CRTC Decision 2010-632 on High-Speed Wholesale

It seems that I just can't help being fascinated with the ongoing series of decisions from the CRTC on access of 3rd-party ISPs to the incumbents access networks. One reason is that I have in the past been a bit of a professional telecommunications policy wonk, though mostly focused on the US. I also enjoy the dynamics of policy development on the part of regulators and legislators, which are so often at odd. Of course I am also a customer of broadband service, and in particular a 3rd-party ISP utilizing wholesale DSL from Bell Canada.

The telecom regulatory dynamics in Canada are particularly interesting at this time since the current government is not happy with the CRTC and its Commissioners and decisions since the CRTC is interventionist more than it is free-market oriented. This is a delicate balancing act since the broadband access networks are essentially monopolies, and it is reasonable to therefore expect the owners of those networks to exercise their market power to the extent they are permitted, but to be too overbearing on what they are required to do to promote competition and innovation impacts not only economic ideologies but also employees and shareholders of the incumbents, and that can have negative consequences for even those people that don't care about these matters. In other words, this is about politics, perhaps more than telecommunications policy regarding broadband competition.

Before moving on to the decision itself -- which I finally had a chance to read over the long weekend -- let's recall something I said recently about how politics and telecommunications regulation connect in the US:

At the top are five Commissioners, where the tradition is to have three, including the Chairman, affiliated with the party of the Administration, and the other two affiliated with the other party. This arrangement is easy to maintain in an effective two-party system, only requiring resignations, re-assignments and appointments soon after a presidential election.

In Canada's parliamentary system we do not give Commissioners the heave-ho after every election, their terms being unconnected to changes in government. Instead the government, if particularly unhappy with regulators, have to construct some justification for removal and then deal with the consequences in the House of Commons. The present government is no exception as we've seen on numerous occasions recently: nuclear safety, veterans' ombudsman, RCMP oversight, gun registry, among others, but not the CRTC. There have been some sniping back and forth in public statements of the Von Finckenstein and Cabinet ministers, but he's still in the CRTC and, as we'll see in a moment, still guiding the CRTC in opposition to the government's wishes.

Now it is time to review the basics of how the present decision, 2010-632 on high-speed wholesale access, ties into CRTC policy. As the CRTC nicely lays out in the opening paragraphs it is about promoting competition and consumer choice, but doing so (as mentioned above) with due regard to the business interests of the incumbents that are being ordered to provide access to all broadband speeds that they offer their own retail customers.

Competition drives innovation and provides consumers with a choice of service providers and service characteristics. The Commission notes that ILECs and cable carriers are offering their retail Internet services at increasingly higher speeds. The Commission considers that, at present, retail Internet service competition results primarily from services provisioned using wireline facilities. Other retail Internet services, such as those offered using wireless and satellite facilities, are not generally substitutes for wireline facilities at this time.

The Commission therefore finds that, at present, there is a continued need to require ILECs and cable carriers to make their existing wholesale high-speed access services – aggregated asymmetric digital subscriber (ADSL) access service and third-party Internet access (TPIA) service, respectively – available subject to a speed-matching requirement. Otherwise, in the Commission’s view, retail Internet service competition would not be sufficient to protect consumers’ interests...

The Commission expects that at a future date, competition among wireline-, wireless-, and satellite-based retail Internet service providers will be sufficient to protect consumers’ interests. At that time, the Commission will apply its essential services framework to the ILECs’ aggregated ADSL access services and the cable carriers’ TPIA services to determine whether they should no longer be mandated.

Back in an earlier decision on usage-based billing (UBB), 2010-255, they chose to limit resale in an effort to encourage facilities-based competition. In my opinion that was an odd place to draw the line on what services they were mandating the incumbents to wholesale. I think where things get really interesting in the present decision is that the CRTC is stating quite explicitly that wireless is not sufficient, at least not now, to offer sufficient competitive choices to consumers. This seems very much in conflict with the government which had overruled the CRTC to get Wind Mobile into the market since they see wireless as the proper vehicle to deliver competition, voice and data, by creating more facilities-based competitors. That is, getting more networks built, not ordering the incumbent carriers to compete with service providers to whom they must open their own networks.

52.  In the Commission’s view, however, the pricing considerations and capacity limitations associated with retail Internet services provisioned using wireless and satellite facilities make them less attractive as large-scale substitutes for wireline retail Internet services in geographic areas where these wireline services are available. The Commission notes, for example, that current prices for wireless- and satellite-based retail Internet services generally significantly exceed wireline retail Internet service prices for comparable service and that speed issues can occur as those systems’ capacities are approached.

The CRTC provides some history to their decision by describing how ISPs created a vibrant, competitive market for internet services back when dial-up was the only realistic choice for the vast majority of consumers.

