Tactical Misdirection in the Network Neutrality Debate

As the FCC proceeding on network neutrality gets closer to a critical point it is interesting to witness how the contending parties are attempting to influence the regulator, Congress and the public. These generally fit within the following categories:

1. Obfuscate the issue so that it becomes difficult to impossible to discern what network neutrality actually is and, when confusion is successfully established, offer a clear and simple solution which coincidentally (!) benefits the proposing party or at least is disadvantageous to its competitors.
2. Obfuscate another's obfuscation of the core issues (see previous point) and then offer a clear and simple solution which... well, you can fill in the rest.
3. Disentangle and clarify the core issues so that everyone can have a clear understanding of the numerous technical and business aspects of network neutrality. Sometimes this is done in an effort to facilitate the discussions but can sometimes be used to promote an agenda. The agenda may be to maximize the public good, but that is still an agenda.

Perhaps a simpler way of saying this that everyone has an agenda and will do what it takes to promote that agenda, even if occasionally one must go so far to even resort to the truth! Unfortunately the volume and quantity of proposals, attacks, misdirections and often poorly-informed reporting makes it difficult for the targets of all this (mis)information to understand anything other than what the best-placed voices want them to conclude. In other words, the public discourse on network neutrality is not only a mess, it's a political mess.

The FCC is quite used to putting up with attacks from the public, industry and Congress. While some of it is justified, it is also true that there are many competent people on staff that understand the issues perfectly well. With perception being reality (as the saying goes) they end up spending much of their time fending off the attacks rather than crafting good public policy that is in accord with the letter and spirit of the law. That, of course, is the objective of those attacks; while the FCC gets knocked around the key players, those that stand to gain or lose from what the FCC ultimately decides are busy influencing the politicians who are in a position to make their interests take precedence in the FCC's deliberations. Politics and regulations are inseparable, whether the industry is telecommunications, resource extraction, banking or pharmaceuticals. This isn't going to change.

Despite the sorry state of affairs, allow me to briefly describe what I believe are a few of the key industry issues that get bundled under the network neutrality banner, since they are so often obfuscated, conflated, misrepresented or otherwise mangled by so many of the antagonists.

• Carrier control over vertical services: It is always in the carrier's interest to be the provider of all services offered to the public over their networks. Vertical services -- value-added services over and above raw carriage -- have higher margins than transporting bits. This should be apparent if you think about it, although I went so far as to calculate the added benefit years ago when the array of services was much smaller than today. Even better is if the carrier not only offer these services but also can exclude others from offering these services over their networks. This is why the FCC's intent to reclassify broadband under common carrier regulations is bringing out the big guns in political lobbying. This is also why Bell Canada is so opposed to GAS-enabled 3rd-party ISPs and why Bell Canada toyed with building a content empire, including CTV, and Comcast is acquiring NBC. However it is possible to push too hard and suffer what Australian government has just done to Telstra by splitting wholesale (network utility) from retails (vertical services). Yes, sometimes governments really do try to favour consumers over major corporations.
  
• Traffic management: Every carrier requires mechanisms to manage network performance so that no one user sees more their share of service degradation; network capacity is always finite -- even though it is expandable, within the bounds of reasonable capital expenditures -- and there is always the risk of one user's activity impacting the service quality of other users. This is especially true for broadband, more so than telephony, because there is a wide range in volume and timing of traffic demand across the user base. The problem comes when traffic management is surreptitiously employed to favour the carrier's own business interests over that of other services that their broadband users choose to access, even if they are not directly competitive with equivalent services offered by the carrier. It has been surreptitious or even misrepresented because blatant discrimination can result in serious political fallout and harm their long-term interests if the government feels compelled to quell voter outrage with some heavy-handed market intervention. Traffic management will remain an issue even if broadband falls under common carrier regulation because it is so much of a cat-and-mouse game where the carrier has all the control and outsiders are hard-pressed to prove a solid pattern of discrimination.
  
• Volume and speed pricing: When control over vertical services and traffic management are prohibited or otherwise fail to glean the revenue and market control the carriers would like, they can in the end resort to pricing strategies. These fall into the categories of usage-based billing (UBB) and speed tiers where the more data you consume and the higher the access speed you desire, the more you pay. If (and I mean if) the carriers are truly relegated to the role of broadband utility with no competitive vertical services and no ability to throttle selected applications, it can be reasonably argued that pricing should be in proportion to network load. Where this crosses the line into the realm of network neutrality is when they price by volume and speed in a manner that is implicitly discriminatory, especially if they pursue this strategy in parallel with offering competitive vertical services. This has come up time and time again in the CRTC proceedings on Bell Canada's GAS technology coverage and traffic management practices where the accusation is that if they do not similarly throttle or price their own retail services then they are ensuring 3rd-party ISPs offer an inferior service. Also telling is how carriers position and promote volume and speed tiers that can inherently place a monetary burden (or at least allegedly) on users that subscribe to services such as Netflix, where there is in effect an extra charge to the user for downloading a movie or other bandwidth-intensive media. That is, even if the carrier isn't or is prohibited from these high-value vertical services, by pricing broadband with surgical precision they directly derive revenue from those services. Precision is required since if the price-volume boundaries are too aggressive, the majority of users will be hit even though these types of services currently have low penetration (although this will change) or, in the other direction, they will fail to garner the desired revenue from carriage of those services. That is, they want to get paid but without attracting unwanted attention from the regulator. This is the reason they make a public show of all the pain they feel when a (current) minority of users use these services. If successfully executed, the regulator doesn't act and their revenue will climb substantially in the coming years. Of course if they offer competitive media services they can even double dip.

Apart from the tactics I listed at the beginning of this article I was planning to say a bit more about how the US carriers are manipulating the regulatory proceedings and political process on network neutrality to get what they want, but I've run out of time. I'll come back to this in a day or two.

To end this article I will repeat a point that I (and many others) have stated: in a truly competitive market there is no need for regulations over company business practices and services since market forces alone will compel all companies to lower prices and offer more and better services if they intend to survive and maximize shareholder value. We are still a long way from achieving that in the telecommunications industry despite what many of dominant carriers would like us to believe. There are few enough choices for consumers to reach the content and services they desire that all these political games do have a major impact. The fight for and against network neutrality will be with us for years to come.

White Gold

With the ubiquitous attention on gold's rise it is easy to forget that there are other commodities doing very well. Gold also benefits from an allure that dates from antiquity. Yet when you look at the mundane fact of price and return on investment, it is less compelling. Priced in US dollars, gold's price has increased about 25% from the beginning of the year. This is nice except that when measured in Canadian dollars the rise is less: around 20%.

