Home > Internet > Dead Horses and Internet Policy: the CRTC’s Usage-Based Billing and Vertical Integration Decisions as Lost Opportunities

Dead Horses and Internet Policy: the CRTC’s Usage-Based Billing and Vertical Integration Decisions as Lost Opportunities

I wanted to write you a short blog post, but I postponed and pondered, and so wrote a long one instead (with apologies to Mark Twain).

Some things fundamentally constitute the media landscape, and the CRTC’s vertical integration and Usage Based Billing (UBB) decisions in the last two months are two such instances. In each case, the bar was set low and delivered a wee bit of something for everyone, the decisive affect being to disrupt vested telecom, broadcasting and Internet players (often one and the same thing) and the status quo as little as possible.

It took me this long to fully appreciate that the key is not to understand what these decisions did, but rather what they did not do. Lesson number one when reading regulation: never trim your sails to the low bar set by CRTC and vested stake-holders.

Lesson two: don’t get lost in the underbrush of techno-economic mumbo jumbo that inevitably serves in these situations to shroud the interests and stakes involved in mystery, and to bash any meaningful whole into an indiscriminate heap of technical details without context or sense of the big sweep of things.

The vertical integration deal could have been about many things, but was mainly about whether or not the big four — Bell, Shaw, Rogers and Quebecor (QMI) – would be able lock down access to broadcast content for the 3rd and 4th screens (that’s fancy cyber-talk for the Internet and smart wireless portable devices). The big four argued that they should be able to leverage control over their own content and platforms for competitive advantage however they see fit. This is the way of the world, the Schumpeterian clash of goliaths versus goliaths that drives capitalism forward, they said.

The CRTC said no, or at least not entirely, and this is a good thing because it means that Telus, MTSAllstream, SaskTel and Wind, for example, can buy access to programming from CTV, Global, City, TVA and the more than 120 other TV channels the big four conglomerates own between them. Control over content – sports content especially – cannot be used by the vertically integrated telecom-media-Internet (TMI) behemoths to squash competition with Telus, Sasktel, Wind, Public, Mobilicity, said the CRTC. This was and is a good thing.

The CRTC also put an end to block-booking arrangements where channels were sold in bundles to carriers, called for greater choice in pricing for consumers, and let the big four keep exclusive rights for content they produce specifically for the 3rd or 4th screens. In contrast, Hollywood was forced to abandon block-booking of films in theatres in 1948. The end of block-booking was brought to the Canadian television universe by the CRTC sixty-three years later. Something for everyone, you could say.

Sorry if I am not impressed. Power is not about who wins and loses, and scattered compromises, but how the issues are framed, and by whom, and the ideological buy-in needed to get there. The vertically-integration ruling is mainly a compromise to a clash among the incumbent telecom and broadcasting titans, with the CRTC shoring up faulty markets for bandwidth, content rights and access to audiences. This is systems maintaining not disrupting regulation.

It is okay as far it goes, but the CRTC dealt with trans-media concentration with the weakest tools at its disposal, other than doing nothing at all. Independent tv and film producers, as well as media unions concerned about declining conditions of work within the consolidated Canadian media industries came away empty handed.

Fundamental principles within the Telecommunications Act (1993) (secs. 27, 28 and 36) that require network and content providers to be treated equally and in a non-discriminatory fashion are ignored. The possibility that rival OVDs — Netflix, YouTube, Apple – might be given access to networks and platforms on terms equivalent to those that Bell, Rogers, Shaw and QMI give to their own online video services is not even broached. The possibility that people might have a “freedom to connect” that supersedes the Netcos’ right to manage their networks as they see fit is unthinkable from within the CRTC’s constipated view of the world.

Michael Geist, however, thought that such issues might be taken up in the UBB decision. They were not.

