J. David Ellis

The CRTC Picks What's on Your TV But You Pay for It

2013-04-23T17:30:11-04:00

Tuesday, April 23 marks the opening of another critical public hearing at the CRTC. It will be considering applications to expand the mandatory distribution of channels on the basic TV service. The outcome will tell us a great deal about how far CRTC chair Jean-Pierre Blais will go to protect consumer welfare.

Let's start with some harsh numbers about rising costs. According to CRTC data released last fall, the period from 2002 to 2011 saw a total rise in TV subscription prices of 50 per cent - two and a half times the rate of the Consumer Price Index. During the same period, the cost of subscribing to a TV service in the United States rose nearly as fast, way ahead of U.S. inflation rates, according to the FCC. And one of the biggest culprits is channel-bundling, foisted on American TV distributors by media conglomerates like Disney and Viacom, which own top program services like ESPN and Comedy Central. Channel-bundling is causing TV fees in the U.S. to rise so quickly even distributors are worried.

Selling TV channels in bundles or tiers isn't new and certainly isn't an American phenomenon. In fact, Ottawa invented what may be the world's most arcane regulations for how programming must be distributed by Rogers, Bell and other broadcasting distribution undertakings, or BDUs.

The system behind these elaborate rules punishes Canadian consumers in two ways.

First, as in the U.S., our retail TV service isn't regulated, meaning providers can raise rates at will, because our market is deemed to be competitive. A second factor adds a whole other burden for Canadian viewers: the cultural policy goals enshrined in our Broadcasting Act. Over the years, almost everything the CRTC has done in administering the Act has been designed to ensure a steadily expanding supply of Canadian programming.

This long-standing obsession with supply-side goals might have been less harmful to consumers if only policymakers paid some attention to the demand side - what viewers actually watch and what they'd prefer to pay and not pay for. The supply-side approach is bad enough when viewers are left with some choice.

But mandatory carriage makes a bad thing much worse, and in our system does so without any need to demonstrate how millions of captive viewers will stand to benefit. The benefits to industry, on the other hand, are obvious. Ottawa has always invoked industrial policy and positive outcomes like rising industry revenues to defend cultural expenditures. Thanks to the Canada Media Fund and other taxpayer and consumer subsidies, our production sector now gets the overwhelming majority of its financing from you and me - not from its production or financing partners.

The absurdity of programming by regulatory fiat is nicely captured in the debate raging over whether the Sun News channel deserves the CRTC's blessing, having been much demonized for its Fox-News-like politics. The Starlight movie channel, by contrast, has received approving nods because of what it will allegedly do for our cultural sovereignty. But these debates simply prove why the current system is unacceptable. Do you want some arbiter to decide what TV services you should pay for in perpetuity on the basis of whether those services have political, social or cultural views acceptable to others?

The criteria the Commission will be using to pick the winners require that each applicant offer evidence "demonstrating the exceptional importance of its service to the achievement of the objectives of the Broadcasting Act." With one minor exception, none of these criteria has anything to say about what Canadian audiences like to watch or have watched in the past. Instead, the list of seven imperatives for a better collective life fall back on precepts that outlived their relevance 20 years ago -- like a commitment to social and cultural policy objectives "reflecting Canadian identity."

The current system has yet another deep flaw: it's an open invitation to applicants to indulge in advocacy research. Applicants seeking CRTC approval invariably offer up survey research findings to show there's pentup demand for what they intend to program. This exercise is notoriously unreliable, in part because respondents are usually asked questions like whether they approve of certain cultural benefits, in the spirit of motherhood and apple pie.

The Starlight applicants, for example, have submitted a study of their own and one conducted by Canadian Heritage, both of which are intended to prove that Canadians want more Canadian movies on TV -- meaning there's a "gap" in the TV market that needs to be fixed.

Even if there really is such a gap, you would think the government that gave us stirring survey results about Canadian support for Canadian culture would put its money where its mouth is. Instead of a regressive levy on all TV subscribers, the officials at Heritage could, for example, arrange to give more money to Telefilm Canada, which is in the business of financing and marketing Canadian cultural products. Unfortunately, the Harper government isn't setting the example many in the production business would like, since it has been cutting not expanding the budgets of Telefilm and the other cultural agencies.

Contrary to what those involved in this hearing may think, budgetary restraint doesn't mean it's now the patriotic duty of every Canadian TV subscriber to make up the federal budget shortfall. Canadians said they wanted Stephen Harper as their prime minister when they voted at the ballot box - the survey that really counts. What we got was a PM who isn't exactly famous for his support of our nation's media culture. If our own federal government refuses to kick in a few more million a year to show just how important Canadian culture is, then why should the rest of us?

DSL Rates Plummet in Ontario

2013-04-02T15:33:52-04:00

Anyone who's ever spent more than 5 minutes reading my blog knows I've spilt a phenomenal amount of ink over the miserable state of broadband in Canada. In addition to some of the world's highest prices, we put up with unacceptably slow speeds, lousy customer service, off the graph latency, way too little fiber, and marketing that deliberately confuses and misleads.

Then an email arrived this morning from TekSavvy.

Thank your lucky stars for "competitive" ISPs

How many times in your life have you heard from your service provider, "prices are changing"? We all know what that means... But today, for once, it means "Your price has been lowered!" Let me just quote the TSI email:

We are writing to inform you of some really great changes to your Internet service from TekSavvy. We are lowering pricing and passing on the savings to all of our customers! How TekSavvy is that? As of your next billing date, you will notice that the Internet package you are subscribing to will change from High Speed DSL 16 at $45.99 to High Speed DSL 15 Pro at $32.99.

As you can see, my 16-megabit DSL has dropped from $46 to $33 -- or about 28%. I haven't checked through all the other numbers, but the TSI rate page for Ontario looks pretty sweet. And one thing we know for sure is that DSL, which has been languishing because of Bell's ridiculous wholesale tariffs, is going to have a renaissance -- and that's coming at the expense of Rogers and Cogeco. (DSL is the hi-speed platform used by the telcos, not to be confused with the technology the cable guys use to deliver residential Internet.)

Why is this tectonic shift happening? I see four factors to watch...

1 - The CRTC came to its senses last fall and "adjusted" those wholesale tariffs. The willingness to revisit these crucial price points would never have surfaced under the previous chair. Kudos to J-P Blais for wading back into this mess (although a big pile of Part 1 applications did give the Commission a lot of motivation).

2 - TekSavvy CEO, Marc Gaudrault, has created a team that seems dedicated to making life blissful for its customers - notwithstanding the cynics who were arguing a few weeks ago that Marc had betrayed us by not fighting the Voltage trolls in the way the cynics saw fit.

3 - Bell Canada watched its DSL wholesale business going down the drain until last fall. They have only themselves to blame for the sky-high cost claims they put into the Commission last year. And they have the Commission to thank for making their service viable again after the regulator hacked 52% out of those costs. In any case, Bell now sees a strong business case for its wholesale side, and is even offering off-tariff deals at even lower prices than the tariffs specify.

4 - And finally, we have Gordon Moore to thank, in a way, for the law of price drops in computing - although the key metric here is the phenomenal drop in transit prices for bandwidth. The cost of transit - what it generally costs one network operator to sell bandwidth to another - has dropped from $12 per Mbit/sec in 2008 to $1.57 this year (then projected to be down below a buck by next year). For a rundown of the reasons for this trend, check out this page on Dr Peering.

Whether or not this news prompts you to think of switching, I think TSI's move is going to make some of the incumbents' customers wonder how TekSavvy can charge so much less than they do for the same commodity. And making end-users think for a minute about what they're actually paying for is a modest but important first step into a more disciplined, consumer-friendly broadband market.

A Plain Language Guide to the CRTC Rulings Part 1

2013-03-01T17:58:56-05:00

I've been gathering reactions to last week's CRTC decisions on wholesale rates for Internet access. My takeaway is a lot of people are having trouble understanding what the hell it all means. For example, calling the new billing model "straightforward" is hardly how I'd describe the CRTC's capacity- and access-based wholesale tariff structure, whose potential effects on retail pricing is murky to say the least.

So in this series of posts I'm going to provide some plain-language context.

Today, I'm covering broadband competition, and the unusual structure of Canada's wholesale and retail Internet access market. In the next post, I'll look at how the CRTC arrives at wholesale costs and what that will mean for your residential bill. Finally, I'm going to focus in the third post on the UBB controversy of two years ago and how that relates to the recent rulings on pricing.

A pig in a poke

Communications services play an increasingly important role in our lives. Yet the evidence is that awareness among consumers about what they're getting when they buy broadband is stunningly low.

A couple of years ago, the FCC conducted a national survey of broadband households and found 80 per cent of respondents had no idea what broadband speed they were paying their ISP for. More recently, Canada's Public Interest Advocacy Centre (PIAC) commissioned an online survey that asked respondents this question: "Do you happen to know what the speed of your home Internet service is according to the company that provides your service?" (pdf).

Three-quarters (75 per cent) of respondents said I dunno, and I'll wager many of the remaining 25 per cent were lying to save face.

These figures, and many others in the PIAC study, point to a disturbing reluctance on the part of Canadian consumers to tackle basic product research on their communications services, which together rank as our sixth largest household expenditure. Canadian households now spend $181 a month on communications services, equal to their monthly spending on healthcare.

How exactly did this now-vital service get so murky and complicated?

Competition in broadband

Everybody likes competition, or says they do. It disciplines prices, encourages good service, promotes innovation. The CRTC says our retail broadband market is plenty competitive. The federal regulator has been convinced of this since the late 1990s, when it announced it would not be necessary to regulate broadband thanks to all the competition out there.

There's plenty of evidence that wasn't true then and is even less true today. So the CRTC decided to have it both ways. Yes, we have competition, but more wouldn't hurt. Successive CRTC chairs -- and governments -- have never quite managed to decide how vigorously to push for measures that would promote competition.

We can blame much of this on the wiring.

Most homes in Canada have two vital communications links to the outside world. One is the old twisted copper pair that Bell and its fellow travelers put into the ground many decades ago to carry telephone service. The other is the only slightly less pervasive coaxial cable that Rogers, Shaw and other cable companies put in place to carry TV service. These are the incumbents, the guys with the wires in the ground.

Non-facilities-based competition

Keep in mind that as territorial monopolies, the incumbents never had to worry about anybody else running a wire alongside theirs. Those two wires snaking into your living room have conferred a huge amount of market power on the companies that put them there.

Independent ISPs (IISPs) can't economically over-build the incumbent infrastructure. Therefore, the only way they can get to your living room is piggy-backing on one of those two existing wires. That policy option is called non-facilities-based competition. The new entrants have to borrow the facilities from the incumbents, especially the last-mile wire into your home.

