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A Future Friendly Digital Economy Strategy: Submission to the Government of Canada's Digital Economy Consultation

Submitted by TELUS 2010-07-10 13:08:32 EDT

Theme(s): Digital Infrastructure, Growing the ICT Industry, Innovation Using Digital Technologies

Executive Summary

Canada's advanced broadband networks are ready to support a digital economy.

Canada continues to have some of the best networks in the world, the highest household broadband penetration in the G8 and Canadians are amongst the highest users of the Internet, including video and social networking, in the world – facts that contradict the misleading and selective "numbers" provided in disputed studies that claim otherwise. World leading usage is an excellent barometer of the strength of our broadband infrastructure and its ability to satisfy consumer market needs.

Canada took its place as one of the leaders in broadband infrastructure deployment almost entirely through private investment spurred on by facilities-based competition and this approach has continued to be effective as evidenced by the fact that even in the midst of a generational recession, billions have been invested by TELUS and others in deploying next generation broadband and wireless networks.

Where Canada lags in terms of productivity is not in networks but in the adoption of Information and Communication Technologies (ICT) by small and medium sized business. This accounts for a significant part of our poor productivity performance relative to the United States (US).

With respect to digital content issues, government has been unduly focussed on regulating the market from the perspective of the traditional broadcasting system at the expense of addressing the more serious challenges related to stimulating investment, innovation, productivity and establishing an indigenous digital marketplace for all content goods and services across the production value chain. Canadians voraciously consume digital media but are not leading in the production of digital goods and services to the same extent.

In light of the foregoing, we submit that the Government of Canada needs to refocus its attention away from increasing regulation of the consumer market as Canada has been very successful in terms of broadband infrastructure, consumer readiness and digital media consumption. Instead, it is time for government to focus on the real issues confronting our digital economy; in particular, ICT adoption, financing new digital media enterprises and digital literacy.

Submission

Table of Contents

• Abstract
• Key Principles to Guide Canada's Digital Economy Strategy
  • Summary of principles
  • Recommendations
• Introduction
• Canada's World Class Digital Infrastructure: The Facts
  • Canada's historic lead has been overemphasized and its recent accomplishments unduly marginalized
  • Facilities-based competition and the market place are at the foundation of Canadian success
  • The call for a change of course regarding facilities-based competition is unfounded and dangerous
  • The misleading Canadian broadband and wireless pricing debate
• The Right Strategy to Support The Platforms of Tomorrow
  • Support for private investment and facilities-based competition
  • Greater access to foreign capital = more private investment
  • Spectrum policies must support digital economy goals – access to spectrum
  • Spectrum policies must support digital economy goals – fees and related financial obligations
  • Rural and remote connectivity presents unique challenges
• Bringing Canada's Economy Online
  • A matter of business adoption and integration
  • A holistic policy calls for holistic international comparisons
  • ICT solutions to traditional challenges – long distance collaboration and rising health care costs
  • Stimulating ICT adoption through tax policy
• Digital Content and Applications – New Policy for New Paradigms
  • Using Internet Protocol as a tool to drive cultural economics
  • Intellectual property and freedom to innovate
  • The benefits of managed IP networks that run in tandem with the public Internet
  • Developing a digitally literate society
• Appendix 1 – Answers to Selected Consultation Questions
• Appendix 2 – Crandall et al. Response to Berkman Center Study
• Appendix 3 – Goldberg Criticism of Berkman Center Study
• Appendix 4 – Crandall / Aron 2008 White Paper
• Appendix 5 – Crandall February 8, 2010 Update to 2008 Crandall / Aron White Paper

Key Principles to Guide Canada's Digital Economy Strategy

TELUS appreciates the Government of Canada issuing this Consultation on developing a digital economy strategy and considers that the principal questions the government has asked focus on the right issues in terms of productivity and its link to ICT adoption, competitiveness and investment in digital infrastructure. We believe that a digital economy can only be built with digital investments.

We believe that a digital economy must be supported by robust digital infrastructure. We also believe we have the necessary robust infrastructure in Canada but that more investment is always needed and government should underpin its digital economy strategy on maintaining and incenting more private investment in digital infrastructure. Without adequate infrastructure, we cannot take advantage or reap the benefits of a digital economy. While Canadian network infrastructure has been alleged to be laggard relative to many countries, TELUS believes that a more detailed analysis of "the numbers" suggest relatively good performance in terms of network readiness.

Given that Canada has the highest household broadband penetration in the G8 and that Canadians are amongst the highest users of the Internet in the world, the issue from an infrastructure perspective is not so much how to deploy advanced infrastructure as it is to determine how best, in a period of recession and massive deficit, to continue to incent private sector investment in continuing to build next generation networks (NGNs).

