9 Nov 20080 Comments
Digital Policy #4: Reversing Canada’s Dismal State of Mobile Regulation
“Permanent connectivity, not motion, is the critical thing” Manuel Castells, Annenberg School for Communication
It is safe to say that mobile regulation in Canada represents a huge opportunity as the foundation for much of our future economic prosperity. It is ironic that such a geographically dispersed country, once the world leader in telecommunications through to the early 1980’s, should abandon what should be a natural competitive advantage.
Why Did the Internet Succeed?
One might expect that the mobile world would replay the software revolution dominated by Microsoft and the Internet/Web revolution of the 1990’s. Unfortunately, the mobile world is too closed for that replay to happen and, to understand why, it is instructive to look back in time.
The opportunity to create the modern software industry, separate from the then dominant computer hardware industry, emerged because of an IBM Consent Decree first concluded in 1956 and strengthened by increasing anti-trust action through the 1970’s. This regulatory action ensured that IBM, although dominating the computer industry, had to publish open specifications for their hardware and price software separately from hardware. Thus, in some measure through appropriate government regulation, the modern unbundled software industry was created. The 1975 founding of Microsoft by Bill Gates can be directly traced to this mandated constraint on IBM’s market dominance.
At almost the same time, starting in 1969, the US Defense Advanced Research Projects Agency (DARPA), in the midst of the cold war, funded a project to build a redundant communications infrastructure that could withstand a nuclear attack on its switching systems and continue to operate. Ironically, for an organization better known for strong “command and control” management, the modern internet that emerged from this project was endorsed by both academia and the military and, counter-intuitively, built in a relatively unstructured manner with completely open standards and operating culture. This was in stark contrast to the highly structured, and hence relatively inflexible, circuit switched telephony system of the day, managed by the monopoly “One Bell System”.
As a result of this, we’ve come to expect and rely on a software and internet ecosystem that is competitive, open and which, as a result, has grown explosively and discovered seemingly boundless new applications.
Mobile Regulation is a Very Different Story
With hindsight, it is ironic that modern mobile telephony was first commercially launched in the United States, with the first AMPS cell phone service in Chicago. However, it is notable that by the 1990’s Europe had regained the lead, partly through good regulation, especially in comparison to the US approach. Being a late entrant to the mobile revolution, regulators in Europe mandated the new GSM (Global System for Mobile) standard be used by all competing mobile operators. The United States, by contrast, under the tutelage of the Federal Communications Commission (FCC) carved the US into about 80 separate regions and didn’t mandate a single standard, ensuring market fragmentation.
As a result, the US mobile industry had to expend tremendous energy and capital to consolidate regional players simply to provide the national mobile service footprint customers demanded. And the competing GSM and CDMA standards (not to mention the persistence of legacy DAMPS) kept the markets fragmented in the US, and by extension also in Canada. As a result, simple things like interoperability of SMS between carriers arrived at least 5 years later in US and Canada than in Europe. Until very recently, North American mobile innovation has lagged much of the world, notably including many developing countries.
Furthermore, the lack of an open environment to develop mobile applications stifled the creation of the vibrant startup ecosystem that the software and web revolutions witnessed. Last year’s victory of “Open Access” provisions for the 700 MHz (the former analogue television broadcast) spectrum in the US, was a great example of forward thinking regulation by the FCC, albeit with much prodding by Google. Regulatory leadership is critical because the incumbent carriers, although they aspire to be more than “pipes” for data, have over the last decade made almost zero progress in building the mobile applications framework. And, it is even more important for mobile, because carriers are in effect stewards of the scarce radio spectrum upon which the mobile industry is built.
The GSM standard (and its 3G successors) is inherently open. Operators have tried to close the handset and interropability market through tactics like “SIM Locking” and exorbitant inter-carrier “roaming” charges. The European Union has, once again, taken leadership by crafting a regulatory framework that, in return for the right to use the public spectrum, levels the playing field by opening up each of these issues.
The Way Forward
Clearly, the US Federal Communications Commission is starting to recognize the importance of regulation in building an economically vital industry of the future. The Canadian Government and the Candian Radio-television and Telecommunications Commission (CRTC) need to show leadership in this area as well. The first step is understanding the issue. Greater engagement with experts and visionaries who represent the various industry and both business and consumer customers is vital to our future economic prosperity. Canada has the skills and ambition to be a major player in the new mobile internet revolution. Let’s ensure that government regulation is a competitive advantage and not the impediment to global leadership it is today.
26 Dec 20080 Comments
Playing the Lottery after the Meltdown
Fold or raise? Full house or three of a kind? Eager to jump start an economy that has seen almost unprecedented meltdown, governments around the world are racing to place gargantuan bets with taxpayer and treasury money. Only time will separate the profound from the boondoggle among these bets. Meanwhile, poised on the dawn of a new year, I’ll present my analysis and opinion, recognizing that the complexity of the current situation dictates that no one has the real answer.
Last year’s credit crunch and the ensuing illiquidity has generated a financial crisis whose effect that might have, only a few months ago, seemed totally inconceivable:
Closer to home, in 2009, the Canadian province of Ontario, will for the first time have a slower GDP growth than the country as a whole and, in essence, become a have not province. As a country, Canada has a historical reputation of being:
One could easily add to that old dictum:
While Canada thrived on a commodity based economy, Ontario’s strategic proximity to Detroit, made the automotive industry king and made Ontarians as rich as almost any region in the world as a result. Over the last 20 years, as the economy started to transition toward knowledge intensive industries and away from basic manufacturing, Ontario did make some strategic investments in Advanced Manufacturing, involving information technologies such as robotics, automation and MRP increased basic efficiencies.
However, with the unstoppable rush of manufacturing activity to the Pearl River delta in Asia, that strategy is no longer enough.
A few months ago, I wrote a series on Public Policy for the Digital Age, which I wrote in the vain hope of stimulating some real discussion during a particularly unexciting Canadian election campaign. At that time, Canadian politicians seemed to ignore what the general public already knew “It’s the economy stupid”. Now, almost no one believes that something should but done, but the question is what?
Many believe that the making real things are the only real“jobs, and that all other jobs are just glorified hamburger flipping. Nothing could be further from the truth. Consider the pervasiveness of information technology, in all aspects of our economy, as an example:
There is no question that, even if all the actual metal-bashing manufacturing were to migrate offshore, the real value adds during the coming decades will be in such knowledge intensive industries.
It is in this context, and with best practice economic theory suggesting that, in times of recession, strategic economic stimulus is critical to drive recovery, governments have no real choice but to act. And, the global price tag of such economic stimulus will entail trillions of dollars of spending.
Therefore, while government investments in:
are inevitable, governments must save some “powder” to invest in our economic future. The old adage of investing in buggy whips at the dawn of the age of the automobile couldn’t be more true (not to mention ironic) today. The fact that governments don’t generally do a great job in picking winners and losers only magnifies the problem.
My message to our public policy makers here in Ontario, and probably most other OECD countries as well, is simple:
As taxpayers, it’s our money politicians are spending, topped up by money created by turning the printing presses at the Bank of Canada. Therefore, it is only reasonable that we need to be heard in determining how it should be spent.