Timothy M. Denton

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Will JP get to use a nuke?

Posted by on in Industry News
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I have been impressed with how completely the sorts of issues the CRTC is dealing with have been transformed into Internet and consumer issues. I was struck by this during the recent hearings on differential pricing practices and zero rating.

The issue - as always - is the difference between the economics of the physical layer, where competition is arduous to produce, and the higher layers above the TCP/IP, where competition in apps and services abounds. If a carrier has invested gazillions to build out its networks, the need is manifest to configure its pricing to fill its network, and moreover to get the money from the popular apps with which to pay for the infrastructure. That means finding ways to cause consumers to prefer itself and disadvantage its rivals, particularly those parasite ISPs who lease at wholesale rates (I impute that phrase to their thinking, not mine).

On the other side, consumers and those who lease capacity at wholesale rates have the means and incentive to cry foul. The conflict is inherent to a vertically integrated industry structure, where one or two carriers in a given territory have their feet planted in the deep earth of physical networks, but who must survive as suppliers of applications, which lie at higher levels in the protocol stack, and which are the things people really pay for.

In sorting out the degrees of allowable discriminations which carriers may engage in, without harming the consumer, the CRTC has found a relevant and important role. That brings me to a favourite theme, which is the appropriateness of the guiding statute to the problem to be solved.

The Telecommunications Act is so constituted as to supply a relevant framework for dealing with innovation, consumer interests, and the build-out of networks. Its guiding principle is to allow a regulatory body to determine the range of just or unjust discriminations within the broader framework that the carrier shall not influence the meaning of what is being communicated. In short, the common carrier principle is at the heart of telecom regulation. It is a robust, possibly even an anti-fragile idea, that has endured for centuries because it corresponds to a fact pattern that keeps emerging in human affairs.

I had occasion to reflect on this at the recent ISP summit in Toronto. By contrast to the reasonable and constrained discussion before the Commission at the hearing, look at the mess Quebec has got itself into with its gambling legislation.

The government of Quebec, at the behest of its gambling monopoly, has passed legislation to forbid ISPs within its borders from allowing consumers to reach gambling sites other than its monopoly Lotto-Quebec. I have previously commented on this as futile, expensive, intrusive and unconstitutional. As Chairman of the Canada Chapter of the Internet Society, I wrote the Minister of Finance, Carlos Leitao, a letter explaining that the existence of VPNs would obviate their measures, and impose costs on Quebec ISPs that could only be recovered from consumers and disadvantage Quebec's economy.

But what was the conceptual tool available to the statists in Quebec City? Monopoly. When in doubt, ban the competition to save your business model. Why bother understanding the engineering? Thus, instead of a subtle dialog among the interests, as occurred at the CRTC hearing, we will see a constitutional fight work its way through the courts until the Supreme Court of Canada finally resolves the issue.

Back to the matter at hand, which is the consumer and the Internet. I found most interesting in this morning's article in the Financial Post on Jean Pierre Blais. After slagging the carriers for abandoning Shomi, he starts talking of structural separation.


"He noted that incumbents have grumbled about new regulations, namely the CRTC’s decision to open up wholesale access to their fibre networks and to regulate wholesale roaming rates. He invited them to look to Australia and the United Kingdom where governments have or are considering structural separation between wholesale and retail broadband providers."

Structural separation occurs when a carrier is divided into  a wholesale arm and a retail arm, and where its wholesale arm may only sell services to its retail arm on terms identical to what it sells third parties. Such a policy has been implemented in the United Kingdom and a few other countries. Structural separation cuts the incentives for the wholesale arm always to defer to the wishes of the retail arm, which occurs constantly inside the major carriers. Where's the money? In the apps, not in the photons. Those who sell apps prevail over those who sell the transport of photons, naturally enough.

In my terms, structural separation is the nuke. It would take more lawyerly work than I could do here to figure out whether the CRTC is able by regulation to divide the carriers into wholesale and retail arms. The fact that he is talking such language is encouraging, because it means the range of ideas flowing through the ideasphere of telecoms has been expanded by at least one significant idea.

Structural separation is radical, as in going to the root of the problem. After all, pipelines do not own the oil that passes through them. What is standard in telecoms would be considered outrageous in other carrier industries.

The paucity of ideas in telecoms regulation never fails to dismay me. Canadian governments have spent years trying to engender more wireless carriers - which were envisaged, as all wireless carriers are, as silos of non-interconnection -  rather than instigate mandatory wholesale. The "ladder of investment" idea has not yet been carted off to the knackers. Thus when the Chairman of the CRTC drops five megatons' worth of new idea into the desert of Canadian telecom policy, it is important watch the airburst, and applaud, from a safe distance of course.

Maybe I should be clear on my premises. The idea that we need more infrastructure in order to have more competition in services is a pre-Internet idea. Competitive infrastructure is good, but it is not necessary for there to be competition in applications. Insistence upon it as a sine qua non of competition in services is inappropriate to contemporary technologies of production and distribution of services. The Internet has obviated this idea, and it has taken not less than thirty years for telecom policy to begin to encompass what the Internet means for telecom policy: structural separation.


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Timothy Denton is a lawyer by training who practices principally in telecommunications and Internet policy and domain name issues, with a strong concentration on explaining what the technology is and what it means.


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Guest Tuesday, 16 August 2022
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