Will the government get tough on telecoms?

Clip You’re listening to a frequency podcast network production in association with City News.

Jordan Heath-Rawlings I know that I won’t forget July 8, 2022 anytime soon. Depending on who your cell phone provider is, you might not either. Millions of Canadians don’t have access to the Internet or cell phone service. A massive outage is affecting a number of Rogers services across the country, including a wide range of businesses that rely on the company. That date will end up being remembered as either the day we finally realized just how vulnerable Canada’s networks are, or the day we finally began to take telecom infrastructure in this country seriously. In the two months since Rogers, customers lost services for most of a full day, or even longer for some, it seems as though our government, and maybe even the companies themselves, have finally realized just how unreliable our networks can be and begun the long, slow process of fixing that. There is a lot at stake here. First and foremost, obviously, emergency services, which went down that day and should never be compromised, but also simple phone functionality, the type of things we used to rely on landlines to do for us perfectly every single day. There are millions of dollars at risk in business transactions that rely on these networks. And if you count telecom consolidation via mergers, there are billions of dollars and potential monopolies at stake too. It has been said, ostensibly as a joke, that Canada is three telecom companies in a trench coat. Now that our government has realized just how true that joke feels to millions of Canadians, what’s it doing to fix that?

I’m Jordan Heathrowlings. This is the big story. A podcast that I should note right here up front is owned by Rogers Sports and Media. VAS Bednar is the Executive Director of the Masters of Public Policy and Digital Society at McMaster University, senior Fellow at the center for International Governance, and Fellow at the Public Policy Forum. Hey, VaS.

Vas Bednar Thanks for having me back.

Jordan I wanted to have you back so that we could poke a little further at what’s been done, or could have been done since the huge Rogers outage earlier in the summer. So maybe the first thing you could do is kind of tell us about the new agreement that now exists between telecom companies hoping to cover one another in the event of another such outage.

Vas Bednar Sure. So there’s a new deal between many telecom providers. It’s a memorandum of understanding or an MoU on telecommunications reliability. I’ll just list who have signed on to that. Sure. Maybe listeners haven’t heard of all of these firms. Bell, Brag Communications, Cogeco, Rogers, SaskTel, Shaw, Freedom, Tbaytel, Telesat Telus Videotron, Explorenet, and Zayo have signed on. So the largest telecommunications firms had about 60 days to come up with this agreement, and what they’re looking to do is declare how and that they’re going to support and assist competitors during any future major network outage so that customers can still make calls, access 911 emergency services and conduct business transactions. And part of that promise is to provide clear and timely communications to customers during outages and kind of how they’re going to do that a core aspect that I think was frustrating and so disorienting for so many people during I like to call it Red Friday. The Rogers Out is just because it feels like it’s. Frankly, it’s about more than just Rogers right, which is the ability to understand what was happening. But I think it’s worth pointing out, too, that this is an MoU. It’s not currently enforced through any piece of legislation, but that could perhaps happen in the future. So I do want to commend the Minister Champagne for tasking the companies with this and putting a plan forward in a short period of time. But I also want to flag that it could continue to evolve in the future.

Jordan You mentioned more in this memorandum of understanding than just 911 calls, which obviously was like the public safety emergency during an outage like that. So this would allow companies like Bell Rogers and all the other ones you mentioned to actually share their networks so that somebody, say, with the Rogers phone on Red Friday could have still access data services?

Vas Bednar No, actually, it’s about making the calls. Right. So being able to access phone services. Because I think fundamentally that recognizes that these firms tend to share the physical infrastructure in different ways, right. The facilities used to provide these services that we layer on. Now, my understanding is shortly before Red Friday the Rogers Outage, there was a declaration, more formal of policy in the US. I’ve got to go look up what it was called, but sort of that enshrined this kind of coordination or support. So there are other models out there, again, to make these agreements more formal. And I keep bringing a formality because I do think it’s intriguing to think of this, the market power that exists here, to compel an informal agreement between operators instead of a compliance mechanism through our governance institutions. Right. But again, this might and is, I think, likely to become more formal in the process. Now, there’s other work that’s underway which I think is worth pointing out to the Canadian Security Telecommunications Advisory Committee. They’ve got not 60 days, but six months to come up with additional measures to what I’m quoting here, ensure robust and reliable telecommunications networks across the country. So that will be really interesting for Canada, I think, to learn kind of about the plans and opportunities and investments in robustness in our telecommunications networks.

Jordan Obviously, the Rogers outage was embarrassing for Rogers and has sparked a whole lot of change at that company, which I should mention owns the network that runs this podcast. But I want to go beyond that for a second and just I’m sure that you’ve heard the joke and there’s many jokes to this effect, that Canada is actually like three telecom companies in a trench coat. It’s not new that the rest of the world kind of makes fun of our telecom set up. Was this a wake up call for the government in terms of all these initiatives that are coming out now? Like where they shamed into fixing this?

