Over Ruling the CRTC Carries Risks

Blog, Disruption, Les Routledge

Having decided to review this decision, however, Mr. Clement is embarking on somewhat more than that. He’s beginning a review of independent telecom regulation as a functioning institution in the federal government. (Globe & Mail)

I agree with the above comment.  As I indicated in a previous post, there is a deeper problem here than one unpopular decision by the CRTC.  There is a perception that the current structure of the market is not functioning effectively.

As the author of the Globe article indicates, the third party Internet Service Providers are creatures of government policy.  It stands to reason that the policies that established the conditions for them to emerge were adopted precisely because the CRTC and/or the government recognized that there were insufficient competitive forces in the industry.  Simply setting aside this recent CRTC decision does not address the underlying problem with the competitive structure of the industry.

Without structural change, this conflict between consumer interest and industry players will repeat itself again and again in front of the Commission and result in more appeals to cabinet to make a political decision.  Persevering with the current model of oversight and regulation does not serve the longer term interests of customers, of the industry participants, or the government.

The minister asserts that the government wants to encourage competition, increase consumer choice, minimize regulation and allow market forces to prevail.  That is a worthy objective, but it is one that cannot be achieved overnight.  The problem is that relying on market forces and minimizing regulation as the industry is structured today may not lead to an outcome of vigorous competition nor increased consumer choice.

We are still living with a legacy of government-owned or regulated monopolies in the telecom sector and regulated monopolies in the broadcast distribution sector.  The telecom companies did not become dominant incumbents in a competitive market.  They achieved that outcome under policy frameworks implemented by past governments.  Similarly, the Cable Television companies enjoyed a long period of government mandated monopolies that enabled them to achieve a dominant position in their sector of the market.  The result is billions of dollars of installed infrastructure that have been paid for through monopoly privileges.  New entrants cannot compete on a level playing field because the incumbent operators have been spotted at first and goal with 2 minutes left on the clock.

The job transforming the telecom-internet and broadcast signal distribution sector into a functioning competitive market is not complete.  If the government wants to rely on competitive forces to drive the industry, it should take steps to strengthen competitive rivalry, increase the ability of consumers to backward integrate into the provision of their own infrastructure, and improve the ability of substitute technologies to offer increased customer choice and selection. .  It can do so by strengthening the customer’s ability to own their own access infrastructure, reduce the entry barriers encountered by new entrants to the sector, and fostering the emergence of alternative business models using substitute technologies such as next generation wireless systems.  For example, the emergence of substitute technologies could be significantly accelerated by eliminating foreign ownership regulations in advance of th next spectrum auction.

Finally, I agree with the chair of the CRTC that it is time to review and update the Telecom Act.  It is time to update the Act to reflect the current market dynamics instead of the conditions that were in place before the public Internet even existed.  The world has changed since then and the Act needs to reflect the challenges and opportunities that exist today.