Last Thursday the CRTC issued its not-much-anticipated annual effort known as the Communications Monitoring Report (press release here – see if you can find the well-concealed and unidentified pdf download link). Peter Nowak wasted not a moment getting to his point this week: the Commission is peddling broadband Kool-Aid. (For you kids who’ve never heard of Ken Kesey or Tom Wolfe, here’s a hint: Lucy in the Sky with Diamonds.)
Peter argues the regulator’s rosy broadband picture is baloney – check. And their numbers are cooked – check.
My lingering concern is some people might think this year’s edition of the CMR is an aberration. On the contrary. The Commission has been cooking the numbers since it first combined its broadcast and telecomm reports in 2008. Not that many Canadians are likely to have noticed, since the CMR is strictly an inside job, the kind of compilation you’d have to be paid to read. That makes the contents well insulated from criticism. After all, the boys who gave us UBB on a stick aren’t likely to phone the regulator to say, no, actually our broadband blows.
Four years of the CMR confirm two things I’ve been saying in this space. First, all this effort is just so much marketing; it has no claim to be evidence-based reporting. Second, it belies the Commission’s self-appointed role not as guardian of the public interest, but as industry clearing house, where all that matters is keeping the supply-side machinery well greased.
Here’s a quick illustration (from 2011) of what I mean. The very first piece of connected prose in the CMR begins with the Big Lie about broadband “access”…
Approximately 98% of Canadian households are located within a 1.5 Mbps broadband footprint, consisting of either landline or mobile (i.e., HSPA+) facilities. On a provincial basis the footprint encompasses all households in the following 5 provinces: Alberta, Ontario, New Brunswick, Nova Scotia, and Prince Edward Island. For the remaining provinces it encompasses at least 89% of the households (Executive Summary, p.1).
Yeah, and I have 100% access to a very nice pair of $1,200 shoes in Prada, right across the street. You almost wish this were an outright falsehood, because as it stands, it sounds so plausible – and uplifting! Too bad it’s a sneaky, highly misleading piece of sophistry. Scrape the bottom of Canada’s HSA barrel and it’ll be awesome.
The authors then get entangled in their own myth-making, noting that 70% of Canadian households subscribed to (1.5 Mbps) broadband service in 2010, leaving us with an awkward question. If we have 98% coverage, why is there a shortfall in takeup of 28%, almost 1/3 of Canadian households? But that would be so much nit-picking to the authors, who continue undeterred:
“Canada’s extensive broadband footprint provides Canadians with the means to actively participate in Canada’s digital economy and new media activities.”
As I suggested in my previous post about ITMP “transparency,” this is marketing-speak, not regulatory discourse. A 1.5-meg “footprint” does not provide the means for Canadians to participate in anything, digital or otherwise – certainly not the 10 million-odd Canadians who have “access” but aren’t actually online.
But let’s be fair. The intended readership could care less about the disenfranchised. Let’s hear it for ARPU! Seriously, the rest of p.1 of the Summary is devoted to how much money is being made by the Commission’s preferred constituents:
Canadian communications service revenues continued its year-over-year increase, going from $55.4 billion in 2009 to $57.4 billion in 2010, or by 3.6%…”
“Broadcasting revenues went from $14.4 billion in 2009 to $15.7 billion in 2010…”
Telecommunications service revenues increased from $40.9 billion in 2009 to $41.7 billion in 2010, or by 1.8%…
Non-legacy data revenues increased from $1.7 billion to $1.8 billion, or by 8.2%. Internet service revenues increased from $6.5 billion to $6.8 billion, or by 4.2%. Wireless revenues increased from $16.9 billion to $18.0 billion, or by 6.6%… (my emphasis)
Still chopped liver
And us consumers? How well did we do last year, apart from participating actively in new media activities? How about a trade-off analysis showing that our self-congratulatory regulator managed to encourage industry growth – not necessarily a bad thing – while also managing to respect the consumer-oriented goals of the Telecommunications Act?
Where’s the consumer affordability algorithm? Seriously. Before I get to some missing math, here’s some textual exegesis. After all that good news about climbing revenues, a keyword search for “affordable” and “affordability” in CMR 2011 sheds a poor light on the CRTC’s allegiances. The word “affordable” appears exactly once in 224 pages, as part of an allusion to provisions of the Telecommunications Act, so this is not exactly a big commitment:
“Pursuant to the Telecommunications Act, the Commission strives to ensure the provision of reliable and affordable telecommunications services of high quality accessible to both urban and rural area customers… [bla bla bla]“ (p.5).
