CRTC rules in favour of Internet providers

A Canadian Radio-television and Telecommunications Commission (CRTC) decision Monday affecting Internet service providers was praised as balanced and fair by the head of the Canadian Association of Internet Providers but a telecommunications analyst says it will keep lots of lawyers employed, Primus Telecommunications Canada Inc. has mixed feelings and Bell Canada Enterprises (BCE) Inc. is totally confused.

The federal regulator ruled incumbent local exchange carriers (ILECs) must provide Internet access services – including those from fibre networks – to independent providers at speeds that match those available to the incumbent carriers’ own retail customers, and can charge the ISPs 10 per cent more than their own costs.

“I can see that employing a lot of lawyers for a lot of time,” said Iain Grant, managing director of Montreal-based SeaBoard Group, a telecommunications research and consulting firm. “Identifying costs is hard. All the king’s horses and all the king’s men could take a long time determining what is an allowable cost. I’m not sure that it’s going to be a highly practical solution.”

“I’m concerned it’s 10 per cent above an existing markup that’s not publicly known,” said Matt Stein, vice-president of network services for Primus Canada, which resells telephone and Internet service in Canada, and operates outsourced data centres

The decision resulted from hearings held earlier this year on the high-speed Internet access services offered both by incumbent local exchange carriers and cable providers.

In its ruling Monday the CRTC stated: “The major ILECs are to provide, upon demand from a competitor, their wholesale aggregated ADSL access services at speeds that match all of their retail Internet service speed options, including those speeds those ILECs offer their retail customers over their (fibre to the node) facilities.”

Without a speed-matching requirement, the Commission stated in its ruling, “it is likely that competition in retail Internet service markets would be unduly impaired.”

The CRTC stated without the requirement, there would be a “duopoly” between cable providers and incubment telcos in the retail residential market, and “competition might be reduced substantially in small-to-medium-sized retail business Internet service markets.”

Tom Copeland, chairman of the Canadian Association of Internet Providers, said it appears to be positive for the telecommunications industry.

“Certainly speed matching was one of the concerns that we had,” he said. “To be able to continue to compete with the cable company and phone company in the same playing field and to be able to layer on our own customer services, and data services on top of that.”

But the CRTC also ruled that incumbent local-exchange carriers are not required to provide a central office-based ADSL service to competitors, and cable carriers are not required to provide “local head-end-based cable access service.”

The Commission stated: “… any new wholesale ADSL access service that includes a transport component beyond the local ILEC central office should not be classified as essential.”

This was a disappointment for Stein.

Primus wanted ADSL CO access so it could offer the same speeds but different services on a retail basis, such as different traffic management practices from those offered by the incumbents, Stein said. For example, right now, if Bell resells Internet service to Primus with a 60 GB download limit, then Primus would have to offer its own customers that same limit.

“Had the CRTC mandated ADSL CO we could have offered 80 GB or 90 GB or none at all or caps at certain times of day,” for example, Stein said in an interview.

But Stein added that overall, Monday’s decision was a step in the right direction.

“We applaud the Commission for taking a few steps towards competition in the retail internet market,” Stein added.

Commissioner Timothy Denton disagreed with the majority of CRTC commissioners on these points.

Of CO-based ADSL service, Denton wrote: “The advantage of such an arrangement, if it were brought into being, would be to allow an independent ISP to get behind the traffic management measures imposed by the incumbent carrier. The effect of doing so would be to allow substantial service innovations, so that the lessee of the wholesale service could rearrange the technical characteristics of the signal without harming the underlying network, and which would allow it to offer quality of service guarantees, different bit rates, capacities and prices.”

In its notice before the hearings, the CRTC stated “the Commission will examine the appropriateness of mandating the provision of a CO-based ADSL access service and a head-end-based cable network access service.”

These hearings stemmed from disputes among incumbent local exchange carriers, including Bell Canada Enterprises Inc. and Telus Corp., and independent ISPs that rely on incumbents to provide wholesales services, over what exactly constitutes an essential service.

The CRTC stated it did not intend to create any new regulations but to apply Telecom Policy 2008-17 on the definitions of essential wholesale services.

In Telecom Policy 2008-17, issued in March, 2008, the CRTC ruled that in order to meet the definition of an “essential” service or facility, it must be “required as an input by competitors to provide telecommunications services in a relevant downstream market.” It must also be controlled by a provider “that possesses upstream market power such that denying access to the facility would likely result in a substantial lessening or prevention of competition in the relevant downstream market.” The third condition for meeting the definition of an essential service is that it is “not practical or feasible” for competing providers to “duplicate the functionality of the facility.”

During the hearing last spring, officials from BCE said if they had to allow access to their fibre-based services to competitors, it would discourage them from installing fibre in more cities.

But in an interview Monday, Grant said, “I can see Bell thinking that … but upon sober second thought they will realize should they not invest, they’re sunk.”

This, Grant said, is because it would give a major boost to Rogers Communications Inc. in Ontario and Videotron Ltd. in Quebec.

“If (Bell) froze, their major competitors would not say, ‘Poor Bell, we’ll stop investing too.’”

Heather Tulk, Bell’s senior vice-president of residential products, testified last May before the CRTC that Bell “must carefully select its markets” for fibre to the node or fibre to the home, in order to ensure the company’s investment is recouped from sales.

“In all cases — all cases — the analysis tells us that without forced access investment is risky and has a long payback,” she said before the CRTC. “But when the impacts of forced access are overlaid on the analysis, the models show we will be financially better off as a company not investing at all. This is directly contrary to Cabinet’s request that incentives to invest not be unduly diminished by the Commission’s regulations. In cities where we already started rolling out fibre networks, there is also a risk as we are far from done in investing in these cities. Even in large urban centers where fibre to the node builds are largely completed, we expect there will be need in the future to do more and to push fibre even closer to the home, so these decisions will too be impacted by any outcome of this ruling.”

After Monday’s decision, Bell Canada expressed confusion over the decision.

“On one hand, the government has an aggressive agenda to promote the digital economy – including as it relates to critical communications networks – and, just last week, the Industry Minister called on the established service providers to invest even more heavily in infrastructure,” a Bell spokesperson stated in an e-mail. “Now – less than 10 days later – we have the CRTC imposing mandated access rules on FTTN that do just the opposite – rules that discourage investment.”

In addition to Bell Canada, the CRTC heard from witnesses for other incumbent carriers, independent service providers and advocacy groups such as the Canadian Association of Internet Providers.

When he testified before the CRTC, CAIP’s Copeland took issue with the argument that fibre to the node or fibre to the home services are “next generation.”

“The term next generation in this context is a whole lot of smoke and mirrors,” he testified. “Telecommunications networks are constantly upgraded. Next generation in the sense that Bell or Telus refer to that term is nothing more than the network in its current evolved state.”

He added as telcos replace equipment to comply with new standards, the older networks become obsolete.

“To relegate a portion of users on a network to outdated standards is a death sentence. That is what Bell and Telus are attempting to do by precluding us from accessing their so-called next generation access facilities.

 During his testimony, George Cope, BCE’s chief executive officer, compared the ISPs’ demands to asking coffee shop chain Tim Hortons to sell its coffee to competitors.

“Tomorrow morning if Tim Hortons was told it had to re-sell its coffee at a discount price to anybody who wanted it, provided it opened stores … the next morning, a coffee shop could open it, re-name it and sell the quality product that Tim Hortons sells,” Cope said. “Tim Hortons wouldn’t leave the coffee industry, but their business model would change dramatically, the pace of the model would change and they would not understand, as we don’t understand in our industry now, why anyone would have a say over who’s going to carry and access their products in the marketplace.”

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