The always-vigilant Michael Geist has a great post about back-room collusion between Canadian carriers and law enforcement officials. While Canada’s horribly flawed C-30 bill is supposedly dying a slow legislative death, representatives from Canada’s telecommunications companies are meeting with lawmakers to cement wiretapping agreements.

Why would a carrier want to give the government access to its networks? At first blush, this might seem like extra work. But there’s an interesting motivation here if you’re a carrier, according to several of the telco wonks I’ve talked with over the years.

Reclaiming lost revenue

Years ago, carrier business models were going to charge people for everything—MMS, videoconferencing, voicemail, games, and more. Your bill would list dozens of items, each a monthly subscription, and profits would soar.

But then TCP/IP hit the smartphone, and the anticipated profits vanished. All of those functions could now get through in the form of data—Skype instead of videoconferencing, IM instead of SMS, and so on. Instead of billing for each service, carriers only get to bill for the data pipe. Carriers refer to this “lost” revenue that leaked out via a data service, instead of being billed by the carrier, as “over the top,” or OTT, revenue—and they hate it.

One study suggested that 40% of carrier SMS revenue will vanish by 2015 because text messaging will be replaced by other kinds of messaging that happen via the data connection on your phone. Surveys of carrier executives agree that most of the lost revenue isn’t due to free market competition among carriers or to regulations, but to OTT alternatives:

Carriers desperately want to put the data genie back in the OTT bottle. They have plenty of ways they could do so:

• Imagine, for example, Rogers wanted to bill you $0.05 per status update on Facebook. They could look at your data traffic, find those status updates and count them, then add them to your bill.
• Or they could block all traffic to Facebook.com unless you paid a $5 monthly fee to use it, by looking at your DNS queries and HTTP headers.
• Or perhaps they could charge you for traffic to Netflix, but make traffic to their own video services free (as Comcast has started doing) and make more money from selling advertising to a captive market.

The problem is, to do these things, Rogers would have to peer deep within your packets and look at what you’re doing. But carriers have to treat all those bytes identically, whether they’re headed for Google, Facebook, Twitter, or wherever. They have to remain neutral. If they don’t, they risk exposing themselves in another way.

Peering deep into packets means being responsible for what you see there

What’s prevented carriers from reaching deep within the packets, among other things, is their common carrier status. As a shared provider of communications infrastrure, carriers enjoy a “common carrier protection” under the law—basically, they’re not responsible for what goes across their wires, because they’re just the messenger.

If a carrier knew that you were buying illegal drugs, or trafficking in illegal pornography, or selling fraudulent securities, or plotting evil acts, across its wires, then it would have to do something. It would have to tell someone. The common carrier protection overcomes this obligation.

Carriers don’t want to be embroiled in lawsuits around copyright violation, illegal downloads, pornography, or criminal activity. It’s a kind of “don’t ask, don’t tell” détente between carriers and the law.

Other common carriers, such as telecommunications providers, are routinely given liability protection for forwarding others’ communications.

(From Bicklaw)

Of course, carriers want to maximize their profits and make their shareholders rich. They want to be able to do tiered, non-neutral billing for services (reclaiming the OTT revenue out of which they feel the Internet is cheating them) while still being absolved for responsibility for what they transmit. They want to have their cake and eat it too.

The kind of collusion between carriers and law enforcement that Geist discusses offers a way out of the dilemma: if carriers collaborate with law enforcement, they’ll be allowed to keep their protected status (because they’re assisting in investigations when asked) while still looking deep into traffic (so they can make their OTT money back.)

That said, now I’m going to rant about pricing and claim that Internet should be regulated and paid for like socialized medicine. If you came here for facts and not subjective politics you may disagree with, feel free to stop reading now.

Gouging Canadian consumers

The greed of Canadian carriers, and their comfy relationship with those who are supposed to regulate them, worries me for a bigger reason. If the organizations that connect us to our online lives are driven by a profit motive, and unchecked by legislators, it bodes poorly for Canadian society.

