On Tuesday night I joined several other speakers at the Internet4All public forum held by ACORN, an advocacy organization that works on behalf of low- and moderate-income families in cities and neighbourhoods across Canada. The event was part of the run up to today when ACORN and its other partners in the Affordable Access Coalition plan to tell the CRTC basic telecoms service review that broadband internet access is expensive and out-of-reach not just for people in rural and remote areas – the focus of many of the presenters in the first three days of the Commission’s review – but for people with low incomes in cities across the country as well.
ACORN’s Internet4All Public Forum
The link between income, affordability and internet adoption is clear, even if the exact causal links between them are not. Thus, while 80% of households in Canada subscribe to the internet from home, 2-out-of-5 of in the lowest income bracket do not, and one-out-of-every-three Canadians do not have a mobile phone. At the top of the income scale, in contrast, adoption levels are close to universal at over 95% for both. The figure below illustrates the points.While some wonder if this is because some people might not want to use the internet, the strong relationship between income and adoption suggests that this is not a choice but a function of affordability. Moreover, study after study tell us one thing: that the price of broadband internet and mobile phone services in Canada are high by the measure of all respectable studies of the issue (see, for example, the Wall, OECD and FCC reports). The high prices these studies document might account for a modest portion of the budget for the “average Canadian”, but for low- and modern-income families they compete with putting food on the table and a roof over their heads.
Such realities also help to describe why, at best, ‘wired broadband internet’ adoption rates in Canada fare only reasonably well compared to other developed countries, but terribly for mobile wireless services. That affordability is clearly an issue is also illustrated by the fact that in Toronto, for example, just 20% of households in public housing communities have broadband internet service. These are the realities that are motivating ACORN members, and why the advocacy group is going to the CRTC today.
While the industry has done little to counter these realities, at least one has taken voluntary steps to help ameliorate the problem for some: Rogers. In 2013, it launched its ‘connected for success’ initiative with the aim of bringing affordable broadband internet access to 58,000 low income families in Toronto public community housing. Last week, Rogers came to the Centretown Citizens Ottawa Corporation to announce that the program is being extended to 150,000 families in 533 public housing communities in Ontario, New Brunswick and Newfoundland & Labrador for the next two years.
In its expanded “connected for success” initiative, Rogers offers broadband internet with speeds of up to 10 Mbps download and up to 1 Mbps upload, with data caps of 30 GB, for $9.99 per month. As a voluntary effort, this is certainly a step in the right direction.
At the same time, however, announced on the eve of the CRTC’s review of the basic telecoms service it is hard not to see the venture as a fine example of “regulation by raised eyebrow”, wherein just the threat of regulatory action brings about some gestures toward the desired results.
The people attending ACORN’s internet4all forum also suggested that while Rogers’ focus on non-profit community housing is good, the vast majority of low-income families do not live in social housing but market housing. Who will serve them?
In Ontario alone, 168,000 families were on the waiting list for community housing last year. This is more than Rogers is targeting across all of Central and Eastern Canada! For them, the cheapest option Rogers offers is its newly launched “Internet 5” service, but it offers only half the speed of the public housing option and is three times the price, once the cost of renting the modem is factored in.
Perhaps the biggest drawback is that these services are designed for individuals rather than households with several family members who might be running multiple devices at the same time, as Rogers’ own marketing materials on its website indicate. It is not just that the speeds are slow but that the data caps for both services — 30 GB for the public housing version, 25 for the latter – are exceedingly low. Cisco, in contrast, estimates the average Canadian household used 56 GB in 2014, and is expected to reach around 180 GB by 2019.
Figure 2: Rogers Internet Service Plans Compared
And what about the punishing overage charges that come along with those low data caps? On this, many of those attending the internet4all event the other night had a lot to say. Lastly, what happens to those who sign up for “connected for success” when the program meets its expiry date in two years?
Some argue that some access is better than none. More specifically, there are those who assert that when it comes to defining basic internet service, the aim is to give people basic broadband internet based on need rather than wants and desires.
We have certainly heard a lot of this kind of thinking already. Telus, in particular, argues that the only change the CRTC should consider is making the current “aspirational target” of 5 Mbps up and 1 Mbps down for all Canadians a formal obligation (see here, for example). In response to all those who claim that the standards of 25 and 30 Mbps up and 3 down adopted in the US and 28 EU countries, respectively, and that apply to all citizens and which must be met, as the FCC in the US puts it, a “reasonable and timely fashion”, Telus says humbug.
Over-and-against the view that anything less than these standards are not up to how individuals and families actually use the internet, especially in terms of viewing video and using multiple devices at the same time, Telus takes a flinty eyed view to argue that things like
. . . email access, web browsing and e-commerce . . . are the services that are necessary for meaningful participation in the digital economy. It is not reasonable to include over-the-top video and H-D two-way interactive gaming as essential applications that must be supported by Internet access faster than TELUS’ recommended 5/1 Mbps BTS (Telus, paras 90-91).
The Commission also appeared to strike a similar note when Chairman J. P. Blais kicked off proceeding Monday morning with the remark that the basic service objective must be firmly grounded in evidence, and that “it is crucial not to confuse ‘wants’ with ‘needs’”. Some chimed in immediately that Blais’ words reflected a “disciplined start”, while the CBC, in contrast, interpreted the remarks to imply that the Commission had already trimmed its sails and people ought not to expect much. Already by the end of first day, however, the Commission seemed to soften its tone.
Drawing the lines between basic needs and productive uses along such lines and whatever else people might do with their internet connections smacks of a long and hoary history where people have been told that what they use the media at their disposal for should take a backseat to more “important” uses, and consequently frowned upon and discouraged as a result. When I expanded on this idea at ACORN’s Internet4All forum, people got up one after another to give rhyme and verse on why such distinctions are not only wrong-headed but objectionable.
Why should people and families with low incomes — precisely the ones most likely to “cut the cable cord” to save money — be told that watching TV is beyond the pale. Isn’t it enough that they be able to do so without affordable basic internet access being hedged about by so many narrow and utilitarian values as to rule out such pleasures?
On this point, I heard much about Netflix and cartoons, and how telling stories, art and culture are essential to who we are as human beings, to our imaginations, and how we express ourselves. The gentlemen who relayed the bulk of this line of thinking will be there to tell the CRTC the same today.
And what about using the internet to get the news, a point that Chairman Blais also appears to fully grasp, given his remarks that with the French language newspaper LaPresse being available online only now, people have to have an internet connection to read it? This chimes with the results of a recent Statistics Canada study on how people “get the news”. As the video component of online news grows, it is going to become a lot harder to carve out this bandwidth intensive aspect of online news from the low capacity text based part.
Another person observed that as government departments put more information online they are also putting it online in video form. She pointed to Health Canada videos on palliative care and diabetes to illustrate the point, and to the essential role that these videos play in educating people and raising awareness about both conditions. How to distinguish between such “worthy” forms of high bandwidth intensity video and the frivolous kind we don’t hold aloft?
Another woman spoke about how her hearing impaired partner communicates regularly with her family back home in Australia by video and how doing so is not only crucial to their relationship but to her partner’s mental well-being more generally. Then there was another woman who spoke of coupon cutting online because, well, all the coupons are now online, and so too, by the way, are most of the rental housing advertisements.
