Thursday, September 17, 2009

Taxpayer subsidies for broadband and other big lies

Recently the campaign to save the Internet(didn't know it was in trouble)has ramped up into high gear in terms of rhetoric. According to critics of recent shifts towards a more commercially-based wholesale regime in Canada, "monopoly" telephone companies like TELUS and Bell are trying to kill competition by preventing access to networks built at the expense of the taxpayer. Now to anyone with any sense of regulatory history this is bull. No wait, bull is to small a concept to describe for such blatant and deceptive sophistry. Moose pooh, or MP for short is a better description for sure. Moose pooh is like bull but bigger and more substantial.

A little history here. Bell has always been a shareholder-owned and operated company. TELUS is a combination of AGT,BC Tel, Quebec Tel and Clearnet (with a dollop of Ed Tel thrown in). BC Tel and Clearnet were shareholder owned. While AGT was publically owned a generation back, it was privatized in 1990 well before the creation of the world wide web or the launch of DSL service . MTS Allstream a promoter of the taxpayer MP story, was also once the child of public enterprises (the state-owned Manitoba Telephone system and CN Rail part of the CNCP consortia that morphed into Unitel,ATT Canada and Allstream). However no one today is suggesting that MTS is a taxpayer funded entity.

In point of fact the investment that now supports the Internet for all the major local exchange carriers (outside of Saskatchewan) has been built on the regulated backs of shareholders first under rate of return regulation and subsequently price caps. Cable Internet was built with much less regulation .It is simply beyond myth to suggest, as some do, that taxpayers subsidized investment under ROR. Rather under ROR shareholders of telephone companies were provided a opportunity to earn a reasonable return on investment. The quid pro quo was that prices were kept artificially low to ensure universally affordable local phone service. The local telephone company was never the recipient of subsidy ,rather the local phone customer was heavily subsidized by the phone company in order to achieve universality objectives.

Rate of return was replaced by price caps in the late 1990s, but even before that the CRTC had imposed a split rate base regime in 1995 that moved most competitive investment, including DSL investment out of the regulated rate base. Price caps subsequently insulated subscribers even further from the risk of new investment to shareholders. Even so all that initial DSL investment has been and will remain subject to access tariffs, regardless of what happens around next-generation networks.

The other myth, is the myth of monopoly and the inability of other carriers to invest. First cable not telephone companies are the market share leaders in Internet access based on billions of dollars of infrastructure investment in a more deregulated environment. It is economically inaccurate to call the market share follower a monopoly. Second in addition to cable, a company like TELUS is facing new competition in the retail internet space in three areas. First the Inukshuk, Rogers and Bell fixed wireless play is making inroads at 2.5 and 2.6 Ghz. Second new wireless HSPA networks are being rolled out that will deliver downstream retail speeds comparable to some wireline internet today. Third satellite internet has proved to be another downstram alternative for consumers in rural and remote markets. Again this competition is enabled by billions of dollars of new investment.

Perhaps the most telling evidence of competition and investment is demonstrated by investments made by TELUS beyond the borders of Alberta and BC. By continuing to invest in facilities outside of its heritage borders, TELUS has been executing a national growth strategy that has led to it winning major contracts from the Governments of Ontario, Quebec and Canada away from Bell and other carriers.

Competition is real and investing in the future works. Rhetoric can buy time from government to live under a regulated umbrella (maybe) but it won't support a sustainable business strategy in the face of very real competition.

Friday, September 4, 2009

Bizarre letter raises concerns for safety of banker at CRTC hearings

Just when we thought that the endless regulatory summer from Hull could not get any weirder, lawyers for an alleged (by them) Canadian wireless carrier filed a request for a secret appearance by a secret banker or other financial institution (hmm who could that be we ask?) with secure access to in-camera CRTC hearings so that other Canadian carriers could not be in a position to identify and subsequently do bad things to said secret banker or perhaps his or her friends and family assuming that such friends and family exist.

In summary, the lawyers for the alleged (by us) foreign carrier requests a ruling from the Commission that it will not disclose any information regarding the name or other identifying characteristics of the Bank or other financial institution that may appear at the hearing on this matter to deal with evidence of ******’s (we have removed Globalive’ s name to protect their identity)past, current and projected financing plans and that the CRTC provide secure access to the hearing room for the bank or other financial institution so that representatives of the incumbent wireless carriers or the public cannot ascertain the identity of the bank or other financial institution.

Your erstwhile blogger, having a rather checkered and unfortunately non-anonymous career in regulatory matters, can remember no request quite so bizarre or unprecedented. Not to say that these things never happen in Canada. Why it was only back in 1958 that former Soviet spy Igor Gouzenko appeared on Front Page Challenge wearing his trademark hood to protect him from KGB hit squads.

Whendogsrunfree recommends watching the clip of Igor’s appearance to get a feel for what the CRTC in camera panel hearing may look like. I think you will agree that Fred Davis made a wonderful Chair for that panel. http://archives.cbc.ca/politics/national_security/topics/72/.

While it is a given that in some countries wearing hoods in public is a good idea for reasons of personal safety, Canadians have generally shunned this practice and even our American cousins tend to look askance at the few remaining relics of the past who see hoods and sheets as some sort of fashion statement.

Now I don’t disagree that TELUS will take a hard position on matters of law and principle (like we think as a matter of law and principle that a foreign entity holding 65% equity and 98% debt of a company makes that company foreign), we don’t tend to act like the KGB when it comes to problem solving and as far as we know have never forced our competitors or critics a state of paranoia that requires a hood (although it has been rumored but not ascertained that Michael Geist is prone to Ray Ban’s when near an angry crowd of TELUS employees).

As for the need to protect bankers from the public we can only suggest that after the financial collapse of the last year that they might want to consider the Igor look regardless of the CRTC ruling on this nutty request.

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