WordsByNowak

With all the hubbub over usage-based internet billing last week, I almost lost another major story - as it pertains to my book, anyway - in the shuffle. The Marriott hotel chain has announced that, because of declining revenue, it is pulling porn from its in-room pay-per-view offerings.

The media picked up on a couple of interesting angles to this story. Many connected the move with the likelihood that Mitt Romney is once again going to run for U.S. president. Romney recently resigned from the hotel chain’s board to prepare for his run. He took heat, especially from Mormons, in the previous election for not pushing Marriott to get rid of the in-room porn, so some are saying both of these moves will remove that particular albatross.

The more interesting angle, I think, is what the Daily Mail calls “the iPad effect” or what I call “BYOP,” or bring your own porn. Hotel chains are thinking twice about offering adult content in rooms because people are bringing their own, either pre-loaded on their iPads or smartphones, or they’re accessing it online in the room through those devices. In both situations, the hotel is getting cut out of the equation, so ultimately it’s a good PR move to get rid of the content.

We’ve been hearing for the past couple of years how the porn industry has been hurting because of free online content and piracy - you can read all about it in my recent AskMen.com feature - but we’re only just now getting a little more illumination on what has been a dirty little secret. Porn piracy doesn’t hurt just the porn business - it hurts mainstream businesses too, with hotel chains and cable companies at the top of the list. Anyone who used to make money from the old porn system is seeing that situation evaporate quickly.

Amazingly, you can tie this back to usage-based internet billing. I wouldn’t feel too badly for those cable companies, especially Canadian ones, because if they’re losing money from a decline in pay-per-view porn, they stand to recoup it from internet usage. Despite what seems to be conventional wisdom, porn is still a major part of the internet and those free sites - the likes of YouPorn and RedTube - are among the highest trafficked out there (both are within the top 150 in Alexa rankings). The more people watch those sites, the more they go over their monthly caps and the more revenue the internet companies get.

That notwithstanding, many people also forget that ISPs have been the biggest beneficiaries of porn’s move to the internet. As detailed in Sex, Bombs and Burgers, better access to adult content (as well as file-sharing) has been a major reason for why people upgraded their dial-up internet connections to high-speed. They are a huge part of the dirty little secret.

But to get back to the hotel issue, the iPad effect also extends to mainstream movies. Once again, porn is in the vanguard - if hotels are moving to drop it because people are bringing their own, how long until they drop pay-per-view movies entirely? After all, if you can bring Debbie Does Dallas Part XXIX loaded on your laptop, surely you can also bring Inception, Toy Story 3 or the complete latest season of Dexter. Put another way, why would you watch television on the TV in your room when you can fire up Netflix or Hulu instead? Indeed, one analyst figures pay-per-view revenue overall has shrunk about 39 per cent since 2000.

The hotel chains have been trying to keep this pay-per-view business viable by adding larger flat-screen TVs to rooms and by moving the release windows of movies up. Many of the hotels I’ve been in recently have had movies on offer that are still in theatres.

They’re sort of trying to replicate the whole movie-going experience in the room, albeit on a smaller scale. I’m not so sure that’s a good strategy, though, because the price of the lesser experience is roughly the same as the full one. If you’re going to pay $15 to see a movie, who wants to watch it on a small screen in their room?

Given that, it seems the overall death of in-room pay-per-view is inevitable.

Wow, what an interesting week in internet land, especially for Canadians. The buzz all week has been usage-based billing, or metered internet usage. On Tuesday, the regulator handed down its final decision on the issue, which will ultimately make it very difficult if not impossible for any ISP to offer unlimited internet usage.

People are pissed. As of this writing (Thursday afternoon), more than 70,000 had signed the Stop The Meter online petition. One fellow, Jean-Francois Mezei - who runs a small computer consultancy in Quebec called Vaxination Informatique - has taken it upon himself to file an appeal with the federal government to have the whole thing struck down. It’s a good read; some of it is very technical, but otherwise he covers the innate problems with the whole situation.

