APTN shows that much of the broadcast programming is available for streaming access, with no requirement to verify the viewer as being a subscriber to a contributing TV system. So people who have cut the cord, or never subscribed to a TV service have free access to a service paid for by TV subscribers.

There was a time when consumers had no choices. For most Canadians there was a phone company and there was a cable company. You could choose between a wall phone or a desk phone. You could choose whether you wanted add on features, like touch tone or call waiting or call display. There was no choice of service provider. TV offered very few options, effectively just different bundles of channels.

In those days, when consumers had no choice of service provider and there were no technology options, the telephone system and the TV system were able to be used as a secondary tax collection and wealth redistribution system. Want to subsidize the cost of phone service in rural and remote areas? Just tell the phone companies to charge more in the cities. Want to ensure there are minority language TV stations operating everywhere? Put a fee on everyone’s TV bill. Want to create a fund for Canadian content production? You get the picture.

The problem is that consumers now have alternatives, and not all of those alternatives are part of “the system”. Not all content providers contribute to production funds; Netflix is just the poster child for this area of imbalance. Every quarter, we read that more households have chosen to go without BDU TV service, opting to go online for their video content. So fewer and fewer households are in the denominator, from whom funds are being recovered, thereby raising the cost per household.

As the various fees increase, services that aren’t part of the system gain further cost advantages, accelerating the incentives for consumers to escape the system, and the cycle continues.

The most bizarre cross-subsidy is associated with the National Public Alert Distribution system, where TV subscribers bear the cost of the distribution of messages over the Wireless Public Alert service, by means of mandatory fees for carriage of the Weather Network.

Not only is there a mismatch between payers and the beneficiaries, but the fees are being applied in an imbalanced way to tax users of legacy services, accelerating cost advantages for subscribers to services that are outside of the system.

Is it time to reassess funding for the competitive age?

I spend a lot of time thinking about unintended consequences that emerge from telecommunications regulations.

A year ago, I wrote a piece asking “Will regulation inhibit innovation?”

That article was looking at technology solutions to deal with unsolicited calls from telemarketers. In response to a CRTC notice of consultation asking “what regulatory measures, if any, should be established,” at the time I observed, “Each time a regulatory measure is introduced, there are limits imposed on the degrees of freedom for innovation.”

Twenty years ago, permission-less innovation, sometimes in the form of spoofed calling identifiers, helped bring down the cost of delivering international long distance calls using line side connections. If caller ID had been verified, many low cost calling arrangements may not have emerged.

I continue to be troubled by the CRTC’s decision on differential pricing practices (Telecom Regulatory Policy CRTC 2017-104) issued last April. The language in the decision seems to ignore the potential for interference in service innovation. For example, the CRTC provided a specific direction, explicitly favouring certain types of innovation over others: “Rather than implementing marketing practices such as zero-rating, ISPs in the retail Internet access services market should focus on innovating by enhancing, for example, the speed, coverage, capacity, security, and reliability of their existing networks, for the benefit of Canadians.”

Early in the decision, the CRTC quoted a witness who asserted “that differential pricing practices would end the era when entrepreneurs are free to innovate without permission, which is a core net neutrality principle that has fostered innovation up until now.”

While the decision claimed to establish an ex-post complaints based regulatory regime for evaluating differential pricing innovations, it simultaneously established a regime for service providers to have the regulator pre-authorize innovations:

If an ISP is unsure as to whether a differential pricing practice would be consistent with the framework, it may file an application seeking a Commission determination prior to implementing the practice in question.
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to encourage ISPs to seek a determination in advance of offering a differential pricing practice as appropriate, the Commission, in dealing with a complaint about a differential pricing practice and in accordance with its powers under section 72.003 of the Act, may consider imposing an administrative monetary penalty.

I sense an imbalance in permission-less innovation. In the early days of smart phones, differential data plans were the norm, with offers of low priced, flat rate access to popular applications intended to get people to try out mobile internet. None of these plans needed to be reviewed in advance by the regulator. We might want to consider whether any would have survived a review under the current Canadian regulatory framework. Yet, did the practice of favouring certain social media and messaging applications reduce incentives or opportunities for entrepreneurs to innovate without permission?

