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No Regulatory Cherry-Picking Allowed: the CRTC vs. Netflix Clash @ the TalkTV Hearing

Netflix

The final day of the CRTC’s hearing into the future of television saw a heated clash between CRTC chair Jean-Pierre Blais and online video distributor Netflix. It was a moment with few precedents, and one ripe with a myriad of fascinating questions (Netflix presentation here; CPAC coverage here).

The clash ignited when Blais’s request to Netflix’s Director of Global Public Policy, Corie Wright, to file information with the commission about the number of subscribers it has in Canada, its revenues in Canada and other information the company does not routinely disclose was met by much hesitance on Netflix’s part. As Wright repeatedly returned to concerns about confidentiality, Blais testily questioned whether Netflix did not trust the CRTC’s ability to deal fairly with companies’ request for confidentiality.

The problem, however, is that while Netflix demanded guarantees of confidentiality, it is the CRTC’s prerogative to determine whether such requests outweigh the public interest in disclosure. And in this regard, Blais refused to concede that prerogative while Netflix was equally intent on assuring confidentiality for information that it never gives out to anyone, no matter who asks.

While that may cut it when it comes to researchers and journalists, it won’t do in the context of a CRTC hearing that is, after all, a quasi-judicial proceeding with stringent legal standards about evidence. The point was made on the opening day of the “Talk TV” hearing as well when a similarly frustrated Blais encountered PR puffery from Google that hardly constituted robust evidence that could be used to shed light on anything other the company’s own interests and story that it’d like to tell the world.

This is not novel and is, indeed, well-established practice. Indeed, for all those who play in the regulatory arena, there is little more frustrating than the extensive use of the infamous hashtag (#) in instances that the CRTC has granted companies confidentiality over those who have sought disclosure. Indeed, for many, the problem is that the CRTC has been too generous in granting confidentiality over disclosure. So, to have Netflix say that it was seeking to pre-empt the question by having guarantees of confidentiality from the get go was beyond the pale, and Blais treated it as such.

So, where do these trade-offs between confidentiality and disclosure come from? Three places.

First, from the general tradition of regulated industries where the interest of the public in the matters at hand are always weighed against business demands – typically expansive – to keep their affairs private.

Second, the CRTC took up the issue in 2007 in a proceeding about just this issue where the Commission observes the following:

. . . [The CRTC] conducts its public processes in an open and transparent manner. In some instances, parties submit information in the course of proceedings for which they request confidentiality. . . . [O]ther parties to the proceeding may request public disclosure of the information. If such a request is granted, the information is put on the public record. If it is determined that the harm outweighs the public interest in disclosure, the request is denied and the information remains confidential.

Basically, Netflix was trying to force the CRTC into a corner today over this issue, and Blais was not having any of it.

Lastly, the CRTC’s Digital Media Exemption Order under which Netflix and other OTT providers operate in Canada albeit exempt from the normal requirements of the Broadcasting Act, makes it clear that such companies are required to submit information regarding their “activities in broadcasting in digital media, and such other information that is required by the Commission in order to monitor the development of broadcasting in digital media”.

Some may not like these requirements, but for the time being they are the rules of the game and having decided to play by the rules of the game since its entry into Canada in 2010, today’s hearing was not the right place for Netflix to challenge them.

We must remember that, since its first New Media Order in 1999, the CRTC has always claimed regulatory authority over television and other broadcasts delivered over the internet but has exempted them from the requirements of the Broadcast Act. It did so on grounds of technological neutrality, fostering creativity and innovation and that doing so would not prove disastrous to the Canadian “broadcast system”. In short, it is not whether the CRTC can regulate the internet broadcasting, as Michael Geist noted the other day, but will it? The answer has unambiguously been yes, the CRTC can regulate internet broadcasting, but will not for the time being. That was the answer in 1999, in 2009 and in its last statement on the matter, the Digital Media Exemption Order (2012).

Three final points. First, Netflix cannot cherry pick the elements of Canadian media and telecoms policy that serve it while cocking a snook at those elements it would rather not deal with. Netflix has been the beneficiary of the CRTC’s robust network neutrality rules, rules that apply both to wiredline telecoms and mobile wireless telecoms providers. This has been a huge benefit to Netflix, and partly on account of such measures its ability to locate its content caching equipment at Canadian telecoms and ISP providers such as Bell, Rogers, Telus and Shaw are a far cry easier in Canada than in the US. The forthcoming CRTC Mobile TV proceeding will help to determine the utility of these rules.

As Netflix does battle in the US at the FCC hearings now taking place over the future of network neutrality in that country, it would do well to recall the comparably better conditions it has in Canada. As Netflix itself noted today, Canada is its best international market and I would suggest that the combination of the CRTC’s network neutrality and light touch Digital Media Exemption Order help explain this state of affairs. As such, when the Commission asks for information and to trust that it will make the proper decision in weighing the company’s claims for confidentiality with the benefits of public disclosure, Netflix would do well to play ball.

Third, Netflix also needs to recognize that, faced with a wall of claims from incumbents for two week’s running that unregulated OTT services threaten the Canadian “television system” altogether, robust evidence could help put such self-serving claims in perspective and is just what the CRTC needs. Indeed, Netflix should meet the CRTC’s deadline for its orders for information of this Monday to help in just this regard, otherwise the CRTC will be left with much self-serving bluster about falling skies and doom and gloom.

Finally, it’s time to recognize that while I don’t personally think that Netflix should be subject to all of the requirements of the Broadcasting Act, this is no longer the days when technophiles could see the Internet as an unregulable space. Those days were always an illusion and, regardless, are over. There is a discussion to be had, and that discussion is already underway in many other countries around the world, as Netflix knows full well.

Outside Canada, the European Union’s Audiovisual Media Services Directive brought online video providers under its sway in 2010. The Dutch and France have also reportedly required it to torque its algorithms to give priority to local content and to contribute to the creation and circulation of television content from both countries and Europe as a whole.

Whether we agree with that or not, it’s now the discussion to be had, rather than ducked with gestures towards the internet as some kind of nirvana that exists outside the normal laws of the land. Neither Netflix, Google nor any other ‘digital media giant’ can escape this reality by invoking the internet as an world beyond regulation when they please while calling for network neutrality when that suits. What we all need to realize, is that an open media requires smart regulation not no regulation.

The Growth of the Network Media Economy in Canada, 1984-2012

Cross-posted from the Canadian Media Concentration Research Project blog.

Has the media economy in Canada become bigger or smaller over time? Does the answer to that question, one way or the other, apply across the board, or to only a few of the dozen or sectors that make up the network media economy: i.e. wireline and wireless telecoms; internet access; cable, satellite & IPTV; pay and specialty television; conventional television; radio; newspapers; magazines; music; search engines; social media; internet advertising and online news sources?

Which of these sectors are growing, which are stagnating and which are in decline? To illustrate these trends over the period from 1984 until 2012, this post hones in on rising new media services (IPTV), those that have seen their revenues stay relatively flat over the past few years (conventional television) and those that appear to be in long-term decline (newspapers). I also examine whether the media economy in Canada is big or small relative to global standards.

This post also aims to set down a baseline of data to underpin a series of posts to follow over the next few weeks. Similar to what I have done for the past two years, the next post examines trends within and across the TMI industries from 1984 until 2012 to see if they have become more concentrated over time, or less (for previous versions, see here and here). The post after that zooms in on the top sixteen or so companies with one percent or more market share across the network media in Canada. Such firms account for 86% of all telecom, media and internet revenues. Rank ordered on the basis of revenue, they are: BCE, Rogers, Telus, Shaw, Quebecor, the CBC, MTS, Cogeco, Google, Torstar, Sasktel, Postmedia, Astral, Eastlink, the Globe and Mail, Facebook and Netflix. You can see a past version this discussion here).

In addition to updating our analysis for a complete set of the 2012 data, our goal is to break new ground. This year we do so by adding a new post that examines the state of media, telecom and internet concentration in Canada relative to the preliminary results of a thirty country study by the International Media Concentration Research Project, in which I served as the lead Canadian researcher. There are some surprising results that that smash a few shibboleths while confirming other elements of what we know from past research.

Finally, another new dimension for this year is a break out of data and analysis for the English- and French-language telecom, media and internet (TMI) markets. For the most part, similar questions to those introduced above are addressed about media growth and concentration trends between 2000 and 2012, while the leading firms in both of these regions are profiled in terms of size, ownership, the media, telecom and internet sectors they operate in, and how they each fit into the Canadian mediascape overall. 1

While we cite our sources below, by and large, the following documents and data sets underpin the analysis in this post: Media Industry DataMedia Economy DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary.

Canada’s Network Media Economy in a Global Context

Canada’s network media economy has grown immensely over time. Between 1984 and 2012, it nearly quadrupled from $19.4 billion in revenue to $73.3 billion (current $). Adjusted for inflation, the rise was from $39 billion to $73.3 billion last year (2012 $).

While often cast as a dwarf amongst giants, the network media economy in Canada is large by international standards: tenth largest in the world as of 2012, as the overview in Table 1 below illustrates.

Table 1: Canada’s Ranking Amongst 12 Biggest Network Media Economies by Country, 1998 – 2012 (billions USD)

CDN NME Ranking Globally (2012)

Sources and Notes: OECD Communication Outlook 2013; ITU Revenues 2012. PriceWaterhouseCooper’s Global Entertainment and Media Outlook, 2012 – 2016 (plus 2011, 2010 and 2009 editions) for media and internet. P = preliminary estimate for countries, except Canada. See CMCRP Media Industry Data and methodology primer for Canadian data and analysis.

Canada’s network media economy is obviously small relative to the U.S., at one-twelfth the size. However, relative to the rest of the world, it is amongst the biggest, right after Australia, Italy and Brazil and just ahead of Spain and South Korea.

The growth of the network media economy was especially swift from the early-1990s well into the first decade of the 21st century but like most other countries on the list, it has slowed since 2008, mostly on account of the economic instability that has followed quick on the heels of the Anglo European financial crisis (2007ff). Indeed, worldwide network media revenues fell 5% between 2008 and 2009 and half of the countries listed in Table 1 saw their media economies actually shrink over the following years: the US, Germany, France, the UK, Italy and Spain.

Collectively, these countries’ media economies shrank by around $67.2 billion between 2008 and 2012. Some of this lost ground was regained by 2011, but only on account of increases in the US and France while the media economies in the other four countries (Germany, the UK, Italy and Spain) continued to be smaller than they were before the financial crisis.

In sharp contrast to much of Europe, the US and, less so, Canada, the media economies of Australia, South Korea, Brazil and China have been largely unscathed by the financial crisis. Indeed, these countries and a few others such as Turkey, India, Indonesia, South Africa, and Russia have been going through something of a ‘golden media age’ over the past decade, with most media, from internet access, to the press, television, film and so on undergoing an unprecedented phase of fast-paced development (OECD, 2010).

The Network Media Economy in Canada: Growth, Stagnation or Decline?

As noted above, the network media economy in Canada has grown enormously from $19.4 billion in 1984 to nearly $73.3 billion in 2012 (current $), or from $39 billion in 1984 to just over $73.3 billion last year (2012$). Figure 1 below charts the trends using current dollars.

Figure 1- Growth of the Network Media Economy 1984-2012

Source: see Media Economy DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary.

