Search Results for: incentives

On July 15, James Moore was named Industry Minister, charged with fostering “a growing, competitive and knowledge-based Canadian economy.”

He is 65 days into the new job, two-thirds of the way into his first 100 days. How is it working out so far?

Three and a half years ago, Minister Moore’s predecessor’s predecessor launched a consultation to develop a strategy to guide the development of a digital economy strategy. Together with then Industry Minister Tony Clement, and Minister of Human Resources and Skills Development Diane Finley, the current Industry Minister was part of the original announcement in his role as Minister of Canadian Heritage and Official Languages. He said at that time:

Our government is committed to ensuring that creators, inventors and entrepreneurs have the incentives to innovate, the confidence to take risks and the tools to succeed. We recognize the important role the digital media and content sector plays in the digital economy, and we intend to develop a long-term plan that will stand the test of time.

Three departments launched the digital economy consultation; with our third Industry Minister, we are still waiting for the outcome of that consultation. The consultation was to explore 5 themes:

• Capacity to Innovate Using Digital Technologies;
• Building a World-Class Digital Infrastructure;
• Growing the Information and Communications Technology Industry;
• Digital Media: Creating Canada’s Digital Content Advantage; and
• Building Digital Skills for Tomorrow.

Where is the “long term plan that will stand the test of time”?

In his first two months, it is evident to all that there is a new leadership in place. How will this translate into advancing the department’s mission, “to foster a growing, competitive and knowledge-based Canadian economy”?

There was an interesting address earlier today by Jason Furman, Chair of the White House Council of Economic Advisors [pdf]. His observations on the telecommunications sector were informed by a depth of economic analysis that looked beyond international consumer price comparisons and recognized the flow of capital investment by the US industry. I commend reading the speech in its entirety.

Among the highlights was reading about concerns first documented in a White House report released in June, “Four Years of Broadband Growth” [pdf]: uneven adoption of broadband by education and income; uneven adoption in rural areas; and, affordability challenges.

Reading the depth of research that clearly informed Furman’s speech, reviewing the White House report with its analysis, it became clear that there is a policy gap in Canada caused by our missing digital economy strategy.

In the next 5 weeks, by October 23 – the 100 day milestone in office – will Canada finally see a comprehensive national digital strategy?

The University of Calgary School of Public Policy released an important paper today, providing what it calls the first study that assesses the state of competition in wireless services in Canada. Based on the authors’ analysis, “there is no evidence that there is a competition problem in wireless services in Canada.”

The paper takes aim at simplistic analysis that has led various critics to have accused the industry of being “woefully uncompetitive” and “dysfunctional and in desperate need of an overhaul.”

This paper establishes that there is not a competition problem in mobile wireless services in Canada. The government need not, and should not, intervene to promote competition on the basis that increased competition will lower prices; efforts to do so will likely be unsuccessful and inefficient.

The paper warns that in the long run, the effects of government intervention are likely to lead to “reduced investment, misallocated spectrum, lower quality, and perhaps even higher prices.”

Today’s report was authored by Jeffrey Church, a professor in the Department of Economics and the Director of the Digital Economy Program in The School of Public Policy at University of Calgary, together with Andrew Wilkins, a Research Associate in the School. Dr. Church has testified on behalf of the Competition Bureau in the 2006 CRTC hearing looking into Essential Services. Today’s report documents the results of a long standing research program in telecommunications markets and regulation in Canada. An OpEd that appeared in the Globe and Mail in early July provided a preview of some of the points that are expanded upon in today’s report.

Although it is 50 pages, the report is quite readable and it is an important scholarly contribution to the wireless policy debate. It directly targets naive claims that high ARPU and low penetration rates are evidence of an uncompetitive sector, saying “the facts are not consistent with this simplistic analysis.”

Those who single out high ARPU as an indicator that something is wrong with prices — and therefore competition — are fundamentally misinformed about the meaning of ARPU and why it is high in Canada.

The authors say that it is ill-advised for the government to try to enhance competition by committing to four competitors in every region, saying the policy is based on “unsophisticated and misinformed textbook economics — that more competitors are better — which is simply inappropriate for services where there are important economies of network size, including economies of scale and scope.”

Similar to ideas in a blog post I wrote a few weeks ago, the paper warns that low prices can lead to networks that are not funded sufficiently to support future generations of devices and services.

Efforts to create competition in the short run, that increase the number of carriers, will simply squeeze margins in the short run and likely will not be sustained in the long run, as carriers exit and consolidate to reduce competition and restore margins consistent with profitability and the natural limit. And, while consumers might gain in the short run from lower prices, everyone is likely made worse off in the long run from the misallocation of spectrum, reduction in scale of carriers, and reduction in incentives to invest from such intervention.

