ISPs happy with CRTC’s UBB decision but disagree on rates

GATINEAU—The CRTC struck a compromise Tuesday between wholesale usage-based billing and unlimited Internet access with a decision allowing incumbent ISPs to offer capacity-based or flat-rate billing to smaller ISPs that lease access to the incumbents' networks for residential services. “We have now today mandated two types of access for wholesale Internet,” Konrad von Finckenstein, the chair of the CRTC, told reporters at the commission's offices in Gatineau. “The net effect of it will be that there will be no caps, no limitation, no metering of use for retail customers as a result of a CRTC decision.” The new capacity-based model provides each incumbent with a specific fixed rate that it can charge small ISPs based on the incumbent’s network operation costs and the maximum theoretical speeds that the resellers want to offer to their residential customers. Those theoretical speeds will be affected by fluctuating total usage from the reseller Internet service provider's (ISP) customers, so that their retail speeds could slow down during peak periods when network demand is heaviest. The small ISPs will have to implement traffic shaping to manage network traffic and ease any congestion. Mirko Bibic, senior vice-president of regulatory and government affairs at BCE Inc., said in an email statement that the company would have preferred that the commission accept its pricing proposal based on monthly volumes of data used. Still, he said the decision ensures the company can “now charge our ISP customers for the network capacity they consume” and “independent ISPs have full flexibility to manage their businesses and set their retail prices as they choose.” He added that small, independent ISPs “have also received significant discounts to the monthly rates they pay us for access to our network.” According to the decision, reseller ISPs can also purchase additional capacity if they choose to do so, but there is no timeline for which the incumbents must make that additional capacity available to them. A small provider that realizes it hasn’t purchased enough monthly capacity for its retail customers may be forced to throttle some customers until the ISP is given a wider pipe to push traffic through. The new, capacity wholesale model is similar to one proposed by MTS Allstream during a CRTC hearing on the issue this summer. The CRTC regime differs in that it requires small ISPs to pay for network access upfront instead of determining costs by the actual capacity used at the end of a billing period. Upfront billing is designed to ensure that incumbents and resellers share any business-related risks resulting from changing Internet uses and habits. “f changes in traffic patterns occur, the relationship between volume and peak traffic that a network provider has developed for determining usage-based costs would change, with the result that network providers might be overcompenstated or undercompensated by the independent service providers,” the CRTC decision said. Incumbents can also choose to offer network access to reseller ISPs on a flat-rate basis, but they will not be required to do so, the commission said. The flat rates were determined by the commission based on the costs each incumbent incurs when it provides wholesale services. The commission-determined rates for both the capacity-based and fixed-rate models offer the incumbents an undisclosed markup on costs. The incumbents can also charge an additional 10 per cent markup for access to faster and more advanced fibre-to-the-node networks. “This will encourage companies to continue to invest in this new technology,” the commission said. Although each incumbent will be initially required to offer pricing models closest resembling what they supported during this summer’s CRTC hearings, they can apply to the commission to offer services based on the model of their choice. That means incumbents SasktTel, Shaw Communications Inc., Telus Communications Co. and Bell Aliant (owned by BCE) will continue to offer flat rates, for now. Bell Canada is expected to implement the new capacity-based pricing, as well as Rogers Communications Inc., MTS Allstream, Cogeco Cable Inc. and Videotron Ltée., owned by (Quebecor Media Inc.). The CRTC's new capacity-based wholesale prices are not effective until Feb. 1. Following the decision, Ken Engelhart, Rogers’ senior vice-president of regulatory affairs, questioned the commission's pricing model for Rogers’ rates. “It’s very strange. We’ve got lower rates than Bell, lower rates than Cogeco, lower rates than Videotron,” he told The Wire Report, noting that Rogers’ operating costs are similar to those ISPs'. Although Rogers is likely to adopt the capacity-based model, he said, the company may petition the CRTC to adjust its rates. “I do think we have to ask them how our model can be so out of whack with some of our competitors.” Bill Sandiford, president of the Canadian Network Operator's Consortium (CNOC), a coalition of small ISPs, as well as reseller Telnet Communications, said Tuesday’s decision is bad for small ISPs and consumers. “We’re not