Timothy M. Denton

Success Through Understanding Technology

Presentation of ISCC in Review of Mobile Wireless Services CRTC 2019-57

 

 

Review of Mobile Wireless Services

Notice of Consultation CRTC 2019-57

Oral Presentation of the Internet Society, Canada Chapter

Tuesday 25 February, 2020

Good morning/afternoon Commissioners, Staff and Hearing participants.

The Internet Society Canada Chapter is pleased to appear before you on this issue. My name is Timothy Denton, chairman of the Internet Society, Canada Chapter and to my right is Matthew Gamble, a director of the Internet Society, Canada Chapter.

First, a word about who we are. The Internet Society Canada Chapter (ISCC) is a not-for-profit corporation that engages on internet legal and policy issues to advocate for an open, accessible and affordable internet for Canadians. An open internet means one in which ideas and expression can be communicated and received except where limits have been imposed by law. An accessible internet is one where all persons and all interests can freely access websites that span all legal forms of expression. An affordable internet is one by which all Canadians can access internet services at a reasonable price.

We are intervening because wireless has become a ubiquitous means of reaching the internet, and hence the quality, pricing, and availability of wireless services have enormous impacts on both business and individual users of internet services.

Further information about our board, our activities and our publications can be found at our website, www.internetsociety.ca

I would like to begin with the encouraging words of a former CRTC Chairman on the position of every person called upon to make a decision. “Make ten decisions. One will be wrong. Eight will be right, and one you win or lose on appeal”.

In your case, ladies and gentlemen, you have the opportunity to make a decision which may be as important as the introduction of long-distance voice competition back in the early 1990s. I don’t envy you because deciding is stressful. You will be praised as far sighted benefactors of the public weal and derided as fools which ever way you go. But you were appointed to this role and I know you will do your duty as your consciences and the evidence guide you.

You have a much more complex task before you than the chief executives of the firms who appear before you. Their task is to maximize profit, and they maintain a laser-like focus on it. You on the other hand, have to balance a number of objectives, including investment, national competitiveness, affordability, and innovation.

By now you have been listening to evidence for several days and your boredom may be exquisite. You have been buffeted by all sorts of claims of impending disaster if you allow MVNOs. You have been presented with statistics of varying credibility and quality, and you have been affronted perhaps, by some of the claims made by various parties. Perhaps you are wishing for little red lights and buzzers with which to express your skepticism of particularly objectionable or outrageous claims, and green ones when you think the arguments you are hearing are reasonable and fact-driven.

We do not intend to recapitulate the arguments made by others. The basic thrust of what is being presented by one side is that Canada is not doing as well as it might in terms of pricing and levels of service adoption, and that MVNOs are a useful answer to perceived problems of market power, and on the other, that all is well and that different arrangements constitute a threat to investment and employment, but not, we observe, profit levels, because these cannot be adjusted, as we were told last week.

You have been told that Canada is too cold, or too sparsely populated, for foreign approaches to competition to work. I can only recommend a look at OECD statistics for Finland or Sweden, for cold climates, or for Australia, for wireless density in sparsely occupied deserts, to see how valid such ideas are.

The axiom from which we proceed is that market power is the problem and constraining it is the task of the regulator. Other agencies and hearings have determined that certain of the large carriers have this market power. Your task is to constrain it.

The question is: how?

In the past, and at several iterations, the federal government has sought to increase competition by granting preferential access to spectrum for new entrants of one kind or another. These efforts have failed so far. Entrants have come and gone, and for one reason or another, they have failed. So the question must be asked, do we continue the failed policies of the past or do we try something different? Do we reinforce failure or success?

I want to get at the principal reason why they failed, and why the model we have been pursuing guarantees further failure if we continue to pursue it.

The idea that has haunted the halls of regulatory agencies – and we believe it is a bad one – is that the only real and effective competition is facilities-based. It is surprising the number of people who believe it and cling to it. Even the Bureau of Competition policy is still in its thrall.

The truth is, if facilities-based competition were the answer, we would already have it in Canada. We have plenty of facilities-based carriers in Canada. They are all doing a good job, as far as their shareholders are concerned, and I have no reason to doubt that the technical performance statistics are quite satisfactory.

