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A Radical Broadband Internet & Cultural Policy for Canada

This post responds to last weekend’s announcement by Canadian Heritage Minister Melanie Joly of a top-to-bottom review of Canadian broadcast, arts and culture policy. It’s also informed by the CRTC’s #TalkBroadband review where it is wrestling with the vital question of whether universal, affordable basic telecoms services should be expanded to include broadband internet access and, if so, at what standards of speed, quality and affordability, and who should pay for it all?

Both events offer enormous opportunities for good things to happen, but also for much mischief, especially if those who have been lobbying the new government day and night since it arrived in office last November get their way. Indeed, Bell has lobbied various arms of the new Trudeau government thirty-two times – nearly twice a week! — between the time it took power in November and the end of March (Office of the Commissioner of Lobbying of Canada). In light of this, while careful and considered thought is essential, there is no time to waste.

In this post, I want to do three things:

  1. outline the scale of the media economy and the state of concentration and vertical integration across the telecoms, internet and media landscape in Canada – the bedrock upon which all else unfolds;
  2. discuss what regulators and policy-makers have done in response to these conditions so far and broader policy issues related to broadband internet, mobile wireless and broadcast policy; and
  3. conclude with five modest proposals, one large one and one radical suggestion about what might be done to close the gap between how things are and what we might want them to be.

A Lay of the Land: Bigger Players and A Bigger Pie

While the Canadian media economy is small by US standards, it is amongst the biggest dozen or so in the world. The telecoms, internet and media markets in Canada have nearly quadrupled in size in the past thirty years. Total revenues were $75.4 billion in 2014.

Is media ownership concentration in Canada high?

Yes, based on historical, international and conventional economic measures (see the CMCR Project’s Media and Internet Concentration in Canada, 1984-2014 report).

Is the level of vertical integration in Canada high? Yes. The top 4 Canadian vertically-integrated (VI) companies’ – Bell, Rogers, Shaw, QMI, in that order — share of all telecom, internet and media revenues is 57%.

Figure 1: The “Big 4” VI Companies’ Share of the Media Economy, 2014

Figure-3-Vertical-Integration-and-the-Network-Media-Ecology-2014

Sources: CMCR Project Media Industry Data.

This is significantly higher than the top four VI companies in the US (40%): AT&T (DirecTV), Comcast, Charter (including Time Warner & Bright House) and Cox. Figure 2 below shows the state of affairs before yesterdays amalgamation of Charter, Time Warner and Brighthouse was approved.

Figure 2

 

Screenshot 2016-04-27 02.20.18

Sources: Company Annual Reports.

Canada ranks at the very top of the list of 30 countries studied by the IMCRP in terms of vertical integration (see here and here).

The big Canadian telcos – except Telus – all own substantial television operations, sports teams and arenas, and so forth. Other than AT&T’s recent acquisition of DirecTV, most US telcos do not own their own television and film operations: Verizon, Frontier, Centurylink, T-Mobile. Besides AT&T, there are no telcos on the list of four biggest vertically-integrated companies in the US.

But what about Google, Facebook and Netflix? Their combined share of all media revenues in Canada is less than 4 percent – as of 2014 (see CMCR Project Workbook “Top 20 w telecoms” sheet).

Are Canada’s vertically-integrated media companies too big to regulate? No.

Are they being regulated effectively? Not as effectively as they might be.

Do regulators have justifiable reasons to intervene? Yes.

Concentration and vertical integration levels are high and the companies’ abuse of their market power is now a conclusion of fact, not conjecture.

Wireless markets are under-developed; prices per GB on wireless and wireline networks are high; speeds relative to comparable international peers are high for wireless, modest for wireline. Adoption is moderate for the latter, but extremely low for the former (mobile phones) (a series of international price, speed, access, adoption and subsidy comparisons can be found here)

People in Canada are voracious users of the internet and all kinds of media, and have long been so (see Cisco’s Visual Network Index Forecast, 2015-2020, for example). Still, however, they must also measure what they watch and do with these vital tools of modern life because of the high cost of a GB in Canada and the prevalence of relatively low data caps on wireless and wireline networks.

