The crocodiles are thrashing in the river



When people tell you who they are, you should listen.

Sometimes the only sensible way to look at corporate behavior is as if companies were like crocodiles. Crocodiles need to eat, and any flesh will do: you, your daughter, your dog, your cow, or a deer in the woods. You are just lunch. Nothing personal.

Then at times the crocodile gets angry, and it becomes personal, intentional, and political.



The recent CRTC Order is a case in point. After three long years the Commission set final rates for smaller ISPs who need access to the larger carrier networks. Rates for monthly capacity dropped from 15%-43% and for access they dropped anywhere from 3%-77%.

The smaller ISPs were in a near desperate situation to stay alive, and now they are not.

The CRTC may have decided to make a significant shift towards using ISPs as a way of getting more competition into the Canadian market, which it badly needs. This is achieved by lowering the price at which the small guys get access to the networks of the big carriers.

The CRTC may have finally dodged one bullet only to find the crocodiles are thrashing about in the muddy water. Their lunches have been stolen from them, and in retaliation the large carriers have announced they will withdraw some significant investments that might otherwise have gone to rural Canadians.

Bell announced it would cut back its investments in rural wireless home Internet from 1.2 million households to one million, leaving 200,000 households to their fate. Others have announced similar actions. The cause? According to the large carriers, it was because the CRTC made the rate adjustments retroactive, so that they would have to pay back to their ISP customers significant amounts of money they have been pocketing at the old, higher rates.

Sources report that companies are “extremely unhappy”. I see no reason to doubt them.

What will happen? The carriers have every reason to wait for a change of government, on the supposition, probably false, that the incoming Conservatives may be more favourable towards large carriers. They can launch an appeal to the cabinet, hoping a new cabinet will be installed by the time the appeal gets heard. But who will judge the appeal? Unless the Department of Industry is held by Maxime Bernier or an equivalent free marketeer, the same people who have been urging more competition through wholesale leasing of carrier capacity will sit in judgment on the appeal. The outlook for carriers in that case is dicey.

Will the Liberal government cave in? Unlikely. Running against Big Telco and Cable is likely to be a particularly well-received electoral gambit. And Scheer is not fool enough to promise them relief when the votes are with the people who pay Internet bills, not the people who build networks.

The carriers have backed themselves into this corner by constantly proclaiming that rural investment depended on high rates of profit, and that the CRTC and wholesale competitors have or will cut into those high levels of profit. But the financial analysts do not seem to be concerned. Apart from Terence Corcoran of the Financial Post and the usual suspects in the Montreal Economic Institute, no one is expected to come to the defence of the large carriers. The carriers have cried “slippery slope” since 1979 and things are forever getting worse. Only they are not. Profits are wonderful.  Canadian prices are comparatively high and consumption is low, according to  OECD statistics on the matter.

There will be much stirring of muddy waters by thrashing crocodiles. You have probably seen those TV shows where herds of African ungulates must cross the Zambezi River on their annual migration to greener pastures, in rivers infested with hungry crocodiles. Imagine if someone had built broad bridges for the elands, gnus, and wildebeests. If I were a crocodile, I would be thrashing in the water too, in rage and frustration. As there are more consumers than producers, and more prey than predators, the thrashing will make for great television but it would be a bold government that sided with the predators over the prey.

“Bold” decisions, as Sir Humphrey Appleby reminded the Prime Minister, are the kind that lose elections. And overturning this order would be bold indeed.

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