Dead Horses and Internet Policy: the CRTC’s Usage-Based Billing and Vertical Integration Decisions as Lost Opportunities
I wanted to write you a short blog post, but I postponed and pondered, and so wrote a long one instead (with apologies to Mark Twain).
Some things fundamentally constitute the media landscape, and the CRTC’s vertical integration and Usage Based Billing (UBB) decisions in the last two months are two such instances. In each case, the bar was set low and delivered a wee bit of something for everyone, the decisive affect being to disrupt vested telecom, broadcasting and Internet players (often one and the same thing) and the status quo as little as possible.
It took me this long to fully appreciate that the key is not to understand what these decisions did, but rather what they did not do. Lesson number one when reading regulation: never trim your sails to the low bar set by CRTC and vested stake-holders.
Lesson two: don’t get lost in the underbrush of techno-economic mumbo jumbo that inevitably serves in these situations to shroud the interests and stakes involved in mystery, and to bash any meaningful whole into an indiscriminate heap of technical details without context or sense of the big sweep of things.
The vertical integration deal could have been about many things, but was mainly about whether or not the big four — Bell, Shaw, Rogers and Quebecor (QMI) – would be able lock down access to broadcast content for the 3rd and 4th screens (that’s fancy cyber-talk for the Internet and smart wireless portable devices). The big four argued that they should be able to leverage control over their own content and platforms for competitive advantage however they see fit. This is the way of the world, the Schumpeterian clash of goliaths versus goliaths that drives capitalism forward, they said.
The CRTC said no, or at least not entirely, and this is a good thing because it means that Telus, MTSAllstream, SaskTel and Wind, for example, can buy access to programming from CTV, Global, City, TVA and the more than 120 other TV channels the big four conglomerates own between them. Control over content – sports content especially – cannot be used by the vertically integrated telecom-media-Internet (TMI) behemoths to squash competition with Telus, Sasktel, Wind, Public, Mobilicity, said the CRTC. This was and is a good thing.
The CRTC also put an end to block-booking arrangements where channels were sold in bundles to carriers, called for greater choice in pricing for consumers, and let the big four keep exclusive rights for content they produce specifically for the 3rd or 4th screens. In contrast, Hollywood was forced to abandon block-booking of films in theatres in 1948. The end of block-booking was brought to the Canadian television universe by the CRTC sixty-three years later. Something for everyone, you could say.
Sorry if I am not impressed. Power is not about who wins and loses, and scattered compromises, but how the issues are framed, and by whom, and the ideological buy-in needed to get there. The vertically-integration ruling is mainly a compromise to a clash among the incumbent telecom and broadcasting titans, with the CRTC shoring up faulty markets for bandwidth, content rights and access to audiences. This is systems maintaining not disrupting regulation.
It is okay as far it goes, but the CRTC dealt with trans-media concentration with the weakest tools at its disposal, other than doing nothing at all. Independent tv and film producers, as well as media unions concerned about declining conditions of work within the consolidated Canadian media industries came away empty handed.
Fundamental principles within the Telecommunications Act (1993) (secs. 27, 28 and 36) that require network and content providers to be treated equally and in a non-discriminatory fashion are ignored. The possibility that rival OVDs — Netflix, YouTube, Apple – might be given access to networks and platforms on terms equivalent to those that Bell, Rogers, Shaw and QMI give to their own online video services is not even broached. The possibility that people might have a “freedom to connect” that supersedes the Netcos’ right to manage their networks as they see fit is unthinkable from within the CRTC’s constipated view of the world.
Michael Geist, however, thought that such issues might be taken up in the UBB decision. They were not.
The UBB decision sets the record for making a molehill out of a mountain. While it stresses the principle of equality between telephone and cable companies, it has precious little to say about equality between them, on the one side, and rival ISPs and OVDs, on the other. For most people, it is a change that will likely come and go without much notice (see below).
The ruling recognizes the fast growth in online video use, but does little to insure that bandwidth is available at levels and prices consistent with current and projected growth. It is in many ways cultural policy by stealth insofar that universal bandwidth caps reinforce the incumbent telecom and broadcasting companies’ – Bell/CTV, Shaw/Global, Rogers/City, QMI/TVA – custodianship over the “integrity of the Canadian broadcasting system”, discouraging the use of rival OVDs such as Netflix along the way.