Regulators in many developed countries accordingly devised what's known as an "open access" policy under which they oblige the incumbents to lease out parts of their network facilities to new entrants. The upside is the new entrants don't have to commit millions in capital expenditures, which they don't have and would never recover. The downside is the incumbents have to help the new entrants use their decades-old wires to take some of their own customers away, thereby creating a huge opportunity for foot-dragging, disputes, appeals and other diversions of exactly the kind that led to last week's decisions.

Wholesale vs retail

Canada's mandated open access regime created an unusual kind of market for broadband. Like many sectors of the economy, Internet access is divided into wholesale and retail segments. But with a big difference. The access wholesalers - the incumbent telcos and cablecos - are also retailers, and they have a strong and highly valued marketing and billing relationship with their end-users.

The new entrants are given a tricky row to hoe. They have to lease access to incumbent facilities at a wholesale rate low enough so they can mark up that rate high enough to cover all their costs and make some contribution to profit. At the same time, they need to keep the marked-up retail price low enough to make their offer at least as compelling as what Bell or Rogers is offering.

Ideally, the IISPs also want to be able to differentiate themselves in other ways - like offering tiers that have much higher, or no, data caps. These caps are the financial tools that implement "usage-based billing" or UBB, a service plan that punishes you financially for consuming more than a fixed monthly allowance of data transfers.

This dysfunctional but unavoidable system gives the incumbents both the opportunity and the incentive to attack anyone who tries to compete with them in either the retail access market, or the retail content market, like conventional TV or video on demand. Since the CRTC judged unsurprisingly that the incumbents would abuse their market power in selling wholesale access to tiny competitors, it elected to regulate wholesale access.

In the next post, I'll look at the wholesale picture from two different angles:

how the CRTC changed the way it determines tariffed wholesale rates;

and why it also changed the amounts of those rates arrived at for each of the incumbents.

Voltage VS TekSavvy: Privacy Isn't Our Only Worry

2013-01-24T17:20:29-05:00

Piracy is a lot like religion and politics. It tends to polarize opinion and get in the way of finding common ground for thoughtful discussion. That's the pattern we've seen in Voltage Pictures' demand for information from TekSavvy about putative pirating of their movies. Clashes between the studio and the ISP have touched off a rancorous debate that has divided even like-minded members of the pro-Internet community.

The single issue that has most divided the pundits' concerns whether or not TekSavvy CEO Marc Gaudrault let down his customers and the public interest by not opposing the Voltage motion from the get-go. Most of the arguments share one principal concern: that opposing the Voltage motion would have been the most effective and maybe only way to protect customer privacy, as well as to ward off future suits of this kind.

A lot of ink has now been spilled on this point, especially in light of the fact that Marc and his lawyers arrived at their decision after considering factors that remain confidential. Nevertheless, some further comment seems to be in order.

Putting privacy in perspective

First of all, I'm no longer convinced that the biggest public interest issue in this case is privacy, a sentiment I know will not win much sympathy. For one thing, I believe Marc did his best to protect his customers' privacy by giving everyone, especially those on the charge list, advance notice despite it not being a legal requirement. TekSavvy has also spent a great deal of time and money weeding out numeric IPs that didn't match an account, in an attempt to protect otherwise innocent customers.

Moreover, people treat their privacy in many different ways, depending on context and the cost-benefit analysis. There's a mountain of evidence, empirical and anecdotal, that millions of North American onliners either can't be bothered to look after their privacy or are eager to trade it for favours from Web merchants and publishers. Another uproar has just hit the news with Facebook's latest assault on its users' privacy. That would be graph search, the social platform's attempt to beat Google at its own game. As a parent, I'm far more worried about my teenage daughter's long-term use of Facebook, whose business model is and always will be premised on invasion of privacy. People are inclined to worry a lot less about their privacy when they can see supposed benefits but can't see the hidden costs, like damage to career or education prospects.

The question I want to ask is not whether privacy is important -- it is -- but rather, whether it's more important than other problems lurking in the Voltage suit. Marc has told me that one of the main issues he's worried about is what will happen to the notice-and-notice mechanism once it becomes law. He would like to see it applied in a way that reduces the burden created by rights owners on both end-users and ISPs. The system might work much better if, for example, notice was applied as a first-line mechanism with no immediate threat of litigation -- especially mass litigation.

More burdens for indie ISPs

Marc, who thus far is claiming $190,000 in costs, is in my opinion quite right to be concerned about the burden on ISPs of the kind created by Voltage. He is not alone in this view. In his closing remarks at the second court hearing, Mr. Justice Mandamin expressed great concern over the prospect of having 1,000 defendants crowding into his courtroom. The Federal Court, along with everyone else involved, has been hit for the first time ever with a mass lawsuit, while the ink on the new copyright legislation, the Copyright Modernization Act, is barely dry.

To put this another way, notice-and-notice might act as a useful deterrent even without the immediate threat of litigation. In Voltage's case, however, that mechanism looks on the basis of their track record like an integral part of its extra-judicial revenue model. Law professor Michael Geist had a comment on this matter in a recent email:

"At this stage, I don't think the decision [not to oppose] has many implications for notice-and-notice, given that those provisions haven't even taken effect yet. There are two big issues at this stage. First, what is the role for ISPs in the face of demands for subscriber personal information. Second, will the court consider that the volume of requests [...] matters when considering the standard to apply on whether to order disclosure of subscriber names."

The new legislation has confirmed the safe harbour status of ISPs when they merely provide the platform over which customers send their packets. But being spared liability for infringement does nothing to address what ISPs are required to do once a rights holder notifies them of alleged infringing activity on their network.

The procedure is costly and time-consuming, and as some have noted about TekSavvy, any involvement in this messy business is bound to alienate some customers. By the way, while we're assessing TekSavvy's performance, let's not forget that Voltage came up here in 2011 to smoke out end-users who had allegedly downloaded The Hurt Locker, and none of the three ISPs implicated -- Cogeco, Vidéotron and Bell -- even showed up in court, let alone objected.

So while we should certainly worry about customer welfare, let's not confine our worries to their privacy. As I have argued in dozens of blog posts over the last three years, broadband customers in this country have plenty of other issues to complain about, including high prices, slow speeds and lousy service, especially when compared to most other OECD countries. Take France, for example. Over there, the leading independent ISP, Free, offers a 100-Mbit/sec fibre connection for about $47. And their bundle includes unlimited calling to 107 countries and 185 TV channels, with no data caps. Eat your heart out, Canada.

Don't let copyright actions undermine competition and choice in broadband

It now looks as though Canadian ISPs will have no entrenched protection from the fast-track, mass litigation practised by Voltage, unless and until a Canadian court determines that this model has no place in our jurisdiction. ISPs also have no guarantee that a presiding judge will award them the costs they request.

Dwayne Winseck of Carleton University has disagreed with me over many aspects of the Voltage case, although in his latest post he compares TekSavvy's approach pretty favorably to what other ISPs have done. He also noted in an email that he too is very concerned about the harm smaller ISPs may suffer if the current system isn't adjusted to account for the Voltage method of doing business: "It needs to be established once and for all that ISPs can't be turned into agents on behalf of copyright claimants such as Voltage."

As Dwayne points out, it is an important copyright policy goal to ensure we have alternative ISPs like TekSavvy: "A more competitive and diverse supply of Internet providers means that subscribers will be less vulnerable to a handful of players being shaken down by copyright claimants for their personal information." After years of the CRTC's half-hearted efforts to create sustainable competition in the residential broadband market, let's not forget the incumbent ISPs still own 93 per cent of the customer base.

While I see no easy fix to these problems, it's crucial we not lose sight of the long-term implications for the overall health of Canada's broadband infrastructure. Ottawa now needs to find ways to ensure that its copyright legislation will not reduce competition and consumer options. The last thing this country needs is a copyright regime under which our independent ISPs have yet another barrier to keep them from developing a solid business and the opportunity to offer a service distinctly different from what the incumbents provide.

TekSavvy Customers Win Big in Federal Court

2013-01-15T11:13:32-05:00

After weeks of getting bashed in the blogosphere, TekSavvy emerged from the hearing on Monday in the Federal Court with a big bright check-mark against the privacy problem, CIPPIC's involvement, the mapping of IPs against human beings, and the what-have-you-done-for-us-lately problem.

Let's summarize the issues that have framed the debate so far.

The big beef about TS since mid-December has been that it hasn't done enough to protect its customers -- especially its customers' privacy. And what it should have done is "oppose" the Voltage motion. Few commentators have explained in any detail, if at all, how that would work. That includes Howard Knopf, who had the following to say in his post on Friday:

If an ISP can successfully and inexpensively oppose an inadequately documented attempt to breach its customers' privacy, then why should it be able to walk away and leave its customers on their own and just tell them they can hire their own lawyers?

First, "if" an ISP can find a cheap way to oppose, etc. is worth nothing as a statement of empirical value. If I could fly, I'd spend a lot more time hiking in southern California. Second, let's update the "inexpensive" part of this with real numbers: Nick McHaffie revealed in court Monday that TS will be seeking $190,000 in costs from Voltage. Marc Gaudrault assures me this figure represents a very conservative accounting of his legal and technical costs to date -- and this case is far from over. Third, there's no way in our system you can oppose a motion for disclosure purely on privacy grounds.

Several factors led critics to reach wrong-headed conclusions about what TS was or was not doing for its customers. Many took to heart Marc's statement that TS was not going to "oppose" the Voltage motion. In retrospect, he probably regrets emphasizing this position when TS was in fact working against Voltage on several fronts. Moreover, because that assertion was only the tip of a much larger iceberg, many of these same folks also assumed they knew what TekSavvy's legal strategy was: cave in and wait for the court order to arrive, then drop all that personal customer info into Voltage's lap.

For anyone with lingering doubts about whether Marc gives a shit about his customers, Monday's hearing should provide a major wakeup call. But before we get to the courtroom drama, let me raise three points that need to be hammered home:

Notice to customers. For reasons I still don't get, the critics chose to ignore one obvious way in which TS stuck its neck out to help its customers. They provided notice to everyone who appeared on the charge list -- something they were under absolutely no obligation to do. That took a lot of work at a time when TS and its lawyers were hard pressed preparing for the December 17 hearing. This notice provided a service in particular to customers who did not download any of Voltage's property, giving them a heads-up they might be dragged into a proceeding despite their putative innocence.