The UBB decision sets the record for making a molehill out of a mountain. While it stresses the principle of equality between telephone and cable companies, it has precious little to say about equality between them, on the one side, and rival ISPs and OVDs, on the other. For most people, it is a change that will likely come and go without much notice (see below).

The ruling recognizes the fast growth in online video use, but does little to insure that bandwidth is available at levels and prices consistent with current and projected growth. It is in many ways cultural policy by stealth insofar that universal bandwidth caps reinforce the incumbent telecom and broadcasting companies’ – Bell/CTV, Shaw/Global, Rogers/City, QMI/TVA – custodianship over the “integrity of the Canadian broadcasting system”, discouraging the use of rival OVDs such as Netflix along the way.

Interestingly, the only one standing outside this corporate media love-fest is the CBC, the most innovative of all of Canada’s broadcasters when it comes to podcasts, streaming video, the use of BitTorrent, and so on.

Canadians are the world’s most extensive online video users, so these are important issues. The following chart illustrates that “real-time entertainment” (TV, YouTube, Porn) now accounts for the biggest proportion of Internet traffic for significant periods of the day. Downplaying the vital significance of this issue, as the CRTC’s UBB decision does (and the vertical integration hearing before it), is irresponsible, if not deliberately deceptive.

To be sure, Shaw and Telus have raised their bandwidth caps over the past six months, and Bell has reigned in its use of P2P throttling, all of which recognize, at least in part, the steep growth in online video. More importantly, though, these changes may be the most important outcome of the political firestorm unleashed since last January when Canadians discovered that they had been dragooned into a pay-per model of the Internet over the last five years.

The lesson? Want change? Don’t go to the regulator; go to the streets, like OpenMedia did, with half-a-million people in tow.

The CRTC’s assumptions about bandwidth use as the basis of the two pricing models adopted by its UBB ruling – the existing flat rate model and new ‘capacity-based model – appear to be far less then more capacious limits recently put in place at Shaw and Telus, and behind global best practices further yet.

They are wildly out of synch with the illustration above created by the deep-packet inspection equipment maker Sandvine, too. When Sandvine talks about the appropriateness of using price and bandwidth caps to “discipline users”, it imagines a scenario where users have 200GB caps per month for peak use, and unlimited use thereafter (see p. 5). Putting aside the unsavoury language of using technology and prices to discipline how people use the Internet, these numbers are multiple times higher than the 40-60 GB per month that the CRTC’s UBB decision seems to assume.

Other than in the most abstract of ways, there are no real world examples of how Canadians use the Internet or how online video distributors (OVDs) such as Apple, Netflix and Youtube might be affected by the CRTC’s UBB decision. Yet, the UBB decision is cultural policy, even if it refuses to identify itself as such, protecting incumbent telecom and broadcasting players, on the one hand, stifling people’s everyday cultural production and consumption in the online, network media ecology, on the other.

The CRTC obscures questions about online media use by casting the remit of the UBB proceedings in resolutely narrow terms and shrouded in a thicket of dense language that only a technocrat can appreciate. Its headline achievement is the wholly uninspiring creation of a wholesale pricing framework based on the existing flat rate model for any Netco that wants it (Shaw, SaskTel, Telus)  and a new “capacity-based model” for those who asked for it (Bell, Rogers, QMI, Cogeco, MTSAllstream).

The two options and the ability to buy bandwidth in 100 Mbps blocks will give independent ISPs more flexibility in terms of how they package and price their services. For 94 percent of Internet users, however, the decision will have little impact.

They will continue to be saddled with the pay-per Internet model and bandwidth caps that Bell began foisting on them in late-2006, with other incumbents following in its footsteps ever since. The decision not only leaves this model intact, but girds it.

With increased flexibility, some indy-ISPs will be able to offer stripped-down services to low-end Internet users at cheaper prices. While 1.5 Mbps Internet service no longer serves as a target for Internet development anywhere, a cynic might say that this so-called flexibility at least adds to the chances that there will be an el cheapo Internet option for the poorest among us.

