Search Results for: incentives to invest

With Google planning to build an urban fibre optic network in Kansas City, all sorts of commentators are looking at ways to achieve similar outcomes for the other 99.9% of North Americans.

Susan Crawford had a piece in Wired on Tuesday that offers a proposal: We Can’t All Be in Google’s Kansas: A Plan for Winning the Bandwidth Race. If you read the article fast enough, it makes for an entertaining read, but its conclusions are predicated on a number of questionable premises and assertions.  Check out this opening:

Even though America is in a “global bandwidth race” and our “nation’s future economic security is tied to frictionless and speedy access to information,” according to FCC Chairman Julius Genachowski’s latest speech – we don’t have a plan for winning that race.

And our current incumbent providers are not going to help. They’re not going to be the ones rolling out the fiber-to-the-home networks that could provide this speedy access to information. Why? They have no incentive to do so. Because they never enter one another’s territories, they don’t face the competition that might spur such expansion.

Instead, incumbent internet access providers such as Comcast and Time Warner (for wired access) and AT&T and Verizon (for complementary wireless access) are in “harvesting” mode. They’re raising average revenue per user through special pricing for planned “specialized services” and usage-based billing, which allows the incumbents to constrain demand. The ecosystem these companies have built is never under stress, because consumers do their best to avoid heavy charges for using more data than they’re supposed to.

The errors abound. Here are just three of the more obvious problems:

• No “plan for winning that race”? I guess if you ignore the FCC’s National Broadband Plan and spectrum auction incentive plans discussed in the same speech referred to in the opening sentence. Canadians would love to be as far along in national policy planning.
• “Our current incumbent providers are not going to help… rolling out the fiber-to-the-home networks”? I guess if you ignore the tens of billions of dollars bet by Verizon on FiOS FTTH. According to the FTTH Council, 9 million North American households now have FTTH connections.
• “The ecosystem these companies have built is never under stress”? Well that is news to any of us who have experienced dropped calls on our mobile phones or slowdowns on wired connections.

I agree with a couple lines in the article:

While the Google Fiber plan provides a valuable model, other communities that want to ensure their residents get fiber to the home shouldn’t have to wait.

We need policies that lower the barriers to entry for competitors.

Yes, we do need policies that lower the barriers to entry for competitors. But we also need for these policies to create the right incentives for all competitors to continue to invest.

The policies proposed are simply not supportable, unless, like the author, you conveniently choose to breeze by the facts.  Take a look at how the author tries to build support for heavy government intervention and structural separation:

If you’re in the network services business, you can’t also be selling apps. This required “structural separation” prevents the country’s telecom companies from discriminating against competitive services (think AT&T blocking FaceTime).

Whoa! We suddenly jumped from the author talking about FTTH to wireless networks. Let’s pause to parse what would be meant by this leap. AT&T, in this example, is “in the network services business”. The author says that they shouldn’t be selling apps. What app are we talking about that AT&T sells in competition with Facetime? Voice services. Is the author really suggesting that mobile carriers should not be allowed to offer voice? Is this really a business model that any country has tried to impose?

What kinds of policies are needed to help cities attract FTTH and investment in advanced infrastructure?

Let’s take a look the incentives and concessions granted by the cities to Google. According to the Wall Street Journal, these include: free office space, free power, free land for fibre huts and close to a 50% discount on pole attachment rental rates. In addition, there was no obligation imposed on Google to roll-out its services universally, enabling the company to pre-market and pre-sell, with installations taking place after sufficient demand has already been committed. City government workers will be involved in the public education and marketing plan. AT&T and Time-Warner Cable are reported to have asked for similar concessions.

Contrast the approach by Kansas City to entice Google investment in fibre with many other municipalities. We have had a number of cases in Canada where cities erect legal and financial roadblocks to hamper the deployment of advanced communications infrastructure. The level of cooperation between Kansas City and Google should be a model for how municipal governments and carriers can cooperatively plan and incent investment.

Canada’s national digital strategy should be released in the next month or so.

How will we plan for Canadian leadership in the global digital economy? How do we create the right environment to stimulate universal access to advanced infrastructure? How will we encourage universal adoption and digital literacy?

I still remember when most of the world had phone service provided by the government post office and telegraph department. It was a very sorry state of affairs. Service was predictably awful; in some countries, new installations could take years.

You would have difficulty finding people who recall that era fondly, other than those beautiful old  British phone booths.

Governments have a short memory, I guess. As a result, we have seen a number of places where governments have decided to build their own local communications infrastructure, stepping in where they believe the private sector would not. There may be an argument for such intervention in rural markets, but you would think that urban markets should be able to support the business case for private sector leadership in advanced infrastructure.

Apparently, not so in the UK. In its 2012 Budget, the government announced £100 million to roll-out super-fast broadband in the 10 largest cities of the country.

Perhaps the UK’s functional separation regulatory framework isn’t delivering the kind of incentives for investment that have been touted by some as a model for Canada?

Where is the announcement on auction policy for the 700MHz band? The government continues to procrastinate on digital policy files – like issuing a comprehensive digital strategy, deciding on foreign investment policy for telecom services sector and sorting out spectrum.

Over the past couple days, various players have been working the media to set out their positions. Public Mobile and Wind told the Canadian Press that if there aren’t special concessions for new entrants, they won’t even show up at the auction. Wind CEO Anthony Lacavera said “We’re not suicidal. We’re not going to go out and try to bid on something we have zero chance of winning.”

Public Mobile invoked the theme of increased rural coverage, made possible by competitive pressures by the new entrants in urban settings.