That’s a big, sweeping statement, so I’ll try to explain it a bit.

We Canadians pay more for our cellphone usage than anyone else. Prices are high and speeds are bad, according to plenty of studies (here’s the OECD’s.) Other reports, such as this one from the OTI, show similar stats:

This 2010 study by the New America Foundation’s Open Technology Initiative found that our prices are among the highest in industrialized nations (though whether this is due to price gouging, population density, or geographic constraints isn’t clear.)

If you want to get really mad, read Jesse Brown’s Toronto Life piece on “how big wireless companies, the banks, and even the actors’ union are keeping our mobile bills the highest in the world.” He points out that:

• Canadians pay higher monthly wireless bills than citizens of any other country (BofA Merrill Lynch.)
• Our data roaming fees are higher than those in any other country (OECD.)
• Text message fees are marked up as much as 4,900 per cent.

I did a little digging of my own, after receiving a friendly reminder from Rogers about roaming rates, which are $0.01 a kilobyte in the US unless you’ve bought a prepaid roaming package from them:

We seldom connect our individual actions—tweeting, searching on a map, checking our Facebook feed—to the price. But some folks on Twitter (@heyburt and @pierreluc09) found estimates of bandwidth consumption for these basic tasks on an Android and an iPad, and I tied them to Rogers’ default roaming rates.

That’s right, Canada: If you don’t have a roaming plan, Rogers wants to charge you $1.80 to check in on Foursquare, $1.00 to check Facebook, and $0.50 a Tweet, when you’re in the US. And that map you loaded into your iPad? Nearly the price of a road atlas.

Ouch.

It’s about more than just price

At the cable industry’s annual NCTA meeting in Boston yesterday, US FCC chair Julius Genachowski said he believed “usage-based pricing would help drive efficiency in the networks.” Which is fine, if we believe Internet access is a free market commodity (like sugar) which can be dictated by supply and demand, and that the markets will find efficiency as a result.

Unfortunately, Internet access isn’t a commodity the way sugar is, for three big reasons:

1. It’s a shared resource, which inherently deals with bursts of congestion. When you use some sugar, I can’t have any. But the mechanisms that underlie the Internet are designed to share capacity, so it’s not a simple supply-and-demand equation.
2. It’s not a free market. The copper on which much of today’s data runs was installed by a state-sanctioned monopoly (AT&T or Bell Canada) in the public interest. Those companies have huge footholds and have erected massive barriers to entry that prevent competition on an even playing field, and Canadian regulators have had to investigate them for throttling bandwidth rather than investing in capacity build-outs.
3. It’s more than a service—it’s access to half our lives. Our online life is, for many of us, as real as our offline one. While nobody can charge us “access” to our offline one, there’s a fee to access our online one, and as we come to depend on it we’ll increasingly pay whatever it takes to connect.

Why Internet access is like healthcare

Healthcare isn’t subject to the laws of supply and demand—we’ll pay anything for it. A 2007 Harvard study showed that 62% of all bankruptcies were due to medical problems, and that 78% of those people had insurance. They bankrupted themselves to stay healthy.

It shouldn’t be a surprise that, if you put companies with profit motives in charge of a good we’ll pay anything for, then the price goes up. Americans pay more for their healthcare than anyone else. Here’s a chart from the Kaiser Family Foundation comparing healthcare costs by industrialized countries:

For me, Internet access is like healthcare. This goes beyond economics, and strays into the social contract. A connected population holds tremendous promise for fixing much of what ails society. We can learn, vote, govern, and communicate. It’s the foundation for citizenry in the twenty-first century. And it should be a fundamental right, paid for by everyone (to a degree) and regulated by the government (as healthcare is.)

Yet today, Canada is on a slippery slope towards a world where a state-sanctioned oligarchy of big carriers—which also own the media companies—can tax us for access to our online selves. Those that can’t pay will be second-class citizens, and those that control the systems will have immeasurable power to shape the future of our nation.