The CRTC doesn’t want to talk about how its decisions fit into questions of accessibility and usabililty, however. Be that as it may, there is a large broadband Internet access divide in Canada, and it is a class divide.

Household Internet use closely tracks income, as the chart below shows, with those at the top of the income scale (98%) nearly twice as likely to use the Internet from home as those at the bottom (52%). Or to put this another way, between one-fifth and one-half of households on the first three rungs of the income ladder do not have Internet access. Only the wealthiest in the top twenty percent have near universal access.

Source: 2010 Canadian Internet Use Survey, Business Special Surveys and Technology Statistics Division, Statistics Canada.

Some argue that the importance of the Internet to all aspects of our lives means that we should expand our understanding of communication rights to include “freedom of expression, freedom of connection” via the Internet. The CRTC and those who it regulates would undoubtedly see any such talk as heresy.

On a less prosaic level, there will be pricing and packages galore under the new wholesale pricing regime; probably to the point of confusion. While it is conceivable that some low-end Internet users may benefit, for mid-range, high-speed Internet services prices will likely rise 25 percent relative to comparable services now.

Indy ISPs will also be under more pressure to manage their subscribers’ use and to push high bandwidth real-time entertainment video use into off peak hours. This pressure will become more intense over time as online video use continues to explode. Daytime soaps or early a.m. World of Warcraft, anyone?

Overall, prices for Internet services for all users in Canada will continue to be high relative to relevant global standards. Whereas the tendency in countries that we’d probably like to emulate is for bandwidth to increase steeply and prices to fall gently, in Canada, bandwidth availability and prices are both going up, with some companies (Telus and Shaw) seeming to do a better job than most.

Canada will continue to retain the dubious distinction of being among just three advanced capitalist democracies – Australia, Iceland and New Zealand – where bandwidth caps are low and near universal in coverage. In 2010, by contrast, twenty other OECD countries had no data caps at all. Elsewhere, bandwidth caps were one option among several. In Spain, just two of twelve broadband providers surveyed used bandwidth caps, for example (OECD, 2011, p. 275).

At the heart of the UBB decision is the CRTC’s stubborn insistence that Internet access is sufficiently competitive, despite the fact that 94% of users obtain access from the dominant incumbent telephone or cable companies in their city. This stance is decisive because its sets the foundation upon which everything else turns (for the state of media and Internet concentration in Canada, see here).

Because of this position, the new rules do not give maximum, unbundled access to bandwidth and other essential elements that rival ISPs need to serve their subscribers over the incumbents ‘last mile’ links, but the minimal level possible whilst still giving access to network facilities at all. The highly restricted form of network access given to independent ISPs is based on a concept invented out of whole cloth three years ago by the CRTC itself: i.e. “non-essential, conditional mandated access” facilities. There’s no such thing anywhere else in the scholarly literature or the real world, as far as I know.

Under such fairy-tale conditions, concentration disappears and the CRTC ignores the potential to use the much stricter “essential facilities” guideless, let alone functional or structural separation, to foster more competition and more open networks. While these measures are growing in appeal in Europe and have been adopted in Australia, Italy, the Netherlands, New Zealand, Sweden and the UK (OECD, 2011, pp. 11-44; Benkler, 2010, p. 159), there is little trace of them in either the vertical integration or UBB proceedings.

Under the “essential facilities” guidelines, rival ISPs would be able to acquire access to bandwidth and last mile connections on terms that are equal to those that incumbents’ offer to their own ISPs. The CRTC could also demand much higher levels of information disclosure from the incumbents and use a more transparent process to set the wholesale rates that ISPs will have to pay as a result.

Crucially, the CRTC could cap the wholesale prices that the dominant players charge at “cost + 15 percent”. Instead, the CRTC’s ‘sufficient competition’ standard set rates on the basis of “the individual large cable and telephone companies’ costs to provide the service plus a reasonable markup” (p. 2).

