Watching Six Years of the Regulatory Blockbuster

Regulatory

I spent a weekend re-watching videos of the “Regulatory Blockbuster” from the yearly Telecom Summit. The Summit is a major industry get-together, taking place over a couple of days in a Toronto convention center, with presentations, networking and deal-making opportunities for significant players in the telecom industry. I’ve only been able to attend once, but luckily if you’re interested in public policy the most interesting event at the Summit can be streamed on CPAC, where you can watch the last six years of the Regulatory Blockbuster.

The Blockbuster features an hour and a half of telecom industry lawyers (typically from incumbents Bell, TELUS, Rogers, a smaller provider or two such as WIND or TekSavvy, and John Lawford from PIAC) discussing the regulatory issues of the day. In previous years, each participant would get a few minutes at the outset to present what they thought were the most important regulatory topics, followed by questions from the moderator (cartt.ca‘s Greg O’Brien) or the audience. Sometimes the discussion gets a little heated, and it’s worth remembering that the people on the stage can be embroiled in disputes with one another at the CRTC or before the courts. It’s common for participants to point out the self-serving nature of rivals’ arguments, to allege hypocrisy or inconsistency, and to present themselves as disadvantaged victims of government regulation (or lack thereof).

As an observer, it helps to understand the underlying conflicts and regulatory proceedings being discussed. However, even without knowing the nuances of CRTC procedure or regulations, the Blockbuster provides a sense of what kinds of issues are keeping industry lawyers occupied. It’s also an opportunity for participants to air their complaints with the existing regulatory regime.

The Mandated Access Regime

In the previous five years, the dominant issue at the Blockbuster has been how government regulates relationships between competitors in the industry, specifically through mandated access to incumbent facilities and wholesale connectivity. Other regulatory issues come and go as they pass on and off the federal government and CRTC’s agenda — lawful access, spectrum auctions, reviews of basic services. But mandated access has endured and expanded since the late 1990s, causing no end of complaints from both incumbents and the smaller competitors it is intended to benefit. In 2010, participants in the Blockbuster offered some analogies of how we might understand obligations under the regime. One likened it to a system in which airlines must reserve a certain number of seats for passengers of competing airlines, or parcel delivery companies are obliged to deliver the parcels of smaller competitors. In Canadian telecom, these obligations generally mean that the large incumbents (including Rogers, Bell, Shaw, TELUS) must allow “independents” (TekSavvy, Distributel, and many other smaller players) to use incumbent infrastructure and to purchase wholesale connectivity at set rates. These rates are meant to ensure that incumbents can profit from this arrangement, but the result is a system where small providers depend on large providers, and both compete for the same customers.

The conflicts that result are quite predictable. Small players argue that wholesale rates are too high for them to compete or expand their business, while large players argue the rates are just right, too low, or that mandated wholesale should be eliminated. Because the so-called independents are actually highly dependent on incumbent infrastructure, they must rely on their larger competitors to connect customers and resolve technical issues, such as network outages. Incumbents are therefore obliged to help their smaller competitors address customer concerns, and complainants at the CRTC have argued that incumbents treat competitors’ customers differently than their own.

From the outside, the whole setup looks ridiculous — as if it was designed to impose contradictory pressures and inevitable conflict amongst industry players (as well as endless proceedings before the CRTC). But to understand this regulatory regime, we need to consider that it was intended as a temporary framework to deliver us to the mythical land of facilities-based competition.

