Search Results for: incentives

As governments increase intervention in internet content and services, I wonder if sufficient regulatory humility being applied.

A recent New York Times article noted, “As companies like Google and Facebook grew into giants in the early 21st century, regulators chose largely not to interfere in the still-young market for online services.” The concern was that regulatory intervention could restrict the development of innovative applications and new business models.

What has changed?

Many internet public intellectuals have long advocated for a free and open internet, which many interpreted as supporting a hands-off approach by governments. However, one of my first blog posts, way back in March 2006, looked at an article by Tom Evslin, in saying that he was another voice on “a lonely quest to try to partially tame the anarchy of the internet.a lonely quest to try to partially tame the anarchy of the internet.”

If the Internet is a law-free zone:

1. Governments can do whatever they want there including spying and blocking. It’s naïve and illogical to think that governments are governed by law in a free fire zone when no one else is.
2. Monopolies can do whatever they want including blocking competing services.
3. Malicious people are free to attack not only other sites but the structure of the Internet itself including its routers and domain name servers.
4. Threats, libel, and fraud gain immunity from investigation and prosecution by being carried out on the Internet.
5. The Internet becomes a river in which any conspirator can wade to avoid the bloodhounds of law enforcement.
6. There are no laws PROTECTING privacy in a law-free zone.
7. SPAM is as legitimate as any other activity.

The past decade and a half changed the way we look at the internet. We are more willing to have law enforcement in the digital world. As I have expressed before, my concern has been how we tailor new laws and how we define new standards of acceptable online behaviour.

We have laws developed for the analog world and a body of jurisprudence in their application. We have witnessed the failures of anti-spam and do not call legislation. Those laws curtailed activities by legitimate businesses but we continue to get nuisance calls and loads of unwanted emails. To an extent, instead of regulatory processes, we apply technology to suppress what the legislation was supposed to curtail. We target spam and malicious software with software in the networks and on our devices. Telecom networks are trying to target nuisance calls with technology.

Still, I wonder if the legislation suffers from over-reach. At the 2017 Canadian Telecom Summit, then FCC Chair Ajit Pai spoke about the need for regulatory humility:

In short, America’s approach to broadband policy will be practical, not ideological. We’ll embrace what works, and dispense with what doesn’t. That means removing barriers to innovation and investment, instead of creating new ones. That means taking targeted action to address real problems in the marketplace, instead of imposing broad preemptive regulations. And that means respecting principles of economics, physics and law, and acting with humility as we regulate one of the most dynamic marketplaces history has ever known. This vision will unleash the massive investments that the digital world demands.

Every regulation, every piece of legislation risks creating harmful unintended consequences. Some regulations can serve as disincentives for investment, slowing down necessary expansion and upgrades to network infrastructure.

These days, it seems Canada’s Parliament never misses an opportunity to wade into some form of telecom regulation. Parliament crafted laws about somewhat trivial issues, apparently believing it can do better than the specialized independent regulator. As a result, there is legislation on the books mandating paper invoices in a digital world. Why isn’t that part of a regulator’s discretion?

A private member’s bill mandates service transparency that is already part of the the Minister’s policy direction. Recall, I recently wrote about risks arising from online harms legislation in various countries.

Politicians looking to score points with intervention in the digital marketplace should carefully reflect on whether new laws are actually needed. What problems are we trying to fix?

A little more regulatory humility goes a long way to minimize unintended consequences.

Do screens make teens lonely? A recent article by Noah Smith got me thinking about the impact of so much screen time on our kids.

In “Honestly, it’s probably the phones”, Smith argues that the smartphone is the most plausible explanation for teenage unhappiness.

Doesn’t having access to all of their friends and acquaintances at all times via a device in their pockets mean that kids are less isolated than before?

Well, no. As the natural experiment of the pandemic demonstrated, physical interaction is important. Text is a highly attenuated medium — it’s slow and cumbersome, and an ocean of nuance and tone and emotion is lost. Even video chat is a highly incomplete substitute for physical interaction. A phone doesn’t allow you to experience the nearby physical presence of another living, breathing body — something that we spent untold eons evolving to be accustomed to. And of course that’s even before mentioning activities like sex that are far better when physical contact is involved.

He goes on to say that there is nothing about smartphone ownership that forces users to stop getting together in person. But, he provides several reasons why smartphones reduce the incentives:

• Distraction — “the rise of smartphones was also the rise of “phubbing”, i.e. when people go on their phones instead of paying attention to the people around them”
• Behavioral ease — “when your phone is right there in your pocket, it’s easier to just text a friend instead of going and hanging out”
• Network effect – “If 20% of people would rather be on their phones, that reduces everyone else’s options for in-person hangouts by 20%.”

Professor Jean Twenge of San Diego State University wrote an article in 2019, “Teens have less face time with their friends – and are lonelier than ever”.

