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  • Ted Woodhead

"A bad beginning makes a bad ending"

In Homer's Odyssey, Aeolus the mythological ruler of the winds says "A bad beginning makes a bad ending". So I thought of this last Friday when the Secretary General of the Canadian Radio-television and Telecommunications Commission (the Commission) issued a response to the March 28th request by Bell Canada, Bragg Communications (Eastlink), Cogeco Communications (Cogeco), the Competitive Network Operators Consortium (CNOC) and TekSavvy Solutions (TekSavvy). Recall that in their March 28th request, this uncommon coalition of facilities-based and wholesale competitors asked that the Commission sever its decision in the Review of wholesale high-speed access framework proceeding to a) determine immediately whether incumbent carriers can wholesale access last mile fibre facilities as of today, May 7th and b) in the alternative, issue a stay of that decision pending a final determination in the main proceeding anticipated by the end of summer.

In its Friday determination, the Commission dismissed the coalition's requests essentially determining a) that the issue of whether incumbents can wholesale access to last mile fibre facilities is a central issue in the main proceeding and too intertwined with the other issues in the proceeding to be severed and b) that the applicants had failed to provide sufficient evidence that they would be irreparably harmed should the Commission dismiss their request for interim relief.

The coalition possibly got one fig leaf thrown their way by the Commission when, at the end of the Secretary General's letter, the Commission warns that the temporary mandate may differ from the final decision and therefore should any provider, incumbents included, plan to use the temporary mandate to access the wholesale fibre of facilities-based incumbents, then it should assess the risks of doing so going forward.

I believe it might be useful to readers to once again have some better context to this in order to understand what all the fuss is about and, why various carriers are positioning themselves in this debate the way they are? My observation is that TELUS has taken a position in this proceeding that is anomalous to positions it has taken in the past where it has steadfastly eschewed any utility in wholesale as an effective regulatory tool. It has serially led evidence demonstrating how regulators in the United States and elsewhere pivoted from mandated wholesale in the 90's with no obvious market failure emerging. It may well be that TELUS has assessed the Government's volte face and has simply determined that if it can't beat it then it should join it. It may be that TELUS' position is meant as a poison pill to the whole idea, the prospects and risk of which will ultimately prove too much for the CRTC to tolerate. Alternatively, TELUS may sense a potential for competitive advantage over eastern rivals which is just too hard to ignore given that it is uniquely insulated from any counter by its rivals. Rogers is similarly in a bit of an anomalous position as it has traditionally defended facilities-based frameworks as superior to hybrid or service-based ones. It has something of an argument in that the existing frameworks have made incumbent cable companies the hosts for the vast majority of wholesale connections. It too may be seeking the interim framework for its competitive advantage.

The coalition members all see threats on the horizon is my supposition. The independent and much smaller ISPs likely foresee a situation where they could be obliterated by a new crush of competitors on their flanks with literally no way to counter should bundling emerge with the incumbents' other services. Plus, the sheer heft and resources of incumbent out of market wholesale operations could pose a significant and existential threat to them. For that reason alone they have a legitimate cause for concern. The eastern incumbents are also victims here even though comparatively larger ones. The CRTC has traditionally sought balance in its frameworks with advantages and disadvantages available to all participants. The incumbents too, have reason for concern and it is frankly a mystery what the government and the CRTC hope to accomplish with this farrago of mixed messages.

In my opinion, this issue engages the fundamental way the Commission's competitive frameworks have been conceptualized, crafted and implemented over decades. In short, the Commission has always favoured facilities-based competition over service-based or resale competition since the 1980's. In a form of a natural experiment, this single preference for facilities-based competition has produced tremendous benefit for Canada, it's economy and consumers. Facilities-based competition has produced resilient and parallel broadband communications infrastructures that have, in turn, produced a vibrant, dynamic and sustainable competitive environment. In varying degrees, until recently, government policy has supported the CRTC in this preference. While wholesale or service-based competition has been utilized to create transitory benefits for consumers, it does not create parallel communications paths that improve the resiliency of Canadian infrastructure. From a regulatory perspective, resale of facilities-based networks has a tangible impact by lessening the incentive for facilities-based operators to invest in expanding or upgrading their networks. Again, from a regulatory perspective, wholesale frameworks are notoriously difficult and complicated to manage effectively because there is no certainty as to their correctness over a reasonable time period. None of these results have any discernible redeeming features, at least to me.

The CRTC's rejection of the coalition's request will no doubt cause a great deal of confusion and uncertainty for all stakeholders and that is never good. It has the potential to further impact investment, which is decidedly bad, and with the CRTC having the lessons from other jurisdictions in hand based on regulators who have over regulated or more charitably mistakenly regulated , this seems a surprising and rather amateur misstep. The proof will be in the pudding, and I will be keen to see the impact this might have in the coming weeks and months. I don't forecast any of it will be positive or provide stability to any of the stakeholders.

When our good friend Aeolus gave the naive but plucky Odysseus the closed bag of unfavourable winds so that he would have only favourable winds on his onward journey, he didn't anticipate Odysseus would open the bag nearing his destination and unexpectedly be blown backwards to his point of origin with nothing gained. Let us hope that the CRTC's response to the coalition's request doesn't irreparably set us back.



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