Posts Tagged ‘Internet’

Telecom History and the Internet

I remember the puzzled looks from people back in the late-1980s and early-1990s when I told them I was studying telecommunications.  They looked perplexed. Why the hell would anyone want to study wires, switches, telephones. Boring!

It was indeed a bit of a hard sell. The history of telecoms, though, teaches us much about contemporary developments, not least those related to the Internet. In the previous post, I mentioned how Australia, in 2009, created the National Broadband Network Company in the face of incumbent obstruction. I also indicated that, worldwide, a dozen-and-half governments have earmarked $71 billion to extend next generation broadband networks to the doorstep, and to poor, rich urban and rural folk alike. I also referred to how Ofcom broke-up BT in the UK in 2005/6. Faced with all of this state intervention, the Paris-based consultancy, IDATE, wonders if we are witnessing the ‘renationalization’ of telecoms?

I don’t think so. All of this activity does, however, remind us of the role of politics and popular discontent in all things telecoms. Public uprising over the perceived under-development of communication networks, excessive rates, neglect of the rural and the poor, and so forth are not unique to the Internet. In Canada, they go back at least to the telephone in the late-19th and 20th centuries, and arguably to the telegraph and post office before that. Old media become the content of new media, as McLuhan once put it, warts and all.

In Canada, public outrage with the perceived under-development of the telephone system led to the Mulock Committee Inquiry in 1905. Hundreds of testimonies and piles of evidence later, the committee’s report seemed to fall on deaf ears. But in the next three years between 1906 and 1909, the Alberta Government Telephone System (1906), Manitoba Telephone System (1908) and SaskTel (1909) were created.

The public interest was not a phantom idea at this time.  Instead, it was the sum total of the expressions found in traces 0t the Mulock Report, journalism and what people were saying about the existing state of affairs and how they felt things ought to be. The under-development of communication networks not only sparked public discontent and political revolts, it spawned a legion of independent ‘network providers’ — some were state-owned, others were entrepreneurial, many were rural cooperatives, not a small number were municipally-owned (Thunder Bay Telephone).

Five years after Mulock (1910), the Board of Railway Commissioners (BRC) also stepped into the fray, this time to slay a loathed ‘double-headed news monopoly’ between the Canadian Pacific Telegraphs (to the west of Montreal) and the Western Union Telegraph Co. (with lines from Montreal to the Atlantic provinces and Nfld), on the one hand, and the NY-based Associated Press, on the other.  The two telegraph companies jointly held exclusive distribution rights for the Associated Press news agency in Canada. By ‘bundling’ the cost of transmission (the medium) with the cost of the news service (the message), they drove every potential rival news service out of business.

The monopoly over the wires, in short, conferred a monopoly over news. The impact on journalism was considerable, but indirect and hard to calculate.  The BRC, a long lost distant cousin of the CRTC, nonetheless nipped the operation in the bud.

The history of telecoms in Canada has much to teach. In this instance, these two examples teach us that the public interest is real, that public ownership is a potential, and that there is good reason to be concerned about letting those who control the medium control the message. Sections 27 and 36 of the current Telecommunications Act (1993) preventing those who own the wires from giving undue preferential treatment to their own services and from exercising editorial control over the messages transmitted through their networks are the legacies of this history.  The narrow choices that are being made about fundamental issues today is a matter of political expendiency and a denial of that history.

Media Concentration in Canada and the Internet

Over the course of the last fifteen years, the Internet Access market has grown into a $6.5 billion dollar industry. That is roughly the same size as the cable and satellite television distribution industry.

There are nearly 500 ISPs in Canada, but according to the CRTC’s own annual Communications Monitoring Reportfor each of the last few years, about 95% of Internet subscribers obtain service from one of two players: the ‘old’ phone company or their traditional cable provider. The ‘big six players’, according the CRTC’s own data, account for about three quarters of the market.

My own data collected as part of the International Media Concentration Research Project shows that the Internet access market is not quite as concentrated as the CRTC suggests, but still high, with just over two-thirds of Internet access revenues going to the ‘big six’: Bell, Telus, Shaw, Rogers, Quebecor and Cogeco. Some jockeying in terms of market share does, of course, occur between the major players, but levels of concentration over time have stayed remarkably flat. The upshot is that a small number of dominant players compete in tightly oligopolistic markets (see below for evidence).

Small and independent ISPs, online video providers (Netflix) and others, however, have consistently claimed since the rising popularity of the Internet in the mid-1990s that the big players have used their dominant market power to hobble competition. The CRTC, despite its own analysis, however, has been reluctant to deal with the problem of media concentration head-on. Government directives to rely on “market forces to the maximum extent” further disarms the regulator. The Government’s injunction that the CRTC must also take heed of the incumbents’ plans to invest in new networks and content services all but turns the agency into a toothless laptog unable to effectively regulate.

