Speech
Notes for an address
by Richard French
Vice Chairman, Telecommunications
Canadian Radio-television and Telecommunications Commission
to the Law Society of Upper Canada Conference 28 April 2006
Ottawa, Ontario
April 28, 2006
(CHECK AGAINST DELIVERY)
Glad to have the opportunity to discuss the TPR Report in Hank’s [Intven] presence.
Speaking for myself, not for the Commission.
Charles Dalfen will be stating some preliminary reactions on behalf of the Commission, and his remarks should be available on the CRTC website early next week.
Want to look at the Report and its recommendations in a broad perspective.
The Report is an important contribution to the debate over the future of regulation. It is essentially expert opinion, not analysis of evidence. At some points, you can almost see Hank saying to himself, “ Okay, this may work in practice, but dammit, it doesn’t work in theory.”
What redeems this approach, which given the ambitions of the Panel and the limited time available to it, is the coherence of the Report and the temerity of the panellists, who have not let the small matter of lack of space and time for evidence get in the way of a fundamental re-thinking of the regulatory framework.
I see five themes from the report which I take to be of interest and importance to all of us.
First, the Report rejects what the CRTC sees as an evolutionary approach to the deregulation of telecom. The CRTC, if I can attempt a sympathetic rational reconstruction of its philosophy, has tried to operate in the following way.
It has wanted to rely on what exists in the marketplace rather than anticipate what may develop in the future: the Chairman likes to say “There are no facts in the future”. It has wanted to move incrementally rather than to assume risks by making major step-function changes in its frameworks. It has tended to rely on empirical method applied to a case – try a possible remedy and see what it does – rather than to apply theory to a market.
The Report’s thesis is that this approach has now outlived its usefulness. According to the Panel, the Commission has missed out on adopting regulatory best practice from the European Commission and some of the Anglo-Saxon countries. The report affirms that the Commission has failed to develop a compelling theoretical foundation for its approach.
I believe that this is a very healthy challenge to the Commission, the upshot of which is likely to improve the rigour and clarity of the regulatory framework.
Second, the Panel has examined an interesting and provocative set of models for its proposed reform of the foundations of the core of regulation. It is not too much to say that it has constructed a new model. It has taken the European approach to significant market power without its aggressive regulation of wholesale, and it has taken the American rejection of wholesale without the immensely complex and costly American model of regulation. I would be interested if Hank would like to respond to this observation, because this would appear to me to be an unprecedented combination. But maybe the Australians are there?
The threat of inhibition of investment serves to buttress the new model but there is no evidence that there has ever been a hiccup in the pattern of Canadian telecom investment remotely like the one the US experienced, which in part led to the rejection of the American wholesale regime, (a regime which was in any case much more aggressive than any we have had in Canada). Canada has never experienced such a decline in investment. I do not know if the Europeans have done so, but I would be glad to hear Hank on this.
The challenge for Canada will be to ask whether this model adequately addresses the medium-term issue of duopoly which seems to loom ahead of us. I like the idea of having the discussion first in venues like this one, rather than in Commission proceedings. Of course, we cannot do justice to it today, but I think this is a better way to begin to address issues of large magnitude and complexity.
Third, the Panel has questioned the viability of the Commission’s use of the notion of balance of interests and fairness in markets. The Commission likes to say that it balances the interests of incumbents, competitors and consumers. It appears to want to be “fair” to market entrants.
I believe that a revision of the Commission’s regulatory doctrine in this regard would be appropriate. The consumer should be the only object of the Commission’s attention. The consumer has short, medium and long term interests. Thus, to say that the consumer is the object of the Commission’s attention is not to endorse the regulatory myopia of California public utility regulation, an approach which never saw a rate decrease it didn’t like. We know the results. It is to say that the alleged interests of the incumbents and competitors might better be characterized as a resource management problem; the specific corporations are only instruments to meet the consumers needs, they are not ends in themselves.
This is important because the Commission’s concern for balancing has in my view led it to try to ensure fairness in competitive outcomes. But markets are not fair; they are efficient but they are not fair. And while fairness may be useful concept in the regulation of retail trade, it is only viable where the social fabric of the market in question itself values fairness. This may well be the case for fair trade coffee or ethical investing. It is clearly not the case in telecommunications markets, which tend to be rather unsentimental.
Fourth, the Panel appears to believe that the Commission cannot be expected to reform itself – its internal culture is not propitious to such a fundamental remise en question. A reading of the Report suggests that the Commission is somewhat isolated and to a degree out of touch with its various partners and stakeholders.
I think that the Panel has done a service by writing a report which raises these implications so clearly. It is timely for the Commission to review its posture and principles and to ask how it can better maintain contact with its environment. It is normal for any organization to experience a certain sclerosis after some time, especially one which controls so many of the variables essential to its functioning all by itself, as the Commission does.
Fifth, the Panel has placed in the spotlight the relationship between the Commission as administrative tribunal and the executive branch as policy-maker. Over the years, the Commission has made a lot of policy; the vast majority of this policy-making was not the product of the Commission engaging in empire-building, but rather due to the lack of timely interest on the part of the political executive. Given the latter, it was a very good thing that the Commission made policy.
The Panel has recommended that the government reclaim its policy prerogatives and that it propose to Parliament the removal of the right of appeal to cabinet of CRTC decisions. The theory is that the government should not exercise both ex ante and ex post controls on the regulator.
I should say first that I think that the Panel has done well to raise these issues. The challenge is to size the responsibilities of the regulator to the simultaneous need for independence and accountability. As a policy-maker, the Commission manifests a certain deficit in accountability. As a licensor, a regulator of specific behaviours, a mediator, a conflict resolver, and an implementer of schemes to achieve policy objectives, it requires substantial independence.
How to establish such a balance is a nice question. There can be no doubt that governments should make policy because they are accountable. There can be no doubt that there is a universe of regulation which falls generally under the rubric of implementation of policy which requires substantial independence and thus reduced and indirect forms of accountability. In between the clear-cut cases, there will be controversy and tensions. I believe such controversy and tensions are preferable to the pretence that scrupulous respect for quasi-judicial norms can somehow substitute for lack of accountability and somehow confer legitimacy on the making of policy by administrative tribunal. However, a tribunal cannot force policy from a government which has other priorities, nor can it stop the world until the government takes an interest.
I would add that experience over the last several years suggests to me that the removal of the one certain form of regulatory accountability, the appeal to cabinet, would be too much of a risk. The intended beneficiaries are the stakeholders, not the Commission, but I would not advise an unduly Cartesian approach. Governments have on occasion ignored the Commission, but they have not on the whole abused it, or the regulatory process.
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Date Modified: 2006-04-28
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