Q&A: When the market is competitive, deregulate, Intven says

Hank Intven, a telecom expert and partner with McCarthy Tetrault in Toronto, says it's taken a while, but Canada's telecom regulator has got it's economic theory right. When a market is sufficiently competitive, deregulate. In a phone interview with The Wire Report this week, Intven talked about regulation in the telecom sector for the release of the first edition of his new book, The Canadian Telecommunications Regulatory Handbook. The book is added to McCarthy's list of communications law handbooks, which include the Regulatory Guide to Canadian Television and the Canadian Broadcasting Regulatory Guide, by McCarthy broadcasting expert Peter S. Grant. Intended as a reference book, the new telecom handbook includes summaries of key decisions, court rulings and other regulations and the full text of the industry's most important CRTC decisions, Industry Canada policies, statutes, and international agreements. The book, he said, is intended to be a handy reference book for anyone interested in Canadian telecom regulation, including staff at the CRTC, Industry Canada or in the private sector, as well as journalists, politicians and policymakers. Once the executive director of telecommunications at the CRTC, Intven has worked in the telecom and communications sector for more than 20 years. He served as one of three members of the former Liberal government-appointed Telecommunications Policy Review Panel, which reported to the Conservative government after its election in 2006. That panel recommended removing the foreign ownership restrictions so that foreign companies can establish new telecommunications operations in Canada or “acquire an existing telecommunications company with a market share of up to 10 per cent of the telecommunications market in Canada.” Six years later, the Conservative government announced this month that it intends to implement the policy through amendments to the Telecom Act. The following interview has been edited for length and style. Why did you write this book? I had started, like a lot of lawyers and consultants in the area, to keep a collection of binders with all the documents I needed to refer to on a daily basis, to be accurate about the law, CRTC decisions and Industry Canada policies. I realized there was a real need for that among others in the industry. So I thought I had the time and probably the experience to do it given my work in the industry. It was partly selfish. I now have a collection at hand of many of the documents I refer to most. Many of these documents are available electronically. Do a lot of lawyers you know still work this way, with a lot of paper? We talked about that a lot before I made the jump into doing this. How often have you gone to the Industry Canada or CRTC website to try to find a key document, and been frustrated by not being able to find it right away? The web is a tremendous resource but there's been no one to really sift through it to determine what's important. You note that Canada has two telecom regulators—Industry Canada and the CRTC—whereas most jurisdictions have only one. Former CRTC chair Konrad von Finckenstein had called for one regulator and spectrum licensing under the CRTC. Do you think Canada's telcos should have one regulator? I was a member of the Telecom Policy Review Panel, and I believe Konrad picked up the idea of having a single regulator from one of the recommendations we made in that panel. In 2006, we recommended that the spectrum regulatory functions, including licensing, be transferred to the CRTC, but that the policymaking remain with the government. The actual auction rules I think are a regulatory function, but proposing legislation, and changes to legislation, that's definitely a government policy function. You write that Canada's existing ownership and control limitations were introduced in the 1993 Telecom Act. What was the policy argument at the time for introducing those limitations? While the legislation was introduced in '93, the policy was actually announced in 1987. I was advising the government at the time, and the rationale, which many people forget, is that in 1987 Canada was about to embark on the free trade negotiations with the United States. This was in advance of NAFTA—it was the Canada-U.S. Free Trade Agreement. At that time, the Americans had restrictions on foreign ownership in the telecom and broadcasting sectors. The Canadians only had it in broadcasting. The government decided rather quickly to announce a policy of foreign ownership restrictions in telecommunications that was fairly similar to the U.S. policies at the time. This was meant, in part, to level the playing field for the free trade negotiations to follow. The U.S. later liberalized its foreign ownership rules for World Trade Organization members as part of the WTO telecommunications agreement in 1998. Canada did not. You'd have thought the Americans would have argued during the free trade negotiations for access to Canada's market. They did. In the end it was decided that both countries would maintain their restrictions. What's been the CRTC's most underrated telecom decision in recent years? I think in the eyes of the public, the wholesale telecommunications framework, the essential facilities decision (CRTC 2008-17). In the eyes of much of the public it's not understood—this was a gradual transition to deregulate the retail markets—but it maintains regulation of the wholesale markets with a very modern approach that had been done in Europe a few years earlier and in the United States. In fairness it was a continuum of a long series of decisions, but this was really a revision of the whole framework. If you're