Point #1: Facilities based competition is the only real competition

The biggest thing determining the outcome of regulatory hearings or any other kind of process is not the evidence, but the filters – the axioms, really - through which the evidence is filtered. In this case, and for many years, the belief has been propagated that the only effective form of competition is based upon an end-to-end ownership of facilities, from cell towers through backhauls to central switches. All other forms of competition are less legitimate.

Facilities-based competition is the core of the idea behind “the ladder of investment”: if you start out as an MVNO, you ought to want to become a facilities-based carrier. This is absurd for several reasons. First, it is as if you said there should be no such things as car-rental companies because they do not make cars.

To express this thought more elegantly, capitalism is a discovery process. Frequently innovation occurs not in the technology, but in the property arrangements that surround the use of the technology. Think for example of how we buy cars in installments, rather than for a lump sum price. Consider Uber or Lyft, or car sharing cooperatives. These constitute innovations in property, not technology.

Disapproving of MVNOs because they do not own their radio access networks is akin to disapproving of car rental companies because they do not manufacture their own cars. MVNOs are capitalism’s response to the possibilities of specialization of functions.

Likewise we do not insist on two or three water or natural gas pipes into the house. Building facilities on top of facilities seems like a crazy way to achieve your goals.

Capitalism, if allowed to function, constantly finds cheaper or more convenient ways of accomplishing objectives. Often the more effective way is not a technology but changed arrangements of property ownership, or a form of specialization of functions. MVNOs represent a changed form of ownership and a specialization of functions.

Point #2: The Internet Society Canada Chapter has observed that CRTC concluded that several firms exercise market power in Canada. Where we may yet differ from the Commission is a confidence that mandated access to MVNOs can be made to work in the interests of Canadians.

We know that no solution is perfect. We are highly conscious of the need for investment in facilities. Therefore we are concerned that the wholesale rates be set appropriately. We do not wish to assume away a problem. Nevertheless, we urge the Commission to summon its courage and mandate access to those wireless carriers that have been deemed to exercise market power.

My colleague, Mr. Gamble, will now speak to about our third and fourth points: the value created by MVNOs, and the detachment of innovation from the ownership of facilities.

Good morning Commissioners. I am Matthew Gamble, a director of the Internet Society, Canada Chapter, and I have over 20 years’ experience in Internet and telecommunications services.

I have two related ideas I want to talk to you about.

The first idea is that innovation in services is what MVNOs are about, and not simply lowered prices.

The second is that MVNOs detach innovation from the ownership of facilities. Indeed, in an Internet era, innovation has become detached from the ownership of facilities. This is known as innovation without permission, which is the revolutionary force of the Internet.

The introduction of a mandated framework for full MVNO access is not simply about lowering prices for wireless services. It is an error to believe that MVNOs will offer the same thing as the incumbents, in a different box, cheaper. The value an MVNO provides to Canadians comes not from simply lowering prices, but rather from creating new, innovative services that target under or unserved market niches that are not being serviced by the existing players.

Take for example a potential MVNO who signs wholesale agreements with multiple host networks. They could create a service offering which, in real time, picks the best network connection available based on quality from multiple host MNO partners and public Wi-Fi access points. This same MVNO could also offer a seamless global roaming experience, allowing customers to pay a single price for service regardless of where they roam. On top of this they could then integrate enhanced calling features, digital privacy offerings, network connection integrations, and more. This is what Internet technology allows us to do.

This is the empowerment created when we separate service delivery from the dependency on facilities. We create the ability for innovators to deploy fully virtualized communications services which are entirely distinct from the underlying facilities-based carrier.

Put simply, the job of MVNOs is to fill the pipes of the larger incumbents more economically than the incumbents with market power can do for themselves. But this is not all.

Their job is to find niches in which they can excel: to develop, deploy, and operate services consumers will want to use. Their primary task is innovation. If you will allow the expression, innovation is their facility.

Finally, the idea that MVNOs must be temporary in nature is just a reiteration in gentler terms of the axiom of facilities-based competition. It represents the same assumption that the only legitimate and effective form of competition rests on the ownership of facilities in a certain configuration.

To the contrary, the Internet Society Canada Chapter says: ‘let capitalism do its work’. Let the right combination of services and facilities be discovered, not assumed, by the participants in the market. Let MVNOs create the innovative services Canadian consumers deserve.

We thank you for your attention.

We are available for your questions.

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