A young man came up afterward and spoke to me about working a grueling 70+ hour work week throughout high school because both of his parents were on the Ontario Disability Support Program (ODSP), and the income they received was not enough to make ends meet. Despite being in the “gifted class” at Lisgar Collegiate here in Ottawa, with an average over 90%, his role of main family breadwinner meant that he had to drop out, unable to meet the competing demands of doing both. Yet, a few years later he completed an internet-based high school course, much of it based on instructional videos and video conferencing. He’s now at Algonquin College with hopes to complete his studies at Carleton when finances allow.
Another helped a friend faced with a $190 repair bill for a broken washing machine that she could ill afford. Instead of calling the Maytag repair guy, he turned to Youtube, found a $3 solution, and his friend kept her much needed money for other pressing uses. As a recent MTM study observes, nearly two-thirds of all Canadians used Youtube to learn how to fix or do something in the last year.
Of course we can pile up anecdotes like leaves in autumn but the point is, that even those of us who study these matters full-time don’t have a clue about many of the things that people do with the internet, for both pleasure and productive purposes. I see little way to effectively distinguish between the two and don’t think that much good will come from trying.
That we don’t know the half of what people do in their uses of media comes as no surprise to communication scholars because if the field teaches anything, it teaches that people use communication technologies in unintended ways and that this in turn pushes those technologies along unanticipated paths of development. Any effort to distinguish between “basic” uses that people should have access to as part of an affordable broadband internet obligation and those they shouldn’t risks running roughshod over these lessons. Worse, it risks substituting the regulator and carriers’ judgments for what people themselves are in the best position to decide.
As I pointed out in my testimony to the Commission the other day, providing people with affordable, universal broadband internet in the 21st century is a necessity, and it is in line with what we have done historically in Canada in relation to plain old telephone service. And it is in line with what other countries comparable to ours are doing around the world.
To be sure, this is going to cost money, and that means that somebody’s going to have to pay and who ultimately pays will be us — citizens and taxpayers. I do not see a problem with that.
Total federal subsidies for broadband internet development and affordable prices in Canada are at the very low end of the scale at around $2 per year. This is similar to what people in Bulgaria, Romania and Austria invest, whereas I think we could easily move into the middle of the pack to spend, say, $4.50 to $12 a person per year as they do — that is 40 cents to a buck a month extra on our internet bills — in Sweden, Estonia, the UK, Germany and Finland to subsidize internet development (compared to NZ and Australia at $25 and $163, per person, per year, respectively, for their own national broadband initiatives).
Consider this as well: In Canada, compare the $2 per person per year in total federal subsidies for broadband connectivity to the $33 given to the CBC, by contrast. The point is not to bring the latter down to the former by any stretch of the imagination, but rather to bring broadband subsidies closer to those that we give to the CBC (to say nothing of the myriad of other ‘content subsidies’). In the internet age, while content may be king, it is connectivity that is probably emperor. Our public funding arrangements should better reflect such priorities.
Ultimately, any steps to draw lines between frivolous wants that we can cast aside and productive uses that can be folded into basic internet service will likely look, at least in hindsight, like so many similar such efforts in the past: as paternalistic and elitist efforts, and foolish ones at that. The Commission should give little credence to such ideas, and indeed should reject them out of hand. Get the structure of the internet policy framework right, and the rest will likely fall into place as it should.
For these reasons, we need less flinty-eyed, utilitarian outlooks drawn from Victorian England and a more imaginative view of the future, albeit one that is still grounded in what people are already doing with the internet and plenty of room to grow so that all Canadian citizens can use the internet as they see fit, both today and tomorrow.
 Which also includes the Public Interest Advocacy Centre, Consumers Association of Canada, Council of Senior Citizens Organization of BC and the National Pensioners Federation.
Cross posted from Carleton University homepage.
Well, this is a bit of a cheat, but Steven Reid at Carleton University did such a great job conveying the central message of a new report that we put out at the Canadian Media Concentration Research Project that I thought I’d just crib the whole thing and re-post it here. Thanks Steve.
Steven’s wordsmithing follows:
Carleton University’s Canadian Media Concentration Research project, directed by Dwayne Winseck of the School of Journalism and Communication, has released a report entitled Mobile Wireless in Canada: Recognizing the Problems and Approaching Solutions. The study outlines the state of wireless competition and concentration in Canada in relation to 57 countries worldwide, covering a period of three decades.
“The deep divide between the wireless industry and the government that has erupted over the latter’s attempt to reduce domestic and international roaming charges and foster more competition is the focus of the study,” said Winseck. “The study challenges the industry’s claim that there is no competition problem in Canada and emphasizes the importance of maverick brands that extend the market to those at the lower end of the income scale – women and others who are otherwise neglected by the well-established wireless players.”
The report supports the assertion that mobile wireless markets in Canada are not competitive. It offers a comprehensive, long-term body of evidence that places trends in Canada in an international context. The study shows that Canada shares a similar condition with almost all countries that were studied: high levels of concentration in mobile wireless markets.
The difference between the wireless situation in Canada and elsewhere is the lack of resolve to do anything about this state of affairs said Winseck. The study concludes that Canada’s situation is not promising, although there are some bright spots on the horizon.
“For the time being, the tendency is to deny reality, even when incontrovertible evidence stares observers in the face,” said Winseck. “This, however, is symptomatic of a bigger problem, namely that in Canada the circles involved in discussing wireless issues are exceedingly small and they like to hear the sound of one another’s voices. Their members do not look kindly on those who might rock the tight oligopoly that has ruled the industry from the get-go.”
The study highlights the importance of emerging maverick brands like T-Mobile in the U.S., Hutchison 3G in the U.K., Hot Mobile and Golan Telecom in Isreal, and Iliad and Free in France.
Maverick brands have many things in common:
- All have faced aggressive incumbents and they tend to disrupt the status quo, pushing down prices, driving massive growth in contract-free wireless plans and unlocking phones.
- They have relied on the state for a fundamental public resource that underpins the entire mobile wireless setup: spectrum.
Incumbents have fought against new wireless companies, challenging governments in an attempt to preserve their domination of the spectrum. In Canada, three companies currently hold 90 per cent of the spectrum: Rogers (41 per cent), Telus (25 per cent) and Bell (24 per cent).
The study shows that compared to the countries included in the study:
- Wireless markets in Canada, regardless of how they are measured, are remarkably concentrated;
- Canadians are first in terms of time the spent on the Internet, GBs of data uploaded and downloaded, smartphone data sent and received etc.;
- Canada is highly ranked when it comes to capital investment in its wireline infrastructure, but lags in wireless investment.
“Whether or not people get the media, wireless and Internet capabilities they need to live, love and thrive in the 21st century depends on making the right choices now,” said Winseck. “Those choices are staring Canadians in the face. How we act, and how our government moves ahead, will set the baseline for how mobile wireless media in this country will evolve for the next two decades – the length of the licences being awarded in the upcoming 700 MHz spectrum auction – and probably for a lot longer than that.”
An executive summary of this study can be found at: http://www.cmcrp.org/2013/11/18/executive-summary-the-cmcr-projects-wireless-report-mobile-wireless-in-canada-recognizing-the-problems-and-approaching-solutions/
The full report can be viewed at: http://www.cmcrp.org/wp-content/uploads/2013/11/Mobile-Wireless-in-Canada2.pdf
In the middle of last week the CRTC began to solicit views on whether or not a national code for wireless services is necessary. The CRTC had received several applications, it said, suggesting that such a code might be needed.
Who might want such a code? The big wireless providers, Rogers, Bell and Telus, that’s who, and their lobby group, the Canadian Wireless Telecommunications Association.
