WordsByNowak

You have to feel bad for Telus. Really, you do. After losing out to its wireless/internet/television provider rivals in the sweepstakes to snap up every major television broadcaster in the country, the company has gone crying to regulators to make sure the TV playing field stays even. It’s sort of like Telus wasn’t attractive enough to score a date to the prom, so now it’s asking for special rules to ensure it still gets to dance with someone.

Over the past few years, Canada’s big telecom companies have kept themselves busy “converging” by snapping up TV broadcasters. Quebecor, which owns French media assets and telecom provider Videotron, has been joined by Rogers (which bought Citytv), Bell (which bought CTV) and Shaw (which bought Global). Each company went out and got themselves a broadcaster for the purpose of having some special advantage in their telecom business. Telus, meanwhile, got shut out and is on the outside looking in.

The company has now asked the CRTC to enact rules that would prohibit these companies from discriminating against competitors with things like exclusive rights and preferential treatment. The ultimate fear is, of course, that such discrimination will lead to a situation where consumers have to switch TV providers just to watch their favourite show.

Telus is right, in a sense. Left to their own devices, it’s a situation the companies will inevitably devolve into.

But it’s hard to take the appeal seriously given the source. The run-up to the 2008 wireless spectrum auction, where the big debate was whether new companies should get a regulatory hand-out in the form of reserved airwaves, comes to mind. Telus naturally opposed such a move and in a letter to the Ottawa Citizen headlined “Government should let market decide spectrum auction” said:

We strongly believe that the competitive playing field should be free from government intervention so that companies can compete fairly for customers. Over the span of a few years, Telus evolved from a regional provider of wireless services in Alberta and B.C. to a leading national carrier. We accomplished this not by seeking regulatory benefits, but by investing more than $7 billion in a national wireless network that delivers advanced wireless services like mobile TV and satellite radio across the country.

Hmm. It seems Telus could have avoided its current TV predicament by following market forces and buying its own broadcaster. Better yet, if the company is such a staunch believer in the market, why doesn’t it start its own broadcaster? Why go crying to the regulator?

While the company does have a point, that this sort of vertical integration is theoretically dangerous, in reality it doesn’t really matter because the future of television doesn’t lie with broadcasters anyway. It’s all about Netflix and BitTorrent.

On one front, Netflix and services like it - some of which already exist and some of which have yet to arise - are quickly becoming competitors for the rights to air TV shows and movies. Content producers are increasingly going to have to choose between selling rights to services such as Netflix and traditional broadcasters. On another front, the more that vertically integrated companies try to lock down content through exclusive and discriminatory treatment, the more they will fuel the growth of illegitimate sources.

This can’t be discounted - most people under 30 are quite comfortable, morally and technologically, in using BitTorrent to acquire their content. When it comes to how people want to get their TV shows and movies, it’s perhaps best to paraphrase the Borg from Star Trek: The Next Generation: broadcasters are irrelevant, laws are irrelevant, regulations are irrelevant. Telus’s crying to the regulator, while rich, is also irrelevant.

According to a Reuters report last night, a group of Facebook investors is looking to get out of the company by selling $1 billion worth of shares on the secondary market. Doing so would value the company, which has not yet gone public, at about $70 billion. The sellers, the story says, have lowered their asking price after previously trying to sell in a deal that would have valued the company at $90 billion.

The new deal would call into question just how much Facebook is worth and what its growth prospects are ahead of an expected initial public offering next year. Some investors and analysts are starting to think the company is overvalued or that its future might not be as bright as expected.

Well, duh. At some point when investing in stocks, it makes sense to stop looking at the numbers and start thinking about the realities of what a company does and how people use its products and services. I’m not an active investor in any company, but if I was, Facebook is probably not one I’d go anywhere near because of this.

Simply put, almost no one I know enjoys using Facebook. It’s anecdotal, I know, but most of the people I know who use the site only do it because they feel they have to. They’ve been pressured into it by their friends, or they feel like they miss out on social events and interactions by not being on it. I can’t say I  know anyone who really loves it. In that way, Facebook is almost like a cellphone contract - nobody wants to be in it and they can’t wait till they can get out of it.

Facebook has not done itself any favours. With its constant redesigns and privacy blunders, the company has deservedly earned the wrath of many users. While Quit Facebook Day proved to be a flop last year, it actually spoke volumes about the future of the website - who really wants to invest in a company that provokes this sort of reaction among its own customers? You don’t see Apple customers organizing too many Quit iPhone days.