In contrast, when faced with similar obstructions to competition and the development of an open, broadband network in Australia by the dominant telecoms provider, Telstra, the government there created the National Broadband Network Company in 2009. The aim is to bring a ‘next generation’ ultra fast fibre-to-the-home Internet capable to 93 percent of Australian homes. The network will deliver speeds of between 100Mbps and 1 Gbps and the plan is to offer several different tiers of service, priced between $30 and $130 (Cdn). Total cost: $35.7 billion. Initial service began in a small number of homes in 2010.

Australia is not alone. A dozen-and-a-half governments, including Korea, France, the UK, the US, etc. – have committed to spending roughly $71 billion on similar initiatives over the next few years (Benkler report, pp. 162-164). Some of these projects are state-centric, others are not. In many countries, from Romania to the Netherlands, municipal and even neighbourhood-based broadband Internet development projects are underway. Despite the opposition within industry in North America, these efforts are considered to have been a huge boon to developing and improving affordable access to open-broadband Internet for residential subscribers, community centres, and businesses alike. Some of these are commercial ventures, others are joint public-private initiatives, and yet others involve incumbent players.

In 2005, the UK also adopted an approach that has been called for in Canada for years: ‘structural separation’. At this time, the regulator, Ofcom, required British Telecom, the dominant provider, to break itself into two parts: one for wholesale, and one for retail. BT did so the following year. BT can operate in both the “network” and “services” areas, but its wholesale operations cannot discriminate between the company’s own Internet services and anyone elses.

The ‘open reach’ model now in place in the UK requires maximum access to BT’s facilities in addition to the separation of its wholesale (network) and retail (content, Internet and services). This includes “improved access to the engineering . . . books used by BT to enable Communications Providers to provide their End-User customers with . . . better and faster” service (para 3.5). This a strong, pro-competitive, pro-innovation, pro-user and pro-open media arrangement.

The ‘big six’ in Canada, of course, chafe at ideas of ‘alternative carriers’, ‘structural separation’ and a maximalist approach to open networks. They also scoff at any claims that telecoms, media and Internet markets in Canada are concentrated, arguing instead that they are fiercely competitive. Indeed, Bell and Shaw emphasized just this point the other day in their testimony to the Standing Committee on Industry, Science and Technology (listen around the 1hr, 50min point).

Whether or not the telecoms, media and Internet industries have become more or less concentrated is, of course, a debatable issue. It one made all the more difficult by the fact that there has not been a consistent body of evidence to help inform the debate either. As a result, fiery debates have taken place in a vacuum, with positions closely tracking ideology rather than evidence.

As I indicated above, the CRTC’s own evidence tends to corroborate the view that media concentration does exist in many sectors. The problem with its evidence, though, is that its manner of presentation is inconsistent over time, focuses only on the top 4 or 5 players, and based on underlying data that it refuses to disclose. In the past year, I have filed a dozen Access to Information Policy (ATIPS) to gain access to this data, but have been refused each step of the way, and further denied on appeal.

I’ve done this as the lead Canadian participant on the International Media Concentration Project, which is led by Eli Noam, a well-known Professor of economics and finance, as well as a media and telecoms expert, at Columbia University (NY). The project has no axes to grind and includes 40 researchers from around the world who are systematically collecting data on concentration trends for every significant telecom, media and Internet industry since 1984: ISPs, search engines, newspapers, cable and satellite tv distribution, wired and wireless telecoms, film, conventional and specialty tv channels, and so on.

Here are the figures that I have done so far: CANADA Internet Services Provider DRAFT(1)CANADA Video Distribution TV DRAFT(1)CANADA Wired Telecoms DRAFT(1)CANADA Wireless Telecom DRAFT(1)Canada Total Television UniverseCanada Search EnginesCanadian Radio Mrkt Share, 1984-2009, and Canada Newspapers. The figure below shows the trends for all sectors over time:

Please feel free to use, criticize, suggest additions, or revisions to, etc. but when you do use it, cite it as follows: D. Winseck (2011). Media Ownership and Concentration in Canada. The International Media Concentration Research Project, Columbia University, New York.

So, what does the evidence show?  Several things stand out. First, each sector of the media is concentrated by standard measures (e.g. CR and HHI scores). Second, that patterns generally follow a U-shape, with concentration falling in the 1980s, rising sharply from the mid-1990s, and staying relatively flat since then. Concentration levels in Canada are high by global standards, in fact about two and a half times higher than the US (see Noam’s 2009, Media Ownership and Concentration in America, Oxford University Press, 2009).