The authors recommend that the government should reverse course on policies that reduce or restrict incentives for investment by the incumbent carriers and their access to spectrum. Instead, the focus should be on measures that foster competition in investment and network characteristics, such as speed, reliability, and capacity.

The conclusion is that Canada does not have a problem with competition in Wireless, and steps being taken to artificially incent new competitors may provide short term pricing benefits but likely brings deleterious long term impacts.

Perhaps the Industry Minister could refer the question to the Competition Bureau for an assessment. That is Canada’s independent agency charged with ensuring “that Canadian businesses and consumers prosper in a competitive and innovative marketplace.”

With auction stakes measured in billions of dollars – as well as the possible negative impact on investment in digital infrastructure – should we be asking whether the Competition Bureau agrees with the presumption that policy measures to incent competition are appropriate?

The University of Calgary School of Public Policy report concluded there is no evidence of a competition problem in Canada’s mobile wireless industry. On such an important issue of sector competitiveness, will the Competition Bureau be engaged to confirm or reject this finding?

Canada’s wireless policy, like our national digital strategy, has been characterized by inconsistency and uncertainty.

In the past, I have referred to it as Calvinball, from the Calvin and Hobbes comic strip. A game where no one really knows the continually changing rules.

This week’s carrier appeal of the CRTC’s retrospective application of the Wireless Code highlights more of the uncertainty facing the sector as it prepares for “back to school” sales beginning next month.

Consumers and the industry alike don’t really know what the CRTC intended for implementation timing because of imprecise language used in the Wireless Code decision, and the contradictory clarifications [here and here] that have been provided subsequent to the Decision.

A number of carriers have filed with the Federal Court of Appeal because the CRTC appears to be asserting a power to retrospectively apply the Code to contracts that existed before the Decision, contrary to an Opinion that was filed as part of the proceeding that led to the release of the Wireless Code.

Even if an expedited schedule is granted, there is no way for the Federal Court of Appeal to make a determination before the summer is out. Uncertainty is bad for consumers, it is bad for the carriers and it is bad for the economy. It is hardly a satisfactory introduction for the national Wireless Code.

As such, a colleague and I wondered if there may be a solution that could allow the court case to be dropped while achieving most of the consumer objectives.

As I wrote a couple weeks ago, the trouble has been caused by the timing set out by the CRTC in Paragraphs 368 and 369 of the Code:

368. In light of the above, the Commission determines that all aspects of the Wireless Code will take effect on 2 December 2013.

369. The Commission finds that where an obligation relates to a specific contractual relationship between a WSP and a customer, the Wireless Code should apply if the contract is entered into, amended, renewed, or extended on or after 2 December 2013. In addition, in order to ensure that all consumers are covered by the Wireless Code within a reasonable time frame, the Wireless Code should apply to all contracts, no matter when they were entered into, by no later than 3 June 2015.

We wondered what the impact would be of changing the final date in paragraph 369 to 3 June 2016. Superficially, some would say that this provides the wireless carriers with an extra year, but in reality, the change creates the right incentives for the carriers to quickly shift to shorter contracts.

Had the CRTC responded to my June 7 tweet with such an erratum, I wonder if the carriers would have launched their appeal? Contracts entered into after the release of the decision (during the period between 3 June 2013 and 2 December 2013) fall into a grey area that are not as clearly beyond the CRTC’s power to change. Carriers would want to move quickly to shorter schedules for their device subsidies in order to avoid the risk of consumers walking out prior to the device being amortized.

It is a simple change – a single digit – and what is really being lost? Carriers will have the incentive to quickly shift operations to remove 3-year deals well in advance of the 2 December 2013 deadline. Carriers and consumers have the certainty that old contracts stand: a deal is a deal. The government isn’t going to retrospectively apply new rules to old deals. Going forward, from 3 June 2013, deals are being done with the new rules having been published. If carriers don’t want the risk of being left with an unpaid balance, they need to move more quickly to offer shorter amortization schedules, or shorter deals.

Can changing a single digit crack the code? Would the carriers withdraw their motion and focus on introducing innovative new deals for the student market? Would the CRTC consider this a friendly amendment, maintaining the incentives to quickly transition from 3-year contracts?

Canada’s wireless policy has been generating a lot of chatter in the past few weeks. Some articles suggest that we are seeing a failure in achieving the policy objectives of the government. I was on BNN-TV last week providing some of my viewpoints.

If we are failing at achieving the objectives, the first question that needs to be asked, of course, is “What exactly was the objective?” In the absence of an overall national digital strategy, it has sometimes been difficult to determine what the government would like to achieve.

In a March 7 speech, the Industry Minister said that he wants to see “at least four players in each market.” When the statement was made in early March, it was one of the first times we have heard a clear objective being stated. We want at least four players in every market.

Normally, if there is a clear objective, one might expect that people would start to align their actions in pursuit of that objective. Perhaps start by looking at where we see four healthy players competing and try to encourage the replication and expansion of those conditions.