Restrictive data caps reflect the high levels of vertical integration in Canada and serve to protect the VI giant’s broadcast operations from streaming services like Netflix, etc. Just two days ago, in contrast, the FCC in the US approved the take-over of the Time Warner and Brighthouse cable companies by Charter but only on condition that it commit to not using data caps for the next seven years. This was done specifically to remove an barriers to the further development of over-the-top video services like Netflix, Amazon Prime, and unbundled services from CBS, Viacom, HBO, the NLB, and so on (see here, here and the WSJ).

In Canada, the CRTC gave provisional blessing to data caps back in 2009. However, they have gone from being used sparingly to manage internet congestion to become a steady and lucrative new stream of revenue for Bell, Rogers, Telus and Videotron ever since (Shaw advertises data caps but does not apply them). Canadians loathe data caps and the expensive “overage charges” they entail. Data caps send a dumb message as well: that somehow we are using “too much internet”.

While Shaw distinguished itself on this point when appearing before the CRTC on Tuesday, it has been discouraging to listen to Bell, Telus, MTS, SaskTel, Bragg and the small indy telcos talk about the need to scrimp on how much internet people use and the speeds that should be available. Their visions of what Canadians deserve as part of a universal basic broadband service is myopic and wholly uninspiring.

The extensive reliance on relatively low data caps in Canada constrains what and how people watch TV, listen to music, communicate with one another over the internet and mobile devices, and work. As part of human experience, and critical infrastructure for society and economy writ large, this is a problem.

Information and cultural goods are public goods and paying for them out of the public purse is reasonable and ought to be pursued but commercial media stand steadfastly and vocally opposed to any such expansion of public communication. I propose that we amalgamate Canada Post with the CBC to create the Canadian Communications Corporation, the combined result of which could operate as the 4th National Wireless Company, Broadband Provider in remote, rural and under-served urban communities, and Public Broadcaster rolled into one.

Netflix and Google should be able ply the land free as they like within the usual bounds of the rule of law with respect to market power, privacy, copyright, free speech, etc.

It is not unreasonable, however, to talk about levying a “public data resource” royalty on Google in return for giving it a free hand in gathering all the data from our ‘human’ and natural resources that it uses to run Google Search, Android, Google Maps, Google Earth, Google Books, etc. Such a levy could be used to restore some of Statistics Canada’s funding and technical expertise, and the long-form census. At the very least, foreign internet firms operating in Canada should pay taxes like the rest of us. Indeed, rumour has it that Canada is the only country where Netflix doesn’t pay any taxes. Western University Professor Sam Trosow is right: we must think about information policy in a holistic way.

Whereas the Competition Bureau folded in its antitrust investigation of Google last week the day before the European Commission opened up a second prong in its antitrust case against the digital behemoth – the first with respect to its dominance of EU search markets, where it often has a market share over 90%, the latest a new front targeting Google’s leveraging of its Android operating system to gain prime real estate on people’s mobile devices for the its Play Store, Chrome Browser and Search to the exclusion of other competitors and a different range of preloaded functions, capabilities and apps – there is still time to take another look in light of the fuller view being brought into focus by Joly’s DigiCanCon review and the CRTC’s ongoing #TalkBroadband proceeding. We need a “whole of government” approach, and so far, that is missing in action.

What are regulators doing?

They are:

Unbundling the Network: Partially. Hesitantly. . . . Slowly turning from a systems and broadcast-centric view of the world to a lego-land, telecoms-internet-mobile wireless centric view of the world – skinny basic, untied streaming tv services like Shomi and Crave, and pick-and-pay TV are just the start (for an early vision along these lines, see Huber’s The Geodesic Network II).

The CRTC and the previous government have made the high levels of concentration in mobile wireless, broadcast distribution undertakings (DBUs) and television a centre-piece of their proceedings and policies.

They are rediscovering market power

The CRTC called a spade a spade in its Wholesale Mobile Wireless decision last year, for instance:

Bell Mobility, RCP [Rogers], and TCC [Telus] collectively possess market power in the national market for GSM-based wholesale MVNO access (CRTC 2015-177, para 88).

The Competition Bureau’s findings were crucial to this outcome, although its appearance before the CRTC hearing on the matter was abysmal.

They have rediscovered and applied section 27 of the Telecommunications Act in three cases: Wholesale Roaming investigation 2014-398; Wholesale Mobile Wireless Decision 2015-177; Mobile TV 2015-26.