As for businesses, it doesn’t make a lot of sense for them to be on it either. Many companies have gone through the trouble of setting up pages on the site and advertising on it, which is funny because they already did that once before, you know, with things called websites on the public internet. Sooner or later, businesses are likely to realize the extra time and expense of running essentially two online presences isn’t worth it. And guess which one they’ll pull the plug on?

I remember hearing once that the best companies to invest in were the ones that had the longest lineups, and I sort of half remember this being called the “grandma school of investing,” although I’m not sure why. Do grandmas spend a lot of time standing in line? Anyway, it comes to mind every time I stand in the really long lines at IKEA, where I think, “Man, I really should buy stock in this company” (you can’t because IKEA is privately owned).

Facebook has big lineups of customers alright, but they’re pointed in the wrong direction - toward the exit door.

I’m going back to my roots today with a story about military technology that could be plucked right out of Sex, Bombs and Burgers. The U.S. Army is preparing to arm soldiers with Android smartphones, complete with custom apps designed for military purposes.

“A prototype device called the Joint Battle Command-Platform being developed by MITRE is already undergoing tests with Android used to run the software as part of a bid to reduce the amount of weighty equipment being lugged around by troops,” according to Techeye.

The U.S. military picking Android for its devices is not surprising. The operating system is the most open of the major ones available, which also makes it the cheapest since its maker - Google - doesn’t charge a licensing fee. Its relative openness also makes it the most customizable, which suits the specialized needs of a customer such as the Army.

App makers have been making military-themed software for some time, like the one used to help soldiers cope with post-traumatic stress disorder.

Google also has a long and friendly history with the military, some of which is detailed in my book. Vint Cerf, considered by many to be the “father of the internet,” splits his time between military projects and being a vice-president at Google.

Two years ago, while I was working on Sex, Bombs and Burgers, he told me about how some military-funded space research he was doing might find its way into Android phones. Evidently, some of that is going to actually start happening soon.

Liberal MP and tech critic Marc Garneau really kicked opened a can of worms a few weeks ago when he hosted an online chat to discuss the digital issues Canadians are concerned about during this election. Garneau, chatting with University of Ottawa professor Michael Geist and Open Media’s Steve Anderson, made a number of promises during the hour-long chat (you can read the transcript here).

Perhaps the most important - definitely the most surprising - was his statement that the Liberals support functional separation of telecommunications companies. In plain English, that means they are in favour of effectively splitting companies such as Bell and Rogers into two units: one side would manage the phone and internet networks owned by the company while the other would sell associated services to customers.

Many telecom companies will argue they already have this sort of separation, although they often willfully confuse it with simple accounting separation - where different units are tracked separately -  so there’s no real point to it. However, functional separation usually requires separate staff in each division and is often the first step toward operational or structural separation, which are more severe. Full-on structural separation usually means the network-management unit must be spun off into its own separate company that is not owned by the parent. So Bell or Rogers, for example, could technically lose ownership of their networks if Garneau or other supporters wanted to seriously move down this path.

The idea behind splitting up companies in this way is simple. The separate network unit sells fair and equitable access to that network to all comers, including small independent internet service providers as well as the parent company’s own retail ISP division. This way, everyone has access to the same network and can compete on things like prices, speeds, monthly usage limits and so on. Big companies such as Bell and Rogers thus lose their network-owning advantage and anti-consumer measures such as throttling and usage-based billing are unlikely to happen. If one ISP were to implement low usage caps, for example, customers could have the choice of several other companies that offer more generous limits. That differs from the current situation in Canada because big ISPs usually move in lockstep with one another and force their practices onto smaller ISPs as well.

As the International Telecommunications Union states, separation is usually only necessary when a country has difficulty attaining a competitive telecom market through other means. I wrote about this topic and how it might apply to Canada two years ago in a story that predicted what’s happening now. With evidence - including stats from the OECD and the World Economic Forum - mounting that Canada’s telecom markets are indeed uncompetitive and with the continuing souring of relations between network owners and the small ISPs who need them to survive, it was inevitable that talk of separation would follow.

But are the Liberals serious? Garneau’s comments struck me as throw-away pandering to an already partisan online crowd, given that it was really the first time the Liberals had suggested the idea of separation. It certainly isn’t in the party’s published platform. To be honest, I’m not sure Garneau knows what he’s talking about or that he has thought about the issue at any great length. I’d love to hear him questioned more on it.

Tony Clement, the current Conservative Industry Minister, lambasted Garneau on his comments, telling the Wire Report that it’s “completely unrealistic” for the Liberals to support functional separation. More tellingly, he said “the whole industry is going to convergence, not splitting off,” which seems a pretty clear indication that separation is nowhere near being on Clement’s and the Conservatives’ agenda.