TELUS is concerned that there has been a recent shift away from reliance on markets to govern the evolution of the digital economy, even though our national broadband achievements arose from a market-based approach to broadband and wireless. Pressures to unbundle networks are harmful to future investment. Moreover, in addition to ensuring that we don't take regressive actions like increased taxes or new carrier fees, government should be looking to increase the potential for investment through liberalizing foreign ownership restrictions, moving towards more of an industrial strategy for digital media, and preventing anti-competitive preferences in digital content access and distribution.

At its core, TELUS is concerned that an obsession with negative benchmarks like measurements from the Organisation for Economic Co-operation and Development (OECD), or the selective use of such measurements to drive political agendas is leading government away from a model that in most respects has worked incredibly well.

Since our national broadband achievements have occurred in an environment of a market-based approach to broadband and wireless, and largely absent regulation, TELUS submits that this remains the correct and superior approach to build upon.

Summary of principles

For the reasons discussed in detail in this submission and attached documents, TELUS submits that the following principles should guide the development of Canada's Digital Economy Strategy:

1. Canada currently has robust broadband platforms, with more advanced wireless networks (HSPA plus) and greater coverage than any other country in the world. Government should not be diverted by misleading studies which attempt to make Canada appear to be a laggard.
2. Current regulatory trends towards regulated wholesale enabled competition create a disincentive to invest in facilities and are damaging to Canada's digital economy goals. Investment in infrastructure is a critical and ongoing requirement due to continual technological advancement and increased demands on networks.
3. The world class platforms of tomorrow will not and cannot come from a single and shared network, as true digital innovation demands variety and competition at the network level as well as at the application level. Experiments like the Australian multi-billion dollar state expropriation of networks won't yield the desired results for Canada and this path should not be followed by the Government of Canada in the current macro-economic climate where it is already saddled with a $50 billion deficit.
4. Regulation does not stimulate investment and there is no evidence that experiments like functional separation and unbundling that prevail in Europe have led to increased investment. There is no objective or empirical evidence to validate the theory that unbundling creates a ladder of investment that ultimately leads to facilities-based competition. In fact, there is ample evidence that such European Union (EU) experiments have dampened investment even as investment in broadband has increased in North America. Given recent developments in financial markets, now is the time to reject rather than embrace the EU propensity to manage markets and engage in theoretical and interventionist experiments.
5. Canada's foreign ownership restrictions reduce access to foreign capital and puts Canada at a disadvantage to its global competitors. Removal of foreign ownership restrictions on an equitable basis for all telecommunications carriers would benefit the Canadian digital economy. To address concerns about content related cultural protection objectives arising from liberalization of foreign ownership restrictions, the government might consider separation of broadcast carriage and content through divestiture or other stringent and bright line test.
6. The high degree of vertical integration between content creators and content distributors poses a significant challenge in terms of the exercise of exclusive rights across multiple platforms and the potential for a decrease in access, choice and diversity. Rules preventing undue preference have been critical to the success of the traditional broadcast system and these policies should continue to apply to new platforms.
7. The ever increasing fees and taxes that underpin the traditional broadcasting system as well as spectrum fees which are already multiples higher than those of major trading partners, disincent investment and increase consumer prices. They must be significantly curtailed in the drive for a successful digital economy strategy.
8. Our productivity gap can be addressed by focussing on labour substitution through business application of capital to ICTs. ICT adoption incentives are required for small and medium businesses in order to boost Canadian productivity. Fiscal measures are best suited for these incentives.
9. Industrial policy, not regulatory policy, is best suited to guide, to the extent guidance is required, the development of a digital content ecosystem and, more importantly, determine issues of financial incentives.
10. Internet Protocol technologies create opportunities in the digital media value chain that extend well beyond traditional broadcast boundaries to include the "new" in new media from broadband infrastructure to skills development and to software and application based intellectual property. All these elements, and broader policy issues (such as open access to content and intellectual property rights) have to be addressed more holistically in an incentive-based environment if Canada wants to stimulate, either directly through funding mechanisms or indirectly by encouraging investment, a Canadian digital media sector that is a viable, self-sustainable and important element of our future economy.
11. For those consuming, using and increasingly producing content, there is a need for a level of comfort that access to legal content and a free flow of information will anchor public policy. And for those involved in the creative process, whether relating to media or to software, there is a need to be assured that intellectual property rights will be respected in a more open environment, permitting fair exploitation and commercialization of intellectual property.
12. Digital literacy and access gaps are mostly income-related and they should be addressed through targeted measures rather than broad-based carrier or consumer fees or incentives to adopt technology. Consumer incentives are not required as evidenced by the existing high consumer usage digital media.

Introduction

TELUS submits that Canada's advanced broadband networks are ready to support a robust digital economy. Studies which show that Canada is lagging behind are misleading and dubious at best. Canada must fight the urge to rely on these studies which don't stand up to scrutiny and instead look at adopting tailored strategic measures that address the real issues relating to the digital economy for Canada.