At the centre of this storm, believe it or not, is movie and TV show streaming service Netflix. The company announced its latest financial results on Wednesday and, in a refreshing moment of candour (for an executive), CEO Reed Hastings laid out what’s going on with the company’s recent expansion into Canada, land of the capped internet. He said our restrictive usage caps are a ”potentially a significant negative for Netflix,” and he criticized the high rates big ISPs are charging when users go over their limits.  “Hopefully we can work with the different consumer groups and providers and get a better costing structure… more in the one-penny range or (plans) bundled in with a much higher cap.”

Netflix followed up Hastings’ comments yesterday by releasing some illuminating charts. The graphs show how well Netflix performs on different ISP connections, both in the U.S. and Canada. The charts show Netflix performing better in general in Canada than in the U.S., which prompted some people to suggest our networks are better.

Whoa, wait a second there Nelly. That’s a mighty big conclusion to be jumping to. There are a couple of things to keep in mind before we can make that leap in logic (not that it’s necessarily not true).

The biggest issue is Netflix’s performance-versus-usage threshold. There is a very strong logical argument for why U.S. ISPs don’t want Netflix to perform well - perhaps more so than their Canadian counterparts. The typical American internet user has hundreds of gigabytes of monthly usage, if not unlimited, to play with. So if ISPs can’t discourage internet users from watching Netflix that way, well why not try and make the experience negative in some other way? I’m not saying U.S. ISPs are interfering with or degrading Netflix quality, but it would be foolish of them to go out of their way and devote special resources to making it an optimal experience.

In Canada, it’s a very different story. In many ways, ISPs perversely want internet users to have a great experience on Netflix so that they use it more. That gets them up over that monthly usage cap, which results in more revenue. Why not optimize the experience? It makes all sorts of sense. As long as Netflix is still a virtual remainder bin of content devoid of any good new releases or television shows, for the big ISPs it’s a case of, “What me worry?”

Let’s not forget, also, that we have net neutrality rules in Canada whereas the U.S. is still trying to get them sorted. The Netflix charts are a great thing for Canadian ISPs to point at and say, “Look how well we’re provisioning a potential competitor! How dare you suggest we’re anti-competitive!?!”

It’s really amazing how online video is unfolding in Canada. When illegal torrent file-sharing emerged as the big threat to our TV providers a few years ago, they moved en masse to slow it down and cripple it with internet management measures that are still in effect. Now, as the legal options are emerging, they’re moving to slow them down and cripple them with different measures: usage limits.

One way or another, they’re successfully stemming the tide with the blessing of our regulator and the silent complicity of our government. Is it any wonder Blockbuster Video is still doing okay in Canada despite going bust in the United States? Hey Industry Minister Tony Clement: nice “digital economy” you’ve got going there.

Reuters ran an intriguing yet thoroughly unintelligible story the other day about how technology relates to dating and sex. It’s tough to figure out what the story is really about because it throws a whole bunch of numbers together with no discernible focus, but the stats themselves are pretty interesting.

The headline figure is that 80% of women and 60% of men believe that texting, Facebook and other social networking tools cause couples to have sex faster. The following sentence, however, says only 38% of women admitted to getting it on faster because of digital intimacy. That would seem to indicate that people believe social networking leads to faster sex, just not with them. Either the stats are wrong, respondents to the survey are woefully wrong, or it’s a case of, “uh huh, sure it’s not you.”

There are a few obvious errors in the story. Apparently, 72% of women say they “scour” a current partner’s ex-girlfriend’s Facebook pages, which seems wrong. As far as I know, with all the privacy flak Facebook has taken over the last few years, you can’t really see too many details on strangers’ pages without actually friending them first. That makes it rather hard to “scour,” I would think.

The story also notes that 81% of people don’t de-friend an ex once they break up with them, which is pretty much a no-brainer. How else are you supposed to keep tabs on them?!?!

(Photo from Marie Claire.)

The final word on usage-based internet billing in Canada came down yesterday and it’s pretty much as everyone expected: so long unlimited internet, it was good knowing you.