Vas Bednar I don’t think they were shamed, but I mean, the role of the Internet and cellular services in our everyday lives is just so different now, right? I think it feels more essential than ever, but we don’t define it as being essential quite yet. And it’s probably time to revisit that. The other aspect is when it comes to this history, this recent history or kind of spate of mergers in the telecom sector. I mean, maybe this is just an acknowledgment that it’s getting harder and harder for these companies to grow. And because they’re private, they have growth expectations. And when you think of the evolution of these firms over time in Canada, telecommunications is a gnarly system that we kind of co created. You start with physical phone lines going to people’s houses. That’s one phone line for a whole family, right. You layer in your television, then you’re getting dialup Internet, then you’re getting wireless Internet. Then cell phones are exploding. So suddenly you don’t just have one landline, but you’re bundling, say, three, four or five cell phone plans under one roof. That’s a lot of growth. The market may be kind of getting a little bit saturated now, unless we want to talk about 5G, which I kind of hope you don’t, because I’m not super pro on that, but let’s also recognize that some telecommunication firms, whatever is in that trench coat, they’ve been diversifying and have different integrations that are really intriguing. Right? The Source is owned by Bell. Telus has a health company. Alarm Force is owned by Bell. So these companies themselves, while the regulations governing telecom have been fairly static, the companies themselves have been attempting to innovate as a mechanism to get more customers right, to ensure a growth plan. And maybe we’re going to realize that’s not sustainable forever and we’re going to have to reconcile shareholder desires with the needs of the public.

Jordan How would the government even try to get a handle on how, to your point, big and diverse and sloppy across so many different kinds of media and lines of business telecom companies have become over the last 20 years? <p Vas Bednar Okay, sloppy. All right, that’s weird.

Jordan I’ll take sloppy out, but I’m trying to make, it’s messy out there, is what I’m saying. Like to your point about Telus owning a health company, rogers owning a podcast network, to me at least, it’s very difficult to discern where what the government should be regulating as an essential service ends and what companies should be value adding to their consumers begins. Does that make sense?

Vas Bednar That definitely makes sense. So, yeah, how can the government think about it, I mean, great thing to point out that typically what we think of we can be very binary or black and white in terms of how we come to understand companies, and that can end up being a little bit deceiving, or we kind of miss the full picture in terms of what government can do. I think there are some really promising proposed interventions around privacy and data governance that may have implications for some of these firms. Right outside of the Competition Act, outside of the CRTC, there’s kind of some low hanging fruit, stuff that government could do. And I apologize if you’ve heard me say this before, but I think even just labeling flanker brands will help people understand the nature of competition in the marketplace.

Jordan So that people understand clearly that Fido, say, is owned by Rogers.

Vas Bednar Exactly. So it’s just a transparency piece in the marketplace. And in other jurisdictions, they do label flanker brands for individual people. I think part of Red Friday or the Rogers outage that was so aggravating or scary for people, is that people feel they don’t really have true choice. And choice is important. So switching is powerful. It’s a powerful way to exert your agency in the marketplace, but it’s not a sustainable solution. So maybe if I can sneak in two other things, you probably ask me for one intervention. Sure. The government staying vigilant around predatory pricing, which we have provisions for in our current Competition Act, I think is important. I love to start with, let’s use the toolkit we have to the best of our ability before we’re layering in anything else. And then I was looking at, I think it’s a newer telecom firm called Axio O-X-I-O. So shout out to them. But what I like is they’ve got this pretty radical price transparency when you have a service with them, their monthly cost breakdown, it’s a beautiful graphic, very simple. And they break out network costs, logistics, hardware, marketing, payroll, profit, and kind of how their price is bundled. And I just love that. I’m a big proponent of price transparency in all kinds of ways, and I think that could help people appreciate where their money is going, especially since we’re more price-conscious than ever before. And then I’d be remiss if I didn’t shut out the forthcoming review of the Competition Act that many people are looking forward to and that people should get involved. You do not have to be a competition expert to contribute. In fact, I think everyone is a competition expert because we live these issues day in, day out.

Jordan Can you maybe unpack the Competition Act and the potential reforms and explain it to me like I’m five years old? What’s at stake here, and what is the government looking to do? What’s at stake?

