Sorry for UBBing: the CRTC giveth, Katz taketh away?

***

***

Funny how we’re all still talking about last week’s CRTC decision on wholesale pricing for Internet access. The one thing pundits and stakeholders have agreed upon is to disagree about the possible outcomes of the decision. Especially when it comes to the money.

Take Nick Kyonka’s piece in last week’s Wire Report, which begins thusly:

“Incumbent Internet service providers (ISPs) and the smaller players who lease access to their networks are scratching their heads over new billing rates for wholesale Internet access and what those rates mean for long-term competition in the Canadian Internet service market.”

There’s lots more. Michael Geist and Peter Nowak have each been mulling the decision three times in the last week, including posts from each of them yesterday designed to interpret the various interpretations we’ve heard so far: see The UBB Decision Aftermath: Is the Pricing a Killer? (Geist); and On UBB, the fat lady has not yet sung (Nowak).

I have information that may help clear up some of the confusion. Rather than provide you with a hard-headed analysis of network costing issues, however, I’m going to indulge in a little textual exegesis…

That’s it, we’re giving up on wireline access?

Following release of the decision, Len Katz, the CRTC vice-chair for telecommunications, gave a speech to the ISP Summit, which included a dinner for the indie ISPs and certain other interested parties. Katz talked about the decision and the principles underpinning it. All pretty standard stuff – until we get into the latter half and the vice-chair’s views on the future of the industry. (Katz was named vice-chair on October 12, 2007.)

A dinner party for the little ISPs is the kind of scene where you’d expect the senior regulator on the file (Katz) to sell the bejesus out of his decision, and take every opportunity to build reassuring bridges with those present (i.e. CNOC and CAIP members). These are, after all, the business folks who have the most to lose, or maybe win, from the decision. As I read the notes for the speech, I was struck by several unusual propositions. For starters:

In August 2010, the Commission stated that we would consider phasing out the requirement for large companies to provide high-speed access services to independent ISPs when wireless and satellite services became viable substitutes. There is some debate as to when this will occur, but I believe it will come more quickly than many anticipate.

Hold it right there: “when wireless and satellite services became viable substitutes” – for wireline broadband?

Okay, we know that in three or four years, the majority of global broadband traffic will have moved to wireless devices from wireline services (Cisco forecasts). We also know big chunks of this country will never enjoy next-generation wireline networks – which is exactly where satellite and advanced cellular platforms are expected to take up the slack. But that’s far from the whole story.

No fixed wireless platform, not even WiMAX, and certainly no satellite-delivered service, will ever offer the high bandwidth, low latency and robustness of fiber and hybrid-fiber platforms to the home. Over-the-air platforms have line of sight, multipath and other issues that are not going to go away. And that’s especially true of people like me who live in MDUs – on the north side, not able to see the communications satellites over the equator, surrounded by lots of other tall buildings.

Sure, we need a mix of wireline and wireless technologies to achieve what the Berkman Center’s 2010 report on next generation broadband networks calls “seamless, ubiquitous connectivity.” Nevertheless, no matter how mobile we get as a society, watching video over wireless networks will never be a substitute for watching video in the comfort of your living room, on a giant screen, with enough bandwidth to handle millions of high-def pixels.

The OECD’s exemplar of “regulatory hesitation” – our very own CRTC

Let’s imagine for the sake of argument Katz knows something about our wireless future the rest of us don’t. Even if he were right (IMHO highly improbable), think about whether this is the message you’d have for a gathering of small ISPs trying on the back of their dinner napkins to figure out if they’ll be able to afford the new wholesale rates:

[I]ndependent ISPs need to secure a respected position within the telecommunications food chain. They should not grow too comfortable within the current wholesale regime. Instead they should strive to become more relevant to their customers, their suppliers and their partners.

Does anyone else find this admonition a little out of place? With the new wholesale regime maybe four or five hours old, the indies were being lectured about needing to find a respected place in the food chain… and not getting too comfortable with the provisions of a document on which the ink is barely dry.

And respected by whom? The CRTC? Does the Commission feel the indies have to work even harder next year than they have this year to earn their respect? Apparently.

The Berkman broadband study prepared for the FCC has some pointedly critical comments on the kind of respect the CRTC has shown new entrants: Canada is a country “that appears to have made a half-hearted commitment to unbundling” (p.166). The following passage, which offers a short history of Ottawa’s breathless zig-zagging on open access, illustrates that characterization in spades:

“Upon declaring that it is imposing unbundling in 1997, the CRTC announced that it would phase out unbundling by 2002. The theory was that the pending removal of the regulatory crutch would lead competitors to invest in their own facilities, but would not deter them from entering the market in the first place. The CRTC also used a price determination method that was different than the approach used by other regulators, relying not on long run incremental cost, but on incremental cost plus a 25% markup to allow the incumbents to make a profit on their unbundled loops. The theory was to avoid investment disincentives to the incumbents. By 2001, however, unbundling was not being adopted. The CRTC then extended unbundling indefinitely. In 2002, it cut back the markup on pricing to 15%, keeping the same price setting methodology. In 2008, the CRTC completed a comprehensive review and decided to extend its unbundling rules, and apply them to fiber as well. Again, this determination was intended to be phased out, just as the original implementation had been. In December 2009, the Federal Cabinet sided in favor of the incumbents on two appeals from prior [CRTC] decisions. The Cabinet confirmed one [CRTC] decision and overturned another, taking decisions that appear to effectively exempt next-generation networks from unbundling requirements” (pp. 166-67).

