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Goldberg / Incumbent Report: Canadian telecoms — laggard or leader

This report by Canadian telecom economist and analyst, Mark Goldberg, takes aim at the growing perception that Canada has become a laggard in telecoms, internet and digital media policy generally.

I’m not sure exactly when it was written because it does not say.  While not buried altogether, the study, inconspicuously, acknowledges in footnote 2 that it is sponsored by several of the largest cable and telecoms giants in Canada: Bell, Rogers, Shaw, Telus, Cogeco and SaskTel. The source of funding behind the study is not suppose to be a big deal. Instead, the aim of the report, it states, is to ‘set the record’ straight.

For a study that takes a holier than thou attitude towards facts, this one is remiss in not even stating when it was commissioned and/or published.  The data is mostly vintage 2007 – 2009, but it is clear that it is intended to inform the heated debates now taking place in Canada. Mostly, it aims to replace the idea that rather than being a laggard, the telecoms and Internet industries in Canada, even if not a leader in anything, are not too bad either.  Its wishy-washy conclusions are meant to soften the case against Canada’s incumbent network providers for lacking in innovation, throttling the Internet, and dominating concentrated media markets.

None of these charges, it claims, are true.  But this is because, instead of dealing with actually existing markets and the real levels of competition/concentration in them, the Goldberg/Incumbent study invokes something called ‘intermodal competition.  This concept is fashionable amongst a minority of incumbent defenders and some economists.  This is not, however, competition between real players in really existing markets — i.e. the sponsors of this study — and their real share of these markets.  Instead, it refers to potential competition between different media technologies: cable, DSL/Telco lines, wireless, satellite. I have recently offered an overview of what things look like when we take actual market share into account (see here).  The conclusions are far different than the ones presented inthe Goldberg/Incumbent study.

Besides overlooking evidence on really existing markets, the study conveniently overlooks two other essential facts.  First, that the incumbent telco and cable companies’ serve 95% of the market.  Satellite and wireless technologies do account for some of the rest, but these technologies are not competitors to the incumbents, but adjuncts to, ahem, the operations of this study’s sponsors: Bell, Shaw, Rogers, Telus, Cogeco, SaskTel. Players in so-called MMDS wireless broadband Internet, notably Look, went belly-up a few years ago, although this too is ignored in this study. Thus, while most economists and regulators have thrown the ‘intermodal rivalry’ model overboard in the past few years, this study gives it pride of place.

The Goldberg/Incumbent study shadow-boxes with a 2010 study by Harvard U’s Yochai Benkler all the way through.  However, nowhere in the study is the Benkler Report mentioned or cited.  Here’s a link to that study.  It is far more comprehensive than this one, a product of an initial release in 2009, months of critique and revision before republication in 2010.  Unlike the Goldberg/Incumbent Report, the Benkler study is done by independent academics and is not sponsored by vested interests.

In contrast to the breadth of the sources cited by Benkler — OECD, ITU, Globcomm, Oxford University — Oveido University, etc. — across a much more comprehensive set of measures, the Goldberg/Incumbent study takes aim at OECD data, cherry-picks evidence from Stats Canada, the CRTC, Ofcom, FCC, etc. and relies on sources that are generally supportive of its position. Such supportive studies are well represented in those cited from, for example, authors affiliated with the Progress and Freedom Foundation as well as the Information Technology and Innovation Foundation in the U.S.

The Goldberg/Incumbent study relies heavily on a study by Scott Wallsten of Stanford U in the US.  It was originally done in 2008.  If scholarly citations are any measure of success, it’s 8 citations (according to Google) pale alongside the attention drawn by the Benkler Next Generation Connectivity report.  Throughout the Goldberg/Incumbent study, minor sources are put alongside more credible sources, as if putting them side by side makes them equal.

