Nationalize the last mile? Breaking the telco monopolies for superior consumer choices

Phone pole with phone and mainly electric lines

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During this whole debate about usage based billing, one idea that’s popped up is the idea of nationalizing the “last mile”, that bit of cable running between the home and the local phone service central office. Of course, the idea of nationalizing any service raises concerns about competition and limiting user choices. What I’d like to put forward is an idea that saves competition, while preventing the anti-competitive practices of current last mile operators/ILECs such as Bell Canada.

I’ll start off by explaining why some people believe that the last mile should be nationalized, or at least taken out of the hands of the companies that now operate it. All of the large telecommunications and internet service providers in Canada also own media companies and broadcasters. This creates a conflict of interest. Think about how Bell doesn’t just provide internet service (both as a wholesaler and direct to consumer) but also partially owns CTV (which competes with Netflix and other video services) and is a phone service (competing with Skype and other VOIP services). If you look at the other big providers here in Canada, it’s not hard to find similar conflicts of interest.

The big providers are very interested in controlling how people use the internet, so that online services can’t compete with their own subsidiaries.  Separating the last mile from the established telecommunications companies makes it harder, or impossible, for them to control consumers this way.

So what do we do?

We start off by putting everything from the local exchange to the customer’s curb in the hands of provincial or municipal agencies created for the purpose of operating the last mile (which we’ll call LMOs, or last mile operators). This means it’s no longer Bell or Telus who owns the cables running from the demarcation point, but rather a crown or municipal corporation that has no role but to handle the physical management of the local phone system. The LMOs are able to contract out the actual operations of the last mile to companies that would actually manage this work, most likely to the current incumbents, but would be able to use a competitive bidding process to ensure that costs would be kept as low as possible.

Costs for LMOs would come from subscribers via their service providers, with no additional bills to the subscribers. As the costs of maintaining the last mile would no longer be handled by the ILECs, any increase in costs to consumers would be minimal, to cover the overhead of remitting what once would go towards last mile management to the new LMO.

So we’ve covered how the nationalized system would be organized, and how competition would be kept, nay, expanded, under this scheme. But what about actually getting service? To be honest, that wouldn’t be much different than how things already are. Under current rules, the ILECs are required to make their exchange central offices open to competing carriers and service providers (CLECs), for users who don’t want to use the incumbent’s services.

Under the nationalized last mile scheme I am proposing, you’d no longer have one ILEC and several CLECs. Instead, everyone would be a CLEC, with the same level of access to the exchange. They would have the same options as now: connect their own network in at the exchange (or possibly at serving area interfaces, those tall brown and green boxes we see sometimes along the sidewalks). Or they could piggyback on someone else’s network, as some internet resellers do with Bell and Rogers.

It’s technically possible to do this with cable TV services as well. No longer would you be living in a Rogers neighbourhood or a Shaw one, but you’d be able to choose which company would numb your brain with TV stations. For landline phone service, internet service, and cable service, the result is greater competition, as carriers would no longer be able to shut out competition the way they currently can (and do).

What’s the result?

By nationalizing the last mile, consumers see more competition. Artificial measures are no longer required to keep the market open, and incumbent providers no longer have motivation or means to manipulate how consumers use certain services in order to gain more value of others. The new LMOs only handle the physical connection between your home and the exchange central office, and are funded by the services you use, rather than by you directly (making them transparent).

To be honest, nationalization isn’t actually required. The idea is that the last mile is independently operated from the actual service providers. This might actually be more easily accomplished by breaking up Bell and the other ILECs, rather than just taking control of the last mile from them – however, this break-up has to be done properly, unlike how AT&T in the USA was divided up. Rather than slicing up the cake into smaller but still vertical segments, we need to separate the layers of this cake to ensure that consumers will get real competition, rather than just a broader oligopoly.

As with anything else, there would be need for some regulation on the new system. Mainly, LMOs can’t be owned by service providers, in whole or part (that would just bring us back to where we are now). They can’t discriminate against service providers. What they charge to the service providers for managing the last mile, and how much, would likely be regulated by Industry Canada or the CRTC. But this is simpler and more preferable than the complex and confusing regulatory scheme currently in place for local telecommunications operators.

In the end, Canadians will be safer from abuse of telecom monopolies, enjoy greater choices for their phone, internet and TV services, and no longer have to deal with certain service providers using misconceptions about internet use to bolster their already enormous profit margins. Whether by nationalization or by breaking up the ILECs more directly, separating the last mile from service providers is an option Ottawa should carefully examine.