ISPs mull whether to challenge CRTC’s 15 per cent usage-based billing discount

Small Internet service providers (ISPs) are considering their options following a CRTC decision that awards them a 15 per cent discount on usage-based billing prices for wholesale Internet access. Third-party ISPs that rent wholesale access to the incumbents’ networks say they haven’t decided whether they will challenge the decision with a request to review and vary it. “We will do something, but what that is may or may not be related to review and vary,” Rocky Gaudrault, CEO of ISP Teksavvy Solutions Inc. and a member of the Canadian Network Operators Consortium (CNOC), said in an interview. CNOC is a national collective of ISPs that oppose usage-based billing. “We've been working around the clock on trying to figure out how best to deal with this because the whole situation is a moving target.” In May, the CRTC approved an application by Bell Canada to introduce usage-based billing rates for its wholesale residential services. The decision means incumbent telcos can charge usage-based rates of third-party, wholesale customers that rent access to the networks and resell Internet access. In order to differentiate their prices, reseller ISPs were afforded a 25 per cent discount on incumbents' retail rates. But in October the commission approved a review and vary application filed by Bell that opposed the discount. The commission followed up by opening a consultation on whether wholesale providers should get a discount. As part of the consultation, the incumbents, with the exception of MTS Allstream Inc., told the commission that the rates for resellers should not be discounted. The incumbents argued that the purpose of usage-based billing is to alleviate network usage. Allowing the resellers to offer lower prices for heavy usage would be contrary to the original decision's logic, they said. But third-party competitors, as well as MTS, disagreed, arguing that the discount is required to offer prices that could compete with those of the incumbents. Chris Peirce, CEO of MTS Allstream, said in an interview Wednesday that the company supported a rebate on usage-based billing because its absence would impair the resellers’ ability to compete. “We have said for a long time that if a competitor needs a certain amount of access, they should purchase that access from the incumbent, and then if because of their usage they need more capacity, well they'll have to buy more,” he said. “We disagree with those principles that underlay the decision.” Internet resellers provide services to about four per cent of Canadian Internet users, and many of them, until now, have differentiated their prices by offering flat-rate plans with unlimited usage. But requiring them to pay retail rates based on usage would mean the end of their business model, they say. On Tuesday, the CRTC ruled that usage-based billing rates for wholesale Internet customers will be established at a 15 per cent discount from the usage-based rates charged of the incumbents’ retail customers. “The Commission considers that, in the absence of a discount on carriers’ wholesale UBB rates relative to their comparable retail rates, smaller competitors’ ability to continue to differentiate their retail Internet services would be unduly impaired,” the commission wrote in its decision. The commission added that a 15 per cent discount is not so large that it would affect the effectiveness of usage-based billing, and not so small that it will affect the competitors' capacity to recover costs. Despite the CRTC's efforts to find middle ground, it seems both sides of the debate are displeased with the ruling. Mirko Bibic, Bell's senior vice-president of regulatory and government affairs, said in an email statement that a mandated discount is “simply unnecessary.” “We completely disagree with the CRTC's rationale, which clearly shows it is more interested in giving particular ISPs wholesale discounts rather than ensuring there is a vibrant competitive process, which there is,” Bibic said. “But, that being said, the fact that the concept of wholesale usage-based billing was reaffirmed, again, is at least a correct outcome.” OpenMedia.ca, an advocacy group that is coordinating a petition to stop usage-based billing, said in a release that the 15 per cent discount awarded will “just barely” allow competitors to distinguish their prices from those of the incumbents. Gaudrault, of CNOC, noted that the 15 per cent discount falls short of the 50 per cent the group had requested. “Considering that we take on all the liability, we essentially become a collection agency for the incumbents like Bell,” he said. Gaudrault said there is no guarantee that all customers will pay their bills, which means that, under usage-based billing, ISPs will be responsible for compensating incumbents for usage without being assured they can recoup costs from users. Gaudrault added that CNOC members are looking at all options before making an official response to Tuesday's decision. Groups opposing the decision have the option to file a review and vary application, raising the issue with cabinet, or appealing the decision to the Federal Court of Appeal. Tom Copeland, chair of the Canadian Association of Internet Providers (CAIP), said in an interview that CAIP also has yet to decide whether it will oppose the decision, but added that there should be “action” in the next few weeks. Providers are likely to go ahead with the change for now. The decision will be implemented March 1, and providers must provide customers at least 30 days’ notice of changes in pricing, a deadline that comes down Friday. Copeland said the CAIP opposes usage-based billing on the whole, adding that the 15 per cent discount is too low. “It's something the thinks is appropriate, but there's nothing quantitative about it ... They haven't applied any definitive numbers to it,” he said. Copeland said the CRTC's many rulings on usage-based billing have created too much uncertainty for the wholesale industry, and that political intervention is now necessary to review the overarching policy. The usage-based billing policy has attracted the attention of some members of Parliament, with NDP MP and digital affairs critic Charlie Angus saying he is opposed. John Lawford, counsel with consumer group the Public Interest Advocacy Centre (PIAC), said in an interview that Tuesday's decision means small competitors can no longer offer unlimited plans. “My assumption is that the cost ... of doing the actual billing this way is going to eat up their 15 per cent,” he said. “It keeps them on life-support, but the customers at the end of the day aren't getting any pricing discipline from competitors, because they can't compete.” Lawford noted that competitors can still apply to review and vary the commission's decision, but said that there has already been a lot of “flip flop” about the discount, which was first introduced in May. “What's next? It gets to be silly at a certain point,” he said. kfournier@thewirereport.ca

ISPs mull whether to challenge CRTC’s 15 per cent usage-based billing discount

News | January 26, 2011

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