Harold Innis and Canadian Telecom Policy

May 14, 2012 //

The last semester my focus had been a bit split.

I came into the year working on a report for Public Safety Canada through Ryerson’s Privacy & Cybercrime Institute. We were tasked with putting together a comparative analysis of strategies and policies states were undertaking involving both pulic and private sectors. It was quite interesting and while not directly focused on my core research, it was definitely related to Canada’s digital policy and was a great opportunity to help contribute to the policy formation process.

More directly, I have had the opportunity to work on a research project around the 700 MHz spectrum auction. Up until now it had been rather short term but with the research leads SSHRC-funding being approved, the team is looking to formulate a longer term project around the auction process. My role is still to be determined, as my part-time graduate student status may have an impact on hours I can be offered. That said, I’m currently working with the post-doc to put together a paper for submission to an academic journal by the end of the summer.

And, of course, there was also the matter of school. While I had been a bit concerned over what the focus of my term paper would be last semester, I decided to further explore the Toronto School of Communication. I’d read pieces of Innis as part of political science courses and had some familiarity with McLuhan but I saw my Core Issues in Communication class as an opportunity to get a better theoretical foundation with some famous Canadian academics.

In the end, due to the shape of my research and other constraints, I focused solely on Innis, especially his space- and time-bias analytical tool. After some general discussion of how Innis’s tool allows us to identify the internet as having both a space and time bias, I offered some observations on how this could help inform contemporary digital policies for Canada from a high-level perspective.

There was an interesting aside in a Deibert article, “Harold Innis and the Empire of Speed”, where Deibert illustrates, “Innis’ skilful attention to the interaction of contingent variables in the course of human history.” The passage focuses on Innis’s observations that political boundaries of Canada were a product of the differing trade flows with French and British colonial masters that resulted in “unused capacity” in ships. I thought this had implications for contemporary broadband policy and the prof for the class suggested it could make for an interesting paper. So I’m currently making my way through The Fur Trade in Canada and mapping out a lit review.

While my focus remains on securing a policy analyst position after my Masters, it’ll be great if I can be published in case I decide to go on to PhD studies later. And having a couple academic credits to my name wouldn’t hurt on the resume regardless.

Categories Canada, ComCult, ICT, Spectrum

Business Lobbying and Canadian Telecom Governance

January 24, 2012 //

Another recently completed selection of my winter reading was Cornelia Woll’s Firm Interests: How Governments Shape Business Lobbying on Global Trade. Woll explored the relationship between government economic policy and business lobbying interests, suggesting in complex and transitional periods where business may not have clearly articulated — or even internally known — positions, government can have quite a bit of influence to shape interests. Once business internalizes government goals, the businesses eventually generate objectives within that framework and execute on the strategies.

Woll uses liberalization of telecommunications service in the 1990s and open skies arrangements in the 2000s as case studies, primarily focusing on US and European actors. She argued they presented strong examples, as they consisted of companies that had been (or, in some cases, still were) monopolies/oligarchies that had traditionally operated in highly protected domestic markets. Woll charts the move from resistance to acceptance and then championing of liberalization by firms with a historical bias towards protectionism, demonstrating in these industries how government — especially US trade policy of the late 80s and 90s — started influencing companies thoughts on international competition. The triggering point, Woll suggests, was in part the changing nature domestic economic affairs.

In telecoms, the 1996 Telecommunications Act in the US fostered new domestic competition and the European Commission was looking to foster greater EU competition. As this made businesses more familiar with a competitive industry (US wireless industry was largely competitive already), it made it easier to make the shift. US trade representatives especially reframed the case for liberalization from reduction of tariffs and connection fees — which, after all, had been large revenue streams for telcos — to a focus on improved opportunities for foreign direct investment and market share. The EC tied telecom liberalization in the EU to the global GATS efforts. (Deregulating the domestic market in the US and EU members belief they were disadvantaged in bilateral open skies agreements with the US were offered as key drivers for liberalization of international air transport.)