The telecoms, media and Internet policy and regulatory frameworks in Canada have encouraged these trends for several reasons. First, on the grounds that with so many media outlets available, there’s no need to worry about concentration in terms of who owns those outlets. Fragmentation, not concentration, is the defining feature of the Internet and our times, so the argument goes.

To my mind, however, fewer owners holding more outlets is an important development that needs to be curbed rather than encouraged. Some limits were adopted in 2008 by the CRTC. This was an advance insofar that it was better than no formal rules at all. However, by using the same standards as the ones used to regulate the banking industry in Canada, grandfathering existing circumstances, permiting Shaw to take over the remnants of the bankrupt Canwest at firesale prices, and allowing the already weak rules to be breeched whenever expedient (i.e. Cogeco’s acquisition of Shaw/Corus radio stations in Quebec), the CRTC’s media ownership and concentration rules are toothless.

Second, there has been too much deference to claims that the ‘traditional media’ are being decimated by the ‘new media’. Claims that the ‘traditional media’ are ‘in crisis’ are generally false (see here and here). In fact, ‘old media’ markets like television have not shrunk, but grown. New media have opened up vast new markets for ‘old’ and ‘upstart’ players alike.

That this has been a boon to well-established interests, a case that is most obvious with respect to Internet Access. The vast majority (95%) of this enormous new source of revenue ($6.5 billion) has gone straight to the bottom line of the incumbents telephone and cable companies. Yet, this new source of revenue has occurred with no corresponding upswing in investment in networks and services by the ‘big six’, as I showed in one of my posts a few days ago.

Third, underpinning consolidation in Canada is the myth that in the global scheme of things, we possess a small media market.  It is then argued that this condition requires the cultivation and protection of well-heeled players with deep pockets to invest in infrastructure, Cancon and cultural survival.  It is an easy story. It makes sense, or so it seems.

However, the ‘network media industries’ in Canada are not small by global standards. In fact, we have the eighth largest network media economy in the world, based on PriceWaterhouseCooper’s Global Media and Entertainment Outlook. Here’s a snapshot of the ten largest media economies in the world between 1998 and 2010: 10 Largest National Network Media Economies.

The combination of these myths, misguided policies and missing evidence is that we now have one of the most concentrated telecom, media and Internet markets in the world. The result has been the creation of a handful of media conglomerates with a reach across the media landscape and a decisive influence over the future of the Internet: Bell (CTV), Rogers (CityTV), Shaw (Global), Quebecor (TVA), Telus, and Cogeco (Radio) are the “big six”.

If ‘the medium is the message’, as Marshall McLuhan once stated, than the dominant players’ ability to shape the speed, capacity, price and technical and economic characteristics of the Internet give them considerable influence over creativity, innovation, experience, and expression. Tinkering with the medium — speed, bandwidth, memory/storage, capabilities — alters the meaning of our experience, and the message of the Internet.

The CRTC, however, refuses to see things this way. Instead, it relies on an exceptionally narrow conception of editorial influence over content. In fact, it has seemed bent on severing far-reaching and principled debates over Net Neutrality”, “Open Networks”, “Open Media”, etc. by using the sterile language of “Internet Traffic Management Practices”. It is a foul, unmoving language for digital gearheads. Reading the CRTC’s many documents on these issues is more likely to make your eyes glaze over rather than make you perk up and want to pay attention. The choices being made. nonetheless, will shape the future of the Internet for decades ahead.

In this constrained view of the world, the CRTC has fully-endorsed the use of economic measures like Bandwidth Caps and UBB to “discipline” what it and the industry vilifies as bandwidth hogs. It registers a vague preference for network investment to deal with congestion issues, but insists on nothing concrete to ensure that this hierarchy of priorities will translate into real world practices. Technical measures to throttle and block Internet applications are also given the green light, but supposedly only as a last resort. The fact that the use of such practices is left up to the discretion of the ISPs and for Internet subscribers to discover and challenge on their own, however, makes one wonder if these so-called ‘technical ITMPS’ actually sit as low down the totem pole as the CRTC suggests. This is regulation by machine and by impenetrable technocratic language.

All of these things add up to something that looks much more like an “Investment and Business Model Protection Plan” for the telephone and cable companies than a set of policies designed to further develop an open, broadband Internet in Canada. Indeed, it is not just the subtle ways in which tinkering with speed, capabilities, price and traffic that ever so slowly alter the Internet, but rather several instances whereby control over the medium as been translated into direct efforts to control the content flowing over it.

