LETTER TO THE EDITOR: Confusion reigns over Shaw's Canwest benefits package
Cartt.ca
July 27, 2010
CARTT.CA'S UPDATED STORY on the Shaw/Canwest deal seeks to fill in “incomplete data” on Shaw’s proposed benefits package of $23 million for a transaction reported at $2 billion. That’s not a typo. We estimate that this comes to 1% of the value of the transaction. Since Commission policy dictates 10% for benefits it’s fair to ask: Are we missing $177 million? Let’s look at the numbers.
In their main application, Shaw ascribed a value of the transaction at $475 million. At that point, they were proposing a benefits of $23 million, which would be spent on the conversion to digital of some transmitters outside of the mandated areas for conversion. That is no benefit, but simply a cost of doing business.
Once the transaction became much larger with Shaw’s acquisition of Goldman Sachs’ interests in the former Alliance Atlantis specialty services, the value increased from $475 million to $2 billion, resulting in Shaw being set to become the largest vertically integrated communications company in Canada. However Shaw argues that the bulk of this increase in value should not be considered for the purposes of determining the appropriate amount of tangible benefits because what they purchased from Goldman Sachs did not give them any control, since Goldman was a foreign investor and thus did not have any control over the Canwest assets in the first place.
So according to Shaw, no transfer of control occurred in that part of the transaction thus reducing the value of the transaction from $2 billion to $506 million. But the question is, do we really believe that Shaw will not now control the full panoply of Canwest/AA assets?
Shaw stuck to its guns on the meagre $23 million in benefits and it is only after much prodding by the Commission in numerous deficiency questions that Shaw finally agreed to respond to the hypothetical question of what additional benefits package they would propose “if the Commission were to determine that [Shaw’s] proposal was not sufficient and/or appropriate.”
And what do they propose?
Shaw’s new spin on the benefits package is that they are offering $203 million, or just over 10% of the transaction, but that would include some $95 million in benefits money already owed by Global as a result of the Canwest/Alliance Atlantis merger. In effect, if forced by the CRTC to increase benefits from $23 million, Shaw would pay monies already owed by the company it is acquiring. In fact, Shaw has actually suggested that the Commission would itself be the one doing the double counting if they were to impose a benefits requirement on Shaw that didn’t include what was already promised as part of an earlier transaction.
Shaw also mentions several times the alleged financial hardship of Canwest as a rationale why benefits should not be paid. And yet didn’t Canwest just a few weeks ago report a solid return to profit in its third quarter. Indeed its operating profits have doubled to $150 million from $74 million in the third quarter of 2009.
Shaw also proposes to spend on additional programming content, new media content such as mobile and VOD applications and new morning news shows. It suggests that this adds yet another $85 million to the benefits pot. Sounds like another cost of doing business. Isn’t this money they would be spending in any event just to compete with CTV? There is no mention of any of these monies going to any third party initiative.
So, once one discounts from the proposed package all the monies which are already owed under promises made with respect to a previous transaction and monies merely associated with the cost of doing business, one has to wonder if Shaw has proposed any true tangible benefits at all.
You have to read the reams of deficiency questions and responses to get any sense of what Shaw is now alleging that they are proposing. That is a problem for the CRTC because as it moves to increase the level of vertical integration in broadcasting by enhancing the dominance of the top three cable companies, there are already concerns being raised by many non-integrated distributors, broadcasters and producers as to how to ensure access and prevent the exercise of undue preference.
On its face such vertical integration poses a threat to access and diversity, so it would be nice to think ,at least in return for upping that risk, that the CRTC got the minimum required benefits for independent creators, along with some safeguards to help the independents sleep at night.
Michael Hennessy
senior vice-president, regulatory and governmental affairs,
TELUS
Wednesday, July 28, 2010
Monday, July 19, 2010
Did the save our local TV debate just jump the shark?
In Saturday's blog I asked I whether the focus on net neutrality might be obscuring more immediate issues of vertical integration in broadcasting. Today's blog asks whether, in light of increased vertical integration the whole fee for carriage /value for signal debate is about to go off the rails or "jump the shark" in terms of its storyline. Broadcasting regulation is not net neutral in the sense that there are all types of mandatory/priority carriage requirements and rules that prohibit the carriage of certain channels. The reasons for this go back to the goal of ensuring that there is an adequate contribution to Canadian programming. That is what the fee for carriage/value for signal issue is about. But what happens when the broadcasters negotiating fees with distributors are owned by the most dominant cable distributors? How do you prevent anti-competitive outcomes in terms of the fees negotiated when broadcasters owned by dominant carriers are negotiating with smaller competitors?
Where net neutrality and broadcasting intersect, is in adherence to the principle of access to ensure diversity and choice. There has long been a central premise under the regulated broadcasting system, that Canadian content providers, particularly independent producers, need access to broadcast distribution platforms, that exclusive distribution is discriminatory, that the system must promote diversity and choice in content and that both broadcasters and distributors cannot engage in undue preference to provide direct competitive advantage or advantage to affiliated properties. The CRTC has also signaled that issues of undue preference in broadcasting apply to exempt platforms like wireless and Internet. Ensuring compliance, we believe, is going to be the CRTC's biggest challenge as it allows the broadcasting industry to become more vertically integrated.
Increasingly there has been a move to increased regulatory support for more consolidation and vertical integration in order to achieve scale in content and to respond to increased competitive pressures from over-the-top Internet content. That led first to major consolidation in broadcasting (CTV/CHUM, Global/Alliance Atlantis) and now between broadcasting and cable integration. There are many issues that need to be addressed in terms of vertical integration including, the whole issue of fee for carriage.
Unless you never watched TV or read newspapers you can't have missed the "save our local TV" vs "stop the TV tax debate" that ultimately led to a national movement to shoot all broadcasters, distributors and regulators that were responsible for this endless exercise in annoying Canadians as they tried to watch TV in the privacy of their dens. The debate was so annoying that it led to an acceleration in the adoption of PVRs to avoid advocacy ads.
A year later you would be forgiven for scratching your head and asking what was it all about in the end. Cable and satellite providers were cast as evil destroyers of local voices and diversity, a position earned in part by efforts of some to kill the Canadian Television Fund. it was argued that only the recently consolidated broadcasters, like CTV and Global, could save Canadian voices by imposing a tax on rich cable companies to pay for local TV production . While broadcasters were making money, they clearly couldn’t afford to simultaneously pay the debt incurred by takeovers of half of the independent broadcast sector as well as increase spending on Hollywood product and still support local TV anymore.
Anyways the collapse of the system was near, unless the regulator stepped in to save local TV and tax cable and satellite. Since no one likes imposing taxes or fees the CRTC, in a flash of marketing brilliance, decided that fees were bad and cable guys et al. should negotiate with broadcasters on "value for signal".