This was brought home to me when I spoke recently with someone in an industry that depends on cotton. This commodity makes gold look like a value laggard in comparison. While it is particularly volatile right now, it has appreciated about 60% since the beginning of the year, and peaked recently at 100% (all in USD). Not being someone who follows cotton at all, this nonetheless surprised me since I would have at least expected it to get more media attention. Except that the media, like me, can't seem to tear its eyes away from gold.

Although I have no intention of investing in cotton or cotton producers, and it may be in a bit of a bubble right now, it is interesting to look at some of the factors driving it higher. However please keep in mind that my understanding is not deep.

It seems that a large part of the problem is in Asia, especially China, where higher labour costs are causing disruption in the industries where cotton is a major input, such as clothing. As their ability to compete with other countries declines due to higher wages leading to lower margins, manufacturers resort to hording. This may start simply enough, with inventory building up due to slower production, but as supply gets tied up the price rises and leads to more hording. The theory here seem to be that there is a greater return to the manufacturers from holding onto the physical commodity until the price rising even further, and then selling it to other manufacturers, that uses it now in production.

This is not sustainable since unlike gold, cotton is not used as a global hedge against currency depreciation; it is pretty much only valuable as a raw material to make clothing, bedding and other marketable products. When used to speculate, the result is hording:

China’s leaders promise to hunt down and punish hoarders and speculators. According to Andy Rothman of CLSA, a broker, some traders are taking possession of agricultural commodities in the hopes that prices will rise.

It seems that hording is a common feature of Chinese business and is not limited to cotton and other globally-traded commodities. It is happening with perishables such as tomatoes and may also be partly the case with rare-earth metals.

Considering that it takes a warehouse and freight transport to horde and trade a monetarily-significant quantity of cotton, I imagine that ordinary speculators must rely on ETFs and futures contracts. Don't go looking to empty your closets of old clothes to profit from the cotton bubble.

Similarity Of Political Polls and Markets

As I skimmed through this National Post article about the resurgent popularity of French President Sarkozy, I was reminded of the more than passing similarity between politics and markets. At first blush this may seem an odd comparison but not, I think, on closer examination.

• Both politics and markets probes human sentiment, and are therefore both subject to the same attributes of human psychology, especially that of large groups. In particular, they quantify human sentiment.
• Opinions are often strongly influenced by what others are saying or doing. If you think gold is in a bubble, you are likely beginning to doubt yourself by all the people selling jewelry for its melt value and the "gold is going to the moon" headlines in the edgy investment media outlets. The same is true if you keep hearing how good (or bad) a job a politician is doing and you had voted against (or for) them last election.
• When the mob gets enough momentum you get a transitory bubble in the market, and in politics you get Trudeau-mania or Obama-mania. Of course this also works in the other direction to push the market into a tailspin, such as in late 2008, or to oust a political leader, as Gordon Campbell of B.C. recently discovered.
• Opinions are unstable between elections just as are views on companies and commodities leading up to an investments decision. Opinion polls and pontificating on markets are easy since people have no skin in the game.
• Opinions can be entirely different once an election occurs, just as when a buy or sell decision is executed. People then become invested in their choice for a time, often rationalizing their choice to themselves and others, even when it goes wrong. The shouts of denial can get quite loud when the elected do what the voter does not agree with, just as when an investment goes sour. Just look to any pro-Obama or Sarkozy voter, or any gold short.

The particular reason why the new about Sarkozy's popularity struck me is that the polls remind of a dead-cat bounce in the market. If you are unfamiliar with that pattern, it is when a terminally-ill security crashes to the ground and then has a feeble bounce off the pavement before staying down for good. This uptick in Sarkozy's numbers could be just that.

Of course this isn't certain until the opinion cycle completes and we know for sure whether the decline resumes or if his reputation is on the mend. This, too, is true in the markets. If it were possible to bet on his future popularity it would be just like trading on pure technical analysis, rather than fundamentals, to those like me who know little of French politics. Both are bets on the behaviours of masses of other people.

Nokia Continues to Spin Its Wheels

Two months ago I (and many, many others) speculated or hoped that the changes in Nokia's top management augured well for a change in strategy. In particular, I wondered how they might now respond to the challenge from iPhone and Android. The choice is stark: Symbian is old and difficult to upgrade to compete on features in a timely fashion or switch to Android. Those aren't the only choices since even Windows is now showing some promise. However they haven't diverged too far from their previous trajectory by banking on MeeGo.

The question I have to ask is how exactly does this decision help them? They know they have to do something, and fast, but I suspect that pursuing MeeGo will only delay their ability to effectively compete. MeeGo remains feature poor in comparison to iOS and Android, and those platforms continue on a fast development pace. Yet their stated reason for sticking with a unique platform is to differentiate themselves from others.


There was an interesting article in the Wall Street Journal this week on Nokia's current direction that is well worth reading. I'll quote a few lines from that article in this post.

Though the go-it-alone strategy puts Nokia in competition with an increasingly powerful Google, the rise of smartphones has forced cellphone makers to differentiate their products and generate profits increasingly through the software they offer. Using Android or another platform would likely leave Nokia in the steadily lower margin business of hardware.

Alberto Torres, Nokia's executive vice president for MeeGo computers, argues it also would tie its hands in distinguishing its smartphones with new innovations, ultimately benefitting Google's search business at Nokia's expense.

Referring to other handset makers that have adopted Android, he said in an interview at the Dublin developers meeting this week: "Frankly, some of these alternatives in the market are not necessarily providing a lot of opportunity for innovation, and that is what we hear from people who are using those platforms at the moment."

Nokia has said this before and I still don't buy it since they are not at all clear at stating just what it is that will demonstrate their innovation. That is, what will MeeGo allow them to do that Android cannot? Innovation does not just mean different, it has to mean something unique or better. Instead we hear again about the Ovi store, their developer community and proprietary applications.

Nokia also has spent heavily to catch up to the iPhone and Android with its own platform and set of software services, under the brand Ovi. Those investments include its $8.1 billion acquisition of digital map maker Navteq in 2007, which competes directly with Google Maps.

Pairing with Google at this point would mean negating all of those investments, said Roberta Cozza, an analyst with Gartner. "Putting everything into Google's hands would mean all the work on Ovi would be gone, and I am not sure what that would change for them," she added.

This is misleading since it is certainly possible to put their maps applications onto Android and still keep their Ovi brand. They can even negotiate with carriers to choose their proprietary apps over Google's for the Android devices they market. I am left wondering if they are feeling uncertain about competing head-to-head with Google and prefer to use platform lock-in to promote their apps while also barring others.

