In a bygone era of telecommunications policy, the Canadian state conferred regional monopoly privileges on companies such as Bell Canada and B.C. Tel (today Telus), and in return those companies were required to meet certain social goals, perhaps the most well known of which was universal service. Some might call this part of a “regulatory bargain.”
Telephone companies were expected to provide service to everyone in their service areas, even when it was “uneconomical” to do so. The system worked relatively well for Canadians who would otherwise not receive service – under the requirement to provide service at “just and reasonable” rates, the telephone reached nearly every Canadian – 98.7% of us according to Winseck (Reconvergence, 15) – by the end of the 20th century. Telephone companies, for their part, benefitted by being sheltered from competition and through regulation which encouraged cross subsidy.
In order to achieve universal service, carriers were allowed to cross subsidize local service (seen as an essential tool for modern life) with revenues from long distance calling, which was primarily a tool of business. By the 70’s, businesses (like banks) who were operating on an ever greater economic and geographical scale had begun to chafe under this regime. And so those companies led a drive for lower rates, to be achieved through the introduction of competition. The idea was that competitive provision of telephone and other telecommunications services would drive long distance rates toward cost and also ensure the “economically efficient” provision of local service. It was a sexy idea at a time in history when stodgy monopolies found themselves increasingly at odds with their customers, new service and equipment providers, and demands from the public more generally.
One problem that arose was this: economically efficient pricing for local telephone service did not neatly coincide with socially optimal (universal) access to the telephone, and the established monopolies had come to depend on regulation. The CRTC and the Department of Communication (absorbed by Industry Canada in 1993) spent the better part of two decades “introducing” the telecommunications industry to competition, an awkward process for an industry used to a half century of monopoly protection from the state and a regulator with a proven means for achieving social policy.
Naturally the incumbent telecom companies resisted at first, but eventually they embraced competition and turned their attention to ensuring that they would come out of the transition on solid ground. Competition in long distance was formally introduced alongside a period of “rate rebalancing” in the mid 90’s, and local competition was established in 1997. This period saw substantial rises in price for local telephone service.
Today, at least in theory, the cross subsidy from business to personal users has been eliminated (the CRTC forbore from economic regulation of local exchange for the first time in 2006) and was replaced with a policy which variously relies on or promotes competition in order to achieve its objectives, backstopped by a contribution regime designed to ensure that areas which remain “underserved” aren’t left behind.
Telephone services are now largely forborne, in no small part due to the fact that voice calling has pretty well become just one among so many “apps” that make use of general purpose computing and networks. Access to broadband Internet is the essential service of contemporary times; and a combination of intermodal competition and open access for third party service providers is relied upon to see that rational and efficient “market pricing” prevails. The state of the art and craft may have evolved unevenly, but the situation we’re in today with regard to broadband networks is nevertheless very much a product of the debates that took place and the ideas that formed around the introduction of competition at the end of the last century.
Thanks to competition, we now speak of prices that are by definition “just and reasonable;” the CRTC forbears from the onerous responsibility to regulate retail Internet access rates; and cross-subsidy is seen as an anachronism. In reality we know that the situation is much less clear cut. Although mention of cross subsidization has become anathema to discussions of fairness in telecom pricing, issues of price discrimination are always lurking just below the surface. Remember, Bell famously staked its claim in the UBB debates on the mythical “bandwidth hog” argument, with powerful effects.
Speaking of which, while perusing the Bell website I recently noticed a tab at the top that I hadn’t explored before, so I clicked on the “small business” link and was surprised by what I found. Here’s a side-by-side comparison of the same Internet plan, for residential vs. business users:
The plans look the same, but there’s one important difference. For business users, unlimited usage is built into the plan at no extra charge, while residential customers must pay an additional $30 per month for that feature.
What this comparison tells us is that Bell is currently charging small businesses $56 a month for the very same unlimited service that costs residential Internet subscribers $87.95 a month. In addition, Bell even throws in “better support” for business users. Does this type of price discrimination results in “just and reasonable” rates for Internet access?
In theory, competition is supposed to eliminate undesirable or inefficient (thought to be coequal) allocation of resources. In practice, however, pricing of services in a regulated industry (even when regulation is designed primarily to achieve competition) reflects social and political judgments (not just economic ones) about what fair pricing looks like. Pricing that is preferential toward business is clearly consistent with a policy that promotes e-commerce, which could arguably use a boost in Canada. But what about ordinary users? Are we losing out?
We ought to consider whether the current level of reliance on market forces is having unintended effects, importantly with regard to the achievement of universal high quality service for Canadian citizens. We should keep in mind that competition and regulation are means and not ends in themselves. There is evidence which suggests that we should be doing better on both accounts. Broadband penetration (of at least 5Mbps) remains stubbornly low at 67% of households. (CRTC CMR 2014, Table 5.3.0) Usage remains capped for the most part (with the exception of independent ISPs), and let’s not get started on the nightmare that is telco customer service. Industry Canada has announced measures to fund expansion of services to rural areas, but similar efforts have been tried before with less than spectacular results, and the current “Connecting Canadians” program has been regarded as weak by industry observers.
The CRTC is currently undergoing proceedings in all three major areas: broadcasting, mobile wireless, and wired telecommunications. Next year it is scheduled to begin a proceeding to examine whether its “basic service obligations” are being met. Front and centre at all of these proceedings needs to be the issue of whether Canadians have affordable access to high quality communications services. I hope that both participants and the Commission will be open to consider the extent to which the current balance lives up to the goals of Canadian telecom policy, viewed not just from the perspective of efficiency but from the social side of things as well.