Overall, Woll presents a timeline that demonstrates government (US & EU) trade policy that took the lead on liberalization efforts and was not simply a matter of businesses dictating policy goals to government policy officials. Yet while Woll makes a convincing argument for government helping to set telecom and air transport lobbying goals, there remains some challenges to her theory. Woll starts the book with a focus on how financial firms, especially those of US firms like American Express, were paramount in the early efforts of trying to replicate the success of GATT in the services industry. In fact, Woll highlights how unusual the decades long effort by financial actors was for firms noted for an almost myopic focus on only the next quarter. Woll fails to address that liberalization of specific industries — and government trade representatives leading those efforts — may be argued to be the result of international capital goals and objectives.

With Woll’s book fresh in my mind, I attended a talk by Anthony Lacavera for Ryerson’s Real World Speaker Series on January 19th. Lacavera was pleasantly candid, though the students threw a fair amount of softball questions. He noted that one of the most surprising things he found in launching WIND’s Canadian operations was just how strongly the incumbents lobbied against WIND, especially in the CRTC. While some have argued that the CRTC was simply applying the regulations as laid out in the 1993 Telecommunications Act, Lacavera noted that Globalive’s corporate structure had been investigated by Industry Canada prior to bidding on spectrum licenses and been approved and the CRTC didn’t raise objections until after licenses had been paid for in full months after the auction. (He also conceded that clearly he had a bias in the matter.)

As a business class, the focus was primarily on the business developments and challenges of moving from Gloablive’s origins in 1998, morphing over time from a telecoms reseller to provider, to present day in building out its own network infrastructure. There wasn’t as much focus as I would have liked on future efforts, especially the pending spectrum auction, though he did touch on the change in working primarily with Orascom to VimpelCom — access to increased scale was a pro, garnering attention within an even larger corporate entity was a con.

One of the perceived delays with the 700MHz auction in Canada is due to government investigation of liberalization of the Canadian telecom sector. Will they open telecoms to foreign competition? Will it be staggered, with initially only smaller market actors being permitted to become completely liberalized? Will telecom be liberalized and not broadcasting? The incumbents don’t appear to have a coherent preference, other than that foreign investment rules for small market actors should be the same as for the incumbents. I’m not sure that I agree that as it stands liberalization for small actors would significantly lower cost of capital vis-a-vis incumbents — while Canadian capital markets are much smaller, the immense scale of incumbents versus new entrants seems an important consideration.

While Lacavera did not touch upon spectrum set asides or foreign investment rules, he did respond to one question of where he saw the industry in a 5 years and that was consolidation — BELLUS, Shawgers and Public WINDicity, along with Videtron being the unassailable Quebec entity (Lacavera suggested the mergers but not the names). I’d argue this outcome would result from allowing foreign competition for smaller market actors but not for either dominant market actors or foreign ownership of broadcasting. Permitting increased domestic consolidation would be the consolation prize for incumbents.

If liberalization is focused on market share, the outcome will likely be full liberalization in a 3-10 year time horizon. If it hinges on broadcasting, then there’s some interesting questions to be asked in the corporate boardrooms of Shaw, Rogers and Bell while TELUS will see its current strategy of focusing on the platform payoff by perhaps allowing for immediate greater access to foreign investment.

Categories Canada, ICT Economics, Politics, US

Reviewing old policy analysis

January 19, 2012 //

After a successful first semester in the ComCult program, the second is underway. Since my previous class was Political Economy of Communication and Culture (with Greg Elmer of the Infoscape Lab), I was able to select a topic on telecoms. I wrote on industry-driven activism in the telecom sector and used AT&T’s proposed (now withdrawn) merger with T-Mobile and Rogers’ ‘I Want My LTE‘ campaign as case studies. I think that it’ll be useful for my proposed thesis of studying the ongoing spectrum auction, having critically looked at ways that industry attempts to publicly lobby regulators.

I’m not so sure that this semester’s class — the required Core Issues in Communication Studies — will allow me to have my term paper be related to my thesis. Thus, I’m looking to put more emphasis on my academic research outside of class. While researching my paper last semester, I grabbed a couple extra books from the library to read over the winter break to help with that.

One of the documents was a 1997 report from the Public Interest Advocacy Centre, Inappropriateness of Spectrum Auctioning in a Canadian Context. Written ahead of Industry Canada’s usage of auctioning spectrum for LMCS (28GHz) and other bands (24GHz and 38 GHz), it was interesting to read a document arguing against the implementation of auctioning since I don’t think I’ve read any commentary on using auction alternatives for 700MHz.