The danger is that they could lose both the phone and software business if Nokia smart phone products continue to lag and the carriers simply go with the platforms, and device vendors, that give their customers what they want. As time goes on, that list is less likely to include Nokia, with or without MeeGo and Ovi. App developers will continue to make the same decision, leaving Ovi with a growing application gap.

Nokia's decision to push MeeGo over Android stems in part MeeGo's capability to support not only smartphones, but a variety of products consumers use including tablets, televisions and even automobiles, [Gartner] says.

This is obviously false, and I am astonished to hear it from anyone, especially an analyst that follows the industry. By next year the market will be awash in Android tablets and a growing list of other devices. In contrast, MeeGo is still in catch-up mode.

Nokia has to seriously -- and I do mean seriously -- determine how they can be different with a compelling platform and portfolio of products and services. One can only hope that they do know and are choosing to play it close in their public statements for the present. Nokia is a good company so when the new management team comes to a point where they are able to implement major changes, they may do so. To succeed they need good hardware, user interfaces and a few innovative apps and services, all of which are within their ability. However none of this requires Symbian or MeeGo.

Economic Impacts of Spectrum Auctions

Radio spectrum is a peculiar asset. It exists, it is continuously renewable, under certain circumstances it can even be shared. If its use is uncontrolled there is ample opportunity for impairment of services which exploit the resource. There is good reason to believe that eventually -- but not anytime soon -- that with more agile and intelligent technology, sharing and optimization can be largely automated. For the present we need regulations and licensing to allocate spectrum to specific users and how it's used.

Up until the mid-1990s the commercial and technological requirements for mobile phone spectrum was quite modest. The number of users was comparatively small and analogue voice technology was amenable to fairly uncomplicated channel management protocols. Governments tended to assign spectrum licenses to a select group of companies, and used those licenses as a tool to either further strengthen incumbent carriers -- some that were owned in part by the same governments -- or to foster competition by splitting spectrum among several companies with the demonstrated wherewithal to build a sustainable business.

Then came the idea that spectrum is a national asset that can be assigned a market price and can therefore be leased to competing entities by means of open auctions. Always ready to open the treasuries to new revenue streams, especially revenue not derived from broad-based taxes, the politicians listened and made it so. This idea was implemented with enthusiasm in the US, where they raised many billions of dollars. Canada and other countries picked up on the idea and spectrum auctions spread across the globe. Governments enjoyed the windfall of the wild bidding wars that ensued, and their populations liked the idea that taxes could be avoided even while expanding public services with this new revenue source. Of course nothing is ever that clean and simple: there is a public cost, even though it is sufficiently disguised to fool many people.

Besides the specific problems that they raise, spectrum fees share one big problem with auctions: They can too easily be used as cash cows. Experience shows that the government always needs more money, in booms and in recessions. Nearly $6-billion has already been earned by the federal government in auction proceeds, and $130-million is paid in annual spectrum fees at current rates.

Even at $130M annually these annual spectrum fees are not onerous. If we assume 24M mobile phone users in Canada, that works out to about $0.50/month/subscriber. That isn't much, even if it is annoying, and it is hidden in the price of service. Yes, you and I are paying those spectrum fees indirectly since, as with all input expenses, they are calculated into the price of the service.

This is fair; the carriers are businesses and they should be free to recover their expenses and earn a profit. Except that what we have here is a type of hidden government tax, where the government charges the carrier that then recovers the cost from subscribers. Unlike the fake fees the carriers are so fond of loading onto phone bills, this is a real cost of doing business that is imposed by the government. Unlike manufacturers and excise taxes that were replaced by the GST two decades ago, in part to make explicit to consumers those previously "hidden" taxes, spectrum fees are a current hidden tax on us.

While the annual spectrum license fees are small, that is not true of the basic licenses themselves. As the article pointed out, this amounted to a one-time fee of $6B. That works out to $250/subscriber (this is a grossly simplified model, though sufficient for the present discussion). This is amortized over a longer term than the annual fees so that, assuming a 10-year term (for planning purposes), it works out to $2/month/subscriber. This is beginning to become a significant portion of the prices we pay, and it get worse. First, the $6B must be paid up front once the auction is concluded (or sometimes in payments over a year or two) and in most cases the winning carriers must borrow to pay for the licenses. Just like with mortgages, the final cost can be substantially more than the original spectrum license fee. This is accounted for in the carriers' actuarial calculations so that the prices they charge us also cover their borrowing costs.

There is more. The way in which the government conducts the auction affects the development of competition, or the lack of it. This happens in two distinct ways, which I'll cover in turn. First up, which companies can bid for spectrum.

Rogers Communications Inc. chief executive Nadir Mohamed urged Ottawa to speed up plans on a key auction for new airwaves while saying federal officials must ensure the bidding does not disadvantage "made-in-Canada companies" like Rogers.

"In the last spectrum auction, the government restricted who could bid . . . existing customers were disadvantaged and unable to bid on certain blocks of this spectrum. This can't happen again," he told business leaders during an address to the Economic Club of Canada on Wednesday.

Here we see how governments restrict which companies can bid in spectrum auctions in order to enable competition. Unlike with wired telecommunications where incumbents have a dreadful advantage over new entrants, the playing field in wireless is fairly amenable to policies of this sort. An additional benefit of restricted auctions of this type is that the winning bid is likely to be lower. When the financially-stronger incumbents are kept out, the new companies are less likely to run up the price in a bidding frenzy; they all have somewhat similar financial realities and can be expected to bid in accordance with that reality. This keeps the spectrum license fees lower and, at least in theory, allows the new entrants to keep their prices lower than older companies that may have paid more in open auctions.

Yet even so not all is well, as we discovered back in the 1990s. New entrants such as Microcell (the original Fido) were eventually acquired by the incumbents, and the same can occur again. Lower spectrum license fees due to a restricted auctions are only relatively lower; they are still very expensive for a company starting with no revenue and about to embark on an expensive network construction project. All of this must be financed and it leaves these companies vulnerable to business hiccups, increasing interest rates and revenue downturns due to price competition.

If the incumbents are allowed to bid on new spectrum, the new entrants will typically find themselves paying more for the licenses they do win. We should expect that the hungry and stronger incumbents will bid aggressively. They win whether they win or lose the auctions: if they win the auction, competition is avoided and they can raise prices to their captive market to recover the cost of the newly-acquired licenses; if they lose the auction, they have driven up the license fees by participating in the auctions so that their competitors are thus more likely to fail or to fail sooner due to the increased financial burden. We lose because, no matter which carrier wins the auctions, we will be charged higher prices to compensate for their spectrum costs.

