By Mel Cohen
THE CRTC REVERSED ITSELF last Thursday, declaring that it erred in 2019 when it set lower rates for wholesale customers of the major telephone and cable companies. Wholesale customers are the dozens of smaller companies that compete with the majors and each other to provide internet services used every day by Canadian homes and businesses.
They are companies you might know – Distributel, Primus, and other members of the Competitive Network Operators of Canada. The consequence of the CRTC decision is that Canadians will soon pay higher prices to use the internet.
What is particularly frustrating about this decision, and the one made just a few weeks ago about mobile phone service, is the attitude expressed by the chair of the CRTC and written into the decision. That attitude expresses partiality for “facilities-based competition”, which is competition among the huge companies that build large-scale telecommunication networks. This is distinguished from “service-based competition” which arises from smaller companies that pay wholesale prices to use facilities owned by others.
“That partiality, inherently biased toward big money, has plagued the industry for as long as service-based competition has been allowed.”
The chairman believes facilities-based competition should be favoured because it is more sustainable. That partiality, inherently biased toward big money, has plagued the industry for as long as service-based competition has been allowed. It is rife among ivory tower economists working at think tanks like the Montreal Economic Institute and the Competition Bureau, where the chairman once worked. I have participated in regulatory proceedings where the Competition Bureau was the most anti-competitive intervener, espousing end-to-end ownership of all the facilities involved in providing service, something that is non-existent in Canadian telecommunications.
Even the major players fail to conform to this ideal, as they regularly lease services from one another, and like my company, are a mix of facilities-based and service-based competition.
A little history is in order. In 1987, while I was still an employee at Bell Canada, the CRTC decided “resale” of telephone company facilities was in the best interest of Canadians. Resale was telecom jargon for retail, and simply meant that a company could buy telecom services at volume discount prices and then use those purchases to provide services to smaller customers. In other words, service-based competition. Based on the rules the CRTC established, I refinanced my home, gathered some angel investment, and started Distributel. After two years we reached break-even. Thirty-three years later, facilities-based competitors have come and gone, but Distributel is alive and well. What does that say about sustainability?
Throughout these 33 years, the major players have consistently opposed service-based competition. Their position is self-serving: Why should they be forced to facilitate their competitors when they are the ones building the networks? They would prefer to sell directly to end users so they can keep all the profits for themselves. Of course, the majors didn’t get to where they are without enormous advantages like being allowed to operate for decades as monopolies, and with their deep pockets, the majors have tremendous influence on government and their regulators.
“The only thing certain in my mind is that the CRTC, under its current leadership, is prejudiced against a class of companies that have been sustainably providing meaningful service alternatives to Canadians for more than 30 years.”
Despite their influence, the authorities haven’t always seen things their way. The CRTC’s 1987 decision to allow resale is one example. Another case occurred 10 years ago, when the CRTC decided there was insufficient competition for internet services based on cable company facilities. Their remedy was to reduce the number of physical locations at which competitors had to connect to the cable company networks. At the time, Distributel was already leasing facilities to some twenty-six different Rogers locations in cities across Ontario. This was consistent with the new disaggregated model that the CRTC is now espousing, but because of that previous CRTC decision, Distributel spent the better part of a year migrating all those connections to a single Rogers location in North York, to which we began construction of a fiber-optics link from our hub in downtown Toronto.
In its May 27 decision, the CRTC decided it wasn’t worth its effort to do a comprehensive review of the rates that it supposedly “got wrong” in 2019. This, even though they have had the review file for well over a year. Instead, they want to concentrate their efforts on getting the “new model” right. This new “disaggregated” model is a reversal of the previous decision that said fewer connection points were better. It will require Distributel to re-establish the connection points to Rogers that it previously had and will potentially require connection to hundreds of Bell Canada central offices. Some competitors will have the wherewithal to adapt, but the success of this model will depend on rules and rates which are yet to be established.
The Commission has also defended its last Thursday decision as providing the industry with regulatory certainty. The only thing certain in my mind is that the CRTC, under its current leadership, is prejudiced against a class of companies that have been sustainably providing meaningful service alternatives to Canadians for more than 30 years.
This prejudice should have no role in telecommunications regulation, and I can only hope that the government of the day will make this clear as it reviews these latest decisions.
Mel Cohen (above) is the founder of Distributel