Wallsten does have an axe to grind. He is, among other things, a senior fellow at the Progress and Freedom Foundation, a libertarian think-tank that always lines up four-square behind ‘free markets’ and new technology every time, and is of the school that there was never a monopoly worse than State intervention. Wallsten’s study appears alongside references to others from the Information Technology and Innovation Foundation (ITIF), another group highly deferential to incumbent telecom and cable interests in the US, and deeply suspicious of government intervention.

The Wallsten paper as well as one presented by Robert Atkinson of the ITIF last year at the highly-regarded Telecommunications Policy Research Conference at George Mason U Law School (Arlington, Va) last year represent the stance of writers who are unavowedly in favour of incumbent driven broadband telecom and Internet development. It is also from such authors that the ‘intermodal competition’ concept versus real competition in the marketplace is borrowed.  The basic thrust of these authors, and of the Goldberg/Incumbent Report, is that, given enough leeway to do as they please, the dominant providers will invest sufficiently in networks for everybody who seeks it and at sufficient levels to meet consumer demand.

The lack of access in Canada, to the extent that it is a problem at all, is a ‘demand’ side problem, rather than a supply side one. Canadian prices are relatively affordable.  As the Goldberg/Incumbent study states, comparisons between advertised specials in Canada and the OECD reference study that it takes aim at shows that the OECD’s data is flawed.  It overstates the cost of high-speed Internet service in Canada, while under-stating the bandwidth, speed and other capabilities of Internet connectivity in Canada.

The problem with this conclusion is, first, taking the OECD data as the main referent points selectively picks from one study among the wide range of studies available.  Second, taking ‘best advertised prices’ for Internet services currently available on ‘the market’ is silly.  This is because such ‘specials’ come and go; they also expire after the promo period, followed by lock-in periods, and penalties for early withdrawal.  All of these things, as Timothy Wu pointed out nicely in a recent Globe & Mail article, basically extend the same loathed practices of the cellphone carriers (who, again, are one and the same as those sponsoring this study) to the Internet.

This is to say nothing of acceptable user policies that contain more limits on what people can and cannot do with their connectivity than could be admitted in the most draconian of states with even a hint of pretense that people’s freedom of expression and privacy rights deserve respect. Far beyond bandwidth caps and so-called over-usage charges lay the assertion by carriers of broad editorial authority over users content, ownership of user-created content, limits on the ability to attach certain devices (servers) or run certain applications (news feed, multi-user processes, etc.), the right to use deep packet inspection technologies to manage communication flows, and so on and so forth.

In the Goldberg/Incumbent report, these concerns are dealt with and dismissed in chapter five, which covers issues of network neutrality, government intervention and the potential for government ownership of broadband Internet providers. Network neutrality is, states the report, a kind of propagandistic, populist ploy — i.e. who can be against something that is ‘neutral’ — and the CRTC is praised for being wise enough to have rejected the terminology in favour of the, ahem, really neutral language of “Internet Traffic Management Practices” when these issues came to a head in 2008-9.  Vertical integration, economies of scale and scope, and the leeway to devise whatever ‘business models’ they desire are the keys to success, according to the report.

A less beholden report might point to Jacques Ellul and a different kind of propaganda: one that puts you to sleep by obscure language and a mountain of technical detail that makes your eyes glaze over and your brain go to sleep.  That is the language of the CRTC, this report, and those who want to junk not just the language of Network Neutrality, but the principles and values that it stands for.  Funny thing is, I don’t much like the concept of ‘network neutrality’, either.  This is because I prefer common carriage and the history of that concept, largely because it reminds us that common carriage was the status quo for most of the 20th century and was sp because it is generally a bad idea to let those who control the medium to control the messages flowing through it.

The Goldberg/Incumbent report is right that economies of the scale are propelling a certain sense of scale, or bigness, and that this can sometimes be good for investment.  However, while digitization magnifies economies of scale for certain things, claims regarding economies of scope as justification for the creation of fully integrated media conglomerates are mistaken.  Moreover, even if bigness was the result, that might be reason to step in to turn back the tide.