[Pierre Peladeau, CEO of Quebecor says,] Predictably, the same incumbent voices that opposed an equitable distribution of spectrum in the last auction can once again be heard calling for an auction devoid of any rules that could hamper their dominant role in the market.

The second impact of spectrum auctions is a little more subtle, but just a little. Although the carriers must pass on their license fees to customers, there is also a limit to how much they can load our bills in a competitive market. Higher costs due these auctions led to higher prices and, importantly I think, slower network builds. There is only so much capital intensity a company can withstand before compromises must be made. If you can't raise prices you must slow network investment. If you do raise prices, you slow the pace of customer acquisition or you market service more toward business subscribers. Gaining subscribers when you are new to market and are in the midst of building a network is never easy as, for example, Wind Mobile and Quebecor are discovering.

I believe this is one of the reasons why Europe, Japan and some other countries were able to grow their wireless markets faster than the US and Canada in the previous decade and a half. Saddled with heavy debt from both capital expenditures and spectrum licenses, new carriers here have a disadvantage to create competition. In the absence of healthy competitors, the incumbents can keep prices high and not particularly care about rapid innovation or expansion.

As far as public policy goes on spectrum auctions, the government is sacrificing telecommunications infrastructure and the economic activity it would create for the immediate gratification of money in the treasury. As citizens, we have largely bought into this bad bargain, and we are paying the price. Except that the price is extracted from us in the form of high mobile phone bills rather than direct taxation.

I recall one time, many years ago, I inadvertently stumbled into this debate in a meeting with senior FCC staff. It turned out that the most senior person there had been deeply involved in selling the idea of spectrum auctions to Congress. Let's just say that I quickly discovered the political investment that the government had put into this policy instrument and that they didn't take kindly to criticism. The thing is that at first blush it really does seem like a good policy, but I believe as fervently now as I did then that it is a bad policy that costs all of us more money and poorer services and choices than alternatives.

Gold, Reserve Currencies and Global Trade

Imaging that you wake up in the morning and you hear about an unbelievable cataclysmic event that has occurred overnight. As you struggle to clear the fog from your head you think you heard on the clock radio that due to some mysterious cosmic event everything is now exactly half the size it was yesterday.

What a crazy thing you might say to yourself. But how would you convince yourself that this extraordinary occurrence is true or false? You look around and you notice that everything appears the same as before. Then it hits you that if everything is half the size, including yourself, you might be unable to tell the difference. Think about it a little more and you wonder if by 'everything' that really does include everything or just some fraction of the world or cosmos.

You vaguely recall from high school science that if you halve linear dimensions then volume, and therefore mass, will decline by the cube. So you jump onto the bathroom scale and see that it gives the same reading as before. It would seem that whatever occurred with the foundations of physical laws the springs and levers in the scale also seem to be responding in a proportionate manner. You might then consider looking at the sun or moon to see if they've changed, but then you remember that even if you are smaller that if these heavenly bodies are still the same size and at the same distance they would also have the same appearance. Of course there may follow catastrophic astronomical events if their mass stayed the same while that of the Earth decreased, but, well, it all gets very complicated very quickly. All you know is (if it's really true) that there must be something detectable to scientists or they would not know that this peculiar event had occurred and it would not have made the morning's news.

Now imagine instead a slightly (but just slightly) more believable news story. Instead of a change in physical laws, imagine that overnight the Governor of the Bank of Canada announced that effectively immediately the loonie is worth exactly half its previous value. At first you're shocked, but then you notice that little has actually changed. The money in your pocket and bank account are unchanged, and price of goods and services are, at least at first, either unchanged or randomly altered due to general confusion among the public. The intrinsic value of things and labour is no different, so perhaps this makes sense. Or perhaps not, as we will see.

When you are lost at sea and the sky is cloudy you search for a reference point to position yourself. It is the same with currencies (and the laws of physics): you can only make sense of the new value of the loonie by comparing it to something else. What else, after all, could the Bank of Canada have meant except that the loonie is half its previous value in comparison to some reference. For several decades now the world has most often used the US dollar at a reference point. Before then it was gold. Once we left the gold standard -- opting for floating currencies -- the size and resilience of the US economy made that choice only natural. We are now witnessing what happens when their economy becomes unhinged. Pushing the earlier analogies a bit further, this is like discovering that the spit of land you've spied is itself floating freely on the sea's surface, leaving you feeling lost once more.

In the case of the hypothetical devaluation of the loonie, the existence of the US dollar serves us well as a reference since our economies are so inextricably linked and the US economy is so much larger. Declaring, by fiat, that the loonie is now worth US$0.50 is insupportable unless we at the same moment sever all financial and trade ties to the US. If we don't, there will be a rush of capital across the border and abrupt shifts in business relationships that would seek a new equilibrium point, one that (if we ignore the disaster such a rapid change would entail) will restore the loonie to its previous level.

However if the US and Canada jointly halved their respective currencies the impact would be slower if even more monumental, with the loonie getting tossed around like a leaf in the wind as the world comes to terms with the change. The US Federal Reserve is pursuing a policy very much like this at the moment, and many currencies, not just ours, are getting tossed around.

Bank of England Governor Mervyn King said ...“There needs to be a genuine recognition that there is a collective interest in the path along which the current-account imbalances unwind,” King said. “Unless we recognize that, then we will face a situation where more and more countries will resort to policy instruments that will be damaging to everyone.”

 If they persist we will likely see increased momentum to remove the US dollar as a common reserve currency in favour of, most likely, a basket of other currencies. Interestingly this is not too unlike the policy China follows in setting the value of the yuan, which they do not allow to float freely. Other, usually small countries, have tied their currencies in this manner to the US dollar, except in China's case there are some serious impacts on global competitiveness and trade. This makes the currency dispute between the US and China of such global import, and why it is getting so much attention at the present G-20 meeting.

“We will never seek to weaken our currency as a tool to gain competitive advantage and to grow the economy,” Treasury Secretary Timothy Geithner told CNBC in response to Mr. Greenspan's commentary
...
Mr. Geithner had proposed resolving the currency dispute by setting limits on current account balances, which measure trade-and-investment flows.

Ahead of the crisis, the U.S.'s current-account deficit swelled as households consumed imports with borrowed money, ...

Mr. Geithner's bid for current-account targets fell flat amid the anger over the Fed's monetary policy.

Here we see a reference to debt, much of which is being purchased by China. They are obviously interested in maintaining the value of their investment in the US economy, which would suffer is either the US dollar is devalued or, equivalently, the yuan is raised. China isn't budging so the US is initiating a sort of currency war.

