Open kimonos, closed minds: new risks for Canada’s Internet

***

Artist’s rendering of Big Media opening their kimonos at secret CRTC meetings

***

It’s very useful for the commission in our supervisory role to understand what they’re thinking and for them to open their kimonos. Some of them did offer new information, and we were grateful.

Denis Carmel, CRTC spokesman, Nov 25, in The Wire Report

_____

Fact-finding without the facts: must be OTT

As I’ve noted before (e.g. here and here), the CRTC’s handling of the over-the-top review is a travesty of due process. It’s based on a fact-finding proceeding that wasn’t a proceeding, and more secret meetings to continue where they left off in March. Denis Carmel’s expression (above) of “gratitude” to the participants for dropping by to grind their own axes, without the bother of rebuttal or outside scrutiny, is a less than comforting way to honor the principle of ex parte meetings. FCC rules require that private meetings with 3rd parties be disclosed, and that the content of discussions be summarized in public minutes. As Free Press noted last July: “The ex parte process may seem obscure to most people, but these meetings have a significant impact on FCC decisionmaking.” (That article was a commentary on the FCC’s proposal to strengthen its ex parte rules.)

In his WR article, Nick Kyonka notes that “representatives from 27 telcos, broadcasters and other stakeholder groups met individually with commissioners and CRTC staff Nov. 16-18.” I learn from an Ottawa source that the NFB, CIPPIC and PIAC were asked to participate. That source points out they “were very thoroughly reassured that this is still in ‘fact-finding’ mode, the idea being that they are not looking to impose anything at the moment […] but are trying to gather data to start to think about how to resolve the problem long term.” I’m also told the Commission went so far as to list the participants on its website, but even that crumb of information has apparently been deleted.

One comment that pops out in Nick’s piece gives further reason to be concerned about these sub rosa pyjama parties:

One industry insider who participated in the meetings speculated that the exercise is part of an attempt to placate some stakeholders that want to see the commission acting on the file. The source, who asked not to be identified, suggested that the commission heard complaints about inaction and spin about the impacts of over-the-top services on the broadcasting sector.

***

Three reasons to remain vigilant about the CRTC’s OTT review

Reason A. Canada does not have meaningful network neutrality rules.

Reason B. The cultural community has argued all the way to the Supreme Court that, thanks to the technological neutrality meme, ISPs should pay their fair share to support our eternally precious broadcasting system.

Reason C. OTT is busting out all over – or at least being talked about all over – and some are blaming it for cable cord-cutting.

A. Network neutrality. Let’s start with the big, over-arching problem: Canada’s alleged net neutrality rules, to wit, the IMTP framework founded on the perceived – and mistaken – need to alleviate traffic congestion on behalf of the incumbents, with protection for end-users as a poorly executed afterthought. Instead of dwelling again on how the FCC has handled the neutrality issue, let’s turn to the UK and its regulator, Ofcom.

On November 24, Ofcom issued a major statement on its approach to net neutrality. This isn’t the place to summarize the entire Executive Summary; but a few points are well worth highlighting.

The setup to the Ofcom statement sounds in many ways like the preamble to the CRTC’s 2009 ITMP decision (CRTC 2009-657). We’ve seen lots of benefits, but the Internet is growing like crazy, so we need to find reasonable ways to manage traffic, yadda, yadda. But by the 4th paragraph, Ofcom has something very different in mind for what it calls the “two broad forms of internet traffic management”…

  • ‘Best-efforts’ internet access, under which network operators attempt to convey all traffic on more or less equal terms. This results in an ‘open internet’ with no specific services being hindered or blocked, although some may need to be managed during times of congestion.
  • Managed Services, under which network operators prioritise certain traffic according to the value they ascribe to it. An example may be the prioritisation of a high quality IPTV service over other traffic. This amounts to a form of discrimination, but one that is normally efficiency enhancing.

For Ofcom, the intended function of the Internet as a “best effort” platform has proven too valuable as a source of innovation and other public benefits to be cast aside merely because networks can get congested. Moreover, the measures being contemplated here are what the CRTC refers to as “technical.” The idea that traffic should be “managed” by allowing ISPs to impose so-called “economic” ITMPs – by raising prices or lowering data caps at will – would be laughable to the Ofcom authors.