The CBC found this out in 2008 when its attempt to use BitTorrent to distribute an episode of Canada’s Next Great Prime Minister was thwarted by Bell’s network management practices.  The ‘big six’ have also been at the forefront of efforts to throw regulatory hurdles in the way of alternative OVDs (online video distributors) trying to enter Canada, such as Apple, Google, Netflix, etc. Indeed, they have called for these entities to be regulated just like the old broadcasters. As Netflix explains, it has had a difficult time in the US, but in Canada matters have been worse. Bandwidth Caps and UBB serve this end too by making it more expensive to download television, film and music from them. The effect is once again to preserve the big six media conglomerates’ main business.

Such practices have become even stronger since these companies began offering their own broadband video portals since 2009. In my reading, the rules governing bandwidth caps and UBB allow the incumbents to exclude their own video services from these constraints. A straight-forward reading of the Telecoms Act (sec. 27) would suggest that doing this would violate the ‘non-discrimination’ and ‘undue preference’ clauses, although that is not the view that has prevailed so far.

In a stunning moment of frankness the other day, Bell’s chief of regulatory affairs, Mirko Bibic, told the House of Commons committee meeting that the company’s own IPTV service would not be covered by the UBB and bandwidth caps (listen around the 2hr, 7min. mark). He offered a bunch of convoluted reasons why IPTV is misnamed and that, even though it rides on the same wires that the Internet and telephone do, it is ‘cable’ tv, not Internet TV.  How convenient. While Bell and the cable guys throw obstacles in the path of others, their own services get a free ride.

From the Open Internet to the Evolution of UBB, 1998-2011: the Rise and Fall of the Canadian Internet?

From the Open Internet to the Evolution of User-Based Billing, 1998-2011

Understanding the CRTC’s January 25 UBB is no easy task.  It has a ‘long tail’, so to speak. In the following I offer a chronology from 1998 to the present.

It begins with a series of early decisions to adopt a relatively open Internet that was, without exaggeration, the envy the world. To be sure, this period looked a lot better from far away rather than close up. Already, clear problems of market power, lack of equal access, pricing, policy and regulatory indecisiveness, etc. are cropping up.

The second period runs from, roughly, 2000 until 2005, a period of steady back-peddling from the principles of the open Internet, but not yet complete capitulation.

The third stage runs from, roughly, 2006 until now. As a scene-setting directive from Cabinet put it in December that year, the CRTC was to rely to “the maximum extent possible on market forces”.

The CRTC is directed to insure that its decisions:

(a) do not disturb incumbent’s incentives to invest in networks;

(b) ensure that there is “sufficient” (versus real) competition;

(c) ensure that telephone and cable companies are treated equally (not independent ISPs, Online Video Providers (OVPs), etc);

(d) do not impede incumbents investment in new content and services, i.e. IPTV.

Rather than a policy promoting an open Internet and competition, this looks more like an “Investment and Business Model Protection Plan” for the incumbent telephone and cable companies. The period marks not so much an incredible deference to the market, but to the incumbents with market power.  This period locks in bandwidth caps, ‘excess usage charges’, so-called Internet Traffic Management Practices, the death of Net Neutrality.

Throughout all three periods some common themes emerge. In each phase, independent ISPs constantly find impediments to network access. Issues of market power and concentration are treated evasively. Calls for ‘structural separation’ are not treated seriously. Concerns about anti-discriminatory behaviour by the large players, the influence of network owners over content and the character of the Internet as a media space, the privacy and surveillance implications of deep-packet inspection (DPI) technologies and the jamming of certain applications, e.g. P2P file sharing networks, come up time and again, but are not meaningfully addressed.

To understand all of these deeper issues, however, I think we need to begin by charting out the basic terrain. There are, of course, other choices that could be made, and what follows is by no means exhaustive. One thing is for sure, however, and that is that the UBB decision is, as I said in a previous post, just the tip of an iceberg.

If anyone would like to turn this into a time line, please get in touch.  I think it would be very useful. If there are things that are not on here that you think should be, let me know; if you disagree with my list and discussion, you can let me know that too!

July 1998 (98-9) ISP Access to Cable Company Networks. Gives ISPs access to cable networks at regulated rates. Cable and telephone companies now both governed by Open Network rules. In theory, probably most “open network” framework in the world, but finer points not well articulated.

Weaknesses: Proposals for structural separation rejected. Cdn. Cable TV Association in charge of proposing technical conditions for access. ISPs claim that cable companies have delayed network access while building substantial market power since launching own High Speed Internet in1996.

July 1999 (99-8). Regulation of Cable Carriers High Speed Internet Access. Reiterates commitment to ‘open network’ for both telephone and cable companies. CRTC finds market insufficient basis for network access. ISP/CCTA Technical Working Group established. This group will go on to play a lead role for the next year. Outside the ‘cable group’, most would say it was primarily a stalling tactic and a method for getting others to sign on to their technological and business models. The CRTC would take back the job of regulating in a more engage way in 2006.

