Beyond UBB: the CRTC’s war on Canadian consumers

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Economic practices are the most transparent ITMPs. They match consumer usage with willingness to pay, thus putting users in control and allowing market forces to work.

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In my previous post, I suggested the consumer ISP complaints revealed recently are bad enough, but only the tip of a much larger iceberg. The more unsettling issue is that the complaints in question were effectively secret and had to be dragged out of the CRTC through an Access to Information request by Michael Geist.

Yet there might be a silver lining in the complaints fiasco. It may prove to be a useful step in moving the debates on Canadian broadband away from the much-coddled incumbents and, at long last, over to Canada’s much-ignored consumers. Peter Nowak wrote a recent post on the fiasco, referring to it as “the net neutrality bombshell” – and suggested von Finckenstein’s inability to create a viable network neutrality framework will be seen as his “biggest failure at the CRTC.”

While I agree with Peter, I see the CRTC’s neutrality framework a little differently – as symptomatic of the regulator’s long-time refusal to pay any attention to the demand side of the broadband market. To appreciate the regulator’s disconnect from reality, we need look no further than the first of the four “considerations” in the preamble to the 2009 decision on ITMPs, i.e. transparency:

Economic practices are the most transparent ITMPs. They match consumer usage with willingness to pay, thus putting users in control and allowing market forces to work.

This is not regulatory discourse. It’s marketing. It portrays consumers as happy, well-informed beneficiairies of Ottawa’s much-beloved market forces. Canadian consumers are of course nothing of the kind – and we didn’t need the OpenMedia petition and a second UBB hearing to understand that.

How does the Commission get away with this nonsense? Well so far, few people seem to be paying close attention to how our regulator views consumer welfare. And of course the Commission has long since deregulated retail broadband and is devoted to issues in the wholesale market only. The Chairman made it eminently clear at the second UBB hearing he was not about to let OpenMedia indulge in any out-of-scope grandstanding about retail problems:

“OpenMedia, you mentioned all sorts of very interesting topics such as accessibility, retail caps, business access, et cetera. I don’t deny at all the importance of those subjects, but that is not the subject of this hearing. This hearing is devoted to residential wholesale services, so let’s stick to those” (July 12, para 1559).

Apart from being a strict constructionist about scope, the Chair was hewing to a well-established Ottawa line, namely, that the nurturing of broadband is a supply-side issue. Our regulators take their primary role to be keeping order in the bellicose relationships between incumbents and competitive ISPs, not structuring these relationships in a way that is demonstrably beneficial to consumers.

The CRTC’s anti-consumer culture: no data, no problem

The most glaring symptom of the CRTC’s abdication of responsibility for consumer welfare concerns research. In a marketplace dominated by a handful of vertically integrated conglomerates, the one thing the CRTC badly needs is objective, scientifically-gathered information about the attitudes and behaviors of the country’s media consumers. Instead, the Commission has confined its efforts to online “consultations,” such as those deployed last summer concerning the obligation to serve and the more recent exercise on the CBC’s licence renewals.

These measures are not merely a waste of time and taxpayers’ money. To the extent they are self-selected and unrepresentative, they also have the harmful effect of providing misleading information about public values and beliefs. Moreover, as any good methodologist will tell you, the quality of information gathered depends very much on the quality of the questions. It’s hard to see what possible good can come of asking questions such as: “How can the CBC be relevant and meaningful in the future?”

I had similar issues with the bizarre questions asked last summer of the general public about the obigation to serve: “What role, if any, should the CRTC play in ensuring that all Canadians have access to broadband Internet service at comparable rates?” To gauge the dubious utility of such questions, you have to appreciate that, in order to prep themselves, visitors were prompted to read Commission material on matters such as “the appropriateness of the existing forbearance framework for mobile wireless data services.” Yeah, I’ll get right on that. (See my two-part post, The CRTC needs to connect with Canadians, not consult with them, here and here.)

If the Commission were doing its job, it would know better than to characterize Canadian ISP customers as “willing to pay” and, thanks to economic ITMPs, somehow “in control” of their access to the Internet. No consumer has meaningful control of a service like broadband unless she understands what she’s buying. And trust me, she doesn’t. The CRTC makes an occasional squawk about ISPs divulging operational and contractual information to their subscribers. But it has never made any attempt to create a representative, nation-wide picture of the knowledge barriers faced by consumers – and I’m talking about the digital literacy problems of broadband adopters, not non-adopters.

As it happens, that’s just what the FCC did in a major survey last year. Check out the figure below, which shows the results to a question that probes for what respondents know about their own home broadband connection. (A short summary of findings and top lines is available in a pdf, which I’ve uploaded here.)

