Search Results for: incentives

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?

Why do we still have a regulatory differentiation between business and residential users on a wholesale level?

I understand the retail purposes for market segmentation and to help with cross subsidization. But it seems to me that mandated access to wholesale services should be more cost based. The CRTC agreed. In the case of business services, the CRTC said:

The Commission has decided that the flat rate tariff structure for wholesale business high-speed access services remains appropriate. The Commission has also decided that rates for these services should be based on the incumbent local exchange carriers’ (ILECs) incremental costs of providing the services plus an appropriate markup.

And for residential services, the Commission said:

The Commission has also decided that rates for either model should be based on each of the individual large cable and telephone companies’ costs to provide the service plus a reasonable markup, and further, that these markups be comparable for all cable and telephone companies.

So if these rates are cost based, and if the commission got those rates right, why is it a problem if wholesale ISPs route residential traffic over a business tariff? If the tariffs are costed properly, then it shouldn’t be a problem – costs are being recovered.

Filings associated with wholesale internet services leave me believing that the artificial segmentation for wholesale purposes should be abandoned.

In the case of wholesale internet access, Bell is concerned that the tariffs may have incentives for competitors to “circumvent Capacity Based Billing charges by diverting residential traffic onto a business interface.” In other words, the CRTC regime for wholesale has somehow made it less expensive to carry business traffic than residential. Does that strike anyone else as bizarre?

If the tariffs were actually cost based with the correct driving variables, then it shouldn’t matter what the source of the traffic is on a retail level.

There are small businesses that operate from homes; there are large businesses with very low use compared to some power residential users. The need to segregate business and residential users and guard against ISPs “gaming” the system by putting residences into the business traffic mix should be telling the regulators that their decision needs to be revisited.

Something is wrong with the wholesale regime.

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?

I had an interesting discussion recently about unintended consequences. The subject arose when discussing quick fixes to a variety of issues related to social protests in the country I was visiting. People were suggesting that apartments are too expensive, so rents should be reduced across the board. I asked why landlords would want to build new apartments or fix their existing ones if they suddenly lost their income.

Are rental rates uniformly too high, or was there a lack of supply of housing at the lower end of the rental market? Of course, we would all like to see a reduction in anything that represents a monthly bill: rent, utility bills, parking, bus passes. Quick fixes often have unintended consequences.

It got me thinking that Canada has had its share of unintended consequences – some notable incidents in the telecommunications arena. With an especially fragile economy, we need government programs and strategies to avoid the kinds of disincentives that might discourage investment, employment and long term economic growth.

As we get into a new session of parliament on a federal level and enter a season of provincial and territorial elections, let’s hope that our leaders look beyond populist quick fixes in their campaign promises and economic programmes.