The common carrier defence. I wish people like my friend and colleague Dwayne Winseck would stop reminding me I raised the eventuality that TS might see its neutrality eroded if it opposed the Voltage motion. I cited differing legal positions on this point; I did not think there was a pat answer, even if I said there might be some risk involved. In any case, that was my point, not TekSavvy's. I don't recall Marc or his colleagues hiding behind the common carrier defence and refusing to come out because they might be censured by the court, or transformed into a defendant. In any case, whatever they thought, being a carrier with a safe harbour didn't stop TS from working against Voltage on behalf of its whole customer base from the get-go.

The annointed guardian of Canadian privacy. One of the most frustrating themes in the recent debate has been the insistence that TS must somehow not merely stand up for its customers, but go on the offence as a privacy advocate. Whose privacy are we talking about anyway? Naturally, everyone wants to see the putatively innocent protected from any unjust disclosures. As for those who might turn out to be guilty, who say their privacy wouldn't be respected as far as public disclosure is concerned?

Imagine a John Doe who has shared and infringed, and would have to suffer some loss of privacy. If you were that John Doe, would privacy be your biggest worry? Personally, I'd be much more concerned about a) getting good, cheap legal advice, and b) facing a $5,000 payment in statutory damages. My belief now -- which I can't prove -- is that privacy has been a stand-in for other elements of the law some critics just don't like.

Be that as it may, it was never TekSavvy's job to rise in court and argue to the presiding judge that our copyright law is defective, or that the activities set in motion in November somehow amounted to an unlawful or unethical violation of customer privacy. As we'll see, setting up TekSavvy as a kind of privacy traitor ran afoul of what the ISP was actually doing behind the scenes.

What happened in the courtroom

The second round Monday was another quiet affair, with barely two dozen people in the room. The hearing started almost 30 minutes late, and Mr Justice O'Keefe was replaced by his colleague, Mr Justice Mandanin.

In the first hearing, TS counsel Nick McHaffie offered three reasons for adjourning the hearing without consideration of Voltage's motion: errors in the evidence that needed cleaning up; providing defendants more time for notice and preparation; and giving CIPPIC a chance to make its case for standing in the proceeding. Despite the fact O'Keefe cited the errors as his grounds for granting an adjournment, Monday's hearing began with arguments from CIPPIC's Toronto agent, Felix Tang, as to why CIPPIC should be involved.

CIPPIC's case. Tang had an opportunity to speak to some important substantive reasons as to why CIPPIC was a qualified friend of the court. For one thing, CIPPIC has had lots of experience addressing public interest issues before the courts, quasi-judicial tribunals like the CRTC and parliamentary committees. Tang also made a point of reassuring the judge that a further adjournment would not prejudice the plaintiff's case -- a point that turned out to be both contentious and important in the final reckoning. Tang concluded by noting CIPPIC was looking for the right to cross-examine and would work with both sides to make its role effective.

Unsurprisingly, James Zibarras, counsel for Voltage, was having none of this. He went so far as to charge that, since TekSavvy said it had no views on the Voltage motion, their counsel shouldn't be allowed to argue on behalf of CIPPIC's involvement - a notion the judge disposed of quickly. A remarkable amount of time was subsequently spent by both sides on procedural minutiae regarding the timing of CIPPIC's involvement. McHaffie accused Zibarras of accusing the other parties of "breaches of civility," a notion McHaffie didn't take kindly to. The calendar was brought up repeatedly. For his part, Zibarras argued that CIPPIC had behaved badly as an intervenor because they had left notice of their intended involvement to the last moment. McHaffie retorted it was counsel for Voltage who had behaved badly, since he ignored CIPPIC's overtures in the apparent hope that would make them go away.

Tedious procedurals turn into major revelations

McHaffie then dropped a bombshell. Make that two bombshells. He first noted the parties should be in no rush to get the issues settled, especially since it was not at all clear whether Voltage was in fact embarked on a bona fide path to litigation. Then McHaffie set aside this haste-makes-waste concept to discuss some paperwork we'd all forgotten in the moment: the court order that will ultimately be the tool that pries the customer information out of TekSavvy. McHaffie complained right back at Zibarras that despite a request made as far back as December 11, no draft of the court order had been forthcoming.

Why did that matter?

Three reasons: timing, costs and wording. The timing didn't get much play, nor much reaction from us spectators. Unlike the point on costs, which made jaws drop. McHaffie revealed for the first time that TekSavvy intends to claim costs from Voltage to the tune of $190,000. And that wasn't even the most dramatic element. McAffie added almost as an afterthought that his client would need to get paid before agreeing to the final wording of the draft court order.

I want to emphasize what should be obvious by now. TekSavvy has spent a lot of money, directly and indirectly, in not merely following the letter of the law but also in helping defend its customers' interests. Moreover, this case ain't over by a long shot. One other thing. The cost figure is one reason I've believed it was absurd for critics to lay the whole privacy battle at TekSavvy's doorstep. TekSavvy isn't Bell or Rogers and doesn't have limitless access to capital.

I learned something else very telling from the discussion surrounding the eventual court order. That concerns the process whereby counsel for the opposing parties are expected to work together on the court order. This process is obviously a shrewd way to outsource work the court would otherwise be burdened with. What I didn't appreciate, however, is that each side gets to write in what it wants to protect. And lo and behold, McAffie made it very clear he intends to put language into the draft order that will protect the privacy of potential defendants.

From that point, two issues dominated the exchanges. One concerned the seesaw battle between the two lawyers over whether granting a second adjournment would prejudice the plaintiff's welfare, in particular by allowing file-sharers to keep distributing the likes of Balls to the Wall to "millions of people around the planet." The other issue concerned the state of the evidence - something the judge had strong views on in his closing remarks.

Adjournment and prejudice to the plaintiff

It was clear from the tone of the exchanges Monday that Voltage was desperate to cut short any further delays. Neither McHaffie nor Mandanin, however, was in a mood to be rushed. Nor was the judge persuaded that the plaintiff was at risk of losing much if he did grant the additional adjournment.

Zibarras went so far as to say in the oral exchanges that part of the risk to Voltage's welfare arose from the sheer presence of downloaded movie files on the computers of offending customers. More delays would mean more opportunities for Voltage's movies to drift back onto the Internet and around the globe. The problem with this alarmist view, of course, is that a movie file sitting on a computer won't go anywhere unless the customer launches her BitTorrent client, selects the movie file, goes online and ensures she's opened some bandwidth on the uplink so packets from her computer can join a swarm in progress.

Zibarras was chastised by the judge for speculating as to whether Mr Justice O'Keefe actually intended for the Voltage motion to go forward Monday. Zibarras kept coming at prejudice from every conceivable angle - including what he saw as conspiratorial conversations between TekSavvy and CIPPIC. In his view, CIPPIC missed its chance through its own failure to make timely contact with the parties. And TekSavvy and CIPPIC were making up for the fact they had no case by dragging it out using procedural tactics.

Marc and McHaffie then pulled a genius idea out of a hat (unless they'd been planning it all along). Even though I don't see how Mandanin could possibly have been inclined to buy Voltage's prejudice argument, TekSavvy offered on the spot to let Zibarras write a further warning letter to the customers on the master list, which TS would then distribute (without of course having to give away any customer information).

Bottom line

That offer seemed to please everyone and seal the deal for Mandanin. The moment the lawyers were finished, the judge said without missing a beat or hinting at misgivings that he was granting the adjournment. While this decision does not guarantee CIPPIC will be given standing by the court, I would be very surprised if it turned out otherwise. Mandanin then noted this case is too important to be rushed; that the court would benefit from some expert guidance; and that he wants to ensure that they "get it right."

The judge also warned that no one should assume there's an automatic connection between a numeric IP and an alleged infringer - despite the fact that the evidentiary threshold is now much lower under our new legislation. The court, he said, has to be "well informed" and not take for granted that the evidence gathered so far proves that copyright in the Voltage movies has in fact been infringed.

I was especially struck by the judge's concern that he may wake up one day to find 1,000 defendants elbowing their way into his court. A lot of people have commented on the unprecedented scale of the Voltage action -- and they are now joined by the presiding judge, who said the court must have a "clear picture" of how this case is going to proceed. Further to this issue of scale, Mandanin added that this case will not be decided in a few hours, but will require a special, multi-day hearing (which btw may be heard by yet another Federal Court judge).

The net effect of everything we heard from the bench Monday is that Voltage left without winning any victories - on CIPPIC's involvement, on the further adjournment, on the reliability of the evidence, on the putative risk to the plaintiff's welfare or anything else substantive or procedural. As the judge left the courtroom, everyone looked around in a happy state of shock. With his quiet remarks lasting barely ten minutes, Mr Justice Mandanin had vindicated TekSavvy and assured its customers that their privacy and right to a fair hearing will be respected as this remarkable case proceeds.

Watching Voltage and TekSavvy Duke it Out in Federal Court

2012-12-18T00:21:23-05:00

Heading down to court Monday morning, I was concerned I might be late to get a seat for the Voltage hearing. I had my iPhone ready to record protestors and general ruckus. But Guy Fawkes was a no-show. I arrived to find the courtroom eerily quiet and half-empty.

What has TekSavvy been required to do for its customers up to now?

Short answer: absolutely nothing. As you read on, keep in mind this case is Voltage vs John Doe and Jane Doe -- not vs TekSavvy.

One of the most striking things about this case concerns the complaints I've seen online about TekSavvy's role. Probably the busiest place for this conversation is the forum on dslreports.com, which attracts a lot of hardcore geeks.

On Saturday, Marc Gaudrault posted a lengthy comment headed "Why we are not opposing motion on Monday." Marc was once again going out of his way to help his customers understand the murky legal aspects of an action that might ultimately cost some of his subs as much as $5,000 (the new limit on statutory damages under our recently modernized Copyright Act). Here's part of Marc's explanation:

"Everybody should know though that we have looked into all angles to determine what our position should be in this situation and after spending a significant amount of time and soliciting a considerable amount of advice from numerous respected sources, we found that we simply could not comment on the merits of the case. Our place is to ensure that we provide adequate notice and also to make known to others that these requests have occurred and that the best way to make sure to avoid being involved is to simply not engage in such activities."

This effort prompted some surprisingly churlish comments from forum participants (not to say they were all like that). For example:

"Even though I wasn't accused if [sic] this, this is still bull. You roll over for these guys? you'll be getting attacked by every production company this side of the sun. Enjoy that. Seriously considering taking my business elsewhere. I want to know that my privacy is just that, PRIVATE."

Good luck getting respect for your privacy with Bell or Rogers.

The new legislation and its weird timetable

After many months of acrimonious debate, the Copyright Modernization Act received royal assent on June 29, though it did not come into force until publication on November 7 of the appropriate Order-in-Council in the Canada Gazette.

