Ah! The power of the market! How we love to wander the shops picking out the amazing products from all over the world, laid out in attractive abundance! How efficient are thy ways, O market! As we have learned at the feet of the great Friedrich Hayek, the market conveys information by means of prices, and prices summon forth this abundance from the tea plantations of Assam and the chip fabs of Malaysia to our malls.
And we all know of places where they are still running the socialist experiment:Cuba, Syria, North Korea, and we do not want to copy their example.
So it will come as some surprise to you that we have not quite reached market nirvana in telecommunications in Canada yet, nor anywhere else in the world, for that matter.
Because the truth of the matter is this: if you had to design a communications system from the ground up, you would never build two separate wire-based systems if you had the choice. You would build one, and let everyone use it on non-discriminatory terms, set out by law and regulation. We do not have two non-interconnecting road systems, do we? You take the blue road and I’ll take the yellow road and we will see who is Toronto afore ye?
Of course not. We have two separate systems of wired communication because, before the invention of the Internet protocol, systems were adapted by analog technology to serve one purpose only: two-way telephony and one-way broadcast distribution. Our communications systems were built out under radically different assumptions of what they would or could do. Internet protocol made it possible to develop general-purpose networks that could do a variety of things. But the legal apparatus, based in ideas of railroads, switching, boxcars, and sidings, carried with the idea that the owner of the network decides what gets on his tracks. It also gave him great power over transport to integrate his business upward, to use his market power to take over grain storage and milling, for example.
These two kinds of power were thought to need regulation in the 19th century, and telecommunications regulation grew out of those legal models.
You have to be extremely conscious of what metaphor you pick when you envision a legal scheme for communications networks. If you envision “railway” – they had no other model in 1890 – you naturally assume that the right of the track owner to determine what goes in his boxcars is his business alone, and who may interconnect with his track is his business to decide. But the inefficiencies and unfairness of this arrangement led Parliament to legislate some controls over the power of owners to block traffic from other systems
And for that matter, we do not allow the people who own our roads determine what kind of cars will drive on them, beyond very general rules of construction and safety? I mean, we own the roads as taxpayers, right?
Even the corporation that owns the private toll road north of Toronto cannot deny you service because you drive a Ford, or becasue you do not drive a Ford.
Yet when we come to telecommunications (telephone and cable systems), some free-marketers lose all perspective. The foremost example of this loss of perspective is the view propagated from the Montreal Economic Institute. It never seems to lack for space in the Op ed pages of the Financial Post, since Terrence Corcoran favours their views.
The MEI sees regulation of terms of access to networks as “state economic planning.” Martin Masse and Paul Beaudry write:
Independent ISPs survive and are able to offer unlimited plans only because they are given a privileged access to somebody else’s infrastructure
Let us consider what happens when you drive your car off your parking ramp and into the street. You as a driver are licensed by the state. Your car is licensed by the state, part of which includes a safety check. You are legally liable for accidents. You are subject to police supervision of a rather close kind. You are subjected to heavy taxes on fuel. But you are not subjected to editorials from the Montreal Economic Institute denigrating your “right” -actually licence - to drive on a public highway as a dreadful example of state planning and incipient socialist tyranny. Why?
The answer is that we have figured out the appropriate relation of citizens to roads. By and large, they are there for us to use, however much that use is carefully licenced and taxed.
When we come to telecommunications networks, by contrast, we have not yet agreed upon the appropriate legal relationship of user to network owner. The MEI talks of networks as a kind of private property, wholly divorced from the purpose for which we have networks, which is to allow you and I to communicate. The economists hired by carriers fulminate against tinkering with networks by innovators, and allowing leased bulk access to transport facilities, as defenders of slavery fulminated against aggression towards private property by those god-damn abolitionists. We still treat seriously the notion that traffic across communications networks, things whose substrate is speech (whether spoken, visual, or any form of signification),is transported by the grace and favour of carriers, at their absolute discretion, as if we had no more rights than trespassers in a back yard.
Communications networks exist for us and our purposes. Network owners deserve profits, and we gladly supply them so that they can improve and build more capacity and functionality into their systems. But they are in business for us, and not otherwise.
The MEI people and my readership could profitably turn their attention to Tim Wu’s The Master Switch.
It is also worth noting that, in relation to the issue between the large carriers and the smaller ISPs over pricing, Bell Canada has signalled it is ready to agree with the smaller ISPs.
Nevertheless, the bad policy ideas emanating from the Montreal Economic Institute – on this issue alone – need to be skewered.