What those costs are, and whether they are reasonable, we’ll never know, because nobody but the CRTC and the incumbents have access to the underlying data used and just what measure of reasonable is used. Indeed, the whole process is erected atop a murky foundation of minimal data disclosure and transparency. This is Internet Policy making in the dark.

The result is a fairy-tale world of the CRTC’s making where dominant market power disappears and wholesale rates appear to be more fiction than anything based on a scrupulous reading of the facts. Bandwidth apparently is cheap and plentiful in Manitoba and more expensive in territories served by Shaw and Telus, while scarce and very expensive in the rest of Canada.

Capacity-Based Model Capacity Rate/100 Mbps Access Rate
MTS Allstream $281 $23.08 (32 Mbps)
Rogers $1,251 $21.00 (25 Mbps)
QMI (Videotron) $1,890 $23.77 (30 Mbps)
Bell $2,213 $25.00 (25 Mbps)
Cogego $2,695 $24.98 (30 Mbs)
Flat-Rate Model Monthly Access Rate/Subscriber
Shaw $21.25 (25 Mbps)
Telus $39.51 (25 Mbps)
Sasktel $53.49 (25 Mbps)
Bell Alliant $30.27 (15 Mbps)

The CRTC attempts to explain away the eight-fold disparity between Bell and MTSAllstream’s prices in a footnote buried in the appendix at the back of the decision by pointing to the simple architecture of the latter’s network relative to Bell’s. I doubt this adequately explains the chasm, but even if it did, then I say give us simple architectures rather than complex TMI conglomerate structures, please.

Still, Bell’s senior vice-president for regulatory and government affairs, Mirko Bibic and QMI’s CEO-hands-on owner Pierre Karl Peladeau have groused about how the CRTC forces them to give discounted rates to rivals. This is simply not true. The wholesale prices set are rate caps not an artificially low floor.

For Bell and QMI (as well as Cogeco), the interesting things is that, left pretty much to their own devices, they put forward prices that look ridiculous relative to those offered by MTSAllstream and Rogers, as well as those who did not ask for the capacity-based rates at all (e.g. Shaw, Telus, SaskTel, Aliant).

Some have suggested that perhaps the CRTC was being shrewd after all, and may have heisted Bell, QMI and Cogeco on their own petard. With Konrad von Finckenstein on his way out the door in January, the idea of a last parting shot at those whose gaming of the regulatory process seems to know no bounds has some appeal.

If this is a game, however, it is too clever by half. Key tools in the regulatory and Internet policy toolkit have been left laying fallow and there is not a mention of common carriage or network neutrality to be found in the UBB ruling, although if there was ever a home for such bedrock principles, this is it. Instead, there are only references to Cabinet Directives and select passages cherry-picked from the objectives of the Telecommunications Act to the effect that the CRTC is to rely on market forces to the maximum extent possible. On this, the UBB and vertical integration rulings are one.

It is not that there were no other options being kicked about in these two rulings. Over the past year, many have emerged with alternative, realistic views of how things could be. It was not just OpenMedia and 500,000 petition signers that blasted the do-over of the user-centric, open Internet into a provider-controlled pay-per Internet model, but many smart people who tossed their ideas into the ring: a former Director General of Telecommunications Policy at Industry Canada (Len St. Aubin), the ex-Chief Knowledge Officer at Canarie (Bill St. Arnaud), popular writers (Peter Nowak), University of Ottawa Canada Research Chair in Law and E-Commerce, Michael Geist, Jean-Francois Mezei (Vaxination Informatique) and respected scholars (David Ellis, Catherine Middleton), make up just a small number of those who offered us much to think about with respect to the issues at hand.

These people did not all read from the same hymn sheet. What they did offer, though, was a set of bright ideas and realistic visions that only seem beyond the pale by the dim lights of what passes as Internet policy and regulation in this country.

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