Clement, arm’s length and really bad broadband policy

Titanic, desk chairs, CRTC, UBB

Artist’s rendering of Canada’s residential broadband system: deck chairs not shown

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Business as usual?

In the last two posts, I made the hopeful case that, this time, the conflict between the evil gatekeepers and the rest of us will be different. In 30 years as an observer of the industry, I’ve never seen anything quite like the furor over UBB.

Consumers seem to have a voice now. We have opposition politicians who get it. Bell and the other incumbents are getting exposed for the greedy pigs they are – not just through angry rants on discussion threads, but in quality analysis like you find, uh, here. But never, ever underestimate the ability of an old incumbent like Bell to bring back the old days. Especially one that controls the last mile and has been been handed a blank check to be whatever kind of content provider it wishes – so it has the motive and the opportunity to abuse its market power.

(Btw, let me clarify what I mean by “greedy pigs.” I’m referring to means rather than ends. I regularly have to explain to my students, who writepig, incumbents, greed papers denouncing the profit motive, that profits are just fine. Even big profits. Makes the world go round. What is not fine is the means used by the incumbents to keep money coming in. This problem takes mild forms, like the obsession with ARPU, which encourages carriers to develop services that add little value yet make monthly bills run high. It also takes much more obnoxious forms – like data caps.)

Despite good reasons for caution in our optimism, Bell has to live for now with two unsavory consequences of the UBB blowout. First, some of the action has moved out of the old boys’ regulatory tent and into the court of public opinion. Second, an awful lot of Canadians have been getting an education on what was once one of life’s great mysteries: the inner workings of broadband. As Tim Wu suggests, certain highly concentrated and poorly regulated industries like residential broadband have built a business model around customer ignorance and apathy. So the more consumers know about what they’re buying, the less likely they are to be abused. Or that’s the theory.

We can see the effects of this already. Bell’s senior management has to keep sending Bibic into debates armed with arguments that are not only specious, but that many mainstream citizens can now decipher for themselves. When he appeared on TVO’s The Agenda, Bibic was asked why Bell access customers in Quebec are getting a better deal for the same service as those in Ontario. Everybody knows the reason: Bell faces a much tougher fight with Vidéotron than with Rogers. In other words, there’s serious competition in Quebec. And what does competition do? It forces service providers to cut you a better deal. Ain’t it ironic – the textbook proof of what’s lacking in Ontario and elsewhere is right under our noses. But poor Bibic had to bullshit his way through an answer that amounted to saying, Oh we’ve got different packages for different customers in both provinces, stop fretting… I hope he’s getting well compensated for being the sacrificial lamb in these ritual degradation ceremonies.

In the midst of all this, we had what seemed like a TV movie moment when Bell’s metering software was declared out of action, making doubts about the accuracy of past metering even more compelling.

I think these setbacks will prompt Bell to soft-shoe its predatory ITMP tactics over the next couple of months, both economic and technical (Bell seems to have pulled back on its traffic-shaping recently). I have no faith, however, that the leopard will change its spots in the long term. I say this mostly because of the CRTC’s approach. If the CRTC were looking after the public interest, not to mention taking Clement’s threat to rescind at face value, Bell might actually have to mend its ways.

crtc, ubb, public hearingWhat makes that a tossup right now is von Finckenstein. The PN issued Ferbruary 8 (see Telecom Notice of Consultation CRTC 2011-77 – here) takes a strict constructionist approach to the problem: we’ll fix the caps by setting some minimum, or whatever, period. On top of that, von Finckenstein at first was adamant this proceeding will not go into broader issues – contrary to what the resellers and many other parties would like to see. In more recent statements, however, he seems to have been forced into reconsidering that position.

As I noted in the previous post, however, the Chair’s declared position on UBB itself is more than a foregone conclusion: it’s exactly the conclusion Bell wants the Commission to reach, give or take a few details. This is more than regulatory capture – it’s a failure of due process and a travesty of the Commission’s so-called public hearings. The Chair’s underlying assumptions – as opposed to policy solutions – are factually wrong, especially those concerning the technical, economic and social status of the bandwidth hogs, aka heavy users.

Arm’s length dogma and egregious policy failures

The UBB affair has been remarkable not only for regulatory mishaps, but also for the amount of disinformation circulating about related issues.

Chief among these is surely all the hysteria over the government’s alleged violation of the arm’s length principle. In a series of comments on the CBC News website, e.g., Greg Weston writes: “In a choice of populist politics over sound policy, the Harper government has taken aim at what is supposed to be an arms-length regulator.”

No, we don’t want cabinet ministers interfering without cause in the day-to-day business of any of our arm’s length agencies. That said, the Governor in Council is empowered under s.12 of the Telecommunications Act to vary or rescind a CRTC decision or to refer it back to the Commission for reconsideration of all or a portion of it. In other words, Clement has done nothing irregular by stating he will rescind the January 25 decision if the Commission doesn’t. This is part of a series of checks and balances that strengthen our democracy by putting obstacles in the way of bad policies. Can this system be abused? Of course it can, like every other institution in a liberal democracy.

As for the idea that Clement’s tweet represented “a choice of populist politics over sound policy,” this was no zero-sum choice and the UBB policy is hardly what you’d describe as “sound.” This so-called interference was a happy coincidence for both the government and the public interest. Weston might have questioned the Tories’ motives or sincerity. But they did the right thing, getting out in front of a policy that was – or is – bound to have calamitous consequences.

