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Richard French

Second-guessing the CRTC comes at a price Add to ...

No government in Canadian history has second-guessed its independent regulators, the CRTC first among them, like the Conservatives. They've already reversed two of the CRTC's most significant decisions of the past five years - on the speed of deregulation of the telecom giants and on whether the new mobile entrant Globalive is Canadian-controlled.

So it's not too surprising that Industry Minister Tony Clement says he'll review the CRTC's decision to require independent Internet service providers to conform to usage-based Internet billing principles similar to what the network operators - in this case, Telus, Bell and Aliant - are charging their own customers. An election looms, after all, and the blogosphere is in a tizzy.

There's nothing constitutionally or legally wrong with cabinet's reviewing and reversing the decisions of independent regulators in accordance with statute, as in these cases. Quasi-judicial agencies must have some kind of accountability during their leadership's secure appointments for terms of multiple years. Appointment by the Governor in Council for such a term confers neither omniscience nor infallibility and, rather too often, a regulator forgets that sorry truth. But the minister will have to ask himself whether this particular decision is politically convenient.

The aggrieved customers belong to third-party ISPs that purchase network capacity at regulated wholesale rates from the big telecom operators (which, in their turn, bitterly resent being obliged to put their infrastructure at the disposal of competitors). The independent ISP industry is thus entirely the creature of government policy, intended to create an artificial form of competition in an oligopolistic industry.

The trouble with regulation that creates "competition" by repealing the laws of property and the principles of economics in this way is that there is no analytical basis, no economic principle, on which to stop doing so. The industry thus created to keep the big network operators honest - and they do need to be kept honest - becomes itself a ward of the state, heavily incented to compete in the marketplace of government policy whenever it feels the need.

The network operators say the independents have been allowed to make service offerings that burden their networks without contributing to the capital investment required to maintain quality in the face of constantly accelerating usage. In short, the heavy users among the independents' customers - less than 20 per cent of customers are responsible for more than 80 per cent of Internet traffic - aren't paying their share of the fully loaded cost of Internet usage.

On the one hand, the big operators threaten to stop investing in their networks, but never do. On the other hand, it seems hard to argue - as those who reject the ruling in effect do - that a minority of customers shouldn't pay fees that reflect their heavy usage. This is the kind of Gordian knot regulators are paid to cut, and a thankless task it is.

Having decided to review this decision, however, Mr. Clement is embarking on somewhat more than that. He's beginning a review of independent telecom regulation as a functioning institution in the federal government.

In the first place, his own government undertook the most spectacular rebuff of a federal regulator in Canadian history when it told the CRTC in 2006 to be more attentive to market forces and to undertake less regulatory engineering of the marketplace. This decision meant much less regulatory handicapping of the telecom incumbents and more freedom for them to charge the rates and apply the terms and conditions they thought appropriate. This is precisely what the CRTC has done in the case of usage-based Internet pricing.

In the second place, the cumulative impact of a third reversal of a major decision by the same government will reduce the CRTC to a mere way station for disgruntled interests on the way to cabinet. The more the government reflexively reacts to public pressure by stepping in to placate the disappointed, the more it incents future stakeholders to induce such pressure, thus establishing a political dynamic that will feed on itself.

We established independent regulators because they're supposed to have the expertise, the freedom from partisan pressures, the time and the longer-term perspective to make the painful and complex decisions required to keep industries that are otherwise liable to market failure operating in some semblance of the public interest. Does the cabinet really want to position itself as the effective arbiter for all the campaigns of rent-seeking and special pleading that an institution such as the CRTC has historically dealt with?

Richard French is CN-Tellier Professor at the University of Ottawa's Graduate School of Public and International Affairs. He was vice-chairman of the CRTC from 2005 to 2007.

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