All of the major incumbent telecom and cable companies now systematically regulate the contents flowing through their pipes. The question is whether this is only for some ‘peak’ hours of the day (Bell) or all day long (Rogers)? Bell’s abysmal experience with so-called convergence between 2000 and 2006 should give us little comfort in its ability to run CTV today. The fact that bandwidth caps and UBB tilt the playing field against Netflix, Apple TV and amateur video (YouTube) alike just at the time the companies are ramping up the presence of their on online video services is indication enough that the marriage between the medium and the message gives an inherent bias to the incumbent’s to discriminate in favour of their own services and against those of others.

While this is the case for Bell, Rogers, Shaw, Videotron and Cogeco, for example, the examples of Telus, SaskTel, MTS, Bragg Cable, etc. shows, and indeed others around the world, that there is no reason for those who own the pipes to also own television programs, music, films and other ‘content’.  AT&T in the US and Vivendi in France showed the folly of this earlier this decade and in the late-1990s. Most of the US major telecom players no longer are tightly aligned with Hollywood, as they were in the mid-1990s, and haven’t been in the last 10 years.

Lastly, the Goldberg/Incumbent report claims to not be for anything one way or another when it comes to government intervention, but the thinness of that claim is readily transparent.  There is a sense of urgency underpinning the report regarding what it seems to see as darkening political clouds on the horizon.  It applauds the Government’s willingness to intervene to set back CRTC decisions that run opposite the incumbents (e.g. Globalive), but elsewhere cautions that the slightest of intervention in Canada’s telecom and Internet markets will deter investment, respond to problems that don’t really exist, and worse.

Chapter five in the Goldberg/Incumbent report seems to see the potential for extensive government intervention along the lines adopted in Australia, Korea, Japan, Sweden, Britain, NZ, and a whole lot of other places as a possible doomsday scenario if it ever took hold in Canada. Australia’s decision in 2009 to develop the National Broadband Network Company to bring ‘next generation networks’ to nearly 95% of Australian homes is seen as being born of conditions so different than those in Canada that it is not even worth discussing anything similar in Canada.

At separate places in the report, the Australian venture is stated as involving an investment of either $31 billion or $43 billion. The original announced amount was the latter. Either way, the amount is indeed significant — the biggest public works project in Australian history, actually. However, for a report that is holier than thou about numbers, small errors when it comes to basic figures raise questions about the analysis in the report as a whole.

While the Goldberg/Incumbent report tries to place Canada along side the US in terms of approaches to ‘stimulus spending’ on broadband Internet development, the current government’s pledge of $225 million over the next few years to bring broadband Internet development to rural communities pales alongside the US’s plan to spend $7.2 billion on such initiatives, or Korea’s $24.6 billion or Australia’s $43 billion.

If it is Canada’s low population density and sprawling landmass that is responsible for any lags in Canada’s network development, as this report so often claims, than we would expect that investments to overcome these obstacles might be higher by international standards, not lower. The fact that Britain, a country with twice the population but a fraction of the landmass, is spending $830 million, or more than 3 times Canada, suggests that the link drawn between population density and the cost of network development is overblown in the Goldberg/Incumbent report. In fact, this attempt to shift the debate onto the terrain of geography and demographics is a red-herring. This is because a huge proportion of us live in relatively small number of large metropolitan cities (Toronto, Vancouver, Montreal) and then along a thin band running parallel to the border.

Overall, the Goldberg/Incumbent report diverts attention from many of the key issues and suggests that, all things considered, we’ve got it pretty good in Canada. Competition between technologies is substituted for real competition in the market place. Weak data sources are made the equivalent of good ones. The time and source of this study itself are either missing or buried in a footnote.

Overall, the Goldberg/Incumbent Report is part of the oncoming onslaught to hold back the ‘populist’ and political tide that has once again risen to the fore and demanded a more open, competitive and free media system. The report applauds the Government for holding back that wave so far and avoiding the populist path (see page. 55). That says much about its own political stripes, despite its attempts to cloak those stripes behind a veil of neutered facts and sterile language.  We will see many more of these kinds of initiatives in the upcoming days, weeks and months ahead.

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