CRTC opts for capacity-based billing for ISPs

Independent Internet service providers and the country’s biggest carriers are huddling over their spreadsheets trying to parse the new wholesale access pricing framework set by the federal telecom regulator.

Generally, ISPs interviewed Tuesday at an industry conference in Toronto said the structure created by the Canadian Radio-television and Telecommunications Commission (CRTC) is right, but they are divided on what the impact of the new rates created will be until they crunch the numbers.

The reason is that decision, which takes effect Feb. 1, is anything but simple and elegant.

“I don’t think anybody wins here,” observed Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy.

One the one hand, he said, BCE Inc.’s Bell Canada doesn’t get a pricing scheme that closely ties pricing to how much data residential subscribers use each month.

On the other hand independent ISPs may have to predict every month how much overall capacity – or network throughput — they have to buy from a carrier. Then they’ll have to manage their networks to keep under the limit.

It isn’t clear to ISPs yet whether the new structure will allow them to capture more than the six per cent of the residential Internet market from large carriers.

They also aren’t sure yet whether they’ll be able to set residential subscriber rates that are different from the carriers, which the CRTC said is one of its goals in the decision.

Also on Tuesday the commission released a separate wholesale flat rate-only schedule for ISPs selling Internet connectivity to business One effect will be that ISPs will have to separate their business customers from residential customers when it comes to setting end user fees. As a result, said the head of one company, business users may not be able to get the pricing benefit from the efficiencies of the larger number of residential customers.
The entire CRTC’s wholesale residential rate decision is here. The business access decision is here.
At least one ISP predicted his rates for residential subscribers will go up in 12 months,

Marc Gaudrault, CEO of Chatham, Ont.-based TekSavvy Solutions, which offers service in several provinces, fears that a year from now the monthly rates medium Internet users will pay could double.

“If these same rates are in place next year when all of these other people are online our costs are going to go significantly higher … because our average cost per user is going to go up.”

“What we may be selling for $40 today may be $80 next year.” The reason: the costs the commission is allowing incumbents the charge ISPs is “disproportionate” to what incumbents actually pay to run their network, he said. And there will be different wholesale rates for ISPs depending on whether they buy from BCE Inc.’s Bell Canada, Telus Communications or from cable companies.

“It just doesn’t seem to add up,” Gaudrault said. “I’m concerned we won’t be able to offer a good value proposition to our customers.

It also doesn’t add up for Ken Engelhart, vice-president of regulatory affairs at cableco Rogers Communications Inc. Other cable companies will be allowed to charge higher costs than Rogers (see below), he complained, although Rogers has a similar network to other cablecos.

“Why would my costs be any different than theirs?” he asked. “It doesn’t make any sense.”

On the other hand, he said the overall framework constructed by the commission is one Rogers can live with.
Michael Garbe, president of Toronto-based Accelerated Connections, believes the new framework will eliminate any possibility of ISPs offering high capacity over-the-top Internet services like Netflix. As an ISP’s capacity needs go up, so does the wholesale price it pays, he noted.
Even Mirko Bibic, Bell’s senior vice-president of regulatory affairs, was cautious. “We have to take some time to assess the revenue and return on investment impacts,” he said. “So on the financial side I can’t comment on it right now.”

What he termed the policy issues – carriers are allowed to charge small ISPs for the capacity used on their networks, while ISPs have the ability to set their retail rates – have been settled.

The monthly wholesale rates have been reduced “dramatically,” he added. “Now it’s a question of whether or not the pricing was set at the right level.”

ISPs or carriers can still ask the commission to take another look at the decision, or ask the Federal Court to review it.

Mel Cohen, president of Ottawa-based Distributel Communications Ltd., said the decision is good for his company. “Over time as Internet usage continues to climb there may be some costs concerns,” because the rate schedule he’ll have to pay is partly tied to capacity. But, he added, the decision is a “far cry better” than the commission’s last attempt to set wholesale residential high speed access rates.

That ruling allowed Bell to directly link its wholesale rate to the amount of data individual subscribers use every monthy, so-called usage-based billing. The uproar that followed forced the commission to reconsider that decision.In its ruling Tuesday the commission has allowed a usage component to the fee. But it will be based on capacity, not data volume. There are now two billing models for carriers to chose from:

–Capacity-based billing for carriers who want a new wholesale billing system (including Bell in Quebec and Ontario, Rogers and Videotron). Independent ISPs buy in advance the amount of capacity they believe they’ll need each month. Capacity will be sold in increments of 100 Mbps;

–Flat rate billing for carriers who want to keep the wholesale regime they already have (including Bell Aliant in the Maritimes, Shaw Communications, Telus Communications and SaskTel), where ISPs pay a flat fee per month regardless of customer usage.

That is the overall framework. Generally, ISPs and carriers interviewed say the framework is right.

It’s the new rates the commission has set that most in the industry feel will be the real source of controversy and could see appeals to the commission for tweaking (or overhauling.)

For example, the monthly rate ISPs will have to pay Bell Canada in Ontario and Quebec for 100 Mbps of capacity would be $2,213. Cable provider Rogers Communications, which competes against Bell in Ontario, would charge $1,251. Cogeco Cable, which operates in Ontario and Quebec, would charge $2,695. Quebec cableco Videotron would charge $1,890.
Meanwhile, Manitoba phone company MTS Allstream would charge $281.00 a month in that province.

The commission said the rates for both models are based on costs submitted by each carrier, which explains why they vary from operator to operator.

“I think the CRTC did a fair job of balancing everything,” Cohen said, adding that Distributel will be able to offer unlimited data plans under the new regime.

The residential wholesale pricing also clears the way for the implementation of an earlier commission decision that cable and phone carriers have to allow ISPs to match the speeds of their newest networks. ISPs have been disadvantaged as phone and cable companies raised network speeds for their own residential Internet subscribers while resisting giving ISPs the opportunity to offer equal speeds to their customers.

ISPs have been reluctant to implement higher customer speeds until the commission settled the rates.

“The higher speed services came in at much better pricing than what had been proposed on an interim basis,” Cohen said. “We can go up to 25 Mbps (in areas where a phone company has fibre to the node) and only pay 30 cents more for 7 Mbps service. The cable prices are better, still.”



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