Montreal, February 15, 2011 • No 286


Harry Valentine is a
free-marketeer living in Eastern Ontario.



Telecommunications Regulation
and the Internet Download Debacle


by Harry Valentine


          In a free market economy, an increase in demand for a service tends to raise its price. Customers who use the service more pay for their additional usage. The customer revolt in Canada against "usage-based billing" in Internet services, or the policy of establishing higher prices for major users, is a direct result of government intervention in the market that has restricted the supply of the service. The increased demand for services that has raised prices would otherwise have invited new entrepreneurs into the market as competing service providers.


          Customers who seek lower rates then have the option of transferring their business to competing service providers who offer more competitive prices. But currently, telecommunications regulations prevent new players from entering the market to help resolve the problem. Government regulation has created a debacle where there is now insufficient bandwidth for the demand of the market. Government regulators now seek public input as to how to resolve the debacle that was ultimately caused by government regulations and by earlier decisions of regulatory tribunals.

          The telecommunications choice for most private users includes the telephone lines, television cable systems and various forms of wireless telecommunications (e.g., via satellite). In many cities, private telephone lines and cable TV coaxial technology carry the combination of Internet, telephone and television services. Many users have complained about the relatively low download speed of Internet services that transmit signals via existing telephone lines. An alternative and competing service is needed, and urgently.

          One viable option for Canada's Internet download debacle would be for government to get out of the business of telecommunications regulation and let the market create its own solutions. Over the short term, service providers will raise their prices based on usage. Over the longer term and in an economy that is free from telecommunications regulation, new players will enter the market with new ideas about how to offer the services that customers demand.

Harnessing the Power (Grid)

          In countries where household electrical systems and neighbourhood distribution operates at 220 volts, telecommunications signals travel over electrical power lines. Electronic hardware does exist that can separate Internet, telephone and television signals from 220-volt power lines. The absence of electrical transformers allows for multiplexing of electric and telecommunications signals along the power lines that lead into private homes.

"One viable option for Canada's Internet download debacle would be for government to get out of the business of telecommunications regulation and let the market create its own solutions."

          Despite Canada operating on 110 volt household power supply, most home power boxes receive electric power at 220 volts. Local Canadian electrical distribution systems include transformers that distort telecommunications signals and require modifications to bypass the transformers. Technology already exists that can bypass transformers and deliver telecommunications signals via electrical power lines that lead into private homes. But Canadian telecommunications regulation prevents the realization of such a possibility.

          Local power companies do own private fibre optic lines that carry signals that activate and/or deactivate transformers and other electrical equipment along the local distribution systems. They use a tiny fraction of 1% of their fibre optic information carrying capacity. A few power companies have connected their fibre optic lines to the Internet to provide services to commercial customers.

          Long-distance power transmission lines are known to pick up and carry UHV television signals over extreme distances, but these signals are distorted at local transformer stations. In an environment free from telecommunications regulation, entrepreneurs could negotiate with power companies to isolate such signals and distribute them to nearby local customers. There is scope to transmit information through power company long-distance power and fibre optic lines as well as to connect into local power company fibre optic lines. A network of power industry lines could carry telecommunications signals to and from private homes.

          Electric power companies are heavily regulated and can well do without added restrictions and requirements from a telecommunications regulator. In a regulation-free environment where entrepreneurs are free to cooperate with one another, existing telephone companies might seek to work with local power companies to access their electrical power lines as a means of providing cost-competitive service to new customers. The fact that older telephone lines in many cities are limited in information transmission carrying capacity would motivate entrepreneurs to explore potential future business opportunities using electric power lines.

          There are many ways that a free market approach could develop solutions for the Internet download problem. Increasing transmission capacity with the help of the electrical power industry is one of several possible options. While raising prices for heavy users may discourage some heavy usage, it will also create opportunity for new providers with new technologies capable of increasing system capacity. Government's attempt to regulate telecommunications has failed and created a new problem that government regulators seem unable to resolve.