Elephant in the Room

The National Post has today published an article entitled “Why Canada has third world access to the Internet.” The author starts off by pointing out that, whether we’re talking about wires or radio waves, Canadian Internet services just aren’t up to snuff by the standards of virtually every authoritative international comparison. Our services are too expensive. Our services are slow. They’re capped. And everybody knows it.

The piece goes on to show how this is bad for companies like Netflix. They won’t be able to earn revenue from more subscribers unless we do something about our inadequate data services. Being able to see last season’s episodes of Breaking Bad might be a bonus for some, but it misses the real point. Unless something gives, Canadians won’t be able to take advantage of the myriad benefits that are out there waiting to be had on the interwebs. Netflix is just one amongst a seemingly ever expanding array of options – entertainment is one sphere of activity that’s been made cheaper and better by the Internet, but it’s really just a drop in the bucket when compared to the metaphorical ocean of choices that you can’t make unless you have access to affordable, high quality connectivity services.

Something’s gotta give.

Even the National Post recognizes that Canadian telecommunications is not competitive:

the high price of Internet service in Canada is directly related to a lack of competition in the marketplace.

Not exactly a surprise coming from a publication that’s widely known as a hotbed of revolutionary agitation.

Lack of competition has been a problem since Alexander Graham Bell first registered his famous patent. In fact, it took only a few short years following Bell’s first words through the wire – “Mr. Watson, come here – I want to see you” – for public discontent to reach a fever pitch. The monopolization of North American telephones by Bell and the resultant abuses that Canadians had to endure had by 1905 become so endemic that the government had no choice but to take aggressive action. Years of half-measures, consultations, and push and pull from industry and public led to Parliament’s reluctant recognition that the tendency toward monopoly was a fact of life. After a brief but futile attempt to swim against the current, the government wisely decided to grab ahold of the helm and steer the ship into calmer waters.

Industry practices such as the ability to set prices and manipulate profit rates were regulated in order to ensure universal, affordable access to telephones, which had become a staple of modern life in the 20th century. The prevailing arrangement of regulated monopoly represented a social compromise: on the one hand, virtually everyone got affordable phone service; on the other, Bell got increasing amounts of effectively guaranteed revenue, thanks to the fact that almost everyone signed up. The upshot: about 90 years of stable markets for producers and accessible services for consumers, thanks in large part to strong national public interest regulation.

That compromise started sputtering in the 70’s and 80’s, when industry and government together decided that competition was a more dynamic and efficient approach to providing service. By the 90’s, it was totally broken down, and by the new millennium had been largely abandoned in favour of an industry-led policy of deregulation and privatization. Today, public relations and regulatory affairs careers are made or broken based on how convincingly the argument that Canadian telecommunications are competitive can be made, since the assumption that markets are competitive is the main pillar supporting the government’s ongoing hands-off approach.

You don’t have to read very far into the frequent, voluminous submissions that incumbents make to the CRTC to see the importance they attach to their appearance as ferocious competitors: they’re virtually univocal in their insistence that their trade is characterized by cutthroat levels of “rigorous, healthy, or hyper competition.” The CRTC takes a slightly more measured stance, maintaining that competition is “sufficient to protect the interests of users.” However you classify it, it’s safe to say that no one actually believes that competition is really as intense as it’s made out to be.

The telecommunications industry in Canada is almost as old as our Constitution, and the way that decisions are made about how to structure it are based on something even older: economics. While mainstream economics has progressed through a variety of theories, from the political economy of Adam Smith, to the Fordist-Keynesian economics of the post war period, through to the neoliberal shareholder-benefit theories of Friedman that were in vogue until 2007, one thing remains constant: policy making always looks toward theoretically informed, evidence-based analysis for justification and direction.

Of course, there is no shortage of apologists who make appeals to the science of economics to convince you that we’ve got plenty of competition, thank you very much. Reports such as those produced by Steven Globerman for the Fraser Institute and University of Calgary professor Jeffrey Church are just the latest in a long line of attempts at this kind of alchemy.

Globerman argues that we ought to be striving toward something he calls “workable” or “effective” competition, and Church claims that “there is no evidence [of] a competition problem in wireless services in Canada.” The trouble with these types of “empirical” studies is that they attempt to reinvent the wheel of economics in order to support their pre-established conclusions. Both reports, for instance, rely primarily on the assumption that telecommunications services in Canada would be a total non-starter if there weren’t sufficient (yet ambiguously defined) incentives for private investors to supply money for expensive infrastructure.