The Tory record has always been about business, with lip service for the consumer

The Tory move was certainly false populism, since nothing in their entire political record suggests they stand for an open Internet, meaningful consumer choice or a competitive market for communications services. Of course Clement and his pals say they stand for all these things because that’s what right-wing ideologues do. The CRTC is in this habit as well. The February 8 PN opens with praise for connectedness, if not logic:

The Internet is a driver of innovation and the backbone of a modern economy. In recent years the way Canadians use the Internet has changed tremendously, in part because of the convergence of telecommunications and broadcasting services. It is vital that Canadians be able to access the Internet.

Similarly, you have to look at the minister’s actions, not just his tweets words, to discern where he really stands on the issues. The Tory position on the Internet was first made clear – or not clear – by the minister on June 18, 2009, thanks to Liberal critic Marc Garneau. During Question Period, Mr Garneau rose in the House to ask the minister if his party supported net neutrality. He asked twice, once in English and once in French, and both times Clement offered a completely evasive answer, using his upcoming digital summit as a cover. The exchange is in this video and the answer is clearly, No, the Tories do not stand for net neutrality:

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In the 21 months since then, the government has drummed up a digital economy strategy clearly designed for business, not consumers. The latest on that front was back on November 22, when Clement gave an update on his strategy. Unless you believe that the sheer existence of a high-speed drop somewhere near your home is genuine progress in getting Canada on the Internet, this update was more of the same – coded references to protection of the status quo. The incumbents build facilities, no, expensive facilties, and the resellers don’t; facilities are what count, so let’s make sure regulation doesn’t get in the way of investing in more facilities.

Then we have the other occasions when the government has “interfered” with the CRTC’s policymaking. To look at the press coverage, you would think the only other occasion concerned Globalive and its partner in debt, Orascom. Cabinet’s refusal to stand with the CRTC was widely interpreted as a victory for consumer choice. The problem with that logic is the press seems to have missed another, far more relevant Cabinet decision – the one on speed-matching and next-gen networks – that tells exactly the opposite story about where Tory sympathies lie.

After a tortured series of proceedings, the Commission decided to support speed-matching and the application of unbundling to non-copper facilities, i.e. fiberoptic. These measures would have helped resellers tremendously in doing exactly what the UBB decision prevents them from doing: differentiating their services from those of the incumbents, not only in terms of unlimited usage, but also price, available speeds and the extent of traffic-shaping. But on December 10, 2009, after being petitioned by Bell and Telus, the Tory Cabinet took issue with the Commission’s attempt to expand unbundling and, in Order in Council P.C. 2009-2007 (pdf), referred back both Telecom Decision CRTC 2008-117 and Telecom Order CRTC 2009-111.

The most telling aspect of the Harper government’s rejection of expanded unbundling can be found in the notes at the end of the Cabinet order. The Tory Cabinet wanted to give the Commission a few hints as to what they thought was the right thing to do. The four items considered to be “material to the reconsideration” could have been written by the petitioners’ lobbyists. Thus, the Commission was to consider whether:

a) the speed matching requirements unduly diminish the incentives to invest in new network infrastructure in general and, in particular, in markets of different sizes;

b) in the absence of the speed matching requirements there would be sufficient competition to protect the interests of users;

c) the respective wholesale obligations imposed on incumbent telephone and cable companies are equitable or represent a competitive disadvantage; and

d) the impact of these wholesale requirements unduly impairs the ability of incumbent telephone companies to offer new converged services, such as Internet Protocol television (IPTV).

My oh my. This government is not interested in promoting non-facilities-based competition – which is not a great idea, but it’s the best one we have in this country. On the contrary, the priority item in this list is: Let’s not let regulation diminish incentives to invest. The resellers are always an afterthought to the Tories – something to keep in mind over the next few weeks. The Tory concern is not whether the beleaguered resellers are at a disadvantage but the incumbents! No wonder the Berkman report to the FCC on broadband says Canada is characterized by “regulatory hesitation” and “appears to have made a half-hearted commitment to unbundling” (Next Generation Connectivity, 2010, p.166).

But the biggest intellectual and political failure comes in (d), where the priority is not innovative services, i.e. services developed at the network edges by new entrants who have no stake in the rigid, self-protective thinking of the incumbents. Instead, the priority is reinforcing the already exaggerated market power of the incumbents. The next time you hear Clement talk about the importance of innovation, ask him if IPTV from Bell is a more important innovation for end-users than Netflix.

The political irony: we need Clement and Harper to save us

I never thought I’d say it, but we now need the Tories more than ever. The only way Canada will ever crawl out of mediocrity in the broadband rankings is political fiat. We need the Harper government to rescind the UBB decision; we need them to insist on a broader policy hearing on broadband; and we need them to prevent what would otherwise be inevitable: years of legal challenges from the incumbents.

If these issues are left to the Commission, then whatever they chose to do, you can be sure the incumbents will be at the Federal Court in a heartbeat – much like what’s happened to the FCC and its net neutrality rules. This kind of litigation could drag on and never produce a desirable policy outcome. If anything is ever going to change in this country, the changes must to be imposed politically from the top.

Yet even political fiat of this kind falls short of the ultimate solution – a complete overhaul of both the Broadcasting Act and Telecommunications Act. For all that the CRTC may have failed us in its judgment on Internet access, their actions are severely constrained by the legislative hand they’ve been dealt. But don’t expect that much change any time soon. New legislation will mean dealing with the interests of the individual media consumer, rather than business (telecom) and national cultural abstractions (broadcasting) that are no longer part of the Canadian reality. And such concerns are simply not part of the Tory DNA.

Minister Clement once described himself as the “consumer” minister. Let’s hope he will stick by his tweets through the next couple of months. In the meantime, don’t believe a word he says until he’s delivered the goods.

D.E.