But here is the rub. Somewhere in the middle of this never ending debate, the major broadcasting industry began to disappear. CTV sucked up CHUM and A-Channel and then had to spin off the local CITY properties to keep all the specialty channels. So CITY, the original independent, became part of the Rogers empire and A-Channel continues to exist on life support. TVA the largest private in Quebec was already owned by Quebecor the primary cable company in Quebec. And now Shaw is in the midst of a takeover of Global TV including all the old Alliance Atlantis properties.
Net result of all the regulatory shenanigans over the past 4 years . Half the independent broadcasters are gone along with whatever unique diversity they brought to the table and the separation of carriage and content is pretty much a spent idea. Unless of course you happen to be an independent distributor about to be forced to negotiate a tax with/and for your competitors or an independent broadcaster competing for platform space.
I would submit that the so-called value for signal approach is about the worst process to choose in a market dominated by vertically integrated distributors . In effect the top 3 cable companies now, or may soon own 3 of the top 4 private broadcasters. Any so called value for signal negotiations, assuming the Courts bless the concept, are not neutral like a tax or contribution fee would be. As an example the CRTC sets a telecom contribution fee on all carriers to support access to telephone service in high cost areas but that fee is applied as a percent of revenues and is thus competitively neutral.
Value for signal negotiations on the other hand favor the vertically integrated players and create all kind of opportunities for gaming. For example:
• The fee established between a vertically integrated broadcaster and its cable owner can be waived or set high to impose costs on competitors that the vertically integrated distributor can absorb through cost accounting or cost allocation.
• Since the vertically integrated owners are the largest cable distributors they could argue for a volume discount that smaller competing distributors cannot achieve.
• Vertically integrated carriers could negotiate nominal fees amongst themselves since their mutual payments net out and again it is in their common interest to increase costs of satellite or IPTV competitors.
Now it may be that if Quebecor, Rogers and Shaw are going to own most local TV in Canada there is no need for anyone from consumers to non-integrated carriers to pay a fee to save local TV anymore. Arguably the black knights have become the white knights and have over a billion in free cash flow to do the job for themselves. It seems to me that local TV just got "saved" by the three most profitable broadcast distributors in the country. Surely as part of the regulatory tradeoff in terms of loss of diversity and independent voices for vertical integration, the major cable companies could fix their new affiliates financial problems without the help of their competitors.
This is neither crazy nor completely self-serving. Rogers and Shaw hate fee for carriage, and oppose such in Federal Court. Quebecor wants fee for carriage but on a revenue neutral basis where independent broadcasters that compete with its own content properties would receive less in affiliation payments to offset significant increases in distributor charges. That plan is arguably still not so good if you are an independent distributor competing with Videotron or one of a small number of independent broadcasters competing with TVA.
However if it is determined that it is ok for the top 3 cable companies to own 3 of the top 4 private broadcasters and still receive a fee from competitors, and if the Court gives the go ahead to levy such a fee, then it is incumbent on the CRTC and/or Heritage Minister to make sure that (a) contribution is based on total broadcast revenues just like it is based on total revenues on the telecom side and that (b)the the revenues flow to an independent local TV fund that ensure the money flows to whatever is determined to be necessary to subsidize.
That is the easiest way to prevent undue preference and to increase diversity in the face of vertical integration. Perhaps the Shaw Canwest hearing is a good place to start this debate.
Where net neutrality and broadcasting intersect, is in adherence to the principle of access to ensure diversity and choice. There has long been a central premise under the regulated broadcasting system, that Canadian content providers, particularly independent producers, need access to broadcast distribution platforms, that exclusive distribution is discriminatory, that the system must promote diversity and choice in content and that both broadcasters and distributors cannot engage in undue preference to provide direct competitive advantage or advantage to affiliated properties. The CRTC has also signaled that issues of undue preference in broadcasting apply to exempt platforms like wireless and Internet. Ensuring compliance, we believe, is going to be the CRTC's biggest challenge as it allows the broadcasting industry to become more vertically integrated.
Increasingly there has been a move to increased regulatory support for more consolidation and vertical integration in order to achieve scale in content and to respond to increased competitive pressures from over-the-top Internet content. That led first to major consolidation in broadcasting (CTV/CHUM, Global/Alliance Atlantis) and now between broadcasting and cable integration. There are many issues that need to be addressed in terms of vertical integration including, the whole issue of fee for carriage.
Unless you never watched TV or read newspapers you can't have missed the "save our local TV" vs "stop the TV tax debate" that ultimately led to a national movement to shoot all broadcasters, distributors and regulators that were responsible for this endless exercise in annoying Canadians as they tried to watch TV in the privacy of their dens. The debate was so annoying that it led to an acceleration in the adoption of PVRs to avoid advocacy ads.
A year later you would be forgiven for scratching your head and asking what was it all about in the end. Cable and satellite providers were cast as evil destroyers of local voices and diversity, a position earned in part by efforts of some to kill the Canadian Television Fund. it was argued that only the recently consolidated broadcasters, like CTV and Global, could save Canadian voices by imposing a tax on rich cable companies to pay for local TV production . While broadcasters were making money, they clearly couldn’t afford to simultaneously pay the debt incurred by takeovers of half of the independent broadcast sector as well as increase spending on Hollywood product and still support local TV anymore.
Anyways the collapse of the system was near, unless the regulator stepped in to save local TV and tax cable and satellite. Since no one likes imposing taxes or fees the CRTC, in a flash of marketing brilliance, decided that fees were bad and cable guys et al. should negotiate with broadcasters on "value for signal".
But here is the rub. Somewhere in the middle of this never ending debate, the major broadcasting industry began to disappear. CTV sucked up CHUM and A-Channel and then had to spin off the local CITY properties to keep all the specialty channels. So CITY, the original independent, became part of the Rogers empire and A-Channel continues to exist on life support. TVA the largest private in Quebec was already owned by Quebecor the primary cable company in Quebec. And now Shaw is in the midst of a takeover of Global TV including all the old Alliance Atlantis properties.
Net result of all the regulatory shenanigans over the past 4 years . Half the independent broadcasters are gone along with whatever unique diversity they brought to the table and the separation of carriage and content is pretty much a spent idea. Unless of course you happen to be an independent distributor about to be forced to negotiate a tax with/and for your competitors or an independent broadcaster competing for platform space.
I would submit that the so-called value for signal approach is about the worst process to choose in a market dominated by vertically integrated distributors . In effect the top 3 cable companies now, or may soon own 3 of the top 4 private broadcasters. Any so called value for signal negotiations, assuming the Courts bless the concept, are not neutral like a tax or contribution fee would be. As an example the CRTC sets a telecom contribution fee on all carriers to support access to telephone service in high cost areas but that fee is applied as a percent of revenues and is thus competitively neutral.
Value for signal negotiations on the other hand favor the vertically integrated players and create all kind of opportunities for gaming. For example:
• The fee established between a vertically integrated broadcaster and its cable owner can be waived or set high to impose costs on competitors that the vertically integrated distributor can absorb through cost accounting or cost allocation.
• Since the vertically integrated owners are the largest cable distributors they could argue for a volume discount that smaller competing distributors cannot achieve.
