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J. David Ellis

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

Posted: 11/09/2012 10:34 am

2012-11-06-veuveclicquot2.jpg
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.
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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.

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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 2012-11-06-bernier_girlfriend5.jpgto 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.

 
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