Vas Bednar Okay, so we have this very important piece of economic legislation called the Competition Act that essentially governs business behaviour. It’s not a law against companies being big. Big isn’t bad. In fact, the ability to get big as a company is, like, really intoxicating, really energizing and motivating for firms. We want firms to grow in Canada. We want them to grow and scale. That’s awesome, kind of for everybody, right? What the Competition Act does is it governs business behaviours, so deceptive marketing, and then once you achieve market dominance, it dictates the things you can’t do to abuse that dominance. It’s 36 years old, was introduced in 1986. It got brushed up a little bit in 20 08 20 09 during a review called Compete to Win. And I’ve been reading many of those submissions, actually, on the Wayback machine. I do want to seem interesting and cool to you, and like, I have hobbies, but this has actually been one of them, because it’s kind of cool, right, to think of how different our digital world was in 2008. Uber and Airbnb were just starting up. The App Store is four years old, still got flip phones. The big deal is to maybe have a camera. But you also see that this is a space dominated by subject matter experts, lawyers, economists, business, industry. What we haven’t done a great job in Canada is kind of pavement pounding to involve civil society, consumer protection agencies, labor. So in February, Minister Champagne announced through an exclusive with the Toronto Star, I believe it’s around February 6, and there was a press release about some initial changes to the Competition Act that were likely to be forthcoming and then said there’s going to be a comprehensive review. So many people are expecting that this fall there may be a discussion paper and opportunities to either meet with the government or write into the government and share some thoughts on how our law can be improved. Last year, also last fall, so kind of a throwback. Senator Howard Weston, who’s now retired from the Senate, led a by invitation consultation on the Competition Act, which really juiced some great ideas in the sector. There’s a summary paper of that. And there were some changes, low hanging, fruit changes made to the Competition Act in the last budget bill, and that surprised a lot of people and kind of, I think many stakeholders seemed to find frustrating. They were telegraphed in that press release I mentioned, but this is just stuff like making sure our administrative monetary penalties, our fines are more in line with global standards so that they’re actually a deterrent outlying trip pricing and making wage fixing illegal. So we have been making progress in Canada.

Jordan However

Vas Bednar back to what did you say, messy? I said gnarly. This is a massive, a big thing to review. But what’s exciting is because others have been priming the public, putting ideas out there, initiating some great dialogue. The most kind of provocative policy artifact I saw now you’re going to be like, Bass seriously needs a hobby. Is the Competition Bureau actually wrote in to the Senator Howard Weston consultation.

Jordan Interesting.

Vas Bednar And that’s interesting because the regulator, the enforcer, actually sets the policy and the bureau is nested under I said. But the enforcer went on the record publicly saying, you know what, here are a bunch of our ideas in our perspective that is informed by the complexities of enforcing this legislation. So that’s probably not great for a five year old, but to a five year old, I would say we have some rules, and the rules don’t always seem to be working. So we want to work together to make the rules better, so that when we go shopping for toys, we have lots of choice at good prices, and we don’t pay the highest prices in the world for toys. And we don’t pay the highest prices in the world for toys. That’s right.

Jordan Tell me how, if at all, because I understand this is an ongoing process that reform of the Competition Act could impact. Well, we’ve seen a bunch of telecom mergers recently, right. The Rogers Shaw deal, which is huge, is still kind of up in the air. But also I’ve noticed other deals like Bell, I believe, acquired a little regional ISP called Distributel. How would the rules around that change, or is it not going to be in time to impact those potential acquisitions?

Vas Bednar Well, yeah, I was kind of wondering, is there scuttlebug in the telecom sector that says, work on your acquisitions now before the Competition acts change? But I don’t think it’s quite that sinister. You’re right. The distributor transaction is significant because distributor is one of the largest competitive providers operating in Canada, and the only other competitor of a similar size is tech savvy. And market consolidation has exploded in the past two years. Let me run through some other examples. Three from 2022, the year that we’re in August 2, Video Tron acquires the Mediaea, the largest competitor with a Canada wide serving area. March Telus announced the acquisition of NETAGO. February, Bell announced the acquisition of Ebox, which was their largest competitor in Quebec. And in 2021, Rogers announced the acquisition of Seaside Communications. In August and April of 2021, video Tron announced the acquisition of Cable Vision Warwick. Again, some of the names not everyone’s necessarily familiar with. And then Rogers had announced an acquisition of a firm called Rural Wave in October of 2020.

Jordan That’s a lot.

Vass Bednar It’s a lot, right? Again, I think that for me, that growth question. How are there really other viable paths to growth for these firms? What kind of shareholder pressures do they have? And are we seeing enough innovation in the telecommunications sector, too? Right. Innovation is a really important aspect of competition, and the theories goes that when there’s robust competition, you just get more innovation, more creative firms, more cool stuff, instead of that kind of trope of lazy incumbents that are kind of insulated by the regulatory environment and making record profit and rewarding fancy people at the top now and being a little silly. You asked me a question and I’m going to come back to it because I went on a weird history lesson. Sure. I promise I’ll be brief, but I have to be brief already. What does it mean for the pending review of the Competition Act? Well, we might see changes to merger control or the merger review threshold. So we may see more mergers reviewed. We might have a kind of referendum on the efficiency defense in Canada, which many people have been talking about, whether it still serves the original purpose that it was intended to. Is it creating the market outcomes that we want and that we hope for? And really the biggest question is how have our economic values change as our approach to building healthy marketplaces and building back better for all? Is that have implications for competition law or does competition law truly stand alone without any intersections to consumer protection, privacy, et cetera? So it’s an exciting time and telecom is such an important entry point to these big conversations about competition and how we regulate marketplaces.