The statute isn't in its final form, however, since the government needs more time to consider an appropriate set of regulations for handling the new "notice-and-notice" mechanism in the Act. If notified by a copyright owner that a subscriber is allegedly infringing, Canadian ISPs will be required to issue their own notice to the subscriber informing her of the alleged infringement. Thus, as of today, the "notice-and-notice" provisions are still not in force.

So unless my amateur legal analysis is wrong, TekSavvy has until now been under no statutory obligation whatsoever to notify its customers of any of Voltage's shenanigans. Nevertheless, Marc and his colleagues have spent long hours over the last month consulting legal and other experts to determine what they should do to protect their customers' privacy. Legal counsel must have told TSI that, since it's not liable and not a defendant, the company should not intervene by opposing the Voltage motion, so as not to jeopardize its neutral carrier status (which is what frees them of any joint liability for the alleged infringements).

Then some stunning numbers turned up

After explaining to the court at Monday's hearing how TSI has been acting in good faith by cooperating as best it can with Voltage, their counsel -- Nicholas McHaffie of Stikeman Elliott -- surprised the room by stating they could not continue to take their original position as a neutral party and let the motion go unopposed. The rationale for this dramatic change of heart lay in what McHaffie saw as a serious compromise of the due process owed the 2,000-odd people Voltage intends to go after.

McHaffie then explained how the rushed timeline and other complications have produced serious errors in identifying and alerting the TSI subs at issue. For one thing, the TSI email receipt system had indicated only 10 per cent of the customers sent notifications actually received them.

Early Monday morning, TSI received more detailed information about the errors that had cropped up. Thus, 92 customers reported they had never received any notice; and another 42 customers denied they had engaged in any form of infringement, despite being on the charge sheet prepared by TSI.

McHaffie emphasized that this information had come to light mere hours before the hearing began. He suggested this was clear evidence the hasty timeline being pushed by Voltage had compromised the ability of both TSI and potential defendants to see that justice would be done.

By the time Voltage served the final paperwork on TSI (December 11), the participants had exactly four business days to confirm charges, organize evidence, retain counsel and figure out how to respond to the extortion Voltage has visited upon thousands of other end-users in previous actions.

In a 180-degree reversal, McHaffie therefore asked the court to adjourn the hearing. In doing so they were echoing what CIPPIC (the Canadian Internet Policy & Public Interest Clinic) requested in its amicus brief, which Mr Justice O'Keefe had just been handed (a nice piece of public-interest lawyering, which will undoubtedly re-surface in January). McHaffie made it very clear the only grounds for opposing the motion was trying to ensure potential defendants got adequate time to be notified.

The world as we know it is coming to an end, producers are starving, bla bla

Counsel for Voltage scoffed at this suggestion, as any delay is likely to undermine its cost-recovery model. He asserted four times (by my count) that TSI was only intervening as a "public relations" stunt, out of the fear they might otherwise lose customers - a cheap shot that fits nicely with the whole tenor of Voltage's approach (not to mention it's Voltage that should be worried about bad PR).

Voltage counsel then got too clever by half when he argued that none of the numbers raised by TSI counsel was admissable, since they were not supported by an affidavit or other form of non-hearsay evidence. Unfortunately, said counsel was not clever enough to refrain from making his own far-fetched claims that possibly "tens of thousands" of Canadians are making Voltage titles available online "all over the world." McHaffie shot back that Voltage didn't have any affidavits of its own -- and absolutely no hard evidence before the court that any TSI sub has actually engaged in infringing activity.

Just before Justice O'Keefe retired to chambers to consider the adjournment, the agent for CIPPIC asked if he could be heard. Although he was told no, not at this time, the judge noted he had read their brief and would take it under advisement. He was gone barely 15 minutes, then returned to announce he was granting the adjournment.

He also dismissed the idea that McHaffie was out of bounds in putting forward information about errors in the TSI notices - which Voltage counsel claimed were strictly TSI's problem. McHaffie, noted the judge, is an officer of the court and was therefore unlikely to be fabricating the numbers. It's encouraging to see the court can be flexible enough to take one of its officers at his word, pending the production of real evidence at an actual trial -- which btw might never take place if Voltage sticks to its extortion-style business model.

Monday's hearing pitted an insistence on haste plus flimsy claims about harm to the plaintiff against the public interest in giving potential defendants a reasonable opportunity to fight back against their accusers. So, as of Monday:

The public interest - 1
The carpetbaggers - 0

Infringement Assault on TekSavvy: Voltage Trolls Come North

2012-12-15T00:00:32-05:00

"This is the first in a series of steps that will enable us to recover some of the losses we've incurred in the Canadian market. For a studio of our size, the losses we experience from piracy have a real effect. It means we hire less people and have less to invest in our films. The problem has become so widespread that we are compelled to act." -- From Voltage Statement of Claim

Note on Monday's Federal Court hearing. Voltage has managed to schedule a hearing at the Federal Court for Monday, December 17, which leaves little time for targeted TekSavvy subscribers to organize their defence. TekSavvy couldn't notify these customers until it had churned through a huge pile of logs, in order to correlate subscribers with the thousands of numeric IP addresses Voltage dumped on them. And it wasn't until December 7 that TekSavvy was served with the final Notice of Motion, the document that compels TekSavvy to attend at court where, Voltage hopes, it will be ordered to turn over all relevant customer information so the bullying can proceed.

Although TekSavvy staff have bent over backwards to notify targeted customers in a timely fashion, TekSavvy itself is not liable for any putative infringing activity on its network. In Canada, when a customer requests a file from, say, The Pirate Bay, and the customer's ISP simply provides the platform over which to have the file delivered, that ISP is deemed to be acting as a mere carrier. That ISP is not deemed to be a "user" nor considered to be "authorizing" the download. Hence TekSavvy is not a defendant in the Voltage claim. I raise this point simply so that interested parties, especially possible defendants, are clear on TekSavvy's legal standing in this action.

Logistics. Contrary to what's been circulating, the hearing is apparently scheduled this Monday for 9:30 am, not 10 am. The Federal Court is located at 180 Queen Street West.

***

SINCE this story broke, the hostility expressed toward the Voltage Trolls has been surpassed only by the sheer confusion about what is going on. Posters are scratching their heads over why Voltage is doing this, what to do if a "settlement" letter arrives, how much our courts may allow in damages, what personal information could get compromised, what tools are available to anonymize numeric IPs, etc.

At DSLReports, one positive development has been unfolding. The man caught in the middle -- TekSavvy CEO Marc Gaudrault -- has been in the trenches trying to shed light on the news. Marc was also promising, as he had on his blog, that he would stand by his customers unless and until the court obliges TekSavvy to give up their personal information.

Some resources and commentary

1 - Even Harper won't like it. Michael Geist posted a primer on Canada's new copyright régime a couple of weeks before this action became public: Why Liability Is Limited: A Primer on New Copyright Damages as File Sharing Lawsuits Head To Canada. As Michael points out, Voltage's action flies in the face of what the Harper government has said about its own copyright legislation. From the mouth of Minister Paradis:

"While our government knows that the overwhelming majority of Canadians are law-abiding, we are concerned about the threat of major penalties that hang over Canadians who infringe copyright for non-commercial purposes."

2 - Court calls it extortion. Pete Nowak's post yesterday was entitled Bring on the Hollywood extortion... ahem, lawsuits. Pete raises another crucial point about what Judge Otis D. Wright, from the Central District of California, wrote previously about the Voltage Trolls:

"The federal courts are not cogs in a plaintiff's copyright-enforcement business model. The Court will not idly watch what is essentially an extortion scheme, for a case that plaintiff has no intention of bringing to trial."

3 - Why are you still with Bell? TekSavvy has posted a set of Copyright FAQs here. The first question says a lot about the TekSavvy culture: What is TekSavvy doing to protect its customers' personal information? How about the incumbents? What did Bell, Cogeco and Vidéotron do when they heard Voltage knocking at their door a year ago?

With respect to the court order, Geist questioned whether the three affected ISPs did enough to ensure the interests of their subscribers. He said during recording industry lawsuits in the past, ISPs raised the concerns of their subscribers. "These three seemingly did nothing at all," he said, adding that they could have at least notified subscribers and given the opportunity to get advice from a lawyer."

4 - Exploiting the poor and ignorant. Karl Bode has posted a comment entitled Copyright Troll Voltage Pictures Takes Aim at TekSavvy: Brings Copyright Protection Racket Circus to Canada. As Bode explains, part of what makes this extortion racket work is victimizing end-users who lack the resources to defend themselves: "Voltage has been widely criticized for operating what's essentially a protection racket (pay up and you won't get hurt) that targets users they know can't afford to adequately defend themselves."

I've no doubt that's true, although I believe the Voltage Trolls are exploiting something much more widespread: the public's inability to understand even the most basic elements of copyright law in general and ours in particular. No wonder. Take, for example, the Canadian copyright collective known as SOCAN, which collects and distributes music royalties. But for composers, songwriters and publishers, not performers -- even though it does so for the "public performance" of music, which includes places that aren't actually public, as well as for music distributed via "communication by telecommunication," which covers broadcasting and the Internet, but not recordings. And so on.

5 - Free legal help. Bode has a useful tip for anyone needing legal help. You can get 30 minutes of free advice from the Law Society of Upper Canada. Yes, you read that right -- "free" and "law" in the same sentence. Though I'll bet you'd have second thoughts if it was called the Law Society of Ontario. NB: Provision of this link should not be construed in any way as constituting legal advice... Okay, okay, the lawyer jokes are over.

6 - Becoming anonymous online. Many of us have reasons for wanting to protect our online chatter from the many assholes who want to know what we're up to - reasons that have nothing to do with putatively illicit file-sharing. A widely admired anonymity resource that's been in development for the last decade or so is the Tor project. Tor is a special platform running on the public Internet that protects your transmissions using several layers of encryption.

Self-styled Big Brothers, like the studios, have done a great job of demonizing technologies used to do things they can't control - such as Tor, BitTorrent and P2P. Keep in mind the Tor Project has enjoyed the support of such august bodies as the EFF, the US Naval Research Lab, the US State Dept and the National Science Foundation. Moreover, tools like those mentioned are coming into common use in fields like medicine, education and government services, a fact the studios would prefer to keep hidden from public view.

In its milestone 2004 decision on ISP liability for infringement, the Supreme Court of Canada wrote the following:

The capacity of the Internet to disseminate works of the arts and intellect is one of the great innovations of the information age. Its use should be facilitated rather than discouraged, but this should not be done unfairly at the expense of the creator of the works.

This assertion strikes me as an enlightened and balanced interpretation of the role of the Internet in Canadian life. We'll see starting Monday whether the high court's view is reflected elsewhere in our judicial system.