Other countries are not willing to sit on the sidelines while this dispute unfolds, perhaps in a manner that will disrupt the functioning of the global economy. Since we live in a world where all national economies are so intricately tied together that currency volatility can quite easily disrupt international business patterns and send all of us into a deep recession: currency stability is needed to allow business investment, today, to proceed by removing the risk of value destruction, tomorrow.

A likely mechanism to replace the reserve currency model might be a basket of major currencies with some type of common asset base to make it workable. Although gold is being brought forward once more as a possible asset base, this is unlikely.

World Bank's Robert Zoellick, says he didn't propose a full return to a gold standard. His objective, he said, was to point out that the gold price is sending a message that the policy fundamentals within the G20 are rotten.

However, gold is not really a suitable standard in the present ear since it no more stable in value than any other commodity; that is, gold does not have any intrinsice value, just scarcity and and short-term appeal to those searching for hedges against currency devaluation and economic disruption. Here's Zoellick again:

The point on gold, and this is the golden elephant in the room, whether people recognize it or not, it is being used as an alternative monetary asset. So I'm not saying return to the gold standard as a control of money stock. But what I'm saying is the price of gold has been telling people is that there is a lack of confidence in some of the fundamental growth policies. So gold in that sense is a reference point, it's an indicator. Now people might wish it wasn't so. But I'm describing the facts as they see it and saying to policymakers: "You have to recognize what this says about the fundamentals of the policy you are pursuing." [You can't achieve confidence with] exchange rates and rebalancing alone.... You want to get the private sector back engaged. The time of government fiscal expansion and programs has run its course.

His viewpoint seems perfectly sensible. Gold, in fact, only has the value that we ascribe to it. The combination of scarcity and demand make it a risking asset class, but one that could reverse tomorrow. Its price is just as volatile as the currencies to which some would seek to tie themselves. Gold isn't even a very liquid asset, for a variety of practical and legal reasons, and for the majority of people it is merely an abstraction underlying the variety of financial instruments that derive from real stores of the metal.

Whether currencies or metals, investing in either is nothing more than betting on human belief systems, and what those beliefs are likely to be in the future. We should leave betting to the poker table and manage the global economy more deterministically. Like it or not, depending on one's political outlook or financial interests, some measure of coordinated monetary policy is necessary to keep our economies, jobs and trade reliably functional.

The US has less than 5% of the planet's population, but it no longer has 30% of the global economic activity. As more populous countries like China and India, not to mention Brazil, Indonesia and many more, continue to rapidly grow their economies and, of course, the well-being of their peoples, it is a question of when not if the US will lose it position as the world's leading economic engine. As Brazilian Finance Minister Guido Mantega said this week:

“The U.S. economy used to reign absolute, it was the strongest economy in the world and stood out from the others,” Mantega told reporters. “Today that is no longer the case.”

The faltering of that engine over the past two years only brings that time closer. As they become one among several dominant economic giants it is only sensible to move away from the US dollar as a reserve currency.

It's replacement will not be gold. Gold's price will continue to move up and down as currency volatility continues, and that volatility is enough to drive investor interest. I don't believe there is anything to be gained in thinking that the gold standard will return, ever.

Rural Broadband: CRTC Decision 2010-805

With the number of articles I've written recently on CRTC actions you might imagine that I follow them quite closely. In actuality I don't. Typically I peruse the major online news media and trade publications on a regular basis, and if I notice an article related to Canadian telecommunications (an interest of mine) I may then skim it for any potentially interesting content. If it's interesting enough I may search for related material, and if it looks worth commenting on I will go to the source -- the CRTC documents -- to see what they're up to. (The CRTC does have a what's new page but I don't read it and, as far as I can see, they don't supply an RSS feed.)

It was in this fashion that I came across CRTC Decision 2010-805 on rural broadband last week. Although this is an important topic in its own right, it isn't one that especially interests me; it was something else about the decision that caught my eye since it said something about how the CRTC operates.

I'll come to that in a moment, but first let's briefly look at what the decision itself is about. Much of rural Canada is (using CRTC parlance) in high-cost serving areas (HCSA). The density is low, the wires are long and even wireless captures fewer customers per tower. Once you leave towns and cities, and are not on a major transportation corridor, not only do you often not have access to broadband service or cable, you are also very often without cell phone service. This is quite a challenge to any objective to extend broadband services to these areas. In light of this, and a pool of over $300M that was slated be rebated to overcharged Bell Canada customers, the CRTC would like to see this used to extend broadband service to 112 rural communities in Ontario and Quebec.

9.      In Telecom Decision 2010-637, the Commission indicated that the Bell companies’ original proposal to use HSPA wireless technology to provide broadband services in the approved communities (the original proposal) did not satisfy the Commission's requirements as set out in the deferral account decisions. Specifically, the Commission indicated that the original proposal did not offer features comparable to broadband service in urban areas such as (i) a variety of service options, including various speeds and usage caps, (ii) an option for a greater than 2 gigabyte (GB) monthly usage allowance, and (iii) an insurance option that would provide an extra 40 GBs of usage for $5 per month. The Commission also considered that the original proposal would not represent the use of least-cost technology. The Commission therefore approved the use of wireline DSL technology and fixed the amount of funds available for broadband expansion at $306.3 million to serve all of the approved communities.

This is in fact our money (if you're a Bell Canada telephony customer in these provinces) since it should never have gone to Bell Canada in the first place. However that doesn't terribly concern me since, while it sounds like a lot of money, that $306.3M is only about $15 per person or perhaps $40 per average household. Despite the modest amount of money involved, it does worry me that the CRTC would use their power over the telcos to decide that money (our money) should be used to further a broader policy objective. This ought to be a political policy decision rather than a regulatory directive to Bell Canada to invest it elsewhere. Even if we concede that the initiative is worthy of this use of our money, it is still only a fraction of what it will cost to truly extend broadband throughout rural Canada.

Mr. Garneau's remarks before the commission are important mainly because significant broadband policy, from the regulator or from Parliament, would require hundreds of millions of dollars, possibly billions, from the federal government...MTS Allstream, a Winnipeg-based service provider, suggested during the hearing last week that this could cost upwards of $7-billion.
...
“If telecom providers are permitted to pick and choose customers and areas they want to serve, all efforts to achieve universal, affordable broadband are doomed,” said John Lawford, counsel with the Public Interest Advocacy Centre, an Ottawa-based consumer advocacy group.

The carriers will, quite reasonably, target service for areas and customers where there is profit to be made. Where it isn't profitable or insufficiently profitable in comparison to making the same investment elsewhere, it is good business to not invest in rural broadband. If the government decides, for policy reasons, that rural broadband is desirable, it should be funded from the public purse -- the general tax base -- like any other program. That is, the government pays the carriers to deploy rural broadband. These types of programs can easily turn into a morass if not handled properly, as evidenced by the corruption-plagued USF (universal service fund) in the US. We don't want to repeat that here.

