In 2008 there were some 500 Internet service providers across the country. About 54 per cent of them were independents of various sizes who buy connectivity from facilities-based carriers for resale to businesses and consumers.
But collectively the independents, or ISPs, had less than five percent of high speed Internet subscribers.
On Monday the federal telecom regulator, the Canadian Radio-television and Telecommunications Commission (CRTC) starts a five-day hearing which could decide whether ISPs will wither away because they are denied mandatory wholesale access to the newest networks built by telcos and cablecos.
These are what incumbents call their next-generation fibre optic networks that boast the possibility of speeds of at 100 Mbps and more. Such speeds are expected to be highly in demand by small businesses and consumers for converged multimedia services.
But after years of being told by the CRTC to give ISPs wholesale access to their copper or coaxial-based networks, telcos and cablecos are firmly rejecting the regulator’s right to order access to the new networks they are pouring hundreds of millions of dollars into.
In short, they believe it’s time ISPs started putting money into their own networks.
However, ISPs say that without the ability to match the speeds of incumbents they can’t compete for subscribers.
“Unless the commission acts soon to enhance and stabilize the regulatory environment,” says one written submission from an ISP, “the competitive flame will be extinguished and the very existence of innovative [ISP] companies … will be in jeopardy.”
“This is one they [ISPs] have to fight,” said Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy.
“In terms of innovation, in terms of pushing the edge, in terms of customer service” ISPs have been ahead of the biggest phone and cable companies, he said. But, he added, ISPs can’t scale to the size of incumbents.
“It’s a really tough business to be in,” Grant said. “And if this goes the wrong way for them is going to make it even tougher.”
The other side of the coin, says telecom consultant Mark Goldberg, is that in many Canadian cities there are two facilities-based competitors for customers to choose from: a phone company and a cable company. Why then, he asks, should a regulator order them to give access to ISPs?
“Having numerous competitors has not typically been an objective of the CRTC,” said Goldberg, who is based in Thornhill, Ont. “The CRTC is interested in a competitive marketplace, not as an end in and of itself but as a means to provide consumer benefits” such as fair pricing and service.
Telus Corp. will appear Tuesday along with the Coalition of Internet Providers, which represents a group of Quebec ISPs, and the Canadian Association of Internet Providers, which ranges from small ISPs to Manitoba teleco MTS Allstream Inc.
The country’s giant cable companies, Western Canada’s Shaw Communications Inc., Toronto’s Rogers Communications Inc., Quebecor Media Inc (which owns Quebec cableco Vidoetron) and Bragg Communications Inc. (whose cable division is called Eastlink), will testify on Wednesday.
Presenting last will be the company that started it all in 2008, Calgary ISP Cybersurf Corp. Now owned by Ottawa’s Distributel Communications Ltd., it demanded the CRTC order incumbent phone companies to sell ADSL broadband service to other providers at the highest speed the telcos offer their own retail customers. Cable companies already have to do this.
The commission agreed with Cybersurf, but it was a short win because Bell Canada and Telus quickly appealed to the federal cabinet, saying their new fibre optic networks should be beyond reach of competitors.
Last December the cabinet told the CRTC that it had to reconsider its decision. In doing so, it set the parameters, saying the commission had to look at whether its ruling favouring ISPs
–would “unduly diminish” the incentive of telcos and cablecos to invest in new networks;
–would “unduly impair” their ability to offer new converged services such as IPTV;
–whether it puts incumbents at a competitive disadvantage;
The issues before the hearing in some ways date back to 2002 when incumbents and ISPs began battling over defining of nonessential ADSL services competitors could get access to.
Telcos are fighting hard for their future, too, they say, as cablecos slash into their home phone revenues. The new fibre optic networks Bell and Telus are building give them the opportunity to strike back by bringing Internet over phone lines, or IPTV.
In pre-hearing written submissions to the commission, the Bell companies say letting ISPs have wholesale access their new fibre facilities would “jeopardize revenue streams from other services such as IP telephony and IPTV.”
In fact, they say, it would be such a drain on speeds that they couldn’t offer IPTV.
Bell Canada says it did a financial study of putting fibre to the network node in Ottawa with and without ISP-mandated Internet access. It didn’t make the numbers public, but said revenues would be so badly hit compared to the cost that not putting in fibre “would be the financially superior option.”
Allowing access and speed matching, they say, would be “misguided interventionist regulation.”
“The correct question” the CRTC should be asking, say the Bells, “is whether Canada’s current and future high-speed Internet markets are failing and thus warrant a commission intervention that would further disrupt market forces, impose duplicative costs to build parallel networks access services, lead to disincentives to investment in next-generation networks and technology, and ultimately threaten Canada’s future productivity and global competitiveness.”
The cable carriers, too, say network investment depends on reducing regulation. In a joint submission, they admit that the combined teleco/cablco residential broadband Internet market share is big enough to “indicate a degree of market concentration” – according to the CRTC, the five biggest companies and their subsidiaries accounted for 76 per cent of the market in 2008 – that alone isn’t enough to warrant regulatory intervention.
Like the Bells, the cablecos argue that letting ISPs connect to their newest networks, in through dedicated radio frequency channels, would create havoc. “A number of never-addressed technical and operational challenges would have to be overcome before any of these proposals could be implemented,” their submission says.
In addition, the cablecos say, if wholesale access by ISPs is mandated it would likely degrade the quality of service.
“Only where conditions are found to be inadequately competitive, should regulatory intervention be considered,” they conclude, “and [where] the benefits of such regulatory action would clearly outweigh the costs.”
Against them are the ISPs with a range of sometimes bitter arguments. “What’s apparent is that the ILECs (incumbent local exchange carriers, or phone companies) have exerted enough political pressure to cause the expansion of the current process to once again warm over the old NGN (next generation networks) arguments … for the purposes of marginalizing competition,” complains the Cybersuf brief.
The Bell argument “requires the commission to once and for all abandon the goal of creating a multi-competitor market for IP related services,” the brief says in part. “The Bell argument also requires the commission to accept that decreased retail pressure, through less competitors, will lead to more innovation and investment — which is akin to a natural monopoly argument that has been rejected by telecom regulators worldwide.”
The fact that an incumbents’ network is copper, fibre optic or a mixture is irrelevant, Cybersuf says, if the regulator finds competition require regulation.
Similarly, in its brief, Teksavvy says that the new networks aren’t all that new: Bell and Aliant started installing fibre to the node (FTTN) in 2004. By 2008, it says, it had been extended to 2.4 million homes.
Mandated access to new networks wouldn’t stop incumbents from investing in new networks, Teksavvy argues. The likelihood of them stopping or decreasing “is simply not credible.” They have to keep doing it if only to keep up with cable. In fact, the brief says, denial of mandatory access “would cause the Canadian economy irreparable harm.”
The CRTC doesn’t face an all or nothing decision. Consultant Mark Goldberg noted it could order ISP access in areas of the country where there’s little competition, or in the business market if it finds there’s enough competition in residential.
Then there’s the corner the CRTC finds itself. It wants competition in communications services and it has found justification for speed matching before the cabinet’s ruling. At the same time the government told it in 2006 to rely on market forces as much as possible (that is, to reduce regulation) and, in the case of this hearing, to pay particular attention to whether its ruling will affect broadband investment.
Iain Grant sympathizes with the position commission chair Konrad von Finckenstein is in. “He seems to have a very versatile mind and I think he will manage to achieve his goals within the constraints he’s been given … If there’s a will he’ll find a way.”
(There will be an audio feed of the hearing on the CRTC home page. Click on the Listen Live link.)