Interestingly, the only one standing outside this corporate media love-fest is the CBC, the most innovative of all of Canada’s broadcasters when it comes to podcasts, streaming video, the use of BitTorrent, and so on.
Canadians are the world’s most extensive online video users, so these are important issues. The following chart illustrates that “real-time entertainment” (TV, YouTube, Porn) now accounts for the biggest proportion of Internet traffic for significant periods of the day. Downplaying the vital significance of this issue, as the CRTC’s UBB decision does (and the vertical integration hearing before it), is irresponsible, if not deliberately deceptive.
To be sure, Shaw and Telus have raised their bandwidth caps over the past six months, and Bell has reigned in its use of P2P throttling, all of which recognize, at least in part, the steep growth in online video. More importantly, though, these changes may be the most important outcome of the political firestorm unleashed since last January when Canadians discovered that they had been dragooned into a pay-per model of the Internet over the last five years.
The lesson? Want change? Don’t go to the regulator; go to the streets, like OpenMedia did, with half-a-million people in tow.
The CRTC’s assumptions about bandwidth use as the basis of the two pricing models adopted by its UBB ruling – the existing flat rate model and new ‘capacity-based model – appear to be far less then more capacious limits recently put in place at Shaw and Telus, and behind global best practices further yet.
They are wildly out of synch with the illustration above created by the deep-packet inspection equipment maker Sandvine, too. When Sandvine talks about the appropriateness of using price and bandwidth caps to “discipline users”, it imagines a scenario where users have 200GB caps per month for peak use, and unlimited use thereafter (see p. 5). Putting aside the unsavoury language of using technology and prices to discipline how people use the Internet, these numbers are multiple times higher than the 40-60 GB per month that the CRTC’s UBB decision seems to assume.
Other than in the most abstract of ways, there are no real world examples of how Canadians use the Internet or how online video distributors (OVDs) such as Apple, Netflix and Youtube might be affected by the CRTC’s UBB decision. Yet, the UBB decision is cultural policy, even if it refuses to identify itself as such, protecting incumbent telecom and broadcasting players, on the one hand, stifling people’s everyday cultural production and consumption in the online, network media ecology, on the other.
The CRTC obscures questions about online media use by casting the remit of the UBB proceedings in resolutely narrow terms and shrouded in a thicket of dense language that only a technocrat can appreciate. Its headline achievement is the wholly uninspiring creation of a wholesale pricing framework based on the existing flat rate model for any Netco that wants it (Shaw, SaskTel, Telus) and a new “capacity-based model” for those who asked for it (Bell, Rogers, QMI, Cogeco, MTSAllstream).
The two options and the ability to buy bandwidth in 100 Mbps blocks will give independent ISPs more flexibility in terms of how they package and price their services. For 94 percent of Internet users, however, the decision will have little impact.
They will continue to be saddled with the pay-per Internet model and bandwidth caps that Bell began foisting on them in late-2006, with other incumbents following in its footsteps ever since. The decision not only leaves this model intact, but girds it.
With increased flexibility, some indy-ISPs will be able to offer stripped-down services to low-end Internet users at cheaper prices. While 1.5 Mbps Internet service no longer serves as a target for Internet development anywhere, a cynic might say that this so-called flexibility at least adds to the chances that there will be an el cheapo Internet option for the poorest among us.
The CRTC doesn’t want to talk about how its decisions fit into questions of accessibility and usabililty, however. Be that as it may, there is a large broadband Internet access divide in Canada, and it is a class divide.
Household Internet use closely tracks income, as the chart below shows, with those at the top of the income scale (98%) nearly twice as likely to use the Internet from home as those at the bottom (52%). Or to put this another way, between one-fifth and one-half of households on the first three rungs of the income ladder do not have Internet access. Only the wealthiest in the top twenty percent have near universal access.
Source: 2010 Canadian Internet Use Survey, Business Special Surveys and Technology Statistics Division, Statistics Canada.