By now you are thinking that this is what caught my interest about CRTC Decision 2010-805, but it isn't. Instead it is an inconsistency between this decision and an earlier one on high-speed wholesale: CRTC Decision 2010-632, which I wrote an article on, and another on the comments of one of the commissioners. Here is the passage of that earlier decision that I found contradictory to the present one:

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.

In that decision, CRTC said that wireless was not a suitable alternative for wired broadband service, cable or DSL. This was a point of contention in 2010-805, where Bell Canada pushed for HSPA+ (wireless) service as the appropriate technology to extend broadband for those 112 communities. The CRTC agreed! Not only did they agree, they further departed from their earlier decision by requiring third-party ISPs access to that technology using GAS.

11.  Bell Canada indicated that it would also file a tariff to provide access to wholesale HSPA+ wireless broadband services under similar terms of service characteristics as the Bell companies’ existing Gateway Access Service (GAS),[5] in order to allow competitive providers the ability to offer retail broadband services to end-users.[6]

The reasoning presented by the CRTC in 2010-805 does not make clear why wireless is appropriate for these rural communities and for GAS and, further, they make no reference to 2010-632. This is quite interesting. What it really exemplifies to me is the CRTC latitude to make poorly-reasoned and inconsistent decisions without any political consequences. The situation is very different in the US where FCC decisions are frequently and vociferously criticized by members of Congress and even other branches of the government, and their rulings often end up in federal court. It is not surprising that the FCC employs many lawyers to carefully argue their decisions on the basis of legal statutes.

Unlike is another recent decision, this time the cable companies were very critical of Bell Canada proposal to use HSPA+ for rural broadband.

13.  Barrett, EastLink, RCI, and Videotron opposed the revised proposal. These parties submitted that, while they supported the principle of technological neutrality, the Bell companies should deploy a wireline DSL solution as originally directed by the Commission.

14.  RCI and Videotron submitted that HSPA services are now, or are expected to be, available from Bell Canada, RCI, and Videotron in most of the approved communities. As such, they argued that it would be inconsistent with the deferral account decisions to approve the revised proposal in order to fund broadband service where such services are already offered.

15.  Barrett also argued that the Bell companies should be required to provide access to individual components of the wholesale HSPA+ service, rather than the proposed aggregated solution.

16.  EastLink and Videotron argued that approving the revised proposal would result in the subsidization of Bell Canada’s mobile voice service. They indicated that it would be inconsistent with the Policy Direction[7] to distort the competitive market for mobile voice services in the approved communities by funding a technology that could provide both voice and data services.

17.  Barrett, RCI, and Videotron submitted that the revised proposal does not adhere to other principles in the deferral account decisions, as it does not represent the use of least-cost technology to deploy broadband services. These parties argued that alternative broadband service providers could provide a comparable service at significantly less cost than Bell Canada, and submitted that if the Commission approves the revised proposal, it should allow for competitive bidding to see whether other companies could provide the HSPA+ service at less cost.

I suspect they are right to level these criticisms. It does seem unfair that Bell Canada can, with money that ought to be rebated to customer, fund the deployment of network equipment that competes with cable and mobile services from other carriers. It is also interesting that Commissioner Katz, a former executive of Rogers, wrote a dissenting opinion in CRTC Decision 2010-637 to argue in favour of wireless for these rural communities, which was subsequently accepted in 2010-805.

I fail to see the logic in limiting the Bell companies' ability to use alternative technologies that meet or exceed the requirements imposed in the deferral account decisions.

Although I applaud Commissioner Katz's view that the CRTC should focus on service objectives and not specific technologies, I believe the cable companies have a valid argument that DSL could be just as cost-effective for these rural communities. For both DSL and HSPA+ there is a need to back-haul the traffic, from either the central office or tower, respectively, to their core network. Locally, the copper already exists, so the primary economic comparison is between DSLAMs and HSPA+ base stations (towers). Unfortunately, as is routine in these matters, Bell Canada's network costing figures are confidential. All we know is that the CRTC reviewed the submitted material, but not how persuasive it was or if it bore any resemblance to the true costs.

23.  With respect to the proposals to allow for competitive bidding in order to ensure the use of least-cost technology, the Commission notes that it rejected this idea both in Telecom Decisions 2006-9 and 2007-50, since it would add a significant layer of complexity, delay the implementation of broadband expansion, and result in substantial administrative and regulatory burden. The Commission considers that these reasons continue to be valid.

24.  In light of all of the above, the Commission finds that Bell Canada’s HSPA+ wireless broadband proposal is consistent with its determinations in the deferral account decisions. The Commission therefore approves the revised proposal.

Once again we see the capriciousness of an opaque regulator in our telecommunications market. We all need to keep a close eye on the CRTC and similar regulatory bodies if we are to ever see an end to invasive and poorly-justified distortions of the free market. This should worry everyone, including those individuals and companies that benefitted from these recent decisions; today's winners could easily become the losers in CRTC's next decision.

We Need Good Cabinet Ministers

Effective governments require many things: leadership, ideas, structure and process, and communication, among other things. Yet when you boil it down to its essentials it really comes down to people; good, competent people are the key ingredient of good government. The same is true in business, which is why venture capitalists pay such close attention the founding team of start-ups. With good people you can navigate uncertain waters and recover from missteps, since good people will respond effectively in all situations, including bringing in others when needed to make up for skill gaps.

Those with long memories will remember the bumbling incompetence of Ontario's only NDP government under Bob Rae. Although that government was saddled with a massive deficit left over from the previous government, his real problem was a lack of good people. When it came to forming a cabinet there was little talent in the pool of MPPs in his caucus. It seemed at the time that, because up until around the time of the election call there was a poor prospect of an NDP victory, little attention was paid to getting strong candidates to run on the NDP ticket. Rae himself wasn't half bad as Premier, but his cabinet ministers... ugh!

With this thought in mind, I am just a little bit worried about the resignation this week of Jim Prentice from the federal government. From all accounts, even from the opposition parties, he is held in high regard and has striven to do some good things. While true that he also had the long form census file, which was arguably botched, as far as I can see this was far more likely to have been Harper's initiative. This also seems true of some of our more bizarre actions in international fora on the environment.

Nevertheless, I believe the evidence favours him being a strong talent and who has been conscientious about fulfilling his responsibilities within the bounds of the power he has been permitted by the Prime Minister. This is the nub of the problem as I see it. It is also visible elsewhere, such as with Tony Clement. A good manager or leader knows the importance of bringing strong talent onto his or her team. Once you have them, you set objectives and let them apply themselves to the job at hand. Harper is too often loathe to do so. Not being able to read his mind, I have no idea if Prentice resigned for the reasons he stated or he was disappointed in the control the PMO exercised over him and his cabinet colleagues.

