There has to be a complete overhaul of the wholesale pricing mechanism incumbent phone and cable companies use to charge independent Internet providers to ensure competition in the industry, the federal telecom regulator has been told.
“This proceeding is not simply about rate levels, but also about a fundamental restructuring for the wholesale high speed services of the incumbents,” William Sandiford, chairman of the Canadian Network Operators Consortium (CNOC) told the Canadian Radio-television and Telecommunications Commission (CRTC) in on Tuesday.
The consortium, which represents 20 Internet providers across the country, says Internet service providers (ISPs) who buy connectivity from carriers pay a rate based on the amount of bandwidth used during peak hours. The cost of Internet traffic during non-peak hours is almost negligible, the consortium says, so carriers shouldn’t be paid for carrying it.
By contrast, BCE Inc.’s Bell Canada [TSX, NYSE: BCE] says the wholesale fee structure should include a charge to ISPs based on the overall volume of data their customers use. [See earlier story here.]
“If this practice is allowed incumbents will reap a windfall,” said Sandiford, who heads his own ISP in Oshawa, Ont, Telnet Communications. It’s only Internet demand during peak hours that costs carriers, he argued.
Without radical change in wholesale pricing independent ISPs won’t survive, he said.
“There are many ways that the rate restructuring can be carried out, but most of them will lead to a competitive dead end,” Sandiford warned. “If Canada reaches that dead-end, then the market for the provision of Internet and other services will, at best, be an entrenched duopoly between telephone and cable companies. In that case, consumers and the Canadian economy will pay the price.”
The hearing was called after public and political pressure forced the CRTC to rethink its approval earlier this year of Bell’s request to add its user-based billing plan that includes financial penalties to subscribers for going over monthly data limits to the wholesale pricing it charges ISPs. The result would have been an end to the ISPs ability to offer unlimited monthly data plans.
Bell then changed its proposal to what it calls Aggregated Volume Pricing, which links wholesale pricing to the aggregate amount of capacity an ISP uses. However, ISPs complain there is no need to connect pricing to data volume.
CNOC’s plan is the main alternative being discussed at the hearing.
However, a group of cable companies including Rogers Communications Inc. [TSX: RCI.A and RCI.B], Quebecor Media (which owns Quebec cableco Videotron) [TSX: QBR.A, QBR.B] and Cogeco Cable (which operates in Quebec and Ontario) that gave a joint presentation Tuesday dismissed the consortium’s approach.