Some argue that the importance of the Internet to all aspects of our lives means that we should expand our understanding of communication rights to include “freedom of expression, freedom of connection” via the Internet. The CRTC and those who it regulates would undoubtedly see any such talk as heresy.
On a less prosaic level, there will be pricing and packages galore under the new wholesale pricing regime; probably to the point of confusion. While it is conceivable that some low-end Internet users may benefit, for mid-range, high-speed Internet services prices will likely rise 25 percent relative to comparable services now.
Indy ISPs will also be under more pressure to manage their subscribers’ use and to push high bandwidth real-time entertainment video use into off peak hours. This pressure will become more intense over time as online video use continues to explode. Daytime soaps or early a.m. World of Warcraft, anyone?
Overall, prices for Internet services for all users in Canada will continue to be high relative to relevant global standards. Whereas the tendency in countries that we’d probably like to emulate is for bandwidth to increase steeply and prices to fall gently, in Canada, bandwidth availability and prices are both going up, with some companies (Telus and Shaw) seeming to do a better job than most.
Canada will continue to retain the dubious distinction of being among just three advanced capitalist democracies – Australia, Iceland and New Zealand – where bandwidth caps are low and near universal in coverage. In 2010, by contrast, twenty other OECD countries had no data caps at all. Elsewhere, bandwidth caps were one option among several. In Spain, just two of twelve broadband providers surveyed used bandwidth caps, for example (OECD, 2011, p. 275).
At the heart of the UBB decision is the CRTC’s stubborn insistence that Internet access is sufficiently competitive, despite the fact that 94% of users obtain access from the dominant incumbent telephone or cable companies in their city. This stance is decisive because its sets the foundation upon which everything else turns (for the state of media and Internet concentration in Canada, see here).
Because of this position, the new rules do not give maximum, unbundled access to bandwidth and other essential elements that rival ISPs need to serve their subscribers over the incumbents ‘last mile’ links, but the minimal level possible whilst still giving access to network facilities at all. The highly restricted form of network access given to independent ISPs is based on a concept invented out of whole cloth three years ago by the CRTC itself: i.e. “non-essential, conditional mandated access” facilities. There’s no such thing anywhere else in the scholarly literature or the real world, as far as I know.
Under such fairy-tale conditions, concentration disappears and the CRTC ignores the potential to use the much stricter “essential facilities” guideless, let alone functional or structural separation, to foster more competition and more open networks. While these measures are growing in appeal in Europe and have been adopted in Australia, Italy, the Netherlands, New Zealand, Sweden and the UK (OECD, 2011, pp. 11-44; Benkler, 2010, p. 159), there is little trace of them in either the vertical integration or UBB proceedings.
Under the “essential facilities” guidelines, rival ISPs would be able to acquire access to bandwidth and last mile connections on terms that are equal to those that incumbents’ offer to their own ISPs. The CRTC could also demand much higher levels of information disclosure from the incumbents and use a more transparent process to set the wholesale rates that ISPs will have to pay as a result.
Crucially, the CRTC could cap the wholesale prices that the dominant players charge at “cost + 15 percent”. Instead, the CRTC’s ‘sufficient competition’ standard set rates on the basis of “the individual large cable and telephone companies’ costs to provide the service plus a reasonable markup” (p. 2).
What those costs are, and whether they are reasonable, we’ll never know, because nobody but the CRTC and the incumbents have access to the underlying data used and just what measure of reasonable is used. Indeed, the whole process is erected atop a murky foundation of minimal data disclosure and transparency. This is Internet Policy making in the dark.
