Canada’s Telecom Policy Quadruple Play 101

Posted: July 15th, 2011 | Author: Giselle Chin | Filed under: Competition, Featured, Policy | 5 Comments »

TekSavvy CEO Marc Gaudrault recently wrote an op-ed piece for the Financial Post, encouraging Canadians to stay on top of current, major telecom developments, as it so passionately did in its fight against UBB, because the outcome of these issues will have tangible and far-reaching effects on all Canadian telecom consumers. The best part of the piece, is the succinct outline of those issues, which Gaudrault dubbed the “telecom-policy quadruple play”, four major telecom issues currently facing either regulatory or government scrutiny. Here they are again, with a little more detail, a brief 101 on the major telecom issues Canada faces.

Foreign Ownership:
Canada’s current broadcasting and telecom regulatory frameworks limits foreign ownership of Canadian telecommunications assets to a maximums of 20 percent in the operating company and 33 percent of the holding company. Calls for the relaxation of these strict limitations claim such a move would lead to better access to capital and more robust competition in telephone, Internet and content delivery services. And according to Gaudrault, Canada is one of only a small handful of industrialized countries with such limitations.

Former industry minister, Tony Clement, held a consultation last year on potentially alleviating these restrictions and laid out three options for amending the Telecom Act: 1) abolish all restrictions; 2) increase the limit of foreign investment to 49 percent; or 3) eliminate the restrictions for companies whose market share is less than 10 per cent.

Clement’s successor, Industry Minister Christian Paradis, has yet to reveal his particular stance regarding foreign ownership. Given the Conservative majority currently in place, and their preference for competition however, it is expected the Tory government will likely relax current restrictions in order to boost foreign ownership in the telecom industry. A decision on whether to allow foreign ownership in the telecom sector will come before the next spectrum auction, which will be held in late 2012 or early 2013, the minister said.

OTT:
Ever since Netflix exploded on to the scene in Canada last September, the issue of whether the CRTC should regulate the onslaught of  so-called over-the-top (OTT) Internet-based services like Netflix, Google TV and Apple TV has amplified.

Regulation would likely take the shape of a licensing regime, which would require investing in Canadian content and contributing to its creation, something the CRTC currently does not impose on OTTs but does on traditional broadcasters. Following requests from those broadcasters and a parliamentary committee, the CRTC recently concluded a public consultation on this issue. It is uncertain what exactly the outcome of the OTT hearing will be, but there has indeed been talk from von Finckenstein, chairman of the federal broadcasting regulator, raising the possibility of OTT services legislation. Regulation of OTT’s would naturally limit the content delivered to consumers over the Internet.

As a former subscriber of Netflix, I can attest that the content they offer is already not very extensive. If such legislation comes to be, reducing or preventing content from expanding, personally, I think Canada’s telecommunications oligopoly problem, as well as our freedom of expression, innovation and consumer choice will have taken steps backwards.

Vertical Integration:
Canada’s telecommunications industry has also seen the the emergence of vertical integration, where service providers are also buying up content, consolidating Canada’s communications market into a handful of corporate giants. It is debated as to whether this movement would benefit consumers, but one potential danger of vertical integration is that service providers, like Bell or Rogers, could make the content they own exclusive to their customers, thereby forcing consumers to subscribe to their service in order to access, for instance, their favourite television show.

The CRTC held hearings last month to discuss whether and how vertical integration ought to be regulated to prevent such abuses, and what affect that would have on consumers and independent competitors. Some have argued that vertically integrated companies benefit from the efficiency between content and new distribution platforms which leads to lower costs, better product quality and new products, which benefits consumers. Others claim vigorous enforcement is necessary because independent networks “are the most likely source of innovation in programming and that the CRTC should create a regulatory environment that eliminates the possibility of discrimination from vertically integrated companies.” And according to Prof Geist, the answer is simple: more competition.

Wholesale Internet Pricing:
In response to the public outcry against the CRTC’s usage-based billing (UBB) decisions in 2010 to impose exorbitant wholesale high-speed service prices on independent ISPs, the CRTC is currently holding another set of hearings to examine the wholesale pricing of Internet service issues anew. The major ISP’s, like Bell, are seeking to impose new tariffs on “wholesale” Internet providers like TekSavvy, which lease space on Bell’s hardware network in Eastern Canada then resells the access to their own customers.

There are two major arguments made by the large ISP’s: 1) the network congestion argument, that wholesale customers tend to be the heaviest bandwidth users, thus heavily contributing to the congestion problem, hence why they should be justified in charging higher wholesale prices, to mitigate congestion. 2) that this new source of profit is necessary if it is to be incentivised to continue adding capacity to its broadband network.

Yet at the same time in Western Canada, retail and wholesale bandwidth customers have more generous bandwidth access without the need for any form of usage-based billing, according to Telus Corp. who took the stage after Bell. It appears compeition with Shaw is the driving force of Telus’ more attractive packages as opposed to congestion problems.

Prof Geist strongly argues that pricing models isn’t a function of congestion, but rather a lack of competition. When Bell was asked whether it planned to keep data caps for its retail customers, it responded that it did, subject to “competitive dynamics”.

 

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