Telco tells regulators that it has to have an economic traffic management hold over independent ISPs to deal with network congestion

Bell insists on some form of usage-based billing

Internet carriers must be able to tie their wholesale rates to independent Internet providers to some form of usage-based billing to control escalating network demand, a Bell Canada executive has told a regulatory hearing.

 “The question is no longer whether economic Internet traffic management practices [like usage-based billing] are appropriate at all for wholesale services, but how economic ITMPs should be implemented,” Mirko Bibic, senior vice-president for regulatory and government affairs at Bell’s parent BCE Inc. [TSX, NYSE: BCE] told a Canadian Radio-television and Telecommunications Commission (CRTC) hearing in Gatineau, Que., on Monday.

There has to be some mechanism to ensure that those who use more capacity than others pay more, he argued, which is a way of controlling traffic.

 “One myth is that there is no evidence of network congestion,” said Bibic. “This is completely false.

“A second myth is that wholesale ISPs are not significant contributors to congestion,” he said. “Wholesale ISPs serve 17 per cent of end-users and drive 29 per cent of total traffic on our network in Ontario and Québec. This is significant. No single user or wholesale customer is the cause of congestion. But, clearly, wholesale users contribute a disproportionate share of total traffic, and by extension, congestion.”

Earlier this year, under tremendous public and government pressure, Bell abandoned a usage-based billing plan – approved by the commission – that would have meant subscribers of ISPs who buy connectivity from it would pay penalties for going over a set limit. That UBB plan mirrored one that Bell has been charging its own residential Internet customers since the fall of 2006.

Bell’s new solution, for which it is seeking CRTC approval and which the commission might impose on all carriers, is called Aggregated Volume Pricing (AVP). It would have independent ISPs buy enough terabytes of capacity from it each month to satisfy their expected residential customer demand. ISPs would have the freedom to structure their residential retail plans any way they want to pay for that bulk capacity. But if residential subscribers go over that amount in aggregate, the ISP would have to buy more capacity – at a higher price – to make up the difference, and find a way to pay for it.

So just like its original UBB plan, Bibic said, AVP is an economic traffic management policy. It would allow Bell to ensure an adequate return on its network investments, Bibic said, create incentives to limit network congestion and allow ISPs who buy connectivity to offer different products from Bell.

During the hearing, scheduled to last four days this week and two days next week, carriers, independent ISPs and public interest groups will present a number of usage-related wholesale billing plans.

But early on it appears to be a fight between Bell’s AVP, largely backed Telus Communications Co. [TSX: T, T.A; NYSE: TU] and several of the country’s biggest cable companies, and a plan that links wholesale pricing to a carriers’ peak traffic hours from a group of ISPs called the Canadian Network Operators Consortium (CNOC).

The CNOC plan would be too cumbersome to implement, Bell and Telus officials complained.  In addition, they don’t believe it acts as an incentive to ISPs to manage the bandwidth use of their subscribers.

CNOC, which represents 20 providers across the country, is expected to testify Tuesday to detail its plan.

On Monday, Bell officials were closely questioned by CRTC commissioners on the AVP plan. Commission chair Konrad von Finckenstein, for example, wondered why ISPs should have to make capacity estimates every month, rather than, say, every quarter. “There seems to be an element of ‘We [the carriers] have got you [the ISPs],’” he told Bibic.

Bibic replied that ISPs are billed monthly under the present system, so it makes sense to continue that. There are also seasonal fluctuations in network demand, he added.

Commissioner Len Katz wondered if the AVP pricing Bell suggests – ISPs would pre-pay $200 a terabyte of capacity, plus .295 cents a gigabyte for any overage that month — would give the telco “extraordinary profits” and wondered how it came up with the figures.

It’s a “market-based judgement,” Bibic replied. It’s supposed to be an economic incentive for ISPs to manage their customers, he added.

But as Bibic complained about the fact that the commission has ordered carriers to give ISPs access to their new high speed networks, Katz suggested that Bell sees the independent ISPs “as a threat, rather than an opportunity” to partner and take Internet market share from cable providers. Not so, said Bibic. But it’s hard in the current regulated environment where Bell’s wholesale rates are set by a regulator.

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