How the CRTC Can Fix Wireless in Canada

2012-12-03T15:26:23-05:00

[Disclaimers: 1. I'd love to be replying to readers who've sent comments, but some gremlin in the HP servers is getting in the way. The techs are working on it. 2. I've been asked if my flattering comments about TekSavvy reflect some quid pro quo, financial or otherwise. Nope. I pay for my services just like the other customers.]

***

Last time, I took the Commission to task for trying to build excitement over the level of cellphone penetration in Canada in their consultation video. Why? Because the only metric that really counts in 2012 is the takeup of smartphones: smartphones do data, feature phones don't. Let's consider penetration in a more meaningful context.

Penetration. Data released by the OECD in December 2011 says Canada is 24th out of the 34 member countries in terrestrial mobile wireless broadband subscriptions, as indicated in this chart (OECD broadband portal, spreadsheet 1d):

OECD: wireless broadband subscriptions per 100 inhabitants

Notice this dataset covers mobile devices like laptops using a dongle for Internet access. As it has done elsewhere with wireline broadband, the Commission has cherry-picked a more inclusive number (cellphones in general), rather than a more meaningful number (data-capable mobile devices). And that's not the only way the Commission is glossing over problems.

Rates. Every year the FCC is required to file a report on international broadband prices. The rationale: how are we doing up against other industrialized countries and how can we improve? Its 3rd report, issued August 2012, shows this chart, summarizing the average monthly net price per gigabyte of wireless data for 37 countries, using smartphone data plans with usage limits (Appendix C, p.17):

The FCC data indicates Canada ranks 26th out of the 37 countries included. Notice Canada's monthly average is about three times higher (at $30) than the US rate (at $10; USD using PPP). I'll venture a wild guess and say there's a correlation between our high retail prices and low smart-device penetration.

Service. Let's go to the third leg of the stool. How do Canadians feel about the treatment they get from their carriers? The Commission has a trenchant comment on the consultation page covering that very point:

"The CRTC recently examined the wireless market and found that wireless contracts were a significant concern for Canadians. Many Canadians said that contracts for cellphones and other personal mobile devices are confusing. Last year, consumer complaints to the Commissioner for Complaints for Telecommunications Services about wireless services outnumbered all other telecommunications services combined."

Although I have no hard data on Canadian attitudes, the American Customer Satisfaction Index (ACSI) provides a useful proxy. ACSI notes the US wireless carriers rate 70 on their 100-point scale. Among the very few industries Americans dislike more than their carriers are airlines (67), the federal government (66.9) and newspapers (64). Compared to the carriers, Americans actually prefer their banks (75) and health insurers (72).

Let's put this all together:

Penetration of data-capable devices: Canada is 24th out of 34 countries.

Rates for mobile data services: Canada is 26th out of 37 countries.

Satisfaction with wireless services: the Commission launched the wireless code proceeding in response to a flood of consumer complaints.

Typically, if you learn an industry suffers from low penetration plus high prices plus poor satisfaction, you leap to one overwhelming conclusion: the industry in question is not competitive. Hence my question: Why, in the face of all this evidence to the contrary, does the CRTC claim our wireless industry is competitive?

In the FAQ for this consultation, the Commission lists a number of questions, the most interesting of which concerns why the CRTC doesn't regulate the price of wireless services. A few posts ago, I described the Commission's answer to a similar question about wireline broadband as arrogant and condescending, because the answer they give is patently untrue: "there is enough competition in the [broadband] market and retail customers have a choice and can shop around for service packages." My Aunt Fanny.

The Commission offers up the same malarkey about wireless. So... Why does the CRTC not regulate the prices of wireless services?

On the same day the wireless code proceeding was announced (October 11), the Commission issued its "Decision on whether the conditions in the mobile wireless market have changed sufficiently to warrant Commission intervention with respect to mobile wireless services (Telecom Decision CRTC 2012-556). Its conclusion is summarized in the FAQ thusly: "In the decision issued on 11 October 2012, the CRTC found that there was competition sufficient to protect the interests of consumers and it did not need to regulate rates."

Okay, that's what they found - where's the evidence? Here's the rest of the paragraph:

"Although many consumers indicated concerns about wireless rates and the competitiveness of the wireless market, a number of market indicators demonstrate that consumers have a choice of competitive service providers and a range of rates and payment options for mobile wireless services. According to the CRTC's 2012 Communications Monitoring Report, new entrants in the mobile wireless market continue to increase their market share and coverage. Companies continue to invest in new infrastructure to bring new innovative services to more Canadians. Moreover, the average cost per month for mobile wireless services has remained relatively stable."

Many consumers have complained about lack of wireless competition, whereas the CRTC's experts have unearthed a "number of market indicators" that prove these concerns groundless. What are these indicators? Growing new-entrant market share and continuing capex. Great, but what are the actual numbers so we can draw our own conclusions?

And here's where the Commission really lets us down: instead of facts on the page, it provides a link to its Communications Monitoring Report. The whole CMR, a 240-page document. From there, you're on your own. The CMR is a brick no mainstreamer in her right mind would ever try to wade through. Here's how the executive summary opens:

"The Canadian communications industry is growing. Revenues from communications services increased 3.3%, rising from $57.4 billion in 2010 to $59.3 billion in 2011. This growth was driven by a 5.5% increase in broadcasting revenues and a 2.5% increase in telecommunications revenues."

How nice for the industry. But it's a little weird to be bragging about all the money half a dozen conglomerates are making off the the backs of Canadian consumers, when the Chair has just proclaimed in his introductory message that "Canadians are taking a keen interest in their communications services." I think what he means is Canadians are taking a keen interest in seeing exactly the opposite of bigger revenues for the conglomerates - like better service, lower prices, more options, an end to throttling and so on.

If Chairman Blais is serious about his consumer agenda, my advice would be to add the CMR to his to-do list immediately. The main task is to "version" the CMR, i.e. have an edition released with the express purpose of explaining to consumers some of the many things they don't understand - like data caps and why the Commission once thought they were such a great idea.

How many countries does it take to make Canada look good? (As few as possible)

Finally, let's review some comments about the CMR I cited in August 2011 from Pete Nowak, in a post entitled The CMR: CRTC's annual exercise in pseudo-science. Pete wrote a post in a similar vein, with the catchy title CRTC is peddling broadband Kool-Aid. Here's part of what he had to say:

"The report paints a rosy picture of broadband internet services, suggesting that [our] prices and speeds compare very well against other countries. [...] Looking at the actual report, it's clear how the regulator came to its ridiculous conclusion: only eight select countries - Canada, the United States, Japan, United Kingdom, France, Germany, Italy and Australia - were compared" (my emphasis).

In the current CMR, the "international perspective" section runs a dozen pages (pp.177-188). The first table (6.1.1) provides pricing details on telecom services. Only this time, instead of eight countries, Canada is compared to five other countries: the US, UK, France, Australia and Japan. Details abound in the notes about currencies and data caps. A reference is included to Appendix 4, which contains 300 words of text explaining the rationale for sampling, weighting, treatment of taxes, typical consumption patterns, choice of bundles and so on.

The only problem is that nowhere is there any rationale for why we're being compared to five other countries - and why those five countries? Other charts and tables in this section mix and match selected countries from around the globe; then the five countries above, plus Germany; then those six countries plus Italy (some of the tables citing the OECD as a source); then all the OECD countries; and so on.

Now compare what the FCC has to say about a key part of the methodology used in its international broadband report (p.4):

"With respect to speeds, our review of data on average actual download speeds reported by a sample of consumers from 38 countries [...] finds that the United States ranks 24th in average actual speeds purchased and experienced by consumers. The United States ranks 17th when based on a stratified sampling technique using weighted average actual download speed."

And that in a nutshell is what the CRTC should be aspiring to. Not just doing good research based on good methodology, but having the intellectual honesty to say we suck, if that's what the data indicate.

What's the CRTC Trying to Pull?

2012-11-24T07:34:14-05:00

"The Wireless Code is being developed through a public consultation, which includes this online consultation and a public hearing in February 2013." - CRTC, Nov 13, 2012.

Wireless code, great -- online consultation, not so much

Back in the summer of 2010, the CRTC decided to get the public's input online as part of its proceeding on the "obligation to serve." Big mistake.

I wrote a two-parter at the time about that exercise, entitled "The CRTC needs to connect with Canadians, not consult with them." In Part one, I excoriated the Commission for its wrong-headed priorities and poor communication. In Part two, I focused on what happens when a government agency jumps on the social media bandwagon without commitment, follow-through or expertise. I collected detailed YouTube and other stats that showed the social media add-ons were a failure: little traffic, no SNS dialog, zero viral activity. (And social media history is now repeating itself.)

Overview. Today, over two years later, I'm writing this post (in two or maybe three parts) as a follow up to the 2010 posts. I offer them as a caution about a habit that's getting entrenched at the Commission: treating online consultations as a substitute for both educating Canadian consumers and conducting real research (like random-probability surveys on consumer attitudes and behaviours).

These consultations offer a seductive kind of window-dressing, because they make the Commission feel they know what the Canadian public wants, and they make the public feel good about having a forum in which to vent spleen. Unfortunately, online "surveys" are not only unrepresentative, they can also be highly misleading, especially when the response rate is low. Speaking of response rate, let me jump to information I've pulled from the YouTube version of the video that's running on the consultation page.

As of noon Friday, November 23, the YouTube page indicates there's been a grand total of 845 views. It's now 10 days since the launch of the consultation. Worse still, the total four days ago was 768 -- meaning an increase this week of barely 10 per cent. Of course, thousands of other people might have viewed the video on the CRTC site.

Ah, but therein lies the problem: the CRTC ain't telling us. Go to the YouTube page and try clicking on the graph icon to the right of the number of views. Normally, this brings up some very useful stats about how the video has been viewed and by whom, including the rate at which viewing is growing. Not here. What we get is: "Public statistics have been disabled." Moreover, the YouTube page is where social interaction takes place -- except that the comments section reads "Comments are disabled for this video." A question I'd like to ask the consultation manager: why are you hiding participation data in an open public consultation?

To summarize, I see three problems confronting the Commission. First, its use of online consultations is a distraction from evidence-based policymaking. Second, the Commission has failed in its mission to educate Canadians about the digital age. Indeed, it makes claims about the health of our communications industries that are at the least unproven, and at worst, plainly false. Third, our regulator has jumped on the social media bandwagon without a clue as to how to make it worthwhile: social networking is not a spectator sport.

Gobbledygook and half-truths

The current online consultation is being conducted under the banner "Help Develop a Wireless Code." Once again, it shows symptoms of the Commission's long-standing problems in communicating with the public. This time, at least one thing is different. The appointment of Barbara Motzney as Chief Consumer Officer provides some hope that resources will be found to resolve the problems I discuss here. To say nothing of the fact the consumer-oriented agenda established by Chairman Blais would benefit greatly from a better understanding of how to talk to the people he wishes to empower.

