Timothy M. Denton

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Canada's eat your broccoli! regime may be coming to an end

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The Canadian Speech from the Throne (SFT) is the traditional method for the government to announce its policies and proposals for the coming Parliamentary session. The most recent one signals important changes to the regulation of telecommunications and broadcasting, in a strongly interventionist direction.

A wise head of regulatory affairs for a large Canadian multi-media player once told me: "Every so often the politicians of this country abandon market economics and throw the carriers under the bus." It seems like the Cabinet is getting a taste for doing so.

If the government is serious, a reversal of many important CRTC policies is implied. The proposals have not received wide coverage, possibly because many people cannot take them seriously. However, I do, and I think they mark the Harper government’s continuing concern to ignore economics, if they have to, in order to cause carriers to deliver what voters want.

This is what the Governor-General announced as government policy on October 14th, 2013.

The government would take steps to reduce roaming charges within Canada;

Our Government believes Canadian families should be able to choose the combination of television channels they want. It will require channels to be unbundled, while protecting Canadian jobs.

Our Government will continue enhancing high-speed broadband networks for rural Canadians.

If any of this comes to pass, significant effort will have to be made, and the federal broadcast and telecom regulator, the CRTC, will have to reverse several historic policies.

To reduce roaming charges the CRTC would have to re-regulate the retail prices of mobile telephony, in part. Retail price regulation has been largely vacated by the CRTC where competition is active.

Choosing which channels you want to watch implies <gasp!> freedom of choice, which is probably doomsday for many protected Canadian channels. The saving clause “while protecting Canadian jobs” seems to imply that this policy will be allowed up to the point the TV production industry screams in pain. They have many actors, producers, and writers at their disposal who are especially skilled in rhetoric, agitprop and stagecraft. Yet even to talk of freedom of choice in the selection of channels is a revolution.

Installing high-speed broadband networks for rural Canadians is about the most sensible investment policy you can think of, especially when compared to building roads into the Arctic, or trying to get our energy needs met by windmills, and shutting down coal-fired plants. Two methods are available for building networks out to remote regions : direct government investment, or cross-subsidy.

But getting the cross-subsidies out of ordinary urban subscribers, for instance, involves regulating prices, or not driving prices down to the economically lowest they can be, in order for there to be money in the system to shovel around. In turn subsidies mean restricting competition, or setting tariffs that make available money for the development of these networks.

Direct government investment is less problematical, but that is a reversal of policy for Industry Canada, in which the CRTC would not be involved.

I am not against any of these proposals on ground that they interfere with the market. Arguing for the market in a regulated quasi-closed sort-of-open sector like Canadian telecommunications infrastructure is a dubious cause, in most cases. If someone pays me to be against them, or for them, I will argue accordingly.

My point is this: what are they thinking? Do they realize how much this is a reversal of previous broadcasting and telecommunications policies?

Only a few years ago (2006) the then Minister of Industry, Maxime Bernier, formally instructed the CRTC to favour the use of competition.

1. In exercising its powers and performing its duties under the Telecommunications Act, the Canadian Radio-television and Telecommunications Commission (the “Commission”) shall implement the Canadian telecommunications policy objectives set out in section 7 of that Act, in accordance with the following:

(a) the Commission should

(i) rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives, and

(ii) when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives;

I have observed that the Policy Directive can be observed or avoided as one thinks best, given the various qualifying clauses that guide the exercise of one’s discretion. Nevertheless, the kind of measures being proposed for the CRTC in the recent Throne Speech signal an ideological break with the market-knows-best orientation of the past. Intervention in the name of the people is populist, if not strictly conservative in the economic sense.

Again, two more items from the Throne Speech:

Our Government will:

End “pay to pay” policies, so customers won’t pay extra to receive paper bills;

and

Take further action to end geographic price discrimination against Canadians

The first of these is relatively trivial to accomplish by the CRTC; it is merely a matter of regulation. The second, geographic price discrimination, is much more serious. Differences in prices in many cases are built into the structure of reality. Remote regions pay higher prices because the cost of reaching them is higher. They can be made to pay less, only on condition that someone, usually subscribers from denser regions of lower costs, transfer money through carriers or some agency to a subsidy-distributing entity.

The carriers are masters of this game: they have to be. They have shown that they can accept large regulatory bargains. The more they are imposed upon for policy and social objectives, the more they have to be protected from competition. This was the basic bargain made by Theodore Vail with the US Government back in 1913. It did not officially come to an end until the break-up AT&T in 1982.

For Canadian regulators, their balancing act will be delicate. Some of it, like regulating roaming charges, or not charging for paper bills, will not be so difficult.

Other parts, such as unbundling cable television, will be introduced against the entire thrust of fifty years of broadcasting regulation. The risk is of an explosively successful reaction by the subsidized creative elites. A video mocking Conservative cultural policy derailed a possible Conservative majority in the 2006 election, and will not be forgotten. Yet Canadians are voting to leave the regulated system for the Internet, even if the service is technically inferior, because the regulated system has become loaded with “broccoli”, stuff we do not want but are told is good for us. The cable industry is scared, and should be, by the power on the Internet.

As for spreading broadband networks to remoter parts of Canada, this is the relevant form of national development for this century. However, the key question in all of this is what will be the degree of vertical integration of these networks. How much power will the network owner have over the user, in terms of bandwidth given over to the Internet? The Net implies free choice of content from billions of end-points. It is the antithesis of "broadcasting", understood as a regulated category of content, and not as video entertainment received from the Internet.. If the bandwidth is available for the Internet, then the user is free to create as well as to receive. If the bandwidth is controlled as “broadcasting”,in that case it is a matter of eating your very expensive broccoli.

The long term evolution of networks is

a) unification of all prior telephone and cable-broadcasting networks into something riding on Internet Protocol, using the domain name system and IP addressing;

b) and  gradual (maybe very gradual) elimination of special use networks, such as broadcasting.

This result will not be caused by governments, or ideologies, but because the Internet is cheaper, more flexible, and more pervasive. But the specialized broadcasting distribution system will not go without a large struggle. The interesting point of the government's recent Throne Speech is its challenge to that specialized system of constrained choice.

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Timothy Denton is a lawyer by training who practices principally in telecommunications and Internet policy and domain name issues, with a strong concentration on explaining what the technology is and what it means.

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Guest Thursday, 29 October 2020
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