The issue, in brief, if you’re not familiar with it: small internet providers lease the networks of big companies such as Bell and Telus to sell their own internet plans. But while the big companies like to set modest usage caps and charge extra for more, the smaller guys have been selling big buckets, if not unlimited. Bell asked our regulator, the CRTC, to allow it to implement those same caps on its smaller wholesale customers and, after much ado, the company got what it wanted. The small guys are therefore going to see their ability to offer unlimited usage buckets severely curtailed.

The CRTC did throw the small ISPs a bone yesterday - it gave them a 15% discount on whatever the big guys want to charge them for usage. By most accounts, that might be enough to keep some of the smaller ISPs in business, but it doesn’t give them much room to differentiate their services or make any actual money.

Interestingly, there was an op/ed in The Globe and Mail yesterday from David Beers, editor of The Tyee website. The headline pretty much said it: “A metered internet is a regulatory failure.”

I’d go a step further and suggest that by allowing this to happen, the CRTC has actually failed to do its job as enforcer of the Telecommunications Act and it has failed to follow the government’s 2006 policy direction.

The policy direction was an unusual set of marching orders that had never been made before because the government and the regulator were supposed to operate within arm’s length of one another. It happened because the industry minister at the time, Maxime Bernier, was a hard-core market purist and he wanted to de-fang the CRTC as much as possible.

Bernier, who I got to know through regular on- and off-the-record chats back in the day, believed there wasn’t a competitive problem that can’t be solved by simply having a free and open market. For the most part I agreed with him except - as I keep belaboring - we don’t have openness in telecommunications services because we have foreign ownership restrictions that act as a major barrier to market entry. Bernier knew that and wanted to change it, but he was shuffled off into a different job before he could make such a move (and then there was that whole disgrace with the biker girlfriend scandal, but that’s neither here nor there).

In any event, the government has stuck with Bernier’s policy direction for more than four years now and the CRTC has referenced it in pretty much every decision it has made since. Indeed, yesterday’s ruling concludes with a statement that usage-based billing is indeed consistent with that policy direction. I beg to differ.

The double failure is very simple, as it comes from the first points in both the policy direction and the Telecommunications Act. The government’s marching orders state the CRTC must “rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives.”

In the first instance, by allowing Bell and Co. to dictate the business models of smaller competitors, the regulator is in effect interfering with market forces.

Furthermore, the Act’s first objective is “to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions.” Its third objective is “to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications.”

The Telecom Act is a long and convoluted piece of legalese, but if we break it down to that first all-important objective, the question inevitably arises: Exactly how is cutting down or limiting Canadians’ internet usage safeguarding, enriching and strengthening the social and economic fabric of Canada?

We can argue ideologically till we’re blue in the face about how to achieve all the other goals of the Telecom Act and the policy direction - i.e. that allowing all comers to access incumbent networks cheaply is the best way, or that shutting the small guys down so the big guys have investment certainty is the best way, etc. - but that just muddies the waters. The first goal is a good one and the most important since it pretty much covers everything else.

In that vein the one point I think everyone, except perhaps the network owners, can agree on is that using the internet more, not less, is the best way to achieve the Act’s most important goal: the strengthening of the social and economic fabric of Canada. Ladies and gentlemen of the court, I therefore submit to you the CRTC’s first objective and policy direction failure.

What about the Act’s third objective? As the wise guys like to say: fuggedaboutit.

According to the Organization for Economic Co-operation and Development, Canada is only one of three member countries (out of 30) where unlimited internet service is practically impossible to find (see table 4G on the OECD’s broadband portal - it’s worth noting the numbers are from 2009, which means Canada is likely to look even worse now that we’ve got usage-based billing). Australia and New Zealand are the other two, and don’t even get me started on those countries. Having lived in New Zealand and covered this issue there, we should actually consider ourselves lucky here in Canada. As for Australia, it’s no surprise the government - at war with Telstra, its own version of Bell Canada - is spending billions on building its own internet access network.

The point is, unlimited or practically unlimited internet is commonplace in almost every other developed nation. Canada doesn’t sound too internationally competitive in that light, now does it? That, my friends, is the CRTC’s second epic failure.

There are many ways to interpret the Telecom Act and the policy direction, but the above two things are clear as mud: we’re being prodded into using the internet less, which is out of whack with what’s going on in other countries.