Entirely new sectors – wireless, internet access, pay and specialty tv services, internet advertising – have added immensely to the increase. The most significant source of growth is from the platform media elements (wireless, ISPs, IPTV, cable and satellite), especially after the mid-1990s, but television has also grown enormously regardless of where we start the time line.

Music has also grown slightly, at least once a full measure of all of its subsectors are included – recorded, live, digital/online and publishing – as shown below, while radio has stayed mostly flat. In contrast, wireline telecoms, newspapers and magazines have declined, the first very sharply since 2000 and the latter two gently since sometime between 2004 and 2008, depending on whether trends are looked at from the point of view of real dollars or current dollars.

Table 2 below summarizes the state of affairs across the network media economy as things stood at the end of 2012 in terms of whether each sector covered in this post appears to be growing, stagnating or in decline.

Table 2: The Network Media in Canada: Sectors Experiencing Growth, Stagnation or Decline

Table 2: The Network Media in Canada: Sectors Experiencing Growth, Stagnation or Decline

The Platform Media Industries

The platform media industries – the pipes, bandwidth and spectrum used to connect people to one another and to devices, content, the internet, and so on — of the network media economy grew from $13.8 billion to $51.5 billion between 1984 and 2012. In real dollar terms, revenue grew from $26.8 billion to $52.5 billion. Table 3 shows the trends.

Table 3: Revenues for the Platform Media Industries, 1984 – 2012

Platform Media Industries, 1984-2012

Sources: see Media Economy DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary.

Accounting for 72% of revenues, the platform media sectors are the fulcrum of the media economy, as is the case in most of the world. This is why Bell, Rogers, Shaw, Quebecor, Telus, SaskTel, MTS Allstream, Eastlink, Cogeco, etc. are so fundamental to the media economy.

While some might think that the over-sized weight of the platform media in the media economy is of recent vintage, their share of the network media economy in 2012 was basically the same as it was in 1984, i.e. 71-72%, albeit within the context of a vastly larger media economy. This is mostly because of the steep decline in wireline telecom revenues, from $21.2 billion at their peak in 2000 to $15.9 billion in 2012.

As plain old telephone service (POTS) has gone into decline, however, some pretty awesome new stuff (PANS) has come along to more than pick up the slack.  Wireless is the best example of this, with revenues skyrocketing after 1996, as Figure 1 and Table 2, above, demonstrate.

Indeed, wireless revenues have nearly quadrupled from $5.4 billion in 2000 to $20.3 billion last year. A corresponding rapid growth in mobile voice and data traffic reinforce the impression. Voice and data traffic were up in Canada 69% and 85% in 2012 over 2011, respectively, with the latter rising considerably faster than the worldwide average (70%)(sources cited here are silent on the other).

The growth in wireless is fast on account of the expanding array of devices that people use to connect to wireless networks: phones, smartphones, tablets, wifi connected PCs, and so on. In short, personal wireless mobile communications are quickly moving to the centre of the media universe. These are the social, economic and technological foundations underpinning the wireless wars that are now in full-swing in Canada.

Some have recently argued that the rate of wireless growth has slowed since 2008, arguing that this is mainly because it is becoming a mature market (Church and Wilkins, 2013, p. 40). Relative to the torrid pace of growth from the late-1990s through the most of the 2000s, this is true. However, it is well known that the pace set during the early commercialization of new technologies cannot be sustained forever. More than this, however, the flattening of growth coincides perfectly with the financial crisis.

This reality simply cannot be ignored. As indicated earlier, revenues for the network media economy worldwide declined between 2008 and 2009 and many of the world’s largest network media economies are still smaller today than they were five years ago (Germany, UK, Italy and Spain), have stalled (Japan and France) or are only modestly larger now than they were five years ago (US, Canada and Korea). Therefore, a modest let-up in the pace of wireless growth amidst such conditions is not surprising.

That said, wireless revenues have not been hit as hard as other media sectors by either the collapse of the dot.com bubble in 2000 or by the Anglo-European financial crisis (2007ff). Only the pace of development has slowed relative to past trends.

Internet access displays similar patterns of massive growth, albeit for not as long or to the same extent. Internet access revenues last year were $7.6 billion, up substantially from $6.2 billion in 2008 and quadruple what they were at the turn-of-the-21st century ($1.8 billion).

The most notable development in the past two years is the rapid growth of the telephone companies’ Internet Protocol TV (IPTV) services, albeit from a low base.  IPTV is the incumbent telcos’ managed internet-based tv services: e.g. Telus, Bell, MTS Allstream, SaskTel, and Bell Aliant. Revenues have nearly tripled, from $231 million to $638 million, over the past two years. The number of IPTV subscribers has followed suit, rising sharply from 200,000 in 2008, to nearly a half-million at the end of 2010, to just under 1.2 million at the end of 2012.

These figures are slightly higher than those in the CRTC’s Communication Monitoring Report (pp. 110-111) because the CRTC’s figures for subscribers are taken from the end of August in each year as opposed to the end of the year. More importantly, the CRTC’s estimated revenues (ARPU) are lower than those the telcos cite in their annual reports (see CMR, pp. 110-111).

Tables 4 and 5 below show the trends for IPTV growth in terms of both subscribers and revenues, respectively.

Table 4: The Growth of IPTV Subscribers in Canada, 2004–2012

2004

2006

2008

2010

2011

2012

Bell Fibe TV

13,000

50,644

248,298

Bell Aliant

46,575

68,199

107,391

Telus

 63,000

266,000

453,000

637000

MTS Allstream

25,422

59,442

82,278

89,604

93,244

95,374

SaskTel

22,850

48,980

68,408

83,610

91,854

93507

Total IPTV Connections

48,272.0

108,422

 213,686

498,789

756,941

1,181,570

Sources: see Media Industry DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary.

Table 5: The Growth of IPTV Revenues in Canada, 2004–2012

 

2004

2006

2008

2010

2011

2012

Bell Fibe TV

8.9

22.7

120.2

Bell Aliant

14.9

27.6

55.7

Telus

14.3

101.6

202.2

314.7

MTS Allstream

8.4

29

50

59.0

70.6

78.5

SaskTel

7.6

23.9

37.1

51

63.7

74.3

Total IPTV $

16

52.9

97.2

231.3

380.0

638.1

Sources: see Media Industry DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary.

The growth of IPTV services is significant for many reasons. First, the telcos are finally making the investments needed to bring next generation, fiber-based internet networks closer to subscribers, mostly to neighbourhood nodes and sometimes right to people’s doorsteps. If the distribution of television is essential to the take-up of next generation networks, as I believe it is (for better or worse), IPTV will be a key part of the demand drivers for these networks (see below).

Second, the addition of IPTV as a new television distribution platform brings the telcos deeper into the cable companies’ dominion. IPTV services accounted for 7.5% of the TV distribution market in 2012 (the CRTC’s Communication Monitoring Report publishes a slightly lower number at 6.7%, p. 110 for reasons explained above). The competitive threat posed by IPTV services, however, is more prominent in the western provinces where Telus, SaskTel and MTS are deploying IPTV in direct rivalry with Shaw versus the provinces from Ontario to the Atlantic where Bell’s decision to manage the introduction of IPTV in ways that are as least disruptive to its existing satellite operations as possible has moderated the impact on Rogers, Quebecor and Cogeco.

While the telcos’ IPTV services appear to have cut into the revenues of some cable companies, they have also contributed to a substantial expansion of BDU revenues from $8.1 billion in 2010 to $8.7 billion last year. Growth in 2012, however, was slow. Against the hew and cry about cord-cutting in industry pleadings for regulatory favours, and in so much of the journalistic coverage that uncritically repeats such claims, the losses of a few incumbent cable providers should not be mistaken with an industry in peril. Even if it was, growing competition is to be encouraged rather than something to shed tears over.

While IPTV services finally appear to be taking off, we must remember several things. First, the small prairie telcos, followed by Telus, have taken the lead in deploying IPTV. For Sasktel, MTS and Telus, IPTV now make up a significant 13.9 percent, 6.6 percent and 5.9 percent, respectively, of their revenues from wireline network access services (Wiredline + ISP + Cable). Bell lags far behind, with 1.5 percent of its revenues coming from IPTV services, including Bell Aliant, in 2012 (see Table 5).

Indeed, Bell launched IPTV late via its affiliate Bell Aliant in 2009. It slowly rolled out service for the next two years in the high-end districts of Montreal and Toronto, half-a-decade after MTS and SaskTel began doing so in the prairies. More cities were added in 2012 and subscriber numbers for the Bell Fibe service grew as a result from just under 120,000 the year before to about 356,000.

Innovation and investment in Canada came first from small telcos on the margins and Telus, not Bell. This replays a long-standing practice for new services to start out as luxuries for the rich before a mixture of public, political and competitive pressures turn them into affordable and available necessities for the public generally (see Richard John with respect to the US, Robert Babe for Canada). From the telegraph to next generation fibre Internet infrastructure, the tendencies, conflicts and lessons have remained much the same. The wireless wars that are now in full-swing are just the latest iteration of an old, old story (Winseck ReconvergenceWinseck and PikeJohn or Babe).

IPTV remains under-developed as a critical part of the network infrastructure in Canada, accounting for only 2 percent of the $32.2 billion in wire line network access revenues (i.e. wireline+BDUs+ISPs) (see Table 3 above). Less than two percent of broadband connections in Canada use fiber-to-the-home (see CMR, p. 142). The OECD average is 15 percent. In countries at the high end of the scale (Sweden, Slovak Rep., Korea, Japan), thirty to sixty percent of all broadband connections are fiber-based. The OECD ranks Canada 24 out of 34 countries in terms of fiber-connections out of the total number of subscribers as of December 2012. The following figure illustrates the point.

Figure 2: Percentage of Fibre Connections Out of Total Broadband Subscriptions (December 2012)

Figure 2: Percentage of Fibre Connections Out of Total Broadband Subscriptions (December 2012)

Source: OECD (2013). Broadband Portal.

For those who might be dismissive of such figures, it is useful to remember that the data presented in Tables 4 and 5 about IPTV are based on the Canadian telcos’ own audited numbers from their annual reports. While it has become something of a sport in Canada to cast aspersions on the OECD data (see herehere and here), the UK regulator Ofcom comes to similar conclusions: 5% of Canadian households subscribed to IPTV in 2011 versus France (28%), the Netherlands and Sweden (11%), Germany and the US (6%) and Spain (4%) as of 2011 (p. 136). The prairie telcos and Telus are part way to the OECD average, but in many ways, especially given its size and presence from Ontario to the Atlantic, it is Bell’s poor performance over the past half-decade that has dragged Canada down in the global league tables.

The Content Media Industries

The remainder of this post looks at the content media industries (broadcast tv, specialty and pay tv, radio, newspapers, magazines, music and internet advertising). For the most part, they too have grown substantially, although the picture has become murkier for a few sectors in the past few years.

In 1984, total revenue for the content industries was $5.6 billion; in 2012, it was $20.8 billion in 2012. In inflation-adjusted dollars, the revenues basically doubled from $11.3 billion to $20.8 billion over this span of time. Growth was steady throughout this period, with no discernible major uptick or downturn at any given point in time except for the years between 2008 and 2010, for reasons discussed above. Figure 3 depicts the trends.