Perhaps that’s because we’ve been doing it for over a decade, including 2006′s AWS auction that resulted in several new market entrants. Some of the concerns of the report regarding auctions seem to have been born out, mostly in higher costs to consumers (via increased costs to carriers). After the 1999 auction, spectrum was returned in the LMCS 28GHz band and under-utilized in the other bands. Business imperatives may demand bidding on spectrum to not be locked out of potential opportunities but if demand isn’t there or carriers don’t see the fundamentals to provide the service, that can result in wasted capital.

Additionally, the AWS auction was seen as a windfall for government revenues instead of simply recovering costs but that reduces capital for infrastructure on the side of businesses. I’m weary of auction costs being the reason incumbents haven’t better utilized AWS spectrum, as infrastructure capex is still significantly more then license fees, but it certainly is a less productive use of capital. Speaking with a friend at one of the incumbents, she was of the position that auctions are a revenue grab. That being said, with the continuing decrease of corporate tax rates, auction revenues are increasingly important to government coffers.

Some parts of the report strike me as invalid though. It’s never made clear why the author feels comparative licensing had resulted in wireless products for exportation. I understand the critique of rent-seeking behaviours by auction consultants but Nortel continued to export products for years after auctioning and Canada’s mobile service and products continues to grow within the general structural constraints of the Canadian economy.

Also, industry roll outs over larger geographic areas then required as a condition of licensing doesn’t say to me that competitive licensing is inherently better then auctioning. In fact, it seems to show a failure of Industry Canada to effectively determine minimums of license requirements. I do concede that it may be more challenging, practically and legally, to have specific network infrastructure requirements that vary according to geographical and density conditions but auctions can still be tied to specific requirements. Germany’s 800MHz auction requiring rural deployment prior to urban cores facilitated quick access to underserved areas comes to mind.

Overall, the document was an interesting window in time. I can’t see Industry Canada reversing its commitment to auctions any time in the near to mid-term future. Between revenue generation that auctions create and the loss of comparative licensing expertise, its just not practical. But as the public, industry and government continue to debate the best framework for the coming 700MHz auction, it’s useful to keep in mind that auctions aren’t the only framework for spectrum licensing.

Categories Canada, ComCult, Industry Canada, Spectrum

Email amongst Friends leads to Musings about Telecoms

October 17, 2011 //

A graphic designer/illustrator friend of mine emailed to ask of my thoughts were regarding the new branding for Sportsnet due to my interest in the Canadian telecom sector. Thought I’d make some additions and edits, and turn my reply into a post.

James brought up it’s positioning vis-à-vis TSN, Canada’s leader in sports broadcasting, and some potential latent Americanization with the red, white[-ish] and blue colour scheme. I wasn’t actually aware of the re-brand being busy with school and not having TV. And as I primarily play attention to the distribution side of things instead of content, my regular news feeds didn’t have anything on it. Googling brought up a Globe & Mail article that stated it was a Hollywood firm that did the new logo but they also did SportsCentre on TSN.

Overall, I think this is part of Rogers efforts to become a tighter vertically-integrated company and continue going head-to-head with Bell. Probably to strengthen themselves to be able to better compete when the telecom sector is opened to foreign-competition. I’d hazard that’s around the time that incumbents are allowed to buy the new entrants, sometime around 2013 I think. The LTE-auction will see some set aside for new entrants and WIND probably securing that with Bell and Rogers getting most of the rest and TELUS a smaller amount. Then WIND buys one of the smaller players, Rogers and Bell get one and TELUS continues to provide network sharing agreements to regional players like SaskTEL and MTS. [Not sure I expect Quebecor to take Videotron out of Quebec.]

I think it unlikely that any foreign-buyer takes over a Canadian telecom, based in part on a conversation with Mark Goldberg at the end of summer and his thoughts that international telecoms don’t tend to be successful, highlighting Deutsche Telekom’s efforts to sell its US T-Mobile subsidiary. And while we have pretty good margins in Canada, the market isn’t huge for some of the major international players. (Actually, I could see a Chinese company eventually trying to buy a Canadian firm as a bigger foothold into North America. ZTE built some of the new entrants networks and Huawei, as I discussed last year, just can’t seem to push past US national defense concerns — even if they may be starting to push back. After all, they’ve already tried this tactic and handsets are getting some Canadian and US-traction and infrastructure contracts with smaller carriers.) If any takeover were to happen, I do think a VimpelCom buy-out of Globalive’s WIND to be the most likely — though some may argue that’s semantics.

