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Canada's Telecom Crisis: My Appearance Before the Senate Transport and Communications Committee

By Michael Geist

Two weeks ago, I appeared before the Standing Committee on Transport and Communications to discuss the state of telecommunications in Canada.  The committee is conducting a study on the wireless sector and access to high-speed Internet.  The full hearing last over 90 minutes and the transcript has just been posted online.  My opening statement is posted below.

Appearance before the Senate Standing Committee on Transport and Communications
May 26, 2009

Good morning.  My name is Michael Geist.  I am a law professor at the University of Ottawa, Faculty of Law, where I hold the Canada Research Chair in Internet and E-commerce Law.  I am also a syndicated weekly columnist on law and technology issues for the Toronto Star and the Ottawa Citizen.  I served on National Task Force on Spam struck by the Minister of Industry in 2004 and on the board of directors of the Canadian Internet Registration Authority, which manages the dot-ca domain name space, from 2000 – 2006.

I appear before the committee today in a personal capacity representing only my own views.  I grateful both for the opportunity to appear before you and for your decision to address this issue.  As you know, Canada was once a global leader in the telecom field.  Companies like Nortel led the world and - befitting a country with our geography - Canada consistently ranked toward the top on most telecom measures. No longer.  While RIM has carved out an important niche and become a household name, the Canadian telecommunications scene is in a state of crisis.  This is no exaggeration.  Following years of neglect by successive governments, the absence of a forward-looking digital agenda, and cozy, uncompetitive environment, we now find ourselves steadily slipping in the rankings just as these issues gain even more importance for commercial, educational, and community purposes.

I know that you are focused primarily on the wireless sector, but I think the problems within our telecommunications infrastructure are not so easily divisible.  I would like to briefly discuss three issues - wireless, broadband access, and net neutrality.


Wireless

The promise of an always-on mobile Internet - delivered through cellphones and wireless devices - has long been touted as the next stage in the evolution of electronic communication and commerce. That next stage is a reality in many countries, yet Canada finds itself rapidly falling behind even developing countries as a consequence of overpriced mobile data services.

Canadian carriers have until recently treated mobile Internet use as a business product, establishing pricing plans that force most consumers to frugally conserve their time online.  Indeed, the mobile Internet in Canada is reminiscent of Internet access in the mid-1990s, when dial-up access dominated the market and consumers paid by the minute for their time online. 

The evidence is everywhere.  Last year, the World Economic Forum pointed to problems in the wireless market as a key reason for Canada's slipping global ranking for "network readiness" (Canada has moved from 6th worldwide in 2005 to 13th today).  Canada ranked 75th in the number of mobile subscribers, trailing countries such as El Salvador, Kazahkstan, and Libya.  It also lagged behind countries such as the United Kingdom, Singapore, Italy, Sweden, and Norway on mobile pricing.

RIM has expressed frustration with Canadian pricing, predicting that carriers could sell "eight or nine times" more Blackberries if they lowered data prices to levels found elsewhere.   Reduced sales are only part of the story.  High data prices mean Canadians use the mobile Internet less than people in other countries, which Google has noted leads to lower Canadian usage of web-based email or online mapping services from wireless devices.

The new entrants into the marketplace may help, but they appear to be targeting the lower-end of the marketplace, precisely where Canada's pricing compares favourably with some other countries.  Indeed, it is the medium and particularly the higher end users that face significantly higher pricing than in other countries.

So what can be done?

Last year's spectrum auction opens the door to more competition, but it should be viewed as the start of addressing the wireless crisis, not the entire solution.  Other possibilities include:

1. More spectrum.  The 700 Mhz offers an important opportunity for yet more competition.
2. Open spectrum - the next auction could include mandatory open access requirements that allow carriers, device manufacturers, and service providers to use Canada as the sandbox for mobile innovation.
3. White spaces - In addition to the auctioned spectrum, there is the potential for further unused spectrum to be made available for public use.  Known as "white spaces", this spectrum was previously used by broadcasters to ensure that their analog broadcasts did not interfere with one another. 
4. Foreign investment - The emphasis on openness could also extend to telecommunications ownership where the current foreign ownership restrictions may artificially limit Canadian competition. 
5. Remove consumer barriers - Restrictive long-term contracts and the possibility of copyright legislation that could prohibit consumers from unlocking their cell phones make it harder for consumers to move between providers.  Other countries place caps on long-term contracts, caps on overpriced roaming charges, and reject legislation that stops consumers from unlocking their phones.
6. CRTC - The CRTC is committed to a de-regulatory approach and has for years largely left the mobile marketplace alone (with the exception of undue preferences and unjust discrimination), yet the regulatory hole has not served Canadians well.  The CRTC may need to revisit the sector.

Broadband Access

We all increasingly recognize the critical importance of high-speed or broadband access.  Whether for communication, commerce, creativity, culture, education, health, or access to knowledge, broadband access represents the basic price of admission.  Canada was once a leader in this area.  In the late 1990s, we became the first country in the world to ensure that every school from coast to coast to coast was connected to the Internet.  Soon after, we launched a broadband task force committed to developing a strategy to ensure that all Canadians had access to high-speed networks.