Figure 3: Revenues for the Content Industries, 1984 – 2012 (Millions $)
Content Media Industries, 1984-2012

Sources: Media Economy DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary.

The rise of the internet and the confluence of its impact with the advertising downturn after the Anglo European financial crisis led many to claim that conventional TV is in a death spiral. Over-the-top services such as Netflix and supposedly rampant cord-cutting further compound the woes, or at least so the story goes.

Such doomsday scenarios, however, have been wide of their mark. Advertising revenue has gyrated in lockstep with state of the economy: plummeting by 8.5% from 2008 to 2009 followed by substantial increases of 9.2% and 7.7% in 2011. Things, however, stalled in 2012 amid ongoing economic uncertainty (-2%), fitting the patterns described earlier perfectly (on economic recessions, advertising revenue and the media economy see PicardGarnham or Miege).

Beyond advertising, the picture is clearer. The amount of time people watch television has stayed remarkably steady across all age groups and outstrips time with other media — the internet, radio, newspapers or other media – by a considerable margin, according to the most recent Canadian Media Usage Study. Ofcom’s latest international monitoring report shows that TV viewing was up in 13 of the 16 countries it surveyed, including Canada (p. 162).

In “Why the Internet Won’t Kill TV”, Sanford C. Bernstein & Co. senior analyst Todd Juenger writes, “so far teens are following historical patterns, and in fact, their usage of traditional TV is increasing”. Their use of computers, smart phones and tablets to do so is adding to, rather than taking away from, how much they watch television, he states.

Internet equipment manufacturers Cisco and Sandvine suggest that television and online video are driving the evolution and architecture of the internet. The proliferation of devices is expanding the time and space for television in people’s lives, not taking away from it. Elsewhere, I have called this the rise of the prime time internet. The fact that Netflix is engineered to be viewed on 800 devices helps illustrate the point.(2)

Conventional broadcast TV revenues have been basically flat since 2008. In real dollar terms, they have slid from $3,562 million to $3,407 in 2012 – a 4% decline. The real growth has been in subscriber fees and the pay-per model of TV (Mosco), as has been the case around the world – a point returned to immediately below.

For now, however, four points can be highlighted to explain the stalled growth of conventional TV when measured in current dollars or slight decline when ‘real dollars’ are used:

  1. dip in TV advertising in 2012;
  2. budget cuts to the CBC (p. 8);
  3. the phasing out of the LPIF between 2012 and 2014;
  4. the big four commercial TV providers – Shaw, Bell, Rogers and Quebecor –backing of the rapidly growing pay, specialty and other subscriber-based forms of TV (i.e. mobile, IPTV), while edging away from broadcast TV (see the CRTC’s CMR, pp. 100-102 and Individual Financial Summaries for a list of the 116 pay and specialty channels the big four, in total, own 2012).

That the TV in crises choir is wide of the mark is clearer yet once we widen the lens to look at the fastest growing areas of television: i.e. specialty and pay tv services (HBO, TSN, Comedy Central, Food Network, etc), mobile TV, and television distribution. Pay and specialty television services have been fast growing segments since the mid-1990s and especially so during the past decade. Their revenues eclipsed those of conventional broadcasting in 2010, when revenues reached $3,474.6 million. Last year, that figure was half-a-billion dollars higher at $3,967.5 million.

Adding conventional as well as specialty and pay tv services together to get a sense of ‘total television’ revenue as a whole yields an unmistakable picture: total TV revenues quadrupled from $1,842 million in 1984 to $7,375 million in 2012; using ‘real dollars’, total TV revenues doubled from $3.7 billion to $7.4 billion last year — hardly the image of a media sector in crisis. The fact that such trends persisted steadfast in the face of the economic downturn also points to a crucial point: the importance of the direct pay-per model (Mosco) and its relative imperviousness to economic shocks in comparison to the hyper-twitchy character of advertising revenue.

Add cable, satellite and IPTV distribution and the trend is more undeniable. In these domains, as indicated earlier, the addition of new services, first DTH in the 1990s, followed by IPTV in the past few years, plus steady growth in cable TV, means that TV distribution has grown immensely. Indeed, revenues for these sectors expanded twelve-fold from $716.3 million in 1984 to $8,695.7 million in 2012 (in current dollars).

“Total TV” and TV distribution revenues accounted for just over $16.1 billion in 2012. To put this another way, in 1984, all segments of the TV industry accounted for just 7% of revenues in the network media economy. That figure rose to 14% in 2000; by 2012, it was 22%. Table 6 illustrates the trends.

Table 6: Television Moves to the Centre of the Network Media Universe, 1984 – 2012 (millions current $)

Television Moves to the Centre1Sources: see Media Economy DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary.

Television is not dead or dying. It is thriving, and remains at the core of the internet- and wireless-centric media universe. Moreover, television and online video are driving the development and use of wireless and internet services. This is why Rogers, Telus and Bell are all using television to drive the take-up of 4G wireless services, and IPTV for the latter two. To paraphrase Mark Twain, rumors of television’s demise are greatly exaggerated.

Of course, this does not mean that that life is easy for those in the television business. Indeed, all of these sectors continue to have to come to terms with an environment that is becoming structurally more differentiated because of new media, notably IPTV and over-the-top (OTT) services such as Netflix, as well as significant changes in how people use the multiplying media at their disposal.

While incumbent television providers have leaned heavily on the CRTC and Parliament to change the rules to bring OTT services into the regulatory fold, or to weaken the rules governing their own services (see Bell’s submission in its bid to take over Astral Media, for a recent example, notably p. 22), OTT services have not cannibalized the revenues of the industry. They have added to the size of the pie. Based on an estimated 1.6 million subscribers at the end of 2012, Netflix’s Canadian revenues were an estimated $134 million – about 1.8 percent of “Total TV” revenues. Reports by Media Technology Monitor and CBC as well as the CRTC’s (2011) Results of the Fact Finding Exercise on Over-the-Top Programming Services lead to a similar conclusion.

Part of the more structurally differentiated network media economy is also illustrated by the rapid growth of internet advertising. In 2012, internet advertising revenue grew to $3.1 billion, up from just over $2.7 billion a year earlier and $1.6 billion in 2008. At the beginning of the decade, internet advertising accounted for a comparably paltry $110 million, but has shot upwards since to reach current levels. Similar to wireless services, however, internet advertising revenues continue to grow fast, although even here the pace has slowed appreciably since the onset of the Euro American financial crisis.

To be sure, these trends have given rise to important new actors on the media scene in Canada, notably Google and Facebook, among others, who account for the lion’s share of internet advertising revenues. Indeed, based on common estimates that Google takes about half of all internet advertising revenues, the search engine giant’s revenues in Canada in 2012 were in the neighbourhood of $1,542.5 million.(3) This is significant. It is enough to rank Google as the eighth largest media company operating in Canada, just after the CBC and MTS, but ahead of, in rank order: Cogeco, Torstar, Sasktel Postmedia, Astral, Eastlink, Power Corporation (Gesca) and the Globe and Mail.

For its part, Facebook had an estimated 18.1 million users in Canada at the end of 2012. With each Canadian user worth about $12.70 to the company a year, it’s revenue can be estimated as having been $229.7 million in 2012, or 7.5% of online advertising revenue – an amount that gives it a modest place in the media economy in Canada and near the bottom of the list of the top twenty TMI companies in this country.

While it is commonplace to throw digital media giants into the mix of woes that are, erroneously, trotted out as bedeviling many of the traditional media in Canada, the fact of the matter is that Netflix’s impact on television revenues is negligible, while those of Google and Facebook are mostly irrelevant except for three areas where they are likely quite significant: music, magazines and newspapers.  For the latter two, this is because of the direct impact on advertising revenues, while for music it is not advertising that is at issue, but how online distribution and the culture of linking is affecting the music industry. The following and concluding sections of this post sketch out trends in each of these domains.

Music

While many have held up the music industry as a poster child of the woes besetting ‘traditional media’ at the hands of digital media, the music industry in Canada is not in crisis. The picture over time, however, is mixed but getting better from a commercial standpoint.

Using current dollars, the sum of all of the main components of the music industry – i.e. recorded music, digital sales, concerts and publishing royalties – the music industry has grown modestly from $1,214 million in 1998 to $1,523.2 million in 2012. The current trend is slightly up, but the trend over the past decade-and-a-half has been unsteady, with considerable oscillation between record highs and contemporary lows.

Revenue dropped after the collapse of the dot.com bubble between 2000 and 2002, for instance, but then rose again until hitting a peak in 2004 of $1,379.3 million where they stayed flat for the next four years, when they began once again to climb. By 2010, music industry revenues had grown to $1,458.2 million; they have edged upwards from there ever since: to $1,480.4 million in 2011 and to $1,523.2 million last year – an all time high. Figure 4 illustrates the trends over time based on current dollars.

Figure 4: Total Music Revenues, 2000, 2006 & 2012 (millions$)

Music Industry Revenues in Canada (2000)

Music Industry Revenues in Canada (2006)

Music Industry Revenues in Canada (2012)

Sources: Recorded Music from Statistics Canada, Sound Recording and Music Publishing, Summary Statistics CANSIM TABLE 361-0005; Stats Can., Sound Recording: data tables, October 2005, catalogue no. 87F0008XIE; Stats Can, Sound Recording and Music Publishing, Cat. 87F0008X, 2009; except for 2012, from PriceWaterhouseCooper,  Global Media and Entertainment Outlook, 13th ed., 2012; Concerts from Stats Can, Spectator sports, event promoters, agents, managers, and artists for 2007, 2008, and 2009; Publishing from Socan,  Financial Report (various years); Internet from PriceWaterhouseCooper, Global Media and Entertainment Outlook, 13th ed (various yrs).

The picture is less rosy when we switch the metric to ‘real dollars’, which results in revenues reaching a high of $1.6 billion in 2004 before dropping to their lowest point in over a decade: $1, 455 million in 2008. Yet, since then, revenues have once again been on the rise and in 2012 reached $1523.2 million – less that 4% off their peak in 2004.

This is a slight decline since the all-time high in 2004, of course, but certainly not a calamity. Moreover, the trend from 2008, whether measured in current or real dollars is all in one direction: up! One reason for this might be because of all the media covered by the network media concept, the music industries embraced digital/internet sources of revenue earlier and more extensively than any other. Worldwide, by 2012, the industry obtained about 15% of its revenues from online, mobile and digital sources.

There is and has been no crisis in the music industry. In fact, conditions in Canada now mirror those in the music industry worldwide. To be sure, certain elements within the music industry – recorded music, for instance – have suffered badly, but publishing has plugged steadily along with modest increases and digital/online/mobile have exploded. Even recorded music now appears to be holding steady. Moreover, whereas recorded music has long been the centre of the industry that place has now been usurped by live concerts, as shown above. Even the music industry’s main lobby group, the International Federation of Phonographic Industries states in its most recent Digital Music Report that in 2012 “the music industry achieved its best year-on-year performance since 1998” (p. 5).