Hardly. These pricing practices encouraged more people to get online.

Can we do better anticipating the risks and opportunities that arise from intervention in the marketplace in order to avoid unintended consequences? Can regulators avoid the temptation to intervene and allow the marketplace to decide which business models will succeed?

How can policy makers ensure Canadians have the opportunity to derive the full benefits from innovation and disruption in an increasingly digital economy?

The theme for The 2018 Canadian Telecom Summit [June 4-6, Toronto] is “Innovation and Disruption in ICT: reinventing and securing our business and personal lives.” Save more than $200 by registering before the end of February. Why not register today?

In a decision released earlier today, the CRTC finally corrected a small but significant error it made in Telecom Decision CRTC 2017-56, “Wholesale mobile wireless roaming service tariffs – Final terms and conditions”.

There was a single bullet point in the Appendix to that decision that caused concerns for Bell:

15.(a): Delete the second sentence. The third (i.e. final) sentence is sufficient to address this matter.

Here is the paragraph in the originally proposed Bell Tariff to which this instruction refers:

The Operator acknowledges that the Company has an equipment identity register (“EIR”) program. If any Device belonging to a Roaming Customer is identified as being stolen or unauthorized equipment that is registered in the Company’s EIR or in another EIR registry program in which the Company participates, then the Company shall be entitled to prevent usage of such equipment on the Company Available PMN. In the event the Company notifies the Operator of any Devices that have been used for Roaming which the Company believes have been stolen or are unauthorized, then the Operator shall use commercially reasonable efforts to investigate the registration of the Device and, where appropriate, suspend such Devices. [emphasis added]

The intent of the sentence was to permit Bell to block the use of a device that is on the Equipment Identity Registry (EIR) – the blacklist of stolen phones.

On April 10, Bell filed an application to review and vary that portion of the Decision, saying “we believe that the Commission’s directive is in error.” As Bell stated in its application, “any blocking of devices based on the EIR is automated and this sentence simply informs wholesale roaming customers of this fact.”

In reply, Rogers, TELUS, Freedom Mobile and Quebecor (Videotron) all endorsed the Bell application. There was no opposition to the filing. On May 25, Bell filed its reply, observing that all 4 of the interventions were in support, and “no party objected to our Application or our requested relief.”

A little more than 6 months later, the CRTC has finally cleared this file, saying: “the Commission finds that it erred in fact with regard to its determination on item 100.15.(a), and approves Bell Canada’s application to review and vary this portion of Telecom Decision 2017-56. The Commission therefore rescinds its directive for Bell Mobility to delete the proposed second sentence of item 100.15.(a).”

More than 6 months to approve an uncontested application that likely could have been handled as an erratum if there were better channels of communications.

“In order to help monitor its efficiency in disposing of applications, and in response to requests from stakeholders for more reliable response times by the Commission,” the CRTC established service standards “for the processing time to issue determinations on various types of telecommunications applications.” The current version of the standards were set in 2011.

Indeed, in Section 1 of the 2006 Policy Direction to the CRTC says:

3. the Commission, to enable it to act in a more efficient, informed and timely manner, should adopt the following practices, namely,
   1. to use only tariff approval mechanisms that are as minimally intrusive and as minimally onerous as possible,
   2. with a view to increasing incentives for innovation and investment in and construction of competing telecommunications network facilities, to complete a review of its regulatory framework regarding mandated access to wholesale services, to determine the extent to which mandated access to wholesale services that are not essential services should be phased out and to determine the appropriate pricing of mandated services, which review should take into account the principles of technological and competitive neutrality, the potential for incumbents to exercise market power in the wholesale and retail markets for the service in the absence of mandated access to wholesale services, and the impediments faced by new and existing carriers seeking to develop competing network facilities,
   3. to publish and maintain performance standards for its various processes, and [emphasis added]
   4. to continue to explore and implement new approaches for streamlining its processes.