• Vertically integrated carriers could negotiate nominal fees amongst themselves since their mutual payments net out and again it is in their common interest to increase costs of satellite or IPTV competitors.
Now it may be that if Quebecor, Rogers and Shaw are going to own most local TV in Canada there is no need for anyone from consumers to non-integrated carriers to pay a fee to save local TV anymore. Arguably the black knights have become the white knights and have over a billion in free cash flow to do the job for themselves. It seems to me that local TV just got "saved" by the three most profitable broadcast distributors in the country. Surely as part of the regulatory tradeoff in terms of loss of diversity and independent voices for vertical integration, the major cable companies could fix their new affiliates financial problems without the help of their competitors.
This is neither crazy nor completely self-serving. Rogers and Shaw hate fee for carriage, and oppose such in Federal Court. Quebecor wants fee for carriage but on a revenue neutral basis where independent broadcasters that compete with its own content properties would receive less in affiliation payments to offset significant increases in distributor charges. That plan is arguably still not so good if you are an independent distributor competing with Videotron or one of a small number of independent broadcasters competing with TVA.
However if it is determined that it is ok for the top 3 cable companies to own 3 of the top 4 private broadcasters and still receive a fee from competitors, and if the Court gives the go ahead to levy such a fee, then it is incumbent on the CRTC and/or Heritage Minister to make sure that (a) contribution is based on total broadcast revenues just like it is based on total revenues on the telecom side and that (b)the the revenues flow to an independent local TV fund that ensure the money flows to whatever is determined to be necessary to subsidize.
That is the easiest way to prevent undue preference and to increase diversity in the face of vertical integration. Perhaps the Shaw Canwest hearing is a good place to start this debate.
Saturday, July 17, 2010
Time to worry more about vertical integration than net neutrality
I was reading the submission, and it's a decent submission, from the Directors Guild of Canada on the Digital Economic Strategy and one of its recommendations, that gave me pause, was to have the CRTC proactively monitor net neutrality. Now I don't really care too much, assuming my company isn't buried in paperwork but I don't get the emphasis. To me net neutrality is a vague and nebulous concept that tends to mean different things to different people.
Why not hit the nail on the head and just lobby the CRTC under its existing powers to vigorously address vertical integration in terms of carriage and content? That is something that is more precise and more relevant . Heck why wait for a Digital Strategy (could be a long wait re content) and go right at the heart of the matter in the Shaw Canwest Global Hearing which we hear is scheduled for around Sept 25 (rumor)?
Think about it. Three/four years ago there was all this angst about threats to diversity in broadcasting if CTV took over the CHUM assets or Global took out Alliance Atlantis. Then we went through the angst of the save our local TV/fee for carriage debate because the allowed takeovers help put CTV/Global finances in the sink and someone (disributors) had to bail them out for spending too much and overpaying for Hollywood product. Flash forward to September, and all of a sudden there is now even more concentration and independent broadcasters are disappearing faster than the ice cap while the three largest cable companies now own,or are about to own, most of the broadcast assets in a more consolidated fashion than everyone was fussed about three years ago.
Seriously, why the fuss about net neutrality? When TELUS looks at the disintegration of carriage and content we worry about having to negotiate and pay fees to our cable competitors to support their integrated content properties, while they can write themselves a truly blank check.(Nice solution to FFC from their point of view).
We worry that broadcast content from those integrated properties will not be available on our mobile and Internet platforms even though the CRTC says its undue preference rules apply to these platforms. Heck we have to go to the CRTC today just to get access to broadcast content for VOD from at least one integrated broadcaster even though it is clearly obliged to provide it under the rules.
Given the negative attitude towards Canadian content , local TV and/or the CMF from some distributors you would think independent broadcasters, Associations and Guilds would be as, or more, worried about access for their content to platforms for broadcast distribution and less concerned about access to the Internet. The latter may soon be the easiest window to access for independents. Sadly making noise about net neutrality may be reasonable in principle but right now it seems to me like its barking up the wrong tree at the wrong time and in the wrong place.
Why not hit the nail on the head and just lobby the CRTC under its existing powers to vigorously address vertical integration in terms of carriage and content? That is something that is more precise and more relevant . Heck why wait for a Digital Strategy (could be a long wait re content) and go right at the heart of the matter in the Shaw Canwest Global Hearing which we hear is scheduled for around Sept 25 (rumor)?
Think about it. Three/four years ago there was all this angst about threats to diversity in broadcasting if CTV took over the CHUM assets or Global took out Alliance Atlantis. Then we went through the angst of the save our local TV/fee for carriage debate because the allowed takeovers help put CTV/Global finances in the sink and someone (disributors) had to bail them out for spending too much and overpaying for Hollywood product. Flash forward to September, and all of a sudden there is now even more concentration and independent broadcasters are disappearing faster than the ice cap while the three largest cable companies now own,or are about to own, most of the broadcast assets in a more consolidated fashion than everyone was fussed about three years ago.
Seriously, why the fuss about net neutrality? When TELUS looks at the disintegration of carriage and content we worry about having to negotiate and pay fees to our cable competitors to support their integrated content properties, while they can write themselves a truly blank check.(Nice solution to FFC from their point of view).
We worry that broadcast content from those integrated properties will not be available on our mobile and Internet platforms even though the CRTC says its undue preference rules apply to these platforms. Heck we have to go to the CRTC today just to get access to broadcast content for VOD from at least one integrated broadcaster even though it is clearly obliged to provide it under the rules.
Given the negative attitude towards Canadian content , local TV and/or the CMF from some distributors you would think independent broadcasters, Associations and Guilds would be as, or more, worried about access for their content to platforms for broadcast distribution and less concerned about access to the Internet. The latter may soon be the easiest window to access for independents. Sadly making noise about net neutrality may be reasonable in principle but right now it seems to me like its barking up the wrong tree at the wrong time and in the wrong place.
Friday, April 16, 2010
What we really said to Industry Committee
Yesterday TELUS called again for a complete removal of foreign ownership restrictions on carriers but not content .Here is the text
Remarks of Michael Hennessy, senior vice president
Regulatory and Government Affairs, TELUS
Corporation to the House of Commons Standing
Committee on Industry, Science and Technology
Foreign ownership
Introduction
TELUS appreciates this opportunity to present its views on whether or not to
liberalize Canada’s restrictions on foreign ownership of telecommunications. The
issue is obviously one of national importance, and it is an issue that only Parliament
can ultimately decide.
I can sum up the TELUS presentation in a few easy messages:
• New rules cannot advantage foreign investors to the detriment of Canadian
companies. Fairness requires equal treatment for all Canadian carriers;
• Parliament must recognize that communications today is an integrated
business and you cannot effect change without changing the
Telecommunications Act and part of the Broadcasting Act at the same time;
• Liberalization that does not include integrated companies will damage the
competitiveness of Canadian companies and reduce the benefits of
liberalization for consumers; and
• Culture is not impacted by liberalization because it is easy to separate the
ownership of broadcast channels from the transmission of these channels on
carrier systems.