Sound familiar? Here’s an incentive… oops, hope you’re not too comfortable… psych! took it away!

And what about those high wholesale prices we’ve heard about from numerous commentators, not to mention many stakeholders? That too is part of a long-standing CRTC tradition:

“As of September 2008, the monthly price of an unbundled local loop in Canada, excluding prices for remote areas or the most dense downtown areas, in terms of PPP, was roughly 70% higher than in South Korea and Denmark, almost 50% higher than in Italy, 30% higher than in Japan, France, or Norway, and 25% higher than in Finland or the UK. Indeed, Canada has the highest monthly charge for access to an unbundled local loop of any OECD country. Combined with the presence of strong incumbents and the Canadian regulator’s practice of promising to sunset the requirement of opening access to core facilities—originally copper loops, now fiber—it is possible that the investment environment is too expensive and too uncertain for entrants” (p.168, my emphasis).

I’ll say one thing for these guys. They sure know how to keep wildly optimistic expectations under control.

Trying to make cybersecurity sound like a priority for broadband

There’s a risk in taking the propositional content of “feel-good” speeches too much to heart. That said, I find it mighty peculiar that Katz’s closing message to the indie ISPs is a) about cyber security, and b) delivered in the same tone of admonishment – like, you guys better pull your socks up.

The choice of cyber security is telling. It smells of a nice, safe motherhood cause we can all get behind – just like, in its own way, the issue of too much geography and Ottawa’s unrelenting obsession with getting the whole country under that big, cozy “availability” blanket. So much safer than dealing with poverty! Here’s the setup:

Cyber security is another area in which I believe ISPs can, and must, do more to grow in relevance to their consumers, suppliers and partners.
 It is no surprise that average computer users are not able to deal with increasingly sophisticated viruses and malware. Many users have no idea their computers are infected, and lack the appropriate tools or know-how to defend themselves. Canadians who do not feel secure online may limit their Internet usage and be less likely to purchase products from Web retailers, both of which would be detrimental to our digital economy.

First of all, does Katz really believe the indies are slouches here compared to the incumbents? I have no idea what a provider like TekSavvy is doing to combat malware, but I imagine their owners are just as concerned about the problem as Katz. And if we’re to take this notion as a subtle comparison with what the incumbents have been up to, well, give me a break. The incumbents turned managing traffic issues like malware into a pretext for (in Rogers’ case) throttling the vast majority of its customer transmissions. Moreover, the incumbents aren’t trying to lend their customers a helping hand; they’re trying to make profit centres or marketing gimmicks out of security add-ons. And when they do tackle a problem like spam, they don’t have the talent or the budgets to do it well (a baseline for doing anti-spam well would be Gmail).

Good regulation is about the wise choice of priorities

But the most far-fetched part of this appeal is the suggestion computer users don’t know how to defend themselves – and if they feel insecure, they might bring e-commerce to a grinding halt and damage our digital economy!

I hate to be reminding the Commission, but Canadian onliners as a group are much less at risk from potential threats like trojans than they are over how Rogers e.g. might throttle the shit out of them, overcharge them for their usage or disconnect them “by accident” because they happen to be with a TPIA 3rd-party provider.

That’s not all. Surveys like the CIUS and others show that the respondents who are really freaked out about security (in the form of malware, porn, spam, invasion of privacy, etc) aren’t online to begin with because they’re too scared. It’s either naive or disingenuous to think the fix for the Canadians who aren’t spending their fare share online lies in more aggressive ISP traffic management. If we’re to take this scare tactic at face value, then the Commission should be working a lot harder on getting the scared citizens online through digital literacy programs and public outreach. Too bad the CRTC has decided it’s not their job to worry about those laggards.

I urge Mr Katz and his colleagues to swallow hard and leave the cyber security to one side, so as to devote some long-overdue attention to the minute-by-minute, day-to-day problems that millions of living, breathing Canadians are having with their broadband service. How about a rule on truth in advertising? How about a rule on plain-language marketing and AUPs? How about a rule on unauthorized disconnections?

And let’s dream a little. How about doing away with retail data caps altogether? Mr Katz, if you want to get Canadians pushing up those e-commerce numbers and feeling all cozy about their connectivity, taking away the fear associated with data caps and financial punishment will get you a lot closer to your goal a lot faster than cajoling the indie ISPs to escalate their fight against crackers.

D.E.