In term’s of Americanization, Roger’s is merely streamlining media operations after absorbing City and better integrating the former CTV Sportsnet. I recall a statement by CEO Nadir Mohamed (I think) talking about Rogers looking to regain their technology-lead in the Canadian carrier space when launching the first LTE network in Canada. While they’re rolling out first generation of LTE to the country, most base stations being sold these days are supposed to be upgradable to LTE-Advanced with a relatively simple software update, which should keep costs down. Add that to my tweet on the full-duplexing breakthrough Rice researchers made, which if successful, “requires minimal new hardware, both for mobile devices and for networks” and there’s a potential for multiple network enhancements with minimal further capital expenditures. If Rogers can secure some price premiums for the higher speeds, they’ll really return some pretty high profit margins in the next 3-10 year time frame. (The network LTE improvements could be nicely paired with the 700MHz spectrum being auctioned sometime next year, so I’m expecting bidding to be fairly competitive — like in Italy’s recent auction that brought in “double the reserve placed on the frequencies”.)

Going back to the original branding question, I find myself indifferent and James notes he (and thus I) is “not the youth market with which a brand can grow any more”. Too me it feels pretty generic (which might be better if Rogers has global aspirations long term) but I can see why they moved away from the more distinctive but strange previous logo. I also somewhat disagreed with his thoughts on the distinctiveness from TSN and that moving to an SN with the fuel lines for a station logo actually puts it closer to TSN but could improve brand recognition.

Categories Canada, China, ICT, ICT Economics, Politics, Spectrum, US

Fragmented markets, higher costs

September 10, 2011 //

You would be hard pressed to find anyone unwilling to acknowledge telecoms importance in supporting economic, political and social development in both advanced and emerging countries. Shifts to knowledge-based economies and greater global integration of newly industrialized states — even agricultural economies — all benefit from increased broadband (both wired and wireless) penetration and available bandwidth, even if that benefit is currently uneven. The impacts of globalization allows for immense economies of scale that can help drive down infrastructure costs.

With LTE’s emergence as the de facto 4G infrastructure of choice over WiMax, benefits should be able to pass along to consumers but one of the remaining challenges for international travellers will be the variation of frequencies for technologies. Another, related, will be the amount of networks phones will need to support over the next little while. 2G, various 3G technologies and the new LTE-Lite (and eventually LTE-Advanced).

These two factors really stood out for me lately in a post on Martin Sauter’s blog where he gave a comparison of ‘Carrier Specific Device Models in the US vs. Universal Devices in Europe‘ and the below ‘LTE Spectrum Strategies‘ presentation I found through the 3G and 4G Wireless Blog.

LTE Spectrum Strategies

View more presentations from ThomasInforma

I’m not sure that there’s anything that can be done to rectify this in the short term in North American markets. Nor is it immediately clear what would be the theoretical benefits to consumers from a reduction in competition, though operators likely benefit from greater customer lock in. It also helps explain why handsets are more heavily subsidized in North America. Does this situation create a chicken-egg paradox in terms of Canadian consumers willing to pay full retail for handsets?

Categories Canada, ICT, ICT Economics, Spectrum

Spectrum, how ‘scarce’ is it?

September 7, 2011 //

With the ongoing AT&T-T-Mobile proposed merger continuing to attract a lot of attention, I’m using it as a good comparative analysis case study for spectrum politics in Canada. Especially when seen as a proxy for the assumed spectrum crunch coming due to an explosion in the usage of wireless broadband for smartphones and other devices.

The problem is, of course, while there’s definitely evidence of increased data consumption, the spectrum crunch is less clear and straightforward.

AT&T is clearly advocating it needs the increased spectrum to provide expanded US coverage through the proposed T-Mobile acquisition, along with another stalled bid for the 700MHz licenses owned by Qualcomm. (Some critics of the T-Mobile merger have noted an AT&T document briefly posted on the FCC website suggests that the merger may be primarily pursued only for anti-competitive reasons.) Industry advocacy groups are also pushing the idea that the challenge with wide-scale mobile broadband adoption will be the lack of spectrum available to providers.