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Source: FCC broadband survey, spring 2010

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The entire group reflected here comprises “broadband adopters,” i.e. Americans who at the time of the survey had a broadband subscription in their home. The sample is large (n=1742), and included both English- and Spanish-speaking respondents, recruited via landline and cellphone. Notice the startling finding in the “Don’t know” category: 80% of these respondents – that would be 4 in 5 of American broadband adopters – could not tell the interviewer the speed of their own home broadband connection. And that’s the advertised speed, which would be readily available on ISP websites, bills and other materials. (Photo adapted from Jürgen Schoner.)

That’s not all. John Horrigan and his colleagues found that not knowing the speed of their own service did not prevent these consumers from trusting what their ISP was delivering:

“In spite of the fact that few broadband users know the specifics of their connection speed, 71% of broadband users believe that their connection speed at home is as fast as the provider promises at least most of the time. Some 24% of broadband users say they “always” receive the promised speed and another 47% say they receive the promised speed “most of the time.” This leaves one quarter (25%) of broadband users who say they receive the promised download speed some of the time or less frequently” (pdf, p.1).

Most were also generally satisfied with their (mysterious) broadband speed:

“The findings on broadband speed unfold in the context of 91% of home broadband users being at least somewhat satisfied with the speed of their service. Specifically:

• 50% of home broadband users are very satisfied with their home connection speed.

• 41% of home broadband users are somewhat satisfied with their home connection speed” (p.1).

Given that end-users become more comfortable with the Internet as they rack up years online, we might expect that broadband adopters were getting more knowledgable with the passage of time. Not so. The 80% figure…

“is essentially the same captured by the Pew Internet & American Life Project in 2006, when 81% of broadband users said they did not know their home connection speed” (see “Home Broadband Adoption 2006,” here, prepared by Horrigan when he was at Pew).

“Broadband Speed: When Ignorance is Costly”

This heading is the title of a blog post by Joel Gurin, Chief of the Consumer and Governmental Affairs Bureau at the FCC, written on June 2, 2010, as part of the release of the survey results discussed above. We already know three things here: the FCC maintains a blog; they have a consumer bureau; and someone there worries about  consumer ignorance causing harm.

Gurin comes by the job legitimately. For almost a decade, he was Executive VP of Consumers Union, the nonprofit publisher of Consumer Reports, leading a staff of 500 with a budget of $200 million (bio). Gurin does not sit in hearing rooms waiting to get the nod for his 15 minutes of regulatory fame. As his post indicates, Gurin deals in two activist currencies that are completely alien to the way they do business in Gatineau. One is empirical data about American consumers, collected under the FCC’s direction. The other is outreach. The details are worth citing.

First, the post reports on the bad news in the survey, in contrast to the CRTC’s approach, compulsive back-patting about how well Canada is doing:

“Today, we’re releasing the results of a national survey [pdf warning] that shows just how large the information gap is when it comes to broadband. According to this survey, fully 80 percent of Americans with broadband at home don’t know what speed they’re getting. This survey was done through a major firm and drew on a national sample of three thousand consumers.”

Second, Gurin spells out in plain English why broadband ignorance is not bliss and service providers are so handy at misleading their customers:

“This ignorance can be costly: The difference between a low-cost, slower broadband plan and a high-speed, more expensive one can be hundreds of dollars a year. In order to get the best service at the best value, consumers first need to understand what broadband speed they need for the applications they want to run. In addition, broadband service providers need to advertise their speeds in clear terms, and consumers need to be assured that the speeds they actually receive match what’s advertised. While broadband providers now advertise ‘blazing fast’ internet service at ‘up to’ a certain speed, that’s not specific enough to help consumers make informed choices.”

Third, an action plan is put on the table:

“Today, we’re taking two steps to help both consumers and service providers learn more about how broadband speed is being delivered:

•  We’re launching a scientific, nationwide test of home broadband speeds – and looking for 10,000 volunteers across the country to participate. You can read more and sign up as a volunteer here.

•  We’re issuing a Public Notice to ask about possible ways to measure mobile broadband [pdf warning] performance as well.”

Hear no evil, see no evil

Is there any reason to believe Canadian broadbanders are any more knowledgable than their US counterparts? Nope. I understand that, in preparing the last version of the Canadian Internet Use Survey (CIUS), Statistics Canada found that a majority of participants in the questionnaire test phase were unable to identify the speed of their home Internet service, and the question was therefore dropped. We should know a lot more about online behavior in a couple of months, when the agency publishes the individual user portion of the last survey (as opposed to the household portion, released May 25 in The Daily).