Why? Because they’ve been facing mounting efforts at the provincial level to more strictly regulate their pricing and service packaging. Ontario, Manitoba and Quebec have been leading the way (see here). Rabble rousing Openmedia also has the wireless industry in its sights with its “stop the squeeze” campaign (also see the Open Media/CIPPIC study here). A standard code generated by the industry could help dampen the clamour.
In its notice, the CRTC wondered aloud about whether its reliance on competition to the maximum extent possible in wireless, and its decision way back in 1994 to not regulate the sector, might be misguided in light of stubbornly low levels of competition. Anybody who thinks the regulator should actually do something has to (a) show the circumstances have in fact changed and (b) that this change represents a turn for the worse. Only then will the CRTC intervene.
And if does intervene, what can we expect? Not real regulation, but rather a “national code for wireless services” designed by and mostly for the industry.
So, have things changed? Well, yes, of course: 2G, 3G, now 4G and LTE. Smart phones are increasingly making their ways into the palms of Canadians across the land. The internet of devices is highly wifi dependent, and mobile data and video use is growing fast. The industry has also grown from a $3.7 billion industry in 1996 to $18 billion in 2010.
However, one thing that has stayed constant is the fact that the wireless services have never been truly competitive and likely never will be. Nor, however, is it necessary that we expect them to be. But the CRTC said that it would need evidence to indicate that market forces are not working before it would act.
Let me introduce two such indicators: one, the empirical evidence on the state of competition and concentration in the wireless sector between 2000 and 2011 and, two, some indicators of price and quality drawn from relevant global standards.
1. Competition and Concentration: In 2000, the big three wireless providers — Bell, Rogers and Telus — accounted for just over 87% of the industry. Today, they account for just over 93%. The “big three” control more of the sector than ever, and besides that Rogers and Bell now straddle every other significant segment of the telecom-media-internet industries. What they do in any one of these areas affects the developments elsewhere, and broadband wireless services in particular.
The wireless industry was already highly concentrated in 1994 when the CRTC decided that the market was competitive enough to stop doing what it’s suppose to do: regulate. Competition did increase modestly during those early years, with two new rivals – Clearnet and Microcell — snatching away 12 percent of the market away from the incumbent telcos and Rogers by 2000. The two rivals were short-lived, taken over by Telus and Rogers in 2000 and 2004, respectively.
Competition peaked in 2000, then the sector became sharply more concentrated by 2004, before falling slightly and staying relatively flat ever since. Whether recent newcomers — Mobilicity, Wind Mobile, Public and Quebecor — will fare any better, it is still too early to tell. With only 2.7% of the market as of 2011, they are far off the mark set at the high-point of competition in 2000.
The graph below charts the trend between 2000 and 2010 using the Herfindhahl – Hirschman Index (HHI). Remember, the basic rule with the HHI is that scores under 1000 indicate reasonable competition, 1000-1,800 moderate levels of concentration and anything over that, high levels of concentration. They’ve been over 3000 for most of the decade.
HHI scores for the Wireless Sector, 2000 – 2010
Sources: CRTC’s Communications Monitoring Report for 2008 and 2010, and the Telecommunications Monitoring Report from from 2000 to 2007, Canadian Wireless Telecommunications Association’s Wireless Phone Subscribers in Canada.
While there’s room for interpretation, the bottom line is that the wireless sector is and always has been highly concentrated. It is less competitive now than it was in 2000, when ‘market forces’ peaked. The CRTC is right that after this length of time, and in the face of the immovable reality of high levels of concentration, yes, maybe it is time to temper the ‘maximum reliance on market forces’ mantra. A code may just be in order, although one might go even stronger and ask for proper regulation, i.e. for the CRTC to do its job versus playing overseer to an industry-developed code.
2. What about Prices and Quality?
In terms of prices, we can look at things charitably and not so charitably. First, we can look at the CRTC’s data for information on pricing for wireless services, but we’d look in vain. The best I can see is a combined price index for wired and wireless telephone service in comparison to the cost of cable and satellite services as well as Internet access services. The figure shows the trend below.
Source: CRTC (2011). Navigating Convergence, p. 65.
Seen from this angle, things look not too bad, at least between 2002 and 2007, when prices were falling below the level of the general consumer price index. The situation reversed after that, however, with the price of wireless services rising relative to the cpi since 2007. Prices have not risen as fast as in cable and satellite subscriptions, but they have not fallen to nearly the extent as they have for Internet access.
We can also look at this relative to seven other countries that can be meaningfully compared with Canada. As the following figure drawn from the UK regulator, Ofcom, shows, the amount that Canadians pay to their wireless provider each month is at the high end of the scale and always has been throughout the period covered. Also note that prices in every other country surveyed, except Australia, have been falling, while in Canada they’ve been on the rise.
Source: Ofcom (2011). International Communication Monitoring Report, p. 256.
We can also look to the OECD for some guidance. In terms of wireless broadband access per 100 people, Canada ranks 26th out of 34 countries. The following chart shows the comparison.
Source: OECD (2011). Broadband Portal.
Of course, there’s much more that could be said, but just from a cursory glance, all is not right in the wireless kingdom. Of course, many seem to think that opening up foreign investment is the way to go. As I’ve said before, I’m not so sure. Now is not exactly the high-tide of foreign investment in mobile services, at least in the Euro-American economies. And many of those same sources seem to have the US in mind when they hope that big foreign investors will come in to save us from the rapacious grip of Rogers, Bell and Telus. I’m afraid, however, as Susan Crawford, amongst others observe, the US is no better than here, and even more of a basket case on some measures.
The upshot of all this: wireless will likely never be competitive. The CRTC needs to regulate versus oversee an industry-developed code. Lastly, instead of auctioning off all the spectrum, Industry Canada should look to develop an open wireless model.
The world has been sitting on pins and needles since the CRTC’s hearings on vertical integration in the telecom-media-Internet industries held in June. CRTC’s just come out with its new rules on the subject today. You can see the press release here or the full decision here.
A lot was at stake. The big four vertically integrated media companies in Canada — Bell, Rogers, Shaw and Quebecor Media (QMI) — said there was no problem, and proposed that, at most, the CRTC should accept some amalgamation of their propsed code. Everybody else disagreed: Telus, CBC, Access Communications, public interest groups, Channel Zero, the Weather Channel, and in a qualified way, Astral.
Rogers also carved out a somewhat distinct position given that with its CityTV network being the smallest of the big four’s holdings (QMI/TVA, Bell/CTV, Shaw/Global (Corus), suggesting a code with a bit of teeth so that it could feed its own mobile and Internet operations. A complete list of positions is available here.
Arguments were made about small markets needing big media players, and that argument front-ended the CRTC’s press release today. In fact, however, as I’ve said in previous posts, Canada’s total media economy is not small, but the eighth largest in the world, and growing fast. We don’t need ‘big media’ to coddle small Canadians, but rather carriers the provide clear channels and the most open media set-up possible, full stop.
So, what did we get? The CRTC announced six key measures, but there’s at least two big elephants in the room that we need to consider, too. Here’s the six headline items:
- The big four — Bell, Shaw, Rogers, QMI — cannot offer tv programs exclusively to their own mobile or Internet subscribers. They must make them available to Telus, Wind, Access Communications, MTS Allstream, etc. Score on this one: Good (para 22).
- Programs created specifically for Internet or mobile distribution by the big 4 can be exclusive. Score on this one: umm, I suppose it’s a good one (para 23).
