Canadian Commentary: Economics

Nationalize Rogers Cablesystems!

June 1999

Last summer, Rogers Cablesystems tried to bill us for the new channels they were "demonstrating" (you know, the golf channel, etc.), despite the fact I had repeatedly told their salespeople that I didn't want them and they could cut them off whenever they wanted. When questioned, they retracted their bill and we paid the correct amount for the services we actually wanted. But the next bill from Rogers contained a variety of seemingly random numbers that did not add up (presumably some sort of correction of the previous bill). Naturally suspicious, I phoned their billing people and explained that I did not understand the bill. Their response was, essentially, "that's because you're an idiot, sir". They told me flatly that the bill was for the correct amount, and refused to explain why the numbers were there or what they meant. When I persisted in asking that the numbers that appeared on the bill be explained to me, the Rogers people began abusing me over the phone!

How can Rogers get away with this kind of service? Because it is a monopoly, of course. It's not like I can go to another cable company that provides better service. It would be economically impossible to have more than one piece of cable available for every home. So Rogers owns the cable that goes past my house, and if I want cable service, I have to go through them. It is a classic natural monopoly. Supposedly, this monopoly is restrained because the CRTC has the power to regulate it - but the CRTC is utterly toothless. It's not as if it can confiscate Rogers' cable system because it provides poor service and is constantly skewering its customers.

There is a much easier solution. The only way to ensure that a natural monopoly is not exploited by its owner is to nationalize it - put it under public ownership. Even the Harris Tories, who run the most right-wing government in Canada, understand that. When they decided to sell off Ontario Hydro, they realized that the power transmission system - the cables that carry the electricity - was a natural monopoly. You can't have two sets of power cables running across the province. So while they are privatizing power generation, the power transmission system is remaining in public hands - which will ensure that everyone has equal access to it and that it not used exploitatively.

Exactly the same problem applies to cable TV transmission, and exactly the same solution should be imposed. The service of providing the cable signal can be left in the hands of Rogers. But the cable itself - the transmission system - should be taken into public hands, and made available on equal terms to any corporation that wishes to set up a cable company. That way, customers will have real choice as to which cable company they choose to subscribe to, based on the service and prices they offer. Then we would see real competition.

The issue is much more urgent with the advent of high-speed internet transmission over cable. The present monopoly means that the cable companies have a lock on this method of high-speed transmission, cutting out the Internet Service Providers that have evolved by specializing in this service. In other words, an industry fundamental to Canada's technological development is being taken from a highly competitive environment and locked into a monopoly situation. The CRTC has ordered the cable companies to provide access to their cables to the ISPs, but the cable companies have delayed, citing technical difficulties. Their hypocrisy was revealed today when a small cable company in Northern Ontario announced that it had given two local ISPs access to its transmission system in 48 hours. This kind of abuse of monopoly is inevitable as long as the transmission system is owned by an individual corporation. Even when they eventually provide access to other ISPs, Rogers and the other cable companies will constantly have both the incentive and the means to undermine these competitors in every way they can find. There is only one way to avoid this situation - nationalize the transmission system.

But this problem is not restricted to the cable companies. Exactly the same situation is true of the phone companies. They own the transmission systems, and any other local phone service providers will have to operate over their main competitor's lines (it is not feasible for them to create their own except in the dense core of cities). The resulting situation is simply ridiculous. Either the CRTC will impose strict conditions on Bell, meaning that Bell will have to pay the cost of maintaining the transmission system that their competitors benefit from, putting Bell in an impossible situation; or the CRTC will be lenient, meaning Bell will be able to put the squeeze on its direct competitors as they try to operate over Bell's lines. The potential for abuse is already apparent in the provision of ADSL high-speed internet transmission services. Bell's ISP subsidiary, Sympatico, is offering the service, but (in Ontario at least) it is delaying allowing any of the other ISPs (which of course all rely on Bell lines) to have access to the new technology. The independent ISPs are being squeezed, and a once-competitive market is being reduced to a duopoly, cable monopolies versus telephone monopolies. The result will be service that is both poor and expensive, holding Canadians back from fully developing their use of the internet.

[Note: After I wrote this, a reader pointed out that Sympatico B.C. (which is not run by Bell, of course) is co-operating with independent ISPs to provide ADSL service. Undoubtedly Bell in Ontario will also eventually allow independent ISPs to provide ADSL service over its lines, but as long as the same company owns both the lines and an ISP, the potential for abuse of monopoly will remain. For instance, at the moment Bell is considering offering ADSL to the independent ISPs at the same price as Sympatico offers it directly to customers!]

The only and obvious solution is to break up the telcos and the cable companies into publicly-owned, non-profit transmission agencies, and private service-provider companies. Bell, Rogers and the rest would still survive as private companies providing services - but now they would be on an even playing field with their competitors. Of course, they would be compensated for all of the investment they put into developing the transmission systems - but they would receive a fair price set by impartial external auditors, not an extortionate one they set themselves. The transmission companies would be publicly-owned, but run as separate entities on a non-profit basis, responsible to a board of customers and clients, as well as government representatives, on the model of the new airport authorities. Their mandate would be to provide the best, constantly improving service at the lowest price. The main concern would be that they would lack the incentive to constantly improve their service - but in fact, their incentives would be no weaker than those of the privately owned monopoly we have endured for decades. A strong board that was responsive to the needs of consumers and businesses, and a culture of service to the public, would provide far better incentives to keep Canada at the cutting edge of communications service than a private monopoly whose purpose was simply to smother its competition and maintain its profit base.

So, I am not really calling for the nationalization of the telephone companies and cable companies as a whole. Rather, they should simply be broken up, their natural-monopoly transmission systems placed under public control, so that an environment of genuine competition on even terms can emerge among communication service providers.

[Note: while I have not addressed the issue of satellite-based and cellphone services, many of the same arguments apply].

 

June 23, 1999

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