Which brings us to the big question. Is it the responsibility of the agency that regulates Internet access – or has deregulated access – to come to the rescue of digitally illiterate consumers? No, says the CRTC. On July 22 the Wire Report ran a story by Karen Fournier to which I contributed a few comments (“Time to review 2006 policy directive to the CRTC, consumer advocates say”). In an interview with Karen, CRTC spokesman Denis Carmel made the following remark:

We are not a consumer-protection agency. We are here to ensure that the broadcasting and telecommunications systems in Canada are in the interests of Canadians.

The notion of a “systems” approach captures perfectly what I mean by supply-side regulation. It also reflects the cultural lag that’s putting the CRTC more and more out of touch with how individual citizens actually use media in the 21st century. Although the Commission has been operating with an enabling statute for telecommunications since 1993, its heart still belongs to the Broadcasting Act and its tokenist cultural policy goals, based on the protection of abstractions like Canada’s cultural soveignty, rather than the protection of real people.

The old guard in Ottawa sees the answer to consumer protection as a matter of being allowed into the tent with the big dogs. Carmel notes e.g. that “[the CRTC has] very open proceedings that allow anyone to participate.” Sure, anyone who can give up work for a couple of weeks, knows how to write an intervention, is free to travel across the country and go up against the gangs of lawyers and expert witnesses who live for these proceedings.

The insider’s faith in the public process can be seen as well in Sheridan Scott’s comments for this article: ensure that consumer groups have a say in proceedings. You come to us, folks, and make yourself comfortable with how we do things. Scott suggests it will be useful for the Commission to be able to compensate more advocates in proceedings affecting consumers. Unfortunately, that’s a plan to keep advocates in a hearing room behind a nice-looking velvet rope. It’s now time to move them from the hearing room into the corridors of power – inside the CRTC looking out. Like they do at the FCC.

Will more competition in residential access promote consumer interests?

I don’t think so. I say this mindful of the growing evidence that many of the bad things going on in the broadband marketplace can be ascribed to lack of competition – especially in Ontario, where Bell has done a great job of aborting any prospect of sustainable competition.

Last week Geist wrote two posts concerned with the distortions created by lack of competition: “Competition, Not Congestion Driving Internet Data Cap Debate” (here), and “The Usage Based Billing Hearing Concludes: Has the CRTC Come to Competition Too Late?” (here). I agree with Michael’s conclusions and share his pessimism about whether the CRTC, having shown signs of understanding the mess it has on its hands, is in a position to undo its past mistakes. But I come at the pessimism from a different and even less hopeful angle.

My surmise is that no matter how much reform the Commission may carry out on the supply side, the benefits will simply not trickle down to end-users. Ottawa is caught in a time warp, unable to understand that while no one needs to learn how to watch television, everyone has to learn how to get on the Internet, how to use it and how to draw the benefits from it that are meaningful to them – as individuals, not as part of some “system.” The market does not supply this education and never willl, something the FCC obviously understands.

The CRTC chair, on the other hand, has rejected any responsibility for this educational process. And he has done so believing that digital literacy afflicts only those who have declined the chance to become onliners. We’re now seeing good evidence of a problem I’ve been confronted with in the classroom for years: digital illiteracy is endemic; it afflicts adopters nearly as much as non-adopters; and the accompanying ignorance is costly. Unlike Novak… oops, Nowak, I think history will judge von Finckenstein’s greatest failure to be not net neutrality, but his inability to understand the role government must play in helping Canadians become confident and fulfilled online citizens.

D.E.

5 thoughts on “Beyond UBB: the CRTC’s war on Canadian consumers

  1. Excellent piece, Mr. Ellis. I especially liked your quote from the CRTC spokesperson Denis Carmel:

    “We are not a consumer-protection agency. We are here to ensure that the broadcasting and telecommunications systems in Canada are in the interests of Canadians.”

    In other words, “We’re not here to listen to and work for Canadians, but rather, to establish the best rules for all Canadians to follow”

    He might as well have said “Don’t bother us with your complaints and shut up, we know what’s best for you”.

    This answer typifies the arrogance of a government body who is supposed to work FOR Canadians instead of ruling citizens as if they were its subjects, without any regard to their wishes and concerns.

    THAT is the reason the CRTC must be disbanded and our present democratic institutions, seriously examined. It’s high time government institutions realized they work FOR US, not the other way around. This is not the 18th century with people serving as slaves to the king’s whim.

  2. Great stuff as always, David. Let’s call it a twofold failure, then. Von Finckenstein has failed at one thing he DID consider to be his job (enforcing net neutrality and getting administrative monetary penalties established) and one thing he didn’t think was his job, which you outline above. All told, not a very good performance by the chair, was it?

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