Timothy M. Denton

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Thoughts on why Canadian prices are high

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The CRTC's report, prepared by Nordicity Group,  on Canadian telecom prices shows that we pay some of the highest rates in the world. Citing the National Post,

Canada won gold for the most expensive low-end wireless telephone service and landed silver for premium mobile phone services that include more minutes and data, according to the ninth-annual international telecom price comparison study commissioned by the Canadian Radio-television and Telecommunications Commission.

It also landed in the Top Three for the most expensive broadband Internet, bundled services and mobile data, which costs about three times as much here as it does in the U.K., Italy and Australia, according to the report by consultancy Nordicity Group Ltd. that compared prices for landlines, wireless telephone and broadband services, broadband Internet and bundled services.

I would like to make some suggestions as to how this comes about, and what might be done to correct it.

1. The most effective policy we have is mandated resale of wholesale facilities. It has been proven to reduce prices. Yet it is not allowed in wireless communications on the supposition that the incumbents would be disincented to invest in facilities if they could not maximize their profits through the current arrangements. Clearly they are maximizing profits, compared to other countries.

This policy proceeds from an ancient prejudice in telecommunications regulation, assiduously fostered by incumbents, that the only real (read 'rough, tough masculine') competition proceeds from vertically integrated carriers. This is akin to an insistence that rental car companies should not exist because they do not make cars. 'Real' competition, says this school of thought,  comes exclusively from those who build out infrastructure, and they should vertically integrate all the way up the protocol stack to monopolize the services (applications) layer in three or four  national silos. We have the evidence before us of what results are produced by this ancient pre-Internet fetish for vertically integrated infrastructure.

The examples we have from the United States show that resale of underlying facilities is practical and effective at generating new service models, new companies with lower cost structures (Ting, for example), and better customer support. This is not rocket science. It is being done right now in Canada for US customers of Sprint.

This would imply the following. The Government of Canada should stop relying upon setting aside spectrum for micro-scale vertically integrated would-be carriers, who promptly fail and are bought out by the giants. How many times must this policy fail before we figure this one out?

2. Start regulating to targets. Start taking into greater account the evidence of international comparisons. Start to tell the regulated companies that Canada will drive its telecom prices to something similar to international prices. This idea will probably cause gasps of horror in the legal department. The primary near-sacred duty of the Commission is to hear the evidence. On this we are agreed.  Yet the Commission has its reports, it has its evidence, from sources outside the hearing process. The commission needs not more evidence, but to give the carriers greater direction as to where it wants carrier prices to go.

What is the problem with this approach? I envisage that the idea of regulating to achieve price targets may be thought to violate some principle of natural justice. In this view, Commissioners are to be kept in vaults in the basement and brought up to the hearing in coffins, then the coffins are opened and the Commissioners may then hear evidence.

But the Commission is quasi-judicial, and not judicial, for a reason. It is required to act in a manner consistent with natural justice, but it is also a policy making body. It is time to start making policy.

 

3. For the federal government, it is time to start to contemplate what must happen to split the carriage function from service provision. The United Kingdom and other countries have split their former telecom monopoly into a carrier and a service provider, and made sure that the carrier may not offer to its former service provider portion any deal it does not offer other third parties.

I have heard ad nauseam how Canada does not need to do this because we have a cable infrastructure and a telephone infrastructure. Two points can be made about this argument. The first is made by the Nordicity report: that our prices are too high. The second is that, at the moment, the carrying capacity of cable is being left behind as the former telcos fiberize their infrastructures. Once you have laid optical fiber, its carrying capacity is quasi infinite. In practice the carrying capacity of optical fiber has not yet been reached.{https://en.wikipedia.org/wiki/Fiber-optic_communication}

When you have attained near infinite capacity into the home, competition in infrastructure is pointless.

This brings us back to the incomprehension with which arguments for regulating telecom infrastructure are received. People seem invested with the notion that the infrastructure level is the place where competition ought to exist because, so it would seem, we would not need regulation if we had enough carriers. I think the argument (to the extent it is ever made explicitly) is just that dumb.

The object of the game is not to reduce regulation, nor is it to increase competition in irrelevant ways, such as by building out infrastructure as if that were the exclusive basis for competition in services. The object of the game is to understand the technology and consequently, to stop regulating as if more infrastructure alone was the answer to our high Canadian prices.

We do not have two parallel and competitive four-lane highways between Montreal and Toronto for a reason. Maybe we might start to think about telecoms in the same terms. I am not holding my breath.

 

 

 

 

 

 

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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 Friday, 15 December 2017
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