“It turns out that today’s teens are socializing with friends in fundamentally different ways – and also happen to be the loneliest generation on record.”

Written before the impact of the pandemic, Professor Twenge observed, “Today’s 10th-graders go to about 17 fewer parties a year than 10th-graders in the 1980s did. Overall, 12th-graders now spend an hour less on in-person social interaction on an average day than their Gen X predecessors did.”

The study found that as the decline in “face-to-face time” accelerated after 2010, feelings of loneliness among teens increased dramatically. At the same time, research has found that teens who spend more time on social media also spend more time with friends in person. That should lead us to wonder why in-person social interactions have been going down, while social media use has increased.

The social teens are still more likely to meet up in person, and they’re also more active on their accounts. However, the total number of in-person hangs for everyone in the group drops as social media replaces some face-to-face time.

So the decline in face-to-face interaction among teens isn’t just an individual issue; it’s a generational one. Even teens who eschew social media are affected: Who will hang out with them when most of their peers are alone in their bedrooms scrolling through Instagram?

This study was published in March of 2019, a year before the world transitioned to a period of virtual social interaction.

In the face of a possibility that smartphones are behind the rise in teen unhappiness, Noah Smith suggests that our best move may be to simply wait for society to adapt to the changes effected by social media.

Perhaps that is the most pragmatic approach. Collectively, we aren’t going to put the smartphone genie back in the bottle.

Still, these articles should serve as important warning flags for parents, teachers and all those concerned about the mental well-being of a generation raised on always-on connected devices.

Some have argued that teens are simply choosing to communicate with their friends in a different way, so the shift toward electronic communication isn’t concerning.

That argument assumes that electronic communication is just as good for assuaging loneliness and depression as face-to-face interaction. It seems clear that this isn’t the case. There’s something about being around another person – about touch, about eye contact, about laughter – that can’t be replaced by digital communication.

The result is a generation of teens who are lonelier than ever before.

Many of the headlines last week talked about the CRTC’s 10% interim reduction on wholesale internet rates as part of the Commission’s Notice of Consultation for its latest review of the wholesale internet access framework. The bigger impact story may be in the CRTC’s preliminary view that access to FTTP (fibre to the premises) over aggregated wholesale HSA (high speed access) should be mandated on a temporary and expedited basis, “until the Commission reaches a decision as to whether such access is to be provided indefinitely.”

This was a significant reversal of long standing CRTC policy.

The temporary and expedited nature is noteworthy. After all, let’s say the CRTC, following an evidentiary-based proceeding, reverses its “preliminary view” and decides that its long standing policy was indeed correct, that aggregated access to the FTTP networks could harm incentives to invest in extending FTTP to additional communities. How will the CRTC reverse this temporary and expedited order? Does anyone think the CRTC would actually order companies to reverse these customer connections?

How does that genie go back in the bottle?

In a note to investors about last week’s Decisions and Notice of Consultation, Bank of America wrote:

This wholesale HSA review was anticipated. The outcome could take over a year to complete. We believe it is likely to result in lower wholesale rates and increased access to fiber-to-the-home (FTTH) through an aggregated HSA model where independent ISPs connect to a central point of interconnection to access the facilities-based provider’s entire operating territory (transport and last mile). We think the key will be at what rates. Any incremental reduction to the existing rates helps wholesales. Small changes should help wholesales and have a minimal impact on investment. The risk for the CRTC is overshooting. If rates are set too low, incremental network investment will suffer and consumers’ long-term interest will be harmed. After an impressive multi-year industry investment in fiber, the industry’s ROIC is down materially from five years ago. In our opinion thoughtful regulation will consider the returns such a substantial investment requires (above the cost of capital) to avoid destroying value while encouraging ongoing investment. The industry has a good track record of balancing the demand of shareholders, subscribers, the regulator, and policy makers.

With last week’s Telecom Decision CRTC 2023-53, the CRTC flip-flopped once again on its policies regarding aggregated versus disaggregated wholesale internet access.

Let’s start by defining those terms. Wholesale-based internet service providers (ISPs) resell a portion of a facilities-based telecom service provider’s network. As the CRTC described them in 2015:

56. Aggregated wholesale HSA service provides competitors with high-speed paths to end-customers’ premises throughout an incumbent carrier’s entire operating territory from a limited number of interfaces (e.g. one interface per province). This path includes an access component, a transport component, and the interface component. The inclusion of the transport component enables competitors to provide their retail services with minimal investment in transmission facilities.
57. Disaggregated wholesale HSA service would provide competitors with high-speed paths to end-customers’ premises served by an ILEC central office or a cable company head-end through a local interface at the ILEC central office or cable company head-end. These paths include an access component and the interface component.