extremely happy with the decision. We think the commission got the model right, but the rates are atrocious,” Sandiford told The Wire Report. Canadians typically use home Internet services during peak hours, which could mean that small ISPs will have to purchase larger blocks of capacity to ensure their retail customers receive adequate service. He said a typical Canadian who watches the 7 p.m. news online each night at a basic speed of 3 Mbps would cost a small ISP between $35 and $67 per month, depending on which incumbent ISP is leasing access. “This is not a heavy user. This is not a light user. He’s just an average guy who chooses to watch his news online,” Sandiford said. Sandiford speculated that all of the incumbents will turn to the capacity pricing model over time. “I don’t think any company is going to choose to offer the flat rate when they have the usage-based model in play with the caps.” He said the capacity model will impacts consumers if small ISPs are forced to charge heavy users more. “It’s certainly going to mean rate increases for some Canadians if they choose to take advantage of next-generation features of the Internet like streaming and bit-stream video services,” he said. The saga over wholesale usage-based billing began in March 2009 when BCE subsidiaries Bell Aliant and Bell Canada asked for the commission’s permission to apply usage-based tariffs to reseller providers renting capacity on their networks. At the time, Bell argued that congestion on its networks necessitated that heavy users pay more regardless of whether those users received their services through Bell or a third-party reseller connected to Bell’s network. Small ISPs decried the move, arguing that it would lead to higher costs and limit their ability to offer high data or unlimited usage plans to compete in an incumbent-dominated market. The following May, the CRTC decided to allow Bell to move towards a usage-based model for its wholesale services but required it to offer small ISPs discounted rates. Bell contested that decision, arguing that the CRTC-imposed rates amounted to an unfair, 25 per cent discount. The argument entered the mainstream last January after the CRTC revised that decision and ordered a 15 per cent discount for small ISPs that would be charged according to a usage-based wholesale regime. Activist groups, primarily OpenMedia.ca, mounted a social media campaign encouraging people to write to federal MPs and cabinet ministers to demand that the decision be overturned on the grounds that it was bad for consumers. OpenMedia.ca later said nearly 500,000 Canadians took part in its Stop The Meter campaign against the CRTC decision. At the height of the campaign, then-industry minister Tony Clement issued a statement on Twitter saying that the federal government would overturn the decision unless the CRTC conducted a review—which the commission did this summer with hearings. After analyzing different models proposed by various players over the past two-and-a-half years, the commission said Tuesday that it had to pick the one that offered “just and reasonable rates.” Industry Minister Christian Paradis released a statement Tuesday evening saying he is studying the decision "carefully" to ensure it conforms with the government objectives of encouraging competition, network investment and consumer choice. Small ISP Distributel Communications said in a release that, under the new framework, it intends to continue to offer unlimited high-speed Internet plans. “We’re happy to see that the Commission opted to endorse a capacity-based billing model. We appreciate the flexibility that this model offers but are concerned about the rates that have been approved,” Mel Cohen, president of Distributel, said in a statement. OpenMedia claimed a victory for consumers Tuesday evening as well as the Public Interest Advocacy Centre (PIAC). “We’re celebrating this as a win—a small victory,” Lindsey Pinto, Open Media’s communications manager, said in an interview. OpenMedia views the capacity-based rates as high, but “they aren’t totally unreasonable” and could have been worse, she said. “The step that the CRTC took today was a huge improvement on what could have happened.” Pinto said OpenMedia had started another online campaign to encourage Canadians to switch to small ISPs. PIAC said in a release that the decision was “remarkably clear and helpful” and that it will permit reseller ISPs to “offer sustainable competitive alternatives to internet services offered by large cable and telephone-based ISPs such as Rogers Communications and Bell Canada.” PIAC counsel John Lawford said in a statement that the CRTC “clearly heard the voice of consumers who wanted real competition in broadband Internet, lower prices and no usage caps.” Von Fickenstein told reporters that he knew some players would be unhappy with the decision. “If we don’t make anybody happy, we usually have succeeded,” von Finckenstein said. “We’ve found the right balance.” nkyonka@thewirereport.ca

ISPs happy with CRTC’s UBB decision but disagree on rates

News | November 16, 2011

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