That’s really disappointing because it shows Clement doesn’t understand the fundamentals of the situation either. The telecom industry is indeed converging, which is the whole point of separation - it converges networks more than it splits them off, which is a cheaper and more efficient way of doing business and getting better services. Even telecom companies themselves are coming to understand this - it’s why Bell and Telus jointly built a cellphone network and it’s why the top executives of several large telecom firms in Europe are voluntarily suggesting the idea of structural separation. Clement has made several poignant comments in the media over the past few months that he understands there are deep problems in Canada’s telecom market, yet he seems clueless as to how to fix them.

Separation would indeed be the closest thing to a silver bullet for solving Canada’s telecom woes. The problem here, which hasn’t really been encountered in any other country where separation has been done, is that it would be more complicated to do. Most other countries have simply split up their big phone incumbent - if this were to happen in Canada, it would also have to be done to the cable companies (in the interest of fairness).

Catherine Middleton, the Canada Research Chair in Communications (not the royal bride-to-be), has just released a report studying the possibility of separation in Canada. In it, she argues that getting separation with phone and cable companies would be tough to do and take a long time, so much so that “by the time it was implemented, it is not clear how many independent ISPs will remain to benefit from this change to the wholesale regime.”

Indeed, that’s why separation - although a great ideal - is not something I’ve harped on much. The much easier thing to do, which is something I’ve been incessant about, is to lift foreign ownership restrictions so that deep-pocketed international players can come in and compete. That, coupled with good and strong regulation (which is another topic for another day), would probably suffice in giving Canada a competitive telecom market.

With that said, a Canada with structurally separated phone and cable companies - and without foreign-ownership restrictions - is a telecom utopia we can only dare to dream of. Canada wouldn’t just benefit from the enhanced competitiveness that separation brings in, it would get it two-fold by having two different separate network companies competing against each other. Under this scenario, new ISPs might actually start up, as opposed to existing ones continually worrying about how they’re going to pay their bills from month to month. Canada could actually become one of the most competitive telecom markets in the world.

Such moves, however, would take strong, visionary leadership, not to mention a majority government. Unfortunately, those things are currently in short supply.

It looks like usage-based internet billing may jump back into headlines this week, just in time for the federal election next Monday.

Over the weekend, the internet activist folks over at Open Media posted the audio of a recent conference call held for analysts by Shaw Communications, one of the country’s biggest cable and internet companies. As is often the case with these calls, the picture Shaw executives painted for analysts was very different than the one they have tried to present to their customers and the public at large.

When the whole usage-based billing situation blew up back in January, Shaw put its plans to introduce extra fees and caps on hold, saying it wanted to hear from customers. The company was true to its word and held hearings with its users to see what they had to say.

According to Shaw’s president Peter Bissonnette and CEO Brad Shaw, here’s what customers apparently said:

Through the course of conversation with our customers, I think what we’ve seen from them is a recognition that the principle of, ‘If you use more you should pay more holds true.’ We believe as we work our way through some of the feedback that there really is a win-win for our shareholders as well as our customers in the way that we offer our tiers of services.

And also:

Not one of those customers that came to those consultations was saying to us that if you do something we’re going to leave to go to a less-performing internet service. They all acknowledged that our internet service provides them with the kind of experience that they want. This is really just a value and a price situation for them with respect to a threshold and it is hard to know what they’re paying on a monthly basis. We think we can address that through the manner in which we offer our tiers of internet service.

And the money shot:

Our customers said, ‘We are prepared to pay more for a higher value service.’

I wasn’t at any of those meetings, but I’m fairly certain that unless they were strangely stacked with proponents of UBB, that’s not what customers were saying. Of particular interest is the Orwell speak in that second quote about how no customer is going to leave to go to a “lesser-performing” internet service. Hmm. That’s probably true, but just what the heck does that mean? I’m sure a lot of customers will leave to go to a cheaper-performing service.

The executives confirmed that usage-based billing plans will be making a return around the end of May or early June and suggested they may have higher monthly “thresholds” than previously planned. The rationale: big ISPs in the east of the country (Rogers and Bell) have had UBB for some time now but neither Shaw nor its western rival Telus has yet to institute it. Hence, prices have some room to climb in the west: ”Their pricing is higher than ours and we believe we still have that pricing power.”

So, Shaw is going to go ahead with UBB despite all political parties clearly opposing it. That takes either monumental balls or monumental stupidity. It’s no wonder the calls to split telecom companies are starting to get louder. But I’ll have more on that later in the week.

UPDATE: In keeping with the Canadian spirit of never maintaining a true, pro-consumer advantage for long, Telus says it too will implement UBB this year. It’s also another example of monkey see monkey do, where the phone companies do exactly what the cable providers do.