When it's not using the jargon of the priesthood, the CRTC talks to consumers in an over-simplified and patronizing way. Worse still, it doesn't bother to explain anything outside of its decisions and press releases. And all this trouble is compounded by the appallingly bad architecture of the Commission's website, which inflicts a double-whammy on visitors seeking to understand the issues. On one hand, its site is chock full of references for which it doesn't provide a pointer. On the other hand, when it does guide you to some kind of answer, the material is incomprehensible to anyone but experts. Here's what I mean...

In a decision issued earlier this month (Telecom Decision CRTC 2012-622), there's a reference to background materials in the public record:

"The public record of this proceeding is available on the Commission's website at www.crtc.gc.ca under 'Public Proceedings' or by using the file number provided above" (para 6).

The "Public Proceedings" tab on the CRTC homepage has four links under it, one of which is "Telecom proceedings open for comment." Is that what the visitor needs if she's looking to read the public file? Nope. The page you're taken to makes no reference to CRTC 2012-622. What about the other option: clicking on the file number: 8622-C6-201208471? That takes you to a long page with tabular material that scrolls through dozens of proceedings. Fine, how about Command-F? Aha, there is a cell in this interminable table that seems to be what we want. Its serial number, OTOH, is 2012-0847-1, which has nothing to do with the proceeding serial number (2012-622). Except the last nine digits are the same as the file number. Etc, etc.

Holy shit, man, would it be too much to ask the staff to provide a lousy permalink to take us directly, in one click, to what we were looking for? Berners-Lee and Cailliau launched the first hyperlinked public Web page 21 years ago; and permalinks have been in widespread use for over a decade. (And while we're at it, how about using canonical URLs, instead of mysterious strings of numbers known only to the staff, so we can see what our destination is going to be from the URL.)

Now the flip side of the problem: from too little information to way too much. In my post on the 2010 online consultation, I wondered aloud whether the Commission thought it was being helpful in its FAQ by directing visitors to two telecom notices as background reading, the better to understand this thing they call the "obligation to serve." Imagine regular folks landing on CRTC 2010-43 and getting warmed up with this intro:

"This proceeding will [...] re-examine the local competition and wireless number portability frameworks in the territories of the small incumbent local exchange carriers. In addition, the Commission will re-examine the appropriateness of the existing forbearance framework for mobile wireless data services."

Now that we've flogged that moribund horse into oblivion, let's turn to a related piece of the puzzle - speaking in half-truths. As the consultation homepage indicates, the Commission has discovered the wonderful world of Web video. Here's a frame grab from the 8-second mark...

The clip comes at you like an infomercial. Fast cutting and bouncy graphics are backed by a breezy sound track (one of my kids, a trained musician, describes it as "funky elevator jazz"). The first piece of content takes the form of a Q&A. The video asks, "Did you know...?" And the answer as above: "There are over 27 million cellphone subscribers in Canada."

It's clear from the way this factoid is conveyed that we're meant to share in a sense of excitement, especially since the video continues with the revelation that we send 234 million texts every day! Wow, that many? Yes, these might be big numbers -- except for life's all-important question: compared to what?

The 27-million figure is misleading for two reasons. First, there's no comparative benchmark.

Second, "cellphones" covers both feature phones and smartphones. In case you hadn't heard, a mobile broadband tidal wave is roaring towards us, and only broadband-capable phones will be up to coping with it. According to projections from Cisco's VNI forecast for 2011-2016, wired devices accounted for 55 per cent of global IP traffic in 2011; by 2016, that proportion will plunge to 39 per cent, meaning wireless devices will carry 61 per cent of all traffic. Put another way, mobile IP traffic will grow over the forecast period at a CAGR of 78 per cent, representing an 18-fold increase from 2011 to 2016. That puts feature phones on the wrong side of the next incarnation of the digital divide.

In the Part 2, we'll look at how key penetration numbers and other data from the FCC and OECD suggest the CRTC is misrepresenting the anti-competitive nature of Canada's wireless market...

Talking Broadband With the TekSavvy Crew

2012-11-13T00:53:09-05:00

Our broadband future may not be a wasteland after all

Last week, I sat down to talk shop with three TekSavvy execs who are breathing new life into the indie ISP sector. At the table were Marc Gaudrault, co-founder and CEO; Tina Furlan, Director of Communications & Marketing; and Pierre Aubé, Chief Operating Officer. They were wrapping up a visit to the Toronto ISP Summit, where the keynote speaker was CRTC chair Jean-Pierre Blais.

We discussed the broadband market in Canada, including the continuing enthusiasm over J-P Blais. We also talked about TekSavvy's cool rebranding campaign and how it reflects the company's approach to growing its subscriber base, now at 180,000. If you haven't seen the new creative, here's what one of the ad banners looks like...

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_____

This one has proven so popular in the Toronto subway that riders are actually stealing them as souvenirs.

What follows here is a much-shortened version of our 45-minute conversation, edited for clarity. If you want to read what Marc had to say in his speech to the Summit, it's on his blog: The Evolution of Access and the TekSavvy Story. We started by discussing highlights of the Summit. The big news seemed to be about the CRTC Chair.

MG -- I really appreciated the fact Blais came here to talk to us. That in and of itself is validating. It's nice, a fresh change. I think it's fair to say there's a bit of a shift afoot here.

DE -- Did Blais talk to the audience in a way that felt comfortable?

MG -- I think he probably sounds a little more radical to some than to others. For me, it certainly feels like somebody finally gets it. It seems Blais is saying, let's hold the stakeholders accountable. And if consumers are saying, hey, something's wrong over here, well, odds are there is something wrong. So we should go look at it and do something. And if the incumbents say, we have something wrong here, Blais will look at that, and if it's legitimate, he'll do something about it. The first step is acknowledgement. That right there -- wow -- that's good!

DE -- Blais seems to have the right attitude. He's also got problems to address. Which ones worry you most?

MG -- The recent decision on confidentiality of information was great. However, as I highlighted in my speech, the biggest obstacle we currently face is the wholesale pricing for Internet access set in November 2011. Since then, a tsunami of review-and-vary applications has been launched. Nobody is happy. Oddly enough, though, some have been making a ton of money, yet they're still not happy (laughs).

We didn't get the transparency we needed on the rates file. Arguably, that's the most important issue. Transparency won't be too useful if we're not around any more (laughs). On the other hand, we've now seen a filing from Telus, about power in colocation facilities, and the new transparency rules have been applied to that. Telus was required to show a lot more detail than they would have in the past. The rules are in effect, they're being used, and more data is already out there. (The Chair's speech is on the CRTC site.)

DE -- Let's talk about TekSavvy. Can you tell us how the re-branding came about?

TF -- Our industry is very regulatory-heavy. We were missing a focus on the consumer. What do they want to see? Who do they think TekSavvy is? And let's put that into practice and give it a life. What we came up with was something very edgy, engaging, cheeky. It really represents the personalities at TekSavvy. And I think everybody can relate to it.

DE -- To what extent did this re-branding grow out of your existing base, as opposed to you pulling in new customers?

TF -- I think a lot of it was born from our existing base. We looked at who we had: very techie at the time, plus very passionate, very aware of the issues. But if you look at those people now, they were our heavy users -- today everybody's a heavy user. So going forward our marketing concepts will resonate with new customer segments.

DE -- You use terms like "300 gigs" in your new ads. Do you think there's awareness among your customers of what a gigabyte is?

TF -- I think everybody's aware of it if they have a cap with their existing provider. You look at your monthly bill and you get charged overage, you make yourself aware of what a gig is. And having 300 of them is something everybody wants -- if not more than 300. I think our customers are much more knowledgeable than we give them credit for. By the way, that particular poster (the hunk in the ad above with the 300 gigs) has been stolen off the subway many times.

DE -- Woah, people are stealing them?!

TF -- Yes (laughs).

DE -- What are your goals now that you've launched this campaign?

TF -- I think we've just started to scratch the surface of the potential we have. Since we launched the campaign with this creative, we've grown significantly. Obviously we want to continue that, and we want to be able to take this campaign in many directions and into many new markets. If you look at our subscriber base right now, they're primarily 19-to-35 year-old males. But there's so many characters within this campaign, it will work for many different demographics. It's very versatile.

DE -- Did you hear negative feedback about the company's marketing prior to the re-branding?

TF -- Yes we did. It wasn't overly negative. We had general comments like, "Oh your marketing could really use some help." But I think from a marketing perspective, as long as people are talking about it, you've done your job.

MG -- It was born out of who we are. When you take that approach, how can you go wrong? We're proud of who we are. We care what our customers say and think, and we try to respond to their needs.

DE -- But you are interested in going after new customer segments, that's built into the plan?

TF -- It is built into the plan, yes. If I thought all our customers were 19-to-35 year-old males, we'd be missing a whole other demographic. Right now, there seems to be a shift going on to a more "feminine" type of decision-maker, taking place at the purchasing level within the household. I'm sure there are lots of women who'd like to be TekSavvy customers.

DE -- Are you focusing on customers who've never been connected or on switchers?

MG -- Well, about 80 per cent of the population, certainly in urban areas, are already connected one way or the other. So to a degree I think we're all switchers.

TF -- We are very interested in taking switchers. If you look at the 300-gig line in the poster, that's targeted directly at the low-cap plans most people are on.

DE -- What are the barriers to switching when that means taking customers from Bell or Rogers?

MG -- A big part of that is just dealing with setup costs, sending techs back out a second time, dealing with customer premises equipment like modems and stuff like that. These all affect costs, especially with students. As for perceptions, as I think you highlighted on your blog, TekSavvy's the unknown, the untested...

DE -- And people say they'd rather put up with abuse from Bell than take a chance on TekSavvy. How do you respond to that?

MG -- It's education, getting out there, being ourselves, pushing the barriers, doing what we've always done. You could have said, five years ago, who knew TekSavvy? Now arguably a lot more people know about us.

TF -- A lot of our very early customers are really big advocates of our brand, of who we are and what we stand for. That has carried TekSavvy a long way. And with social media, and the relationship-based digital age, that offers us a great opportunity.

***

PS: One of the most interesting things I heard in our discussion was how the broadband demographic is changing. Remember all that talk from the Commission and the incumbents about bandwidth hogs, the small gang of heavy users who were spoiling the "customer experience" for everyone else? Well, as Tina put it, today everybody's a heavy user, the very outcome some of us were predicting two years ago.

Datapoint: Internet access gearmaker Sandvine reported just last week that 33% of all peak-time, residential downstream bandwidth in North America is accounted for by one firm: Netflix.