Obviously, it is a lot easier for an ISP to get up and running with just one connection to the telecom service providers. On the other hand, the wholesale-based ISPs have said they can add more value and product differentiation by connecting closer to their customer. However, in its October 2020 intervention in the CRTC’s consultation examining network configurations for disaggregated wholesale internet access, CNOC complained about the cost of connecting to all of the central offices or head-ends.

Since at least 2010, ISPs have promised to climb the ladder of investment. The CRTC and Competition Bureau have each endorsed policies that maintain incentives to promote investment in telecommunications facilities.

Unfortunately, the preliminary view of the CRTC in its Notice of Consultation will see ISPs climbing down that ladder, heading in the wrong direction.

Let’s look at the history of moving back and forth between aggregated and disaggregated wholesale internet access.

• On – Requested by Teksavvy in 2009/2010 CRTC Wholesale Consultation 2009-261: “The problem with the current aggregated services of both the ILECs and the cable carriers is that it forces a lot of the characteristics of those services to be flowed through to the wholesale customers of the ILECs and cable carriers, which really limits the ability of competitors to innovate and offer new differentiated services.” (Counsel for Teksavvy in response to question from CRTC Chair)
• Off – Request for disaggregated denied by CRTC Policy 2010-632: “The Commission is not persuaded that the ILECs and cable carriers should provide new wholesale access services – in the case of the ILECs, an ADSL access service located at the central office, and in the case of the cable carriers, a local head-end-based cable access service. In the Commission’s view, there is no convincing evidence to indicate that there would be a substantial lessening of competition in the absence of these services.” Notably, there is a dissent appended to that CRTC determination, where Commissioner Denton describes disaggregated access as “a technical arrangement permitting significant service innovation, by allowing specialist carriers to differentiate significantly their service offerings from the underlying carrier.”
• On – July 22, 2015 CRTC Policy (2015-326): “the provision of aggregated services will no longer be mandated and will be phased out in conjunction with the implementation of a disaggregated service. Incumbent carriers are directed to begin implementing disaggregated wholesale high-speed access services, in phases.”
• On – May 27, 2021 CRTC Press release: “The existing model, which is an aggregated high-speed access service, is in the process of transitioning to a disaggregated high-speed access service. This will enable competitors to access the fibre-to-the-home networks of the large companies and offer their customers faster Internet speeds and more services for all Canadians… Since 2016, the CRTC’s objective has been to complete the transition to a disaggregated wholesale model for access to the large companies’ high-speed broadband networks. This model will foster greater competition and further investments, so that the industry can better serve the needs of Canadians.”
• Off – March 8, 2023: CRTC Decision (2023-53): “The Commission finds that the disaggregated wholesale high-speed access (HSA) service framework has not fulfilled its mandate and requires reconsideration. The Commission determines that the network configuration for disaggregated wholesale HSA services will remain in Ontario and Quebec pursuant to existing tariffs and will not be introduced in other markets at this time.”

A lot of engineering and regulatory resources were invested developing these wholesale internet access schemes. The importance of consistency and predictability in CRTC determinations cannot be stressed enough, especially in consideration of the capital intensive nature of telecommunications. The new Policy Direction speaks in terms of predictability: “The Commission should ensure that its proceedings and decisions are transparent, predictable and coherent.”

As the CRTC moves forward with its wholesale services consultation, Bank of America said, “the key will be at what rates.”

Last week, I wrote about the difficult tension in seeking increased investment while maintaining, if not improving, affordability. We should measure success in telecommunications competitiveness by how we approach and achieve these often competing objectives: quality, coverage and price.

There is still much work to be done to extend the reach of broadband networks and to upgrade existing facilities. That will require billions of dollars of additional capital investment. That investment is being made by Canada’s facilities-based operators.

For that to move forward, government policies and regulation have to preserve that delicate balance between lowering consumer prices, while preserving incentives for investment to extend and enhance Canada’s high quality networks.

I’d like to follow up on the passing reference I made recently to structural separation in my post about Australia’s broadband quagmire, the $50B government sinkhole known as NBN.

Structural separation is the regulatory theory that posits better consumer outcomes will be achieved if regulations require a separation between the builders of telecom network infrastructure and the retailers of telecom services. The theory is that the infrastructure company will have incentives to invest all of its energy in building better networks, and the various retail service providers will compete on an equal footing to deliver service excellence.

Two and a half years ago, at a meeting of Parliament’s Industry Committee (INDU), the British model was identified by Canadian Conservative MP Michelle Rempel Garner as an potential example for Canadian telecom policy. Tony Geheran, Chief Operations Officer at TELUS told the Committee, “I haven’t seen that work anywhere globally, to sustainable effect.”

At the time (May 19, 2020), I noted “Ofcom is showing that broadband speeds in the UK increased 18% between 2017 and 2018 to reach 54.2 Mbps. According to the CRTC, average speeds in Canada reached 126.0 Mbps by the end of 2018, an 89% increase over 2017.”