The CRTC issues a scorecard each year for its performance during the previous year but the report does not show aging for applications that are still open. So, in the most recent report [for year ended March 31, 2017], the CRTC only closed 7 of 30 Part 1 applications within its objective of 4 months from the close of the record – just 23%.

The current version of the scorecard provides no information about the aging of outstanding applications that have not yet been closed. Such information may be helpful as a tool “to help monitor its efficiency in disposing of applications,” and to help provide stakeholders with more reliable response times.

As Bell said in its application, today’s decision was all about correcting a minor factual error or misinterpretation of the sentence that the Commission erroneously ordered deleted.

Perhaps there needs to be an examination of the processes that led to such a lengthy delay dealing with an uncontested Part 1 application.

“The Government will encourage more private sector competition and investment in services that have become essential in a digital economy.” That is a quote from the letter of welcome sent to CRTC Chair Ian Scott last week by Heritage Minister Melanie Joly and Minister of Innovation, Science and Economic Development Navdeep Bains.

“All Canadians and Canadian businesses deserve high quality telecommunications services at affordable prices.” How do you increase competition to drive “affordable” service prices while simultaneously encouraging investment?

It is a delicate balance. How do we define and measure “affordable”? We all want lower prices for everything, other than our own wages, but when you add the modifier “high quality” to the product definition, it gets more difficult to implement.

What is the right way to increase competition? What is the right level of competition that provides pricing discipline, encourages innovation, and maintains the right incentives for continued investment in infrastructure?

A recent article by Rita Trichur in the Globe and Mail starts by saying

The three-year contract is dead, but monthly bills keep rising. Switching carriers is a nightmare, add-on charges multiply like cockroaches, and being off contract doesn’t guarantee that you’ll find a substantially better deal if you shop around.

Many blame the CRTC. The regulator has tinkered with the rules, but it has largely failed to keep major carriers in check.

Yes. Monthly bills went up precisely because the three year contract is dead, just as the CRTC was warned. The CRTC banning innovative pricing plans like zero rating also has led to less price competition and discouraging product differentiation. In the case of Videotron’s Unlimited Music, the CRTC prohibited a service innovation by a new entrant and denied consumers a chance to save.

On one hand, we want consumers to have more choice, on the other hand certain groups want the only competition to be on the basis of price. If a service provider doesn’t have market power, do we really need to regulate its services and products?

Two sides to every coin.

The issue of spectrum set asides is another one that is more complicated than the average soundbite portrays. On one hand, the new entrants want access to more spectrum in the lower frequency bands, as noted by Christine Dobby in her recent article, which is why they are seeking a set-aside in the 600 MHz auction. On the other hand, Canada’s new entrants in the mobile wireless sector are not start-ups; they are multi-billion dollar vertically integrated communications giants – Shaw and Quebecor.

Quebecor’s Videotron Ltd. now has 16 per cent of wireless subscribers in the province and, after wrapping up expensive investments in building an LTE network, the business now makes a healthy contribution to the telecom division’s free cash flow, which increased by almost $100-million in the first half of this year to $399.5-million.

While Quebecor CEO Pierre Karl Péladeau told The Globe and Mail that Rogers, Bell and TELUS “received swaths of low-band spectrum from the government at no charge when they first set up their cellular networks in the 1980s”, the other side of that issue is that the incumbents have been paying annual license fees for that “free” spectrum. In total, the three companies have paid more than three and a half billion dollars in license fees, with a present value of more than $8.5B in 2017 dollars. This is hardly swaths of spectrum for “no charge”.

Under such considerations, should we still have spectrum set-aside for “new entrants” in the upcoming auction? Is it noteworthy that just last week, Mr. Péladeau criticized a two-tier system for Canadian content obligations, saying it “is blatantly unjust.”

Two sides to every coin.

High quality services at affordable prices creates a difficult tension in implementing communications policy.

What is affordable for some is different than what is considered affordable for others. As I have written before, perhaps our focus should be looking at the issue of affordability by “Looking at who, not just where.”

That would require increased product and service flexibility and the ability for service providers to differentiate themselves. Do we really expect increased competition to emerge from heavy handed government regulation?