- No disrupting people’s experience in front of the telly. In other words, no black outs like the kinds that have bedevilled relationships between Bell and Quebecor in the past and which have periodically erupted in the US between, for example, Time Warner and Comcast on the distribution side of the business and Disney, Fox (NewsCorp) and Scripps Howard on the content side, when things get nasty over carriage (transmission) and programming rights. Score: sure, seems pretty good to me (para 104).
- Status quo maintained with respect to independent television producers access to schedules of the big four’s specialty channels (25 percent) and broadcast schedule (satisfactory).
- End of “block-booking”, the practice of tied selling where access to one channel is tied to taking a block of several channels. It was outlawed in the US for Hollywood in 1948 (S.Crt’s Paramount Decision), and it came to television in Canada today. Score: thumbs up (para 63).
- CRTC admonished the vertically integrated companies to come up with a broader range of ‘pick and pay’ models within six months allowing people to order television and programming services ala carte. And what happens if they don’t? Another round of hearings, that’s what. Score: pass for at least trying and the cute raised eyebrow. If you don’t regulate, you can always browbeat these behemoths into doing something, suggesteth the latter. I don’t know, this one just seems to punt the issue down the line (less than satisfactory, but with words of encouragement so that KVF can do better next time).
So, on points 1, 2, 3 and 5, some clear ‘wins’ for competitors and consumers. Point four holds the line, while point six will require us to wait and see if the different players can sort things out amongst themselves. Otherwise, well, more consultations, hearings and decisions. Indeed, the CRTC points to many instances where additional consultations, hearings and decisions might be needed if the different interests can’t sort things out by themselves.
One particular issue worthy of mention here is the CRTC’s efforts to push Bell, Rogers, Shaw and QMI to share subscriber info collected and stored in their set-top boxes with independent programmers (para 141), albeit with due deference to privacy laws and concerns. The threat of yet another round of consultations on this issue also now hangs in the air if the two sides are unable to work things out themselves.
And how about those elephants-in-the-room, you ask? There’s two, I’d suggest, and they’re inter-related.
First, references to the common carrier sections (non-discrimination, equal treatment) provisions in the Telecommunications Act (1993)(secs. 27, 28 and 36), and specifically dealing with broadcast programming, are ignored, referenced only in passing. Vertical integration has rendered these a bit of a fiction, but the CRTC does have enormous powers under these sections.
That it has not leaned on them at all shows how far common carrier/network neutrality principles, and the rule of law, have been eclipsed by a ‘cobbling-things-together-as-we-go-along’ approach. Even from the perspective of “the market”, I don’t think this is a good thing.
The second big elephant in the room is that there’s nothing in the new rules establishing parity of treatment between rivals’ online video distributors (OVDs) such as Netflix, AppleTV, GoogleTV, etc., on the one hand, and the big four’s own online “tv everywhere” initiatives and IPTV offerings, on the other. With the ‘common carrier’ principles apparently in hibernation, perhaps this is not surprising.
What this means is that when Bell, Shaw, Rogers and QMI stuff tv programming/video down their pipes, it won’t count against the bandwidth caps that apply to almost all Internet access offerings in Canada. For Netflix and other OVDs, the caps apply and bandwidth is measured bit by bit. Call this the Netflix choke-hold, and the CRTC seems to have done nothing about it.
This element of the decision is a lost opportunity and one can’t help wonder if its a byproduct of all the fuss being made about how OVDs like Netflix are supposedly ravaging the foundations of the incumbents’ tv operations (although accounting for less than 1 percent of industry revenues) and the strong push by Shaw, Astral, a report of the Senate Committee of Canadian Heritage, and the incumbent industry-driven Over the Top Services Working Group to have such entities regulated as broadcasters. For anyone thinking of setting up a similar OVD operation in Canada, this element of the decision seems like bad news.
In contrast, the FCC and Department of Justice approved the Comcast — NBC (Universal) amalgamation in January earlier this year on the condition that Comcast – NBC (Universal) not give preferential treatment to its own online tv services over those of rival OVDs or withhold NBC-Universal programming rights from OVD providers either. The CRTC’s decision address the latter point, but does nothing with respect to the first. A half victory?
We also need to remember that even the incomparably stricter measures adopted by the FCC -DOJ conditions in the Comcast – NBC case are modest in comparison to steps like structural separation and alternative network build outs that have been taken in, for example, the UK, NZ, Australia, Sweden, Chile, Romania, . . . . These measures were simply off-limits in the current proceedings.
Bell, Shaw, QMI and Rogers, of course, argued all along that the need to regulate them was always speculative and groundless. But that is simply not born out be the evidence provided during the hearing by Telus, Access, MTS Allstream, SaskTel, Channel Zero, Wind, etc.. All of the latter parties argued that the problems are all too real and that gaining access to CTV content, for instance, became a whole lot harder once Bell acquired it earlier this year.
The historical record, as I’ve also argued, is also quite unequivocal on the folly of allowing those who own the medium to control the message. It is certainly a step in the right direction that the CRTC explicitly disagreed with the Big Four’s Panglossian view of the world, and has at least taken some steps to deal with the real issues at hand.
But the CRTC treads lightly in this domain and one thing that you won’t find in its decision is the actual evidence regarding the heavily concentrated state of the TMI industries in Canada. Yes, I state these numbers regularly, but it’s worth repeating them and also my consistent refrain that when you allow those who control the medium to control the messages flowing over it, predatory behaviour and choke points on the free flow of information will arise as sure as night follows day.
So, again, just as a reminder, here was the picture in 2010 of Bell, Shaw, Rogers and QMI’s share of the entire TMI industries in 2010:
- 84 per cent of cable and satellite distribution
- 78 percent of all television revenues
- 66 per cent of wireless revenues
- 54 per cent of Internet Service Provider revenues
- 53 per cent of the wired telephone market
- 39 per cent of radio
That is, ultimately, the source of the issues at hand, and unfortunately, the CRTC’s decision today seems mostly to be tiny pin pricks in the side of the real elephant-in-the-room.
We are at a fundamental turning point, a constitutive moment when decisions taken now will set the course of developments across the telecom-media-Internet ecology for years, maybe decades, to come. We’ve just finished one set of hearings, and two more are on the immediate horizon: the CRTC’s hearings on Usage-Based Billing that begin Monday, July 11 and its upcoming so-called ‘fact finding’ hearings on Over-the-Top/new media.
In an interesting and helpful post today, Peter Nowak argued for 7 fundamental guiding rules for telecom issues in Canada, by which he meant the full gamut of issues right across the TMI (telecom-media-internet) spectrum. They are very useful guides and starting points for discussion, and easy to remember to boot. They are:
- Ditch Usage-Based Billing
- Don’t regulate new media/over-the-top (OTT) services (e.g. Netflix)
- Strengthen Net Neutrality
- Turf Foreign Ownership Restrictions
- Spectrum Set Aside for New Players
- Don’t Regulate Cross-media market power (aka vertical integration)
- Plan ahead for ‘shared networks’.
I find these very useful starting points; perhaps because I agree with most of them wholeheartedly (1, 2, 3, 5). Others I’d endorse with some caveats (4). Some I would expand on greatly (7). Others I would reject completely because they lack any basis in evidence, history or theory (6).
In terms of foreign ownership, Nowak proposes to drop all of the current limits on ownership of telecoms industries in Canada. He suggests that doing this will increase ‘real competition’ in the market by adding new players. This is not an uncommon position and in my view, its goal of increasing competition is basically a good one. Michael Geist and Mark Goldberg, each in their own way, make much the same point.
