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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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Anatomy of Internet Service Provider Responsibility: Three-Strikes Copyright Law Comes to New Zealand

Changes in copyright laws are changing the Internet and how people use it around the world. This has become increasingly so since 2008, when the Recording Industry Association of America (RIAA) and International Federation of Phonographic Industries (IFPI ) set on a quest to make “ISP and intermediary responsibility” the law of the land in one country after another.

The idea that ISPs should be legally required to block access to websites that facilitate illegal downloading and file sharing as well as cut-off the Internet connections of those who use such sites is not a new idea but one that has been around since the 1990s, but politically impossible to implement. Now, however, as the IPFI states approvingly in its 2010 Digital Music Report, “the mood of change is clearly reaching governments” (p. 3).

Indeed it has. Since the IPFI and RIAA began their worldwide drive, Britain, France, Sweden, Australia, Ireland, South Korea and Taiwan have all adopted new copyright laws in which “intermediary responsibility” and three strikes rules play a starring role. These issues are currently coming to a head in the U.S., where Congress is considering two bills that would extend intermediary responsibility well beyond ISPs, websites and hosting services to include advertisers, search engines and financial intermediaries (i.e. banks and online payment services): the Protect IP and Stop Online Privacy acts.

The most recent convert to the copyright maximalist faith is New Zealand. Its new Copyright (Infringing File Sharing) Regulations, 2011 kicked into gear in September. It’s core features include a three-strikes law that sets out a sequence of progressively more punishing measures: notices, the possibility of a fine of up to $15,000 for repeat offences, and cutting off the Internet accounts of repeat infringers.

In the past few weeks, the Recording Industry Association of New Zealand (RIANZ) delivered its first batch of notices of infringement to four of the biggest ISPs in the country: Telecom, Vodafone, Orcon and TelstraClear. They’ll be sent to Internet subscribers as soon as the ISPs sort out who has to pay what for the delivery service.

The notices target 75 IP addresses on behalf of Universal Music, but one serious question in this is just who does an IP addresses belong to: individuals, a household, an office, or some other unit of organization? Until this issue is cleared up, whole households risk being removed from the Internet on account of one person in it who has run afoul of laws governing just one aspect of life online.

Yet before Universal Music and the RIANZ entered the scene, New Zealand’s ISPs had already noticed something else: a steep drop in international peer-to-peer Internet traffic. It was like somebody clamped down on the country’s Internet connection to the outside world.

Orcon — one of the major ISPs involved — noted that its international p2p Internet traffic had fallen by ten percent. As the second biggest type of data traffic behind streaming video from websites like YouTube, the decline in p2p Internet traffic has been significant.

This is not the first time this has happened, and some argue that it is a recurring and expected pattern. When Sweden implemented its new Intellectual Property Rights Enforcement Directive (IPRED) in April 2009 Internet traffic plunged thirty percent overnight (see here). The outcome left Swedish copyright lawyer Henrik Pontén delighted:

“The majority of all internet traffic is file sharing, which is why nothing other than the new IPRED law can explain this major drop in traffic . . . . This sends a very strong signal that the legislation works”.

Indeed, from the view of the music and entertainment industries, “virtually all P2P content is illegal”, as the IFPI baldly declares in its most recent Digital Music Report, (p. 14). Therefore, suppressing it is both justifiable and a deliberate aim of the new copyright rules. As New Zealand’s Ministry of Economic Development put it, the new law is all about “stopping illegal peer-to-peer file sharing such as sharing movies via BitTorrent”.

Supporters of this approach argue that the ‘graduated response’ approach to piracy achieves its goals “without unduly impacting individual liberties”. The majority of Internet users stop infringing after receiving notices from their ISPs (see here)

These are deeply problematic claims, however. Among other things, they blithely ignore the fact that p2p serves many other purposes than just facilitating traffic in ill-gotten media content.

To take just a few examples, the band Nine Inch Nails uses p2p to offer free downloads of their music. Akamai uses it to create ‘content distribution networks’ for entities like Netflix, Facebook and Amazon that run parallel to the Internet so as to relieve congestion on the telecoms carriers and ISPs networks. The CBC used it in 2008 to deliver an episode of  Canada’s Next Great Prime Minister via BitTorrent; the BBC still uses it for its iPlayer service.

P2P also underpins ancient pre-web 1.0 Internet functions such as Internet Relay Chat, the nasty bits of 4chan, and the privacy enhancing, authoritarian-fighting Tor protocol that has been used in the “Arab Uprising” and by the hacktivist group, Anonymous, alike. In the olden days, media content regulation was seen as more heavy-handed and less respectful to free speech concerns than structural rules that applied equally to all; today, app-specific regulation that deliberately targets specific Internet uses now stand in a similar place in relation to free speech and other democratic values.

App-specific regulation is destined to be fraught with overkill.  While their supporters claim that the “graduated response” and digital intermediary strategy have only a minimal impact on individual liberties (see here and here), a recent UN Internet & Human Rights minced no words when it argued exactly the opposite point of view:

“. . . [C]utting off users from Internet access, regardless of the justification provided, including on the grounds of violating intellectual property rights law, [is] disproportionate and thus a violation of article 19, paragraph 3, of the International Covenant on Civil and Political Rights” (p. 21).

Article 19, by the way, is the article setting out freedom of opinion and expression rights.

Beyond multiple uses of p2p, and freedom of expression values, others raise an economic argument to the effect that RIAA/IFPI-style copyright laws are broadband Internet development killers. Ericsson’s resident intellectual and policy wonk, Renee Summer, made this point in regards to New Zealand’s plans, warning that “the new rules could slow down consumer demand on the Government’s ultra-fast broadband network”. The point was also made with respect to Sweden back in 2009, when John Karlung of the ISP, Banhof, made the connection this way:

“Half the Internet is gone. If this pattern keeps up, it means the extensive broadband network we’ve built will lose its significance.”

The idea that new copyright laws are broadband Internet killers is appealing yet it may be too early to reach this conclusion because most countries have not carefully tracked the impact. Moreover, the Swedish case muddies the waters because a half-year after the new law was introduced, traffic levels climbed back to their original levels.

Whether this was because people simply returned to their old ways or the steep rise in bandwidth hungry TV and entertainment content (e.g. Netflix, LoveFilm, etc.) being delivered online is still an open question. Yet in all cases, significant changes had occurred nonetheless.

First, ISPs are now in the business of regulating information flows and user behaviours, rather than being neutral points of access to the Internet. Second, people modified their Internet use, adopting a slate of new tools — encryption, anonymity, and other means of circumventing the new rules – that reflected a tilt away from the open Internet towards a more closed system.

Changing people’s behaviour is not too be taken lightly and moving control from the edges of the Internet and putting it deeper into its central nodes by way of ISPs and an expanding array of intermediaries is no more palatable in the 21st century than fifteen years ago when first trotted out in the teeth of fierce resistance. Thus, we need to look beyond the careful stage-managed introduction of new copyright rules to carefully assess their impact on the Internet and the ever-widening range of what we do online.

Today, all eyes should be on New Zealand.

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