Terence Corcoran is the senior editor of the Financial Post. He is a committed opponent of a host of economic follies: unfunded liabilities, statism, junk science – of which the largest example is anthropogenic global warming, and a host of fashionable fads. On the subject of network industries, however, I regret to say he is persistently wrong, seriously, radically in error.
His latest outburst of rage was vented against the government’s decision to reserve spectrum for a smaller player in the Canadian wireless market. He has been waging a long, and so far unsuccessful, campaign to shape public opinion away from the Conservative government’s attempts to introduce more competition into domestic wireless communications.
“Nothing has worked so far, but Industry Minister James Moore made it clear Monday that Ottawa is not giving up. In a move that surprised the industry — and knocked a whack of value off share prices — Mr. Moore announced a new spectrum auction that would allow anybody but Big Telecom to bid. Instead, smaller existing telecom basket cases — WIND, Mobilicity and other new entrants — will be given preferential access to AWS-3, so-called Advanced Wireless Spectrum, at an auction to be held in early 2015.”
Mr. Corcoran is in good company. I have seen many intelligent people hold the same views, Let the market reign. Let there be full-throated competition among the large carriers. The only successful policy is the market: big tough manly competition, the kind Ayn Rand would approve of. The Market is God and Ayn Rand is its Prophet.
Gradually, however, the realities of the situation tend to sink in. Canada’s very high rates, the confusing price plans, the exclusion of independent services or resellers from the networks,one’s own experiences with outrageous bills, or shoddy service, tempers enthusiasm for the unconstrained rights of owners of networks.
So let me try to set forth what I think are the premises of Mr. Corcoran’s argument against the interventions by the federal government in wireless communications.
- Networks are private property.
- It is the essence of private property that you have the right to exclude, and to do business with those whom you choose at prices mutually arrived at by negotiation
- Consequently you have no obligation as a network owner to permit traffic from another network to pass across your own to a destination, and particularly if that network has no economic leverage over you, you are almost obliged to make interconnection so difficult that they go broke.
Some further implications of this view are:
4. The owner of a network may integrate vertically, so that he may purchase a business that uses his network, and give it preferential treatment in terms of access to bandwidth, or lower prices, as the carrier sees fit.
5. Moreover, vertical integration need not be confined to industries which by their nature are principally electromagnetic or media-oriented. The companies bought could be law firms, for example, or any business using telecommunications, and the carrier could discriminate in its favour by any number of means.
Let us begin with the major premise, that networks are private property. On this we are agreed. The difference starts with the degree of freedom the owner has to discriminate in his own favour or in favour of businesses using his network and not others.
From the mid-1700s, certain businesses have been called “affected with the public interest”, usually carriers and public utilities.
What constitutes a business affected with a public interest varies from state to state. Three classes of businesses have been traditionally regarded as affected with a public interest: (1) those carried on pursuant to a public grant or privilege imposing a duty of making available essential services demanded by the public, such as common carriers and Public Utilities; (2) occupations considered from the earliest times in common law to be exceptional, such as the operation of inns or cabs; and (3) businesses that although not public at their inception have become such by devoting their activities to a public use, such as insurance companies and banks.
A business affected with a public interest remains the property of its owner, but the community is considered to have such a stake in its operation that it becomes subject to public regulation to the extent of that interest.
The framers of the Railway Act and its successor, the Telecommunications Act, were clearly imbued with this idea. Prices that a carrier may charge are regulated, unless the carrier can show he is subject to a degree of competition that obviates the need to control his prices. He is obliged to offer interconnection, and those contracts are regulated. He may not discriminate against others or unduly prefer his own cause.
When Canada’s cellular telephone industry started, it was considered by the regulator to be suitable to forebear from regulation of this nature (Telecom Decision 1994-15). It was a reasonable thing to do at the time. Cell phones were still nearly the size of walkie-talkies; they were expensive items reserved for business purposes.
Today the cellular telephone industry has morphed into the carrier for the preferred means of communication for most people. Wireline telephony is in fatal decline. The question which needs asking is whether rules established for what was once a luxury item for the Mercedes-Benz class is appropriate for the mass consumer business today. In the 240 months that have passed since 1994, Moore’s Law has effected 13 -14 doublings of the effectiveness of chips, such that the hand held device is a camera, telephone, calculator, web browser, compass, location finder, astronomical observatory, and anything else you can imagine.
Mr. Corcoran’s views on networks are not obviated by Moore’s Law, however though I consider the CRTC’s forbearance of the sector is becoming less appropriate at this stage of evolution of the wireless market.
His views are wrong in a way independently of advances in technology, because they are wrong about the limits of power which should be exercised by carriers. It would not matter if the carrier in question were a ferry across a river, a railway, a toll-bridge or a taxicab.
Mr. Corcoran does not admit – in his columns at any rate – to any theoretical limitation of the rights of private property owners, those who happen to own networks – to exclude traffic, preferentially to serve their own needs, to crush the upstart competition, to refuse access to wholesale facilities, to deny access to poles, ducts and towers, in short, to do anything to preserve their market position.
Market absolutism of this nature is not a rational or socially beneficial policy in a network industry. It has never been considered so for long, and the experience of masses of people with wireless carriers has been sufficient to demonstrate that, when you grant near absolute rights over the use of spectrum, in the absence of effective regulation, the day of correction will come. It is not far off.
I just wish the federal government would use the right tools. That is a subject for another day.