Radio

Radio stands in a similar position to the music industries a few years ago. Revenues grew until reaching a peak in 2008: $1,990 million (includes CBC annual appropriation), a level at which they have basically remained ever since. Revenues in 2012 were $1,946 (current dollars). Change the measurement from current dollars to inflation-adjusted, real dollars, however, and the picture changes, with revenue declining from $2,088.3 million in 2008 to $1,946 million in 2012 – a fall of 6.8%.

Magazines

Magazines appear to stand in the same position as the music and radio sectors as well, although I have not been able to update my revenue data for the sector for either 2011 or 2012. Yet, extrapolating from trends between 2008 and 2010 to obtain an estimate for 2012, revenues have declined slightly on the basis of current dollars (from 2,394 million in 2008 to $2,100 in 2012). PriceWaterhouseCooper, in contrast, shows a slight uptick in revenues between 2011 and 2012. Back to estimates using Statistics Canada and the drop of nearly 17 percent from $2,522.4 million in 2008 to $2,071.1 last year seems pronounced.  The Internet Advertising Bureau shows a net drop in advertising between 2011 and 2012 of 3%. In other words, the evidence is mixed but leans toward the ‘media in decline’ side of the ledger.

Newspapers

Perhaps the most dramatic tale of doom and gloom within the network media economy, at least in terms of revenues, is from the experience of newspapers. Readers of this blog will know that in earlier versions of this post, and other posts, I have been skeptical of claims that journalism is in crisis. I still am. Generally, I agree with Yochai Benkler who argues that that we are in a period of heightened flux, but with the emergence of a new crop of commercial internet-based members of the press (the Tyee and Huffington Post, for example), the revival of the partisan press (e.g. Blogging Tories, Rabble.ca) as well as non-profits and cooperatives (e.g. the Dominion) and the rise of an important role for citizen journalists signs that journalism is not moribund or in a death spiral. In fact, these changes may herald a huge opportunity to improve the conditions of a free and responsible press.

At the same time, however, I also believe that traditional newspapers, whether the Globe and Mail, the Toronto Star or Ottawa Citizen are important engines in the network media economy, serving as the content factories that produce news, opinion, gossip and cultural style markers that have the ability to set the agenda and whose stories cascade across the media in a way that is all out of proportion to the weight of the press in the media economy. In other words, the press originates far more stories and attention that the rest of the media pick up, whether television, radio or via the linking culture of the blogosphere, than its weight suggests. Thus, problems in the traditional press could pose significant problems for the media, citizens and audiences as a whole.

While I have been reluctant to see newspapers as being in crisis, mostly because in previous years I have felt that the trends had not been long enough in the making to draw that conclusion. I also believe that many of the wounds suffered by the newspaper business have been self-inflicted out of a mixture of hubris and badly conceived bouts of consolidation. Nonetheless, I began to change my tune last year and the results this year offer no reason to change course now.

The revenue figures for the newspaper industry, as one industry insider who tallies up the data told me, are  “a mess”. The problems are mostly terminological in nature, such as how to define a daily, community or weekly newspaper while allocating revenue to each category accordingly. They also reflect concerns with how to present the industry in the least damaging light but without sugar-coating harsh realities. That said, using a mixture of data from Newspaper Canada and Statistics Canada allows us to arrive at good portrait of the newspaper industry over time and its main players, although it’s also important to point out that the Statistics Canada data for 2011 and 2012 are preliminary estimates that must wait until next year when it releases newspaper industry revenues for these years.

The data I use is drawn mostly from Statistics Canada, but Table 7 below shows both Newspaper Canada and Statistics Canada data so that readers can see the difference and also to reveal online revenues. Further discussion of why these differences exist can be seen in the relevant sections of the documents here and here.

Regardless of differences, both sources show that newspaper revenues have plummeted. In current dollar terms, Statistics Canada shows that newspaper revenues peaked at $5,482.3 million in 2008, and have fallen substantially since to an estimated $4,978 million last year. They fell another $180.7 million in 2012 – 3.6% — a decline of 12.5% since 2008. Table 7 illustrates the trends over time since 2004, while the full data set based on Statistics Canada data from 1984 can be seen under the relevant heading here.

Table 7: Newspaper Revenue — Newspapers Canada vs Statistics Canada, 2004-2012

($ million CND) 2004 2008 2009 2010 2011

2012

Daily Newspaper (Adv$)

2,611

2,489

2,030 2,102 1,971

2,019

Daily Newspaper (Circ$)

745.1

808.3

867.2 836.9 829.5

829.5

Community Newspaper ((Adv$)

961

1,211

1,186 1,143 1,167

1,253

Community Newspaper (Circ$)

Total

42.6 42.9

42.9p

Online Newspaper*

-

180.7

212.7 246.0 289.3

277.3

Newspaper Canada

4,317

4,689

4,509 4,616 4,589

4,422

Statistics Canada Total $

5033.9

5482.3

4,938.5 5009.8 4978.5

4797.8

Sources: see Media Economy DataSources and Explanatory Notes and the CMCR Project’s Methodology Primary. Online Newspaper revenues includes daily and community papers. 2012 data for Community Newspaper circulation revenue based on estimate of flat year-over-year growth.

In real dollar terms, the fall is more pronounced, with the decline setting in earlier and the drop being steeper. According to this measure, newspaper revenues basically flatlined between 2000 and 2008, with a small drop, but have shrunk greatly since by just under $1 billion – or 17%. This is the most clear cut case of a medium in decline out of the sectors of the network media economy reviewed in this post.

The results of these trends in 2012 were clear:

  • Postmedia cut the Sunday edition at three of its papers (the Calgary HeraldEdmonton Journal and Ottawa Citizen) adding to those where such measures had already been taken in the past few years (e.g. the National Post);
  • Postmedia also made deep cuts to journalistic staff across its chain;
  • the Globe and Mail adopted a voluntary program with the hope that sixty of its journalists would take the hint and leave (and here);
  • Quebecor’s Sun newspapers cut 500 jobs and centralized its printing operations in a smaller number of locations;
  • Glacier and Black swapped a number of smaller papers to consolidate their own operations.

Perhaps the most significant change to take place in 2012 is the extent to which dailies were put behind paywalls in Canada. Prior to 2011 there were no dailies with paywalls; in 2011 there were 5 covering under 1/5th of daily circulation; by 2012 the number had grown to 11 dailies and more than half of daily circulation. By August 2013, the number had grown 26 dailies accounting for more than two-thirds of daily circulation – a rate that is considerably higher than either the US or the UK (see Picard and Toughill). Table 8 illustrates the point.

Table 8: The Rise of the Great Paywalls of Canadian Newspapers, 2011-2013

Newspaper Lang Paywall Owner

Weekly Total

Daily Avg.

Times Colonist, Victoria English May 2011 Glacier Media

168,003

28,000

Daily Gleaner, Fredericton English Nov 2011 Brunswick News Inc.

33,042

5,507

Times-Transcript, Moncton English Nov 2011 Brunswick News Inc.

1,813,141

302,190

New Brunswick Telegraph Journal English Nov 2011 Brunswick News Inc.

1,017,394

169,566

Gazette Montreal English May 2011 Postmedia

288,639

48,107

% Circ behind Paywall (2011)

17.9

19.2

Vancouver Sun English Aug 2012 Postmedia

103,106

17,184

Province, Vancouver English Aug 2012 Postmedia

184,485

30,747

Ottawa Citizen* English Aug 2012 Postmedia

313,017

52,169

Journal de Montréal French Sept 2012 Quebecor/Sun Media

987,040

164,507

Journal de Québec French Sept 2012 Quebecor/Sun Media

853,800

142,300

Globe and Mail English Oct 2012 Globemedia Inc.

1,184,530

169,219

Ottawa Sun English Dec 2012 Quebecor/Sun Media

106,343

17,724

Toronto Sun English Dec 2012 Quebecor/Sun Media

683,327

113,888

Winnipeg Sun English Dec 2012 Quebecor/Sun Media

764,473

109,210

Calgary Sun English Dec 2012 Quebecor/Sun Media

853,800

142,300

Edmonton Sun English Dec 2012 Quebecor/Sun Media

358,018

51,145

% of Circ behind Paywall (2012)

52.3

54.4

National Post English May 2013 Postmedia

2,503,284

357,612

Calgary Herald English May 2013 Postmedia

987,040

164,507

Edmonton Journal English May 2013 Postmedia

337,021

56,170

Windsor Star English May 2013 Postmedia

1,015,625

145,089

Guardian, Charlottetown English May 2013 TC Media

249,589

41,598

Leader-Post, Regina English May 2013 Postmedia

337,021

56,170

StarPhoenix, Saskatoon English May 2013 Postmedia

358,018

51,145

The Daily News, Truro English July 2013 TC Media

290,101

41,443

Toronto Star English Aug 2013 Torstar Corporation

2,014,592

287,799

Chronicle-Herald, Halifax English Aug 2013 Halifax Herald Ltd.

770,132

110,019

Total Circulation

18,574,648

2,875,390

% of Circ behind Paywall (8/2013)

68.8

68.3

Source: Newspaper Canada 2012 Daily Circulation Report.

Some Concluding Comments and Observations

Several observations and conclusions stand out from this analysis.

First, the network media economy has grown immensely over time, whether we look at things in the short-, medium- or long-term. In the short- to medium-term (1-5 years), however, things have been less rosy. The effects of the economic downturn in the wake of the Euro-American centred financial crisis have hit every sector, except, it would appear, and ironically, music, which began to recover shortly afterwards. Otherwise, the effect has been to slow the rate of growth in the fastest growing sectors (wireless, ISPs, internet advertising, television) and to compound the problem in those media already under stress (newspapers, magazines and radio).

Second, while the network media economy in Canada may be small relative to the U.S., it is large relative to global standards. In fact, it is the tenth biggest media economy in the world.

Third, while most sectors of the media have grown substantially, and the network media economy has become structurally more complex on account of the rise of new segments of the media, a few segments have stagnated in the past few years (broadcast TV, radio and music, with apparent light at the end of the tunnel in the last few years with respect to the latter). It is now safe to say that two sectors appear to be in long-term decline: the traditional newspaper industry and wiredline telecoms.  Magazines probably fit the latter designation but it may still be too early to tell, with some good sources suggesting that it too, like the music sector, might be poised for a turn-around.

These ambiguities give good reason for why the CMCR project will continue to update our research on these matters annually. As we have said before, we can know of few better ways to gain an intimate understanding of our objects of analysis – the network media and all of its constituent elements – than to peer deeply and systematically into the data, while providing a theoretically and historically informed analysis of the data and trends that emerge over as long a period of time as we reasonably can.


1 Brazil telecom estimated at 12.5 percent growth from 2004 to 2008, and 5 percent per annum for 2010 through 201; China’s revenue estimated for 2010-2012 based http://www.cmcrp.org/wp-content/uploads/2013/10/Sources-and-Explanatory-Notes.docxon 10 percent per annum growth rates. Internet access revenues before 2004 are estimated for each country, except Australia and Canada, based on the prevailing CAGR for this sector within each country at the time.

2 Corey Wright, Director of Global Public Policy, Netflix, guest lecture given at School of Journalism and Communication, Carleton University, September 2013.

3 The Globe and Mail’s publisher, Phillip Crawley told the World Publishing Expo in Berlin that Google takes 60% of internet advertising in Canada. Evidence for this claim do not seem to have been presented, but I am all ears if a good case can be made for revising the estimates upwards to this figure.