This image from the City of Calgary's November 28, 2014 presentation to the CRTC speculates what a future of competing fibre facilities would look like
This image from the City of Calgary’s November 28, 2014 presentation to the CRTC speculates what a future of competing fibre facilities would look like

Facilities-based competition remains a myth because the world it envisions has never been clearly spelled out. Instead, facilities-based competition reflects both the persistent drive to create something resembling a competitive market in Canadian telecom following the monopoly era, and a rejection of the sort of structural (and functional) separation practiced in other parts of the world (most notably, large parts of Europe). Facilities-based competition means a telecom marketplace populated by competing networks (facilities): the Bell network competing with Rogers, TELUS, Shaw, and whoever else can afford to build telecom infrastructure. It has never been clear just how many competing networks there should be (with the exception of wireless, where the previous government seemed committed to bringing about four national competitors). However, while incumbent participants at the Blockbuster love to emphasize just how hard they compete with one another, the CRTC has repeatedly indicated that the current state of competition leaves a lot to be desired. Although Canada has hundreds of service providers, their facilities often do not overlap. Incumbents are sometimes classified as operating either inside or outside of their “territory”, and are reluctant to “overbuild” facilities where these already exist in a competitor’s territory (hence, Bell and TELUS have been repeatedly criticized at the Blockbuster for “sharing” facilities in their respective territories). Smaller competitors have sometimes wondered just how many competing wires the world of facilities-based competition imagines going into each home, and where the money to build all of these competing wires is meant to come from.

The CRTC has tried to address the inadequate state of competition in Canadian telecom through the mandated wholesale regime. The original idea (known as the stepping-stone or ladder-of-investment theory) was that small competitors could use the facilities of incumbents until they grew to have competing facilities of their own. Once some adequate number of competing facilities had flowered, the hand of regulation could fall away, and the market would take care of the rest. However, this never happened.

Instead, mandated access seems to be here to stay, and regulators talk a lot less about facilities-based competition than they used to.

The 2016 Telecom Summit

You can see the changing view of the mandated access regime through the past six years of the Blockbuster. By this year’s event (concluded earlier this month), the legitimacy of the regime was hardly raised as an issue (although Ted Woodhead from TELUS did remind everyone that the job of the CRTC had been to promote facilities-based competition, and that’s what “got us to being a leading broadband nation in the world”). A somewhat bigger concern was whether the CRTC was flouting the “law of the land” by effectively ignoring the 2006 Policy Direction — a document that was in many ways the high-water mark for the idea of facilities-based competition. There’s some dissonance in a regulator that has to justify its actions with reference to a document from a previous era in policy. Since the Policy Direction still stands, every decision the Commission takes is haunted by the ghost of Maxime Bernier reminding Canadians that they live in “a capitalist country, a country of freedom, and that regulation must be as limited as possible, to allow market forces to play out, particularly in telecommunications.”

Since 2006, we’ve seen a decade of continued mandated access, and a gradual acceptance of the fact that this regulatory approach is here to stay, even if we’re not clear on what the outcome is meant to look like. The recent expansion of mandated access to fibre seems to aim for a world of competing “middle-mile” networks, since the CRTC recognized that competitors “cannot feasibly or practically duplicate” last-mile wired networks (the part of the network that physically runs into your home).

I should note that the ghost of Maxime Bernier haunting the CRTC is just the imprint of his time as Minister of Industry between 2006 and 2007. The man himself is very much alive, seeking the leadership of the Conservative Party, and also spoke at the 2016 Telecom Summit. There, he lamented that the CRTC “seemed to take the Policy Direction seriously for a few years” before it “reverted back to its old ways”. Echoing incumbent positions at the Blockbuster (and deploying the wisdom of Ronald Reagan), Bernier asserted that the CRTC had failed to recognize just how much competition there was in Canadian telecom, which led him to conclude that the Commission should get out of telecom regulation altogether.

At the 2016 Regulatory Blockbuster, there were no calls for the CRTC to get out of regulating telecom competition and wholesale access, but incumbent participants gave their usual warnings about the harms of regulation, and much of the discussion was about what the role of the CRTC should be in these times. The first set of opinions was on Chairman Blais’ remarkable statements about digital strategy during the Basic Services hearing. Then (after a suggestion for CRTC procedural reform floated by Mirko Bibic), discussion turned to Commission’s relationship to industry and the public. Incumbents expressed the desire for a better way to sit down and talk with the CRTC, and even PIAC’s John Lawford voiced agreement that things had gotten out of hand in recent hearings — with so many diverse voices pulling the discussion every which way. The Commission has tried to do a better job including the public, and recently numerous people have been engaging with the process for the first time. Admittedly, hearings would run more smoothly if there was a single voice speaking for the public interest, but that’s not the direction things are headed.