The result is a fairy-tale world of the CRTC’s making where dominant market power disappears and wholesale rates appear to be more fiction than anything based on a scrupulous reading of the facts. Bandwidth apparently is cheap and plentiful in Manitoba and more expensive in territories served by Shaw and Telus, while scarce and very expensive in the rest of Canada.
|Capacity-Based Model||Capacity Rate/100 Mbps||Access Rate|
|MTS Allstream||$281||$23.08 (32 Mbps)|
|Rogers||$1,251||$21.00 (25 Mbps)|
|QMI (Videotron)||$1,890||$23.77 (30 Mbps)|
|Bell||$2,213||$25.00 (25 Mbps)|
|Cogego||$2,695||$24.98 (30 Mbs)|
|Flat-Rate Model||Monthly Access Rate/Subscriber|
|Shaw||$21.25 (25 Mbps)|
|Telus||$39.51 (25 Mbps)|
|Sasktel||$53.49 (25 Mbps)|
|Bell Alliant||$30.27 (15 Mbps)|
The CRTC attempts to explain away the eight-fold disparity between Bell and MTSAllstream’s prices in a footnote buried in the appendix at the back of the decision by pointing to the simple architecture of the latter’s network relative to Bell’s. I doubt this adequately explains the chasm, but even if it did, then I say give us simple architectures rather than complex TMI conglomerate structures, please.
Still, Bell’s senior vice-president for regulatory and government affairs, Mirko Bibic and QMI’s CEO-hands-on owner Pierre Karl Peladeau have groused about how the CRTC forces them to give discounted rates to rivals. This is simply not true. The wholesale prices set are rate caps not an artificially low floor.
For Bell and QMI (as well as Cogeco), the interesting things is that, left pretty much to their own devices, they put forward prices that look ridiculous relative to those offered by MTSAllstream and Rogers, as well as those who did not ask for the capacity-based rates at all (e.g. Shaw, Telus, SaskTel, Aliant).
Some have suggested that perhaps the CRTC was being shrewd after all, and may have heisted Bell, QMI and Cogeco on their own petard. With Konrad von Finckenstein on his way out the door in January, the idea of a last parting shot at those whose gaming of the regulatory process seems to know no bounds has some appeal.
If this is a game, however, it is too clever by half. Key tools in the regulatory and Internet policy toolkit have been left laying fallow and there is not a mention of common carriage or network neutrality to be found in the UBB ruling, although if there was ever a home for such bedrock principles, this is it. Instead, there are only references to Cabinet Directives and select passages cherry-picked from the objectives of the Telecommunications Act to the effect that the CRTC is to rely on market forces to the maximum extent possible. On this, the UBB and vertical integration rulings are one.
It is not that there were no other options being kicked about in these two rulings. Over the past year, many have emerged with alternative, realistic views of how things could be. It was not just OpenMedia and 500,000 petition signers that blasted the do-over of the user-centric, open Internet into a provider-controlled pay-per Internet model, but many smart people who tossed their ideas into the ring: a former Director General of Telecommunications Policy at Industry Canada (Len St. Aubin), the ex-Chief Knowledge Officer at Canarie (Bill St. Arnaud), popular writers (Peter Nowak), University of Ottawa Canada Research Chair in Law and E-Commerce, Michael Geist, Jean-Francois Mezei (Vaxination Informatique) and respected scholars (David Ellis, Catherine Middleton), make up just a small number of those who offered us much to think about with respect to the issues at hand.
These people did not all read from the same hymn sheet. What they did offer, though, was a set of bright ideas and realistic visions that only seem beyond the pale by the dim lights of what passes as Internet policy and regulation in this country.
The 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.
I’m taking a break for a few weeks, but before here ıs a slightly extended versıon of my column ,ın te Globe and Mail yesterday.
It’s time to step back for a bit from trying to explain, first, that the telecom-media-Internet (TMI) industries in Canada are concentrated, second that they are poorly regulated and, lastly, that this is problematic, not from the perspective of utopian ideals, but of a digital free press in a liberal capitalist democracy like ours.
When I come back I’ll write about other things, I promise (maybe). Before I leave, though, a few thoughts for your consideration.
We live in what Ron Diebert and Rohan Rohozinski of the Citizen’s Lab at the University of Toronto call a ‘constitutive moment’. This means that actions taken now will help lock in the structure, look and feel of the digital, networked mediaspace for years ahead.
Three matters are coming to a head as they wind their way through the CRTC and body politic:
- The CRTC will decide the fate of the pay-per model of the Internet (UBB and bandwidth caps) (starting at CRTC hearings July 11) imposed by the ‘big six’ ISPs on Canadians while they were sleepwalking until all hell broke lose last January when the incumbents got regulatory approval to pin their hated pay-per model on the independent ISPs that serve the five percent of Internet users not served by the incumbents.