In other words, if investors can’t make a killing providing us with service, it’s not worth their while to invest, so we should all just be happy that they’re generous enough to keep ripping us off.

This approach runs head on into the stated goals of Canadian law governing telecommunications, which include:

(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;

(h) to respond to the economic and social requirements of users of telecommunications services;

Last I checked, “users of telecommunications services” doesn’t just mean investors. A regulatory framework that allows the requirements of investors to trump the needs of every other Canadian is doomed to failure.

Through consultations with Canadians and under the adept leadership of J.P. Blais, the CRTC has tacitly recognized this to be true. As a result, they have introduced a Wireless Code to protect consumers, and announced that roaming fees will be investigated. But there is only so much the CRTC can do, since the federal government, on recommendation from an industry-led policy review panel, has ordered them to “rely on market forces to the maximum extent feasible.”

In a recent interview on CBC Radio, Mr. Blais said:

“I’m not a big fan of Parliament telling me what to do, other than giving me the statutory mandate; so I’m not going to start telling Parliament what to adopt or not to adopt as legislation.”

If you listen to the whole interview, you’ll get the sense that the CRTC is doing what they can to protect consumers, but their hands are tied. If things are going to change substantially for Canadians, someone is going to have to go straight to the top and tell Parliament what to do.

Until the shackles come off, service will remain unaffordable for many Canadians, and half-measures on their own won’t make this problem go away.

The National Post wants you to believe that we just need more competition, that an approach that’s failed for years and years will work if we only try a bit harder. We simply need to be smarter in how we regulate, they say; we just need to be more sporting in how we compete. But if the unfolding events of this past summer have made one thing clear, it’s this: when you try to put out a grease fire with water, you only succeed in spreading the flames.

So long as “market forces” are the order of the day, Canadians will be left behind. Before you start to worry, however, you should know that changing the existing approach doesn’t mean we’ll have to descend into some kind of communist dystopia. Activists such as Peter Nowak and Michael Geist have been advocating alternative approaches for years, and more voices are joining them all the time.

But with so many powerful actors tirelessly pouring money and effort into convincing us that the status quo is the way to go, it’s obvious that neither government nor industry are going to magically provide a solution. It’s up to us, hard working Canadians, to realize that we will have to fight for a just, democratic alternative. If this fight is to have any chance of success, we first have to know what we’re up against.

Folks, there’s an elephant in the room. I can see it. You can see it. The executives at Bell, Rogers and Telus know it’s there, no matter how hard they try to convince you it’s not.

The Canadian telecommunications market is not competitive; it’s controlled by an oligopoly.

This is not an insult. It is not a sling; it is not an arrow. It is a fact. No matter to what height of economic theory “experts” ascend, a house of cards is structurally unsound. The basic foundation of economics says that a market which is dominated by a small number of firms who can control the price and output of the product that they sell is by definition an oligopoly. Open any first year text on economics, and it will tell you that this is so.

Do you really need to hear that 3 companies control over 90% of all wireless subscribers in Canada to know that this is true? Do you really need to hear that this control is even more concentrated when broken down by province? Do you really need to hear about the exorbitant profit margins to know it’s true? No is the answer to all these questions. If you pay for the Internet, you know it’s true; that goes double if you can’t afford to in the first place.

Management at the Big 3 can see the elephant, too. But they don’t want you to know it’s there. If everyone saw it, shareholders wouldn’t be able to keep lining their pockets with the profits that its ivory brings. Everyone knows that poaching is wrong, including the people in the incumbents’ boardrooms. But they’re trapped in a system which tells them that they will fail if they don’t deliver the goods one way or another. It’s up to us to set them free.

We can’t go back in time, nor should we. We need to look to the future for solutions. The past twenty years of policy formation and implementation have been based on the flawed notion that allowing private investors free reign over Canada’s telecommunications infrastructure will result in competition that’s fair for all Canadians. But history tells us that this just won’t happen. We may often repeat our mistakes, but nowhere is it written in stone that we can’t learn from them. The biggest mistake we could make would be to underestimate our own potential.
The first step is to arm yourself with knowledge. We need to share what we’ve learned with others, especially those who represent us in government. That’s what the internet’s all about. We need to let our MPs know that we’re counting on them to do their jobs and represent our interests, and that they’re counting on us for our votes. It all starts with us. Let’s make sure we don’t wind up back where we began.
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