Momentum swelling for review of CRTC’s new UBB rates, telcos say

Incumbent Internet service providers (ISPs) and the smaller players who lease access to their networks are scratching their heads over new billing rates for wholesale Internet access and what those rates mean for long-term competition in the Canadian Internet service market. Days after the CRTC on Tuesday announced new rates in a regime for Internet wholesale pricing, small Internet resellers most affected by the decision are wondering where the new rates came from and why they vary so much from one incumbent ISP to another. “The costing is not transparent to us. We don’t know how it’s done. We don’t see the details and we don’t believe it’s credible,” Mel Cohen, president and founder of reseller ISP Distributel Communications, said in an interview Thursday. “All I can say is that we’ve got some questions about the rates,” Chris Peirce, chief corporate officer for Manitoba incumbent MTS Allstream added in a another interview with The Wire Report. “Given some of the adjustments the CRTC made to costs, we’re just wondering if it’s apples-to-apples in terms of the rate they settled on for incumbent-to-incumbent.” In its decision Tuesday, the CRTC established new rates that incumbents can charge the reseller ISPs based on whether the end users are residential or business customers. The commission also laid out different rates that each incumbent can charge for each wholesale access service, with some of those rates varying significantly, particularly on the residential side. For wholesale access for home Internet services, each incumbent has been assigned two tariff rates. The first is a monthly “access” charge per customer based on the maximum speed available to each customer. BCE Inc.'s Internet providers can charge third-party ISPs amounts ranging from $14.11 per customer per month for 0.5 Mbps speeds to $25.00 for 25 Mbps speeds, while a company like Cogeco Cable Co. can charge from $12.73 for 3 Mbps speeds to $42.05 for 50 Mbps speeds. But Rogers Communications Co. can only charge up to $22.69 per customer per month for 50 Mbps speeds and Videotron Ltée. (a Quebecor Media Inc. subsidiary) can only charge $26.89 for 50 Mbps speeds. “It’s very strange. We’ve got lower rates than Bell, lower rates than Cogeco, lower rates than Videotron,” Ken Engelhart, Rogers’ senior vice-president of regulatory affairs, told The Wire Report shortly after the decision was released Tuesday. Incumbent ISPs can also choose to implement a monthly “capacity” charge based on the amount of “pipe” the reseller ISP orders to move traffic from incumbent’s network. The larger the pipe, the more traffic a reseller can accommodate during peak periods when Internet congestion is heaviest. On the capacity side, the CRTC's rates are based on 100 Mbps pipe sizes, with MTS Allstream approved to charge each third-party ISP $281 per 100 Mbps of capacity, Rogers aproved for $1,251, Videotron up to $1,890 and Bell up to $2,213. Cogeco’s monthly rate per 100 Mbps is the highest at $2,695. Incumbents and reseller ISPs are both expressing concerns. “My initial response was favourable because I very strongly believe that anything we pay for usage should be based on capacity as opposed to aligned with data transfer,” Cohen said, noting that many companies involved in the commission's review of its wholesale pricing proceeding were preoccupied with a new capacity-based model and didn’t examine the rates too closely. “The flip side is that the usage rates, we think, for some of the incumbents, are really out of line … in particular as we move into over-the-top television, which a lot of people are ready to do.” Should over-the-top television services like websites, Netflix or Apple TV drive bandwidth consumption significantly higher in the coming years, as most experts predict, the small ISPs will have to purchase more capacity to operate without disruptions, he said. “It’s revenue-neutral right now, but six months from now, two years from now, it’s going to become a real impediment to offering the kinds of services that people want,” he said. Reseller ISP TekSavvy Solutions Inc. has also questioned the new rates, as has the Canadian Network Operators Consortium (CNOC), a coalition of small ISPs. In an interview with The Wire Report Thursday, Denis Carmel, a spokesman for the CRTC, said all of the new rates are based on what each incumbent said it would cost them to deliver third-party access to their networks. “The rates were determined function of the costs that they file,” he said, noting that the commission held confidential consultations with each company to scrutinize the costs they filed. Carmel said factors such as geography and economies of scale can affect the costs that each incumbent incurs to provide wholesale access services. “Each company has a different customer base and idiosyncrasies that may explain some of the differences between rates from one company to another,” he said. “Cogeco has a customer base that is a lot more rural, so costs would be higher to provide service to the same amount of subscribers because they would be fewer and farther between.” The commission, in its decision, applied an undisclosed markup to each company’s costs to cover overhead expenses and to allow each company to earn some profit from wholesale connections. “They all have the same markup,” Carmel said. Carmel acknowledged that “the art of costing is a black art” that few people in Canada can understand even within the telecommunications industry. “Not that many people in Canada can understand and go into that level of detail,” he said. Although no company or party has filed an official review of the new rates, several companies have indicated they may. “There will be some kind of a challenge, I’m sure, but I don’t know what form it will take,” Cohen said, noting that his company is interested in joining any challenge launched by CNOC, of which Distributel is a member. Carmel noted that the Telecommunications Act provides each company with the right to ask the commission to review and vary the decision. In the days following the decision, incumbents BCE, MTS, and Videotron have also voiced concerns about the rates—particularly the discrepancy between different incumbents. Speaking on background and requesting anonymity, one executive with an incumbent ISP agreed that a challenge of the decision is likely. “My sense of the landscape is people either don’t like it or think it’s OK,” the executive said. “The only people who liked it were OpenMedia and Michael Geist, but last time I looked neither of them owned a network.” nkyonka@thewirereport.ca

Momentum swelling for review of CRTC’s new UBB rates, telcos say

News | November 18, 2011

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