Can the Canadian market support four facilities based mobile wireless carriers? Quite likely. In fact, seven of the 10 provinces have strong, well financed wireless players other than Rogers, TELUS and Bell. Indeed, in Manitoba and Saskatchewan, the so-called Big 3 share only a third of the market as they battle MTS and SaskTel.

Will we see a fourth national carrier? Not a chance. At least not with the national policy framework we have in place.

I would go further and state that in choosing its spectrum and auction policy, whether by intent or unintended consequence, Industry Canada effectively blocked a fourth national wireless provider.

How else can one explain Industry Canada’s designation of MTS and SaskTel as wireless new entrants? These are incumbent telephone companies that have held wireless spectrum since the beginning of time. With two-thirds of the market in their operating territory, each has the highest regional market share of any phone company in Canada. Yet both were eligible to bid – and win – in their home territory for “new entrants” spectrum. As I warned five years ago, Industry Canada effectively anointed these companies to be the spoilers for anyone with national aspirations.

Despite this, Industry Canada offered an extra five years of in-territory roaming incentives, reserved solely for new entrants that acquired national spectrum or combined with others to build a national consortium.

At the time, if the government had truly wanted a national providers, it might have put some or all of the new entrant block of spectrum up for sale as a single 40 MHz national block. It could have offered a 20 Mhz parcel. It could have put in place 10 year, or perpetual restrictions on the sale of the spectrum to Rogers, TELUS and Bell. It did neither. So why are we feigning surprise at the outcome, five years later, of seeing investors looking at every option to recover their capital assets?

The government was not considering strong global brands entering the Canadian market. Why else would the government have waited until after the AWS auction to reform foreign ownership legislation?

Regardless of messages being heard from Ottawa, the actual policies have encouraged the deployment of billions of dollars of capital in pursuit of regional players. There shouldn’t be surprises emerging from recent M&A activity. The government put in place a 5-year moratorium on the transfer of new-entrant spectrum to incumbents, and now that we are coming up on the five year mark, why is anyone surprised that the dealing has begun? Five years must have seemed like such a long time, five years ago.

The market is behaving the way one might expect, given the signals from Ottawa. When the government signaled uncertainty over spectrum license transfers, the uncertainty likely contributed to the urgency of Mobilicity’s decision.

It should have been a predictable outcome.

The lessons for Ottawa: Set clear objectives. Align activities with the achievement of those objectives. Stop doing things that are contrary to the objectives.

I suspect this may come up more than once during the discussions at The 2013 Canadian Telecom Summit, taking place June 3-5, in Toronto. Have you registered yet?

I am a fan of the Denver Broncos. We lived in Denver for about a year and had a chance to attend a number of games at Mile High Stadium. My son wanted us to invite John Elway over for a family dinner.

For the past 16 years, we have had a Super Bowl party, a tradition that was started by the Broncos back to back Super Bowl victories in January 1998 and 1999.

This year has been a great year for Broncos fans, but Denver games don’t seem to be available on the Toronto stations often enough. Fortunately, I have had a chance to test drive Bell Mobility’s Mobile TV service, which includes access to a number of NFL channels, including Red Zone.

I have often wondered why someone would watch TV on a 4 or 5 inch screen, when so many of us are getting spoiled with enormous high definition pictures at home. Last Sunday, I became a believer in Mobile TV. I was at the airport, waiting for a flight to spend New Year’s in Pasadena at the Rose Bowl. I really wanted to know if Denver would win their division and follow Adrian Peterson’s quest to break the rushing record. Thanks to Bell’s demo device loaner, I was able to watch the action in amazing high definition. Yes, it is only a 5 inch screen, but it was only 9 inches from my eyes.

As an aside, NFL Red Zone is a channel that was clearly designed for an attention deficit generation, but it is perfect for mobile TV.

A little over a year ago, I wrote that I disagreed with the CRTC’s decision to forbid mobile content exclusives. The CRTC said at the time:

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 continue to believe the Commission got that decision wrong. I am not talking about vertical integration issues; if TELUS (as a mobile services provider with no affiliated broadcasters) had been the carrier that won the bidding for the NFL content, would the CRTC decision still be seen as correct?

I think that exclusives can drive more innovation, which promotes increased choice for Canadians. If a given type of content is so compelling that Canadians switch service providers, won’t this force the other service providers to respond? Either they have to find some other content or feature to offer, or drop their prices. Isn’t that in the consumer interest? Did the CRTC’s decision reduce the incentives for innovation?

If service providers all offer the same flavours of features and content, how does this promote greater choice?

Mobile TV isn’t going to replace my basement big screen, but I have new appreciation of its role on Sunday afternoons. There are a lot more channels beyond football, including new mobile access to Bloomberg TV business news. I’ll have to try out some of the other channels – but not on Sunday afternoons.