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The CRTC issued the 2011 edition of its report “Charting Canadian Communications Change and Regulatory Implications: Navigating Convergence II” [press release here, full report – html, pdf (3.7MB)]

The report can be viewed as a snapshot of the information that has been gathered over the past year, examining the state of network evolution and competition; content and the reflection of Canadian identity; and, consumer choices and voices.

Telecommunications and broadcasting are rapidly converging into a single world of communications that offers innovative services to consumers, delivers these services in new ways and disrupts current business models. Consumers expect to access the services or content they want at anytime, anywhere, using whichever device they choose.

The executive summary speaks about the report as a reflection of the CRTC’s ongoing research and dialogue with stakeholders, analyzing key trends and identifying challenges and opportunities within the current regulatory framework. The report focuses on the evolution of wired and wireless networks, media-consumption and a variety of consumer-related issues.

As the digital economy becomes more sophisticated, policy, legislation and regulation must adapt. Areas that can be further deregulated—or in which new approaches may be required—are critically important to address. These areas include:

• ensuring fair and non-discriminatory access to networks
• increasing spectrum resources to meet Canadian demands
• creating new regulatory approaches to support innovation, access to affordable services and the creation and promotion of high-quality Canadian content, and
• addressing consumer concerns.

In the absence of a clear statement from the government on Canada’s national digital strategy, Navigating Convergence II is an important contribution to continue the discussion on how our digital economy may develop. The CRTC has not issued any pronouncements, proceedings, rulings or policies in this report, but it collects and presents in a logical structure the diverse views and issues that might be examined within future formal consultations and multilateral discussions.

Take a look at the report – it is quite readable at about 70 pages. I’d be interested in your comments.

A reliance on market forces will continue to figure prominently in Canada’s digital policy, if the government follows the direction given to it by Conservative Party of Canada members. Michael Geist observed that the Conservatives passed a broadband policy statement at their recent Ottawa convention:

The Conservative Party recognizes the vital importance of internet connectivity to full Canadian participation in global economic, social, and cultural communities. The government should create an environment that encourages private sector investment to increase broadband infrastructure, especially in rural and remote areas of Canada.

It is worth looking at resolutions that the party did not approve. Resolution C-063 contained a number of provisions that failed to get to the plenary floor:

We believe in the need for a strong Internet link to Canada together in the 21st Century, as railroads did in the 19th Century and aviation did in the 20th. Canada must claim a leading position in an increasingly networked world.

The Conservative Party will:

1. Support internet broadband initiatives, to bring universal access to all Canadians, especially in rural and Northern communities
2. Support an open and accessible internet with appropriate safeguards and enforcement mechanisms against illegal activities
3. Support network neutrality, giving each user a fair share of bandwidth to use in communicating with any other user with any protocol.
4. We support an innovative and competitive market place while promoting private sector infrastructure investment.
5. We support initiatives promoting telepresence and telecommuting to overcome geographical barriers.

There was also a resolution supporting the alternate ISP and telecom service providers that didn’t make it past the first gate. Resolution C-065 tried to frame continued regulated access to infrastructure by alternate providers in terms of emergency responsiveness and affordability:

The CPC affirms the importance of telecommunications to Canadians, supports the growth of telecom services, and supports a competitive environment that makes those services affordable and innovative. Regulation must continue to enforce high levels of emergency response, ensure reasonable pricing for basic phone services, and enforce competitive access to all telecommunications infrastructure that is not economically replaceable.

The convention floor chose to continue to have market forces shape Canada’s telecommunications industry development, with the government fostering an climate that encourages investment by the private sector. It is just as interesting to see what policies were not acceptable.

Twenty years ago today, the CRTC public hearing opened to review the application by Unitel to create competition in the Canadian long distance telecommunications market. The hearing ran for months and it followed a lengthy exchange of paper and a year of preliminary processes. This was the oral phase of the proceeding that led to Telecom Decision CRTC 92-12. I was part of the opening panel of witnesses, defending our network interconnection plan.

It was a remarkable time in my career and I was privileged to work with a team of dedicated young professionals who helped prepare the winning case. We continue to stay in touch, albeit too infrequently.

Unitel hasn’t existed as a brand for a long time, but what we did 20 years ago continues to be felt. Does anyone wait until 11pm to make a long distance call any more? That is what we did when we were students. Twenty years ago, calls after 11 became affordable for students, as long as the call was kept to the bare essentials – like “exams are fine, I’ll be done on the 18th I need money, love you, bye.”

Twenty years ago, overseas calls cost a tank of gas so you would save that for family emergencies. Nowadays, you can talk to much of the world for 20 minutes for less than the cost of a cup of coffee. I’m going to guess that most of my readers don’t think twice about picking up the phone to call anyone, anywhere, or at anytime. You’re welcome.

Twenty years ago, I faced a week of cross examination from lawyers who were unable to poke holes in our network plan. As a regulatory novice, I remember the shock of seeing our lawyer talking with Bell’s lawyer during the first coffee break at the hearings; I was surprised that these enemies on the battlefield could be so civil with each other. Through the years, I have had the opportunity to work with lawyers and executives from both sides of our original long distance battle. Like Sam and Ralph from Looney Tunes, the ability to do battle while remaining collegial and respectful has been one of the key attributes of the regulatory blockbuster at The Canadian Telecom Summit.