This claim is disputed by groups that suggest spectrum hoarding or warehousing by major providers or squatters demonstrates there is no true crunch. It is a contested view, with critics correct that current telecom providers currently hold licenses that they are not utilizing and some ‘new’ entrants are unsure that they can economically launch new networks. While only somewhat driven by spectrum politics, Shaw’s recent decision to forego launching a cellular network in favour of a WiFi-focused wireless network was in part due to lack of available spectrum to create what they saw as a viable network. Although it remains unclear what will happen to the licenses they purchased in the last spectrum auction — and analysts hold differing views on what the lack of a cellular play means for the future of Shaw, more generally.

The spectrum contestation comes from the unknown factor of whether this underutilization is strictly business decisions where companies decide that launching new networks are uneconomical (such as with Shaw), that critics are too early to cry foul (DSL Reports noted in February 2011 that DISH Network bought spectrum it didn’t have plans for but that may have changed, though maybe not) or that they are purchasing the spectrum to keep out of hands of competitors.

Problems with spectrum warehousing would seem most likely to occur in markets where auctions occur without network buildout conditions. Analysts have pointed to the difference in infrastructure deployments where you have differing auction rules. One interesting example of regulation to hasten deployment of advanced networks is Germany. Requiring rural LTE to be completed before urban rollouts has helped blanket the country in advanced coverage, as providers move quickly to offer more profitable services in cities.

Due to the potential complexity of planning advanced networks, gaining any additional leases required and the high capital costs associated with next generation networks, 5 years to have begun significant construction of the new network seems like an appropriate timeline. Using the AWS spectrum auction in 2008 as the baseline, Shaw has decided not to move forward with their licenses and Rogers has already lit their first LTE network, with Bell stating theirs will be lit be the end of 2011 and TELUS expecting to offer service in early 2012. Further, most infrastructure vendors are indicating current base stations for LTE-Lite will be able to provide LTE-Advanced with a software upgrade — meaning there should be less time needed between companies purchasing future licenses and responding to or creating market demand.

One such regulatory regime could see providers that have not completed networks face increasing fines to speed efforts to market, while those that have not started actual buildout could have licenses stripped. This would allow for licenses to be re-auctioned and ensures the spectrum goes to the most efficient providers committed to rollout of advanced networks. This also falls within the 2006 Governor in Council’s directive that Canadian telecommunications policy objectives be achieved by reliance upon market forces wherever possible. A Use-It-or-Lose-It rule could actually be preferable to the national carriers, as Bell’s CEO argues set asides for newer carriers could harm competition the big 3. (Perhaps Germany’s use of rural before urban regime would better ensure 700Mhz rollout to people on the other side of the digital divide?)

Categories Canada, Politics, Spectrum

Reflections on ‘Navigating Convergence II’

August 28, 2011 //

Going through my feed reader, Mark Goldberg had pointed out that the CRTC has released a 2011 edition of the ‘Charting Canadian Communications Change and Regulatory Implications: Navigating Convergence II’ [PDF / HTML]. I’m making my way through the document and thought I’d note a couple quick observations.

According to Media Technology Monitor (MTM), 27 percent of Anglophones and 14 percent of Francophones in Canada own smartphones, up from 6 percent and 4 percent, respectively, in 2007. (pg. 14-15)

What accounts for such a growing discrepency between Anglo- and Francophone adoption of smartphones? Even amongst feature phones there seems to be quite a divide in usage patterns. One table (Figure 7, Cellphone activities of Canadian cellphone owners 18+) indicates that approximately 65% of Anglophones texted in 2010 while only around 45% of Francophones did.

Similar to usage patterns found for wired broadband access, Cisco found that the top 1 percent of mobile data subscribers generated 20 percent of mobile data traffic in 2010, down from 30 percent the year before. The top 10 percent of mobile data subscribers generated 60 percent of mobile data traffic. [pg. 25, emphasis added.]

With such a drop in the top usage group but still overwhelming slanted towards power users, we’ve probably moved from innovators to early adopters on the technology adoption lifecycle for mobile data.