TELUS has long supported liberalization of the rules for all carriers, including cable
and satellite companies, while still maintaining these restrictions with respect to
the ownership of broadcast channels.
The Canadian market, like the US, is unique in terms of a much greater degree of
competition between cable and telecom carriers across all markets. Virtually every
communications carrier in Canada carries voice, video and data traffic over
integrated networks. As a consequence, there is no way to fairly change our
2
ownership restrictions unless we liberalize both carriage under the
Telecommunications Act and carriage under the Broadcasting Act at same time.
We remain convinced that you can change the Broadcasting Act, only on the
carriage side, to achieve the full benefits of competition, without undermining our
cultural objectives. All that is required is a rule prohibiting foreign controlled
carriers owning broadcasting stations or TV channels.
TELUS has a record of investment
A principal argument supporting liberalization is that Canadian enterprises are not
competing or investing sufficiently. Even though we support liberalization we
reject this argument.
Ten years ago, TELUS did not exist as a national competitor. TELUS was just another
regionally based local monopoly telephone company operating only in Alberta,
British Columbia and eastern Quebec. Now, we compete across Canada for
wireless, small business and enterprise solutions, video conferencing, e‐health
services and business data services. In the west and eastern Quebec, TELUS
competes head to head for phone, internet, television and wireless customers.
We have accomplished this because over the last 10 years, TELUS has invested $20
billion in capital to grow from that regional telephone company into a multi‐service,
national competitor in business, wireless and e‐health services markets.
• TELUS has maintained the highest wireline re‐investment rate among major
telecom North American companies and competitors over the past few years
o capital investments since 2001 across our entire business exceed 20%
of total revenues earned over that period
o by comparison, Verizon and AT&T have not had even a single year
since 2006 in which their total capital investments reached 20% of
their revenues
3
We have invested in Canada, both when and where it counts, including in areas no
foreign investor is likely to ever consider
• In the depths of the recession, TELUS increased its 2009 capital spend by 13
percent to $2.1billion and built one the largest and most advanced wireless
networks in the world.
o TELUS’ 3G+ wireless network now reaches 93% of Canadians, with
world leading advanced wireless broadband services
o In 2010 we are investing over $1.7 billion in a fiber‐supported internet
TV build in western Canada and in eastern Quebec in order to increase
competitive intensity in the cable and internet market
These investments have produced real competition, real jobs and real consumer
benefits where none existed before.
Full liberalization of FDI restrictions on carriage can lower costs and
increase choice and innovation as long as Canadian companies are
treated fairly
Where Canada differs from the US today is a lack of similar scale. More scale
translates into lower costs, more investment and more opportunity to reduce
prices.
Therefore any change that does not allow all Canadian carriers to equally benefit
from scale opportunities will be changes for the worse since Canadian carriers have
the largest territory to serve and the smallest population to fund investment, of any
of our major trading partners.
And that is why any changes should ensure that the companies that continue to
invest in Canadian employees, Canadian infrastructure and Canadian communities,
rather than investing only in the most profitable business like wireless or the
biggest cities like Montreal or Toronto, are not harmed by any changes.
Canadian companies rely on integration, and the cross‐subsidies that allows, to
keep all of our businesses viable as much as we need scale to grow. If asymmetric
policy undermines that, in the name of wireless competition or cultural protection,
4
by restricting domestic carrier growth, the integrated Canadian model begins to fall
apart.
The Canadian system has always benefitted from a level of cross‐subsidy be it from
urban to rural or from growth business to high cost segments. That remains true
today. In Canada, wireless is currently the growth engine that generates the
revenues and earnings that support reinvestment in next generation broadband
and phone networks. This is a critical point to consider. Growth businesses like
wireless or Internet, support declining businesses like telephony. That does not
mean growth businesses should be insulated from increased competition but
rather competition, and particularly foreign competition should not be advantaged
by handicapping Canadian companies.
Liberalization has to be as fair to Canadians as it will be to foreign entrants.
That is why Parliament must support liberalization for all carriers, because unless all
carriers are able to benefit from liberalization, the opportunities from increased
scale like lower prices or more investment are diminished for many consumers and
communities.
That is also why fairness dictates that both broadcast distribution and
telecommunications carriage must be changed at the same time.
I look forward to your questions
Remarks of Michael Hennessy, senior vice president
Regulatory and Government Affairs, TELUS
Corporation to the House of Commons Standing
Committee on Industry, Science and Technology
Foreign ownership
Introduction
TELUS appreciates this opportunity to present its views on whether or not to
liberalize Canada’s restrictions on foreign ownership of telecommunications. The
issue is obviously one of national importance, and it is an issue that only Parliament
can ultimately decide.
I can sum up the TELUS presentation in a few easy messages:
• New rules cannot advantage foreign investors to the detriment of Canadian
companies. Fairness requires equal treatment for all Canadian carriers;
• Parliament must recognize that communications today is an integrated
business and you cannot effect change without changing the
Telecommunications Act and part of the Broadcasting Act at the same time;
• Liberalization that does not include integrated companies will damage the
competitiveness of Canadian companies and reduce the benefits of
liberalization for consumers; and
• Culture is not impacted by liberalization because it is easy to separate the
ownership of broadcast channels from the transmission of these channels on
carrier systems.
TELUS has long supported liberalization of the rules for all carriers, including cable
and satellite companies, while still maintaining these restrictions with respect to
the ownership of broadcast channels.
The Canadian market, like the US, is unique in terms of a much greater degree of
competition between cable and telecom carriers across all markets. Virtually every
communications carrier in Canada carries voice, video and data traffic over
integrated networks. As a consequence, there is no way to fairly change our
2
ownership restrictions unless we liberalize both carriage under the
Telecommunications Act and carriage under the Broadcasting Act at same time.
We remain convinced that you can change the Broadcasting Act, only on the
carriage side, to achieve the full benefits of competition, without undermining our
cultural objectives. All that is required is a rule prohibiting foreign controlled
carriers owning broadcasting stations or TV channels.
TELUS has a record of investment
A principal argument supporting liberalization is that Canadian enterprises are not
competing or investing sufficiently. Even though we support liberalization we
reject this argument.
Ten years ago, TELUS did not exist as a national competitor. TELUS was just another
regionally based local monopoly telephone company operating only in Alberta,
British Columbia and eastern Quebec. Now, we compete across Canada for
wireless, small business and enterprise solutions, video conferencing, e‐health
services and business data services. In the west and eastern Quebec, TELUS
competes head to head for phone, internet, television and wireless customers.
We have accomplished this because over the last 10 years, TELUS has invested $20
billion in capital to grow from that regional telephone company into a multi‐service,
national competitor in business, wireless and e‐health services markets.
