CRTC UBB decision

There’s been a lot of talk recently about the UBB decision by the CRTC. Comments by David Eaves on his blog made me rethink my position on the decision and the issues at play. First of all, it made me realize that it’s a complicated issue and that there are a lot of moving parts, which makes me appreciate some of the difficult situation the CRTC is in.

The larger point however is that consumers don’t like user based billing type of pricing. This is n part because it’s more volatile, and expressly because of the link to behaviour. It’s difficult and costly to monitor your use of these types of services.

The problem is that as the confusion around the UBB decision highlights, is often people don’t have any idea how much of a given service they will need. How many GB of internet do you use each month? Only the heavy users who break the caps are likely to even come close to knowing the answer. I have no idea, despite the fact that I pay every month for the service, and I can easily go online and find out the answer. Ideally if we moved to a purely UBB system, I would pay less for internet, as I use probably way less than the average person, while the heavier users will pay more.

However overall this is one thing I agree with economists on, is that this type of transparency is more efficient. It internalizes the costs of your behaviour. To the extent that access to the internet is a scarce resource, the most efficient way of allocating it is to price it. This will allocate it to those get the most value out of it the resource.

The link I made was to water pricing, which is an area I once wrote a paper on, and the argument is the same. To the extent that water is a finite resource (which increasingly it is being realized it is), the best way to allocate rights to it is to price it.

There were two really insightful comments however in the commentary I’ve read:

First, was the fact that in fact public policy should not be discouraging use of the internet, through higher prices. Canada in fact already had high prices. I wouldn’t go so far as some in claiming that the big telcos, Bell, Rogers, Shaw actually want you to use the Internet less, but it was insightful commentary. This point was made by during an episode of TVO (which I highly recommend) on UBB, found here

Second, was a comment here about the attempt by the big companies to impose the cell phone business model onto the Internet. The model everyone hates because it’s so complicated and crazy. In this kind of convoluted world, the companies are able to manipulate people into paying for minutes they will never use, for extras that aren’t necessary and complicates life for consumers while inflating company profits.

It speaks to one big issue, consumers don’t like complexity or volatility, hence why I like many others love having a fixed cap system, or even better unlimited internet. I wonder if there is a lot of research into these types of issues by behavioural economists.

In my classes on sustainable energy policy we talked about utilities and the difficult market structure that exists for these industries. Deregulation in the power and natural gas industries have led to difficulties for both consumers and producers in places like California and the U.K.

Big questions like how to encourage competition in a market with a natural monopoly are not easy, and to my mind it speaks to why having an independent place for these technical discussions can be useful, even if in the end the government or Minister feels they got it wrong.