There are tens of thousands of Canadians who are fed up with this situation and their numbers are only going to grow as 2011 continues. Sooner or later, the government is going to have to sit up and take notice that the market, such as it is, is failing those Canadians badly.

One of my keen areas of interest when it comes to technology, especially when it comes to wireless services, has always been whether it’s friendly to consumers or not. By that, I don’t mean whether it’s easy to use, but whether it puts power into the hands of the individual as opposed to some company. For Canadian wireless users, the ultimate consumer-friendly phone may therefore be the new Samsung Nexus S. I’ll explain why in a minute.

As we all know, cellphone service here in North America is considerably more expensive and restrictive than it is in, say, Europe and Asia. With all due respect to our American friends, who also get the royal shaft from their service providers, it’s pretty well established that we Canadians have had it worse than just about anybody.

That said, things are also getting better in Canada at a much quicker pace than in the United States. The secret, of course, is that new companies such as Wind and Mobilicity are making things very competitive for the established trio of Bell, Rogers and Telus. But even before the new guys came along, things were getting somewhat better because Rogers was beating the snot out of Bell and Telus thanks to a plain old lucky choice of technology.

Many years ago, Bell and Telus decided to follow the likes of their bigger U.S. brethren Verizon and Sprint in choosing a wireless technology known as CDMA. Rogers, however, gambled on a different standard, GSM, that was emerging in other parts of the world. There are arguments for and against both, but ultimately GSM grew to critical mass and was essentially anointed the winner.

The crown, of course, came in the form of the iPhone in 2007. While there has been much speculation about why Apple ultimately chose to release its hotly anticipated device on AT&T’s GSM network over Verizon’s CDMA network, the fact that more than 80% of carriers worldwide were using GSM made the decision a no-brainer. By going with GSM, Apple guaranteed at least the potential of mass acceptance of its new venture around the world.

In Canada at the time, Rogers was the only GSM carrier. When the company got the device, it quickly started seeing the benefits: more customer sign-ups and higher monthly revenue from the associated data charges. Bell and Telus users, meanwhile, were stuck with CDMA phones that were not only un-sexy, but they also didn’t work in those GSM-using countries. On the inverse, people coming to Canada with their GSM phones obviously ended up roaming on Rogers’ network.

Not surprisingly, just over a year ago Bell and Telus did the only thing they could do: they converted to GSM (or technically, its HSPA offshoot). Now, all three companies have the iPhone, as well as all the other cool GSM BlackBerry and Android devices.

Theoretically, this was great news for Canadian consumers. The single-standard situation was actually looking better than the U.S., where the four major carriers use three essentially different standards. (Verizon and Sprint use CDMA, AT&T uses GSM and T-Mobile uses AWS, a different flavour of GSM.) Canadians could now buy a GSM phone such as the iPhone, get it unlocked and go shopping for a service plan, thereby making our providers compete for our business. You know, how the grown-up countries in Europe and Asia do it.

Not so fast. The consumer-friendly move to a unified wireless technology has not made our big three any more consumer friendly. I tried to get a deal with an unlocked iPhone 4 when it was released last summer and came up pretty short. Technology may allow Canadians to move between providers but they certainly don’t want us to, which is reflected in the fact that they’re reluctant to offer deals without tying customers to a long-term contract.

The new carriers were supposed to help in this regard, but they introduced a new problem. No sooner had CDMA been banished from Canada than a new frequency - Advanced Wireless Spectrum - was introduced by the likes of Wind and Mobilicity. There’s no need to get into the technical specifics, but suffice it to say that while AWS is still a flavour of GSM, it’s not a widely used one. Very few cellphone carriers in the world use this particular wireless frequency, which means there aren’t many phones being built for it. Why are the new Canadian companies using AWS? Well, it’s the only spectrum that has so far been made available to them, so it’s not like they have a choice.

I wrote about this issue recently for Canadian Business magazine. Basically, T-Mobile is the only big company using AWS, so our new Canadian minnows have basically had to buy whatever phones that company gets. T-Mobile’s selection hasn’t been bad, but it hasn’t been great either - and there is certainly no iPhone option.