7.  When the Commission made these decisions, competitive retail Internet service providers were able to provide their services on a dial-up basis, using the customer’s retail telephone service. Therefore, they did not need to use the incumbents’ facilities on a wholesale service basis. As the retail Internet service market began to evolve to higher speed retail Internet services, to ensure these services remained subject to competition sufficient to protect consumers’ interests, the Commission required that the ILECs and cable carriers make some of their high-speed access facilities available as wholesale services for competitors to use as inputs in the provision of retail Internet services.[8]

In other words, when broadband came onto the market, the telcos and cable companies had an unassailable competitive advantage because it was impossible for those ISPs to offer broadband services without access facilities of their own. With dial-up they exploited ordinary, and tariffed, business line services to reach their customers and the telcos, as common carriers, could do nothing about it except watch a burgeoning business opportunity get away from them. They knew that what they had in broadband was a superb tool to recapture those customers who had no reason to subscribe to a relatively poor service from the incumbents, such as Sympatico provided. It is no surprise that they would fight to retain the competitive advantage they have from the network they have built and is owned by their shareholders (that likely includes you if you are invested in a mutual fund).

No matter the economic and political forces, the CRTC is quite clear on what they see as their mission:

16.  On 10 December 2009, the Governor in Council issued Order in Council P.C. 2009-2007 (the Order in Council). The Order in Council directed the Commission to reconsider its determinations in the speed-matching decisions that (a) ILECs must provide their aggregated ADSL access services at speeds that match the speeds they provide for their retail Internet services, and (b) the speed-matching requirement is not limited to the ILECs’ end-to-end copper access facilities, and includes aggregated ADSL access services provisioned using hybrid copper-fibre facilities.

17.  The Order in Council directed that the Commission specifically consider whether

(a)    the speed-matching requirements unduly diminish the incentives to invest in new network infrastructure in general and, in particular, in markets of different sizes;

(b)   in the absence of the speed-matching requirements there would be sufficient competition to protect the interests of users;

(c)    the respective wholesale obligations imposed on incumbent telephone and cable companies are equitable or represent a competitive disadvantage; and

(d)   the impact of these wholesale requirements unduly impairs the ability of incumbent telephone companies to offer new converged services, such as Internet Protocol television (IPTV).

As the CBC reports in this article, the CRTC, incumbents and ISPs have disparate opinions and reasons for those opinions:

The CRTC is sticking to its guns and ordering big phone network owners such as Bell and Telus to offer smaller wholesale companies higher internet speeds, despite previous disagreement from the government... 

"The CRTC’s approach will entrench the duopolistic nature of the communications wireline services industry in many important markets and stifle the ability of competitors to provide new and innovative services," said Teksavvy's chief technology officer Marc Gaudrault in a statement...

Bell said the decision discourages investment in its networks and shows there is a lack of clarity in public policy...

"We need to know, which is it? Do we want as much network investment in Canada as possible, or not? Last year, cabinet sent this issue back to the CRTC for reconsideration. Clearly, this isn’t the decision cabinet was looking for."

Over the next 3 months, which takes us to the end of November, the incumbents have to file fee proposals for these high-speed services and, importantly, the government has an opportunity to intervene and possibly overrule the CRTC once again. Such a turn of events would certainly be in keeping with government policy and would, with some real probability, threaten the tenure of Von Finckenstein at the head of the CRTC; it is difficult to continue making decisions that are rejected by the government and retain any credibility with the industry and the public.

Yet as I think about the situation further I have to wonder if Von Finckenstein is thinking that this time he is free to tweak the government's nose without much risk to himself or the other Commissioners. The reason is that the government is at present in a precarious position in the polls and much move with some caution as the new sitting of Parliament gets under way shortly. Unlike some other decisions, this one hits the wallets of the majority of the electorate thanks to the near ubiquity of broadband service. It is also true that there is widespread hatred and disgust with the incumbents, telcos and cable companies alike, with prices and service quality for all types of telecommunications services.

Canadians (although perhaps not shareholders) gladly accepted a foreign-owned Wind Mobile for this reason, and this worked in the government's favour when they acted contrary to the CRTC. However if they overrule the CRTC this time, for the same pro-facilities based competition policy, it will be seen -- likely with the Liberals' help -- as pro big, unliked monopoly and anti-consumer. I think the government will hesitate and think long and hard about this.

Before ending this article, I do want to draw attention to a few interesting aspects of the decision. The first is that the CRTC (as has been widely reported) would not order the incumbents to reconfigure their networks to provide fewer interconnection points (that would have lowered 3rd-party ISP costs) or allow the ISPs to get around throttling controls and to make it easier for consumers to switch ISPs and services on demand. In my opinion this is reasonable since I dislike the idea of the CRTC ordering technology investments of this sort. I oppose it since I believe this to be an unwarranted intrusion by government in a private-sector business. I state this despite the fact that as a consumer I would benefit from such an order.

Here are those sections that I believe are worth skimming:

• Paragraphs 23-27: Essential services argument that wireline is still an effective monopoly and since wireless is being excluded as a competitive alternative, equitable access wired broadband is required to protect consumers.
• Paragraphs 62-74: Tortuous argument that line sharing doesn't impact ILEC provisioning of IPTV.
• Paragraphs 143-149: How policy objectives are met with this ruling.

If I have the time I hope to write a separate article on the dissenting opinion of Commissioner Timothy Denton. He wanted to have the CRTC intervene more intensely in the affairs of the incumbents and he lays out in some detail, and clarity, why he believes this to be appropriate. If the subject of broadband competition interests you, I highly recommend you read these several pages. I intend to tear apart some of his arguments.