The rest of the time was spent discussing those topics that have come to the fore depending on the regulatory cycle and the whims of politicians. The biggest of these was the Basic Services review (and how to fill various gaps in connectivity), but Quebec’s Bill 74 also came up for discussion. While most Canadians haven’t heard of this issue,  telecom lawyers are seriously worried about what it means for a province block websites in order to maintain control over gambling.

Conclusion

So what do you learn from watching close to ten hours of Canadian telecom lawyers on a stage? First, as someone who tries to study changes in telecom policy, the archive of these videos is a very valuable resource, for which I’m grateful to the Summit organizers, CPAC, and the participants who put themselves up there each year.

Secondly, some new regulatory issues come into play at each Blockbuster, and some things stay the same. Facilities-based incumbents are going to keep advocating for facilities-based competition, but in 2016 this means pointing to a previous era in telecom policy. Incumbent representatives at the Blockbuster like to fondly remember previous iterations of telecom regulation (remember when government said it would let the market sort things out?), because today’s regulatory environment seems more hostile and just plain confusing.

What was once meant to be a temporary scaffold (mandated access) has become an enduring regime. Facilities-based competition was once the goal of regulatory liberalization, but at the CRTC it has now either shifted in meaning (from the last mile to the middle mile), or describes some competitive ideal that will always be out of reach. Since there seems to be no appetite for getting rid of mandated access regulation on the one hand, or for doing away with the goal of competing private networks on the other, this ambiguity seems set to continue for a long time.

Cabinet Rejects Bell’s Wholesale Appeal

DSCN5972cropToday, we learned what the Government of Canada thinks about Bell’s petition to overturn the CRTC 2015-326 Telecom Regulatory Policy, which will open fibre networks to wholesale access. I’m not sure if anyone is surprised by this decision, since there were no indications that the Liberal cabinet (namely, Navdeep Bains, Minister of Innovation, Science and Economic Development) was predisposed to favour Bell’s position. In fact, there hasn’t been much indication of what the Liberal government’s stance is on telecom policy, or how it differs from the previous government. As a result, many are looking at this decision as a “first hint” of what to expect.

So, let me join the speculation about what this 200-word government statement really means:

First, cabinet recognizes that “wholesale broadband is a proven regulatory tool for enabling retail competition in the Internet service market”. This aligns with the increased legitimacy granted to wholesale access by the previous government, along with the CRTC’s decisions in recent years. The wholesale access regime is no longer imagined as some temporary stepping stone to facilities-based competition; mandated wholesale is here to stay. If the CRTC wants to focus the scope of facilities-based competition on the middle-mile, that’s fine, but this government values retail competition and consumer choice.

This government also seems to be playing it safe and leaving its options open. Supporting the CRTC is the default choice for cabinet, and there’s no strong reason or principled policy here for doing otherwise. The language used by the Minister echoes the Conservatives’ consumer-focused telecom populism, but it also indicates that the government’s telecom policy boat is maintaining its current heading. If this continues, the Liberals could simply avoid leaving their mark on telecom policy and manage the file according to a familiar pattern: espousing the importance of competition, supporting access to incumbent facilities, and distributing one-time injections of funding to individual broadband projects.

The other option would be for the Liberals to do something distinctive, which is probably what CRTC Chairman Blais was hoping for when he brought up the lack of a broadband policy in this country. There’s still no reason for me to believe that any distinctive digital policy in the works, and if it is, it will likely be a long time coming as the Liberals have plenty already on their plate. In the short term, the Bell-MTS deal could be another opportunity for the government to spell out what its vision of a competitive telecom industry looks like. However, my guess is that we will learn more from the government’s decision in that deal than whatever brief statement accompanies it.