- We will see if the CRTC has the wisdom and courage to pick the right tools to effectively deal with vertical integration and concentration across the TMI sectors as a whole.
- a CRTC “fact finding inquiry” will examine whether online video distributors such as Netflix, YouTube, AppleTV and so on will be freely accessible in Canada or regulated like broadcasters.
By my estimation, each hearing involves about a hundred submissions of thirty or so pages each. That’s nearly 10,000 pages. It would be great if you could keep up to speed on these matters while I’m away by bumbling your way through the “truly primitive” website of the CRTC, as Cardozo Law School Professor Susan Crawford refers to it.
But who has the time and resources to do this? The incumbents and their well-heeled lobbyists, that’s who! I am on sabbatical, but still exhausted tracking this stuff day after day.
Others such as the Public Interest Advocacy Centre also take part in these processes as much as they can. For PIAC it’s a real problem, because late in the game it just learned that the CRTC’s fast-tracked “fact finding” expedition on new media isn’t a real hearing, so no funding for them.
The rabble-rousing group, Open Media, is marshalling its resources for this week’s UBB Hearings. Rightly so, since it put the issue of the pay per Internet model on the public radar to begin with. They are boycotting the OTT ‘fact finding’ mission, though, because their resources are stretched thin and to protest the fact that the CRTC buckled to vested interests’ pleadings to have the proceeding advanced from 2014 to now, even though similar examinations occurred just two years ago.
Google and Apple also scolded the CRTC for allowing matters to get all bungled up in a kind of regulatory trench warfare. The CBC and NFB want to deliver their content to as many people, anywhere, anytime and across as many platforms and devices as possible, as well, not new regulations. Mirko Bibic, Bell’s regulatory front man, called this idea “preposterous” at the vertical integration hearings two weeks ago.
This battle over the future of media is not the result of new industrial arrangements, digitization, or newfangled economic theory, but endemic to situations where those who control the medium also control the messages (content).
In the 1900s, for example, the Canadian Pacific Telegraph Co. and Great Northwestern Telegraph Co. (the latter owned by the New York-based goliath, Western Union) had exclusive distribution rights for the Associated Press news wire service in Canada. To fortify their dominant position in the lucrative telegraph business against smaller rivals (e.g. the Dominion Telegraph Co in Canada and Postal Telegraph Co. in the US), the Canadian Pacific Tel. Co. and Great Northwestern Tel. Co. gave away the AP’s news service to the dominant daily newspaper in each town across the country for free.
AP’s service was so cheap because instead of paying the cost for the news service and the telegraph charges for delivering it, the companies only charged for the ‘transmission costs’. This was a boon to established members of the press and AP and a useful tool for the companies’ own efforts to stitch up their lock on the telegraph business. It was also a menace to network competition, rival news services and a diverse press.
Any rival news service that tried to enter the market was at a disadvantage because its subscribers had to pay the ‘transmission costs’ plus the cost of the news service. When the Winnipeg-based Western Associated Press set up a news service in 1907, it found its opportunities blocked because there was no way its subscribers could afford to pay two costs — transmission and for the news service — and stay in business, while AP’s new service was given away free to competitors.
Leveraging control over the wires, the telegraph companies choked the messages flowing through them. 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 withholding privileges that are of general right cannot be too strongly condemned.”
The matter was brought to a head by one of the first regulatory bodies in Canada, the Board of Railway Commissioners in 1910. Canadian Pacific Tel. Co. came out swinging, arguing that the BRC had no authority over news services or to compel them to separate the costs of the news service from their transmission costs.
The BRC didn’t wilt for a moment but shot-back that the law compelled it to insure that rates were ”just and reasonable”. 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”, it declared matter-of-factly.
The regulator had all the authority in the world it needed to break up the ‘double headed news monopoly’, and it did.
To be sure, the modalities of communication have changed tremendously since and we now live in an age when information is plentiful, not scarce. Yet, as Tim Wu’s Master Switch, and the mounting evidence before us attests, the basic logic of leveraging content and networks to confer advantages on one’s own services whilst driving others into submission, if not out of business altogether, is alive and well.