Okay, “laughable” is my editorial interpolation. Lest there be any doubt, however, that Ofcom believes first and foremost in a free and open Internet, here’s what the agency has to say a few paragraphs later (9 and 10):

[A]ny marketing terms used to describe services should be simple to understand, and comparable between ISPs. In particular, if ISPs offer a service to consumers which they describe as ‘internet access’, we believe this creates an expectation that this service will be unrestricted, enabling the consumer to access any service lawfully available on the internet. As a result, if a service does not provide full access to the internet, we would not expect it to be marketed as internet access (my emphasis).

Now check out the attachments at the end of the Exec Summary: two honest-to-goodness, independent research studies prepared by subject-matter experts whose purpose was to examine the welfare of end-users – not the welfare of incumbent ISPs – under various management scenarios. One is Traffic management and quality of experience; the other is Consumer information on Broadband Speed and Net Neutrality Experiment (both may be downloaded from the Summary page). These are actual empirical studies of a) how traffic management affects end-user QoE (quality of experience), and b) how live experimental subjects used simulated ISP information to make broadband purchase decisions. The incoming CRTC chair would do well to think about why Canada needs this kind of research.

B. Cancon goes to court. If you ever doubted the determination of Canada’s cultural community to have the Internet transformed into a regulated, private delivery system for their professional goods and services, wake up and smell the litigation. Four major cutural groups were unhappy with the Federal Court of Appeal’s decision that ISPs are not acting as broadcasting distribution undertakings when they carry what appears to be “broadcasting” content transmited over the Internet. The groups – ACTRA, the Canadian Media Production Association (CMPA), the Directors Guild of Canada (DGC) and the Writers Guild of Canada (DGC) – appealed from that decision to the Supreme Court. They base their argument on what they purport to be the “technological neutrality” meme lurking in the Broadasting Act (I’ve uploaded their factum to the Supremes in pdf here). The respondents in the appeal are Bell, Rogers, Telus, Shaw et al.

This case epitomizes what I see as an opportunistic and unfortunate legal fiction. The fiction lies in the idea that, no matter what the nature of the delivery platform (technology), Parliament intended the Broadcasting Act to extend to all activities construed by the authorities as “broadcasting” – pretty much in perpetuity and with no regard whatsoever for the changing needs of the public at large.

Outside the closed universe of lawmakers, courts and bespoke-tailored advocates, however, the rest of us understand that a TV set is a dumb piece of furniture having absolutely nothing in common with interactive, generative devices that serve the personal needs, convenience and imagination of the end-user (see PS below). I fired my cable-TV provider six years ago, and what I do on this here MacBook Pro is nobody else’s freaking business, least of all ACTRA, Rogers or the CRTC. I didn’t hold out for the Sandy Bridge implementation of Intel’s 4-core i7 processor so I could party like it’s still 1985. (Several months ago, I wrote my own factum about why an ISP levy was a truly terrible idea. See the reasons for this view, and much else, in Get yer grimy paws off my Netflix: the scam, continued.)

***

C. Cord-cutting and OTT. In a major OTT move, Verizon has announced it’s going to launch its own Web streaming service next year. Reuters led its report with this:

“Verizon Communications Inc plans to launch a standalone service allowing customers to stream movies and television shows over the Web, in a fresh challenge to Netflix Inc and the traditional cable TV business, according to several people briefed on the plan.” 

The report goes on to say Verizon is looking at a potential catchment of 85 million homes. The idea that this is an attack on Netflix turf isn’t fanciful: the news pushed the Netflix share price down by 5%, although by the end the day it recovered to 3%, at $68.14. The Verizon plan is bound to come as seriously bad news to the OTT working group, even though no one has yet said anything about Verizon launching in Canada. But Verizon is big, well capitalized and easily capable of pulling off such a plan (its 2010 revenue was $106 billion; Netflix revenue for fiscal 2010 was $2.2 billion).

Whatever comes of the Verizon initiative, there’s plenty of rumbling out there about OTT and cord-cutting, though not always in the same breath. The other day at the NextMedia conference, Rogers TV honcho David Purdy allowed as to how we’ll see “Netflix-like watching launched by every major distributor in North America over the next 12 months.” Purdy even fesses up as to how having most of the marbles for so many years made Rogers complacent:

“If I wrote a book on our experience over the past 10 years, I’d call it the Curse of the Incumbent. The guy inside the fort is always loath to fire his cannons and spend money. The guy attacking the fort has nothing to lose.”