There are at least three or four problems, some of which I’ve outlined in another recent post, however, with this notion of dropping foreign ownership, although I am, to repeat, not against the idea in principle. First, there’s a good chance that we could drop the rules and nobody would come. These times are not those of the high-tide of foreign investment, in case anybody has been sleeping under a rock for the past few years.
Second, even if new investment does occur, this doesn’t necessarily mean that new competitors will enter the market. It’s more likely that they’ll just take over one of the incumbents, thereby switching the ‘title’ to the underlying telecom property but not doing anything at all to increase the market, unless the new owners turn out to be better than the current ones.
This is exactly the point made by a recent report by the C.D. Howe Institute. Despite its exuberant support of the idea that all foreign ownership rules across the telecoms-media-Internet board should be dropped, the Howe report was forthright that this would probably not result in more competitors. Instead it would lead to something much woolier: “performance gains” (p. 3).
Good luck assessing that, I’d say. Like “beauty”, performance would mostly be subjective and in the eyes of the beholder. Besides, with all of the existing telecom and broadcast players clamouring for less information disclosure, less regulatory oversight and less transparency, as they did one after another during the vertical integration hearings, how could we possibly know whether this nebulous objective was achieved?
Third, Nowak’s piece is couched in the idea of being a “pragmatic” set of proposals, rather than one that dogmatically sticks to what he sees as the right or left of the political spectrum. Thus unlike the Howe Report’s suggestion to drop foreign ownership rules across the board, he argues that if an integrated telecom-media player wanted to sell to foreign investors, say a US telco like AT&T or Verizon or, just as likely, a private equity group, then Bell Media, for example, would have to sell off its television interests, e.g. CTV (and 28 specialty channels, 28 local television stations and 33 radio stations, although he doesn’t spell that out).
Quebecor would have to do the same with respect to TVA, for example, and its extensive holdings of newspapers and magazines. Rogers would do the same with CityTV, 17 specialty channels and stable of magazines, while Shaw would have to part with its assets in television (Global) and specialty channels (Corus). Fat chance that’ll happen, I’d say.
Moreover, because there is a much broader range of media involved than just telecoms and television due to the fact that the ‘big four’ vertically-integrated media companies (VIMCos) (Bell, Rogers, Shaw, Quebecor) also all have, in different combinations, extensive holdings in radio, newspapers and magazines, it’s not going to be so easy to simply hive of telecoms from television. Indeed, with newspapers and magazines swaddled in their own bundle of tax and investment incentives designed to shore up Canadian ownership, unravelling this stuff will be messy and complicated.
To my mind, this part of the proposal not might have been as fully thought through as it could have been. The C.D. Howe Institute report at least has the virtue of purity and clarity: drop the barriers on everything, telecom, broadcasting, media in general.
Fourth, a very significant problem and one that strikes deeply at whether we want to further allow our culture to be ‘securitized’ and ‘militarized’, US telecom-media-Internet companies and investment capital comes with a lot of national security baggage, particularly so in the telecoms-media-Internet space. Their operations are subject to the Patriot Act and US telecom providers and ISPs have shown a propensity to cooperate with national security agencies in a very murky zone outside the rule of law and without cover of authorized warrants in ways that subsequent courts have found illegal (here, here, here and here).
Microsoft’s acknowledgement in Britain this past week that all U.S. companies like it, whether they admit it or not, are subject to the Patriot Act, was the first real candid acknowledgement of the extra-territorial reach of U.S. national security policy when it comes to matters of the information infrastructure. As Gordon Frazer, managing director of Microsoft UK, admitted, data stored in the cloud was well within the reach of the PATRIOT Act.
The acknowledgement came in response to a question posed by ZdNet journalist, Zack Whittaker. Whittaker asked,
“Can Microsoft guarantee that EU-stored data, held in EU based datacenters, will not leave the European Economic Area under any circumstances — even under a request by the Patriot Act?”
No, Fraser explained, “Microsoft cannot provide those guarantees. Neither can any other company”.
Tying networks, servers, the Internet and everything else in Canada that runs through and on top of these facilities to US national security policy is to sell out fundamental principles regarding open media, transparency and a networked free press for the feint hope that we might achieve a modicum of more competition than we have now, and even then, not ‘real competition’, but rather the kind of newfangled Schumpeterian ‘innovation economics’ pushed by the C.D. Howe report.
But let’s move beyond the issue of foreign ownership to Nowak’s sanguine approach to vertical integration, an approach that I also find problematic. Why? Because he offers no evidence, lessons from history, or theory to support his case.
This is problematic because current evidence shows that concentration across the spectrum of telecom-media-Internet services in Canada is high, in absolute terms, and relative to comparable international standards. I offered a snapshot of this evidence in an easy-to-digest form in my Globe and Mail column last week.
I’ll repeat that here for convenience. In Canada, the ‘big 4 VIMcos’ — Bell, Shaw, Rogers, Quebecor (QMI) — account for:
- 86 per cent of cable and satellite distribution market
- 70 per cent of wireless revenues
- 63 per cent of the wired telephone market
- 54 per cent of Internet Service Provider revenues
- 42 per cent of radio
- 40 per cent of the television universe
- 19 per cent of the newspaper and magazine markets
- 61 per cent of total revenues from all of the above media sectors combined.
These numbers are not trumped up in the slightest, and in fact on the matter of the Internet and television services they are actually lower than those offered by the CRTC because of the different methodologies we use. Nowak doesn’t refute these numbers; he just doesn’t deal with them.
Theory tells us that media concentration, for which vertical integration is just one manifestation, embeds a bias for trouble in the ‘structure of the media’. Tim Wu, in the Master Switch, gets things right when he sets up the simple premise that it is important for regulators to curb the potential for companies to leverage power and resources across the three main layers of the telecom-media-Internet system: networks, content/applications and devices.
In theory, I think he is right and, based on the current and historical record, strong measures are needed to prevent companies from leveraging control over any one of these three layers — networks, content, devices — to curb competition and diversity in any other layer.
Nowak is clearly aware of the connection in this regard and he hopes that his first and second principles — ditching UBB and leaving ‘new media’/OTT untouched by regulators — will take care of vertical integration problems by removing the ability of Bell, QMI, Rogers and Shaw from using bandwidth caps and the pay-per Internet model to basically undermine the viability of rival online video distribution services (AppleTV, GoogleTV, Netflix, etc.) that they see as a threat to their own broadcast services. I think that these are important steps, but insufficient to deal with the full range of ways in which leverage across the three layers of the telecom-media-Internet system can be used to hogtie competitors and stifle the fullest range of voices and expression possible.
This is not just hypothetical potential, either, but rather documented by case after case of examples where either access to content or to networks is deployed in the strategic rivalry between less than a handful of players in oligopolistic markets. And when highly capitalized Netcos such as Bell own much smaller content companies like CTV, they have every incentive to use the latter to shore up the position of the former.
The recently completed vertical integration hearings at the CRTC were replete with example after example of this, from network companies such as Telus, SaskTel, MTS Allstream and Public Mobile as well as media content companies, whether the CBC or smaller production companies like Stornoway Productions.
These examples are not just limited to Canada either, but global in scope. They are behind the recent detailed regulatory framework put into place in the US by the FCC and Department of Justice that blessed the merger between Comcast and NBC-Universal, but not before taking comparatively stern steps, especially by Canadian standards, to ensure that NBC-Universal content could not be locked up or used by Comcast to the disadvantage of rivals in the broadcasting business. Furthermore, Comcast was also required to make its television and film content available to Internet competitors and ‘online video distributors’ (OVDs), a new category designed to cover services such as Netflix, Hulu, AppleTV, and so on, and to adhere to open Internet requirements generally.
