Von Finckenstein one-on-one: On set-asides, foreign ownership, cord-cutting, and more

Konrad von Finckenstein, 66, does not intend to retire this year, but he's not encouraging universities to come knocking. The outgoing chair of the CRTC says he's more of a manager, not the academic type. After five years at the helm of Canada’s chief regulatory agency for broadcasting and telecom, von Finckenstein will be seeking new stomping grounds when his term expires this week on Jan. 24. But those grounds won't be in the telecom or broadcasting industry, at least not in 2012. The federal Conflict of Interest Act restricts former senior public servants from working, for one year, with companies or organizations they dealt with in their former jobs. The Lobbying Act also bans former senior public servants from working as registered lobbyists for a five-year “cooling off” period. At any rate, von Finckenstein will have some expertise to lend. From the challenges surrounding the rise of over-the-top, online content services to ensuring competition and choice from the country's largest media and telecom companies, von Finckenstein has been a close witness to almost every issue to touch the telecom, new media and broadcasting sectors for half a decade. As his term approached its end, The Wire Report reported in August that von Finckenstein sought to remain on the job for the time being, if only temporarily, but that a term renewal beyond the end of January 2012 was unlikely. Commission chairs are rarely reappointed for second terms, and the Conservative government's public spats with the CRTC under von Finckenstein’s leadership—over issues such as wholesale usage-based billing and whether Globalive Communications Corp. can operate in Canada as a Canadian-owned carrier—made his reappointment even less likely. On Thursday, The Wire Report editor Simon Doyle and staff reporter Nicholas Kyonka joined the chair at the CRTC’s Gatineau, Que., offices for a lengthy interview to discuss his experiences at the commission and his opinions on a wide range of issues facing the sectors it covers. The following interview is edited for length and style. Are you looking forward to the end of your term? Are you going to miss the commission? Like everything in life, mixed feelings. It’s been a fascinating job, great challenges and a wonderful five years. On the other hand, having a little bit of time off and a less stressful life is also very appealing. I’m going to take a little bit of time off and see what’s out there before the next task. I’m not going to retire but I’m looking forward to having the luxury of choosing rather than career terms and progression dictating where you’re going. Do you have any idea as to what you’d like to do next? Would you work in the field of communications? Would you write a book? I’m not an academic. I’m a decision-maker and manager. I’m a lawyer, so anything involving those three components or part thereof is probably more likely in what I’m going to do. Writing a book, or reflecting, or being an academic and teaching—I enjoy it as the odd seminar—but the academic life, per say, is not what I’m cut out for. Under the law, there’s a one-year cooling off obviously for anything to do with communications, and for lobbying there’s a five-year. But it could be 50 years I’m not going to do lobbying. It doesn’t make a difference to me. What do you think of analysts’ suggestions that the size of the commission should be reduced as commissioners’ terms come to an end over the next two years? We are 13 right now, and probably you don’t need that many, but on the other hand it’s perfectly workable. I don’t think anybody has complained about a lack of decision-making or the length of time it took us to . You want to have regional commissioners so you can bring in regional issues and you want to have both languages represented because of the nature of the job. At minimum you’re talking about the six regional commissioners, the two vice-presidents and the chair, so you’re talking eight or nine anyway. What you could cut out are the four national commissioners, but if you cut them out, you cut out the expertise they bring. They bring a different perspective that otherwise you wouldn’t have. Speeding it up and making it more efficient is not so much determined by the number of commissioners rather than by giving the CRTC the tools to deal with it. You’ve heard me say many times that we don’t have the power to fine. If we really want to go after someone, we have to do a show-cause hearing for why we want to cancel your licence. That’s a lengthy process and a pretty huge hammer to use for what’s often a very minor discussion. Do you have any theory as to why the government has delayed for so long its bill on foreign ownership in the telecom industry? There was some talk about effects of the controversy over the Potash Corp. decision, but can you tell me your thoughts on that? It’s a difficult decision. I think clearly the government would like to see more competition. One way to get it is to take away the ownership restrictions on telecom. But, the point is, can you do that without also taking away the restrictions on broadcasting? That’s the first question because we have an integrated technology, we have an integrated industry, and a disintegrated regulatory framework. At least, these provisions are similar in both of them. If you change one, you have to or else you’re going to force Rogers or Shaw or Bell to restructure and have part of it foreign controlled and part of it not. On the other hand, if you do touch broadcasting, what will be the consequences? You have two schools of thought: one of them saying you can do it, and they will just comply with whatever the regulations are. The others will still say, “This is a creative industry. You can’t have a Canadian television product that reflects Canada if you’re not Canadian. You don’t understand Canadian concerns.” If you’re born in Oklahoma and you run the thing here, you’ll have paper compliance, but you won’t have substantive compliance. It’s a difficult decision. I don’t envy the government. As you know, I suggested a compromise: allow 49 per cent across the board, do away with this nonsense of holding company and operating company. Go that far and see where it takes you, and if that doesn’t produce competition, you might take the next step, but I think they’re really struggling with this decision. Do you have any prediction on what the government will do? I think they’ll do it incrementally. I don’t think you’ll see sweeping reform. I think they’ll take the first step and then see what the reaction is. But this is the sort of