In addition to a digital divide between urban and rural and large and small communities, there is also a socio-economic divide. The gap between low-income and high-income households in terms of subscription rates for broadband services is more than 40 percent, as shown in Figure 17. (pg. 30)

Not much commentary, other then policies are needed to help close that gap to improve socio-economic outcomes for people and Canada. That seems like a lot of wasted opportunity.

Figure 19 on page 37, ‘TV viewing platform usage, Canadians 18+, 2008 – 2010′ shows another statistic in the difference of content consumption between Anglophones and Francophones. Between 2008 and 2010, an increasing number of Anglophones do not watch TV on any platform while this group shrank amongst Francophones. While the numbers are probably too small (and not clearly broken out) to make strong claims, the theme of (perhaps unsurprisingly) differing ICT use and consumption between Canada’s two traditional cultural groupings is one that stands out throughout this report.

The section on online audio/radio formed a small part of the report (primarily pg. 46-47) but did note that a different copyright regime was perhaps having more impact on the development of new Internet-based “pure-play” services. This was somewhat relevant to me for the fact that I’m currently reading the report while listening to Rdio. My music listening is purely digital these days, though primarily in the form of ripped CDs and downloads. I haven’t used a lot of streaming services but I’m starting to experiment with them as my musical interests haven’t been serviced by terrestrial stations in nearly a decade.

Finally, consideration may be given to non-regulatory developments that could be effectively leveraged to support the Commission’s objectives, such as the rise of social media. For example, the effective use of social media tools could provide low- cost ways to promote domestic content. (pg. 61)

Moving from the distribution to content side of things certainly reminds me that it’s the networks that interest me, not so much what people access over those networks. That said, the report is on convergence and I do think it’s important that the the government (and its regulator) have some focus on Canadian content. There’s a lot of discussion around potential funding challenges, since the traditional regime uses revenues from broadcasters to support a variety of initiatives to produce local and national Canadian content. While I’m clearly a big fan of social media, I’m not sure that it can offset traditional marketing — and more importantly, production — costs.

The report has a section on ’Service complexity and informed choices’ (Section 4.1, pg. 63-64) where it notes some of the challenges that selecting appropriate service packages can have, especially for non-technical consumers. “Due to such complexity, consumers can be challenged to make informed choices.” It goes on to make the claim below, “Even if consumers purchase appropriate Internet packages, they may be unaware of the actual speeds delivered.”

I think, unfortunately, this is too generous assessment of the Canadian public’s current digital literacy and consumer awareness of Internet services. The FCC did a survey in 2010 where they, “asked simply if people knew the advertised speed of their home internet connection, with 80 percent saying they did not.” Consumers need to take some personal responsibility for informing themselves about their purchasing decisions but I have greater sympathy for people after Alexis Madrigal recently reported, “90 percent of people in [Google's] studies don’t know how to use CTRL/Command + F to find a word in a document or web page!” While both studies are regarding the US Internet population, it is probably safe to say that our nations have similar levels of digital literacy and Internet awareness. Clearly the US (and Canada) needs to be doing a better job at providing these skills to our citizens and labour forces.

Overall, the report provides a snapshot of the current Canadian Internet landscape and a starting point for all stakeholders (business, government, citizens and consumers) can look for ways to help Canada and Canadians be better able to thrive in our digital future. There’s not a lot of concrete policy direction, for that we’ll probably need to wait for the Digital Economy Strategy to finally be released.

Categories Canada, CRTC, Politics

One way to speed up advanced network deployments

July 19, 2011 //

While I haven’t had much chance to start on another book, I’ve been increasing the amount of telecommunications feeds to my information stream. It’s stimulating questions and areas of inquiry for me to be thinking about as I look to start classes in the fall. I’ve requested CC8940 – The Political Economy of Communication and Culture and should be joined by at least one friendly face.

While reading, I came across this story from Engadget, noting Ericsson is testing an LTE-Advanced network achieving mobile 1Gbps downloads in trials.

Not only is Ericsson cranking up the speed, it’s also endeavoring to make the new network more efficient by offering 8×8 MIMO (Multiple-Input, Multiple-Output) functionality, which enables data to be retrieved and sent faster regardless of network congestion.

Of course, these test results are taking advantage of 60MHz available bandwidth, as opposed to the global max of 20MHz and the US standard of 10.