Other countries such as Australia, Belgium, Britain and New Zealand have dealt with their own experience of networks being used to trample competition and diminish the range of voices and expression possible by going even further to set up rival ‘unbundled’ open networks (Australia) or by mandating ‘structural separation’ between incumbents’ networks (layer 1) and other layers (services, content, devices) in the system. In an important post yesterday, Bill St. Arnaud also talks about the development of networks that are essentially based on pick and choose access to capabilities and functionalities that respond flexibly and recursively to user generated communication and information needs
The problem, thus, is one that is buttressed by evidence, by theory and by global experience. In light of this, robust measures rather than a sanguine approach to vertical integration is most definitely needed.
And to bring this to a close, the issues raised by vertical integration are not the consequence of innovative, new industrial arrangements or newfangled theory, but rather deeply entrenched historically and indeed endemic to situations where those who control the medium (networks) are also in a position to control the messages (content) flowing through those networks.
Thus, in the first decade of the 20th century in Canada, the Canadian Pacific Telegraph Co. and Great North Western Telegraph Co (the latter under ownership control of Western Union) had exclusive distribution rights for the Associated Press news services in Canada. As part and parcel of the telegraph companies’ bid to buttress their dominance in the highly lucrative telegraph business against a couple of smaller rival upstarts (the Dominion Telegraph Co in Canada and Postal Telegraph Co. in the US), the Canadian Pacific Tel. Co. and Western Union-backed Great North Western Tel. Co. offered one of their premier set of clients — newspapers across the country — access to the AP news service at a very cheap rate. In fact, they gave it away “free”. Sound familiar? (observant readers might also note the persistent recurrence of ‘network infrastructure duopolies’, too)
The AP news service was so cheap because instead of paying the cost for both the news service and the telegraph charges for delivering it from one place to another, Canadian Pacific Tel. Co. and Great North Western Tel Co only charged newspaper subscribers the ‘transmission costs’ for the AP service. The content, under such arrangements, was ‘free’. Of course, this was a real boon to established members of the press and to AP, while it also helped to stitch up the companies’ lock on the telegraph business. It was a menace to rival news services and a competitive press or telegraph system, however.
The fly-in-the-ointment was that any competitor news service was at a huge disadvantage because its subscribers had to pay the ‘transmission costs’ plus the cost of the news service. Thus, when Winnipeg-based upstart, the Western Associated Press, tried to set up a rival Canadian news service to that of the Associated Press in 1907, it found it’s opportunities blocked at every step of the way because there was simply no way its subscribers could pay two costs — transmission and for the news service — while the AP service was essentially given away free after subscribing newspapers paid the telegraph companies their fees for distribution.
As one muckraking journalist W. F. Maclean wrote in the Toronto World,
“attempts on the part of public service companies [the telegraph companies] to muzzle free expression of opinion by whitholding privileges that are of general right cannot be too strongly condemned.”
The matter found its way before one of the long-lost predecessors to today’s CRTC, and one of the first regulatory bodies in the country, the Board of Railway Commissioners. Canadian Pacific Tel. Co. came out swinging, arguing that the BRC simply had no authority over the news services or to compel it to separate the costs of the news services from transmission costs.
Times were different then, it seems, and the BRC didn’t wilt one bit amidst the hot-heated rhetoric but blasted back that it was compelled by law to insure that rates were “just and reasonable” and that unless transmission rates were separate, explicit and equitable “telegraph companies could put out of business every newsgathering agency that dared to enter the field of competition with them” (BRC, 1910, p. 275).
The upshot was separation of control over the wires from control over the news business. The regulator had all the authority in the world it needed to break up the ‘double headed news monopoly’. It is a lesson that the CRTC and everybody else interested in ensuring that we oversee the creation of the most open media with the maximum range of voices and creative expression possible should pay close attention to.
Of course, the modalities of communication have changed tremendously and we now live in age of information abundance rather than scarcity, but as Tim Wu’s Master Switch and the mounting evidence before our very eyes attests, the basic logic of leveraging content and networks to confer advantages on one’s own operations whilst driving others into submission, if not out of business altogether, is alive and well.
This is a basic and easy-to-grasp point, and until we firmly implant it at the heart of the structure and regulation of the telecom-media-Internet system, we will continue to forgo the economic, political, cultural and personal benefits of the most open network media system possible and which further the goals and values that define a free and democratic society.
On that score, Nowak is right, these are not ‘left’ and ‘right’ issues. They are issues, principles and values of concern to all who take the precepts of liberal capitalist democracy seriously and who see in the status quo a condition that is badly lacking by even that non-ideological/utopian standard.
Down the Rabbit Hole at the CRTC: Regulator and Big 4 Make Molehill Out of Mountain on Telecom-Media-Internet Concentration Issues
As per my usual practice, this post is a slightly altered version of my column in the Globe and Mail today. It is a a wee bit longer and, as is my standard practice, comes more fully-equipped with citations and sources that you can turn to to follow up on, assess my take on things, and so forth.
In the first of two column’s last week I offered evidence and argument as to why the CRTC’s current vertical integration hearings are not likely to deal effectively with the question of telecom-media-Internet concentration in Canada. Sitting in on three full days of hearings last week has convinced me that the prospects may be even dimmer than I thought.
If you know how to say “voluntary code”, “case-by-case dispute resolution”, “skinny basic”, and status quo, you’re in luck because that’s probably what the outcome will be. Some consumers will benefit with slimmed down and more affordable basic cable and satellite packages and there’s a fifty-fifty chance that a hands-off-Netflix approach is in store, if I am right. The pay-per Internet model and less than a handful of telecom-media-Internet behemoths, however, will be still stand astride a set of highly concentrated industries, and we will be the poorer for this.
The hearings had an Alice-in-Wonderland feel, mainly because the evidence offered by all sides was remarkably poor. Consequently, discussion meandered between speculative worries and rose-tinted visions brought to us courtesy of the great media corporations of Canada.
The CRTC’s refusal to do much original research of its own compounds this problem, and compares badly with research conducted by, for example, the FCC and Ofcom, respectively. Like the mythical beaver that castrates itself in self-defense, the CRTC seems to worry that conducting original research might bias its decisions. Strange.
All of the top brass from Bell, Shaw, Quebecor Media Inc. (QMI) and Rogers attended, sometimes with as many as ten to a delegation. With few exceptions (see below), the Big Four stood as one against almost everyone else, but nonetheless they seem to have set the parameters of discussion around less than a handful of touchstone themes:
- That we should rely on market forces to the maximum extent possible.
- Canadian markets are competitive, small by global standards and need big media companies to compete.
- problems that do arise should be settled one by one after they occur rather than establishing clear regulatory rules before hand.
- concerns about the anti-competitive potential of vertical integration are mostly speculative rather than real.
Rogers allowed a crack of light to peak through when it broke ranks with Bell, QMI and Shaw to table a “code of conduct” that would require vertically-integrated media firms to sell programming rights to traditional broadcasters, such as the five CityTV stations that it owns. While the others tried to belittle or ignore Rogers’ stand on this point, the CRTC seemed to like the voluntary code of conduct idea very much. I suspect we’ll have some version of it.