The word “affordability” appears exactly twice: once as part of a complex schematic on the effects of convergence on regulation (p.26); the second time in a footnote to Table 5.1.8 (p.117), in reference to a Statistics Canada’s “Affordability Study.” Nowhere does the Commission deploy any prose analysis of the effects of pricing on uptake or any other consumer-oriented consideration.
Let’s take a peek at two previous CMRs to demonstrate how consistent the Commission has been in what some have called its war on consumers.
CMR 2009: Cherry-picking in Appendix 5
In his post, Nowak takes the Commission to task for the oldest trick in the book, namely, making yourself look good compared to others by manipulating the baseline:
“Looking at the actual report, it’s clear how the regulator came to its ridiculous conclusion: only eight select countries – Canada, the United States, Japan, United Kingdom, France, Germany, Italy and Australia – were compared (page 192).”
Maybe we should feel relieved. In June of last year, I wrote an opinion piece for Telemanagement entitled “What the FCC and OECD can tell us about Canada’s broadband prospects.” I wrote some comments (referring to the 2009 CMR) about a familiar-sounding conclusion:
Depending on your expectations, you might have been surprised to read that “Canada compares favourably for low-use broadband Internet service, and reflects a median price point for medium- and high-use baskets.”
Two years ago, it turns out, the Commission’s broadband Kool-Aid recipe was based on comparing Canada not with eight but four other countries! The authors chose to bury the gory details way back in Appendix 5, where even policy wonks might fear to tread, and if they did, they might spill the beans:
“Canadian prices were compared to those in the U.S., U.K., France, and Australia for wireline, wireless, and broadband services at three different usage levels. [...] Prices were collected from the three or four largest service providers in each country, and then weighted by the market share of each provider [...].”
In addition to the farcical four countries, the Commission extended its intellectual dishonesty to not exactly counting Canadian UBB overages, but let’s take a short break from the Bad News UBB Bears.
This past June I wrote a series of posts that examined misguided assumptions behind the CRTC’s broadband target. The third included a look at the 2010 CMR. In my crack above about a putative consumer affordability algorithm, I was referring to a very serious, ongoing problem with the CRTC’s determinations: its unwillingness to use explicit, verifiable measures of crucial marketplace trends. This family includes concepts like market power, the presence or absence of which can have a huge influence on both competitors and consumers – as can any regulatory determination that a given market is not overly concentrated or otherwise distorted.
Nevertheless, the 2010 CMR makes but a single reference to market power, and only does so in reference to the 1994 telecom decision in which the Commission set out a 3-step test for determining whether a telecom market might become competitive:
“The three steps consisted of (a) identifying the relevant market; (b) determining whether the applicant has market power with respect to the relevant market; and (c) determining whether, and to what extent, forbearance should be granted.“
I pointed out two things in that post. One, this test was not created for the benefit of consumer protection, but for the purposes of pursuing deregulation in telecom markets. Two, no procedure is indicated here (or anywhere else I’ve been able to find) that would allow a 3rd party to cross-check the regulator’s findings concerning the state of a given market.
So how do we know when a market is too concentrated or a given firm has too much market power?
Economists (and others) have given us tools with which to assess such questions. One of the most widely applied is the Herfindahl-Hirschman Index (HHI), whose purpose in the hands of regulators is to assess market power and, if necessary, take measures to ensure firms are suitably disciplined. The HHI isn’t rocket science. You identify the market share of firms in competition and square those numbers. Regulators take these results and look for certain patterns such as whether one firm’s result is over a certain threshold or the HHI total has increased significantly over time. In the US, not only are the HHI, and similar indexes of concentration, used frequently by the FCC and DoJ. They’re also discussed as a matter of course in the media and telecom trades. The highly controversial AT&T takeover of T-Mobile has, not surprisingly, made references to the HHI popular reading.
Has the Commission ever used the HHI or similar index to measure market power? Has it ever used the findings to deny a merger or any other marketplace transaction? It if has, where’s the math? If it hasn’t, what’s the rationale? Am I the only guy who thinks the Deciders of Gatineau should determine the GTA is in fact an overly-concentrated broadband market by applying the HHI to the market shares of Bell, Rogers and the other 20 or 30 providers? (If you know anything that might help this calculation, drop me a line.)
Why have I been dwelling on this nerdy formula? Because the underlying problem is part and parcel of the CRTC’s obsession with secrecy and distaste for objectivity. And because, despite the obscurity of the CMR, I wanted to show that something easy to miss – the absence of a published test procedure – can have far-reaching and very negative implications for everyone besides incumbent fatcats.