Liberals would

Independent Internet providers have been complaining for years that big carriers don’t give them a fair shake in buying access to their broadband networks.

The most recent example, they argue, is the fight some carriers are putting up over pricing access to new high speed Internet services, access they won last year from the Canadian Radio-television and Telecommunications Commission (CRTC).

The commission has given up trying to referee the dispute and will wrap it into its upcoming hearing on usage-based billing, another sore point with ISPs.

The Liberal party has an idea: Ordering carriers to separate or unbundle their wholesale divisions, which build and operate networks, from their retail divisions, which sell access to consumers. The wholesale unit would have to sell services to the retail side at the same prices as it offers to any competitor.

Liberal industry critic Marc Garneau says a Liberal government would order the Industry department or the CRTC to look at the merits of what’s called functional separation.

“We’re prepared to look at different models” to ensure incumbent telephone and cable carriers don’t engage in anti-competitive behaviour, he said in an interview.

It wouldn’t be quick or cheap: It’s taken some four years for British Telecom to split its wholesale and retail divisions under a program.

The wholesale division, called OpenReach, has to have its own operational support separate from BT and can has to share information equally with all buyers.

The idea has some support. In an academic article to be published shortly, a Ryerson University professor of communications says that in countries that have tried it “functional separation in the wholesale broadband access market has allowed competitors greater flexibility and scope for innovation.”

However, a spokesman for BCE Inc.’s Bell Canada dismissed the idea. A Bell spokeswoman dismissed the idea.

“Canadians are well-served by intense competition between telco and cable Internet services, as well as multiple wholesale third party ISPs that enjoy mandated access to those networks,” wrote Jacqueline Michelis in an email. “The result is that Canadians are leading the world in time spent online, clear evidence of the success of the Canadian model.”

A Telus spokesperson said it doesn’t comment on election issues.

Industry Minister Tony Clement couldn’t be reached for comment. But last week he told The Wire Report that functional separation is “completely unrealistic.”

The pros and cons have been weighed by the International Telecommunications Union, which represents carriers, and the World Bank’s Information for Development program (infoDev) in an online regulation toolkit.“The main advantage of a functional separation safeguard is that it would be enable it to be seen more clearly if the retail business unit is profitable while paying the interconnection or unbundled elements charges that the retail competitors must pay,” the document says. 

“However, this advantage may be able to be obtained by less dramatic means short of actual separation, through the use of accounting or imputation tests to see if retail services are profitable. 

“A disadvantage of functional separation is that the wholesale entity charged with operating the actual infrastructure that all competitors are using may not perceive itself to have strong incentives to invest in greater coverage and better technologies.  However, this disadvantage may come more from the requirement to share network elements with competitors and not necessarily so much from the separation requirement itself.”

The most recent Canadian input comes from Catherine Middleton, who holds a research chair in telecommunication technologies at Ryerson’s school of management.

In a paper about to be published, she acknowledges that independent ISPs are in trouble because of “persistent and fierce competition” from large phone and cable companies. “Functional separation would make it easier for Canada’s independent ISPs to get access to critical network infrastructure,” she writes.

However, “the prospects for independent ISPs in Canada, with or without functional separation, are not strong. In other markets, functional separation was introduced earlier, allowing market entrants to build their businesses to a point where they are able to compete with incumbents.

“Even if the federal government were to follow the lead of other countries and require functional separation, by the time it was implemented, it is not clear how many independent ISPs will remain to benefit from this change to the wholesale regime. “Because the Canadian wholesale access regime for existing broadband infrastructure is not working well any efforts to improve wholesale access, especially to next generation networks, will benefit Canadians by encouraging competition in the market.

“Unfortunately however, neither functional nor structural separation alone will remedy the competitive issues in the Canadian broadband market.”


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