The ITU and the Real Threats to the Internet, Part IV: the Triumph of State Security and Proposed Changes to the ITRs

This is the fourth in a series of posts on the potential implications of proposed changes and additions to the ITU’s international telecommunications regulations (ITRs) on the internet (earlier posts are herehere and here).

As we assess these potential implications it is necessary to sort out charges that are, in my view, overblown and alarmist versus those that have merit based on a close reading of the relevant ITU texts. I want to be clear that while I think that many of the charges being leveled at the ITU are trumped up baloney, there are actually many reasons to be concerned. I’ll briefly reprise what I see as the over blown claims (OBCs), then set out the most important real areas of concern.

Over Blown Claims (OBC)

(OBC1): The ITU & the Net: The claim that new rules being proposed for the WCIT this December could give the ITU authority over the internet, when currently it has none, is one OBC (see herehere and here), as I laid out in blog post two.

(OBC2) The Global Internet Tax: This is the claim that some countries want to meter internet traffic at their borders, a kind of tax that Facebook, Google, Apple, Netflix and other internet content companies would supposedly be forced to pay to reach users on the other side of the toll – simultaneously serving to fund broadband internet upgrades in foreign countries, constricting the free flow of info, and keeping people sealed off behind the closed and controlled Web 3.0 national internet spaces that are being built in Russia, China, Saudi Arabia, Iran and other repressive states (see here and here).

The kernal of truth in this matter is that European telecom operators have proposed to establish a “fee-for-carriage” model – like cable tv – that would allow them to charge big internet content companies according to the volume of traffic they generate. I don’t like it at all. It is a full-scale assault on network neutrality. Google hates it too (Ryan & GlickCerf NYTCerf Congress). Net neutrality folks should be up in arms, and some are.

The problem at the root of the critics’ assertions, however, is that the proposal by ETNO is not unusual but embodies the same “fee-for-carriage” model that telecom carriers such as AT&T, Comcast, Bell, Telecom NZ, and others have pursued for the past decade (see post 3). It is wrong to construe the demand to make internet companies pay for carriage as a tax, let alone a diabolical scheme by authoritarian governments to take-over the internet.

In addition, the idea of an internet metered at the border overlooks possible additions to Art. 3.7 of the ITRs that, as discussed in the last post, “enabl[e] direct international internet connections” between countries. “Special Arrangements” set out in Art. 9 of the constitution also means that telecom and internet companies can strike whatever deals they want to create end-to-end connectivity, so long as both countries on either end agree. Again, markets and contracts rule, not some kind of cyber-wall of Berlin.

(OBC3) Spam, Spam, Spam: The third, mostly bogus claim is that proposals to add references to spam in several places in the ITRs are the thin edge of a wedge that could lead to internet content regulation (Article 2.13; Art. 4.3a; and proposed new Art. 8A.5 and 8B). The proposal, however, urges countries to adopt “national legislation” covering spam – as many already do – and “to cooperate to take actions to counter spam” and “to exchange information on national findings/actions to counter spam”. This hardly seems like the thin of a wedge and, moreover, Article 2.13 explicitly excludes content as well as “meaningful . . . information of any type”.

Still, the U.S. is strongly opposed to such measures on the grounds that technological solutions are better suited to the problem than international law. Overkill, it says, and at odds with technological neutrality. Australia calls it too broad, Canada doesn’t like it either, and Portugal is still looking to see how it meshes with EU law. This is hardly an endorsement for the ‘global regulation of spam’ by the supposed axis of internet evil offering it, but the proposal is hardly tantamount to Armageddon, either (for annotated notes outlining countries’ views of proposed changes and additions, see here).

State Security, Splinternet and the Pending Death of the Open Global Internet: the Real Threats to the Internet

Now if you think I’m simply lining up as an apologist for the ITU, you’d be wrong, as the rest of this post makes clear.  Several proposals now on the table (see below) would cast a devastating blow to the internet by blessing the efforts of individual countries to build their own closed and controlled national Web 3.0 internet spaces today. In fact, many countries, including Anglo-European countries, are doing just that, although to a degree and of a kind that is demonstrably different than what is being built in the list of ‘rogue states’ that are often identified with such projects: Russia, China, Saudi Arabia, Iran, etc.

In fact, several sections of the ITU’s current framework already allow these kinds of projects, before any changes. Proposals to change or add new elements to the ITRs could make matters even worse, however.

Intercepting, Suspending and Blocking the Flow of Information since the 1850s: the Dark Side of the ITU

To see how, we need only to realize that nation-states have always claimed unbridled power to control national communication spaces, and to intercept, suspend and block the cross-border flow of information. The authority to inspect, suspend and cut-off communications that “appear dangerous to the security of the State or contrary to its laws, to public order or to decency” was first asserted by European governments in the 1850s during their drive to squelch popular rebellions. That authority was acknowledged by the Austro-German Telegraph Union and Western European Telegraph Union at the time, before being folded into the ITU when these organizations merged in 1865 (see Constitution, Article 34). That legacy hangs over the current WCIT talks like a dark cloud.

The supremacy of national security has been retained ever since and forms the basis of Articles 34, 35 and 37 in the ITU’s current Constitution, as the extracts below illustrate:

“Member States reserve the right to stop . . . the transmission of any private telegram which may appear dangerous to the security of the State or contrary to its laws, to public order or to decency” (Art. 34(1), Stoppage of Telecommunications, emphasis added).

“Member States also reserve the right to cut off, in accordance with their national law, any other private telecommunications which may appear dangerous to the security of the State or contrary to its laws, to public order or to decency” (Art. 34(2) Stoppage of Telecommunications, emphasis added).

“Each Member State reserves the right to suspend the international telecommunication service, either generally or only for certain relations and/or for certain kinds of correspondence” (Art. 35, Suspension of Services, emphasis added).

“Member States agree to take all possible measures . . . to ensur[e] the secrecy of international correspondence[, but] . . . reserve the right to communicate such corre­spondence to the competent authorities in order to ensure the application of their national laws or the execution of international conventions to which they are parties” (Art. 37, Secrecy of Telecommunications).

One proposal by the United Arab Emirates aims to replicate these measures in three new clauses to be added to the ITRs (Art. 7.3, 7.5 and 7.6, respectively), allowing such norms to do double-duty as high-level principles and day-to-day regulatory guidelines. The U.S. opposes the move, not because it sees telecoms and internet as a kind of global commons beyond the reach of harsh geopolitical concerns, but likely because the ITU already reflects the fact that national security concerns trump everything, and because it would not be unduly constrained by global norms anyway.  The US response to the UAE proposal is clear on the point: “We support retaining these provisions in the CS [constitution] and do not agree with . . . duplicating them in the ITRs”.

Cyberwar and the Fifth Domain of Battle: Militarization of the Internet versus Global Commons

The U.S. also refuses to be drawn into the proposals bandied about by Russia (mostly), China and a few other powerful military states over the past decade, this time to add a sprawling new section to the ITRs covering cybercrime, national security and cyberwar issues (Article 8A). The U.S. has rebuffed these moves for the same reasons mentioned above and, more to the point, because behind the veil of its global-internet-freedom-as- foreign-policy rhetoric is its more pressing conviction that the internet is now the fifth domain of war, alongside land, sea, air and space, a terrain where it grandiosely seeks to assert total infosphere dominance.

Seen in this context, overtures to “network defense and response to cyberattacks” (Article 8A.1) have no chance of adoption, even if setting aside the internet as a global commons under ITU protection outside the field of war might be a good idea. Moreover, and however, that rubicon has already been crossed with Russia believed to have been behind cyber-attacks against Georgia in 2008 and the Obama Administration’s recent admission that it played a role in the Stuxnet attacks against Iranian nuclear facilities.

Bearing those points in mind, Russian proposals to carve out new rules of cyberwar are hypocrisy, while the acknowledged facts of U.S. military policy means that it will dismiss such notions out of hand. Based on this, worries that additions to the ITRs intended to deal with such matters could serve as a Trojan horse for repressive controls over the internet can probably be safely tossed aside. It is worth noting, however, that amidst all the hand-wringing over the ITU threat to the internet, no one, as far as I know, touches upon how the hard realities of military power shape global telecom and internet policy, instead settling into numbing nostrums that pit the state against the individual.

A Laundry List of Many Items with Potentially Really Big Implications

Beyond the stance of the U.S. on the above matters, and questions of network defense and cyberwar, Article 8A starts off innocently enough, but quickly opens into a chamber house of horrors. It blandly refers to “confidence and security” in the title and the need to garner trust in online spaces (true enough), followed by a list of technical-sounding proposals about network security, data retention, data protection, fraud, spam, and so on.

Some of these principles are worthy of discussion, but the way they have been teed up for WCIT utterly fails to inspire confidence or hope. The measures are spearheaded by Russia and supported by China, with the latter telling us in the notes accompanying the proposals that new tools and rules are needed to:

“. . . protect the security of ICT infrastructure, misuse of ICTs, respect and protection of user information, build a fair, secure and trustworthy cyberspace . . . [with] new articles on network security in the ITRs”.

There is also a sundry list of other items included in the proposed new Article 8A as well as others drawn from recommendations at past conferences that deal with child online protection, fraud, user identity, etc.  One by one, most of these measures are reasonable, and most countries are dealing, on their own and in cooperation with one another, with all of them already.

Looking across all these proposals, however, reveals a raft of threats that, in their entirety, would usher in the foundation of controlled and closed national internet spaces that are subordinate to the unbound power of the state in every way:

  • Anonymity and Online Identity are implicated in repeated references to the need for users to have a recognized identity. This comports well with laws in countries such as China that require internet users to tie their online identity to the ‘real-name’ identity but if identifiability is the first step to regulability, as Lawrence Lessig claimed a decade ago, than this raft of references insisting on the need for online identity is a problem (e.g. proposed new Art. 3.6, 6.10, 8A.7, 8A.8). As ISOC states, such moves entail a “very active and inappropriate role in patrolling newly defined standards of behaviour on telecommunication and internet networks and in services”. I agree;
  • Privacy as well as Data Collection, Retention and Disclosure are mentioned as being critically important values several times (Articles 3.6, 8A.1, 8A.3, 8A.4) but are hemmed in by the repressive national security norms described above. While the wave of telecom and web monitoring bills currently under consideration just in the US (CISPA), Canada (Bill C-30) and the UK (Communications Data Bill) suggests that there is a need to reign in governments’ strong inclination to apply new surveillance and security measures to the internet, proposed changes to the ITRs would likely pressure telecom providers and ISPs to maximize rather than minimize the amount of personal data they collect, retain and disclose to state authorities.
  • Internet content regulation is seen as a threat scattered across many proposed changes to the ITRs but I think most of these claims are, as noted above, overblown. This threat, however, does loom large, but is mostly concentrated in a proposal to add the new Article 8A to the ITRs. Focusing our attention there, I agree with ISOC that the new rules could speed along and legitimate the development of national internet content regulation.