At the time, the Financial Post observed the youth of our team. I feel good to have been part of that group. There are a lot of stories from those days. I remember being called back to Ottawa at the last minute to help with witness preparation for Canadian Pacific CEO Bill Stinson and Rogers chief Ted Rogers. Early Monday morning, I found that in my rush to pack, I forgot to pack a dress shirt, so I borrowed one with a neck size so big that we folded and stapled the back of the neck. I happened to make mention of my kids on the transcripts when describing how Unitel’s long distance wouldn’t impact 9-1-1 service and that has been a little challenge and inside joke ever since.

Our offices will be closed for the first part of next week so that I can spend time with the family who are all home for Passover so there will be no blog posts until next Thursday.

This posting appears in today’s Financial Post as an OpEd, under the title: Net pricing means service flexibility: No network can ­handle every user around the clock

Internet pricing has become front page news in the wake of a CRTC decision (now being revisited) that changed the wholesale cost for some of the smaller service providers. In the confusion, the question of retail pricing for our home Internet service has become the subject of a parliamentary committee meeting, editorials and countless online debates.

For most Canadians, there is a choice between two large Internet service providers — the local or regional telephone and cable companies — that have built extensive fibre networks coupled with wire connections to 95% of our households. In addition, the CRTC estimates that there are 500 other Internet service providers of all sizes offering increased choice. With two large players and many others sharing a smaller position, it is a marketplace somewhat similar to the soft drink industry.

Just as we want Internet service providers to have the flexibility to offer unlimited plans should that be their business model, we need to ensure that there remains the flexibility for them to offer a variety of price plans that target other users, including low-cost entry level price plans.

About one in five Canadian households still have no connection to the Internet. More than half the homes in Canada’s lowest income quintile have no computer. Flexibility in Internet pricing is needed to give all Canadians, including those with lower levels of disposable income, an opportunity to participate in a digital future.

When we have a broadband connection to the Internet, it is accessing a shared resource. People choose from plans that offer a range of speeds that determine the maximum rate that data can flow between your computer and the rest of the world. These speeds contribute to how fast you receive your files and how high a resolution you see when streaming video.

As a shared resource, the quality of your connection also depends on how much other people are using their service and the level of investment being made by your service provider. The major phone companies and cable companies in Canada are investing billions of dollars each year, trying to stay ahead of demand that is growing by 50% each year as more of us consume more rich media over our Internet connections.

We have changed the assumptions that helped network engineers create affordable access. At one time, 20 or more households could share a high-speed connection without noticing any impact on their service. As more households adopt more advanced services, like streaming movies, more investment is being made to meet the demand. No network has ever been engineered to handle every user using the service around the clock. To do so would be irresponsible; we know that different users have different needs at different times and we can take advantage of that, statistically, to build networks more economically.

As the parameters change, the networks have evolved. For many of us who have been on price plans in the $40-$50 per month range, the speed of our broadband service has quadrupled over the past 10 years, delivered for about the same price. Lower-priced plans have appeared for people who don’t yet need the higher speeds and in many areas, ultra high speeds are being offered to the leading edge users who are the early adopters of what will seem commonplace in a few years.

Flexibility in pricing allows each of us to choose a service that matches our needs, priced to match our willingness to pay. Flexibility in pricing models means more choice and more opportunities to deliver options for Canadians who want to be part of Canada’s digital future.

There are more than 500 Internet service providers in Canada; there is no need for the government to regulate how I choose to buy my Internet service.

Over the past week, some pseudo-engineers have been sending me “fan-mail” saying that telco aggregated connections can’t ever be blocking because the ISPs pay for a certain peak rate bandwidth and should be able to use this however they want. These folks are forgetting a number of aspects of internet traffic, perhaps having been sheltered from having to actually operate a real internet access network.

Gather round. This is what we call a teaching moment.

The most important lesson is basic network engineering economics: services are kept affordable by sharing the same network facilities among mutiple customers. The level of sharing is determined by making usage assumptions in order to avoid congestion. To the extent things change from these assumptions, new engineering and network reconfiguration needs to take place. [Note: when you are sold a circuit capable of a specified data transfer rate, there are assumptions that you will not use that circuit around the clock at that speed.]

The wholesale price for aggregate ISP customers connections is kept low by combining the access network with the traffic of other internet access customers. Since the ISPs aren’t specifying the peak traffic requirements of each customer or each switching centre, it is quite possible for one customer to use a disproportionate share of the capacity, again driving a need for re-engineering of the internal network.

This brings us to the current debate, which has nothing to do with retail usage based pricing.

When the price of the wholesale aggregated internet service was developed, there was some kind of assumption made about the average load being generated per end user. This was used in the production of the tariff for Gateway Access Service (GAS) in the order of $20 per month, which covers the carriage of the end user traffic to the network interconnection point of the choosing of the ISP.

The size of the pipe between the telco and ISP varies with the amount of traffic, but this can increase in two ways: by adding more customers, or by each customer using their service more. The phone company gets fully compensated if the increase comes from more customers who have a traffic profile that corresponds to the engineering assumptions; the problem arises when the average traffic has different characteristics from the engineering assumptions.

This is why the CRTC needs to revisit its Usage Based Billing decision and set a threshold based on the loads presumed in the engineering for GAS, with the tariff incorporating appropriate adjustments for aggregate traffic loads that exceed these assumptions. 

I note that some ISPs had requested an ability to gather their traffic on a more localized basis and I wonder whether this would have have pre-empted the current wholesale disputes.