someone working in the industry, either for an incumbent carrier or a new entrant ISP, that's the one decision you really have to know forwards and backwards. It defines the rules under which the incumbents, the dominant players in the market, have to provide their facilities to independent ISPs. Last November, Leonard Katz, then the CRTC’s vice-chair of telecom and now the acting chair, reminded small ISPs that the commission has said it would consider phasing out the “requirement for large companies to provide high-speed access services to independent ISPs when wireless and satellite services became viable substitutes.” He went to say that he believes this “will come more quickly than many anticipate.” What did you make of that? His economic theory is clearly right. As you see more competition in a market, you can deregulate it. That's why the retail markets have largely been deregulated. There is retail competition. What he's projecting is that wholesale competition will emerge more quickly than people anticipate. That's a technological question that's hard to anticipate at this point. So these small, independents would build their own networks? Either that or there will be third parties that build them, conceivably some of the new wireless entrants, or even Videotron (owned by Quebecor Media Inc.) or Rogers Communications Inc. or others, could start to provide more wholesale access to the independents. Once you get three or four suppliers of wholesale carriage facilities per market, then you can talk about deregulating. That's the whole principle of economic regulation in the telecom field, which is to determine who has market power and focus regulation on them, and them alone. That's a hard thing that took a long time for Canada and most countries to get right. The CRTC’s original wholesale usage-based billing decision said the incumbent telcos can charge independent ISPs retail usage-based billing rates minus a 15 per cent discount. The decision received significant criticism for being unfriendly to consumers. As I understand, it was based on a proposal from Bell. Do you think that decision fell in line with the commission’s directive to rely on market forces to the greatest extent feasible? I've been around in this industry a long time, and for many years, I saw the strength of the consumer movement and the independent competitors kind of declining. What we've seen in the last while, with the growth of the Internet, is a resurgence of consumer power. That was a great example of it, because it happened near a federal election campaign and the politicians got involved. As a result, they made it quite clear that this wasn't acceptable and they wanted consumers to have more choice and ensure the viability of the independent ISP industry. I think it's an interesting example of consumerism coming back up. It's kind of an Internet populist movement. What has been the most important court decision affecting telecommunications in recent years? If you go back far enough, a 1989 decision of the Supreme Court of Canada (Alberta Government Telephones v. CNCP Telecommunications), said telecommunications was an area exclusively subject to federal jurisdiction. That was an extremely important and significant development. Prior to that, the telephone companies in Manitoba, Saskatchewan, Alberta, and good parts of Quebec and Ontario, were regulated by provincial regulators, usually called public service commissions or public utility boards. This had been an ongoing battle since the 1890s, when Bell Canada was first established. That decision made it possible to have a single level of federal regulation of the telecom industry. In the U.S., they still have two levels: the federal level regulated by the Federal Communications Commission and the state level regulated by the public utilities commissions. It's a great growth industry for lawyers and consultants because they appear in 50 states and they're always fighting about whether something is federal or state jurisdiction. In Canada, we don't have that, which has allowed our regulatory system to be far more efficient. Do you support merging the telecom and broadcasting acts? I differ with Konrad von Finckenstein on that. I don't really understand the focus on just merging the laws. I don't think it means a whole lot. In the United Kingdom, they have a single, merged piece of legislation, but there are two different sections. One deals with broadcasting and the other deals with telecom. I think the subject matter of the two are inherently different. Even if you merge the two laws, you'd have to have different provisions dealing with content and carriage. I'm not sure that in itself would be a great policy achievement. I do think there is a need to review the legislation, particularly the broadcasting legislation. It's obviously time for a review, given what technology has done. Last year, Federal Court of Appeal unanimously upheld a federal cabinet order that said Globalive Wireless Management Corp., which operates Wind Mobile, is Canadian-owned. The Supreme Court hasn't yet said whether it will hear the Globalive appeal launched by Public Mobile. Do you have any comment on what will happen with this issue now that the government has issued its new foreign ownership policy? If the government proposes a bill in Parliament and enacts legislation in accordance with its policy, then the issue before the Supreme Court of Canada becomes moot, as lawyers say. But I don't know, and I'd obviously defer to the judges of the court to determine what to do with it. news@thewirereport.ca

Q&A: When the market is competitive, deregulate, Intven says

News | March 30, 2012

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