Search Results for: "out of the way"

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?

Earlier this week, Toronto signed an agreement with San Francisco, pledging greater integration of their digital media industries, an advanced high-speed network to link the locations, and joint educational and collaboration programs. Shane Schick’s perspectives can be found here.

A Globe and Mail story quotes Joaquin Alvarado, director of the Institute for Next Generation Internet at San Francisco State University, leader of the Digital City Network initiative:

You’ve got to make it easy for people to be connected

I agree. But that approach runs contrary to that which has traditionally been followed by Canadian cities.

For years, Toronto has joined the Federation of Canadian Municipalities (FCM) in fighting carriers seeking to deploy fibre on municipal rights of way. With the city of Toronto’s backing, for years FCM has been in front of the CRTC and the courts as cities sought to tax carriers a substantial percentage of their revenues, not on the basis of cost recovery.

How will Toronto approach this Digital City Network project?

According to the story:

There is no financial element to the arrangement. Instead, the local government’s role is limited to building partnerships and supporting industry. But at some point the city itself could be investing to expand networks, Mr. Miller said.

There is no need to spend taxpayer dollars on city-owned telecom networks. The city would be better off with a declaration that it will no longer fight carriers looking to invest and it will get out of the way of service providers that want to improve fibre access to their customers. The best way to support industry may be for the city to just get out of the way.

On Friday, I wrote about the ability of comparitive statistics to be misleading. The National Post began a series of articles this past weekend, Swaddled in Nanny Nation. The first article speaks of the damage to Canadian consumers caused by government intervention in the marketplace, with comments aimed specifically at banking, air transport, telecommunications and agriculture.

One of the most flagrant ways Canadian industry is being coddled is through corporate subsidies.

The Saturday article points out billions in dollars in aid to Pratt & Whitney, Bombardier, GM and Ford.

Proponents of government subsidies argue that they create jobs, encourage research and development and spur economic growth. But often, the opposite happens.

Unintended consequences of artificial incentives.

This morning’s final installment of the Post series focusses on foreign investment restrictions in telecom: Not Upwardly Mobile. Writer Peter Nowak concludes:

The only way to solve a Canadian-created problem, therefore, is to bring foreigners in to fix it. Canadian politicians will first have to rid themselves of their cultural and economic xenophobia

A truly level playing field, with no handouts to try to pick winners, will work best for consumers and business alike. For sustainable competition, the lesson would appear to be that consumers will win if government will just get out of the way.

So what is going on at the CRTC with the Local Forbearance file? The CRTC set rules for loosening regulation in local phone service in an April 6 Decision. Last week, the CRTC decided to review that Decision, for the second time in 5 months.

Mark Evans asked Did the CRTC Goof? when it is looking at the rules again after less than 5 months?

Paul Vieira of the National Post suggested the CRTC is defying Ottawa on VoIP, while starting a fresh look at the local forbearance Decision. In his article on Saturday, he quotes Ken Engelhart, who said he is pleased the CRTC stuck to its VoIP ruling, but at the same time dismayed with the move to review the rules governing local deregulation.

It is hard when companies like Rogers make massive investments based on one set of rules, and then the government keeps changing those rules in the middle of the process. We are a bit disappointed by that.

In April, the CRTC decided deregulation could occur in a specific region once monopoly phone providers lose 25% of their market share. Until that time, incumbent services are price regulated. Why have a fresh look at the 25% market share loss criteria?

When the CRTC picked the 25% number, it said

In the Commission’s view, setting the level of applicant ILEC market share loss to be used as a criterion for the purposes of the local forbearance framework is not a precise scientific exercise; nor did any of the parties to the proceeding pretend that it was. The Commission considers that the level of applicant ILEC market share loss should be set at a sufficiently high level that the Commission can have confidence that a critical mass of customers have decided to receive their local exchange services from competitors, and as a consequence there is a wider acceptance by customers within a relevant market of the reality of local exchange service competition, and an openness to trying competitive alternatives. In short, the Commission considers that the applicant ILEC market share loss level should be set at a level that, when taken into consideration with the other criteria, demonstrates that competition in that relevant market is sustainable.

[p. 247, Decision 2006-15]

What has changed since April? We really need to see what has changed since the end of 2004, the data period upon which the CRTC based its Decision in April 2006.

The CRTC sought a number that would enable it to “have confidence that a critical mass of customers have decided to receive their local exchange services from competitors” prior to forbearing from price regulation. It says that its selection of 25% was based in part on high churn rates at the time. In the Commission’s view, high churn is reflective of customers not having “wider acceptance … of the reality of local exchange service competition.”

The fact is that the bar was set too high last April for consumers to see a forborne marketplace in most of the country. Business customers are another matter.

The CRTC is finally on a path to getting out of the way of full competition between the cable companies and telephone companies. Its Local Forbearance Decision started to unravel the day it was released when Statistics Canada showed that it had better data on the state of competition and released its report the same day. The local forbearance decision had problems that had to be fixed – the CRTC had to choose whether to open it up on its own, or force the Cabinet to order them to give it a fresh look.

As unappealing as it is to have such instability in the regulations, it is worse to have the wrong rules in place. My next question is whether the Commission is reviewing enough elements of the Local Forbearance Decision.

We’ll look at that tomorrow.

I recently met with John Maduri, who is now heading up a company with a rather unique approach to rural broadband, Barrett Xplore.

What’s unique? He isn’t looking for a government handout. He hasn’t gone to government agencies saying ‘Give me $$$ and I’ll deliver broadband to the unwashed, underserved, your down-trodden.’ Instead, Barrett is delivering a 99.99% available, city-quality broadband experience to anyone in Canada who wants it, no matter where they live or work.

What Barrett Xplore has done is built a viable business plan that uses various solutions, including Motorola Canopy technology where appropriate or Telesat Ka-band in other areas. They are actually adding customers at a respectable clip, with reasonable prices, and a positive NPV. The entire country is within their potential serving area.

Unfortunately, the CRTC’s Deferral Account Decision has created problems for Barrett. That Decision told the incumbent telephone companies that they could and should use excess payments (that subscribers made to prop up local rates in urban areas) to subsidize the incumbent broadband roll-out to rural areas. It was a Robin Hood decision – taking money from one group to give to another. Bell has appealed a part of the Decision to the courts; we can expect to see an appeal (or more) to Federal Cabinet in the next few weeks.

With the best of intentions, it seems that whenever we see these kinds of programs, there are problems. As I mentioned in my post about ICT Toronto, it just seems that we need to avoid trying to pick winners and we need to resist the temptation to intervene in the market. Like it or not, rightly or wrongly, Decision 2006-9 made it tougher for John and his venture to go out and compete. And it was all with the best of intentions by everyone concerned.

I’d like to think that we should be clearing out of the way of entrepreneurial ventures like Barrett Xplore, not putting obstacles in their way. Hopefully, John and Barrett Xplore will be able to look back at this as just a speed-bump, not a barricade, as they continue to bridge the digital divide.