Capacity billing rates make or break for wholesale Internet regime, small ISPs say

The CRTC's review of the “capacity-based billing” rates it established in November 2011 will make or break wholesale Internet services provided by the incumbent cable and telecom companies, the chief executives of two small Internet service providers (ISPs) said. In interviews with The Wire Report last week, Marc Gaudrault, CEO of small ISP TekSavvy Solutions Inc., and Peter Rocca, CEO of Start Communications, said they have seen few if any new residential customers signing up for their DSL Internet services, provided through wholesale connections to BCE Inc., since the rates established last year came into force in February 2012. “We’ve not seen any significant growth on DSL,” Gaudrault said. “Most of our users that were on DSL a year ago, the majority .” Like other small, third-party ISPs, TekSavvy and Start lease wholesale access to incumbent providers’ infrastructure to offer their own retail Internet services. In telecom decision 2011-703, issued in November 2011, the CRTC established the maximum rates each incumbent can charge for network access under its new capacity-based billing regime. The commission is now considering several applications to review those rates, based on costs the incumbents supply related to their wholesale access services, plus an undisclosed, fixed markup. Industry sources said on a background basis they expect the CRTC to release its decision on the new rates late next month or in January 2013. In the capacity-based billing decision, the CRTC said Bell’s cost of providing wholesale access to its copper, DSL network justified a maximum charge of $2,213 per month per 100 Mbps of capacity ordered by a small ISP. In addition, Bell can charge small ISPs up to $25 per month for each of their retail subscribers, depending on the service speed package they subscribe to. The CRTC-approved wholesale rates vary significantly from company to company, many of which have requested increases as part of the reviews. Rogers Communications Inc. and Videotron Ltd., a Quebecor Media Inc. subsidiary, asked for reviews, as well as MTS Allstream Inc., whose commission-approved wholesale rate is capped at $281 per month for DSL service, or 12.7 per cent of Bell’s approved rate. In a Feb. 10 application, Rogers said it objected to adjustments the commission applied to the company’s costs, leaving it with unreasonably low rates. The Canadian Network Operators Consortium (CNOC), a coalition of small ISPs, has complained that all of the CRTC's monthly capacity rates are too high, save for MTS Allstream’s. Rocca said one of the reasons customers are moving to cable is lower, CRTC-approved wholesale billing rates charged by cablecos Rogers in Ontario and Videotron in Quebec. Rogers and Quebecor can charge $1,251 and $1,890, respectively, for each 100 Mbps of capacity. They also have comparable—if not cheaper—per-subscriber rates for most service speeds. This means small ISPs must charge more for DSL services than a comparable if not superior cable service, he said. “You look at $30 cable package for 6 Mbps or you look at $35 for DSL, and it’s a no-brainer which one people sign up for,” Rocca said. “Where the growth is coming from in the residential market, it’s all .” Cogeco Cable Inc., an incumbent cable provider in Quebec and Ontario, has supplied higher capacity rate costs than Bell, so that its CRTC-approved rates allow it to charge $2,695 for each 100 Mbps of capacity. Start’s website says it charges $30 for a cable-based Internet package that offers 6 Mbps and 100 GB of monthly usage in Ottawa. A 6 Mbps package on DSL is $35 per month under a 200 GB monthly data cap, the website says. TekSavvy charges $25 per month for a 6 Mbps cable service, $40 for 18 Mbps, and $47 for a 28 Mbps package in Ottawa. For DSL, the company charges $30 for a 6 Mbps package, $40 for 10 Mbps, $43 for 15 Mbps, and $53 per month for a 25 Mbps package. Gaudrault said TekSavvy’s rates will become unsustainable as consumers turn to bandwidth-consuming online streaming services in the years to come. As TekSavvy subscribers’ average consumption levels rise, he said, so does the amount of capacity his company must order each month, leading to higher costs. Internet technology company Sandvine Inc. said this month that the rising popularity of “real-time entertainment” options like online streaming services caused North American bandwidth consumption to double over the past year. In March, Cisco Systems Inc. predicted global Internet traffic to rise from 180 exabytes in 2010 to 486 exabytes, or about 486 billion gigabytes, in 2013, mostly due to video consumption. “Something needs to give,” Gaudrault said. “If something doesn’t change, rates will have to go up. I’m basically holding my breath and hoping we get a decision soon.” In the past year, Bell has offered “off-tariff” discounts to some of its larger wholesale Internet customers, reducing monthly capacity rates and other charges such as activation fees or “dry loop” fees. In one promotion filed with the CRTC in November 2011, Bell offered reduced rates and installation fees for wholesale customers with at least 5,000 subscribers. Mirko Bibic, chief legal and regulatory officer at Bell, said in a phone interview last week that the company is willing to discuss off-tariff rates with any of its wholesale customers. “As a matter of philosophy, our wholesale group views ISPs of all sizes as potential customers, as good customers, and we’re always willing to negotiate off-tariff arrangements,” he said. “We really do want to reach arrangements without regulatory intervention. If there’s a business case supporting it, we’ll do it.” Rocca said Start does not currently have any off-tariff wholesale arrangements with Bell. He said neither of Start’s cable-based wholesale providers, Cogeco or Rogers, have offered off-tariff, discounted rates. Rocca said technological advances have allowed cable-based Internet providers to ratchet up speeds while DSL services are essentially capped at about 25 Mbps. DSL also has some advantages over cable, he said, such as steady bandwidth speeds that don’t fluctuate based on how many customers in the neighbourhood are on the web. “There are some advantages to DSL,” he said. “Not a lot of people need them, but there are some.” DSL can be marketed to appeal to consumers looking for steady bandwidth speeds during peak periods, and this strategy would only be sustainable if Bell’s capacity rates come down, Rocca said. “Absolutely, I think a year from now, or at least two years from now, if Bell can’t offer apple-to-apple services with cable, then they obviously have to come in with a lower priced product to fill a niche,” he said. Bell’s expanding fibre-to-the-node network, which is slowly replacing its DSL lines, could attract small ISPs seeking higher speeds in the years to come, though the CRTC-approved rates for fibre also needs to be lowered, Rocca said. The CRTC’s capacity-based billing regime allows telcos to charge a 10 per cent mark-up for wholesale access to fibre-to-the-node networks, Rocca noted, adding that Bell also charges a higher installation fee for small ISPs connecting to its fibre network. “Bell has actually done a pretty decent job of rolling out their FTTN over the last year,” he said, “but the entry cost to it is very high.” BCE subsidiaries Bell Canada and Bell Aliant have asked the commission to review the rates for wholesale service over their fibre-to-the-node networks with a view to increasing them. The commission did not assign monthly wholesale capacity rates for SaskTel, Shaw Communications Inc. and Telus Corp., which charge small ISPs on a monthly per-subscriber rate only. Bibic told The Wire Report this month that fibre networks represent “a massive undertaking” for the incumbents as they each incur hundreds of millions of dollars in capital expenditures for the build outs. nkyonka@thewirereport.ca CORRECTION: A previous version of this story contained an inaccurate conversion of exabytes to gigabytes.

Capacity billing rates make or break for wholesale Internet regime, small ISPs say

News | November 28, 2012

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