February 22, 2022
12-minute read
On December 19, 2019 Bell Canada’s second-ranking executive Mirko Bibic went for a beer at McGee’s pub, two blocks from Parliament Hill. Someone took his picture. His table companion with his back to the camera was CRTC Chair Ian Scott.
A meme was born.
Bell is of course Canada’s biggest communications company. The CRTC regulates telecommunications and broadcasting. The “telco” side of the house includes Internet, wireless, and telephone networks; the broadcast side includes cable and satellite distribution, television and radio. As a vertically integrated (“VI”) communications company along with Rogers and Québecor, Bell has a finger in every pie.
The photo didn’t get much traction in the media. But Bell’s industry adversaries, allied with numerous consumer groups and academics who regard Bell as their foil and nemesis, had better luck recycling the photo into social media with conspiratorial suggestions of clandestine lobbying. It lives online today, reposted at moments of regulatory controversy. The punch-line is that the meeting occurred around the time Bell and other VIs launched appeals against the CRTC’s slashing of the wholesale Internet prices paid by ISP re-sellers like Distributel and TekSavvy to access the VIs’ fibre networks.
Over two years later the CRTC’s rate setting for Wholesale Internet rates is still on the boil: Distributel recently revived the McGee’s photo as smoking gun evidence of Scott’s conflict of interest, demanding he recuse himself from the file.
Earlier this month Scott probably decided he could ignore the photo no longer. He gave an interview to the Toronto Star’s Tony Wong and explained that he and Bibic are old friends (Scott spent years working for Telus in regulatory affairs) and were meeting socially in Ottawa’s best known pub for a beer.
According to Scott, Bibic raised a regulatory issue, of which the many-fingered Bell has plenty. So Bibic had to file the standard report with the federal lobbying registry, coincidentally around the time he ascended to the top of the corporate ladder as Bell’s CEO. Significantly, the registry identifies the subject of the McGee meeting as “broadcasting” (Internet Wholesale is a telco matter, not broadcasting).
Scott told the Star that “no rules were broken” which while true hardly mollified his critics, especially the re-seller representatives (who can also found many times on the lobby registry).
On February 3rd the CRTC’s general counsel responded to Distributel’s motion to remove Scott from the wholesale file saying it’s up to Scott to respond to the recusal request if he wishes.
This is no longer breaking news of course. I write about it to get a better understanding of the photo behind the recusal request and the meme’s success in igniting popular opinion about the inside game in Ottawa in general, and the CRTC in particular.
Heated public criticism of the CRTC and its chair —appointed by the ruling government to a five-year term— is a time-honoured Canadian tradition.
The CRTC regulates which itself assures it many enemies.
It regulates big things: Internet and wireless networks, television and radio, and if Bill C-11 is passed it will regulate online streaming.
All that regulation impacts monthly household bills and —depending on your point of view— freedom of speech and Canadian cultural sovereignty. Cue the photo meme, and it’s no wonder that Ian Scott has become another Ottawa piñata.
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So what’s up with the CRTC’s Wholesale Internet regulation?
Most Canadians have something to say about their monthly ISP bills and the corporate power of VIs like Bell and Rogers usually animates those opinions.
The CRTC knows this and has been working on it a long time.
For the better part of two decades the VIs have ploughed billions (yes, many billions) of dollars into expanding and upgrading wireline networks across the country while ISP re-sellers have entered the market to apply downward pressure on retail prices. The CRTC’s rulings that force the VIs to sell network access to their own competitors at wholesale rates has been described in 2019 by the federal Competition Bureau as a success story for consumers in terms of provider-choice, lower prices, and customer experience.
Still, VIs and re-sellers have fought bitter regulatory battles for the better part of a decade over setting a fair wholesale rate (retail rates for consumers are not regulated).
The master plan designed by the CRTC goes back 15 years including the terms of at least three Commissioners appointed by two different governments. In forcing the VIs to provide re-sellers access to their fibre networks and setting wholesale rates, the CRTC has been searching for the sweet spot between increasing competition to push down retail prices without dampening investment incentives for the VIs to keep up with the exponential growth in consumer demands for more data and higher speeds.