September 1999 (99-11). Discounted ISP access to Cable Carriers High Speed Internet Access. ISPs reselling cable companies High Speed Internet Service. Get a 25% discount. No real interconnection/network access rights. ISPs accuse cable companies of stalling while building dominant market share.

August 2000 (2000-789). Terms and Conditions for Access to Large Cable Carriers High Speed Internet Access service. Maintains ‘non-discrimination’ principle, ie. cable companies cannot discriminate between their own services and those of competitors. Stresses need for ‘regulatory harmonization’ for cable and telephone companies. Sets access rates for each carrier, but does not distinguish between different service levels, i.e. lite, express and extreme. Approves Shaw and Videotron proposals Bandwidth Caps and ‘pay-per’ use proposals. Rogers and Cogeco required to file ‘pay-per’ use rates, even though neither has proposed them or expressed interest in establishing. “Volume usage rate restrictions [could] be appropriate means of disciplining end usage of cable carriers’ shared capacity” (para 106). Claims that cable companies’ need to maintain control over facilities, modems, etc. to protect integrity of network accepted.

December 2006. Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, P.C. 2006-1534, 14 December 2006 (the Policy Direction). CRTC ordered by Cabinet to rely on “market forces to the maximum extent possible”.

December 2006 (2006-77). Third Party Internet Access (i.e. Independent ISPs) to Major Cable Company Networks. CRTC mandates access and sets rates for TPIA. Supersedes Cable/ISP working group. Rejects ‘essential facilities’ doctrine, ‘structural separation’ and wholesale rates. Instead of a ‘strong’ open network framework, this is a weak access regime. Sets baseline prices for 3 tiers of service: Lite, Express and Extreme.

Rogers’ claims to have never applied UBB fees to its retail customers or to wholesale services, but has filed tariffs for such things since 2000 at CRTC’s request. Rogers requests to withdraw them denied.

December 2006. Bell begins shutting down unlimited Internet plans.

February 2007.  Bell no longer offers unlimited Internet plans to new subscribers.

March 2008 (2008-17). Revised regulatory framework for wholesale services and definition of essential service. Expands scope of essential services by moving from “monopoly supply” to “market power” standard. However, rather than sticking with standard definition of ‘essential services’, uses six new categories invented two years earlier: (1) essential services, (2) conditional essential services, (3) conditional mandated non-essential services, (4) public good, (5) interconnection, (6) to be by phased out.

Only ‘directory services’ database (i.e. the database of telephone numbers used to make telephone books) is “essential service”. Local loops are “conditional essential services”. Services required by independent ISPs are “conditional mandated non-essential. The outcome is minimal standards for dealing with market concentration and minimal ‘open network’ requirements.

October 2009 (2009-657). Internet Traffic Management Decision. CRTC accepts that network congestion is a problem. Adopts hierarchy of procedures to deal with it: (1) Network investment to increase capacity; (2) economic measures such as bandwidth caps and UBB to “discipline users”; (3) technical measures so long as they can be justified, are as narrowly drawn as possible, discriminate against or harm network users as little as possible, and the carriers can show why such measures are superior to network investment or economic Internet Traffic Management Practices (ITMPs).

Exempts wireless carriers from rules governing ITMP.

Rejects concerns that such measures as thus far practiced discriminate between incumbents and competitors services (i.e. do not violate sec. 27) of Telecoms Act, that they do not constitute editorial influence over the flow of information or the content of information (sec. 36), or violate privacy laws (e.g. sec. 7(i) of Telecoms ACT or PIPEDA).

December 2009 Order Issuing a Direction to the CRTC re. Cybersurf, P.C. 2009-2007, December 10, 2009 (Policy Direction). Requires CRTC to revisit speed matching and wholesale access decisions (2008-117) and review in light of: (1) potential disincentive for incumbents to invest in networks; (2) whether there is “sufficient” (versus real) competition in the market; (3) parity between telephone and companies; (4) potential disincentive for incumbents to invest in new content and services, i.e. IPTV.

Basic gist: network access was too liberal and did not give incumbents’ interests enough weight in their determination.

March 2010 (2010-255)UBB and Bandwidth Caps for Rival ISPs adopted. The CRTC accepts the plan by the major telephone companies to implement wholesale UBB.  The CRTC accepts the idea, but with the condition that rates for two main components of wholesale services – the ‘gateway access services’ that provide the ‘last mile’ connection between the ISPs and subscribers and wholesale UBB prices – be 25 percent less than their own retail Internet services.

August 2010 (2010-632). Wholesale Access/Speed Matching Decision. Harmonizes the ‘speedmatching requirements’ for telephone and cable companies. Both must make the same level of facilities used by their own retail Internet services available to independent ISPs on equal terms. That is smaller ISPs should have access to the technical resources that allow them to match the ‘big six’ players’ basic, express and ultra-fast Internet services. Tied to several previous cases. The dissent by CRTC Commissioner Timothy Denton is a must read. It lays out much of what is wrong with the regulator’s approach to independent ISPs.

