The CRTC’s vertical integration hearing opens today with fifty groups scheduled to appear over the next week and a half.  I’ve written a couple of articles about the issue over the past year. Last September, I noted the Canadian consolidation felt like a last stab at a walled garden approach that has consistently failed and argued:

The key to ensuring a competitive environment therefore rests on maintaining open platforms on all service providers.  That may prove challenging, since the newly vertically-integrated companies will find it tempting to grant preferential treatment to their own assets.  In addition to exclusivity, this could take the form of faster speeds on wireless services for company-controlled broadcasts, allowing users quicker access to the walled garden content.

Alternatively, it might mean excluding walled garden content from the bandwidth caps imposed by most providers.  Under such a scenario, subscribers would find that accessing walled garden content would be “free” in the sense that it would not count against their monthly bandwidth allocation.  By contrast, competing Internet services would effectively face an additional cost, since subscribers would have to factor in their bandwidth consumption.

These scenarios point to the possibility of greater regulatory intervention to ensure a fully competitive converged broadcast and telecom environment.  Indeed, the Canadian Radio-television and Telecommunications Commission expressed concern about this direction in its 2009 New Media decision.

Notwithstanding assurances from the wireless carriers that walled gardens have not proven successful and “the industry is quickly moving toward the open Internet model, whereby mobile users can access content of their choice,” the commission worried that “the ownership structure within Canada’s wireless industry suggests that the potential for unduly preferential treatment needs to be addressed because the industry structure comprises vertically integrated companies with ownership interests in content providers.”

Last January I returned to the issue, contrasting the U.S. approach in approving the Comcast – NBCU merger with the Canadian situation. The U.S. regulatory approach, which featured the joint involvement of the Federal Communications Commission and the Department of Justice, included:

The U.S. merger resulted in a year-long review by the Federal Communications Commission (the CRTC’s counterpart) and the Department of Justice (DOJ).  The DOJ alone interviewed more than 125 companies and individuals in the industry and reviewed over one million documents from the merged companies.

While the deal was ultimately approved, the U.S. regulatory bodies focused on the prospect that the new media giant could lead to anti-competitive behaviour. For example, the emergence of the online video distributors such as Netflix, GoogleTV, iTunes, and Hulu were identified as particularly vulnerable with the FCC concluding that “Comcast-NBCU will have the incentive and ability to discriminate against, thwart the development of, or otherwise take anticompetitive actions against OVDs.”

As a result, the FCC established a host of rules designed to maintain a competitive environment and restrict the merged Comcast/NBCU from discriminating against these new competitors.  Moreover, it forced Comcast to drop off the Hulu board of directors and even extended net neutrality rules to the set top box, which will increasingly be used to distribute both digital TV and the Internet.

Sadly, the Canadian mergers were approved with far less scrutiny. Given the warning signs (and the Commission’s own concerns in 2009), the hearing that launches today has the feel of coming at least one year too late.