The worst examples of this come in two places in the new Article 8A.4 put forward by Russia. The first appears in a passage that reaffirms people’s “unrestricted” right to use international telecom services but immediately clips such rights with the caveat: “except in cases where . . . telecommunication services are used [to] . . . interfer[e] in the internal affairs or undermin[e] the sovereignty, national security, territorial integrity and public safety of other states”. One can only imagine how such measures might steel the hand of governments intent to interrupt the flow of tweets, Facebook updates, and other social media interactions that have played an important role, for example, in Arab Spring, the Occupy Wall Street protests, Wikileaks, etc. This is an effort to replicate the national security values already found in the Constitution in the ITRs, similar to the proposals of the UAE outlined above, and should be opposed for the same reasons.

Things are made worse yet by including what we might call the ‘anti-Wikileaks’ clause immediately afterwards, a provision that would trump people’s right to communicate when telecom-internet facilities are used “to divulge information of a sensitive nature” (Art. 8A.4). Leaking ‘sensitive information’, however, is not a crime and the idea that the “sensitive nature” of info will serve as a standard has no reference in free speech/press law and ideals. It also assumes an unbound conception of the state’s security interests, and gives it carte blanche to do as it pleases.

It is impossible to reconcile such prohibitions against info disclosure/publishing/leaking with the goal of furthering the development of a global and open internet or the right to communicate and of the free press. Accepting such a standard would be a much more potent Wikileaks killer than the heavy-handed measures that have already been used by the U.S. because it would give a legal sheen to what the U.S. has had to do so far by skirting around the edge of its on laws. Through such a clause, states would have free reign to crackdown on whistle-blowers with impunity and without limits.

A Few Final Thoughts

This exercise has forced me to change my views. The proposed additions and changes to the ITRs are worse than I thought. It is important that proposals now on the table for discussion at the upcoming WCIT get as much critical scrutiny as they can, and seen in that light, the WCITleaks site created by the folks at the Technology Liberation Front is a very useful tool.

That said, the analysis of the ITU and the proposed changes afoot have been largely strained through the prism of ideology, indiscriminately jumbling together overblown claims with real insights. As far as I can see, it is not the myriad of small changes to one section of the ITRs after another that constitute the major problem, but rather a set of issues that are mostly clustered in proposals by Russia, and supported by China, to add new sections to Article 8.  The damage such proposals could do to unsettled internet policy issues related to anonymity and online identity, privacy and personal data protection, as well as internet content regulation are enormous and can hardly be exaggerated.

On a more modest note, I understand that there is a battle over language that will occur in other sections, notably in Articles 1 and 2 over the definition of telecoms, with those who believe that the ITU does not cover the internet rejecting at every turn proposals by those who do to pepper the ITRs with explicit references to the internet. I believe the ITU’s authority already covers the internet, but understand that the politics of language will play a big role as countries stake out their turf on the matter.

I see no new global internet tax on the horizon and do not believe that references to spam are the thin of the wedge that will lead to national internet content regulations being imposed in one country after another. The truly awesome power of the state over communications, including the internet, however, comes into view as soon as we realize how stilted the existing ITU framework is in favour of national security imperatives.

Indeed, national security appears to trump everything, including the right to communicate and the free press. The fact that such norms are derived from a history of suppressing popular uprisings in Europe ought to make us think long and hard about their continued role amidst the political uprisings and revolts sweeping the world. Attempts by the UAE and Russia (with the support of China) to replicate repressive national security values in the ITRs through additions to Articles 7 and 8, respectively, do pose a threat to an open internet and political protest the world over.

This is important, too, because while I doubt that such measures have much chance of succeeding, they mesh with certain trends that define our times, with moves aplenty to impose comprehensive telecom and web monitoring plans in one country after another, as well as the copyright maximalist agenda that is turning telecom-ISPs across the world into internet cops on behalf of the media and entertainment industries. Such initiatives will continue with or without changes to the ITRs, which also highlights the reality that the ITU’s influence in these affairs is limited and not omnipotent.

Even if the most repressive aspects of proposed changes and additions to the ITRs were approved, this would not bind the whole world to implementing a single internet model. It would, however, bless the national Web 3.0 spaces that are already being built on the basis of three layers of control: (1) the systematic use of filtering and blocking to deny access to restricted websites and the recognition of such measures in national law; (2) dominance of national internet-media spaces by national champions (Baidu, Tencent, Yandex, Vkontakte, Facebook, Google, Apple, etc.) and (3) the active use of government-driven internet-media-communication campaigns (propaganda) to shape the total information environment (See Deibert & Rohozinski, ch. 2). The changes to the ITRs being sought by some countries, notably Russia and China, would add a fourth layer – international norms steeped in 19th century models of state security – that would further entrench the web 3.0 model and further lay waste to more important international norms associated with the right to communicate and free press.

Telecom-Media-Internet Politics in Canada: Evidence, Theory & Ideology

We are at a fundamental turning point, a constitutive moment when decisions taken now will set the course of developments across the telecom-media-Internet ecology for years, maybe decades, to come. We’ve just finished one set of hearings, and two more are on the immediate horizon: the CRTC’s hearings on Usage-Based Billing that begin Monday, July 11 and its upcoming so-called ‘fact finding’ hearings on Over-the-Top/new media.

In an interesting and helpful post today, Peter Nowak argued for 7 fundamental guiding rules for telecom issues in Canada, by which he meant the full gamut of issues right across the TMI (telecom-media-internet) spectrum. They are very useful guides and starting points for discussion, and easy to remember to boot. They are:

  1. Ditch Usage-Based Billing
  2. Don’t regulate new media/over-the-top (OTT) services (e.g. Netflix)
  3. Strengthen Net Neutrality
  4. Turf Foreign Ownership Restrictions
  5. Spectrum Set Aside for New Players
  6. Don’t Regulate Cross-media market power (aka vertical integration)
  7. Plan ahead for ‘shared networks’.

I find these very useful starting points; perhaps because I agree with most of them wholeheartedly (1, 2, 3, 5). Others I’d endorse with some caveats (4). Some I would expand on greatly (7). Others I would reject completely because they lack any basis in evidence, history or theory (6).

In terms of foreign ownership, Nowak proposes to drop all of the current limits on ownership of telecoms industries in Canada. He suggests that doing this will increase ‘real competition’ in the market by adding new players. This is not an uncommon position and in my view, its goal of increasing competition is basically a good one. Michael Geist and Mark Goldberg, each in their own way, make much the same point.

There are at least three or four problems, some of which I’ve outlined in another recent post, however, with this notion of dropping foreign ownership, although I am, to repeat, not against the idea in principle. First, there’s a good chance that we could drop the rules and nobody would come. These times are not those of the high-tide of foreign investment, in case anybody has been sleeping under a rock for the past few years.

Second, even if new investment does occur, this doesn’t necessarily mean that new competitors will enter the market. It’s more likely that they’ll just take over one of the incumbents, thereby switching the ‘title’ to the underlying telecom property but not doing anything at all to increase the market, unless the new owners turn out to be better than the current ones.

This is exactly the point made by a recent report by the C.D. Howe Institute. Despite its exuberant support of the idea that all foreign ownership rules across the telecoms-media-Internet board should be dropped, the Howe report was forthright that this would probably not result in more competitors. Instead it would lead to something much woolier: “performance gains” (p. 3).

Good luck assessing that, I’d say. Like “beauty”, performance would mostly be subjective and in the eyes of the beholder. Besides, with all of the existing telecom and broadcast players clamouring for less information disclosure, less regulatory oversight and less transparency, as they did one after another during the vertical integration hearings, how could we possibly know whether this nebulous objective was achieved?

Third, Nowak’s piece is couched in the idea of being a “pragmatic” set of proposals, rather than one that dogmatically sticks to what he sees as the right or left of the political spectrum. Thus unlike the Howe Report’s suggestion to drop foreign ownership rules across the board, he argues that if an integrated telecom-media player wanted to sell to foreign investors, say a US telco like AT&T or Verizon or, just as likely, a private equity group, then Bell Media, for example, would have to sell off its television interests, e.g. CTV (and 28 specialty channels, 28 local television stations and 33 radio stations, although he doesn’t spell that out).

Quebecor would have to do the same with respect to TVA, for example, and its extensive holdings of newspapers and magazines. Rogers would do the same with CityTV, 17 specialty channels and stable of magazines, while Shaw would have to part with its assets in television (Global) and specialty channels (Corus). Fat chance that’ll happen, I’d say.

Moreover, because there is a much broader range of media involved than just telecoms and television due to the fact that the ‘big four’ vertically-integrated media companies (VIMCos) (Bell, Rogers, Shaw, Quebecor) also all have, in different combinations, extensive holdings in radio, newspapers and magazines, it’s not going to be so easy to simply hive of telecoms from television. Indeed, with newspapers and magazines swaddled in their own bundle of tax and investment incentives designed to shore up Canadian ownership, unravelling this stuff will be messy and complicated.

To my mind, this part of the proposal not might have been as fully thought through as it could have been. The C.D. Howe Institute report at least has the virtue of purity and clarity: drop the barriers on everything, telecom, broadcasting, media in general.

Fourth, a very significant problem and one that strikes deeply at whether we want to further allow our culture to be ‘securitized’ and ‘militarized’, US telecom-media-Internet companies and investment capital comes with a lot of national security baggage, particularly so in the telecoms-media-Internet space. Their operations are subject to the Patriot Act and US telecom providers and ISPs have shown a propensity to cooperate with national security agencies in a very murky zone outside the rule of law and without cover of authorized warrants in ways that subsequent courts have found illegal (here, here, here and here).

Microsoft’s acknowledgement in Britain this past week that all U.S. companies like it, whether they admit it or not, are subject to the Patriot Act, was the first real candid acknowledgement of the extra-territorial reach of U.S. national security policy when it comes to matters of the information infrastructure. As Gordon Frazer, managing director of Microsoft UK, admitted, data stored in the cloud was well within the reach of the PATRIOT Act.

The acknowledgement came in response to a question posed by ZdNet journalist, Zack Whittaker. Whittaker asked,

“Can Microsoft guarantee that EU-stored data, held in EU based datacenters, will not leave the European Economic Area under any circumstances — even under a request by the Patriot Act?”

No, Fraser explained, “Microsoft cannot provide those guarantees. Neither can any other company”.

Tying networks, servers, the Internet and everything else in Canada that runs through and on top of these facilities to US national security policy is to sell out fundamental principles regarding open media, transparency and a networked free press for the feint hope that we might achieve a modicum of more competition than we have now, and even then, not ‘real competition’, but rather the kind of newfangled Schumpeterian ‘innovation economics’ pushed by the C.D. Howe report.

But let’s move beyond the issue of foreign ownership to Nowak’s sanguine approach to vertical integration, an approach that I also find problematic. Why? Because he offers no evidence, lessons from history, or theory to support his case.

This is problematic because current evidence shows that concentration across the spectrum of telecom-media-Internet services in Canada is high, in absolute terms, and relative to comparable international standards. I offered a snapshot of this evidence in an easy-to-digest form in my Globe and Mail column last week.

I’ll repeat that here for convenience. In Canada, the ‘big 4 VIMcos’ — Bell, Shaw, Rogers, Quebecor (QMI) — account for:

  • 86 per cent of cable and satellite distribution market
  • 70 per cent of wireless revenues
  • 63 per cent of the wired telephone market
  • 54 per cent of Internet Service Provider revenues
  • 42 per cent of radio
  • 40 per cent of the television universe
  • 19 per cent of the newspaper and magazine markets
  • 61 per cent of total revenues from all of the above media sectors combined.