The Wholesale Roaming investigation 2014-398 found that wholesale mobile wireless roaming rates were “clear instances of unjust discrimination and undue preference”; banished exclusivity provisions in wholesale roaming agreements; and opened a wider examination into wholesale mobile wireless services that led to the second-shoe falling, the Wholesale Mobile Wireless Decision 2015-177.

In Wholesale Mobile Wireless Decision 2015-177 the CRTC re-asserted its authority to regulate wholesale mobile wireless facilities and rates, set temporary caps on wholesale roaming rates and called a Phase II costing proceeding upon which it will set out new guidelines for wholesale wireless roaming rates.

The Mobile TV 2015-26 Decision did four things.

  1. it found that Bell and Videotron were giving themselves “an undue and unreasonable preference” by “providing the data connectivity and transport required for consumers to access the mobile TV services at substantially lower costs . . . relative to other audiovisual content services”.
  2. the CRTC concluded that this was bad for competition, the development and growth of new OTT services, and for consumer-citizens.
  3. it drew a sharp line between transmission (common carriage) and broadcasting (content). In so doing, it forced Bell, Shaw and Rogers to bring their Mobile TV offerings into compliance with some of the common carrier principles flowing from section 27 of the Telecommunications Act.
  4. it acted on the well-founded and meticulously researched and formulated complaint by a citizen and now Ph.D. student in the School of Journalism and Communication at Carleton University, Ben Klass.

Return of the State and Zombie Free Markets

That the previous government’s actions and ongoing regulatory intervention in the market is substantial in Canada is beyond doubt. At the same time, however, this is not unique. We have seen the “return of the state” in many countries. In the real world, the effective operation of “real markets” depends on the rule of law and the firm hand of independent regulators, back-stopped by, yet independent from, politicians, policy makers and the Ministers whose bailiwick it is to see that good things happen (in this case, this is Minister Navdeep Bains at Innovation, Science and Economic Development and Minister Melanie Joly at Canadian Heritage).

In terms of what has been done in recent years, we have had spectrum auctions aplenty, explicit spectrum set asides for new cellcos, regulated wholesale mobile wireless roaming rates, adoption of the Vertical Integration Code, the stripped down ‘skinny basic’ TV with a price cap, the push to keep over-the-air TV alive in so that the digital switch over of a few years back might bear fruit and become a thorn in the side of cable, satellite and IPTV companies whose rates continue to climb much faster than inflation, and the forced unbundling of tv channels.

All of these steps run counter to some of the companies’ – especially Bell and Shaw, but less so Rogers and QMI — ‘walled garden/information control’ models of operation. Having banked on such a model (and with the banks, especially RBC, holding significant ownership stakes in most of the key players), the push back against these efforts to limit the companies’ ambitions are coming from some of the most powerful forces in the land. Such push back can be seen, for example, in:

  • Bell’s recurring editorial interventions in the country’s biggest TV and radio news media outlets;
  • litigation (e.g. against the Mobile TV, Wireless Code, Superbowl Simsub rulings from the CRTC);
  • a Petition to Cabinet to overturn the CRTC’s forward looking wholesale access to fibre-to-the-X ruling;
  • threats of capital investment strikes and a bevy of other efforts to turn back the tide.

So what are the limits to this newly interventionist Regulatory State?

First, while the CRTC has rediscovered section 27 of the Telecommunications Act – the no undue preference clause – we must remember that it is followed immediately by section 28, which those in the know see as saying that carriers cannot give undue preference EXCEPT when doing so advances the objectives of the Broadcasting Act. This puts the best bits of the telecoms act at war with itself and risks subordinating telecommunications – broadband internet, basically – to broadcasting.

Such waffling runs counter to the principles of telecommunications upon which the open internet and mobile phones are built — tried and trued principles that come down to us in section 36 of the Telecommunications Act from Roman Roads, Venetian Canals, and the Taxis family courier service in medieval Europe.

Moreover, while one might argue that section 36 should be the crown jewel of the Telecommunications Act, there has been an extreme reluctance to use it. Why?

Regulatory hesitancy seems greatest on this point. This is evident in its almost complete lack of use during a time when those who own the media have become so inextricably intertwined with the ownership and control of messages. It is also evident in the exception carved out for over-riding this principle if it meets some ill-defined objectives of the Broadcasting Act. It is time to wheel section 36 out of storage and put it back in place as the crown jewel around which the entire set-up of the evermore internet- and mobile wireless-centric universe revolves.

