Search Results for: incentives

As was widely reported, last month I was asked “to conduct an analysis of the impacts and risks that the MTS acquisition [by BCE] may have for SaskTel.”

The report was released yesterday [link to press release; link to full report].

As SaskTel reported in its press release, the following are the key risks that are outlined in detail in the report:

• The possibility that reduced numbers of facilities-based carriers in Manitoba could lead Federal government policy makers to create incentives for additional wireless competition to develop through lower costs for new entrant spectrum or other measures. Such measures could reduce the costs for competitors and increase costs or restrict capacity expansion for SaskTel.
• The further concentration of the market in Manitoba could see removal of the four carriers objective by the Federal government, possibly enabling Shaw to sell its acquired WIND Mobile business or partner with other telecoms. If Shaw launches a competitive mobile service, there is a risk that SaskTel’s consumer communications services will face significant pressure from a second bundled service package in Saskatchewan.
• There is a risk the establishment of Winnipeg as a western headquarters for Bell could lead to an erosion of SaskTel’s share of the Saskatchewan business market.
• There is a risk that Rogers will look to replace its lost partnership with MTS by developing retail partnerships with cable companies in Manitoba and Saskatchewan. This would improve the competitive positions of Rogers, as well as local cable companies.
• For the reasons identified in the report, there is a risk that SaskTel’s net income will be unable to support the level of dividends that have been returned to the province in recent years.

Here is a collection of media coverage:

• BCE/MTS deal could squeeze SaskTel profits, quash Feds’ four carriers objective | Cartt.ca
• Bell-MTS deal could pose regulatory risk for SaskTel: report | The Wire Report
• SaskTel profits may be at risk following MTS buyout: report | Global News
• Risk assessment warns of threat to SaskTel | Regina Leader-Post
• SaskTel’s bottom line at risk if Bell-MTS deal approved, says independent report | Financial Post
• SaskTel profits at risk according to assessment | CBC News
• Premier asks SaskTel to respond to report that says profits at risk | CBC News
• Report confirms SaskTel is well positioned for the future | Unifor press release
• Risk assessment of SaskTel reveals concerns over profits | 620 CKRM
• Fundamental risk for SaskTel after Bell deal to buy MTS: report | Canadian Press
• Bell’s takover of MTS poses risks to SaskTel, report says | The Globe and Mail
• Report looks at impact of BCE acquisition of MTS on SaskTel | MobileSyrup

In 2003, Britain’s Better Regulation Task Force issued a document describing “Principles of Good Regulation“.

It is worth a fresh look.

Back in 1997, the Task Force suggested that policy intervention and enforcement, should meet these five principles:

• Proportionality
• Accountability
• Consistency
• Transparency
• Targeting

The 2003 document reminded policy makers that they have a wide range of options available for implementing their policy objectives, and encouraged the leaders to “consider them all, rather than automatically assume prescriptive regulation is
required.”

• Do nothing
• Advertising campaigns and education
• Using the market
• Financial incentives
• Self-regulation and voluntary codes of practice
• Prescriptive regulation

Although some suggest that markets aren’t working, the Task Force suggested that regulation is not necessarily the cure.

Government can remove problems preventing markets from working effectively or can introduce a market where none exists.

Often markets do not function effectively if participants do not have all the information necessary to make an informed decision. Industries can adopt codes of practice, regulating the provision of information themselves or Government can require producers of goods or services to provide relevant information or provide the information itself.

On the subject of prescriptive regulation, the Task Force warns:

There are areas where this is the best means of achieving a policy objective. However, prescriptive regulation, like many other means of government intervention, may have unintended consequences… It will often be less flexible and less sympathetic to the way markets work than other tools.

What characteristics do Canadians expect from its regulatory authorities?

The 2003 document from Britain’s Task Force includes a section entitled: “Tests of good regulation, and pitfalls to be avoided”. In it, the Task Force states “Regulations must: Be balanced and avoid knee-jerk reactions; Seek to reconcile contradictory policy objectives; Balance risks, costs and benefits; Avoid unintended consequences; Be easy to understand; Have broad public support; Be enforceable; Identify accountability; Be relevant to current conditions.”

Using the Task Force tests, how would Canadian regulators and regulations be scored?

Something to discuss at The 2016 Canadian Telecom Summit, coming up in less than 2 weeks. Have you registered yet?

Canadians benefit from some of the most advanced and efficient wireless and broadband Internet services in the world. Further, penetration and usage rates for newer wireless technologies like tablets, smartphones and LTE connections in Canada are among the highest for industrialized countries.