Oh yeah, and one other thing that resonated: TekSavvy's insistence on putting the customer first. How's that for cautious optimism?

CRTC as Consumer Advocate: Four Reasons not to Celebrate (Yet)

2012-11-09T10:34:57-05:00

Don't break out the Veuve Clicquot just yet

I think the CRTC's decision to get the incumbents' financials out of the closet is very positive -- another demonstration of Chairman Blais' public-spirited philosophy. But even Chairman Blais has a corporate history to live with, and that's not going to be a cakewalk. So before we start counting our chickens, let me outline four factors working against consumer-friendly broadband in this country:

Canada's market share failure

misgivings about switching providers

the unfulfilled goals of the Telecommunications Act

the 2006 Direction to the CRTC on market forces.

1 -- Market share failure. The long-standing failure of Canada's broadband competition policy is summed up in the time series above, which I concocted from data in the CRTC's latest Communications Monitoring Report (here; see Table 5.3.2, p.150). The graph contrasts total market share for the independent ISPs, in blue, with that of the incumbents, in green (both exclude business services and dialup). For all the pontificating over the years from the von Finckenstein CRTC and Tory politicians about how super-duper competitive everything is in Canadian telecoms, the data tell a very different story.

In the five-year period 2007-2011, the independent ISPs moved their share up to a meagre 6.8 per cent of Canada's entire residential broadband market. Yeah, yeah, that's an increase of 51 per cent. But look at the context, including how much of a dent that made in the incumbents. They saw their share slashed from 95.5 per cent in 2007 to 93.2 per cent in 2011, a heart-breaking drop for shareholders of 2 percentage points. And the pie is still growing. The incumbents grew their total subscriber base at a CAGR of 5 per cent over the period in question, ending with over 9.7 million subs - compared to a grand total of 712,000 for the indies.

2 -- I'll take the abuse instead. We might hypothesize that the incumbents' share reflects reluctance to switch on the part of millions of Canadians. Then again, it might do nothing of the sort. What I can tell you is I've had discussions over the last couple of years with scores of students about whether they (or their parents) have ever considered switching from Bell or Rogers to an independent. The stories I've heard are, well, depressing.

First, only a tiny percentage of students has ever indicated a (personal or family) willingness to switch. Among the rest, I hear two major beefs: One is they don't understand what they're buying, don't understand their bills and therefore don't give a shit: why make this torture worse for some unproven benefit? The other is even more painful. Yes, we know Bell and Rogers are a bunch of lying, cheating bastards. They treat us like scum whenever we call them, bla bla bla. But who wants to take a chance on "some company we've never heard of"? Like, say, TekSavvy...

So I ask them: what's the worst thing that could happen? Marc Gaudrault absconds to Venezuela with your money and you go offline for a week or two? (just kiddin, Marc). To no avail. The brand equity seems unstoppable.

3 -- Harm to business or to consumers? In its decision to set information free, the Commission uses the word "harm" 25 times -- as in harm to the incumbents. Why? Because unwarranted disclosure of incumbent information might result in exposure of trade secrets, financial loss or competitive disadvantage. And it's against the law, since this safe harbor is enshrined in s.39 of our Telecommunications Act. Needless to say, the incumbents have been dining out on that for years. The Commission tried twice previously to narrow the scope of the "harm" defence -- in the 1980s and again in 2007 -- but to no avail, as Sheridan Scott explained back in March to the Wire Report (paywall).

What about the rest of us? Well, section 39(4) of the Telecommunications Act stipulates that "the Commission may disclose or require [the disclosure of confidential information] where it determines, after considering any representations from interested persons, that the disclosure is in the public interest." Nowhere does the Act, or the Commission, talk about actual harm (or preventing harm) to the public, or to anyone besides the incumbents. Yes, the legislation does spell out one or two protections for the rest of us. For example, "every rate charged by a Canadian carrier for a telecommunications service shall be just and reasonable."

Sounds great! And yet you may wonder just how the authorities have determined the rate you pay Bell or Rogers for Internet access is just and reasonable, when there's a mountain of evidence indicating it isn't (see e.g. international data in my previous post). And did I mention the CRTC doesn't regulate retail broadband -- any aspect of retail broadband:

"The CRTC does not regulate how the retail customer is billed, the rates, quality of service issues, or business practices of Internet service providers as they relate to retail customers. This is because there is enough competition in the market and retail customers have a choice and can shop around for service packages."

Why, silly me, of course, it's the invisible hand of the market, and it must be true, because that's what it says on the Commission's website. Could it have made this sound any more arrogant or condescending? Does the Commission ever hold a meeting in which someone says: hey, maybe we should ask around before we say that?

4 -- Market forces rule. The five-year time series discussed above happens to start just after the Harper Cabinet issued its Direction to the CRTC (December 2006), requiring that it "rely on market forces to the maximum extent feasible as the means of achieving the policy objectives set out in the [Telecommunications] Act."

This genius idea was foisted on us by then Minister of Industry Maxime Bernier. Policy wonks will remember that Bernier's gesture to Late Capitalism followed hard on the heels of his deregulation of local telephony -- a gift to the incumbents that allowed them to charge all the traffic would bear. Regular folks will remember the Minister as the good-looking guy with the full-figured girlfriend who herself had connections to the Hells Angels plus classified NATO documents lying around her living room. But I digress.

Reliance on market forces works when the market in question is reasonably competitive. Sure, the Direction says do that to "the maximum extent feasible." So if there's a market failure, the Commission is in theory free to apply regulation accordingly. Has it done so, and done so successfully? My answer is no. Exhibit A: the decision that gave us the ITMP framework in 2009 (Telecom Regulatory Policy CRTC 2009-657). In the preliminary section dedicated to the Direction, the Commission makes the following assertion (para 16):

"[T]he Commission has used measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives."

Asserting that it wasn't interfering with "competitive market forces" is the understatement of the decade. The ITMP decision made Canada one of the only countries in the developed world with ubiquitous data caps, institutionalized by the regulator as a way to keep bandwidth hogs off the Canadian Internet, a misguided way of achieving the misguided goal of reducing alleged "congestion." The Commission went so far as to make this laughable claim in its ITMP setup:

"Economic practices are the most transparent ITMPs. They match consumer usage with willingness to pay, thus putting users in control and allowing market forces to work."

A few months after that gem was written, the FCC ran a survey (pdf warning) of American home broadband users. It found 80 per cent of those surveyed had no idea even what speed they were paying for. Willing? In control? Did our regulator imagine Canadians were so much smarter than our American cousins we were holding forth at cocktail parties with considered views on economic Internet traffic management practices? So much friendlier than technical ITMPs like traffic-shaping, my dear! Back then, the Commission had no idea how to manage reliance on market forces in a way that was anything more than a fairy tale. Let's hope the new gang puts a stop to this malarkey.

The CRTC Gets Transparent on Internet Costs

2012-11-05T12:00:10-05:00

"It really boils down to this. How can we compete if we don't have cost-based input prices!? When incumbents have retail rates that are lower than the CRTC-approved costs and foreign investors run for the hills, you know something smells! We need real cost-based prices so that competition can work. We've tried it the other way, and it didn't work. This has to be the solution."

-- Marc Gaudrault, CEO, TekSavvy (blog post - Oct 26, 2012)

The CRTC has done it again. On October 26, as Bell's lawyers were just starting to lob hurt feelings about Astral in the direction of Ottawa's Deciders, the Commission was issuing another pro-consumer decision. That would be Telecom Regulatory Policy CRTC 2012-592: "Confidentiality of information used to establish wholesale service rates." Bill Sandiford, president of CNOC, the Canadian Network Operators Consortium (which includes TekSavvy), said they were "very pleased" with the decision (Wire Report, paywall).

In a phrase, the Commission has taken away the blank check that allowed the incumbents to hide demand forecasts, service level costs, corporate cost factors and other inputs associated with wholesaling Internet access. Henceforth, the incumbents will have to reveal far more information about the costs of their Internet services than ever before. All in the interest of that noble precept we call transparency. As you can tell from reading the decision, the incumbents hate the idea that mere mortals finally get a chance to peer up their skirts.

Like any organization with gatekeeping power, the incumbents love their secrets. Secrets bolster power; transparency tends to undermine it. In Canada, we have a long history of regulatory proceedings in which the CRTC has made vital decisions without allowing anyone else to scrutinize the cost figures which form the basis for those decisions -- and which determine how much new entrants have to pay the incumbents so that they can run their business. As Marc Gaudrault asks above, how can the smaller guys compete when the financials determining their ultimate wholesale costs are kept hidden in a CRTC filing cabinet marked Confidential?

Yes, you should love this decision -- especially since the Commission contemplated this kind of action twice in the past but never went through with it. Just don't expect this new deal to rock your broadband world any time soon.

The Backstory

The only way alternative ISPs can offer you their Internet access is by riding on the incumbents' networks -- a regulatory technique known as "non-facilities-based competition" (because the indies don't own any of the nation's millions of phone lines and cable-TV connections, a.k.a. the facilities). Here in Ontario, that means they're beholden to Bell and/or Rogers, which own the local loop -- or "last mile" -- used to carry voice, TV and Internet data to and from your home.

In the dumbed-down diagram above, the local loop is the wire running from each of the cute little bungalows to the local (telco) exchange, what in these parts is usually called the CO or central office. (The diagram should also be showing coaxial cable running from the bungalows to the cable guy's headend; it constitutes the "other" last-mile wire -- neither of which by the way is necessarily a mile in length.)

The "other licensed operator" in the blue box above may be entitled to connect to the incumbent's facilities in a number of different ways. (Our diagram shows only a voice connection and not Internet, but the basic idea still holds.) In this depiction the independent is right inside the belly of the beast, leasing floor space and owning at least some of its own switching gear. The three homeowners can, in theory, choose this alternative operator over the incumbent for their Internet access.

BLOG CONTINUES AFTER THE SLIDESHOW

Why this setup? Competition. The conventional free-market wisdom has it that competition is good and lack of competition is bad. To promote broadband competition, the CRTC requires that the incumbents do something they would otherwise never dream of: lease their network facilities to new entrants at discounted rates so they can do their best to take the incumbents' business away. The incumbents deal with that ingratitude by making these leasing relationships as difficult as humanly possible. The engineering isn't that difficult. It's the accounting and legal niceties that make this "open access" model a nightmare. But in Canada, it's all we've got to work with. Otherwise, our broadband services would be even worse than they already are.

