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Convergence vs. regulation: Is Canada being left in the cold?

OTTAWA, ONTARIO -CANADA. Canadian financial markets and the business media have been engrossed with income trust conversion announcements from two of Canada’s largest telecommunications companies (Bell Canada & TELUS). While the announcements are hugely important to investors who seek higher returns and the federal government who is concerned over lower tax revenues, scant public attention has been given to convergence and its effect on the heavily regulated Canadian telecommunication sector.Although Canadian consumers are driving change, they haven’t realized the extent convergence is shifting the competitive landscape for video, voice, data, and mobility services. Companies that were once in separate market places now compete head-to-head. But together these companies are also playing a major part in demanding regulatory reform in Canada. It would appear the current federal government has grasped the situation and is preparing to act.Industry Minister Maxime Bernier, responsible for the telecom sector, has publicly stated he wants to introduce major, market-oriented reform of Canada’s $33B telecommunications sector this fall. He assures that any package would include sweeping legislative changes, massively overhauling the regulatory apparatus, and a gradual opening of the market to increased foreign competition.Speculation over what the reforms could look like has been centred on the 127-recommendation report from the Telecommunications Policy Review Panel tabled this past March. While the report is comprehensive on telecom, its authors came to the conclusion that reforms should also address the future evolution of Canadian broadcasting policy as it is”inextricably related to it [telecom reform]” With the rapid change convergence creates, it makes sense for a combined review of telecom and broadcasting policy. However given the current electoral landscape in Canada, the politics surrounding a simultaneous review could be impractical. Is the Canadian government ready for convergence? No, not by a long shot. Regulators need to realize, that a failure to review current policies will undoubtedly hamper innovation, stunt nation-wide productivity gains, and ultimately make Canadian regulation irrelevant. But despite resistance Bernier is apparently facing from his own department (making a fall introduction of reforms somewhat of a stretch), he has clearly signaled that he gets it.

Time to Review Merger Reviews

WASHINGTON, DC – Hasn’t the AT&T-Bell South merger closed yet? No. Didn’t the Justice Department approve the merger last week? Yes. So what is holding up the process? Answer: an antiquated FCC merger review process.The FCC had placed the T-BLS merger on its agenda for last Thursday. But the item was pulled from the agenda when the FCC Commissioners apparently were split 2-2 over the potential conditions that they would place on the merger. According to an AT&T filing, these potential conditions include: universal broadband availability, broadband pricing, disaster recovery capabilities, UNE rates, special access rates, naked DSL, net neutrality, and “forebearging” from asking for forbearance on UNE availability. Even this impressive list of conditions was not sufficient for at least 2 of the Commissioners from approving the merger. Interestingly, the Justice Department did not place these types of conditions on its approval of the merger.How can these two different regulators come to such totally different conclusions about this particular merger? Easy, the Justice Department is only concerned with any anticompetitive impact of the merger, while the FCC acts under a much broader (and never clearly defined) “public interest” standard. With such a broad standard, some FCC Commissioners are trying to shoehorn policy issues unrelated to the merger, such as net neutrality and broadband deployment, into the conditions. Is that what merger review should be about?Regardless of what one thinks about the proposed merger conditions, using the merger process to impose them makes no sense. If the conditions are aimed at preventing potential anticompetitive activities, then the Justice Department has clear authority to deal with any such problems in its merger review process. If the conditions are mere policy objectives, then why should they apply only to the companies that are merging? Shouldn’t they apply to all similarly situation companies? And doesn’t the FCC have a rulemaking process to make these kinds of decisions? It’s time to review the merger review process. I think that the FCC needs to get out of the merger review business. They should merely determine whether the combined entity can properly hold FCC licenses and leave questions of competition to the antitrust enforcers and questions of telecom policy to broad FCC rulemaking processes that apply to all parties.