According to the Competition Bureau, as detached and pro-consumer a body as you will find in this heated debate, the CRTC’s wholesale plan has allowed re-seller services grow with retail prices often 10% to 15% lower than those charged by the VIs.
Neither side is satisfied.
The VIs —Facilities Based Carriers (FBC) in CRTC lingo— remain irked at being forced to give a leg up to their competitors. They are particularly irked that the CRTC has slashed wholesale rates to the point that the FBCs say they are not recovering their capital costs; that it’s a drag on further capital investment in a network that increases every year in traffic, consumer expectations of download speeds; and (thorniest of all) that is struggling to connect rural Canadians.
The re-sellers and their consumer allies rail against the FBCs’ foot-dragging in opening up their networks and, most of all, that the CRTC is not cutting wholesale prices far enough.
If this was all a televised drama series, an episode recap would be in order.
Let’s wind it back to 2015.
In a ruling by the previous Chair Jean-Pierre Blais (appointed in 2012 by Prime Minister Stephen Harper), the Commission mapped out a consensus plan for how the Wholesale Code would help the resellers grow without discouraging network investments by the FBCs.
The philosophy behind the plan was explicit: the re-sellers were not going to be wards of the state propped up by the CRTC setting retail rates to ensure their success. Entrepreneurial risk was a given. The CRTC was offering wholesale rate regulation as far as necessary to recognize that while re-sellers could plausibly build their own hardware plants, they could not reasonably be expected to raise billions in capital to build their own “last mile to the home” fibre networks. Access to those last-mile networks would continue on a wholesale basis, but piggy-backing on the FBCs’ “backbone” networks would be phased out.
The Blais plan was to reconfigure the network design from the “aggregated access” of each re-seller hooking into the FBCs’ networks at central “points of interconnection (POI)” and instead linking into those network tentacles closer to the “last mile” at numerous local POIs, a “disaggregated model” of re-seller access.
The disaggregated model —-which the re-sellers supported— meant several knock-on changes in wholesale rates and business risk for the re-sellers.
First, the resellers were going to have to invest in their own “transport” hardware at each POI on the FBCs’ premises, either by renting from the FBCs, buying their own, or forming a cooperative with other re-sellers at the same POI premises.
Next, to give the re-sellers a firm push out the door of the aggregated house, the CRTC sunset the re-sellers’ access to the FBCs’ central POIs and capped the network speeds that they could purchase wholesale in the aggregated set-up.
Lastly, the CRTC announced it would set wholesale rates for both aggregated and disaggregated networks over a three-year transition period. Crucially the Commission deferred the disaggregated rate decision until later and first reviewed the aggregated wholesale rates.
And that’s when the trouble began.
On October 6th, 2016 the CRTC cut the wholesale aggregated rates for what the re-sellers had to pay the FBCs: by 90% on the “usage” rates covering the “backbone” portion of the FCBs’ networks and 40% for the “access” rates covering the last-mile of the network. Blais described them as interim rates, pending a more detailed review of FBC capital costs.
The carriers, including Bell, didn’t take it too well. They said Blais had just killed off the the re-sellers’ incentive to wean themselves off of the aggregated model and start building POI transport in a disaggregated system. The FBCs filed appeals to the federal court, the federal cabinet, and asked the CRTC to reconsider its decision. They lost all of them and the rate cuts stood.
In July 2017 Ian Scott was appointed by the Liberal cabinet to succeed Blais who had not asked for a second term. His appointment was immediately criticized by consumer-group Open Media for being selected from the telco industry instead of the consumer community. Scott had indeed worked for both Telesat and Telus, as well as a short tour of duty in 2007 as senior policy advisor to then-CRTC Chair Konrad Von Finckenstein who was widely seen as a pro-consumer Chair (as was Blais).
Among many regulatory files, the new Chair continued with the laborious study of the FBCs’ capital costs to finalize aggregated wholesale rates, which both sides in the dispute predictably wanted to move up or down.
The Commission released its decision in August 15, 2019 and to the delight of the re-sellers and the horror of the FBCs, the Commission cut the aggregated wholesale rates even further.