Otherwise, Rogers, Bell, Shaw and QMI united behind the view that smaller rivals should not be entitled to a regulated guarantee of fair and reasonable access to their networks or the content rights associated with TSN, Rogers SportsNet, the History Channel or any of the other 100-plus television channels they own between them.
QMI’s CEO and majority owner, Pierre Karl Péladeau, scoffed at the idea that exclusive content agreements were a problem. Bell’s chief regulatory front man, Mirko Bibic called the idea that audiences should be able to access content on any device from any provider, anytime, “preposterous”.
Brad Shaw, the CEO and part of the family that controls Shaw Media, bristled when I intervened in a journalistic softball scrum to ask him to respond to the possibility that concerns with vertical integration and media concentration are not based on speculation and fear mongering but current evidence and recurring historical patterns. After shrinking back into my shoes, he returned to typical patter about how vital it is for Shaw to be “consumer centric”.
Over the course of the three days, Netflix was set up as a formidable threat to the Canadian broadcasting system. This may be a shock to some, but I got the sense that the CRTC is not all that eager to assume this role, despite enormous pressure from Bell, Shaw, QMI and (less so) Rogers, the Over-the-Top Working Group, media unions, arts and culture groups, the Senate Committee on Canadian Heritage as well as a pending Supreme Court case.
When I spoke with Michael Hennessy, Telus’s Senior Vice-President, Regulatory and Government Affairs, he came across as a thoughtful man and seemed to better understand the idea that just because a company owns the medium does mean that it should control the messages flowing through them. Telus’ primary focus is on connectivity, he told me, not content.
Telus’ periodic work with Google, amongst other things has taught the company, he also said, that it is better to grant as much access to outside content sources as possible and push control out to the edges of the network and into the hands of Internet users. One doesn’t have to be a dyed-in-the-wool Telus fan to accept everything that he claimed, but in my view Telus is on the side of angels on this question – even if this has not always been the case.
Telus’ launch of IPTV services over the past few years has been a success by Canadian standards, but obtaining content rights for its IPTV and mobile video services has been a real obstacle, with Bell standing out in this respect since its acquisition of CTV earlier this year. According to a recent OECD study, Canada ranks 19th out of 27 in terms of the percentage of subscribers to IPTV, while rates in Sweden, Belgium and France are four- to ten-times higher (p. 223). One wonders if this low ranking is related to the problems just described and regulatory rules not up to the task of curbing market power across a number of telecom, media and Internet industries?
Commercial broadcasters have been slow to develop online video services, doing so only around the end of 2007, early 2008. It was the CBC, instead, that blazed the way, only to find one of its early attempts to use BitTorrent to distribute an episode of Canada’s Next Great Prime Minister thwarted by Bell’s ‘network throttling’ practices. The big four have accelerated their efforts in the past year, mainly as Bell, Shaw, Rogers, and QMI import the “tv everywhere” from the US so that existing subscribers can access the companies’ own content anywhere, anytime.
Reflecting the fact that commercial broadcasters have been slow on the uptake, Konrad von Finckenstein asked Péladeau why QMI hadn’t launched an online video downloading service to compete with Netflix? The activities of the “state broadcaster” (the CBC), he responded, excessive regulation, and nervous investors were holding it back. The head of the CRTC also asked for evidence that Netflix was a threat to the television system, but was told by Péladeau that he had none.
Smaller players, in sharp contrast, piled anecdote upon anecdote to show that vertical integration is, in fact, a significant problem. Telus, MTS, SaskTel and Cogeco submitted a “joint proposal” as well that sets out a handful of principles that they want enshrined in a sturdy regulatory framework:
- Access to content by television program distributors and carriers should be on fair and reasonable terms.
- Subscribers should be able to access the content they want from the device they want anywhere, anytime.
- Block booking — tying the rights to purchase one television channel to buying several others, among other things – should not be allowed (a stance consistent with CRTC’s favourable view of “skinny basic”, i.e. a minimalist basic cable tv service).
- A tough regulatory regime is needed before-hand and not after the fact, as the big four would like.
- The regulator must assume a tough stance toward vertically-integrated telecom-media-Internet conglomerates that possess substantial market power.
Most independent broadcasters more or less agree with these ideas, with some minor tweaks. Despite their merit, however, the evidence to support these principles, was not convincingly demonstrated by anyone.
The fact that evidence was probably never going to carry the day anyway, however, struck me hard on Day Three when von Finckenstein called Telus’s proposal “over the top”. Newly-appointed Vice Chair of the CRTC, Tom Pentefountas, added to this sense when he asked Michael Hennessy if Telus’ “proposals essentially take the ‘free’ out of the ‘free market’?”
Across the aisle from me, Bibic, the regulatory pitbull from Bell who had made more than one CRTC commissioner wince and waiver during his presentation a day earlier, smiled broadly like The Cheshire Cat. Day 3, and the endgame was coming clearly into view.
Day 3 and the endgame was coming clearly into view.
A new report by the CD Howe Institute came out today. It’s not big, just 3 pages and seemingly informed by a bunch of guys sitting around a table at the Howe’s ‘inaugural meeting’ last week (June 17).
It is brash, and some might dress it up as bold: drop all limits on ownership of telecoms and media industries in Canada, it says. Full stop.
No phase out. No ‘newcomer advantages’, full stop again. No attempt to separate the ‘medium’ (wires, spectrum, sewer access) and the message (broadcasting, integrated suite of ‘content’ from mags to blogs) from one another. A digital free for all, you might say.
Perhaps the gentlemen, and they were with the exception of only a single woman, thought this might be a good idea while they sat around and chatted last Friday afternoon. Apparently, there were not so many women ‘law & economics’ types available to join them, given that all but out of the 16 places apparently went to the guys and boys from Bell (see below). I guess ‘law and economics’ types like Sheridan Scott, a hard liner in these matters, and Monica Auer, who generally takes the opposite tack by speaking eloquently and passionately on the telecom and media workers’ behalf, weren’t available, or any of the other smart dames roaming these circles as I saw, in the minority, at the CRTC’s hearings this week.
I looked at the composition of ‘the deciders’ not just because their gender was so obviously skewed, but because I recognized the names of most of the guys. One in particular leapt out, Jeffrey Church, a University of Calgary economics professor. By all accounts, he’s an excellent teacher. Professor Church caught my eye because, in addition to advising the ‘big 3Ps’ in Canada as I’ll call them — Petroleum, Alberta Beef Producers, Pharma — Professor Church just wrote an economic analysis for Bell as part of the very, very important vertically-integrated telecom-media-Internet hearings now being held by the CRTC.
According to Church in his voluminous 93 page submission on Bell’s behalf, vertical integration is good for consumers and for Canada (p.5). I disagree, strongly, for reasons set out regularly in this blog (e.g. here) and my column for the Globe and Mail on Monday.
It’s not just Church that is so closely tied to Bell, but also Marcel Boyer, Bell Canada Professor Emeritus of Industrial Economics, Université de Montréal, as the CD Howe report indicates on the back of this slim 3 page ‘report’. 2 out of 16 does not a majority make, obviously, but their presence does stand out.
The rest of the lot in this ‘law and economics’ crowd does not seem very adventuresome, either. I know one professor occupying a BCE endowed chair that won’t be called upon, Professor Robert E. Babe at the University of Western Ontario, for he has traced the propensity of telecoms historically to go from limited competition to ‘total consolidation’ on a regular basis. Let us say that the fact that Howe ‘report’ has zero to say about such notions is not all that surprising.