• TELUS has maintained the highest wireline re‐investment rate among major
telecom North American companies and competitors over the past few years
o capital investments since 2001 across our entire business exceed 20%
of total revenues earned over that period
o by comparison, Verizon and AT&T have not had even a single year
since 2006 in which their total capital investments reached 20% of
their revenues
3
We have invested in Canada, both when and where it counts, including in areas no
foreign investor is likely to ever consider
• In the depths of the recession, TELUS increased its 2009 capital spend by 13
percent to $2.1billion and built one the largest and most advanced wireless
networks in the world.
o TELUS’ 3G+ wireless network now reaches 93% of Canadians, with
world leading advanced wireless broadband services
o In 2010 we are investing over $1.7 billion in a fiber‐supported internet
TV build in western Canada and in eastern Quebec in order to increase
competitive intensity in the cable and internet market
These investments have produced real competition, real jobs and real consumer
benefits where none existed before.
Full liberalization of FDI restrictions on carriage can lower costs and
increase choice and innovation as long as Canadian companies are
treated fairly
Where Canada differs from the US today is a lack of similar scale. More scale
translates into lower costs, more investment and more opportunity to reduce
prices.
Therefore any change that does not allow all Canadian carriers to equally benefit
from scale opportunities will be changes for the worse since Canadian carriers have
the largest territory to serve and the smallest population to fund investment, of any
of our major trading partners.
And that is why any changes should ensure that the companies that continue to
invest in Canadian employees, Canadian infrastructure and Canadian communities,
rather than investing only in the most profitable business like wireless or the
biggest cities like Montreal or Toronto, are not harmed by any changes.
Canadian companies rely on integration, and the cross‐subsidies that allows, to
keep all of our businesses viable as much as we need scale to grow. If asymmetric
policy undermines that, in the name of wireless competition or cultural protection,
4
by restricting domestic carrier growth, the integrated Canadian model begins to fall
apart.
The Canadian system has always benefitted from a level of cross‐subsidy be it from
urban to rural or from growth business to high cost segments. That remains true
today. In Canada, wireless is currently the growth engine that generates the
revenues and earnings that support reinvestment in next generation broadband
and phone networks. This is a critical point to consider. Growth businesses like
wireless or Internet, support declining businesses like telephony. That does not
mean growth businesses should be insulated from increased competition but
rather competition, and particularly foreign competition should not be advantaged
by handicapping Canadian companies.
Liberalization has to be as fair to Canadians as it will be to foreign entrants.
That is why Parliament must support liberalization for all carriers, because unless all
carriers are able to benefit from liberalization, the opportunities from increased
scale like lower prices or more investment are diminished for many consumers and
communities.
That is also why fairness dictates that both broadcast distribution and
telecommunications carriage must be changed at the same time.
I look forward to your questions
Monday, March 15, 2010
Getting a national digital strategy right: Part 1 of many parts.
One of the messages that came out of the federal budget that has been lost in the noise around foreign ownership was the government’s commitment to some form of national digital strategy. For all of us involved in various aspects of the digital economy, from carriage to applications and from IT to culture, this is great news. But arriving at consensus around a coherent digital strategy will be a huge task. In some respects, that task becomes harder as it gains political currency, because of the political need to often boil down complex issues into simple goals or targets.
Take, only one of countless digital economy issues to consider such complexity; in this case broadband expansion. The FCC goal of 100Mps for 100 million households which underlies its National Broadband Strategy provides a good starting point. As an aspirational goal it’s catchy but what does it really mean? We can hopefully all agree that unless you have advanced broadband infrastructure, it is difficult support a digital economy. That seems a reasonable assumption and a good starting point to build a digital economy upon. But what is the thinking behind 100Mps? And how do you define it? And should we differentiate between the consumer markets and business use in setting our targets? To the latter point the answer has to be yes because productivity improvement starts in the business and institutional sectors. So for this piece I am focusing on the needs of the consumer sector and what is needed there to create digital markets.
As a target 100 Mps sounds good. It’s a big round number and compares to the triple digit Mps services available in Korea or Japan, both countries with the population densities that make such a target more achievable. But is an absolute number the right way to set a target as opposed to building on what is required to ensure good quality service? First question is what do consumers want or need 100Mps for (recognizing in the IP world more is always a good thing)? And how much are consumers willing to pay for it? This is a critical question to address if public funding is involved or if regulatory favors/sanctions are to be bestowed on those that hit the target.
Right now there is some suggestion that take up for 100 Mps in Japan or North Korea is not great. That is hardly surprising in the consumer space since there is very little today that can’t be done legally with less capacity. The most common high bandwidth applications tend to be in the realm of entertainment. Yet, the vast majority of consumers that download and stream media or play games can get by on a fraction of that speed. In fact there is evidence when it comes to usage of video online North America leads in consumption no matter that its networks are often criticized as inadequate. This is not a defense of the status quo, the demand for capacity is insatiable, which is why telco, cable, wireless and satellite providers are currently spending billions of dollars to increase capacity.
One of the public policy reasons often given for moving to a 100 Mps universe is to extend the benefits of health care through remote diagnosis or distance education. This again is a lofty goal but it is unclear how this would work. In the health care sector is there any money for funding remote diagnostics infrastructure out of current budgets? And if there is, big if, do all households need to be connected to super capacity networks or is the object to link community care centres where public health practitioners (nurse, paramedics) can support doctors that are remotely linked. Practically speaking much household remote diagnostics does or may require little bandwidth. The more important target may be to enable doctor’s offices and institutions with higher bandwith to enable a more efficient health care system .If that’s the ultimate public policy goal, then it may be easier to target and cheaper to build than upgrading all households to 100Mps.
Is 100 Mps per second a realistic short term goal given North American, particularly Canadian, geography? The best way to deliver dedicated 100Mps to an individual customer is likely through fiber. And the only way to deliver fiber to the home is to spend $10s of billions upgrading networks. Even if that is done, big if given return on investment, there will not be a significant fiber build out in rural Canada in the forseeable future. It is safe to assume that even in many communities there is no business case for 100 mps over fiber outside of very dense population groupings (like apartment complexes). As population density decreases the economics to support 100 Mps quickly disappear.
It is important to consider what we all mean when we talk 100Mps. Cable has 100Mps services in the market today but the current DOCSIS 3 products are shared. So if multiple subscribers in a neighborhood are using the network real speed is much less than 100 Mps. In order to keep increasing speed cable has to reduce the number of channels dedicated to TV (a difficult proposition when all channels are going HD) or move to a switched video model and build out fiber even further.
In wireless the FCC is banking on LTE to deliver the future of broadband .But like cable wireless operates on a shared spectrum basis and unlike cable is constrained by the amount of spectrum available. That is why the FCC wants to claw back as much as 500MHz from other spectrum users particularly broadcasters. That’s a plan that is likely to be met with litigation from broadcasters. In any event there is a point in the video world where wireless is less suitable than fiber/cable/broadcast satellite for distribution. That is why broadcasting has shifted from over the air to these types of broadcast distribution.
It would be a mistake to assume that the public internet, in either a wireless or even wireline mode, will become a better substitute for mass media than the infrastructure built to deliver such content. Convergence yes but full substitution no. So if we assume that the internet will not be the principle delivery vehicle for all HD/3D content is the requirement for 100Mps legitimate ,at least in the medium term; particularly on wireless?