Alas. If only there were a phone that could work on regular GSM and AWS frequencies, thereby truly allowing the Canadian consumer to leverage all Canadian wireless companies against each other and force them to compete for their business. Sigh.

Oh wait, there have been a couple available so far. First, there’s the Nokia N8. The N8 has something called a pentaband chip, which lets it work on five different frequencies, including regular old GSM and the new-fangled AWS. The device is a possible vanguard of truly consumer-friendly devices that will let the user, or the Canadian at least, bounce between all of our wireless providers. The only problem is, while the N8 has a mighty nice camera, it’s just not a very good smartphone and it’s also locked to Rogers.

Then there’s the Motorola Milestone XT720, also known as “the wha?” If you’ve never heard of this phone, you’re not alone. It’s Motorola’s follow-up to the Milestone, which was the international version of the wildly successful U.S. phone, the Droid. The new Milestone was released in the UK and in Canada through Wind in 2010, but it doesn’t seem to have done well, largely because it was barely marketed here, if at all. That’s what happens when you don’t have a deep-pocketed carrier getting behind a particular handset. It’s too bad because the original Milestone was great and by the look of the XT720′s specs, it can run on all of our carriers.

That brings us to the Samsung Nexus S. I haven’t actually seen the device yet, which only became available in the U.S. and UK in December, but it sounds very much like an amalgamation of the Nexus One and Galaxy S, two very good Android phones. The Nexus S is getting solid reviews and will soon be coming to Canada - Mobilicity CEO Dave Dobbin recently spilled the beans that all carriers will have it in March.

I’m not sure if the Nexus S has a pentaband chip, but if you look at the technical specs, it matches up with the high-speed wireless networks of Bell, Rogers, Telus, Wind and Mobilicity. Samsung’s Canadian PR folks won’t confirm it, but I did check with a friend who’s an expert and we both believe this phone will work to its full capacity on all of them.

Imagine that: a good phone with some cachet attached to it that will work on all Canadian wireless carriers. This is truly a momentous first. (I’m being genuine there, not sarcastic.)

The phone is currently being sold unlocked and contract-free in U.S. Best Buy stores and I have half a mind to go and get one. The thought of being able to leave my cellphone provider any time I want for greener pastures is very appealing. It’s downright revolutionary for Canada. I’m actually wondering if we’ll be able to buy it contract-free and unlocked when it comes out here. There’s something about those consumer-friendly ideas that seems un-Canadian. (Okay, now I’m being sarcastic.)

They said the iPhone was the “Jesus phone” when it came along because it “saved” consumers from the iron grip of wireless providers. It’s well known that Apple fought providers on a number of issues and forced them to lower their previously usurious data rates so that people could actually use the damn thing. Apple also took complete control of the device and, to the company’s credit, still doesn’t allow carriers to put their own crappy software on it.

The iPhone certainly did all that but the Nexus S could very well be the next saviour phone, at least for Canadians, because it looks to be the first contender that lets us force competition across the board. Bell, Rogers and Telus don’t want to offer deals to people who own unlocked iPhones because they know they can’t go to the cheaper carriers. It looks like that is about to change.

And even if the Nexus S doesn’t make a big splash, things are looking up as there is clearly already a trickle of phones that can cross networks in Canada (there may actually be more than the three I’m aware of). Whether the wireless carriers like it or not, we’re getting closer and closer to empowered consumers.

UPDATE: My readers write… a couple of folks wrote in (see the comments section) to clarify some of what I wrote up above. When covering this stuff it’s tough to keep it simple enough so that no one is bored to tears, so unfortunately sometimes I do get things confused. The problem is there are tons of wireless standards, frequencies and technologies out there and the carriers don’t make things any easier by how they market them. Take “4G” for example - U.S. carriers are marketing their new services as fourth-generation while the same thing here in Canada is considered 3G. The bottom line when it comes to devices such as the Nexus S is, yes, it looks like it will work on just about all Canadian networks… the only question is at what speed. Fortunately, network speeds are generally improving and phones are gaining the ability to work across networks, so the point of the post above still stands: we’re inching towards more empowered consumers.