These numbers are not trumped up in the slightest, and in fact on the matter of the Internet and television services they are actually lower than those offered by the CRTC because of the different methodologies we use. Nowak doesn’t refute these numbers; he just doesn’t deal with them.

Theory tells us that media concentration, for which vertical integration is just one manifestation, embeds a bias for trouble in the ‘structure of the media’. Tim Wu, in the Master Switch, gets things right when he sets up the simple premise that it is important for regulators to curb the potential for companies to leverage power and resources across the three main layers of the telecom-media-Internet system: networks, content/applications and devices.

In theory, I think he is right and, based on the current and historical record, strong measures are needed to prevent companies from leveraging control over any one of these three layers — networks, content, devices — to curb competition and diversity in any other layer.

Nowak is clearly aware of the connection in this regard and he hopes that his first and second principles — ditching UBB and leaving ‘new media’/OTT untouched by regulators — will take care of vertical integration problems by removing the ability of Bell, QMI, Rogers and Shaw from using bandwidth caps and the pay-per Internet model to basically undermine the viability of rival online video distribution services (AppleTV, GoogleTV, Netflix, etc.) that they see as a threat to their own broadcast services. I think that these are important steps, but insufficient to deal with the full range of ways in which leverage across the three layers of the telecom-media-Internet system can be used to hogtie competitors and stifle the fullest range of voices and expression possible.

This is not just hypothetical potential, either, but rather documented by case after case of examples where either access to content or to networks is deployed in the strategic rivalry between less than a handful of players in oligopolistic markets. And when highly capitalized Netcos such as Bell own much smaller content companies like CTV, they have every incentive to use the latter to shore up the position of the former.

The recently completed vertical integration hearings at the CRTC were replete with example after example of this, from network companies such as Telus, SaskTel, MTS Allstream and Public Mobile as well as media content companies, whether the CBC or smaller production companies like Stornoway Productions.

These examples are not just limited to Canada either, but global in scope. They are behind the recent detailed regulatory framework put into place in the US by the FCC and Department of Justice that blessed the merger between Comcast and NBC-Universal, but not before taking comparatively stern steps, especially by Canadian standards, to ensure that NBC-Universal content could not be locked up or used by Comcast to the disadvantage of rivals in the broadcasting business. Furthermore, Comcast was also required to make its television and film content available to Internet competitors and ‘online video distributors’ (OVDs), a new category designed to cover services such as Netflix, Hulu, AppleTV, and so on, and to adhere to open Internet requirements generally.

Other countries such as Australia, Belgium, Britain and New Zealand have dealt with their own experience of networks being used to trample competition and diminish the range of voices and expression possible by going even further to set up rival ‘unbundled’ open networks (Australia) or by mandating ‘structural separation’ between incumbents’ networks (layer 1) and other layers (services, content, devices) in the system. In an important post yesterday, Bill St. Arnaud also talks about the development of networks that are essentially based on pick and choose access to capabilities and functionalities that respond flexibly and recursively to  user generated communication and information needs

The problem, thus, is one that is buttressed by evidence, by theory and by global experience. In light of this, robust measures rather than a sanguine approach to vertical integration is most definitely needed.

And to bring this to a close, the issues raised by vertical integration are not the consequence of innovative, new industrial arrangements or newfangled theory, but rather deeply entrenched historically and indeed endemic to situations where those who control the medium (networks) are also in a position to control the messages (content) flowing through those networks.

Thus, in the first decade of the 20th century in Canada, the Canadian Pacific Telegraph Co. and Great North Western Telegraph Co (the latter under ownership control of Western Union) had exclusive distribution rights for the Associated Press news services in Canada. As part and parcel of the telegraph companies’ bid to buttress their dominance in the highly lucrative telegraph business against a couple of smaller rival upstarts (the Dominion Telegraph Co in Canada and Postal Telegraph Co. in the US), the Canadian Pacific Tel. Co. and Western Union-backed Great North Western Tel. Co. offered one of their premier set of clients — newspapers across the country — access to the AP news service at a very cheap rate. In fact, they gave it away “free”. Sound familiar? (observant readers might also note the persistent recurrence of ‘network infrastructure duopolies’, too)

The AP news service was so cheap because instead of paying the cost for both the news service and the telegraph charges for delivering it from one place to another, Canadian Pacific Tel. Co. and Great North Western Tel Co only charged newspaper subscribers the ‘transmission costs’ for the AP service. The content, under such arrangements, was ‘free’. Of course, this was a real boon to established members of the press and to AP, while it also helped to stitch up the companies’ lock on the telegraph business.  It was a menace to rival news services and a competitive press or telegraph system, however.

The fly-in-the-ointment was that any competitor news service was at a huge disadvantage because its subscribers had to pay the ‘transmission costs’ plus the cost of the news service. Thus, when Winnipeg-based upstart, the Western Associated Press, tried to set up a rival Canadian news service to that of the Associated Press in 1907, it found it’s opportunities blocked at every step of the way because there was simply no way its subscribers could pay two costs — transmission and for the news service — while the AP service was essentially given away free after subscribing newspapers paid the telegraph companies their fees for distribution.

As one muckraking journalist W. F. Maclean wrote in the Toronto World,

“attempts on the part of public service companies [the telegraph companies] to muzzle free expression of opinion by whitholding privileges that are of general right cannot be too strongly condemned.”

The matter found its way before one of the long-lost predecessors to today’s CRTC, and one of the first regulatory bodies in the country, the Board of Railway Commissioners. Canadian Pacific Tel. Co. came out swinging, arguing that the BRC simply had no authority over the news services or to compel it to separate the costs of the news services from transmission costs.

Times were different then, it seems, and the BRC didn’t wilt one bit amidst the hot-heated rhetoric but blasted back that it was compelled by  law to insure that rates were “just and reasonable” and that unless transmission rates were separate, explicit and equitable “telegraph companies could put out of business every newsgathering agency that dared to enter the field of competition with them” (BRC, 1910, p. 275).

The upshot was separation of control over the wires from control over the news business. The regulator had all the authority in the world it needed to break up the ‘double headed news monopoly’.  It is a lesson that the CRTC and everybody else interested in ensuring that we oversee the creation of the most open media with the maximum range of voices and creative expression possible should pay close attention to.

Of course, the modalities of communication have changed tremendously and we now live in age of information abundance rather than scarcity, but as Tim Wu’s Master Switch and the mounting evidence before our very eyes attests, the basic logic of leveraging content and networks to confer advantages on one’s own operations whilst driving others into submission, if not out of business altogether, is alive and well.

This is a basic and easy-to-grasp point, and until we firmly implant it at the heart of the structure and regulation of the telecom-media-Internet system, we will continue to forgo the economic, political, cultural and personal benefits of the most open network media system possible and which further the goals and values that define a free and democratic society.

On that score, Nowak is right, these are not ‘left’ and ‘right’ issues. They are issues, principles and values of concern to all who take the precepts of liberal capitalist democracy seriously and who see in the status quo a condition that is badly lacking by even that non-ideological/utopian standard.

Source:

Board of Railway Commissioners (BRC). (1910). The Western Associated Press v. The Canadian Pacific Railway Company’s Telegraph and the Great Northwestern Telegraph Company of Canada. In Sessional papers of the Parliament of Canada. Ottawa: J. De Labroquerie Tache, Printers to the King’s Most Excellent Majesty.

Could CANARIE fly on its own?

While writing the last post on the potential termination of funding for CANARIE, I got in touch with someone who I have recently come to know and have a great deal of respect for, Bill St. Arnaud. Bill’s important to the CANARIE story because he was Chief Research Officer with it for fifteen years before starting off on new adventures in early 2010.

After reading CANARIE’s annual reports for the last decade and the Government’s budget for 2011-12 tabled last week in Parliament that signals the end of CANARIE as a government funded initiative, I got in touch with Bill to see if I was understanding things correctly. Here’s a brief reprisal of the email conversation we had:

DW:

Dear Bill, I was wondering if you could please help me make some sense of some numbers related to Canarie that I’ve recently come across in the Governments Budget for the upcoming year? I see that they refer to the ‘sunset’ of $31m in funding to Canarie last year, and zero allocated for the upcoming year. Surely that doesn’t mean that Canarie’s entire budget has been eliminated, does it?

BSA: CANARIE receives only block grants approximately every 5 years.  The last block grant was for $120m in 2007 . . . .  So currently CANARIE’s funding sunsets next March. . . . CANARIE has virtually no other sources of income.

Over its 15 years existence CANARIE has received almost half billion dollars in funding made from a multitude of block grants.  After the receipt of each block grant many times the government has told CANARIE that it should be self sustainable from that point on.  Finally I think this government actually means it this time.  But CANARIE’s board and management is actively lobbying government for another block grant when the current one expires next March.

However I have been arguing for some time that CANARIE should be self sustainable, at least on a day to day operational basis. Many of CANARIE’s counterpart research networks around the world are operationally sustainable like those in Australia, US, Nordic countries, Netherlands, etc.

Although some of these networks, from time to time do receive capital funding to invest in new infrastructure or build community networks. Being operationally sustainable, has its challenges (especially at this late hour), but it  has a number of advantages:

(a)    It would give CANARIE the freedom and independence to pursue more aggressive broadband strategies without fear of reprisals from incumbents lobbying government to prohibit such activities.  Internet 2, in the US for example, when it was created deliberately eschewed  government funding for this reason

(b)   CANARIE can do much better long term planning instead of having to stare at a 5 year horizon. The last block grant literally came at the midnight hour – and we had to start to give layoff notices to many staff just prior to receiving the funding

(c)    CANARIE can be a much greater force for innovation if it is self sustainable by offering innovative new services such as national wireless, zero carbon Internet, community networking etc

————————————————————————————————————

So, if Bill is right, then the end of government funding doesn’t necessarily mean the end of CANARIE.

But will it continue to operate as a semi-independent actor capable of experimenting with advanced versions of the Internet that will only become widely available years from now?  Will it continue to push the envelope when it comes to open network and interoperability principles that define the original, non-commercial Internet?

In other words, will it continue to set an independent, alternative high-bar standard against which the incumbent telecom providers — Bell, Shaw, Rogers, Telus, Quebecor, Cogeco, etc. — can be critically assessed?

While I struggled to get my head around the idea that it could be okay to cut CANARIE off of government funds cold-turkey, it also took a while to fully realize Bill’s first point: that CANARIE has been put under incredible constraints already by incumbents constantly badgering the government to keep it on a short leash. In other words,the incumbents have pushed to keep CANARIE from actually competing with them in ‘the market’. It’s done what its done, so to speak, with one arm tied behind its back.

So getting CANARIE off the government trough seems to be Bill’s way of hoping that doing so might give it greater room for manouver outside the constraints imposed on it by governments acting at the behest of incumbent lobbyist. This is an incredibly important point, but one might wonder if government ought not steel its spine and actually stand down the lobbyists?

My feeling is that it would be better, in short, to have continued public funding and proper shielding from undue commercial influence. In a perfect world, we could have both, but I now understand why Bill doesn’t see cutting funds for CANARIE as the death blow I originally anticipated.