This hesitance was also visible in the Mobile TV, a case in which content — and the carriers’ control of it — is very much front and centre. While drawing a sharp line between carriage and content, however, the CRTC refused to reach for the bedrock of common carriage: section 36. This seems to mark the outer limits of where it seems willing to go and in continuation with the fact that this section has been largely dormant over the years.

While the decision to kick some new life into section 27 is to be applauded, and the increased willingness to constrain the power of vertically integrated companies by loosening their grip over the basic building blocks of the network media ecology – spectrum, wholesale mobile wireless facilities and roaming rates, data transport and content – and sharpening the lines between carriage and content is great, much more is needed.

Like what?

5 Modest Suggestions + 1 Big One + 1 Radical One.

  1. Eliminate section 28 of the Telecommunications Act;
  2. Eliminate section 4 in the Broadcasting and Telecommunications acts so that both pieces of legislation can talk to one another (we don’t need new legislation and any attempt at such will only ensnare us in interminable delay and special (corporate) interest pleading;
  3. Breathe new and vigorous life into section 36 by firmly separating control over the infrastructure from influence over the messages / content flowing through the pipes / ether. Sharpen and harden the line between carriage and content. Any proposals to use a levy on ISPs and mobile phones to fund CanCon should be given a stillbirth. While the entrenched clients of the existing broadcasting system never miss a beat to promote “the ISP tax”, these ideas are out of synch with the times and the tastes of the people. They are anti-internet and prolong “a systems” view of the world that conceals a murky labyrinth of cultural policy funds flowing from one pocket to another, often within the vertically-integrated companies.
  4. Impose vertical separation along functional lines between carriage and content, and between wholesale access to passive network infrastructure and network operators and retail telecoms service providers.
  5. Transfer authority over spectrum from Industry Canada to CRTC.

1 Big Proposal

  1. Eliminate the whole category of broadcast distribution undertakings (BDUs) upon which the cable, satellite and IPTV industry is based. It’s all telecom-internet access and carriage now. Take the funds funneled into the Canadian Media Fund from BDUs directly out of the general treasury.

More generally, we need to think about bringing subsidies for broadband connectivity into line with funding for the CBC and Cancon. Currently, the CBC receives $33 per person per year, with nearly three-quarters of that amount again for the arts and culture at large. Broadband internet subsidies, by contrast, are a comparative pittance at roughly $2 per person per year.

I do not think that Canadian citizens would chafe at upping that amount to somewhere between what Sweden spends on broadband internet access subsidies (an average of $5 per person per year) and the CBC ($33 per person per year) (see sheets 3 & 4 here). Any bid to pare back the CBC and other arts and culture funding should be dismissed out of hand. We are not big spenders when it comes to arts, culture and Cancon, and generally at the lower end of the scale. In short, there’s little room for cutting, although how subsidies are organized, allocated and used are other matters altogether and surely up for grabs under the sweeping review that Minister Joly is spearheading.

1 Radical Proposal: The Canadian Communication Corporation (C3)

Merge Canada Post with the CBC to create the Canadian Communication Corporation (CCC) with a mandate to become the fourth national mobile wireless provider; blanket cities with open access and light up the vast stock of under- and unused municipal dark fibre; extend public wifi; extend broadband internet access to under- and unserved people in rural, remote and poor urban areas; create, disseminate and make public art and culture as accessible and enjoyable as possible, and fund it from the treasury not by an opaque labyrinth of intra- and inter-industry funds overseen by a fragmented cultural policy bureaucracy.

The original goal of the U.S. Post Office was to bring “general intelligence to every man’s [sic] doorstep”, while also serving as a heavily subsidized vehicle for delivering newspapers (John, 2010; Starr, 2004). The CCC could be to the broadband internet and mobile-wireless centric world of the 21st century what the Post Office was to the print world of times past.

The CCC could repurpose some of the CBC’s existing spectrum holdings and broadcast towers for mobile wireless service coast-to-coast-to-coast, real estate could be combined and used to site towers, local post offices used to sign up cellphone subscribers and sell devices, and Canada Post vehicles given more windshield time making sure that the country’s system of correspondence, communication and parcel delivery run as they should.