And the cuts were retroactive to 2016 so the carriers owed the re-sellers $325 million in rebates. Yes millions, Dr. Evil.
Again, the FBCs launched appeals to federal court and cabinet, as well as requesting the Commission reconsider its decision which they said was riddled with costing errors. In October 2019 they caught a break when a federal judge stayed the CRTC’s order to change rates and make retroactive payments pending appeal proceedings.
And six days before Christmas, Scott and Bibic had that beer.
Tek Savvy and Distributel spokespersons raised hell in press releases and Twitter. The consumer group Open Media, which counts both re-sellers as major financial backers, did the same. Other consumer advocates piled on.
Bell and the other FCBs eventually lost their court challenges. But the wind was shifting in their favour anyway.
Two things happened.
First, in June 2020, the Commission convened another proceeding in the long saga of transition from aggregated to disaggregated rates, this time to design the system of POIs in the disaggregated model which was now informed by Distributel’s request to reverse course from disaggregated and go back to a highly aggregated model.
Distributel, no doubt elated by the double cuts to rates under the aggregated model in 2016 and 2019, told the Commission that the capital costs of building their transport equipment in a disaggregated wholesale regime were astronomical (it might take “centuries”) and the Commission should reverse its 2015 decision.
The FBCs including Bell told the Commission that Distributel’s 180 degree turnabout on the Commissions’ transition plan was a smokescreen for cashing in their winning lottery ticket of deeply reduced aggregated rates. They pointed out that Distributel had originally advocated for the disaggregated system (and neither Distributel nor Bell suggested that transport capital costs had changed in the interim). They also pointed out that the largest reseller Tek Savvy wasn’t complaining about transition to disaggregated and was already building its own hardwired network in southern Ontario.
The winds of change really picked up in August 2020 when the federal cabinet answered Bell’s appeal by stating the Commission’s 2019 rate cuts had missed the sweet spot and showed insufficient consideration to the FBCs’ capital costs and therefore the Commission must review its second rate cut.
So the Commission began its months-long do-over of the aggregated rates review, which resulted in its decision on May 27, 2021. In a unanimous decision by nine commissioners including Scott, the Commission reversed its 2019 rate cut, agreeing with all 14 arguments raised by the FBCs identifying errors the Commission had made in reviewing costing models and its own guidelines. The 2016 interim rates, which had included the initial rate reduction in favour of the re-sellers, were confirmed as final.
Not only that, the Commission said it was carrying on with the transition from aggregated to disaggregated model which meant those reduced aggregated rates would soon be a thing of the past. Distributel and other ISP re-sellers were going to have to build those multiple transport nodes throughout the FBCs’ networks. Their 2019 lottery ticket was in shreds: no second rate cut, no $325 million payment.
At this point raging public controversy was a given. Needless to say the ruling gave new life to the resellers’ public campaign and the juiciest orange in the campaign was the McGee’s photo. (Visits to the Tek Savvy, Open Media or CNOC websites illustrate that, but the most acidic commentary might be Tek Savvy exec Peter Nowak’s twitter account).
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Whatever one thinks is the right answer on wholesale internet rates, there’s the matter of lobbying.
Lobbying on matters of public interest under controlled conditions including a federal registry is expressly allowed in all democracies including this one: not only to the CRTC, but to all federal administrative bodies, politicians and their senior staff (and carried on with gusto by representatives of VIs and resellers alike).
There are no rules against one-on-one meetings either. Before I retired, I lobbied federal politicians countless times on media issues, both one-on-one or by committee.
I even lobbied Ian Scott on February 12, 2018 (you can look it up on the registry) although truth be told it was a meet-and-greet in a bar following his appointment the previous July (I am guessing Bell didn’t have to wait that long, but I’m over it).
It was a two-on-two meeting and very pleasant. We filled his ear about the history of the CRTC’s failures on local news and he nodded a lot. At the time, there were no open CRTC files dealing with local news but I hope we educated him for the next time it comes up. I think regulation works better with more information.
Still. Scott —and Bibic— were very naive to think that they could just be regular guys going to a pub that’s located within 100 metres of offices housing the Parliament Hill press corps. Next time maybe they’ll bring chaperones, even if it’s Christmas.
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