Structural Separation: It’s Time to be Impolite

broadcasting lawyer ottawaIn polite circles in Canada it is considered infra dig to allude to the structural separation of telecommunications common carriers. It is not up for discussion. The aversion is visceral and uncommonly widespread.

Structural separation is an approach to telecommunications regulation that posits the self-dealing inherent in both providing basic network services and selling its services at retail skewers the performance of telecommunications services in ways that harm the interests of wholesale customers (resellers) and of the retail customers (who face higher prices and constraints on the services they can receive). The paucity of public discussion – even in telecom policy circles – reveals a stunning limitation of policy horizons. This is unfortunate on many levels.

First, many Canadian telecommunications carriers are integrated with broadcasting operations to a degree unrivalled in the western world. Vertical integration hides cross-subsidies between different divisions of the overall enterprise. Is Bell Media subsidizing Bell telecommunications or visa versa? Nobody knows.

Second, within Canadian carriers, wholesale and retail operations are integrated within their telecommunications structures. No one knows what impact that integration has on network planning, service offerings, or internal incentives to favour internal retail products and services over those of retail competitors. The CRTC has required that the carriers create wholesale services divisions, but these are not distinct legal or accounting entities, and live within the management hierarchies and incentives of the larger carrier. There is no requirement that the incentives of the carriers satisfy the distinct needs of wholesale customers. Much he-said-she-said took place at last fall’s hearings, and certainly there was ample evidence of poorer service being offered to wholesale customers as opposed to retail customer. From my reading of the body language of the Commissioners, the complaints of differential treatment of wholesale customers largely fell on deaf ears.

Third, as the Bell, Rogers and Videotron experiments with mobile TV services have demonstrated, Canadian telecom carriers are only too happy to throw their Internet data customers overboard in favour of those prepared to subscribe to their broadcasting services by means of preferential pricing. The legality of this is currently before the courts, but the CRTC found a significant preference to TV subscribers and an undue disadvantage to mere data subscribers who got their video programming elsewhere on the Net.

Telecommunications regulation is – by and large – a subset of competition regulation: it is meant to be a check on the market power to telecommunications carriers. In general, competition law favours structural remedies over behavioural ones: they are less intrusive, require less ongoing oversight, and tend to be longer term in their impacts.

In the United Kingdom, New Zealand and Australia, substantial efforts have been made to use structural tools to disentangle the management of the underlying networks from the incentive structures of their retail operations. No similar effort has been made in Canada, despite the continued market power of legacy and cable wireline carriers, and the ongoing roll out of optical fibre that will spell the end to terrestrial facilities-based competition to the premises.

The CRTC was given the power by virtue of s. 35 of the Telecommunications Act to require structural separation. It has chosen not to exercise that power even in the most obvious of cases. It is simply too impolite a remedy for the manifest deficiencies in the structure of the Canadian telecoms market. In calling for a real debate around structural separation in Canada, I am prepared to risk being impolite: indeed, in the interests of Canadians, I think it is time to be rude.

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