Jordan I have just two questions left for you, but they’re both like really huge ones. Yeah, they’re both huge ones. My first one is just this. I mentioned how much Canadians pay for their phone services, their data services, everything telecom. Will that change? Is the purpose of any of this legislation to get those prices down? Do you see a world in which we come in line with some of the countries, like some of our peer countries in the European Union?

Vas Bednar I mean, I want to stay ambitious in that regard and are optimistic rather than ambitious too. Why not and say that I’m hopeful? We’ll see pressures that result in better pricing. Often the largest telecommunications firms sort of rationalize they’ve made these massive upfront capital investments on that physical infrastructure that then they rent out on services. Well, how long should they be collecting rents from? That number one. Number two, we are seeing really awesome growth and experimentation with municipal fiber networks all over Canada. And that’s a little bit of a patchwork, but it’s very promising. It can provide a modest revenue source for municipal governments and it actually models arguably a better competitive landscape where the physical infrastructure itself is owned by the government and then they can rent out space. But again, perhaps at more competitive prices. Which does lead me to a teeny tiny aside. Something else we could be doing in Canada here’s, just like an Easter egg in our interview, is really thinking about building out national public cloud infrastructure like the stuff that’s happening with the cloud. I don’t know if there’s a capital C on cloud and the types of firms that have made the upfront capital investments that we’re all going to be kind of renting from truly mirror this telecommunication space. So if we care about continuing to amend and reform this landscape and again, support the growth of alternatives in a market that does tend toward monopoly. We should also be thinking about the future of the cloud in Canada and the terms

Jordan Before we end up as three cloud companies in a trench coat. Oh, my God. Can you imagine trying to put two three clouds in a coat? It would not work. It would have to be so foggy. But again, we have that predatory pricing legislation. We could see, if people wanted to get really nice, an excess profits tax applied to the telecommunications sector. There was a parliamentary budget report, I think, from last year. It could be earlier this year, looking at the impact of an excess profit tax. But again, I think that sort of speaks to what people want to push back on, right? They feel squeezed. They feel they’re paying exorbitant prices, they’re frustrated, and they see these shareholder reports or multimillion dollar compensation packages for CEOs, and it just it’s not sitting right for them. For something that doesn’t seem like a nice to have anymore, it is a need to have.

Jordan Speaking of need to have, this is my last question. We talked earlier about the Memorandum of understanding. We talked about strengthening networks and supporting other companies. You mentioned that it doesn’t have teeth yet. What happens if these companies don’t step up to the plate the next time there is an outage?

Vas Bednar Should Canadians feel more secure right now, I guess, about their telecommunications services than they might have in July? I think they should. I think it was a shock to people that we didn’t have a better plan in place. It’s absolutely an emergency when people can’t access emergency services. And we heard some really jarring stories from people about their inability to do so. Let’s also remember not to be scared or fear-mongering, but there was concern at the start of the outage that it was the potential result of a cyber attack. Right now, telecommunication firms make significant investments in avoiding that. But cyber warfare, cyber security issues are a very realistic threat at the same time. So, yes, we’ve got a plan in place. Arguably, these firms, in terms of the quote unquote, penalty that Rogers has paid, I think it’s been all the negative. News media has been tough. They have paid modest reimbursements to their members reputational. Risk and cost is absolutely real. I don’t think it’s had a really tangible impact on share price. But moving forward, say there were a very large penalty that the firms had to pay, I don’t think that would necessarily make us feel better, because what we want to know is that there’s that resiliency and redundancy and ability to cooperate and share information. So there’s still a leadership role for Canada to continue to demonstrate to other jurisdictions what it means to facilitate cooperation amongst fierce competitors and great dialogue with government.

Jordan I will hold my breath and see if that happens. Thank you VAS.

Vas Bednar Thank you.

Jordan VAS Bednar of McMaster University. That was the big story. Once again bookending it here. Owned by Roger Sports and Media. So my phone went down July 8 too. You can find us at thebigstorypodcast CA. You can follow us on Twitter at thebigstory FPN. You can email us hello at thebigstory podcast CA and you can call us and leave a message. Bonus points. If you do it from a landline. At 4169-355-5935. You can get this podcast in every single podcast application on the planet. I think if you can find one, we are not in San. To me, I’ll thank you publicly in this space. Thanks for listening. I’m Jordan Heath-Rawlings. We’ll talk tomorrow.