October 2010 (2010-802). Telephone Companies Appeal Initial Wholesale UBB Ruling (CRTC 2010-255).  Argue that the CRTC’s 25% discount rate for wholesale facilities is arbitrary (i.e. why not 10 percent, or 40 percent?). Also, rules of parity require that any discount applied to telephone companies should be applied to cable companies to level the playing field.

January 25, 2011 (2011-44). UBB for Rival ISPs Final Decision. Extends UBB to wholesale “gateway access services” and “retail Internet” offered by independent ISPs.  Reduces wholesale gateway access services discount from 25% to 15%. Harmonizes the 15% discount rate for gateway access services and wholesale UBB for telephone and cable companies.

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Von Finckenstein, the Internet and Dr. Suess

I have always liked Dr. Suess.  Indeed, my wife and I both like him a lot.

Here’s a great remix of the ol’ guy, with the CRTC Chairman Konrad von Finckenstein’s take on the pay per model model of the Internet providing the backdrop.  It’s a great spoof of a bad scheme that is fast becoming stuck to von Finckenstein’s name in Canada. It is his to shoulder, but not alone, as I argue in my last post.

I think this ditty below is funny and a fabulous addition to the public discussion right now.  Imagine, a ‘public discussion’ about telecom and internet policy? Who woulda thunk it? This is a major accomplishment. The Open Media people, and those like Jean-Francois Mezei, among many others, have kept the issue alive.  The latter’s Petition is an excellent read, and a bold move.

There are some, though, that would love to disband the CRTC.  With a zillion qualifications, I think that would be a huge mistake. I also want to say that I think the Dr. Suess ditty below plays too easily into the ‘loathe the CRTC’ crowd.  As all my writing indicates, and as all my experience with them tells me to the core of my bones, there is much to loathe at the CRTC. However, that is not enough.The CRTC’s been set-up to fail. Successive Liberal and Conservative Governments have continuously meddled in its affairs by Order-in-Council. That has become particularly pronounced under the present government.

I’ve been thinking a lot about Thomas Frank’s The Wrecking Crew the last few days. It’s a basic tale about the US, where he suggest that the primary purpose of taking over government is to, ahem, wreck it.  It describes the scenario playing out at the CRTC, I think, as rule by Cabinet Directive becomes the norm rather than a government’s intermittent prerogative.

The UBB’s being pegged on Konrad, and there’s no doubt that he’s an enthusiastic supporter of it. The CRTC 10 years ago said that bandwidth caps and prices are excellent ways of “disciplining” users. They were right. The key questions, though, are whether the CRTC and ‘the State’ should be in the business of disciplining people?  The second point is that there’s a difference between the CRTC that uttered the words to this effect, and the one now that is gung-ho about implementing them, backstopped by Government orders to “rely on market forces to the maximum extent possible”.  Alice in Wonderland never seemed closer in light of the utter lack of competition in Canada.

Okay, enough, here’s the Seussification of KVF, Konrad von Finckenstein.  I found it at P2PNet site.  Enjoy, and spread it round:

The Finckenstein Who Stole The Internet ,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.

Then the Canadians, young and old, would sit down to download. Or so I’ve been told.
And they’d download! And they’d download!
They would start on free YouTube, and next move to Netflix, a cheap rental beast.
Which was something the Finckenstein couldn’t stand in the least!
They’d do something he liked least of all!
Every Canadian down in Canada, the tall and the small,
Would figure together, or sometimes alone, the Internet is an alternative to cable, satellite and yes, even phone!
They’d stop using their expensive Bell services. And the Canadians would start ditching and switching all month through!
They’d switch! And they’d switch!
And the more the Finckenstein thought of the Canadian-Internet-Switch
The more the Finckenstein thought, “I must stop this whole thing!
“Why for ten years I’ve put up with it now!
I MUST stop the Internet from being!
…But HOW?”
Then he got an idea!
An awful idea!
“I know just what to do!” The Finckenstein Laughed in his throat.

UBB, the Unholy Trinity and the Future of the Internet in Canada

In the last two weeks worries about the future of the Internet in Canada have been thrust into the spotlight. Thankfully, it is still going strong.