Maybe this can all be made a bit clearer by drawing parallels to television and hockey. It is commonplace in Canada and all countries with any kind of public service media for commercial broadcasters to whine about the CBC ‘unfairly’ competing with them for the rights to air NHL hockey games and anything else that draws eyeballs and attention. And so too for CANARIE, because the comparisons drawn with the private sector might not prove so favourable, better to cordone it off in areas the private sector is willing to leave behind to begin with. Seeing things from Bill’s perspective we can only imagine what CANARIE might it do if set loose after being held on a short leash for all these years?

In all of this is a vital demonstration in the political economy of communication, and it is as old as the first telegraphs, submarine cables and so forth in the 19th Century, and that is that governments shall never compete with private capital for markets. In ‘normal economics’ it’s called crowding out, while a more radical perspective sees this as the subordination of democratically elected governments to the interests of capital, or business to put it more simply. Today, it’s putting things like CANARIE and the CBC on short leashes, so that they can be ‘remedial public’ programs, not hardcore alternative providers in ‘the market’.

We can also see this kind of thing in  familiar terms when we look across the Atlantic to the UK, where the BBC — a core public service media provider — is constantly under pressure from the likes of James Murdoch of News Corp. and the Newspaper Publishers Association, for instance, to trim its sales. The Newspaper Publishers Association, for instance, argues that the BBC’s online news ambitions “threaten to strangle an important new market for news and information”.

Translation? The BBC should be tied to the mast of a sinking ship: television broadcasting, with rabbit ears preferably, while the rest of the explosive digital and commercial media market is handed off exclusively to ‘market forces’. This is a point that has also been driven home to me by my friend and NZ communication scholar, Peter Thompson, who recounts how Canwest Media used its ownership of television and radio interests to similarly argue against anything other than the most minimal role for TVNZ. It is also the basis of our own Conservative Government’s Directive to the CRTC to ‘rely on market forces to the maximum extent possible’ (for another post on this with respect to UBB and bandwidth caps, see here).

But back to CANARIE, some economic independence from government coffers could lead to greater autonomy and fewer shackles. Yet, CANARIE could also simply be sold to the highest bidder, likely those who previously fought tooth and nail to constrain it? In that sense, it would be grafted onto the operations of one or other of the existing incumbents and constitute yet another moment when government policy serves a primary purpose: to expand markets and open new sources of revenue for the private telecoms carriers.

These are some critical questions and with nothing more than a line item buried in the budget alerting us to any of this, we should start thinking about these questions now before CANARIE really does come to the end of the line in March 2012.

** With thanks to Bill St. Arnaud for his help and agreeing to let me use our correspondence for this post. Bill’s blog can be seen here.

The Harper Majority, Telecoms Foreign Ownership and Canada as Digital Free Media Haven

Canadians are all a tizzy about what the Harper majority might mean across a whole range of things. There’s a panopoly of issues within the communication and media realm that might be up for quick action: foreign ownership rules, the re-tabling of copyright legislation, the potential regulation of Online Video Providers (OVPs), and the possibility to turn back the tide that his now transforming the Internet in Canada into a pay-per model governed by the incumbent’s ‘business models’, bandwidth caps and UBB.

For now, I want to focus on the first issue: the telecoms foreign ownership rules and the potential that any changes taken in that regard might be harnessed to a bigger project, namely turning Canada in a digital, ‘free media haven’ governed by the highest standards of the networked free press possible (see here and here, as well).

A version of what follows was published in my column for the online version of the Globe & Mail today, so here I will expand on a few of the issues and add a few links, as I usually do.

The Conservatives are well-known for wanting to liberalize the current rules. Academics and consultants such as Michael Geist and Mark Goldberg have also called for greater foreign investment in Canadian telecoms. Most banking analysts feel the same way.

Konrad von Finckenstein, CRTC chief, is also in favour, but frets about how to deal with the slew of integrated telecom-media behemoths that he has recently blessed: Bell Media, Roger Media, Quebecor, Cogeco, Shaw, (but not Telus). In other words, how to open the gates for more foreign investment in telecoms but not broadcasting?

Those in favour of changing the existing rules believe that doing so could usher in more investment in network development, more competition, less bandwidth throttling and far greater consumer choice. The current incumbents who dominate the telecoms, media and Internet markets in Canada would, so many appear to believe, be forced to compete head-on with the big global players – AT&T, France Telecom, T-Mobile, Japan’s NTT, China Telecom – for customers.

The goals are laudable, but are they realistic?

Some suggest that movement on the issue will be slow because the Tories do not have a clear strategy to deal with it. Yet, the Government has had several options on the table since 2006:

  • 1. removing all foreign investment limits;
  • 2. raising the limits from the current twenty percent to just under half;
  • 3. permitting foreign investment only in new companies that have less than 10 percent market share.

The only strategy the Government doesn’t have is keeping the status quo. Expect change soon.

The Government’s Cabinet Directive in 2006 instructing the CRTC to rely on market forces to the maximum extent feasible also tips its hand. Indeed, the Government tried to do an end run around the law through another Cabinet Directive overturning the CRTC’s decision to reject Globalive’s (Wind Mobile) bid to become a new wireless player on the grounds that it was not Canadian owned and controlled, as the Telecommunications Act (sec. 16) demands.

A Federal Court in February stopped that effort in its tracks. At least a formal change to the Telecommunications Act’s foreign ownership rules would have the virtue of bringing the law into conformity with the facts on the ground, i.e. Wind Mobile is up and running.

Even if we assume that allowing greater foreign ownership is a good thing, and I will offer a few more reasons below as to why it could be, many pesky issues remain. For example, what if the Government decides to just go with option #1: Allowing greater access to foreign capital markets for new comers?

The intended beneficiaries, of course, are Wind Mobile, Mobilicity and Public Mobile, but would it also apply to Quebecor, a company that is a newcomer to wireless but well-entrenched across the rest of the media? Somehow that doesn’t seem right.

That raises the larger issue about how to disentangle telecoms from broadcasting? The fact that telecoms and broadcasting are becoming more intertwined is becoming clearer by the day as Netflix gains a stronger footing in Canada and as Google and Apple appear routinely before the CRTC and Parliamentary Standing Committee on Canadian Heritage.

Indeed, when the Americans negotiated the NAFTA and WTO deals they anticipated that digitization would soon dissolve the boundaries between telecoms and broadcasting and bring the ‘cultural industries’ within the reach of the ‘global trade regime’ as a result of ‘technological forces’. MIT scholar Ithiel de Sola Pool argued much the same thing in his 1983 classic, Technologies of Freedom, many years earlier.

Yet we also need to ask if loosening the rules will lead to the outcomes that so many expect? AOL, AT&T and PSiNet were important players in telecoms and the Internet in this country during the dot.com era, but where are they now?

They have long since retreated, collapsed or gone bankrupt. The point being that this is not the rah-rah days of globalization in the late 1990s, but one when foreign investment in telecoms is at a low ebb.

Just as the “old” AT&T was retreating from Canada, it was also selling off a slew of networks across Latin America in the mid-2000s – mostly to Mexico-based TelMex. The trend continues.

Just last month, Deutsche Telekom sold its T-Mobile wireless operator in the U.S. to the resurrected ‘new’ AT&T. Pundits can believe all they want that AT&T, France Telecoms, Deutsche Telekom, NTT, and so on are lining up to enter Canada, but evidence suggests otherwise.

The lesson from T-Mobile is that foreign capital investment is hunkering down rather than trying to conquer the world. As two World Investment Reports from UNCTAD in 2008 and 2010 observe foreign investment and cross-border mergers & acquisitions in telecoms have fallen considerably from their late-1990s peak throughout the decade, and have yet to recover, especially after the ‘crisis of 2008’.

The sale of T-Mobile also reveals that even the massive U.S. wireless market is unable to sustain robust competition. Three players dominate the U.S. wireless market: AT&T, Verizon and a smaller Sprint/Nextel.

In other words, foreign ownership is no sure-shot solution for concentrated telecom, media and Internet markets. In fact, the World Bank’s message since the early 1990s, amongst others, is that foreign capital investment in telecoms only delivers the good when it is properly regulated and used to launch new rivals, rather than to acquire incumbents (i.e. ‘greenfield investment’).

None of this is to say that we should avoid more foreign investment in telecoms. In fact, the history of telecoms in Canada has been bound up with foreign capital since the first telegraph lines linked Toronto to Buffalo and New York in 1846 and the trans-Atlantic cables created a vast Euro-American space of capital, markets, migration and information with Canada at the hub in the 1860s and 1870s.

Today, greater foreign investment could not only be used to increase the availability and use of broadband telecom and Internet services and foster more competition, but as a stepping stone to far-reaching efforts to transform Canada into an open ‘digital media haven’.

New rules would provide an incentive for greater foreign investment, while our cool climate could entice Amazon, Google, Rackspace, Microsoft and others to build their massive ‘data warehouses’ on Canadian soil because it is cheaper to run these energy hungry facilities here than in the United States. Our stronger protections for personal information could put vast stores of data beyond the reach of the U.S. Patriot Act and keep the ‘domain name snatching’ operations of Homeland Security at bay.

Birgitta Jonsdottir, the Icelandic Member of Parliament, has similarly proposed to make her country a haven for “digital free speech” – similar to what the Cayman Islands is for banking, but with the higher purpose of advancing human rights, democracy and freedom of expression. Seen from this angle, relaxing foreign ownership rules in Canada could serve as the cornerstone of efforts to foster an open telecom, media and Internet system governed by the highest standards of a networked free press in the world (also see here).

For that to happen, however, the new majority Harper Government will have to embrace openness, freedom of speech and democracy just as firmly as it now has its hands on the levers of the state.

Telus Hearing Angels?

The other day I posted that Telus stands apart from the other dominant integrated telecom and media giants in Canada — Bell, Rogers, Shaw, Quebecor and Cogeco — on several grounds.

First, that while it has Usage Based Billing and bandwidth caps on the books, it has yet to implement them — although it has just announced plans to do so. If it does, it will be in the same league as the rest of the incumbents. Until then, there is still a chance that it will back down.

Second, unlike the other ‘big 5′, it is not a fully-integrated media conglomerate. It does not own broadcasting or other major ‘content’ services.

Third, it is opposed to vertical integration because companies that own the ‘medium’ and the ‘message’ lock up content in ways that are anti-competitive and against open networks. It is already encountering the difficulties that that entails in its attempts to gain programs for its IPTV, mobile tv services, etc.

Today, Telus filed documents for the upcoming CRTC hearings on vertical integration outlining that opposition. It is worthwhile to read. Here’s a link and another.

The following quote from Telus press release announcing its position gets to the thrust of its position:

“The unprecedented concentration of market power in the broadcasting sector created by the common ownership of programming services and distribution platforms requires regulatory safeguards to protect consumers . . . . The potential for abuse of market power is real and the risk to consumers is significant. Without proper regulatory safeguards consumers could soon be facing increased costs and reduced choice in their TV viewing options.” Michael Hennessy, senior vice-president Regulatory and Government Affairs at TELUS.

To be sure, unless it renounces plans for UBB, bandwidth caps and to stop throttling P2P services and OVP (online video providers), Telus is certainly nowhere being on the side of the Angels. However, it has gone part way down the right path, and in so doing, broken ranks with the others who simply see the Internet as a threat and merely an adjunct to their ‘business models’ when useful.

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