Quebec Internet competition surges as independents offer unlimited plans

Competition in Quebec's Internet service market has picked up since the release of the CRTC's new wholesale Internet access regime as small Internet service providers (ISPs) offer unlimited packages for the first time, providers and experts say. Those providers and experts say independent ISPs that lease access to the cable-based infrastructure of Videotron Ltd. (a Quebecor Media Inc. subsidiary) are benefiting from the CRTC's new wholesale billing regime. For much of the past 10 years, Videotron has run a wholesale usage-based billing regime to charge small providers for network access. This system was permitted under the commission’s previous wholesale access regime, which regulated the wholesale tariffs and billing methods of wireline incumbents but not those of the cable ISPs that leased third-party network access. Many incumbent cablecos chose not to implement wholesale usage-based billing due to a lack of demand for network access services, Mel Cohen, president of independent ISP Distributel Communications Inc., told The Wire Report in an interview. “Videotron, of all the cable companies and of all of the telcos, alone had implemented usage-based billing,” he said. The result, Cohen said, is that small ISPs could not offer unlimited Internet packages to their retail customers and were limited to offering minimal monthly price savings over Videotron’s retail and business rates. Many of the independent ISPs also charged startup costs. “Before, it was pretty much the same poutine everywhere,” Jean-Philippe Béique, president and owner of small ISP Electronic Box Inc., said. “Everyone was selling exactly the same product, but with different networks.” But under the new regime announced by the commission last November and implemented Feb. 1, incumbent cableco and telco ISPs are required to lease wholesale access to their network infrastructure on a capacity billing basis. Cohen and Béique said this has allowed them to differentiate their services and appeal to a wide range of consumers seeking unlimited monthly usage or packages that differ from those offered by Videotron or Bell Canada (owned by BCE Inc.), which also operates in Quebec. “We’ve seen massive growth of new clients,” Béique said. “We pretty much doubled our size in three months.” Distributel has seen an influx of new customers under the capacity-based regime after undertaking an aggressive marketing campaign in the Montreal area, Cohen said. The campaign included ads in the Montreal metro system and Distributel promoters who passed out free Metro newspapers with a full, front-page ad wrap about the company’s new unlimited service. “We did a big launch because a lot of people prefer cable to DSL, and it was the first time we could ever offer ,” Cohen said. Distributel's unlimited plans in Quebec start at $37.95 per month, the company said in January. In a telephone interview Monday, Jean Francois Mezei, a consultant with Montreal consulting firm Vaxination Informatique, said the commission's new wholesale regime has “unleashed pent-up demand” for unlimited Internet packages. He said the resulting surge in subscribers has caused some providers, including Electronic Box, to reach capacity and force them to ask interested customers to wait a month until they increase the monthly traffic capacity they pre-purchase from Videotron. “It’s hard to plan how many customers you can get for each gigabit of capacity you purchase,” Mezei said. Beique said Electronic Box put a stop sale on its 60 Mbps plan for the month until it receives more capacity. The ISP is still selling its lower-tier service, he said. Unlike the incumbent providers, which plan capacity upgrades years in advance, most third-party providers can’t afford to over-purchase network capacity, Mezei said. “They have to be much more tight in terms of how much they purchase versus how much they need,” he said. He said the small ISPs “will learn to manage” their customer demand over time. Aspects of the CRTC's new regime are not set in stone, as several independent and incumbent providers, including Videotron, are challenging the commission-established rates they can charge the third-party providers that access their networks. George Burger, a senior advisor for independent ISP TekSavvy Solutions Inc., said the incumbents have nothing to lose by asking for higher rates. “They’ve all gone back to the well because they saw that clearly there was no disadvantage to asking for higher rates,” he said. In a review and vary request filed with the CRTC in February, Videotron argued that the fixed 10-year wholesale rates the commission established in its decision failed to account for cable providers’ front-loaded costs of wholesale services. This forces the cablecos “to confer substantial subsidies on their wholesale customers in the early years of the study period, with little likelihood of recuperating these subsidies in the later years,” the company said. Videotron asked the commission to impose rates that would decline over a period of time as costs decrease. “uch an approach would provide wholesalers with the benefit of cost savings from increased traffic volumes … would help to protect against the highly speculative nature of later year traffic estimates,” the company wrote. Mezei said Videotron has also rolled out new deals for customers since the small ISPs started advertising heavily in the Montreal area. In an emailed statement to The Wire Report, Serge Sasseville, Quebecor’s vice-president of corporate and institutional affairs, said Videotron is offering its subscribers increased monthly capacity at reduced rates. “For $5 a month, a Videotron customer can now purchase 20 GB of extra data (compared to 5 GB previously). And for $12.50 a month, a Videotron customer can now purchase 60 GB of extra data (compared to 30 GB previously),” Sasseville said. “These new offers are very attractive to the small number of consumers who expect to exceed their monthly capacity allocation on a regular basis,” he said. He said Videotron will continue to promote the company’s “cutting-edge technology, outstanding customer service and one-stop shop approach have enabled us to achieve industry-leading customer satisfaction levels in Quebec.” Videotron said this month it plans to launch a new high-speed Internet service by May that will offer download speeds of 200 Mbps and upload speeds of 30 Mbps. Sasseville said “virtually all” of the company’s wholesale customers have transitioned to the new capacity-based billing regime and that the company is processing requests from those providers for more capacity. Béique said this means the independent providers will be competing for customers looking for unlimited Internet plans. “All the smaller want to get a piece of the cake so a lot of people are putting up some pretty good pricing, and it’s good for the consumers,” he said. “It’s a battleground.” nkyonka@thewirereport.ca

Quebec Internet competition surges as independents offer unlimited plans

News | March 21, 2012

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