The lightning rod was the CRTC Usage-Based Billing (UBB) decision on January 25th.  This, however, was the culmination of a year in which the regulator bumbled its way through no less than three other related decisions in a bid to do one simple, bad thing: sweep aside the final hurdles to the dominant telephone and cable companies’ plans to impose ‘bandwidth caps’ and a ‘metered internet’ model on independent Internet Service Providers (ISPs) that rely on the big companies’ cables and wires for ‘last mile’ access to subscribers homes (see UBB Orig.Dec; UBB Telco Appeal; UBB Wholesale Access/SpeedMatching)

The January 25th decision, in fact, would only affect 5 percent of Canadian Internet users. These are the ones who obtain access to the Internet from one of the nearly 500 small ISPs scattered across the country. The significance and symbolic importance of this group, however, goes well beyond its tiny numbers: if the UBB decision stands, they will be the last to have had unlimited Internet service replaced by a provider-controlled, pay per model of the Internet. Bandwidth caps and “excess usage charges” for everyone else, however, have been stealthily put into place during the past five years by an unholy trinity that involves the dominant telephone and cable players, a compliant CRTC, and the Harper Government.

A succinct history of the emergence of UBB is essential to understanding the concept and just how it came to be such a unique (and undesirable) fixture of the Internet in Canada. Open Media offers a snapshot overview that covers the past year, but I think we must go back several years further.

As early as 2000, the CRTC expressed its belief that user fees could be an appropriate tool for disciplining heavy users, but never acted on that belief. The Conservative Government’s ascent to power in 2006, however, marked a pivotal turning point. The radical remodeling of the Internet from an open, user-centric model to a provider-controlled, pay per model begins to be kicked into high gear at this point. This is primarily because the Government issues a slew of Cabinet Directives that required the CRTC to rely on “market forces to the maximum extent possible”, even though it is patently obvious that the Canadian Internet Access market is highly concentrated.

For all intents and purposes, this did not mean relying on the idealized competitive ‘market forces’ of textbook economics but the small number of companies that dominate the market. In Canada, this means the incumbent telephone and cable companies that control 95% of the Internet access market. More specifically, it refers to the ‘big six’ entities that account for well-over two-thirds of the market alone: Bell, Telus, Shaw, Rogers, Quebecor and Cogeco.

The Conservative Government’s relentless pressure on the CRTC to rely on “market forces” to the fullest extent possible essentially gave the ‘big six’ a green light to do as they please because, by and large, they are the market. It should not come as a big surprise that they took the cue and ran with it. Bell took the lead, shutting down unlimited Internet plans and imposing bandwidth caps and so-called “excess usage fees” in late 2006, before removing unlimited Internet service as an option for new subscribers altogether in February 2007 (see UBB Telco Appeal at para 10) . Once Bell had established the new benchmark, and made it stick, the other players soon followed suit.

This is not at all surprising because in highly concentrated markets, the small number of rivals that do exist tend to move like a flock, mimicking one another’s behaviour and competing on the margins rather than in a forceful way. Last month’s UBB decision was merely the coup de grace, sweeping aside the final hurdles to the big six’s plans to impose their provider-controlled Internet model on the rest of the population through the wholesale rates they charge independent ISPs that use their cables and wires for ‘last mile’ access to subscribers homes – all with the blessing of the CRTC.

The telephone and cable companies argue that these steps are necessary to curb the minority of excessive users who consume a disproportionate amount of traffic on their networks, leading to congestion. Yet, such claims are circumspect. First, because the only thing that has grown faster than the 40-50% year-on-year increase in Internet use over the past decade has been the rate of growth in network capacity and the declining costs of network technology.

Second, according to the CRTC, while the companies can use user fees, bandwidth caps, and other economic measures to manage traffic on their network, the priority is suppose to be on expanding network capacity through additional investment.  To be sure, in absolute terms, the telephone and cable companies invest billions every year in upgrading their facilities.  However, by international comparative standards, investment in Canada has been weak and, as the following figure shows, there is little evidence of greater investment following on from the Government’s directive to let the market rip. In fact, following a steep rise in the late 1990s associated with the boom, network investment by the telephone companies has stayed relatively flat. The cable companies investment levels actually fell significantly after 1996 and has stayed remarkably flat at relatively low levels throughout the past decade, despite the emergence of the Internet as a vast new source of revenue. One might have expected to see an upward swing in investment to meet the emergence of new needs and the new revenue sources. That does not appear to have happened.

Stagnating Network Infrastructure Investment, 1984 – 2009 ($ millions)

Source:  Statistics Canada (2010b), Capital and Repair Expenditures – Broadcasting and Telecommunications (2001 – 1009) Cansim Table 029-0013 and Statistics Canada (2010c)Capital and Repair Expenditures on Construction and Machinery– Broadcasting and Telephone (1984 – 1993), Table 029-0033; CRTC (2002). Status of Competition in Canadian Telecommunications Markets.