file that no government likes. It’s high in media attention, and no matter what you do, you’re going to make some enemies who will never forgive you. If you were advising the minister of industry, what rules would you suggest he establish for the upcoming 700 MHz spectrum auction? The key thing is to move quickly. We need that auction. That spectrum has been freed now and we need more spectrum. You obviously want to avoid the mistake from the last auction in terms of the auction rules. In the last one, we had set-asides but people who could bid on the set-asides could also bid on the unrestricted ones, and therefore they drove up the unrestricted ones and at the last minute only bid on the set-aside. That sort of thing you can avoid and you should avoid. Honestly, I’ve never been a friend of set-asides. I think they lead to artificial problems that you will spend a lot of time trying to undo. Right now you’re faced with the fact you have three new entrants, but are they going to be new entrants for the next as well or not? They want to still be treated as new entrants and of course their competitors are saying, “You’ve been in the business now for a year-and-a-half and you’ve been taking clients away. Why should you get different rules than us?” There’s no easy solution to this one. If set-asides may not be the best answer, do you think spectrum caps are a better solution? Certainly I think that would be a better way to coordinate it. In your opinion, how many wireless carriers does it take in each market to make a market competitive? That’s a sort of philosophical question. I was the commissioner of competition for seven years, and the market’s not competitive unless you have at least three players, and preferably four or five. But you also have to realize that, in a country like Canada, with our limited demography and our huge geography, that’s very difficult. In nearly all major industries, we have mainly two large players and a couple of small ones. If you can get three, you’re doing fine. You can have strong regional markets, but they’re not necessarily competitors. If you have a strong player in Quebec and a strong player in B.C. ... they won’t compete together, so basically they only compete against the three national ones. It’s very difficult to get what economists would call optimum competition. I think if we have three or four large wireless providers, we can call ourselves lucky in the long run. The CRTC held a fact-finding consultation last spring on over-the-top (OTT) services and their role in the Canadian broadcasting system. Some groups called for the regulation of OTT services by requiring them to make monetary contributions to support Canadian broadcasting. In your view, is that an inevitable decision the CRTC will have to make, or can online services go unregulated? OTT is just the symptom of the much larger underlying shift, as we all know. Online or wireless receipt of broadcasting content is now feasible, and there’s a shift. There’s a slow shift. How far will that shift go? How will it work itself out? Is it only based on younger people? Nobody knows. We are all watching it. Everybody’s taking different strategies of how to deal with it. OTT took us all by surprise really because of Netflix’ tremendously fast growth. But is it really, as some people suggest, a force-wind of basically long-tail content, or is it an alternative where people will say, “I don’t need TV anymore. I can live with what I see on my device, whichever it is, and Netflix.” It’s a good question. If indeed we see a greater shift and people are going to consume most of their content online, first of all, we need much more capacity than we have right now, so you need to really re-think the whole regulatory framework. That’s what we’ve been saying for the last five years. Let’s do it now before it happens because you know the trend is obvious. But our whole regulatory structure—making people pay contributions—is based on the fact that we control access. We don’t control access when people consume online or wirelessly, and therefore we’ve got to really rethink the whole approach. Is it possible to require exhibition quotas for Canadian content on the web? Again, there is no need for it, first of all. Do you know how much Canadian content there is on the web? Nobody knows. Is it actually a problem or is it an opportunity? Do Canadian content providers actually have the ability to reach far more people without intermediaries than they did otherwise? That’s exactly the whole issue of the definition of Canadian content. How do you measure that? And if you wanted to do that, I think that’s yesterday’s remedy to today’s problem. It assumes you can control access, and I don’t think you can control access for online. Therefore, even if you did it, they’d come from across the border. Do you think Canadian productions need more money? Your question suggests there’s a problem to begin with. You talk about online content and Canadian presence in online content. It’s still very much an open question whether there is a problem. If there is, I think it would probably be much more in the area of promotion, rather than in the area of existence of content, of having an ability to find it, of having the necessary intermediary to give you access to it, to make it easy to find, and also knowing that it’s there. So you might want to concentrate on promotion and findability rather than funding production ... You have to at least have some idea of what's the issue before you throw solutions at it. We hear mixed messages about the phenomenon of cord-cutting and its impact on traditional, subscription TV services. In your view, is it inevitable that we’re going to migrate to Internet television viewing? It’s not inevitable. I think the capacity isn’t there right now so you’d need a lot more capacity. But it’s also a question of the responsiveness of the existing system. For those reasons, we have been pushing them , saying “Stop giving pre-packaged products to the consumers.” The consumer is in charge. Realize that. Let him choose, give him pick-and-pay, and he’ll probably stay with you because they’re familiar with you. There’s a lot of inertia. The problem is, they don’t like it. They pay a lot of money and they don’t get what they want, or they only get partially what they want. That’s part of , and I don’t think it’s inevitable. Is there any evidence? We held a proceeding on and we got nothing but anecdotal evidence, no numbers. We had the yearly industry consultations only on that subject, in camera, each company by itself, hoping somebody would say, “Look at what’s happening on my channel.” Again, no