Australia, Argentina, Belgium, Brazil, Britain, New Zealand and many others are dealing with their own contemporary experiences of networks being used to trample competition and diminish the range of voices and expression available. Australia created the National Broadband Company in 2009 with $43 billion in funding to spur competition and open networks, for instance.
We have the publicly-owned and financed CANARIE with its ultra fast networks serving hospitals, schools, universities and researchers across the country. However, its modest funding ($30 million/year, roughly), uncertainty about funding levels after March 2012, and its executives’ squeamish view of how little they should compete with the incumbent commercial providers all limit CANARIE’s ability to offer much by way of an alternative network.
In Belgium and Britain, respectively, Belgacom and British Telecom have been forced to give more generous access to their facilities to speed the development of next generation networks. The level of functional separation adopted in the UK is unmatched elsewhere and depended heavily a strong regulator to force it upon a kicking and screaming BT in 2006. It has already led to more telecoms competition, broadband Internet services with greater speeds and capabilities, and lower prices relative to most countries, including Canada.
As an academic, I can dream big, but between my dreams and reality, there is a middle ground represented by measures that the FCC and Department of Justice in the U.S. put in place when they approved Comcast’s take-over of NBC-Universal earlier this year. In return for their blessing, Comcast must meet four fairly tough demands:
- its television and film content must be available to Internet competitors and online video distributors (OVDs), a new category designed to cover Netflix, Hulu, AppleTV, etc.;
- adopt open Internet principles generally;
- “offer broadband services to low-income Americans at reduced monthly prices;
- provide high-speed broadband to schools, libraries and underserved communities, among other benefits”.
These are practical measures that the CRTC could implement. It is a middle of the road choice, not a radical one. It does force the market to deliver a minimum level of social justice, but first and foremost it tries to foster a digital free press fit for a liberal capitalist democracy, rather than striving for abstract utopian ideals or bowing to the status quo.
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.
My second column for the online edition of the Globe and Mail, was just published tonight.
The article picks up on recent trends with respect to media and Internet concentration in Canada and which came to head last week as Bell, Shaw, Quebecor, Rogers, Netflix, the Canadian Media Production Association, Open Media and hundreds of others filed documents detailing the stance they will take at crucial CRTC hearings on vertical integration and Usage-Based Billing in June and July.
This entry repeats the story with a few additional links and two additional figures to fill out the picture presented in the Globe and Mail version: the first illustrates the growth of the ‘network media economy’ over the past quarter of a century and the second shows concentration trends across eight segments of the media, telecoms and Internet industries between 1984 and 2008.
At stake in the upcoming hearings is control over a set of industries – what I call the ‘network media industries’ – that have grown immensely from $42.3 billion in revenue to nearly $74 billion between 1996 and 2009 (adjusted for inflation), as the following figure shows:
Figure 1: The Growth of the Network Media Economy in Canada, 1984-2009*
Also at stake is whether the ‘business models’ of the dominant telecom and media giants or the open and decentralized principles of the Internet and digital media will set the course of development in the decades ahead.
Lastly, the issues are also fundamentally about media concentration, a hotly contested subject that is as important as it has ever been, but one that is usually compromised by a lack of evidence. Consequently, fiery debates typically take place in a vacuum and closely track ideology rather than evidence.
To take one example, the existence of 500 ISPs suggests a highly competitive market. CRTC data, however, point in the opposite direction, with the ‘old’ telephone or cable providers serving 95% of subscribers and the ‘big six’ alone accounting for three quarters of the market: Bell, Shaw, Rogers, Telus, Quebecor, Cogeco.
My own data shows that concentration climbed sharply between 1996 and 2004, and has stayed remarkably flat ever since, with over two-thirds of Internet access revenues going to the ‘big six’. While not quite as high as the CRTC’s figures, the upshot is still a few players competing in oligopolistic markets.
The problem with the CRTC’s data is three-fold: it focuses only on the top four or five players. It is presented inconsistently from one year to the next. It relies on information that it refuses to disclose. Last year, I filed several Access to Information requests to obtain this data, but was refused each step of the way.