Lots of challenges, but the billion dollar question remains as to who pays to achieve the goal? It is hard to imagine government can afford to spend billions of dollars to build these networks, so it must rely on the private sector through incentives or suasion. And it will find itself in a conundrum if subsidies/tax incentives are not technologically neutral. If the emphasis is on suasion, then what is the regulatory contract to ensure an obligation to invest is met by a reasonable opportunity to achieve a return on investment? That contract has always been the basis of public utility regulation and no one I have read has an explanation of how to guarantee a reasonable opportunity to earn a return on investments in high cost/risky venture if a market is competitive.
North America has a very high rate of inter-modal infrastructure competition and that is not likely to change back to a monopoly like environment any time soon. Hopefully most people still see infrastructure competition as a better model than a monopoly for sustaining long term innovation.
DSL, fiber, cable, wireless and satellite can all deliver broadband at a variety of different speeds and performance characteristics depending on geography and number of users online. This is not a bad thing. For instance in rural and remote areas satellite may be the only viable way to deliver broadband. While new satellites due to launch in 2011 may deliver as much as 5 Mps download, satellite will never deliver 100 Mps on a wide scale basis. That does not mean that the availability of such service would not be a major step forward, nor something that is not eligble for tax support or subsidies to broadband simply because it cannot achieve a 100MPs per second goal. Surely in unserved areas the policy goal is adequate broadband rather than a speed that today most consumers have no need for.
So there you are. Just a few of the tough questions policy makers are stuck with on just the broadband front. And even if we could magically wave a wand and enable 100Mps to all households, it’s arguable that household penetration would not jump significantly because household penetration is already very high, and speed and capacity are not the only factors limiting penetration. Digital literacy and poverty are, as, if not more, important challenges to address in building a broadband based digital economy. Not to mention increasing the investment pool, improving the intellectual property regime and supporting the cultural products that travel through the pipes or over the airwaves.
Take, only one of countless digital economy issues to consider such complexity; in this case broadband expansion. The FCC goal of 100Mps for 100 million households which underlies its National Broadband Strategy provides a good starting point. As an aspirational goal it’s catchy but what does it really mean? We can hopefully all agree that unless you have advanced broadband infrastructure, it is difficult support a digital economy. That seems a reasonable assumption and a good starting point to build a digital economy upon. But what is the thinking behind 100Mps? And how do you define it? And should we differentiate between the consumer markets and business use in setting our targets? To the latter point the answer has to be yes because productivity improvement starts in the business and institutional sectors. So for this piece I am focusing on the needs of the consumer sector and what is needed there to create digital markets.
As a target 100 Mps sounds good. It’s a big round number and compares to the triple digit Mps services available in Korea or Japan, both countries with the population densities that make such a target more achievable. But is an absolute number the right way to set a target as opposed to building on what is required to ensure good quality service? First question is what do consumers want or need 100Mps for (recognizing in the IP world more is always a good thing)? And how much are consumers willing to pay for it? This is a critical question to address if public funding is involved or if regulatory favors/sanctions are to be bestowed on those that hit the target.
Right now there is some suggestion that take up for 100 Mps in Japan or North Korea is not great. That is hardly surprising in the consumer space since there is very little today that can’t be done legally with less capacity. The most common high bandwidth applications tend to be in the realm of entertainment. Yet, the vast majority of consumers that download and stream media or play games can get by on a fraction of that speed. In fact there is evidence when it comes to usage of video online North America leads in consumption no matter that its networks are often criticized as inadequate. This is not a defense of the status quo, the demand for capacity is insatiable, which is why telco, cable, wireless and satellite providers are currently spending billions of dollars to increase capacity.
One of the public policy reasons often given for moving to a 100 Mps universe is to extend the benefits of health care through remote diagnosis or distance education. This again is a lofty goal but it is unclear how this would work. In the health care sector is there any money for funding remote diagnostics infrastructure out of current budgets? And if there is, big if, do all households need to be connected to super capacity networks or is the object to link community care centres where public health practitioners (nurse, paramedics) can support doctors that are remotely linked. Practically speaking much household remote diagnostics does or may require little bandwidth. The more important target may be to enable doctor’s offices and institutions with higher bandwith to enable a more efficient health care system .If that’s the ultimate public policy goal, then it may be easier to target and cheaper to build than upgrading all households to 100Mps.
Is 100 Mps per second a realistic short term goal given North American, particularly Canadian, geography? The best way to deliver dedicated 100Mps to an individual customer is likely through fiber. And the only way to deliver fiber to the home is to spend $10s of billions upgrading networks. Even if that is done, big if given return on investment, there will not be a significant fiber build out in rural Canada in the forseeable future. It is safe to assume that even in many communities there is no business case for 100 mps over fiber outside of very dense population groupings (like apartment complexes). As population density decreases the economics to support 100 Mps quickly disappear.
It is important to consider what we all mean when we talk 100Mps. Cable has 100Mps services in the market today but the current DOCSIS 3 products are shared. So if multiple subscribers in a neighborhood are using the network real speed is much less than 100 Mps. In order to keep increasing speed cable has to reduce the number of channels dedicated to TV (a difficult proposition when all channels are going HD) or move to a switched video model and build out fiber even further.
In wireless the FCC is banking on LTE to deliver the future of broadband .But like cable wireless operates on a shared spectrum basis and unlike cable is constrained by the amount of spectrum available. That is why the FCC wants to claw back as much as 500MHz from other spectrum users particularly broadcasters. That’s a plan that is likely to be met with litigation from broadcasters. In any event there is a point in the video world where wireless is less suitable than fiber/cable/broadcast satellite for distribution. That is why broadcasting has shifted from over the air to these types of broadcast distribution.
It would be a mistake to assume that the public internet, in either a wireless or even wireline mode, will become a better substitute for mass media than the infrastructure built to deliver such content. Convergence yes but full substitution no. So if we assume that the internet will not be the principle delivery vehicle for all HD/3D content is the requirement for 100Mps legitimate ,at least in the medium term; particularly on wireless?
Lots of challenges, but the billion dollar question remains as to who pays to achieve the goal? It is hard to imagine government can afford to spend billions of dollars to build these networks, so it must rely on the private sector through incentives or suasion. And it will find itself in a conundrum if subsidies/tax incentives are not technologically neutral. If the emphasis is on suasion, then what is the regulatory contract to ensure an obligation to invest is met by a reasonable opportunity to achieve a return on investment? That contract has always been the basis of public utility regulation and no one I have read has an explanation of how to guarantee a reasonable opportunity to earn a return on investments in high cost/risky venture if a market is competitive.
North America has a very high rate of inter-modal infrastructure competition and that is not likely to change back to a monopoly like environment any time soon. Hopefully most people still see infrastructure competition as a better model than a monopoly for sustaining long term innovation.