A year later (May 19, 2021), I provided an update: “According to Ofcom, “the average download speed of UK residential broadband services increased by 25% since 2019, from 64 Mbit/s to 80.2 Mbit/s.” According to the CRTC, at year-end 2019, 18 months ago, the average download speed in Canada was already 176.9 Mbps, more than double the current speed in the UK.”

Some recent articles show that the situation hasn’t improved for those in the UK. A recent article in the Financial Times says “almost a hundred smaller alternative networks — or “altnets” — have emerged with the goal of laying fibre as quickly as possible to attract customers frustrated by their existing service”. As it turns out, these “altnets”, such as Virgin Media O2 and the UK’s largest altnet, CityFibre, have argued against BT OpenReach lowering its wholesale prices, claiming the move would be uncompetitive.

The CRTC is reporting Canada’s average download speed was 220.4 Mbps by year end 2020, two and a half times what the UK regulator has observed.

Structural separation isn’t a solution. As Tony Geheren told INDU in May of 2020, “if you look at the UK, they are wholesale moaning about the quality of their infrastructure, their lack of fibre coverage. across what is a very small geography. I know. I originated from there. And quite frankly, the Canadian networks are far superior in coverage and quality and performance through COVID has demonstrated that.”

The Canadian model, creating a policy environment that encourages private sector investment in competitive infrastructures, means that most Canadians can choose from multiple suppliers of broadband access. It is a framework that has delivered better broadband for more Canadians than the structurally separated policies in the UK and (as discussed a few weeks ago) in Australia.

Canada’s future depends on connectivity.

Allocating spectrum, the radio waves on which wireless technologies depend, is a multifaceted challenge for policy makers across the globe.

Each determination requires a balancing of interests: who should get to use radio frequencies; in what areas; for how long; for what purpose; under what conditions. Spectrum policy must consider consumer and corporate interests, and national economic policy.

Governments taking too much of a “hands-off” approach could lead to interference across spectrum bands, undermining valuable uses of wireless technologies; too much intervention could stifle innovation and competition by artificially raising prices, or allocating spectrum to operators with insufficient incentives or abilities to invest.

A couple of weeks ago, I noticed that New Zealand had once again decided to allocate mid-band spectrum to its 3 national mobile operators at no charge in order to help drive more rapid deployment of 5G. Two years ago, New Zealand cancelled its planned auction of 3.5GHz spectrum and simply assigned 40 MHz to Dense Air, 60 MHz to Spark, and 60 MHz to 2degrees. New Zealand’s approach stands as an interesting contrast to the multi-billion dollar spectrum auctions in so many other jurisdictions.

The International Telecommunications Society is hosting its final webinar of 2022, Driving Digital Transformation: International Comparisons of Spectrum Policy [pdf, 143KB] on November 15, 2022 at 9:30 am (Eastern).

Spectrum policy requires taking stock of international experiences to expand the pool of knowledge and identify global best practices. While no two jurisdictions are entirely alike, drawing on the global experience in the design of spectrum is critical to ensure that nations can benefit fully from their spectrum resources. Featuring four international experts, this webinar will compare international spectrum policies, including assignment mechanisms, deployment conditions, and governance frameworks. In doing so, these global experts will reveal lessons for governments and others involved in spectrum policymaking, as well as the implications for the global digital transformation.

The speakers are:

• Dr. Helaina Gaspard, co-founder and Director, Governance & Institutions, of the Institute of Fiscal Studies and Democracy (IFSD) at the University of Ottawa. Her work centres on key actors of fiscal ecosystems, while leveraging relationships with partners such as the World Bank, the National Governors Association, the OECD and the International Budget Partnership. The IFSD recently completed a report for comparing spectrum assignment mechanisms across countries.
• Dr. Marja Matinmikko-Blue, Research Director of Infotech Oulu Institute and Director of Sustainability and Regulation of 6G Flagship at the University of Oulu. She coordinated the writing of twelve 6G White Papers that were published and led the development of the White Paper on 6G Drivers and the UN SDGs. Marja has published over 170 scientific papers.
• Dr. Petrus Potgieter, Professor in Decision Sciences at the University of South Africa and a researcher at the Institute for Technology and Network Economics. He conducts research on the impact of new technologies to the economy, policy and society. Petrus is a board member of the ITS, and editorial board member of the Journal of Telecommunications Policy.
• Ms. Janette Stewart, senior spectrum expert at Analysys Mason, with 25 years’ experience in radio engineering, wireless technologies, spectrum policy and spectrum management. Prior to 2001 she worked for the UK Radiocommunications Agency (now Ofcom). Janette’s expertise lies in mobile, wireless and broadband technologies and markets.

Registration for the webinar is free.