Last week the Berkman Center for Internet and Society released their draft report on broadband for the FCC – Next Generation Connectivity: A review of broadband Internet transitions and policy from around the world (links and info page here).
Open access is good policy
The new report puts the lie to Ottawa’s broadband myth-making based on selective use of data. It also condemns the CRTC for its coddling of the incumbents and mismanagement of the evolution to market-based competition. The policy focus of the study is the use by national regulators around the world of open access rules as the primary tool for creating competition in the residential broadband market:
“The idea was that the incumbents – the former Bell companies here [in the US], Nippon Telegraph and Telephone (NTT) in Japan, British Telecom (BT) in the United Kingdom, and so forth – would be required by law to lease to newly entering competitors parts of their existing network on nondiscriminatory, regulated terms. This would lower the cost of entry and allow entrants to innovate in the electronics attached to the network, or in customer care systems or services they would offer, rather than investing in digging trenches and making holes in the walls of the houses of subscribers to pull their own, independent wiring” (p.81)
Canada’s “regulatory hesitation”
Much of the report’s policy analysis is devoted to how national regulators have handled “recalcitrant incumbents.” Regulatory approaches are grouped as either for or against unbundling, the latter dubbed “regulatory abstention.” Canada, however, belongs in a special category Berkman refers to as “regulatory hesitation.”
“We include a discussion of Canada in this section, even though Canada is not a case of regulatory abstention but of regulatory hesitation. In Canada’s case, this meant that unbundling was originally introduced with a limited time horizon and very generous-to-incumbents regulated rates. In 2008, the same policy was extended to fiber, but again, with a limited time horizon. … Because of these features, Canada looks like a case where the concern for incumbent investment incentives, without quite reaching to the level of abstention, resulted in a weaker version of unbundling than was implemented in many of the other countries we reviewed here” (p.106: my emphasis).
Berkman has found that open access rules have been crucial in advancing the development of broadband around the globe; they’ve also found that a regulator’s performance in administering open access has an important effect on policy outcomes.
“Our most surprising and significant finding is that ‘open access’ policies—unbundling, bitstream access, collocation requirements, wholesaling, and/or functional separation—are almost universally understood as having played a core role in the first generation transition to broadband in most of the high performing countries; that they now play a core role in planning for the next generation transition; and that the positive impact of such policies is strongly supported by the evidence of the first generation broadband transition” (p.11).
The aim of open access rules in the jurisdictions examined by Berkman is higher levels of competition – and those that have embraced them most enthusiastically are the real broadband leaders, with South Korea and Japan in a league of their own (they’re “half a generation ahead of the next best performers” – p.11). The problem, of course, is that there are two diametrically opposed theories on achieving higher levels of competition using open access:
“The theory underlying open access is that the more competitive consumer broadband markets that emerge from this more competitive environment will deliver higher capacity, at lower prices, to more of the population. The competing theory, that underlies the FCC’s decision early in this decade not to impose open access for broadband infrastructure, is that forcing incumbents to lease their network to competitors will undermine that industry’s incentives to invest in higher capacity networks to begin with, and without that investment, the desired outcomes will not materialize” (p.12).
One of the most commendable things about the Berkman study is how critical they are of the body they’re writing for – the FCC. This reflects well on Chairman Genachowski’s open-door, evidence-based approach to remaking US broadband policy from top to bottom.
The CRTC’s “self-congratulatory” ways
How about our regulator? As I’ve written in numerous posts, the CRTC is fond of patting itself on the back for its great work in developing allegedly vigorous competition in the broadband market and making Canada an alleged world leader in broadband – a sentiment the incumbents are only too happy to endorse.
Berkman agrees. Their report notes the CRTC has created “the highest monthly charge for access to an unbundled local loop of any OECD country.” It also notes the CRTC opens its 2009 Monitoring Report with a “self-congratulatory reference to the fact that Canada has the highest level of penetration of all the G7 countries” (p.110).
This pride isn’t just unseemly; it’s also highly misleading – and keep in mind this particular piece of self-congratulations was printed a scant two months ago (August). Berkman then goes on to reiterate what I’ve said previously about all the metrics the CRTC stubbornly refuses to let through the door: let ’em in and you get a much less flattering picture:
“While factually true, an alternative view of Canada’s performance might look at several factors. In December of 2003, Canada had the second highest level of broadband penetration per 100, second only to South Korea. By September of 2008, it ranked 10th by the same measure. Its numbers on speed and price are worse. In terms of top speeds available, Canada ranked 19th in the OECD. In terms of prices, Canada ranks 21st for the lowest speeds and 23d for middling speeds. It ranks next to last in prices of high speeds (only the Slovak Republic has higher prices in that tier of service), and it does not appear in the rankings for prices of very high speeds, because there were no offerings of service speeds of 35Mbps or higher in Canada in September of 2008. Our company-level pricing study for the highest-speed offers in the countries we observe here locates almost all of the Canadian companies in the cluster with the slowest speeds and highest prices. Given these benchmark measures, the lessons of the Canadian experience do not seem as positive as the CRTC report presents them” (p.110-111: my emphasis).
So what do we make of this assessment if – as the Lagging or Leading study would have us believe – the OECD numbers are “flawed”? In fact, not just flawed but “fundamentally flawed” (p.73). See Part 3 for more on what happens when the incumbent ISPs pay for research on the ISP market.