Timothy M. Denton

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Policy directives: how to avoid their obvious implications

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 Image result for navdeep bains canada

 

 

First, Navdeep Bains is owed our thanks for intervening with the CRTC by means of his proposed directive. It says all the right things, and it will almost certainly do some good. I will proceed to talk about how the obvious intent of policy directives can be avoided by the regulator, and not always in bad faith.

The proposed directive speaks of

  • All forms of competition, not just facilities-based, which means thinking about resale of underlying facilities;
  • The exercise of market power as the justification for intervening in commercial decisions;
  •  Reducing barriers to entry and barriers to competition, meaning that it is not enough to let them in, they must have conditions that will allow them to compete;
  • Enabling innovation, because it is not merely price that matters, but entirely new ideas of how technology and efforts may be deployed that ultimately affect prices and create new offerings.

So far so good. Now what could go wrong? I will explain what happens when a policy directive is factored into CRTC decision making. Like Bismarck’s adage about laws and sausages, it is not for the pure of heart.

 How the directive is drafted

1.     1. Commissioners always try to follow the intent of directives, but directives themselves are governed by interpretations of statutes and are subject to interpretation by more than statutes. I recall us Commissioners considering Mr. Bernier’s directive to favour market forces. We did. After solemnly discussing the directive for a while, we concluded on the basis of the law and evidence before us that we had considered the role of competition. Having discussed the role of competition we went ahead with what the evidence and our interpretation of the Telecom Act required us to do. Besides, the directive was drafted with enough out-clauses that you could drive an armoured division through it and not see the flanks of the exceptions.

 What does competition mean in this world of state privileges?

2.     2. The second and ultimately strongest force, in my submission, is whether the Chairman and the Commissioners think there is adequate competition already. Here we get to the nub of the problem of telecommunications regulation. It is obviously an interference in the operation of the market and offends many ideologues of the market, who are always ready to testify on the superior efficacy of letting the large grow larger. Those who are concerned with market power tend to favour a measure of economic regulation. They take the view that, once a company has been granted huge swaths of spectrum and legal rights to break up streets and cut trees and otherwise arrange the landscape to its needs and has been given over a hundred years of monopoly in some cases, then we do not have a “market” as it is commonly understood. Not a single major competitor today in Canada has emerged without once having been a territorial monopoly of cable television or telephone services.

 

Accusations of illegitimacy are hurled at entrants who do not own all their facilities. It is obnoxious to hear from people who have had vast legal privileges endowed on them by actions of the state to say that someone else is less legitimate because they seek state regulation of the terms of access to “their” networks. It is like a bunch of nobles complaining about the plebs seeking access to their forests to cut wood, even at fair prices. They do not object to the price the peasants will pay, so much as they object to the idea of the King telling them to open their forests to the peasants. Who knows where all this interference will end? The incumbents do not lack for mouthpieces like Terry Corcoran and the MEI who can be relied on to talk of “interference in the market”, as if giant carriers were somehow on the same scale as makers of apple juice and mattered as little to the freedom to communicate.

 

A private property regime keeps the system honest, we all agree. The argument of both the interventionists and the free-market people is not based on disagreement about the capitalist order, it is based on whether “competition” in the real Schumpeterian sense exists in telecoms. Yes, they nibble at the edges of each other’s market share. But no carrier is putting another carrier out of business. Even the introduction of the Internet at the software-protocol level has failed to affect the centrality of large carriers to the physical layer, or the importance of the physical layer. Moore’s law has not affected the economics of the back-hoe, pipe and antenna tower layer, and never will, I reckon.

 

Conventional political party divisions are very poor predictors of where people will sit on the issues of more or less regulation in telecoms, so labels like Liberal and Conservative have no predictive value in this area.

 

To conclude, the biggest impediment to greater competition in telecoms is that there is deep disagreement about whether competition with lesser amounts of physical plant is legitimate. As I have said before, the obsession with material plant as the basis of competition is almost Marxist. The most fervent partisans of the free market appear, in this ethereal domain of signals, to be the most obsessed with physical objects as the basis of competition. Odd.

 What the Chairman wants

3.     3. The third factor affecting how policy directives are received is the Chairman himself. The Chairman is the chief executive officer of the Commission and directs the staff. He selects the panels and can assign the commissioners in such as way as to assure himself a majority of like-minded, in most cases. He chooses which of the issues get public hearings or paper proceedings, he selects the staff to promote, or not. He determines how much attention will be paid to cultural production and broadcasting issues relative to telecom/internet issues. He is quasi-sovereign, and whether he listens to his vice chairmen and commissioners is more a reflection of his personality and choice than of any legal obligation. This becomes particularly apparent when we have a chairman (man or woman) who thinks that all other views besides his or her own are, by definition, wrong.

 

4.   The Outer  world

 The outside world also intrudes into the isolation of the Commission. The Minister of Industry may direct the Commission only through a formal and open process, subject to all the qualifications I have mentioned. This takes time, political capital, and is overt enough to draw a large lobbying campaign of incumbents to oppose it. As in the case of the usage-based billing decision, when the commission forgot the implications of Moore’s law, Ottawa can awaken from its summer lethargy to find the Canadian population ready to storm the barricades. The Prime Minister can find that his management of the country disturbed by a little agency upstream from the Langevin Block and on the wrong side of the Ottawa river. If he phones the Clerk of Privy Council and asks him how to tell the CRTC to wake up, he is warned not to speak directly to the Chairman by any means. (Jody Wilson Raybould’s recent example, and that of Jean Charest in some far-off time having to repent some call he made to the CRTC on a matter before it, should suffice as warnings). The directive takes too much time in a political emergency. Eventually the PCO finds an ADM who walks dogs with the Chairman of the CRTC from time to time and she will be tasked with talking to the Chairman to get him to see the government’s point of view. And, if all else is failing, you can always try a policy directive.

 

Given all these impediments to communicating with the CRTC, it is no wonder that the policy directive can amount to less than what it appears to be. Nevertheless, it can be useful in prodding the CRTC into action, as Navdeep Bains appears to have done yesterday. The CRTC responded with its notice of reconsideration of its position on wireless resale (MVNOs) last night, which indicates that it has had some advance notice. Maybe in a couple of years the Minister’s policy directive of yesterday will have borne fruit, if we are lucky. I am not holding my breath, but after many years the CRTC may finally have had a change of mind, or sought to escape political pressure by appearing to agree.

Further insulation?

Accordingly I have come to the view that the CRTC must not be further insulated than it is now from policy direction from the government of the day. There is nothing immaculate about the regulatory process, nothing that would be profaned by the government indicating what it wants to get out of the CRTC existing in the first place. My study of how foreign countries have managed competition show that many advanced economies (EU, UK, Korea, Australia and others) have intervened to shape telecom carrier markets fundamentally. States have not let any existing industry structure stand in the way of governmental ideas of how to arrange the market to serve consumers better. The notion advanced by my old friend Professor Richard Schultz of McGill University that the CRTC should not be directed in any way by the government is unwise. Occasionally, rarely, and formally, the government must be allowed to speak its mind overtly to the Commission on policy, and not merely through personnel appointments and mandate letters, or by not-so-random chats while the Chairman is walking the dog.

 

 

 

 

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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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