In the years since that task force, Canada's global standing has steadily declined.  Many European countries have eclipsed Canada in its broadband rankings.  The Telecommunications Policy Review Panel undertook a detailed analysis of the Canadian marketplace with the goal of identifying whether the market could be relied upon to ensure that all Canadians have broadband access.  Their conclusion was that it would not.  The panel concluded that at least five percent of Canadians - hundreds of thousands of our fellow citizens - will be without broadband access without public involvement. 

Last week, the OECD released its latest report on global broadband and the results should be mandatory reading for anyone concerned with these issues.  Canada ranked ninth out of the 30 OECD countries on broadband penetration.  That isn't great, but the situation becomes even worse once you delve into the details on pricing and speed.

First, Canada is relatively expensive, ranking 14th for monthly subscription costs at $45.65.  By comparison, Japan comes in at $30.46 and the UK at $30.63,

Second, the Canadian Internet is slow, ranking 24th out of the 30 countries. It is truly a different Internet experience for people in Japan, Korea, and France, where the speed allows for applications and opportunities that we don't have.  Moreover, Canada lags behind in fibre connections with 0% penetration.  Japan sits at 48%, Korea at 43%, and Sweden at 20%.  Even the U.S. is at 4%.

Third, when you combine these two - price and speed - Canada drops to 28th out of 30 countries for price per megabyte.  In other words, we pay more for less than consumers in almost any other country in the OECD. 

Fourth, Canada is one of only four countries where consumers have no alternative but to take a service with bit caps.  Almost all other OECD countries have more choice.

What can be done?

1. Firm commitment to universal broadband access.  It is the price of admission for much that the Internet has to offer for education, commerce, communication, and community.  All Canadians should have access to reliable, high speed networks.
2. Strategy for faster networks.  This may mean more competition, market-based incentives, and potentially community networks.

Net Neutrality

Network neutrality has generated an increasing amount of attention in recent months. While the definition of net neutrality is open to some debate, at the core is the commitment to ensuring that Internet service providers treat all content and applications equally with no privileges, degrading of service or prioritization based on the content's source, ownership or destination.

Several concerns are often raised in the context of net neutrality.  The first is the fear of a two-tier Internet.  As providers build faster networks, there is reason to believe that they will seek additional compensation to place content on the "fast lane" and leave those unwilling to pay consigned to the slow lane.  While consumers already pay different prices for different speeds, imagine a world in which Chapters cannot compete in the online book space because its content is on the slow lane while Amazon is on the fast lane.  Consider an Internet where U.S. television shows and movie productions zip quickly to consumers computers because U.S. studios have paid for the fast lane, while Canadian and user generated content creeps along in the slow lane.  Or think about an environment where two-tier health care is replicated online such that only some health care providers have their content run on the fast lane.

This vision of the Internet is one that may become a reality.  In the U.S., major telecommunications companies such as Verizon and BellSouth have talked about just this sort of activity.  In Canada, Videotron has publicly mused about the potential for a new tariff for the carriage of content.

The second concern is that ISPs will block or degrade access to content or applications they don't like, often for competitive reasons.  In the U.S., one ISP, Madison River, blocked access to competing Internet telephony services.  In Canada:

• Telus blocked access to a union supporting websites during a labour dispute, blocking more than 600 other sites in the process
• Shaw advertised a $10 premium surcharge for customers using Internet telephony services opening the door to creating a competitive advantage over third party services
• Rogers currently degrades the performance of certain applications such as BitTorrent, widely used by software developers and independent film makers to distribute their work
• Bell openly throttles BitTorrent traffic, a practice that has been challenged before the CRTC

In response to these concerns, there has been growing momentum for net neutrality legislation.  The provisions would require ISPs to treat Internet content and applications in a neutral fashion so that the opportunities afforded to today's Internet success stories such as Google, Amazon, and eBay will be granted to the next generation of Internet companies along with the millions who contribute content online.

Note that the net neutrality legislation concerns have grown due to at least two problems in the Canadian market.  The first is the lack of competition - Canadian consumers have limited choice for broadband, typically limited to cable or DSL, or neither.  A viable third provider running their own network rarely exists. Markets with greater competition face less concerns about net neutrality since consumers can always make alternate choices.  The second is the lack of transparency - when Rogers or Bell degrades the performance of some applications, they rarely disclose these practices.  In contrast, some ISPs in other countries transparently identify how they treat all forms of content and applications.

Finally on the net neutrality issue, the CRTC will conduct hearings on the issue this summer.  That is a welcome development, but the government must stand ready to act - as other governments around the world are - should the regulator conclude the current law is unable to address net neutrality concerns.

Note that all these issues are connected.  They reflect a Canadian telecommunications environment that is in crisis, lacking in competition and gradually declining in comparison with peer countries around the world.  I welcome your questions.

Full post as published by Michael Geist on June 08, 2009 (boomark / email).