These are among the findings of The Montreal Economic Institute in the 2016 edition of its report on “The State of Competition in Canada’s Telecommunications Industry” [pdf, 5MB].

According to its authors, Martin Masse and Paul Beaudry, the publication of the report was motivated by the mistaken impression given by some observers that Canada’s telecommunications industry compares poorly with that of other jurisdictions.

The report attempts “to dispel the notion that Canadians pay uncompetitive prices for low quality services.”

It argues that government and CRTC interventions in the wireless and wireline sectors could lead to unintended consequences that might jeopardize investment and innovation.

The release is timely as parties prepare final written submissions for the CRTC’s Review of basic telecom services. The authors urge Ottawa to resist intervening in the broadband Internet sector as it has in the wireless sector.

Any CRTC attempt to declare broadband an “essential service” and to regulate and subsidize it would be a solution in search of a problem, as broadband is well on its way to becoming ubiquitous simply through the normal course of technology adoption.

The report charges that the CRTC’s wireline wholesale decision, under appeal to the Federal cabinet, ignores the lessons of Europe, “where two decades of network sharing regulations and an obsession with price competition has led to a decline in mobile revenues and underinvestment in network infrastructure.” The authors call for Cabinet to modify the CRTC’s decision, and in renewing a commitment to the 2006 Policy Direction, “remind the regulator that infrastructure deployment is key to Canada’s long-term economic prosperity and should be encouraged, rather than deterred.”

Interventionist policies aimed at helping smaller players gain market share can have harmful effects on innovation and weaken incentives to invest in and deploy new infrastructure.

The report concludes: “Canada already has dynamic and competitive markets in telecommunications, and there is no need for costly and counterproductive policies that merely promote artificial competition.”

In releasing the report, the authors endorse the Bell acquisition of MTS announced earlier this week.

These issues and much, much more will be explored at The 2016 Canadian Telecom Summit, taking place June 6-8 in Toronto. Have you registered yet?

Can the CRTC order a carrier to build broadband facilities where no service exists?

How much power does Canada’s telecom regulator actually wield if it decides to add broadband to the list of basic services?

This is turning into an important question as the Commission approaches the end of the 3 week-long oral phase of its “Review of basic telecommunications services.”

Late Monday afternoon, I replied to a stream on Twitter that was discussing how the CRTC could order phone companies to dig into their profits to fund universal broadband. I commented that the CRTC can create incentives for people to build facilities, but it lacked the power to order a company to build where it didn’t want to:

It appears that the CRTC also wants to clarify the extent of its powers. In a letter to parties in the proceeding, the Commission asks for “views, along with supporting rationale, on the Commission’s legal authority as it relates to certain aspects of retail broadband Internet access services”, including:

1. its jurisdiction to mandate the provision of broadband Internet access service in areas where such speeds are not available, in areas where facilities exist but can’t deliver such speeds as well as areas where new facilities would have to be built;
2. the CRTC’s ability to use the “unjust discrimination or undue disadvantage” provisions of the Telecom Act where a carrier provides services to some people in its operating territory but not to everyone; and,
3. the CRTC’s authority to set a price ceiling on entry-level broadband services.

The CRTC did not ask for comment on the question of upon which carriers an obligation to build may fall. Would it be the so-called incumbent phone company? In Canada, cable companies were first to offer broadband. In some areas, it is a local wireless internet service provider who is the “incumbent” broadband service provider, some of which received government funding to establish service. So, where is the definition of a carrier’s operating territory and upon which carrier or carriers would the CRTC impose an obligation to build?

Comments are due to be submitted to the CRTC May 5.

Ultimately, the Court will decide if the government has the power to order a company to build facilities where it doesn’t want to.

---

[Update: April 26, 2:00 pm]
In 2010, the issue of Commission powers was raised and 2 legal opinions were filed. Bell filed an Opinion authored by Michael Ryan of Arnold & Porter; PIAC filed an Opinion authored by Barbara A. Cherry, J.D., Ph.D.

The documents have been uploaded to Scribd, from their original sources: the Ryan Memorandum was Appendix 3 of Bell’s 26 April 2010 evidence [2.5MB zip]; the Cherry Memorandum was filed as part of a PIAC interrogatory response PIAC(TELUS)20May10-3 [140 KB zip].

Thanks to a neighbour for pointing to the earlier process

[Update: April 26, 2:30 pm]
Another Opinion prepared by Tamir Israel and oline Twiss was filed by CIPPIC in its August 30 (2010) evidence [275KB zip]

Did the CRTC’s “Review of wholesale wireline services and associated policies” decision in July contain provisions that reduce the incentives for major carriers to invest in advanced broadband infrastructure?

