Counting the bad ideas in the Essential Services proceeding

Watching the show at the CRTC Essential Services proceeding, I count the number of bad ideas that confuse the discussion. Commissioners have them put in their heads by years of listening to them, and have to ask questions predicated on them. This I understand. The purpose of a hearing is in large part to air out the bad ideas as well as the good. As fast as they are aired and hung out to dry, new bad ideas will be tried out. My purpose here is to try to identify the bad ideas.

Let us start with one good idea.

Good idea #1.

In my opinion, it is the “end effect” that matters, and the right combination of regulated access to facilities, competition in services, and building one’s own facilities is measured by the end effect: what it means to business and residential consumers.

As the CNOC people were saying this morning, we are not investing in facilities for the sake of investing in facilities. We are seeking competitive market where it can be competitive, and not seeking a competitive market where it cannot be competitive. If we could at least agree on this principle, then we might start asking the right questions.

Bad idea #1.

We are not concerned with whether the smaller ISPs climb a ladder of investment to become carriers. There may be no need for more carriers, or not. WE DO NOT KNOW HOW MANY CARRIERS WE NEED in a fibered world. By contrast, there may be a need for more front ends of networks who are more sensitive, adaptable, and consumer-friendly. We do not know whether, in a fibered environment, we need more than one carrier. The number of carriers is not the issue.

Bad idea #2.

It follows that it is impossible in practice or theory to determine the right number of competitive ISPs, so do not try. There is no right number of ISPs. If we have an underlying fiber carrier, why do we need more? More carriers is not the issue. That is not likely to be the relevant zone of competition. The contrary belief has been an unrelenting article of faith in Canadian telecom policy: that more tubes into the home is the answer.

Bad idea #3.

If we do not know if we need more than one carrier in a fibered world, why not go for monopoly end-to-end? Why not return to the world Bell, Telus and others might like? This is their intention: giving them a five year head start would simply treat smaller ISPs as an expendable casualty of progress. If you believe that, and are not actively in their pay, you must be from the Bureau of non-Competition Policy. We do not have two sewerage systems or two highway systems for sound reasons. Why, in a fibered world, do we want more carriers?

Because the Internet has been invented; it has allowed a separation of layers, a dissociation of the costs of physical objects from the costs of software, programming, applications. Monopoly or duopoly provision of carriage does not mean we need monopoly or duopoly provision of services. Vertical integration from pipeline upward into broadcaster and ISP is the single largest bad idea in the telecom game. We are constantly trying to get away from pre-Internet ideas in a post-Internet world. Dis-integrate, or detach,  the carrier from the service provider in your mind. Then, when we see no necessary relationship between the number of carriers and number of service providers, we start to ask the right questions.

Consequence #1

So, if we think that full end-to-end monopoly is not a good idea in a fibered world, then what is the regulator’s relevant task?

The business of regulation is to set the wholesale rate for access to the underlying transport of signals. This is the relevant task. This is to assume that once you get fiber into the home, there is no further point in having more facilities into the home. The bandwidth afforded by optical fiber is so vast that it will permit all conceivable services to reach the home and business, and all conceivable services to leave the home and business.

Consequence #2

Why would the market be monopolistic? Would there not be cable in the neighbourhood? By reason of the amount of bandwidth available to the person who provides fiber, it is a mistake to think that co-axial cable (with all the limitations in its architecture, not just its bandwidth) will still be a viable source of competition twenty or ten years from now.


We need to stop thinking about facilities-based competition as if it were the relevant goal. Start thinking about the Internet as innumerable services reaching the home through a bunch of service providers, the number of which is not determined or determinable. These service providers will, on the whole, not need to own much of their facilities. They will lease facilities from the underlying carrier, or develop their own, as economics dictate. It is okay to be a service provider. It is okay not to know how much should be monopoly and how much should be competitive. But be prepared to forgo the illusion that there will not be any need to regulate access to underlying transport, because there will be, somehow,  four or more facilities-based end to end carriers waiting to serve the public. Illusion!

With optical fiber, we are heading for a re-monopolization of carriage, not all the way into the home, but most of the way. How far that monopoly needs to extend is not yet determined. Nevertheless, we do not need to use that tendency in underlying carrier systems (near unlimited bandwidth)  as an excuse to re-monopolize the Internet service industry. One of the ways of hedging our bets on technology and markets is by not exterminating the independent ISP.

Keep remembering what you know about computers – the price performance increases, Moore’s Law and all that. Keep trying to bring those price-performance improvements through the carrier system. Think of end-effects, and get away from competition consisting of more pipes. Think about what the Internet is, and work backward from that. That is the thing to which no harm should be done, not incumbent investment plans. That means thinking more about engineering and less about money, perhaps.



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