I would think that anyone reading this can think of examples, perhaps many examples, of times when your boss micro-managed your activities and would not allow you to do what you knew to be the best thing to achieve the common objective. A penchant for excessive control is a common management flaw. Even if the manager does not trust an employee to do a job properly, that is also the manager's fault since they are responsible for hiring and firing people so that the team is composed of good, competent people, people who can get the job done.

Losing Prentice is unlikely to damage Harper's chances for re-election and may not even make a large difference in the government's performance. He still has some excellent bench strength to replace departing ministers. But if this turns into a trend where, when an election is eventually called, more unduly-restrained, talented ministers choose to escape the yoke and not run, he could have a problem. Or rather, we will have a problem. It is us who will have a less capable government running the country's affairs.

I am of course assuming that the Conservatives will win the election, which polls support and which I expect will happen unless the Liberals make some radical changes to either their leader, their policies or their public relations efforts.

Counting Watts and Technology Literacy

I wasn't surprised to read that many people have some difficulty appreciating the impact of their daily lives on the amount of electrical power they use. I my experience, not many people have an intuitive feel for this sort of thing. It was why, for example, in my article on solar insolation I avoided units like watts per square meter, choosing instead a more arbitrary unit, zenith-hours, that I hoped would resonate with the majority.

From the content of this blog you should not be surprised that I do not have this difficulty. With a strong technology background and a post-graduate science degree I have no trouble understanding machines, software and how many of the now-common and sophisticated devices work. There are also a great many things I don't understand, especially outside of technology; one person can't, or even want to know everything. I take care never to criticize another person's lack of understanding or their lack of interest in understanding.

Instead I have a curiosity about what most people actually do understand, or believe, about science and technology. I am often surprised by what I hear. It is also why I wrote an article about signal strength indicators on mobile phones after the iPhone "antennagate" issue went mainstream because of all the people I encountered that didn't understand the relationship between the indicator and phone performance yet wanted to know if or even why it mattered. That article continues to show up in my web stats as one of my most popular articles, which I'll take as a positive indication that there are people out there who do want to understand more about what makes modern technology tick.

As a side note, another misconception I have encountered, and may be widespread, is how GPS navigation devices work. Everyone seems to get that there is some sort of triangulation going on with one or more satellites that allows the device to determine its position. However there are people who believe that the satellites also download the maps and navigation information to the device. This is despite the fact that these units are clearly advertised with the world region modules and functions that they support. Then I discovered Google's mapping app on Android that does download the maps in real-time, except that it download over conventional terrestrial wireless networks, and is therefore pretty useless on many roads away from cities and major thoroughfares.

Getting back to the subject of counting watts, I have noticed a correlation between the perceived energy consumption of an electrical appliance and the appliance's position on dominance in the home or office. Apart from electrical heating -- which pretty well everyone understands is a major consumer of electrical power -- my non-scientific survey of people informs me that the big-screen television is the major electrical power expense in the home. I suppose it's because it's so present in most people's lives, it's big and it radiates a lot of light and sound. However that's just a supposition on my part because, when I do ask, I don't get any clear reason why they believe this.

Another blind spot is all appliances that produce heat: kettles, coffee makers, microwave ovens, ranges, refrigerators, and even clothes dryers, which are significant power consumers. Of course the totality of the energy they consume is limited by their non-continuous usage. The same goes for devices with large motors, including lawn mowers and washing machines. These are far from universal beliefs, it's just a pattern in what people tell me.

While this is a challenge for the government and the utilities it is perhaps less severe because of our cold climate. The reason is that all the waste heat from our appliance-filled homes heats our homes, in effect lowering the load on the furnace. Electrical heating often costs more than fossil fuel heating, but the differential isn't too large and therefore isn't a great concern most of the time, in my opinion. That is, between the months of October and April; summer is another matter since the additional heat is not only an unrecoverable cost but will, in homes with air conditioning, increase the electrical consumption even more in order to remove that heat.

Although the net impact is perhaps not exceptional, it does have an impact on public policy and electrical power generation. Summertime air conditioning is almost entirely done with electricity (there is no fossil fuel alternative as there is for home heating) which contributes to maximum power consumption occurring at that time of year. Lowering the heat from other appliances (even televisions!), including lighting, is particularly important in the summer in order to both reduce the load on power plants. While the fuel for the power generators can be reduced at off-peak periods, the generating plants themselves must be designed for peak usage, including additional capacity to deal with any temporary failures and downtime for maintenance. We pay for those capital costs since they are amortized over time with increased consumption-based rates.

Asymmetric Pricing: CRTC UBB Decision 2010-802

While we all waited to go trick-or-treating on Sunday evening, the telcos did theirs a few days early. Dressed as little angels they knocked on the door of the CRTC then held out their bags and smiled. When Konrad Von Finckenstein answered the door he looked surprised and worried because he hadn't yet stocked up on candy to pass out to the little ones. Looking around the offices he found something even better: CRTC Decision 2010-802. Hiding their nasty smirks behind their angel masks, the telcos made their way back home to look over their loot. Then the press releases and media articles began appearing.

Bell Canada and other telcos got what they wanted in CRTC Decision 2010-802, giving them flexibility, though not free reign, to charge overage fees (usage-based billing, or UBB) to retail users of their wholesale GAS ISP customers. This does not surprise me, notwithstanding the attitude of at least one CRTC Commissioner, since the CRTC is attempting to allow market forces to work in the broadband sector. ISPs understandably don't like what the CRTC has allowed, and neither do their heavy-usage customers. Although all of us users of broadband have reason to gripe about the potential for paying more, after reading through the Decision I believe the CRTC has struck an appropriate balance. Like a lot of balancing acts it is unstable and will almost certainly require follow-on action in the future as intent and reality drift apart.

Media reports necessarily gloss over the details, instead focussing on news releases, interviews and complaints, which is unfortunate since the actual Decision contains what really matters for those with a strong interest in the matter. As I've done with some previous CRTC actions, I will provide some commentary on those details.

9.      The Bell companies proposed a new grandfathering arrangement whereby they be allowed to implement economic ITMPs for GAS ISPs’ non-grandfathered retail customers, provided that the grandfathering practices are applied on an equivalent basis to the Bell companies’ retail customers. Under the Bell companies’ proposed arrangement, flat monthly rates for unlimited usage would continue to apply for GAS ISPs’ grandfathered retail customers, while the UBB regime would apply for GAS ISPs’ non-grandfathered retail customers.

