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Media Concentration in Canada and the Internet

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The CRTC is directed to insure that its decisions:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

December 2006. Bell begins shutting down unlimited Internet plans.

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

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

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

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

Exempts wireless carriers from rules governing ITMP.

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

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

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

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

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

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

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

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