The last spectrum auction saw 2x10MHz and 2x5MHz blocks portioned out in the AWS band, so looking at so much bigger blocks might be too radical for the current licensing regime. When I met with an Industry Canada executive earlier this year, his opinion (in general, obviously we didn’t discuss this) was that more efficient use of spectrum was one of the key ways we were going to deal with the increasing demand for mobile data. And engineers may be able to work their magic to decrease the bandwidth needed for advanced LTE networks.

Exploring bigger blocks, an important first inquiry would be can we auction off at least two 60MHz blocks? If TELUS and Bell could pair up to deploy their HSPA+ networks, could Industry Canada have two consortiums build out infrastructure with regulated wholesale access for members and VMNOs? Two networks allows some market competition to remain and may be a backdoor to get larger amounts of foreign investment (and potentially engineering know-how) without having to first change the Telecommunications Act. If we can only do one 60MHz block with smaller sole-license blocks, how will that impact the Canadian wireless market?

I don’t know if any of this is actually feasible within existing regulatory practices or whether the major incumbents would even consider it but it’s certainly food for thought, as we’re only just now rolling out Canada’s first 4G-Lite network with Roger’s recent launch in Ottawa.

Categories Canada, ICT, ICT Economics, Politics, Spectrum

Evolution of my “Considerations”

June 21, 2011 //

So, it looks like I may have been a little unfair to Gruber in my last post. Or, at the least, a bit premature. I took advantage of the sun’s emergence this afternoon to sit outside and finish reading the final chapter in The Economics of Mobile Telecommunications. Though I had assumed that a final chapter before the Appendix would offer a conclusion and not a lot of further analysis, I found some very interesting observations and Gruber addressed many of the concerns I raised at the end of my last post.

The final chapter, ‘The evolution of market structure in mobile telecommunication markets’, also reinforced my acknowledgment that I’m not a natural economist. It took me about half an hour to really wrap my head around about 3 pages of material. To be fair to me, some of that was while in transit, which is not the easiest way to think about the implications of formulas like Π(n*, s, F) > 0 > Π(n* + 1, s, F) — the zero entry condition used to help determine the Cournot equilibrium number of firms in a homogeneous goods industry. [Note to self: need to read up more on industrial organization and oligopoly theory.]

Gruber used some theoretical models to assess actual 3G spectrum auctions in Europe, which were designed to improve competition in national telecommunication markets but may not have led to optimal outcomes. Sequential auctions in different countries resulted in decreasing licensing fees, as firms were better able to value licenses and evaluate international competitors strategies. Further, the earliest auctions were artificially-buoyed due to high telecom valuations and easy access to financing with the dotcom boom. One factor that I don’t think Gruber gave enough (any?) weight to was the UK and Germany being the 1st and 3rd auctions, which generated the two highest license fees per capita and, not so coincidentally, were the two strongest economies of auctioning countries.

One of the themes that comes across in the final chapter is that regulators tried to introduce pre-entry competition by automatically increasing the number of firms without much consideration of whether markets could truly support the additional companies. This was especially true with the auction process generating much higher then expected licensing fees and creating increased entry costs. The result, unsurprisingly with the move to a new and — at the time — emerging technology, was that regulators ended up needing to relax license network build out conditions as companies were unable to meet stipulated timelines. Yet, will governments struggling to balance national budgets be willing to forego that extra revenue in future auctions?

Gruber also notes that bidders may have over-estimated consumer demand for 3G services and concluded by stating,

The lesson to be drawn for the design of market structure is that the choice of the licence allocation mechanism has crucial importance for post-entry performance. The issue can be put starkly as that the regulator must determine whether there should be competition for the market or competition in the market. This may also require a rethink on the recourse to ‘market-based’ allocation mechanisms for public goods. Finally, in the light of the observed exit of firms one may also conclude that spectrum is no longer a scarce economic resource for the provision of mobile telecommunications services. These questions all provide scope for stimulating further research.

The first part of this conclusion rings true to me, especially for a country the size of Canada. We have the “Big 3″ national carriers (Bell, Rogers, TELUS) and several regional/urban-centric operators (MTS, SaskTel, Vidéotron, Moblicity, Public Mobile, Wind Mobile, Shaw?) and a slew of independents and mobile virtual network operators. Even with Canada’s geographic size, there’s still only 34m people. Continuing to reserve spectrum for new entrants may not be the most effective for diffusion of new technology and driving down costs.