In response, Bell issued a press release that calls for “no special measures” for new entrants. “Rollout of next-generation LTE network to rural and remote communities depends on open and transparent 700 MHz spectrum auction.”

I’m not sure I see the connection between rural LTE and an open auction. Frankly, if a rural build of LTE is a priority, there are a number of more direct ways for the government to create the right opportunities and incentives.  Perhaps more on those thoughts later.

In a meeting with CITIG yesterday, I learned of a letter from the Prime Minister to Chief Bill Blair in his role as head of the Canadian Association of Chiefs of Police, confirming the government’s commitment to a Public Safety set-aside in the next spectrum auction.

With last week’s announcement in the US of assignment of the D-block of the 700MHz band for public safety applications, will Industry Canada follow the US band plan?

Has the decision on Canada’s 700 MHz policy been delayed in order to allow the US to conclude its public safety plan?

There is a panel on Wednesday June 6 at The 2012 Canadian Telecom Summit that will be looking at spectrum issues. Early bird rates expire February 29. Have you registered yet?

Innovation drives productivity. I understand that point. But what is the best way to drive innovation?

A much tougher question. Governments around the world are doing what governments typically do when they want to incent behaviours: use the lever of money.

A couple weeks ago, Canada threw $80M toward the problem, issuing a press release saying that it was “invest[ing] in Canadian business innovation [to make] Canada a global leader in the digital economy.”

But if money is the only lever that is being used, a country can only “lead” until some other region opens its wallet even more. Europe is now proposing to spend €80B (that’s right – B as in Billion – Euros) in funding for research and innovation, citing “a €120 million research investment by the EU enabled the 3G mobile market that we know today, worth €250 billion”. The implication being that the EU got a 2000 times return on its investment in 3G. That kind of economic analysis may be what makes Europe such a beacon of fiscal leadership that guides global markets today.

But that is not what I want to talk about. Nor will I look at whether the EU can actually write a cheque for €80B.

I’m just not convinced that we have the right approach in governments throwing money toward selected performers of research and innovation. It seems to me that application based programs have winners and losers. Some group of bureaucrats sit in judgment over projects and determine which are naughty and which are nice, which get funding and which get rejected. There are just so many problems with this approach, not the least of which is that governments are not known for making winning decisions.

Are innovation incentives rewarding the wrong kinds of companies? As I wrote earlier this week, if an innovation is going to result in a productivity improvement, why isn’t the business doing it on its own? Why wouldn’t the business be trying to improve its profitability without the need for cash from a government program?

Let’s not forget to look at where the government program is being funded – the source of those tax dollars. Profitable companies – including those that took the risks and innovated on their own prior to the program – are seeing their profits taxed so that companies with lower risk tolerance could get a handout. There seems to be something inherently wrong with the kind of Sherwood Forest code of justice, that takes taxes from winners and innovators and hands it over to their competitors who weren’t willing to innovate on their own.

Governments need to innovate in their approach to managing behaviour. Protective tariffs block competition, reducing incentives to innovate and increasing costs for consumers and businesses that use the goods as inputs. Restrictions on trade, investment, paperwork and more need reform to be part of government leadership in innovation. Government handouts aren’t innovative. Getting out of the way would be a novel approach for government.

Can we use the levers of increased competition, coupled with increased willingness and need to take risks, in order to more systemically drive an innovation economy?

The CRTC had a fundamental principle at the core of its review of wholesale billing practices: will independent internet service providers continue to be in a position to offer competitive and innovative alternatives compared to those offered by the larger facilities based ISPs?

Services provided by the independent service providers bring pricing discipline, innovation, and consumer choice to the retail Internet service market.

Based on the outcome [press release, residential Decision, business services Decision], the CRTC has achieved, at least for now, a Solomonic balance.

Its task was not easy. Some of the major carriers advocated a usage-based approach while others were comfortable preserving the status quo. Adding confusion, virtually all carriers sought to keep business services on a flat rate model, and the CRTC concurred.

So the real interest is on the residential pricing model. The Commission decided to approve two different wholesale structures. Bell Aliant (Atlantic Region), SaskTel, Shaw and TELUS will be able to preserve their flat rate structures for whatever traffic happens to be generated; the remaining companies are expected to go with plan B: a model that has a network capacity element – the retail ISP pre-arranges network throughput capacity in lumps of 100Mbps.

Carriers build networks with such capacity considerations. The capacity model is a form of usage based pricing, but it leaves management of the capacity in the hands of the retail ISP. The question of user impact is dependent on the rates set for the capacity. Those rates, in turn depend on a variety of assumptions which explains to an extent the variability in wholesale rates between the carrier ISPs.

Last week, I noted an observation in Sandvine‘s most recent Internet Phenomena report:

Within North American fixed networks, Real-Time Entertainment applications are the primary drivers of network capacity requirements, accounting for 60% of peak downstream traffic, up from 50% in 2010. Furthermore, subscriber usage is becoming increasingly concentrated in a smaller band of the evening, driving up network costs despite relatively constant per-subscriber monthly data consumption.

To what extent will the increased concentration of traffic into a consistent busy period drive up the costs of independent ISPs? Will these ISPs seek to develop innovative pricing models that discourage coincident peak usage within their client base?

That in turn raises the question of whether the CRTC’s internet traffic management rules are flexible enough to permit users to choose a price plan that helps smooth out the ISP’s traffic profile.

Based on the experience of wholesale access for long distance services, the pricing models set out today could be with us for some time. Did the CRTC make the right adjustments to encourage independent ISPs to stay in the market? Are the right incentives in place for all ISPs to continue to invest in facilities to promote a healthy competitive market for the benefit of all consumers?