substantial evidence. There’s also a question as to what extent the online responses that companies are playing with might be part of the answer. They all have online : “You’re my customer, you buy from my cable company, therefore I’ll also make available everything that I make on cable available to you on Internet, on your mobile device, and all you have to do is authenticate that you are my customer.” If that works, if you can see what’s on your what you watch at home on cable, and even better, stop it midway and pick it up here later, it’s very questionable whether you’re going to have cord-cutting or not. People will just think, “I’ll have the whole panoply, and I can watch it on the go while my wife watches at home on the big screen.” I think it’s way too early to come to any conclusions. We also say is the way you have to go. Some of them are running trials. I always point to Videotron . It’s not necessarily the only way to do it, but it’s a very good one. It says: “Here’s our basic, and then pick any 10, 20, any 30. I don’t care which one you pick. You pay this much if you pay for 10 and this much if you pay for 20.” To me that’s very appealing. Broadcast distributors will report to the commission by April details about their pick-and-pay options. Should the commission be prepared to go back to those companies if they’re not satisfied with what they report? How far should the commission be willing to go to make sure that consumers have more options? The question is, do we really need to push them? Don’t they see it’s their survival to do it? The consumer is in charge, and will become more in charge, and I think we made that ruling with the expectation that they would each come up with a solution that suits them best. All of them will be in the same trend. More choice, more variety. What’s your prediction for the coming Supreme Court decision on whether ISPs are broadcast undertakings under the Broadcasting Act? As you know, we had our doubts about that one. That’s why we made the reference. The court confirmed our doubts. As always, it’s an arguable case as to why we made the reference, but I found no flaws with the reasoning of the Federal Court of Appeal. If the court says ISPs are broadcast undertakings, should the CRTC consider requiring contributions from them? Clearly, then we will have to decide what part of our regulations do we apply to them and how do you identify when. Clearly, all of their content is not broadcasting. That will get you into a lot of difficult definition issues. Not that you can’t overcome them, but you have to look at the data and decide what constitutes a broadcast as opposed to an email message with photos or an email message with clips. Where do you draw the line? There would clearly be some further work to do. What I always saw as major difficulties is, you would say, “You, the ISP provider, for doing the same activity, you’re subject to two acts, the Broadcasting Act and the Telecom Act. You already are subject to the Telecom Act, and now you are subject to the Broadcasting Act.” I always thought the courts would have difficulty with that. Usually, you can’t have the same activity being subject to two separate acts ... It gets very messy. You’ve described your worst day in office at the CRTC as Feb. 3, 2011, when you appeared before the House industry committee to explain the wholesale usage-based billing decision. At that time, Tony Clement was being given credit for initiating a review through his public request on Twitter, but you told the committee that you initiated the review at the request of Bell. Can you set the record straight on who initiated that review and why? Clearly there was an awful lot of unhappiness with this decision. A lot of emails were coming in, and the government was very unhappy. We looked at it. Bell also asked us to review it. We had a meeting of the commission by telephone and we decided to initiate our own review. I phoned the deputy minister of Industry and told him, “I don’t want to catch the minister by surprise. Just so you know, tomorrow before the committee, I will announce that we are stopping the implementation of this decision and we will review it.” Then there was a leak in the papers that suggested we had done this under threat because we were told, if not, it would be ordered to. But no one ever called me, no one ever talked to me, or anything of the sort. It was our decision, purely done on the basis of what we saw: the realities. Clearly it needed to be done, and if we didn’t do it, we would be ordered to do it, so why wait? So I announced it at the committee and we proceeded. So when that call was made to the deputy minister, you weren’t aware that Tony Clement had been tweeting about it? I didn’t and still don’t read his tweets ... What was driving us was clear-cut public concern about this decision. Why did Bell want to see a review at that time? You’d have to ask them, but I think they felt just as uncomfortable as we did. After all, they have to worry about their customers and their wholesale retail customers. If there’s this much unhappiness with the decision, clearly it deserves a second view. It may still be the right one, but it deserves a review. If you were advising the government, what would you say should be prioritized in its upcoming digital economy strategy? This may sound myopic from our point of view, but the whole digital strategy starts with making sure you have the necessary infrastructure, which means, obviously, making spectrum available, making sure that broadband is delivered everywhere, and also making sure you have the regulatory structure to administer it. That means appropriate legislation and institutions. In all three areas, we need some extras. We need more spectrum, we need more coordinated financing of infrastructure in areas where the market won’t create it, we need updated legislation, and we need a review of the institutional setup. The essential building blocks. What top issues would you like to see the CRTC resolve over the next five years, if any? I think what’s on the plate right now is clearly the CBC . CBC licensing hasn’t been done for 10 years. Also, the most visible part of it is OTT, but I honestly don’t know if something needs to be done or not. Keep a very watchful brief on the shift from broadcasting to online and wireless and the implications of that. It’s not clear to me how it’s going to play out, and that's why I don’t know what is the remedy. news@thewirereport.ca

Von Finckenstein one-on-one: On set-asides, foreign ownership, cord-cutting, and more

Broadcast | January 21, 2012

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