‘Many’ ISPs could shut down due to wholesale regime: CNOC

Small, wholesale-based internet service providers could be forced out of business within the next few years due to the CRTC’s disaggregated wholesale regime, the Canadian Network Operators’ Consortium (CNOC) is telling the panel in charge of reviewing Canada’s broadcasting and telecom laws. “CNOC cannot overemphasize the seriousness of this situation. Some of its members have reported subscriber losses above 50% in the last few years,” it said in its submission to the review. “Absent regulatory action, many service-based competitors will not survive more than 1-3 years from today’s date, simply because of the regulatory lag in providing them with access to an essential facility.” The organization representing small ISPs filed a Part 1 application with the CRTC in November over what it called an “existential crisis” to the industry, stemming from a 2015 CRTC decision to implement a new “disaggregated” wholesale regime. Under that regime, the final rates for which have yet to be set by the CRTC, small providers get access to the big telecoms’ fibre-to-the-home (FTTH) networks in exchange for using their own transport facilities. To incent providers to move to the new regime, the CRTC put a 100 Mbps speed cap on the old, aggregated regime, which CNOC wants to see lifted, and which big telecoms want to stay in place. That puts limits on what the small providers can offer subscribers, who increasingly want higher speeds, according to CNOC, which says the costs to operate in the disaggregated regime are currently too high and the configuration scheme is unfeasible. Much of CNOC’s submission to the review focused on the disaggregated regime. It said the disaggregated wholesale model -- which small ISPs initially welcomed -- is so unworkable, no small providers “are actually able to access these FTTP facilities at this point in time.” It argued CRTC data released in late 2018 showing growth in its independent ISP category is due to the expansion of Xplornet Communications Inc., and as such is “very misleading.” Its submission outlined that “the information that CNOC has obtained from its own members is extremely discouraging and paints a picture of service-based competitors being in an unprecedented crisis.” When asked whether CNOC’s interpretation is correct, a CRTC spokesperson said because data about individual companies is filed in confidence, the regulator couldn’t offer any further information. CNOC is proposing a number of changes to communications legislation, including a new section for the Telecommunications Act that sets out rules for the provision of wholesale service, such as that it be made available as promptly as possible and at rates “set at levels calculated by strict adherence to the current rate of methodology.” It also asked for a barrier to exchanging data between the incumbents’ wholesale and retail arms, saying that its members have reported incumbents use “information that they could have only obtained from their wholesale function to target service-based competitors’ subscribers.” Small ISPs who filed their own submissions also pointed to high wholesale fees as a barrier. The CRTC is currently considering the final rates it will set for both the aggregated and disaggregated regimes. VMedia Inc. gave the example of one case where the interim approved tariff for one incumbent is $121.79 a month, while that incumbent’s highest retail rate is $104.95. “VMedia believes that existing costing processes have shown themselves to be obstacles to the development of a robust and stable competitive market,” it said, adding that the “tariff framework allows incumbents to dramatically undercut ISP pricing, knowing full well the prices paid by ISPs to them for identical services.” It said tariffs should be “fixed through a formulaic mechanism introduced through legislated changes to the Telecommunications Act, and updated every five years by regulation.” It called for an organization, like the Commission for Complaints for Telecom-Television Services (CCTS), to adjudicate disputes between incumbents and their wholesale customers, and that future spectrum auctions set aside about one-third of spectrum for “one or more multiple wholesale networks, owned by other than current mobile network operators.” Those operators could offer retail service but would also be required to offer wholesale service to others, the company suggested. TekSavvy Solutions Inc. also zeroed in on the rate-setting process, which it said has allowed incumbents to inflate wholesale rates and sell retail offerings at a lower price than their own wholesale prices. TekSavvy was among intervenors who pointed to a 2016 decision that criticized incumbents for “unreasonable” rates as an illustration of the problems they say plague the rate-setting process. “Beyond the surface issue of competitors paying more than we ought to have, those inflated output costs led to a universe of downstream issues including input cost uncertainty and investment paralysis or risk aversion for competitors’ own investments and innovations,” it said. It suggested addressing this through a new policy direction from the government to the CRTC that “enables the CRTC to regulate where required to promote competition, rather than relying on market forces.” The Canadian Communication Systems Alliance (CCSA), meanwhile, focused its submission on concerns about vertical integration. It said its members are “dependent on the VI companies -- who own content and networks that deliver them -- for things like "Canadian programming, satellite delivery of television programming signals and, to a growing extent, terrestrial network interconnections for delivery of such content to their systems,” while competing with them for retail customers. It said the CRTC should be given more authority to respond to anti-competitive behaviour that falls under the Broadcasting Act, and outlined a number of such powers it currently lacks under that legislation. That includes the power to make regulations “that govern commercial relationships and agreements among actors in the marketplace,” to make mandatory orders, impose administrative monetary penalties, make interim decisions and award interim relief. The submissions from small telecoms were among the more than 2,000 the expert panel members will have to consider ahead of an interim report due June 30, the same date all such submissions will be made public. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Ahmad Hathout at ahathout@thewirereport.ca

‘Many’ ISPs could shut down due to wholesale regime: CNOC

News | January 17, 2019

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‘Many’ ISPs could shut down due to wholesale regime: CNOC

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