This is what we get when the regulator gets too involved in a market. The equitable pricing argument is a good one since, now that the CRTC has intruded as far as it has, it has to level the playing field insofar as it wishes to avoid asymmetric mandates among competitors. In their view, however, the telco competitors are the cable companies, not the ISPs; the CRTC sees the ISPs as customers of the telcos, not competitors.

12.  TELUS Communications Company (TCC) and the cable carriers supported the Bell companies’ proposals.
...
35.  The Bell companies requested that the Commission vary Telecom Decision 2010-255 to approve the principle, consistent with what is currently being applied by cable carriers, of a UBB component and an excessive usage charge with a cap at equivalent rates to those imposed on the Bell companies’ retail services, instead of a 25 percent discount.

36.  TCC and the cable carriers supported the Bell companies’ request.

Then again, it is very interesting that the cable companies supported the telco interventions on both UBB and UBB caps. That does not sound like the action of competitors. I would have expected them to either remain silent or to make some bland comments, as is typical in these matters; they don't want to appear either disinterested or too supportive of measures that negatively impact their competitors. I solved this mystery -- or merely my own confusion -- by reading the cable companies' submission on the telcos' request for variance. The answer was there:

Conclusion
14. In conclusion, the Cable Carriers reiterate their support for regulatory symmetry as regards the application of ITMPs to wholesale services, and reaffirm their view that their existing TPIA UBB practices are already fully consistent with a policy of ensuring that UBB terms and conditions are applied no less favourably to wholesale as to retail customers.
15. The Cable Carriers agree with the Bell Companies that it should not matter that some retail customers are grandfathered without UBB, provided equivalent grandfathering opportunities are made available to wholesale customers. Similarly, it should not matter that UBB is applied to some service tiers but not others, or that UBB is applied to residential offerings but not business offerings, provided that when a given offering is made available at wholesale it incorporates the same UBB terms as are applied at retail. Furthermore, to protect against draconian results that could arise from an excessively rigid application of the equivalent treatment rule, it is entirely appropriate and of no offense to the principle of competitive equity to allow for de minimus exceptions to the rule.
16. The Cable Carriers agree with the Bell Companies that the Decision 2010-255 prohibition on waiving UBB charges on a promotional basis is an unjustified interference with the effective functioning of market forces in the internet access market. The Cable Carriers further agree with the Bell Companies that an equitable and effective application of economic ITMPs requires that the same UBB rates and caps be applied to wholesale as to retail customers

With the CRTC so focused on treating the telcos and cable companies equitably in this matter, the cable companies had to support the telcos so that the CRTC would be encouraged to choose the option that most benefited them; that is, the option that would give them the maximum flexibility to increase revenue and reduce ISP competitiveness with respect to TPIA, the cable equivalent to GAS.

10.  With respect to how to apply this proposal, the Bell companies stated that they have implemented a grandfathering arrangement for their retail customers and no longer offer flat-rate unlimited usage retail plans as of 1 February 2007. In their application, the Bell companies submitted that, consistent with their retail practices, a GAS ISP’s grandfathered retail customer would be a retail customer who was with that ISP before 1 February 2007 and whose service has continued without any changes.

11.  The Bell companies further stated that, rather than actively migrating retail customers to usage-based plans, their retail divisions have implemented an approach of increasing rates periodically for customers on unlimited plans to incent customer migration. They requested that the Commission approve a similar principle of applying an unlimited usage plan premium charge for GAS ISPs’ grandfathered retail customers.
...
16.  The Commission considers that, if an appropriate grandfathering arrangement is established for Residence GAS, the requirement of equivalent treatment for wholesale GAS and retail Internet services would be met in a minimally intrusive manner and, consequently, it would not be necessary for the Bell companies to charge UBB rates to all their retail customers prior to implementing UBB for GAS.

http://www.cbc.ca/technology/story/2010/10/28/crtc-usage-based-billing-internet.html
This is the sweetener that appears to have helped sell the proposal to the CRTC, by stating that they will, over time, strive to migrate their own unlimited plan retail customers to similar UBB plans. This point about grandfathering and telco retail customer migration was not made clear in the CBC article I came across, though perhaps other media did better when reporting this.

Now that they need to act even-handed with respect to the competitors -- in the CRTC's judgment -- they feel compelled, by the law, to withdraw the UBB overage charge restriction so that the cable companies are not handed a competitive advantage by the CRTC. In this situation, the CRTC is behaving in a manner similar to a strong labour union. What a union achieves over time is near-equal salaries and benefits for each trade or profession they represent across entire industries, without regard to individual merit or the market forces that the affected companies must operate under. I care for neither since these are overt and excessive interferences in the free market.

30.  The Commission considers that requiring the Bell companies to extend the same UBB promotions to GAS ISPs that they offer to their retail customers would unduly interfere with their operations in the retail Internet services market.

This point on tying GAS UBB rates to the telcos' own retail promotions seems fair to me, if it is only for limited-time promotions and not done as a matter of course as a means to drive the ISPs out of the market. Every company should be able to use this tool of competitive marketing. The ISPs can do the same if they wish. These promotions do have an impact on costs, but that is true of both the telcos and the ISPs. The cable companies strongly supported this point, as can be seen in the passage I quoted earlier.

45.  The Commission notes that, in response to a Commission interrogatory, the Bell companies submitted revised cost information based on an Ethernet growth solution that included the missing cost elements described above. After evaluating the revised cost information, the Commission considers that the Ethernet growth solution would include significant reductions to switching and transmission costs that would offset the additional conversion and traffic migration costs suggested by the Bell companies.

In an earlier article on UBB I talked about the bizarre situation where the CRTC is making determinations on network and engineering costs to determine the basis for retail and wholesale service prices. They've done it again, with no explicit justification, by rejecting the (non-disclosed) cost calculations of the telco with respect to ATM and Ethernet access networks. Although I, too, would be wary of the figures submitted by these companies, the CRTC is unqualified to make the criticism on these fine details. I doubt that this decision will have much real impact on the telcos, it just annoys me to see the CRTC so intrusive and cavalier on these business matters.

As for the ISPs themselves, they can complain about the granting of the variance to the CRTC order all they like -- and they are! -- but this is the price they, and we their customers, must pay. As I've said before, the broadband ISPs live at the pleasure of the CRTC and their policies because only the CRTC can mandate their access to the facilities of the incumbent service providers. For now they will continue to live. How long the CRTC will support their existence remains to be seen. My guess is that when (if?) there is sufficient facilities-based competitive alternatives they will sunset GAS and TPIA.