DSL, fiber, cable, wireless and satellite can all deliver broadband at a variety of different speeds and performance characteristics depending on geography and number of users online. This is not a bad thing. For instance in rural and remote areas satellite may be the only viable way to deliver broadband. While new satellites due to launch in 2011 may deliver as much as 5 Mps download, satellite will never deliver 100 Mps on a wide scale basis. That does not mean that the availability of such service would not be a major step forward, nor something that is not eligble for tax support or subsidies to broadband simply because it cannot achieve a 100MPs per second goal. Surely in unserved areas the policy goal is adequate broadband rather than a speed that today most consumers have no need for.
So there you are. Just a few of the tough questions policy makers are stuck with on just the broadband front. And even if we could magically wave a wand and enable 100Mps to all households, it’s arguable that household penetration would not jump significantly because household penetration is already very high, and speed and capacity are not the only factors limiting penetration. Digital literacy and poverty are, as, if not more, important challenges to address in building a broadband based digital economy. Not to mention increasing the investment pool, improving the intellectual property regime and supporting the cultural products that travel through the pipes or over the airwaves.
Friday, March 5, 2010
Foreign ownership liberalization should benefit Canadians not speculators
In today's Financial Post I was stunned to read comments from unamed industry observers that more foreign ownership was required in Canada's wireless business, but only enough to ensure that certain carriers can avail themselves of liberalization, while other, incumbent Canadian carriers, would be restricted. That makes no sense . If you believe in liberalization and want the benefits, you don't restrict it so only a small group of investors benefit.
The specious reasoning behind such anonymous and self serving sophistry is, according to said unamed observers, that if the ownership rules were removed on a fair and equitable basis for all carriers, then US carriers like Verizon might only invest in incumbents and thus nothing would change in the market. That is absurd and ignore issues of scale. Sounds like just a different spin on protectionism to me. Like an idea that speculators looking for a quick flip of license might contrive rather than good public policy.
First let me make an important caveat on the issue of foreign ownership. TELUS does not oppose the removal of foreign ownership restrictions on Canadian carriers, including on our cable competitors, as long as the rules of the game are applied fairly and equally to all. Conversely we take deep exception to rule changes that would put Canadian companies at a disadvantage relative to global competitors. We can't imagine any other country in the world that would introduce legislation that discriminates against its own enterprises. Unlike so-called unamed sources, we have been explicit and public on our views as recent as this week in the Post.
The proposal for asymmetric treatment is transparently self-serving and economically irrational. If foreign investment is considered necessary to lower prices, increase investment or stimulate innovation then a partial adjustment won't get you the results you want. Arguably it is hard to see exactly how more foreign investment will create better platforms in wireless than Canada has now as a result of over $7 billions spent on wireless in the past two years. However, irrespective of that, asymmetric tinkering only distorts competition and investment.
In terms of investment we would note that of over 600 carriers world-wide, only 17 operate the latest 3G plus networks. Canada now has 3 of those 17 networks. Only 2 other countries (Finland,Hong Kong) have as many as 2 and our major trading partners like the US currently remain a generation behind when it comes to the most advanced infrastructure. And no country we are aware, other than Canada has three carriers offering the iconic iPhone.
Competition and billions of dollars of investment in new networks, new devices and lower prices has already resulted in a new model where every major market in Canada will be served by at least 4 or 5 deep pocketed players;at least 4 or 5. Do the math.
First we start with Rogers,Bell and TELUS nationally. That is 3. Add Wind the Orascom (80 million subscribers world-wide) backed new entrant that was granted a mulligan when it comes to foreign ownership ,so it already has its own playing field. That's 4 in major markets outside Quebec. No problem because media giant Quebecor is building for a mid-2010 launch in that province. So back to 4 again. In Alberta and BC cable giant Shaw is quietly preparing its own launch, expected again by 2011. So that's 5 in western markets when you add in Shaw and Wind. In Sakatchewan and Manitoba the local phone companies dominate the market and have more share today than Rogers,Bell,TELUS combined .So that's at least 4 depending on what Wind and Shaw do. In Southern Ontario it’s at least 6 when you add Public Mobile and Mobilicity to the mix. And in Atlantic Canada 4, once cable provider Bragg decides to build with the new spectrum it has acquired. That's is a lot of carriers for a country the size of Canada; in fact for virtually any country in the world. And it's clear from marketing activity the market has become increasingly dynamic.
In such an environment it is fair to ask what the problem is, since it is not the state of our networks or the number deep pocket providers ready to compete. Some argue it has to do with relative price and penetration as measured by the OECD. Now some may suggest that a data report that often places the US as higher-priced than Canada may have flaws. And that penetration may be lower because local phone service is flat-rated and subsidized in Canada making it the best deal in the OECD (if you can trust OECD data). Regardless of the validity of past data in 2010 the key issues are already being addressed in Canada by: adding to the number of competitors in Canada (done) and by building better and globally compatible networks (done).
Moreover if the issue is scale and removing barriers to creating a North American market then the object to deliver consumer benefits would seem to rest with creating larger players not smaller ones. We can support liberalized rules or not. As to whether the tradeoff for foreign investment would increase investment (given we already have superior networks) and innovation, given the loss of head offices or domestic jobs, is a tough question and one government must address carefully . As we assume it is doing.
However it is crystal clear is that creating an asymmetric environment, where new entrants can more easily flip their licenses is of no real benefit in terms of innovation, productivity or consumer choice. Whatever your point of view on foreign ownership, a model that restricts liberalization to a small group of speculators is not real competition by any measure .
So we will support full liberalization if that is deemed to be in the public interest and have said so, but we cannot support a regime that allows a few speculators to benefit so they can more easily flip their license.
Perhaps the last word should go to a note I saw today from Vince Valentini at TD Newcrest
And lastly on the potential rule changes themselves. Obviously nothing definitive has been proposed by the Government yet, but some suggest that a two-tiered approach is possible, with new entrants getting preferred treatment over incumbents. Really. Let me get this straight. The populist Conservative party is going to enlist the support of the Liberal party to vote in favour of a new Telecom Act that will deliberately harm Canadian telecom companies, which pay material taxes and employ hundreds of thousands of Canadians, in order to help global giants like AT&T and T-Mobile make money in this country. Voters could have a very tough time with this proposition, and we suspect that the courts would have something to say about it if one or more of the incumbents were to challenge the legality of a system that provides unfair treatment to one set of competitors versus another.
The specious reasoning behind such anonymous and self serving sophistry is, according to said unamed observers, that if the ownership rules were removed on a fair and equitable basis for all carriers, then US carriers like Verizon might only invest in incumbents and thus nothing would change in the market. That is absurd and ignore issues of scale. Sounds like just a different spin on protectionism to me. Like an idea that speculators looking for a quick flip of license might contrive rather than good public policy.
First let me make an important caveat on the issue of foreign ownership. TELUS does not oppose the removal of foreign ownership restrictions on Canadian carriers, including on our cable competitors, as long as the rules of the game are applied fairly and equally to all. Conversely we take deep exception to rule changes that would put Canadian companies at a disadvantage relative to global competitors. We can't imagine any other country in the world that would introduce legislation that discriminates against its own enterprises. Unlike so-called unamed sources, we have been explicit and public on our views as recent as this week in the Post.
