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.
Traffic peaks occur at many times of a day or month, their written brief said, so CNOC’s measurement technique wouldn’t catch them. In addition, the consortium’s plan could cause ISPs to get around charges by setting rates that encourage business traffic during the day and pay no extra charges because that wouldn’t be in the cable company’s peak hours. In addition, unlike phone companies like Bell, cablecos don’t have symmetrical pipes – there’s more capacity to download data than there is to upload it.
Under the cableco group’s plan, ISPs would pay for service for each residential customers that includes about 25 Gigabytes of data a month per subscriber. There would be a financial penalty for going over the limit. However, penalty would only be if the combined, or aggregated, capacity of the ISP’s subscribers went over the limit. So if one person when over 25 G while another was that much less month, the aggregated total would even out.
Unlike the Bell plan, ISPs wouldn’t buy blocks of capacity before each month, and pay for make-up capacity later. The monthly usage allowance would be based on each cableco’s average monthly usage.
The usage charge would be lower than the existing tariff, the cablecos say, making it easier for ISPs to offer unlimited data plans.
Not that the cablecos believe its wrong to charge consumers based on how much data they use. “If people want to use tons of bandwidth, we’re happy to supply it, said Ken Engelhart, Rogers’ senior vice-president of regulatory affairs.
But he also said there is no bandwidth crisis, as Bell says. “One of the things that disturbs us about this debate is [the claim] that this is all about congestion … We make investments [in our network] to avoid congestion.”
A consumer group that marshalled tens of thousands of people to protest the original Bell UBB plan, Openmedia.ca, and the University of Ottawa-based Canadian Internet Policy and Public Interest Clinic, agreed.
“We are simply not facing a bandwidth crisis or an explosion.” Anderson told the hearing. Internet demand is growing at a steady 40 per cent a year, he told the commission. Telus Communications Co. [TSX: T, T.A] told the hearing on Monday that it doesn’t need usage-based billing because it invests enough in its network, Anderson added.
Anderson demanded the commission design a wholesale price schedule based on carriers’ real costs plus a reasonable markup, “not inflated numbers.”
“We cannot afford to allow a few companies to stifle competition and impose a stranglehold on the critical Internet access market,” he said.
He also denounced what he called “metered pricing” that deters consumers from using the Internet.
Canadian operators are falling behind on several key Internet metrics compared to other countries in the Organization of Economic Co-operation and Development. “The thing Canada does lead on is capping internet usage – that’s something none of us should be proud of.”
Openmedia and the clinic favour the CNOC plan, but CRTC commissioner Len Katz had trouble with their approaches. “What they’re looking for is facilities [from carriers] when they want it, how they want it delivered at the time they want it at [only] cost-based rates.” But there are other business costs in building and operating a network. “From my perspective there’s a huge transfer of business risk going from independent ISPs back to whoever delivers the service to them,” Katz said.
Clinic lawyer Tamir Israel agreed there should be a way to build those costs into a tariff.
The hearing continues Wednesday and Thursday.
Next week presenters will be given two days to reply to questions raised by the commissioners, including Bell's claim that the CNOC plan is impractical.