I did so as the lead Canadian participant on the International Media Concentration Research Project – a project led by Eli Noam, a renowned Professor of Economics and Finance, and media expert, at Columbia University. The project includes more than forty researchers from across the political spectrum who are systematically collecting data for every sector of the telecom, media and Internet industries since 1984.
So, what does the evidence for Canada show?
First, that each sector of the media is concentrated by standard measures. Second, that patterns follow a U-shape, with concentration falling in the 1980s, rising sharply from the mid-1990s until peaking in the early 2000s, and staying relatively flat since then. Third, that concentration is high by global standards and more than twice as high than in the US. The trends are shown in the figure below:
Figure 2: Media, Telecom and Internet Concentration, 1984-2008 (Concentration Ratios)
These trends have been encouraged for several reasons. First, there can be no doubt that the Internet has vastly expanded the range of expression available, but this reality often overshadows the fact that several core aspects of the Internet are prone to concentration (e.g. ISPs, search, social networking sites, etc.) and that the biggest players now control an ever-expanding stable of outlets.
Formal rules on media concentration were adopted for the first time in 2008 by the CRTC and this is a far cry better than none at all. However, by using the same criteria used to regulate banking and granting frequent exceptions, the rules are weak and detached from the values of free speech and democracy.
Second, there is too much deference to claims that the traditional media are ‘in crisis’. Such claims are generally false (see here).
In fact, ‘old media’ such as television have grown impressively and new media markets have been a boon for established players. The vast majority (95%) of Internet access revenue ($6.5 billion), for instance, goes straight to the incumbents’ bottom-line.
Companies that have crashed and burned, notably Canwest, were actually profitable. However, saddled with debt, it could not weather the short-term decline in revenues caused by the global financial crisis and forced into bankruptcy in 2009-2010.
Third, the myth that Canada’s small media market requires big players with deep pockets further underpins consolidation. However, Canada has the eighth largest network media economy in the world, after France and Italy and just ahead of South Korea and Spain.
Independent ISPs, tv channel owners (the Weather Channel), online video providers (Netflix) and others have consistently claimed that the big players use their dominant positions to crush competition. The CRTC, despite its own analysis, however, has failed to deal with media concentration head-on. The Harper Government’s directives to rely on “market forces to the maximum extent feasible” have further disarmed the regulator.
These issues will no doubt come to a head during the vertical integration and Usage-Based Billing hearings. Yet, there is every reason to be skeptical about what can be accomplished given that this is a classic case of “bolting the barn door after the horse has already left the stable”. Industry Minister Tony Clement’s recent declaration that vertical integration is the way of the future further reinforces the perception.
This is not the way of the future, however, but of a discredited past. In the U.S., for instance, the fully integrated multimedia conglomerate has become the exception (e.g. Comcast/NBC-Universal) after the disastrous AOL Time Warner merger, the break-up of Viacom-CBS, and collapse of the ‘old’ AT&T. Indeed, the reign of sprawling media conglomerates is in retreat in almost every other developed capitalist democracy.
With events in Canada running counter to trends elsewhere, it is time to think about breaking-up Bell/CTV, Shaw/Global (Corus), Rogers/City-TV and Quebecor/TVA (Sun TV) into two separate parts: network infrastructure and content services. This is called ‘structural separation’ and under this scenario these entities would become wholesalers of network facilities and retailers of their own content and services.
They would sell access to their networks to other content providers and ISPs on equal terms. This would give them an incentive to increase revenues by intensifying the use of their networks by others instead of by prioritizing services and content they own. Over a century of experience teaches a simple rule: when allowed to combine network ownership with the content delivered over them, incumbents will always confer advantages on themselves that they deny to others.
Steps to address this reality are already in place in the U.K., Australia, New Zealand, Singapore, and Sweden. There may be circumstances in Canada that require unique adaptations of the separations principle. However, only by hiving off control over the medium (networks) from control over the message (content) will innovation, competition, free speech and an open network media ecology trump the incumbents’ vested interests and dogma.