Canadian Government Faces Off Against Its Own Telecom Regulator

OTTAWA, ONTARIO, CANADA – Convergence is rapidly changing the space in which internet, telecommunications, and broadcasting sectors operate throughout the world. With the realization of quad-play (convergence of data, voice, video, and mobility), the Canadian federal government is on the verge of having a regulatory body that is ineffectual and irrelevant through an inability to keep up with evolving market forces. Evidence of this potential irrelevance is no more apparent than in Canada’s burgeoning VoIP marketplace. Last month in a surprise decision, the Canadian Radio-television and Telecommunications Commission (CRTC) issued a decision on VoIP that reaffirmed its original May 2005 order to limit deregulation of this sector. This decision completely ignored the government’s request for the CRTC to reconsider the earlier ruling. Without the deregulation of local VoIP services, the Canadian government is concerned that market forces will be hampered, preventing healthy competition.The original CRTC order (May 2005 – almost two years ago) recommended local service deregulation of the dominant phone companies occur only after their market share had fallen by 25%, their barriers to entry were eliminated, and they could demonstrate that competitive behaviour was in place. The ruling effectively established price floors for the major phone companies, while their domestic upstart rivals are free to charge any price. The only major difference in last month’s new ruling was the statement that the CRTC would consider lowering the 25% threshold to 20%.Both the original and subsequent appeal decisions of the CRTC were unwelcomed by the large telcos (Bell Canada and TELUS), and the status quo remains. Meanwhile, internet/phone/cable companies such as ROGERS or SHAW, now worry about current regulations being transformed before there is an opportunity to increase their market share. It is a rather rare occurrence for a Canadian regulatory body not to take into consideration the comments of the government when the government refers a decision back to a regulatory body for reconsideration. Per regulations, the government’s Cabinet now has 90 days (December 2006) to respond to the CRTC’s ruling, although avenues exist to delay a decision.What options does the government have in its play book? The most immediate lever the government seems to have is replacing the current CRTC Chairman. The current chairman was appointed by the previous government in 2002 with his term due to expire December 31st of this year. Already the government is publicly soliciting resumes for those who would be interested in the position. Appointing a new Chairman would send a strong message to the remaining CRTC Commissioners to seriously reconsider the government’s recommendations.It remains to be seen what the government will ultimately decide, but the Minister responsible for the CRTC has indicated that major changes are forthcoming.

Superstitions 101: Paraskevidekatriaphobia

SAN JOSE, CA – I believe it is is the great Stevie Wonder who sings the song “Superstition.” Paraskevidekatriaphobia is the superstitious fear of Friday the 13th. Why, however, is 13 considered unlucky and Friday the 13th particularly unlucky? For those of you who saw or read “The DaVinci Code” you may know it had something to do with the The Knights Templar…however, I like this story from better: “Twelve gods were invited to a banquet at Valhalla. Loki, the Evil One, god of mischief, had been left off the guest list but crashed the party, bringing the total number of attendees to 13. True to character, Loki raised hell by inciting Hod, the blind god of winter, to attack Balder the Good, who was a favorite of the gods. Hod took a spear of mistletoe offered by Loki and obediently hurled it at Balder, killing him instantly. All Valhalla grieved. And although one might take the moral of this story to be “Beware of uninvited guests bearing mistletoe,” the Norse themselves apparently concluded that 13 people at a dinner party is just plain bad luck.” Who thinks of this stuff?I’m not particulary superstitious, but my sports teams do seem to win more games when I’m not watching them. For instance, I will not watch the A’s play today and they will win. I was at Game 1 and, true to form, they scored only 1 run and lost. I didn’t go to game two, watched some of it on television and they scored 5 runs and lost. So, I’ll check the score tonight when I get home or watch some SportsCenter and, hopefully, they will have already won. I also won’t be watching Wake Forest play NC State this weekend. Go Deacs! (Yes, Demon Deacons is a lame mascot, but it’s the only one we have.)Happy Friday the 13th and thanks to the WWW for the wealth of information on the number 13 and Friday the 13th. (This internet thing is a wealth of information…I think it is here to stay.) Methinks that through the years people have just had too much time on their hands to think of all the reasons why 13 is bad and why Friday the 13th is worse. Have a great, lucky day. Or just a great, normal day. But, don’t believe the hype and have an unlucky day.

A Net Neutrality Perspective: Google and YouTube

SAN JOSE, CA – If you don’t read Scott Cleland’s Precursor Blog, you should. His blog entry of today is brilliant and says in short strokes what I have been unable to successfully point out in previous blogging attempts. The gist of his entry is: Google’s position on net neutrality isn’t all that altruistic in looking out for the “little guy.” It really just want consumers to pay, so it doesn’t have to.For me, the key graphs are below, but please go to his blog and read the entire entry: “Before Google liked to wax eloquently that their motives on net neutrality were ‘purely altruistic;’ they said they were fighting, not for their own gain, but for the little Internet entrepreneurs toiling away in garages that needed protection from capitalists and market forces. Now it is clear that Google is simply using the public policy process to leverage commercial negotiations for Google’s commercial advantage with youtube. People need to remember that key to Google’s exceptional finanical success is their abilty to dump most all their normal distribution costs on the consumer. Its by shifting their biggest cost to the consumer, that they enjoy 80+% gross profit margins, have ten billion dollars in cash, a hundred billion plus market capitalization, and can afford to pay $1.6 billion for a company that has no profits and little revenue. Remember these numbers when Google is publicly indignant about having to pay more for new innovative Internet bandwidth that can better carry video.”