Precisely wrong, M. Masse

The near weekly dose of pro-incumbent propaganda emerged in the pages of the Financial Post today. The Montreal Economic Institute was at it again, saying that the CRTC can dissolve now that Canada’s telecommunications sector is mature and competitive. In the same week another report shows that Canada offers the least amount of bandwidth for the money of any economy in the world.



These views cannot be reconciled, nor should they be. One of them is wrong.

The source of the error is the belief that competition properly conceived should result in more networks, rather than more consumer surplus. Hence the constant argument that wholesale access to underlying facilities would cause a lessening of investment in facilities. Investment in facilities is not the criterion against which to measure the success or failure of telecom policy, any more than investment in food stores by major chains measures food prices.


Martin Masse is the author of the MEI’s annual report on the State of Competition in Canada’s Telecommunications Industry. The MEI has been an assiduous devotee of the notion that there is actual and effective competition in Canada’s telecommunications industry and would the regulator please disappear? No fact seems to disturb the tranquility of their satisfaction with the results of this level of competition for Canadian consumers. (And though I am choosing the MEI for a necessary flogging today, they are not alone in the economics profession for believing that we should leave the telecom giants alone to organize the industry to their shareholders’ maximum profit.)


The core of the case is that “resellers” should not exist, and especially that they should not be regulated into existence by government policy. There are two objections to resellers, at least, in this view. The first is that they are creatures of policy. The second is that they do not build facilities.


As to the first objection, I observe that there is no significant facilities-based network in Canada which did not emerge either from the grant of significant legal privileges by way of spectrum, and rights of way, or that did not emerge from the deliberate nurturing of broadcasting policy, which carried with it legal privileges and obligations. Every carrier is or has been a creature of deliberate federal or provincial policy.


The Internet melted the previously intact silos of telecoms and cable into an IP-based architecture of signal delivery. That fusion has never been complete and the architectures remain distinct, of course, but the Internet allowed two IP-based networks to reach the house, based on two previously established, and state-authorized, signal delivery networks.


The second objection is more pertinent to the MEI and its fellow travellers, because it reveals a persistent belief in an idea that economists, of all professions, should be wary of: the infrastructure fallacy. This is the belief that the number of competitors can only be synonymous with or identical to the number of networks under end-to-end ownership. Three cell-towers, three competitors. For believers in this religion, the Internet has never been invented, and if invented, has nothing whatever to say to the design of competitive possibilities. This belief is a limiting assumption of drastic power.


As Mr. Masse writes of the CRTC’s policies:


 “network-sharing policies have not encouraged the deployment of additional broadband networks, but instead encouraged the emergence of a large number of small resellers that would not be viable without the CRTC’s regulatory largesse.”


 The purpose of resellers is not to deploy more networks, nor is it to invest in stuff; their purpose is to make existing networks work more efficiently by any means, including better sales and marketing, lower profits, and where required, physical facilities. Instead of competing, as Air BnB does with hotels by driving customers to private residences, resellers supply an application that fills the existing hotel rooms. The reseller is not in the business of building networks, but of making a living from buying wholesale and delivering customers to the network owner for less than he can do it himself.


If this were not so, then companies like Ting, which resells Sprint and T-Mobile could not exist. Ting operates out of Canada and serves the US market. Its president, Elliott Noss, has testified before the Commission on several occasions. If resellers can deploy into the United States from Canada, there is no reason but carrier obstruction and regulatory policy that prevent them from serving Canadians.


But never let facts stand in the way of ideology. Granting access to underlying facilities at a compensatory price is not “largesse”, it is the one proven effective method of lowering prices and delivering customers better services than what is portrayed in the graph above where, as you notice, Canada does worst in the world.

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