Postal workers are giving some thought to renewing the post office for a broader sense of purpose, but have not ventured into this territory — yet; at the same time, informal discussions with some Canada Post senior execs suggest that this isn’t the first time they have heard of such ideas. Equally important, I don’t detect any inherent hostility against them.

Maybe it is time to discuss a #RadicalMediaPolicy4Canada? With two official proceedings underway, maybe we can broaden the terrain with a third?

* This post reworks ideas first presented at the Forum for Research and Policy in Communication’s Rebooting Canada’s Communication Law at the University of Ottawa, May 22, 2015. Thank you to Monica Auer for inviting to present there.

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Will Bill C-51 turn ISPS into Internet Gatekeepers?

My most recent column for the online technology section of Globe &Mail came out Tuesday. It is available here.

The article builds on some recent posts that I have done considering the mounting pressures being put on Internet Service Providers to act more like gatekeepers rather than gateways to the Internet. Four such forces, I suggest, are pushing in this direction:

  • a strong push from the ‘copryight’ industries, especially the music industries, to make ISPs and search engines extensions of the copyright enforcement regime. This has become especially strong since 2008, when the International Federation of Phonographic Industries (IFPI) and the Recording Industry Association of America (RIAA) turned to such measures more forcefully, while backing off somewhat from Digital Rights Management (DRM) (see page 3 of the IFPI’s Digital Music Report, 2008);
  • the near universal adoption of usage based billing and bandwidth caps by Canada’s ‘big six’ ISPs — Bell, Rogers, Shaw, Quebecor, Telus and Cogeco — and now the mid-sized Atlantic region player, Bragg/Eastlink (although with some recent significant developments from Shaw).
  • the fact that all of the major ISPs, except Telus, are vertically integrated and appear to be using usage based billing and bandwidth caps as a kind of ‘television business protection plan’ for their interests in the television industry.
  • and finally, the focus of yesterday’s column in the Globe and Mail, the push from national security and law enforcement agencies to build in increasing monitoring and surveillance capacities into their networks, and to conduct ‘warrantless searches’ if proposed new legislation is passed.
A fuller treatment of the issues covered in Tuesday’s column can be found in my earlier post here, and another that places things in a larger, global context here.

Is the Pay-Per Internet Fair or a Menace?

Central to debates over bandwidth caps and usage charges in Canada are very real questions of fairness.

The claim that people should pay for the Internet according to how much they use it has a powerful, yet superficial appeal to it. After all, we pay for almost all other goods, why not for the Internet? And why should ‘excessive users’ be subsidized by average or low-end users? Upgrades to networks are expensive, the big telecom and cables companies invest billions per year, and someone has to pay for all this.  It should be those who use the network most.

This is the common sense bedrock of claims made by both the CRTC as well as big telecoms and cable providers like Bell and Shaw (listen here at around the 1hr,45min – 2hr mark). They are also commonplace in everyday discussions about the Internet as well.

However, the problem, as Albert Einstein once said, is that these are the kinds of questions that need to be addressed on a different level than which they are asked. Even just taking these questions as posed, with their market-based criteria set as the barometer of what a rational response should look like, there are many problems with such reasoning.

First, there is no indication that the unlimited Internet model is compromising the dominant cable and telecom companies’ ability to invest in network upgrades. Indeed, in the last fifteen years, Internet Access has added a brand new line of industry worth $6.5 billion to their bottom-line.  That is a lot of money by any count.  It is roughly equal to the size of the cable and satellite tv distribution sector, which took around half-a-century to reach this size. Despite this very substantial new source of revenue, there is no evidence to suggest that there has been an increase in network investment to match.

Telecoms companies have always been confronted with the question of whether or not to charge high prices for access to limited facilities, or to increase the use of much higher capacity networks through cheaper costs. They still are. The “cheaper rates/bigger network” view leads to increases in people’s access to communication facilities and contributes to society and economy-wide benefits. The high price/limited facilities view, in contrast, prioritizes elite users and leads to the under-development of networks, either in terms of ‘cutting edge’ technology, extension to under-served areas and groups, or both.

