Timothy M. Denton

Success Through Understanding Technology

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They never learn

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Ideas are both necessary to navigate the world with, and sources of misinformation. When you bump into a wall in the dark, you change your idea of the layout of the house. Unfortunately, if you are a slave to your ideology, there are no walls, you never hit anything, and you never have occasion to learn, because you are never wrong. Such is the ideological life of the Montreal Economic Institute and certain members of the economics profession, when it comes to telecommunications.

I have watched the ideologists of the MEI over the decades issue the same line in every venue which will publish them: National Post, Globe and Mail, and the MacDonald-Laurier Institute. They do not lack for venues and public voice. They continue to be ignored for sound reasons of public policy. Here is their message.

Competition is strong. Technology is ensuring more competition every day.

Regulation is unnecessary. Let the big carriers really slug it out with each other and consumer happiness will ensue.

Their message is as simple as that, and it has the advantage of never being wrong, because at no point does it ever intersect with reality.

I have a different message, and it is this: Hear, O telecom policy wonks, the Internet is One, but it has many layers. Policies appropriate to one layer may not be  appropriate to another. That is the sum and substance of what working in  and around  Internet business and regulation has told me, and I pass it on to you freely. My views are under continuous modification as facts change, but the layered nature of the Internet has not changed since its inception.

At the layer of telecom networks, we see a physical engineering business that must transport signals over immense distances through ice and flood, gnawing animals and falling trees, and serve millions of customers in cities and towns and the immense outback of the hinterlands. In this domain of physical networks, no system has grown up that did not emerge from former monopolies of telephone and cable television. I include cellular mobile communications companies in this category, even though their cost characteristics are less capital intensive, and some newer wireless entrants have had no historical links to wire-based carriers

Slightly higher on the chain, are the companies that lease capacity from carriers and sell capacity to networks, such as the one on whose behalf I often speak, Hurricane Electric. These are not carriers but network operators.

Higher still are networks. These are sets of computers on a common Autonomous System Number (ASN). Any group of computers linked by a common address - an ASN - is a network. Indeed, so far as I can tell, that is the definition of a network: computers located through a common ASN

Up from them are data storage companies, which ensure that data is provisioned close to end points,  and different again are the zillions of applications providers.

At the base of the layered order are companies whose capital requirements are huge, and where competition is limited by ineluctable laws of huge costs and scarcity of money. At the network level, thousands and thousands of players exchange traffic on handshake deals on the basis of trust in the technical competence of the other guy's network managers.

At one level, monopoly, duopoly, or maybe two and a half carriers, and at another, so many networks that regulation would be superfluous and a hindrance to commerce.

What the apologists for the carriers would like you to believe is that the technical and competitive pizzazz of the network and applications layers is now the order of the day at the carrier layer.

Thus, in a recent editorial in the Globe and Mail, Paul Beaudry and Martin Masse cite conclusions from their report published by the  MEI:

In a world where new technologies are emerging at lightning speed and competition among various market players and market platforms has never been stronger, one should ask whether the existence of a regulator created during the era of natural monopolies is still warranted.

 

As long as the people who own the carriers  can exert market power over the layers of the Internet above them, the answer  will continue to be: yes, the CRTC's powers to constrain that power will be necessary. The CRTC may be abolished, transformed, or left alone, but the problems of market power in networks are not going to go away by fiat of the mental constrictions of the economics profession. That much is certain.

 

 

 

 

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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 Sunday, 25 June 2017
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