Why We Suck

We got into this mess because long ago the CRTC decided it didn't need any accepted tests of market concentration (like the Herfindahl-Hirschman Index, HHI) or other empirical evidence to declare broadband was competitive. What they were counting on is "intermodal" competition, the battle between the two main technical platforms, high-speed cable and telco ADSL. That's why most Canadians have a choice between the devil and the deep blue sea -- two incumbents like Rogers or Bell. That's also why we have some of the highest access prices and worst services in the developed world (for a thorough scholarly discussion of why we have so little competition, see the 2009 Middleton, Van Gorp paper, "How Competitive is the Canadian Residential Broadband Market?").

Evidence of our suckiness isn't confined to the usual OECD and Akamai data.

This summer, e.g., the New America Foundation published The Cost of Connectivity: A comparison of high-speed Internet prices in 22 cities worldwide (HTML here). The authors looked at a number of different plans in the 22 cities, one of which is Toronto. Take the costs of triple-play bundles. On page four we find a listing of 57 services ranked by cost (in USD with the usual PPP formula). Guess what: Toronto doesn't even make the list. Number one is the Balti-Com bundle -- in Riga, followed by Seoul and Paris, twice each. Verizon New York makes #57 with a bundle costing $154.98.

Turn the page and check out "What can you get for $35?" -- meaning in a standalone broadband service. This time Toronto makes #13 out of the list of 22, for a 28/1 DSL connection costing less than $33. Except it's not from an incumbent; it's from competitive ISP Acanac. And if that stirs the patriotic cockles, wait till you look at the three winners: Hong Kong, Tokyo and San Francisco for services running at 500/500, 200/200 and 200/200 Mbps respectively. All fibre, of course. One other important detail: if you leave out the U.S. cities, only the Bristol and Dublin entrants have a data cap (with three marked D/K). We'll have more to say about the CRTC's role in promoting this handy price-gouging tool shortly.

Coming in Part 2: Four Reasons Not to Celebrate (Yet)

Shock! Outrage! And Other Cool Facts About the Bell Fiasco

2012-10-22T16:25:37-04:00

CRTC watchers eat crow. Don't you hate it when the world changes faster than you can write about it? Thursday's triumph over Bell is wonderful for consumers; for the thesis I was developing here, not so much. The comments I've read all indicate the Astral decision shows Chairman Blais really does intend to build a consumer-oriented CRTC. I trust he will understand why industry watchers, present company included, had been pretty much unanimous in predicting he'd never, ever turn down Bell on this acquisition.

1 → The Bell/Astral decision is (virtually) unprecedented. The Commission hasn't turned down a licensee acquisition unconditionally since 1997. But that transfer of control was peanuts compared to Bell/Astral: Vidéotron applied for permission to acquire two Montreal-based TV services, CFCF and TQS, and was turned down (thanks to Greg and Co at Cartt for that factoid).

In case we start hearing from Bell or the other incumbents about how this kind of heavy regulatory hand discourages investment, check out Harold Feld's post explaining how the FCC's "heavy hand" - evident e.g. in denying another multi-billion-dollar merger this year (AT&T and T-Mobile) - has had the very opposite effect. Namely, it hasspurred investment. Feld is writing about the very ideology that has regularly screwed the consumer in past CRTC decisions: the "market forces" mantra enshrined in the 2006 Cabinet Direction to the CRTC. See Feld's post at Tales of the Sausage Factory. Great minds think alike.

Btw, the Bay St. banking club has already let the cat out of the bag on the neo-con bullshit about how "heavy-handed" regulation that "interferes" with market forces kills investment. Au contraire. As part of the shock and outrage going around town, we hear from a Scotiabank analyst that this decision is terrible news for a couple of reasons. Here's the interesting one, from Jeff Fan, via a Cartt story:

"The number two reason this is negative for BCE is that we believe Astral's cash flow would have been an important source of funding for Bell's Fibe roll-out. Without Astral FCF to support wireline capex, BCE may not be able to accelerate its fibre expansion and leave more of Bell's territory vulnerable to cable competition. Otherwise, it may have to raise its capex intensity to accelerate the rollout" (my emphasis).

I assume "raise its capex intensity" is what they say in MBA school to mean "increase capital expenditures." What Fan is saying is that by regulating Bell in such a way as to contain its already abundant market power, the CRTC is pretty much obliging Bell to spend its own money to improve performance on its retail Internet access networks. Yowza! And making it vulnerable to competition, oh, Jeff, say it ain't so. Bell should tell these guys to shut the fuck up before they ruin everybody's weekend.

2 → "Public" benefits now refers to "we the public" - not just dudes who make TV shows. Not many people may have noticed this detail, even though it's one of the boldest parts of the decision.

I call this bold because creator groups like ACTRA, the CMPA and the Writers' Guild are highly organized, vocal and very insistent they deserve all the loose change on the table, because they're doing God's work - making Canadian content. More kudos to the Chairman for not handing us the easy rationale: that BCE's benefits package was defective for technical reasons, like not enough of their money would show up on the screen. The decision prompted an intriguing reaction from one of the usual recipients of the old-school public benefits. That would be Ferne Downey, ACTRA's National President. In their press release she is quoted as follows:

"Given the stakes of this proposed transaction and the impact it could have had on the Canadian media landscape we respect the Commission's desire to see that the Canadian public's best interests are being looked after. We trust their analysis of the transaction and defer to their decision to maintain the status quo, for now."

Evidently they just couldn't resist the "for now" wisecrack. Not surprising. The press release confirms what I've long been saying about how the creator groups view the public benefits: they belong to them, not the public. ACTRA goes on to make this observation about BCE's benefits package and why it was wanting:

"BCE proposed to spend benefits monies on initiatives that served their own corporate interests and not those of the Canadian public, such as earmarking $40 million to subsidize Northwestel's "Modernization Plan" that would have seen the expansion of wireless broadband services throughout the North."

Oops. Leaving aside the question as to whether building out connectivy in the North would have been self-serving, ACTRA apparently believes spending money on getting more Canadians on broadband is not in the interests of the Canadian public. First of all, getting more access and more bandwidth out to more Canadians is absolutely in the public interest. To suggest that doing so is throwing money away - instead of spending it on making TV shows - is not a smart position to take on such an important policy issue. But saying so is also tantamount to shooting themselves in the foot. The millions of Canadians who aren't on broadband will be less and less able to consume the very products ACTRA likes to promote, as more and more of them move to Web platforms and IP networks.

3 → Cabinet won't intervene. What now? Somebody at Bell must have really pissed off Harper, because they got the boot at PMO before the ink was dry on the decision. Only they forgot to tell Bell, which issued a really classy press release about the decision, headlined Bell shocked by CRTC rejection of Astral transaction, requests Cabinet intervention. Shocked, I tell you, shocked. Bell starts the release with three bullet points, the first of which is: "Bell will ask federal Cabinet to issue direction to CRTC to follow its own regulatory policy." Clever litigator's offence - tell the opponent they're breaking their own rules. The problem, however, is that the door to the putative political court of appeal (Cabinet) has already been slammed shut in Bell's shocked face. Here's what the Globe says online:

"A spokesman for Canadian Heritage Minister James Moore said the government doesn't believe it has the margin of manoeuvre to override the CRTC's decision. "CRTC decisions are made independent of the government of Canada," said press secretary Sebastien Gariepy said. "Cabinet has no legal ability to overturn this decision."

Baloney. Harper's crew is hiding behind a pseudo-legal defence to protect itself politically on two fronts. First, Harper doesn't want to be criticized again for "interfering" with the decisions of an arm's-length agency, the way he and Tony Clement were over the CRTC's absurd UBB decision - which, coincidentally, was going to hand Bell Canada everything it needed on a silver platter to expand its price-gouging of Internet access subscribers.

When that decision blew up in Chairman von Finckenstein's face, I wrote a post - Clement, arm's length and really bad broadband policy - devoted to my attack on the bleeding hearts who insisted Cabinet simply couldn't over-rule the Commission. Not so. Moreover, there was a very compelling substantive reason for Clement's tweets and the PM's pronouncements about the Commission's take on UBB: it was a terrible, anti-consumer policy, based on phony assumptions about the need for data caps. In other words, I'm alleging the PM doesn't want that particular pile of doo-doo to hit any fans in his vicinity.

There's a second and related motive at work here. The furor over UBB - starring our friends at Openmedia.ca and their half-million-signature petition - gave Harper and his cronies a free ride on the pro-consumer bandwagon, one that was and is entirely undeserved. If you look back e.g. at the original version of the Tory framework for a digital strategy (which we're still waiting for), you see it's all about serving the business constituency; consumers are competely ignored. By taking a pass, the government gets another free ride - in the negative sense that it's not seen to be coming out against a decidedly pro-consumer decision that many Canadians are clearly happy about.

4 → Consumer-loving Bell shocked and outraged. George Cope has had to put on quite a show in response to Thursday's corporate calamity. A collective conniption fit of the kind mounted by Bell is usually intended for shareholders and potential investors, along with the Bay St analysts, whose research notes can make life very uncomfortable for senior management at publicly traded companies, as we saw in connection with Scotiabank's Jeff Fan (in section 1 above).

Life is too short to spend a lot of time on a textual exegesis of the kind of press release Bell issued Thursday evening. One thing I'd point out is that in this 1200-word document Bell uses the word "consumer" 11 times. Is that a lot? Well, if this were a contest, Bell would have beaten the CRTC at its own game: its much longer decision - already famous for its stunningly pro-consumer perspective - uses "consumer" a mere 10 times. That's one of the remarkable things about contentious institutional discourse. The parties all know the consumer love-in is make-believe. Cope and Bibic know it, we know they know it, and they know we know they know it. Check out these six excerpts from the release:

"Bell is appalled that the CRTC would come to a decision that so negatively impacts Canadian consumers. ... Canadian consumerswere told today by the CRTC that they don't deserve more ... The wide-ranging benefits to Canadians of the transaction are clear ... Considering the dire impact the CRTC's decision will have onconsumers in communities small and large ... French-languageconsumers have been robbed of a planned national French-language news service ... Consumers across the country are denied a stronger homegrown voice able to compete with unregulated U.S. TV channels and Internet OTT broadcasters ..."

Holy moly, can you believe this shit? My favourite is the last blurt: Canadian consumers are going to be hurt because Bell will be less able to penalize them for watching too much competing video content from un-Canadian suppliers like Netflix. Long-suffering customers have been praying Bell will lower their data caps so as to push them back to consuming whatever Bell Media is peddling this week. That would be such a relief to the more than 10 per cent of Canadian adults who, in a moment of moral weakness, have subscribed to Netflix (full disclosure: God yes, I'm one of them too). Please, Mr. Cope, kill those unregulated US services before I lose my sense of decency, my Canadian soul and my passport.

"I've come to suck the soul out of your culture and take your money too"