The 3 page ‘report’ is candid that dropping the foreign ownership limits on everything — telecom, media, internet — will not increase the number of competitors in the market. As it states, “given the small size of the Canadian market, the consensus view saw no major change in the number of national competitors”.
Translation, the big three companies in wireless telecoms — Bell, Rogers, Telus — for instance will still account for about 94% of the market (according to CWTA 2010), but they might be owned by yet a larger foreign based telco (Vertizon, the ‘new’ AT&T, Deutsche Telekom, etc.) or may private equity funds. Me, I have doubts many foreign investors — telcos, priv equity funds, banks — will even come if permitted to do so (or if we want ’em to on such ‘carte blanche’ terms). I’m not alone on this, and hardly radical, given that even the World Bank states that the keys to effective foreign ownership is a ‘strong state’ able to regulate and competition.
Instead, the Council of 15 wise men and 1 smart woman says, drawing on newfangled theory about ‘competitive innovation’ drawn from the right-wing side of Schumpeterian ‘innovation economics’, that “the gains from liberalization would likely result . . . from better performance by telecommunications market participants”. Umm, I hope so, especially because its this same crowd breying for the withdrawal of any meaningful conception of regulation or state intervention. The CRTC’s horizons have been blinkered and public ventures like CANARIE have had their wings clipped. How foreign capital will ‘improve’ performance standards in Canada is not clear to me/self-evident.
The report advocates this ‘regulatory shock and awe’ to be developed in one swell swoop, with no distinctions kept between telecoms and broadcasting, between networks and content, between incumbents and newcomers. The telecom-media-Internet sectors are now so entangled on account of digitization and how people use media that they must be treated together as a whole. Partial agreement there about treating things ‘holistically’.
More targetted measures are suggested as alternative to foreign ownership for whatever “cultural policies” might be left over. Some of these ‘targetted measures’ I believe in — securing financing for content production, shelf space, strong CBC — and they have been promoted by at least two of the same writers involved in today’s 3 page missive (e.g. see Hunter and Iacobucci, with a third author Michael J. Trebilcock).
There are several problems with this “report”, however, that make it’s contribution to public discussion dubious, despite the fact that it will gain much attention.
1. Three pages is not a report and should not be pitched as one.
2. The Council of the Wise is skewed along lines suggested above, ie. by Bell and by Gender. Bell has always had a visible hand in the telecom, broadcasting and media industries, indeed, since it began broadcasting speeches, songs and sermons in the 1880s and took-over the Chairmanship of the 1905 Mulock Commission which had originally been convened to look into the underdevelopment of the telephone system in Canada in the early days of the 20th century.
So, that Bell continues to be front and centre 100 years later, at the dawn of the 21st century, is both a marker of continuity and somewhat unsurprising, but equally suspect/problematic in each of these occasions. The presence of Bell’s hired gun (Church), a Bell sponsored ‘academic chair’ (emeritus, Boyer), and BCE CEO George Cope’s speech at the C.D. Howe two months ago all so bunched up in time and common stance has a whiff of something not quite right about it.
3. While I don’t actually have many problems with increasing competition and dissolving lines between the medium and the message, or the network infrastructure and content, we also need to be upfront about the fact that the former (media infrastructure) are generally scarce and the latter (messages) abundant. In today’s OECD Communication Outlook 2011, it is clear that, generally speaking, the top 2 ‘netcos’ in each of the OECD countries account for between two-thirds and three quarters of fixed and mobile telecom network markets in each of the OECD countries (pp. 56-59). This means:
- that Netcos generally should be regulated for market power, ‘messagcos’ generally not.
- ties between Netcos and Messagcos are congenitally fraught with problems and propensity for anti-competitive behaviour.
- Free speech standards and the values of a ‘networked free press‘ are also at play (and here). As the United Nation’s Human Rights Council recently stated, those standards apply to the Internet and people should have, as Article 19 of the Universal Declaration of the Rights stated before it in 1948, the freedom to receive and impart any information, through any media regardless of frontiers. At the CRTC Hearings on vertical integration the other day, Bell’s Mirko Bibic and Shaw’s brass called the idea that people should have access to any content on any device “preposterous”. The C.D. Howe ‘report’ is oblivious to these considerations.
4. The C.D. Howe report misses reality and the ‘big picture’. Perhaps this is because there is not a whiff of heterodox thinking among the ‘law & economics’ experts who wrote it. Not one ‘ecclectic’ economists, not one wild eyed, crazy lawyer, not a communication and media scholars or a historian in sight.
This is too bad because as long as it continues to be the case, people will continue to talk past one another. And it also means that ‘reports’ like this one, and the policies and approaches that actually do follow close in tow in the ‘real world’, will lack legitimacy.
5. Without being able to expand their horizon, the authors of the C.D. Howe ‘report’ blithely countenance “North American integration”. Economically, as I said above, I don’t have a particular problem with that, although I doubt that things will pan out as they expect, and even that what the Howe folks do expect ain’t much (“better performance” from same number of players).
Politically and culturally, however, there is a problem, not with Cancon and ‘traditionalist/romanticist’ conceptions of culture, but ‘network culture’. Netcos and search engines are now closely allied with state security, military strategy and defense contractors. It’s probably best to keep some clear blue water between these domains. The authors give no hint that they have even thought of this.
Netcos, ISPs, search engines, etc. are also constantly being badgered by lobbyists as well as politicians in Canada and the U.S. to play a greater role on behalf of media and entertainment industries (for most recent and strong opposition to this from within just the mainstream’, see here). The approaches have differed, with the last government in Canada wisely turning down lobbyists push to have ISPs play the role of ‘copyright cop’, disconnecting people who repeatedly are identified as ‘copyright bandits’.
The International Federation of Phonographic Industries (IFPI) launched it’s efforts to lean hard on ISPs and search engines, and less on Digital Rights Management (DRM), in 2008. It has been picking off ‘wins’ for this agenda around the world, but not so much yet in Canada.
Yesterday, CNet journalist Greg Sandoval reported that AT&T, Comcast, and Verizon “are closer than ever to striking a deal with media and entertainment companies that would call for them to establish new and tougher punishments for customers who refuse to stop using their networks to pirate films, music and other intellectual property”. That turn-of-heart, in turn, he reports, was eased by coaxing from the Obama Administration and the National Cable TV Association.
The pressure is already strong in Canada, but so far government and regulators have refused to make ISPs the deputies of the media and entertainment industries or to regulate the Internet as a broadcast distribution medium. On law and order, however, the push is for a stronger state and more compliant Netcos and Searchcos.
While there’s lots of dots to connect between all of these latter points, the key idea is that integration at the network and market levels is going to increase pressure to harmonize tougher matters that impinge greatly on network media, and thus network culture. That the blokes and one women from C.D. Howe have nary a word about this and don’t dare let the phrases ‘network neutrality’ and ‘open media’ cross their lips is a problem of the first order because those concerns, as sure as night follows day, are at the heart of the emergent network media culture. How can foreign ownership be reconciled with these concerns should be the question, rather than if it if good or bad altogether.
In sum, until we can start speaking one another’s language and stop passing off economic and policy platitudes backed by those with big stakes in the game, the nominal ideas presented in this “report” should be shelved and other big questions — vertical integration, for example — put on hold.
Ultimately, Pork, Petroleum and Pharma are not the same as telecoms and media. We need some new thinking for ‘new media’.
Until we recognize this, we’re not going to get very far, at least in a a way that takes into account the full range of issues at hand, rather than the economists narrow measuring rod of value.