Each time that that the major players have been faced with this choice, they have initially clung to the high price/limited facilities view, as the experience of the USCanadaBritain, and indeed worldwide shows.  However, most key general purpose network technologies since the mid-19th century — the telegraph, telephone, Internet — have been forced over time by political pressures, new rivals, and public discontent to adopt the cheaper rates/bigger network approach.  The result in each case has been the transformation of each new generation of network technology from luxury into necessity, but not without a fight.

They pay-per model of the Internet in Canada aims to reverse this trend, but as is all-too-plain to see, this will not happen without a fight.  Like their predecessors, the big players will kick and scream in opposition to the drift of events.  Hopefully, like their distant cousins, they too will lose the fight

To be sure, Canadians are heavy Internet users by global standards, although we must never lose sight of the fact that over one-fifth of the population still do not have Internet access (also see here). The rest, however, tend to be avid users. Indeed, Canadians have always been ‘early adopters’ and intense users of new communication and media technologies. This is still the case.

The average Internet user in Canada spends 46 hours per month online. This is twice as high as Australians, and much more than the 30 to 34 hours the average user spends on the Internet in the UK, US and South Korea. They also view the most video online. In January 2009, 21 million unique Canadian viewers, or 88% of those who use the Internet, watched an average of 147 online videos each, compared to 135 in the UK, 108 in Germany, 90 in the France, and 88 in the US. They are some of the most generous contributors to Wikipedia, the co-operatively produced ‘go to’ online encyclopedia and eighth most visited website in the world. In other words, Canadians are both enthusiastic consumers and contributors to digital information universe.

The “market” should adapt to these realities rather than trying to dampen them. Government policy should do the same,  rather than using price and other economic measures to, as the CRTC has stated, “discipline” excessive users.  Instead, however, at least for the time being, both groups are clinging to the old ‘high prices/limited facilities’ strategy.  This is not good for Canadians or for Canada.

The Government has indicated a willingness to revisit the controversial UBB decision of January 25th, but Industry Minister Tony Clement appears unwilling to do more than that. This, however, is far from adequate, as I have noted in an earlier post. It will leave the basic provider controlled, pay-per model in place for the overwhelming majority of Canadians. It is the ‘locking in’ of a new model of the Internet that needs to be opposed, not just the very last step in the big player’s decade long run at squashing competition and killing the open Internet as we know it.

Claims that the pay-per Internet reflect market demand have been made before, notably in the US where Comcast and Time Warner have both pushed similar initiatives. However, both were forced to back off in the face of a consumer backlash. They have also had to hold back when other significant competitors are in the market. As a Pew Internet and American Life study in 2009 showed, not surprisingly, the greater the number of ISPs, the lower the price — to which we can add, the more the providers there are, the greater the chance that bandwidth caps will not exist or be vastly higher than in the Canadian context.

We should also recognize that today’s villified ‘bandwidth hog’ will become tomorrow’s mainstream user in relatively quick order. Canadians working from home regularly use 500 MB to 2 GB per day uploading graphic design work, software code, catalogues, brochures, free lance journalistic pieces, video and a whole lot more. Decentralized creativity spread out to the ends of the Internet into people’s hands also fosters even more creativity and innovation. A kind of thinly-veiled high-brow elitism also characterizes much of the discussion of so-called bandwidth hogs, with downloading tv and films from Netflix, or watching Youtube videos set up as frivolous activities undeserving of lots of bandwidth and affordable costs. But why not?  It’s also true that about 13 percent of online traffic is of, let us say, an ‘adult content’ kind. Who will champion this juicy tidbit as another reason for cheap bandwidth?  Obviously, however, open channels of communication allows us to do a lot in the privacy of our own home that we might not otherwise drag into the public arena.

We also need to look at this from the angle of creativity.  A good example is, even if you don’t particularly like the show, the TV program Sanctuary that now airs on cable and satellite channels all over North America.  It got its start as an Internet-based television series produced in Vancouver and went big in 2009.  It was the first ‘made-for-Internet TV’ series that crossed-over into commercial broadcast television rather than the other way around. The thing is, you don’t want to hobble creativity at the outset by imposing punitive charges.

Imposing bandwidth caps and the pay-per model also causes the budding publisher of an environmentalist newsletter, a feminist magazine, a hunting enthusiasts’ website with lots of pics and stories to be told to second guess what they’re doing if the goal is to just give things a shot and see how it all works out.  Much of this kind of activity is done for reasons other than a buck to begin. Of course, over time, some of these people may well decide to make a living out of their interests and hobbies. Than then can migrate over to a commercial service, and there is nothing that stops the big providers from doing just that.