Purdy’s American counterparts view all this upheaval in the video space as unsettling, but a big opportunity just the same. At another conference this past week, this one in in New York, the talk was cautiously upbeat, according to a Bloomberg report. Echoing colleagues, News Corp COO Chase Carey told the conference that over the next five years, online video will be “the number one issue we’ll have to navigate.”

Curse of the incumbent middleman

Back in Canada, the moguls are dealing with a special set of challenges. There’s some good news. To a certain extent, Canadian cablecos are in a more comfortable position than their US counterparts, thanks to the cultural policy goals that made cable the gatekeeper of choice to help the CRTC lock down our broadcasting system. Other industry trends also work in favor of the incumbents, notably the use of bundling and contracts, which make switching or defecting unappealing for most mainstream consumers.

On the flip side, however, you can be sure two other facts of life have the OTT gang worried about their future. One is their quaint business model as content middlemen – resellers of the US content that has always brought in the big bucks for broadcasters. The other is the perennial unpopularity of the cable industry. Based on US data from ASCI, subscription TV service has an aggregate score of 66 out of 100, with the two gorillas, Comcast and Time Warner, scoring a miserable 59 – placing them among the 19 Most Hated Companies In America (as of June 2011). (Fascinating factoid that falls out of this list: in Most Hated Position #10, with a satisfaction rating of 64/100… Facebook!)

I don’t have comparable figures for Rogers and the other major Canadian BDUs, but it’s difficult to imagine – on the basis of a great deal of anecdotal evidence – that Canadians are having a clandestine love affair with the cable guy.

Back in May, Stop the Cap activist Phillip Dampier wrote a post entitled “Understanding Customer Defections: The Value Perception of Cable Television.” Dampier notes that “the [US] cable industry has lost more than 2 million video customers over the past year, and the problem may be getting worse.” The reason? Lousy value perception. As long as cable was the only game in town, cord-cutting wasn’t much of an option. That’s all changing, however, and the newer, cheaper, friendlier alternatives – like Verizon [update: maybe that should be Netflix for now, not Verizon] – are likely to encourage defections, or at the very least, panic among the old guard about future prospects.

But in Canada, it’s the reseller business model – and disintermediation – that’s the big issue for the media moguls. The Internet has not been kind to middlemen like travel agents, booksellers and postal workers, and the writing is on the wall for Canadian broadcasters – especially when a guy like Rogers’ TV chief admits in public his firm has been too complacent. A couple of years ago, the moguls could blame their problems on the demons who run the BitTorrent file-sharing sites. Then Netflix launched here and OTT turned out to be a real business.

The big question now is this: will Canada’s moguls actually try to compete on the merits of their own VOD and OTT offerings – or will they continue to hide behind the perennial flag-waving, false populism and scare tactics?

Wouldn’t it be nice if we could follow the suggestion enshrined in the title of one of Pete Nowak’s November posts – Canadian broadband: the time for complaining is over. “I had to take a deep breath before writing today’s post, mostly to get all the four-letter words and other obscenities out of my system.” Tell me about it.

A. No matter who the incoming CRTC chair turns out to be, they aren’t going to turn the agency upside down in favor of the 99.9% who don’t benefit from the current system – certainly not with Harper in power. The secret meetings that seem to have become routine in Gatineau will make it all too easy for the Commission to propose quotas, taxes and other anti-competitive measures on those foreign OTT providers, like Netflix, that are perceived as a threat to our cultural sovereignty.

B. If the Supreme Court finds in favor of the appellants, the interested parties will be encouraged to keep fighting yesterday’s battles. In the event a levy ever burbles up through the pond scum, I can only hope activists like OpenMedia.ca will help frame it for what it is: a regressive tax on consumers who are already paying some of the highest broadband fees in the OECD, and which will provide yet another disincentive to adoption in our broadband banana republic.

C. To the extent Big Media feels its protected status being eaten away by “unregulated” services, they will play the advantages conferred on the OTT Working Group to the hilt. What do you suppose the “useful” information is that fell out of their various kimonos last month? Canadian versions of Traffic management and quality of experience...? Consumer information on Broadband Speed and Net Neutrality Experiment…? Not in this universe.