That may be the first major digital economy policy question to be faced by the Trudeau Government’s as yet un-named Minister of Industry. A day after the election, Bell Canada has filed a cabinet appeal of the CRTC’s decision, claiming that Canada position as a broadband leader is being threatened by the CRTC’s wireline wholesale decision, that changes the rules by mandating reseller access to these next generation fibre-to-the-home networks. Bell argues that its investment to date of more than $2.5B enables more than 2M households to access its Gigabit Fibe Internet service already.

Bell’s position in the proceeding leading to the July decision had warned that mandating resale of fibre-to-the-home could lead to:

1. reduced private capital being deployed in fibre-to-the-home infrastructure;
2. fibre-to-the-home going to fewer communities, particularly smaller and rural communities;
3. jobs being lost; and
4. undermining the competitiveness of Canada’s economy .

Why did Bell file immediately after the election?

Under Section 12 of the Telecom Act, a petition for Cabinet review of a CRTC decision must be presented within 90 days. Since the CRTC issued its decision on July 22, the deadline happens to fall on October 20 – today – the day after Justin Trudeau’s Liberals were swept into power. The timing is purely coincidental and should not viewed as a test of the new government.

The CRTC’s decision clearly caught Bell by surprise. Just a month before the release of the CRTC’s decision, both TELUS and Bell announced significant, multi-billion dollar investment plans for fibre to the home projects across the country. These aren’t just sharply enhancing service quality in big cities; Bell Aliant has connected more than 60% of homes in Atlantic Canada to date. And only 2 weeks ago, Rogers announced its plan to roll out gigabit speeds to its entire cable footprint [see “A national gigabit dream“].

In the proceeding leading to the CRTC’s wireline wholesale decision, many smaller ISPs were looking for liberal resale privileges for fibre-based services; the CRTC stated “Increased choice is expected to drive competition, resulting in further investment in high-quality telecommunications networks, innovative service offerings, and reasonable prices for consumers.”

The fundamental question for the government is whether that CRTC determination is sound.

Does price competition from smaller non-facilities-based ISPs increase or decrease the incentives for continued infrastructure investment by facilities based providers?

Bell warns that the CRTC’s decision to favour resale over investment will result in reduced investment in infrastructure in Canada. Its evidence to the CRTC showed that is what happened to Europe, “where policy-makers are now searching for ways to recover.”

Does increased price competition for consumers promote further development of innovative services and investment, as the CRTC states? Are mandated wholesale rules required, or indeed, appropriate, in a marketplace that has multiple wireline and wireless choices for most consumers.

Since the CRTC’s landmark long distance decision more than 20 years ago (a proceeding with which I had more than just a passing interest) the Government, CRTC, and the Competition Bureau have all promoted facilities-based competition as the model to promote, sustainably delivering price, quality, and innovation benefits of competition to consumers.

While the timing of the appeal was driven by the CRTC, not the election of a new government, there are some fundamental policy questions raised in the application that will force the new cabinet to give consideration to how to approach private sector investment in the digital economy.

The Liberal platform said “It is time for smart, strategic investments that will turn our economy around and get it growing again. Our plan will deliver the services we need, create jobs, and restore economic security to the middle class.”

The major carriers in Canada have been making multi-billion dollar investments in strategic infrastructure, without government funding, creating jobs both directly and indirectly. While major centres could still attract fibre-to-the-home investment, Bell has warned there is a risk that the business case for fibre may not be supportable in smaller towns and rural areas under a mandated resale regime.

Under the Telecom Act, the yet to be formed cabinet has until July 22, a year after the original CRTC decision, to “vary or rescind the decision or refer it back to the Commission for reconsideration”. Bell’s application will get the new government to conceive its own digital policy in the next 9 months.

The term “infrastructure” appears 50 times in the Liberal platform. Will the new government want to take the risk that the private sector will curtail billions of dollars of its own investment?

It may be notable that the 2006 Report of Telecom Policy Review Panel was delivered to Stephen Harper’s first Minister of Industry, Maxime Bernier, but the panel was actually created by the Liberal government under Prime Minister Paul Martin and Industry Minister David Emerson in April 2005. That 2006 report called for a fresh review every 5 years, a call that was ignored by the Conservative government. Perhaps the new Trudeau government, in its quest to return to fact-based policy making, will strike a new expert panel to engage in consultations, just 5 years overdue.