But it’s not just P2P, Porn, Youtube and the bolt of success out of nowhere that are at stake, there’s some pretty decent high brow stuff out there as well, such as the websites “Ted.com” and “TopDocumentaries”, both of which are diverse, good quality and educational.  My wife watches them all the time, and I occasionally sneak a peak. While we may not all benefit from what some of our neighbours are doing behind closed doors, a good open channel where affordable access to information and educational stuff is always a good thing.

Furthermore, education, information and bandwidth are all ‘public goods’, things that are socially desirable, hard to price, and really stupid and expensive to exclude people from. You see, there are a million and one different things that people can do online, and while someone else’s thing might not be yours, in the round you’ve got a special interest, too, that puts all of us in this together . . . the amorphous public. There’s no need to make sure the person beside you ain’t getting something you’re not.

Public goods are hard to price and this is patently obvious with respect to bandwidth.  It is also patently obvious in the way that the big carriers are trying to price their service. If we follow their prices, a ‘regular priced bit’ of bandwidth costs anywhere from $2/GB (Telus) to $16/GB (Bell) for ‘lite’ services, and between 20 cents/GB (Telus) to $1.17/GB . Surcharges for so-called “overage” cost anywhere from .50 to $5/GB, depending on your plan and your provider. Almost everywhere else in the world, there is no such ‘excess usage’ charge at all.

The basic point is that there is no relationship between the cost of supply and the price charged. Estimates regarding the ‘cost of production per bit’ range from 1 cent/GB to 10 cents/GB, which means that so-called excess usage chargesare 50 to 500 times greater than their costs of production.  That is a sure sign that prices are arbitrary and a reflection of market power rather than underlying economic considerations. They are also a sign that the dominant players are trying to colonize the public good qualities of information, or the Internet, for themselves. In any case, none of this is ‘normal economics’.

More than this, though, we must leave the plane of economic analysis and enter another bigger one more appropriate to really getting at the issues now in front of us. Communication is about more than markets and commodities.

Unlike a can of soup, bandwidth is not used up but rather allocated amongst users temporarily before being put right back in the big pool of bandwidth on tap.  Communication and media goods are also not commodities in general, because in open and democratic societies we swaddle them with the values of freedom of expression, citizen’s rights, good government, and fostering the kind of culture that we want to live it. These are indivisible things, and even if I don’t exercise my right to free speech, tell a story, read the newspaper, etc. I sure am happy that you exercise your rights and hope to hell that the press is on the ball.  We’re in big trouble if these conditions don’t hold, because they are the lifeblood of democracy.

In a real democracy, the more participation the merrier, but democracy does not rise or fall on each and everyone of us being homo politicus maximus — it is sufficient that there are enough among us who take an active role to keep the culture of democracy alive and its political machinery in check.  This is why communication, speech and association are cornerstones of democracy and enshrined in Constitutions, including ours in Canada (also see Article XIX of the 1948 Universal Declaration of Human Rights for an even more expansive view of communication and speech rights). When bandwidth providers’, that is the big cable and telecom players, interests collide with the people’s interests in this regard, it is the former that must yield, not us.

Finally, in all of this, the market-based fixation of making each user pay according to what they use ignores the fact that communication goods are shared goods. That is, their value increases the more that we share them with one another. Try telling a joke to someone who doesn’t understand your language, or hanging about the water-cooler to talk about the Super Bowl or last night’s Grammy Awards, or for that matter, riffing on how about how awesome Arcade Fire is, if nobody else has watched or heard any of these things. It’s like the sound of one hand clapping.  That, in other words, is what the pay-per model and the fixation on ‘relying on market forces to the maximum extent possible’ imposes on Internet-based communication.

That maybe the Government, CRTC and ‘Big Players’ model of an open Internet fit for an open society, but it ain’t mine. If its your’s, please give it a rethink in light of some of the points raised above.

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!
And they’d DOWNLOAD! DOWNLOAD! DOWNLOAD! 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!
And THEN
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 they’d SWITCH! SWITCH! SWITCH! 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!
THE FINCKENSTEIN
GOT A WONDERFUL, 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 dot.com 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.

Notes:

[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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