D.E.

Artwork by Amelia Ellis

***

PS: Canadians should be deeply worried about the relentless attempts by ACTRA and its ilk to redefine the Internet as just another delivery platform whose content needs to be regulated, so their little community can enjoy yet another revenue stream at the taxpayers’ expense. Here’s a short excerpt from the prior post noted above – Get yer grimy paws off my Netflix: the scam, continued – which highlights a few of the fundamental differences between the boob tube and the personal computer:

The assumption that video on the Internet is part of our broadcasting system because it happens to fall within a statutory definition does violence to every other aspect of these two platforms. The broadcasting system is closed, licensed and centrally controlled; has extremely high barriers to entry; appeals to mass audiences through expensive, least-common-denominator programming; is financed by the sale of eyeballs to advertisers, i.e. the audience is the product for sale; and the viewer is an entirely passive participant with no means of interaction or self-expression. The Internet, on the other hand, does not belong to anyone and runs on open-source software; is primarily a medium for self-expression and personal messaging (Web 2.0); has low to zero costs of entry; exposes commercial and political élites to unprecedented levels of scrutiny; allows like-minded individuals to overcome geographical and other barriers so as to form meaningful communities; encourages creative destruction, which in turn promotes countless different kinds of innovation; and so on.

 <end>

2 thoughts on “Open kimonos, closed minds: new risks for Canada’s Internet

  1. The email below comes from my friend Sam Punnett, who like me is less than optimistic about what Canada’s telecomm future has in store for us consumers. Sorry, make that: us “units of consumption.”

    I sense we are doomed when we start looking to the Brits for technology tips. I’m also reminded by your column why ACTRA and the CMPA don’t call me anymore. 😉

    Maybe they’d like to sue the electricity suppliers next? Maybe we should short the utilities and go long on papyrus with a hedge on clay tablets? I’ve taken to leaving my mobile phone at home when I go to the States because I can’t afford roaming charges. Someone from Telus once told me years ago that 40% of their revenues come from roaming charges.

    The main problem certainly here, as you continue to point out, is that the customers here are Canadian consumers. And increasingly the value proposition from media companies is preposterous. The margins are obscene given the service and the “risk” levels for companies.

    Let’s face it, OTT will likely come to rest with the experts in aggregating audience. Might be Netflix, might be Verizon, might be Facebook or Google. I do have a feeling it won’t be a telco or a broadcaster. Which brings us in Canada to why they’re almost the only people in the room? It’s the same reason why the Occupy movement will never meet with any success in Canada. We are completely and totally colonized or co-opted by the gatekeepers of various controls in this country. It’s the norm. We get screwed and say gee thanks or grumble amongst ourselves and feel we have nowhere to turn. The real reason is that we are disenfranchised and generally ignorant. We are ignorant because “open kimonos” are the exception and not the rule. It’s just where they (gatekeepers) want us to be, outside of the room (ex camera?). Just units of consumption that’s what we are. Customers without choices or much service. I believe it’s called extortion. We get the government we deserve and the same goes for our communications.

    My compliments also to your new art director. Cheers – Sam

  2. Some good comments from Laurence Price – esp on the need to amend the Broadcasting Act.

    In your article a few details were overlooked…

    Some of the measures that you mentioned would involve government legislation and possible changes to the broadcasting act. Also pertaining to some of these measures the CRTC would have to monitor the internet and block certain sites which is a futile task.

    Additionally, the CRTC only has jurisdiction over what happens in Canada. The regulator cannot dictate rules and regulations to other countries.

    In response to Harper being one of the reasons against “reforming the CRTC”, even if the NDP or Liberals were in power there probably would not be much of a difference. Even though Layton, during the election campaign, stated that he and the NDP were against UBB he also talked about protectionist measures regarding OTT. As stated below…

    The NDP platform also focuses on increased regulation of both Internet providers and online video services. Alone among the three parties, the NDP states it would consider requiring both ISPs and “over-the-top” video providers such as Netflix to contribute funding to support the creation of Canadian content. These policies would seemingly require reforms to the Broadcasting Act and force the CRTC to reopen its new media decision that takes a hands-off approach to Internet regulation.

    Link to Geist

    Other than the details that I pointed out, I thought your article was very insightful and informative.

Comments are closed.