The proposal for asymmetric treatment is transparently self-serving and economically irrational. If foreign investment is considered necessary to lower prices, increase investment or stimulate innovation then a partial adjustment won't get you the results you want. Arguably it is hard to see exactly how more foreign investment will create better platforms in wireless than Canada has now as a result of over $7 billions spent on wireless in the past two years. However, irrespective of that, asymmetric tinkering only distorts competition and investment.
In terms of investment we would note that of over 600 carriers world-wide, only 17 operate the latest 3G plus networks. Canada now has 3 of those 17 networks. Only 2 other countries (Finland,Hong Kong) have as many as 2 and our major trading partners like the US currently remain a generation behind when it comes to the most advanced infrastructure. And no country we are aware, other than Canada has three carriers offering the iconic iPhone.
Competition and billions of dollars of investment in new networks, new devices and lower prices has already resulted in a new model where every major market in Canada will be served by at least 4 or 5 deep pocketed players;at least 4 or 5. Do the math.
First we start with Rogers,Bell and TELUS nationally. That is 3. Add Wind the Orascom (80 million subscribers world-wide) backed new entrant that was granted a mulligan when it comes to foreign ownership ,so it already has its own playing field. That's 4 in major markets outside Quebec. No problem because media giant Quebecor is building for a mid-2010 launch in that province. So back to 4 again. In Alberta and BC cable giant Shaw is quietly preparing its own launch, expected again by 2011. So that's 5 in western markets when you add in Shaw and Wind. In Sakatchewan and Manitoba the local phone companies dominate the market and have more share today than Rogers,Bell,TELUS combined .So that's at least 4 depending on what Wind and Shaw do. In Southern Ontario it’s at least 6 when you add Public Mobile and Mobilicity to the mix. And in Atlantic Canada 4, once cable provider Bragg decides to build with the new spectrum it has acquired. That's is a lot of carriers for a country the size of Canada; in fact for virtually any country in the world. And it's clear from marketing activity the market has become increasingly dynamic.
In such an environment it is fair to ask what the problem is, since it is not the state of our networks or the number deep pocket providers ready to compete. Some argue it has to do with relative price and penetration as measured by the OECD. Now some may suggest that a data report that often places the US as higher-priced than Canada may have flaws. And that penetration may be lower because local phone service is flat-rated and subsidized in Canada making it the best deal in the OECD (if you can trust OECD data). Regardless of the validity of past data in 2010 the key issues are already being addressed in Canada by: adding to the number of competitors in Canada (done) and by building better and globally compatible networks (done).
Moreover if the issue is scale and removing barriers to creating a North American market then the object to deliver consumer benefits would seem to rest with creating larger players not smaller ones. We can support liberalized rules or not. As to whether the tradeoff for foreign investment would increase investment (given we already have superior networks) and innovation, given the loss of head offices or domestic jobs, is a tough question and one government must address carefully . As we assume it is doing.
However it is crystal clear is that creating an asymmetric environment, where new entrants can more easily flip their licenses is of no real benefit in terms of innovation, productivity or consumer choice. Whatever your point of view on foreign ownership, a model that restricts liberalization to a small group of speculators is not real competition by any measure .
So we will support full liberalization if that is deemed to be in the public interest and have said so, but we cannot support a regime that allows a few speculators to benefit so they can more easily flip their license.
Perhaps the last word should go to a note I saw today from Vince Valentini at TD Newcrest
And lastly on the potential rule changes themselves. Obviously nothing definitive has been proposed by the Government yet, but some suggest that a two-tiered approach is possible, with new entrants getting preferred treatment over incumbents. Really. Let me get this straight. The populist Conservative party is going to enlist the support of the Liberal party to vote in favour of a new Telecom Act that will deliberately harm Canadian telecom companies, which pay material taxes and employ hundreds of thousands of Canadians, in order to help global giants like AT&T and T-Mobile make money in this country. Voters could have a very tough time with this proposition, and we suspect that the courts would have something to say about it if one or more of the incumbents were to challenge the legality of a system that provides unfair treatment to one set of competitors versus another.
Tuesday, February 23, 2010
When it comes to advanced 3G wireless we own the podium
Yesterday, I woke up in Stowe Vermont at the end of a nice relaxing ski weekend only to get immediately restressed as I got the skinny (via my Hero) on a Globe editorial lament because Canada is "falling behind" (again) on broadband metrics. Once again the bearer of bad news was the Berkman guys at Harvard. And if Harvard says we suck, far be it for our national newspaper to disagree or check their facts .
What really stressed me was the angst around a lack of 3G leadership. According to the Globe editorial :
What really stressed me was the angst around a lack of 3G leadership. According to the Globe editorial :
- " Canada ranks with Poland, Hungary and Mexico as laggards in the availability of 3G, which allows the distribution of video content over mobile phones and to new devices such as Apple's iPad."
Now for our guys just returning from accolades in Barcelona last week for Canada's 3G leadership this really hurt. Actually we are quite proud of the investments we have made in 3G leadership.
Too bad the guys in the Globe editorial room don't read the full page ads they sell to wireless carriers to promote the flood of new 3G phones coming into Canada.In fact rather than lagging ,we are now leading. There are only 17 advanced 3G (HSPA Plus/21Mps) networks currently operating world wide. And 3 of these are in Canada.And more will be launched in 2010. No other country has 3. Only Finland and Hong Kong have 2 . And, shame,shame, countries like the US, UK, Germany,Italy and France have a collective none .
Hey, Canada is the only country in the world that has 3 different carriers selling the iPhone.
Now arguably we don't have the fastest wireline networks in the world but we lead the G8 in terms of broadband penetration, even before we count wireless broadband penetration. And by next year we will have a new generation of broadband satellite delivering true broadband services.
And let's not get lost in a speed race. Sure it would be nice to say you have 100 Mps but unless you are ripping movie libraries full time, that type of speed is ahead of demand. Speed is important, and we have to continue to invest and upgrade, but at some point speed doesn't matter as much as what you use broadband for.
And Canadians use the Net a lot. According to a Comscore presentation just last Thursday at CFTPA Prime Time, Canada remains a global leader when it comes to using internet video. And another Comscore study notes Canada is a global leader when it comes to online banking.
Now I agree there is still lots more to do, but the clarion call to government to fix what is not broken rings hollow . And it's a waste of time.
Government has a $50 billion deficit .It can't spend in any material fashion . At best it can try to stimulate private sector investment with good policy or undermine it with bad. But ultimately only the private sector can build better networks.
Last year in the middle of the recession TELUS increased capital spending by 10 percent to build a better wireless network.This year we are spending $1.7 billion to drive out hybrid fiber networks that increase broadband speed and support IPTV on the same circuit. Policy talk is nice but real investment trumps talk.
Now maybe we could spend even a bit more if we cut those Globe ads. But even if the Globe never reads their ads, obviously our new wireless broadband customers do. So for now the print guys are safe but they better keep an eye on where our broadband customers are going for news :-)
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