Third, there is no apparent link between the ‘excess usage charges’ that the dominant players are charging (i.e. from .50 cents per Gigabit (GB) to $5 per GB), and the cost of bandwidth. Experts peg the cost per gigabit as being anywhere between .01 cents and 10 cents. Even if we take the high end of this range, excess usage charges still entail an extortionate 500 to 5000 percent mark-up on costs.

Finally, as the Organization for Economic Cooperation and Development (OECD) observes, Canada stands alone in terms of the near universal use of ‘bandwidth caps’ and excess usage fees for Internet use. Such measures are sometimes used in the US, but do not constitute the norm. Comcast, one of the largest cable companies and ISPs in the US offers a far more generous bandwidth cap of 250 GB per month than even the most expensive services available in Canada (except Telus’s most expensive service). Charges for ‘excess use’ are also non-existent. The following table offers a snapshot comparison between the four largest providers in Canada and two of their counterparts in the US.

It must also be recognized that the comparison between the Canada and the US sets the bar low because neither country is a leader by comparative international standards when it comes to the Internet. Using a composite score based on speed, price and accessibility for wired and wireless networks, the Benkler Report (2010) ranks the US 13th out of the 30 OECD countries, and Canada 22nd. Both lag far behind leaders in the Scandinavian countries, France, Germany, Japan, and South Korea, among others.

The Benkler report has been criticized in Canada and the US by some of the major players, but its findings are in line with most studies. In other words, it represents a consensus position, not an outlier.

The key point is that while most countries are encouraging the use of the Internet to the greatest extent possible and doing their utmost to create a ‘digital media’ strategy, a combination of corporate strategy, incoherent government policies, and misguided regulation have done exactly the opposite in Canada.

Sadly, as a recent survey indicates, 9-out-of-ten Canadians have no clue that their use of the Internet has been so heavily clipped by ‘market forces’: bandwidth caps, excess use charges, and restrictions on what people can and cannot do with their Internet connections in the major providers ‘acceptable user policies’. The general drift of events has been obscured each step of the way by what can only be described as UnBearably Bland CRTC decisions as well as Cabinet Directives and the dominant players’ own “acceptable use policies” that are hedged about by a thicket of techno-economic mumbo jumbo. The cumulative effect of which is to conceal how one foundational principle after another of the open, user-centred Internet has been laid to waste.

The fantastic thing about last month’s so-called UBB decision by the CRTC is that it has helped to pierce through the veil of ignorance cultivated by the politics of a cozily regulated industry and shattered Canadian’s complacent delusions about the state of the Internet and Internet policy. If that is in fact the case, the ill-thought decision may ultimately serve a noble cause. However, we are going to have to go far beyond just the January 25th UBB decision to re-open all of those that preceded it, and that have had far more pervasive and now firmly rooted effects. There is, in short, a long slog ahead to undoing the state-sanctioned, corporate regulated Internet that has been put into place in Canada over the past decade, and especially the past five.

Fortunately, the first steps are already well underway. As I write, the number of signatures on the ‘stopthemeter’ petition launched by the advocacy group, Open Media, has soared past 420,000. The NDP and Liberals have both blasted the UBB decision. A private citizen, Jean-Francois Mazei, with a stake in these affairs from a business (he is the owner of Montreal-based ISP, Vaxination Informatique), political and intellectual point of view, has had his petition to overrule the UBB decision recognized by the powers-that-be, and widely circulated. The CRTC has also been given a stern public dressing down by Industry Minister Tony Clement, initially by Twitter, and later by official press release, and then by Prime Minister Harper’s own tweet to the same effect. Many see this as a clear signal that the UBB decision will be overturned.

The CRTC has got the message, but whether it will ultimately do the right thing is still an open question. CRTC chairman, Konrad von Finckenstein, told a hastily convened session of the Standing Committee on Industry, Science and Technology last week that he had already ordered a review of the decision and delayed its implementation for two months. A further two-month extension was made February 8. However, his advice to people to “shop around for a plan that best meets their needs” and staunch defense of the pay-per Internet model that he has been pushing, as if the market is competitive and the internet just another commodity, should give pause for doubt that the CRTC can lead the kind of thorough-going review that is needed.

If the aim is just to overturn the January 25th UBB decision, we should be careful what we wish for. If, however, this is just a stepping-stone to a far-reaching review of the step-by-step strangulation of the Internet that has taken place over the past decade, and especially the past five years, then we will have cause for joy.


[1] Prices for each service is for standard rate versus temporary discounted promotional rates. Figures collected February 8, 2011.

[2] Excess use charges to first 300GB for the Basic and Express versions, $1/GB thereafter.

[3] Prices expressed in Canadian dollars.  Based on advertised rates for unbundled Internet access.

[4] Each ISP indicates that download speeds fluctuate.  The figures here are the maximum speeds.

[5] Only available bundled with TV service.


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