With exploding data consumption rates in advanced and rapidly developing countries, the last part of Gruber’s conclusion doesn’t stand the test of time. (The book was published in 2005, which was also the year that three former PayPal employees started a little video-hosting site called YouTube.) With the ability to download/upload HD content from mobile devices to the Internet, the spread of social networking and user-generated content, adoption of telepresence and the growth of cloud-based tools, regulators will need to continue to effectively manage spectrum allocation and governance.

Categories ICT, ICT Economics, Politics, Spectrum

Economic Considerations of Mobile Telecom Markets

June 20, 2011 //

Part of my self-directed efforts to get ready for ComCult this fall includes trying to increase my foundational knowledge of telecoms policy. One thing that’s become apparent is although I still consume a lot of information through various feeds (and share some of the telecom relevant stuff on one of my Twitter accounts), it’s been a while since I’ve done a lot of dense, academic reading. As such — and along with my other commitments — it’s taken longer than I expected to get through The Economics of Mobile Telecommunications by Harald Gruber.

One of the things I enjoyed was gaining some sense of the development of mobile telecommunication networks from a policy viewpoint. As my undergrad focused on political science, Gruber’s economic handling of the material also added to some of my struggles. I only took a couple macro economics courses at post-secondary and a political science stats class. When discussing strengths and weaknesses of policy choices by various states, I could follow along fairly well. When he started getting into formulas in the chapters on ‘Determinants of diffusion of services’ and ‘Market conduct and pricing issues’, not quite so smoothly.

As Head of ICT and Economy Division, Projects Directorate, European Investment Bank, Gruber is naturally focused on various EU states with the US market often used for a counter point. This was helpful for placing my policy understanding in a global context, as Canada shares a Receiving Party Pays (RPP) regulatory framework with the US but most (all?) of the European examples used a Calling Party Pays (CPP) system. If only I had finished the chapter discussing the reasons the European vs North American mobile markets evolved differently (legacy of local fixed-line telephony), I would have been well placed to respond to a question/complaint on the issue a few weeks by a British expat on my hockey team. While Canada is used in a few tables, I’ll need to pick up at least a few books looking specifically at our national mobile development.

The chapter on radio spectrum management — the reason I first picked up the book — was actually quite interesting in looking at how various national 3G license auctions were structured. Of course, Gruber was looking from an economist’s viewpoint and so his research had a different lens then I’m hoping to take in my studies. Is maximizing license fees truly the best way to ensure the most efficient use of spectrum with the greatest benefit to all citizens, businesses and society? If you reserve spectrum for small market players or new entrants, does that improve competition or inefficiently keep spectrum away from larger incumbents that may be able to roll out network upgrades faster using of existing facilities? What is the right mixture of incentives and punitive measures to discourage market leaders from rent-maximizing policies that slow overall development of new technologies and diffusion of benefits to all?

There was little mention of conditions set on firms to build out network capacity or risk penalties. Sweden, where 3G licenses were issued under an administrative regime instead of an auction, was one such example where fines or the possibility of revoking of licenses was a potential consequence of slow utilization. Although, as Gruber notes, “As the licencing concerned a new technology with much of the basic equipment still under development at time of licensing, such a threat was not credible.” What are the implications of such conditions for the upcoming Canadian 700MHz auction?

If the rules are put in place that treat the spectrum as 4G-specific but use the 3G++/4G-lite standard telcos are currently rolling out, does that make them ineffective at speeding up the deployment of more advanced networks? If rules provide conditions for LTE-Advanced or WiMAX2, does Industry Canada risk a similar problem to Sweden’s regulator where most licensees were unable to meet network deployment deadlines?

Still, I’m starting to feel a little more comfortable with some of the operational considerations of spectrum auctions and will be looking to review Industry Canada’s consultation documents on the 700MHz band and, more broadly, spectrum auction frameworks, armed with a little more knowledge.

I’ll also finish Gruber’s last chapter on ‘Evolution of market structures’ before moving onto Strategies and Policies in Digital Convergence.