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CRTC goes REM on UBB: everybody hurts, sometimes

16 Nov

The CRTC’s usage-based billing decision is in and boy is it a lot to digest, which is perhaps why there were so many conflicting reports in the media as to who exactly the winners and losers are or will be. After reading and digesting the long document and speaking to a number of the small internet providers that will be affected by it at the ISP Summit dinner on Tuesday night, it’s hard to see how anybody really wins with this decision. Burdened with the impossible task of trying to make everybody happy, perhaps this was the CRTC’s desired outcome.

To understand the ruling, as usual we need to delve past the headlines and the press release. I swore I’d never use the “devil is in the details” expression, but the demon certainly is in the fine print. In the case of this decision, it’s in the appendix, way at the end, which is a bunch of prices. I’m not a network guy so I’m sure I’ll get some of this wrong – even the experts will need a few days to digest and crunch the numbers – so feel free to jump in and make corrections.

The key lies in the CRTC’s chosen method of allowing big network owners to charge smaller ISPs based on capacity, rather than by the byte. Bell et al wanted to simply total up how many gigabytes an ISP such as TekSavvy used per month and bill accordingly. The regulator went with a far more complex method – at least for the average person to understand – which most ISPs I spoke to seemed to support because it gives them a ton of flexibility in what kinds of services they can offer and at what prices. The system is good, they said, but the amounts they must pay to network owners are wrong, if not wretched. For many of them, this will change the way they do business and/or lead to price increases.

The CRTC assigned each big network owner different rates that they can charge based on what each said their costs were. So, if you’re a small ISP and want to connect to Bell’s network, for example, it’s going to cost you $2,213 per 100 megabits of throughput per month. From there, each small ISP has to take a look at what their subscribers are doing with their connections, then do some number crunching. If watching standard-definition video online requires about 3 megabits per second of capacity, for example, that means that 100-megabit block will accommodate 33 users if all of them do in fact watch video at the same time.

The ISP therefore has to project how much capacity it will need and purchase accordingly. If the ISP, for example, expects to have 10,000 customers online watching video at any given time, it would need to purchase more than 300 of those blocks, which would cost the company around $663,000 a month. The ISP can purchase less capacity in the expectation that not all of those 10,000 users will use video all at once, which is where the flexibility and planning come in. The danger in buying too little capacity, of course, is that if more users than projected do indeed get online and stream video, they may all experience lag, buffering and so on.

What the CRTC appears to be going for is the spurring of competition between network owners for the business of small wholesale ISPs outside of its whole regulated scenario. The same 100-megabit capacity block on Rogers costs only $1,251, or almost half of that as Bell. Naturally, the logic follows that small ISPs in Ontario are going to purchase their capacity from Rogers rather than Bell. If Bell has any desire to keep their business, it is therefore encouraged to offer a better deal than the prices set by the CRTC. In other words, Bell has a big incentive to go off the rate card and give ISPs a cheaper deal than Rogers. Perhaps Rogers will counter by going even lower.

That’s a nice idea in theory. Whether it will work is anyone’s guess – many observers have a right to be cynical because the CRTC has been trying to spur this sort of wholesale-level competition for as long as there’s been a wholesale regime. More to the point, it wasn’t so long ago that Bell was trying to kill off small ISPs completely, so there are questions about whether any of the big ISPs even wants small ISPs’ business. In any event, indie ISPs at least have that lower regulated Rogers rate to fall back on.

That said, Manitoba sure looks good. MTS Allstream’s price for each 100-megabit block is only $281, or about a tenth of Bell’s. As one ISP suggested, perhaps we should all move to Manitoba, where internet capacity is cheap and plentiful.

For the rest of Canada, small ISPs say these prices are going to result in big changes. The head of one Ontario ISP told me he’s planning to dump all his residential customers and just stick with business users because the economics don’t make sense anymore. Marc Gaudreault from TekSavvy, the provider that has received the most attention during this whole usage-based billing schmoz, says he expects his costs to rise 20 to 40 per cent. He said it’s too early to predict how much of this extra cost will be passed on to customers, but I heard $15 bandied about by others. TekSavvy, for the record, would have liked a capacity rate of around $800 for a 100-megabit block.

Ultimately, the thing that doesn’t sit right with the CRTC’s whole scheme is that it seems to guarantee that the end subscriber’s cost will continue to go up as internet usage in general increases. While that capacity price calculation example above is based on people viewing online video, that’s only standard definition. If those viewers start using high-def, the amount they use per second doubles to about 6 megabits per second, which can instantly and dramatically boost the ISP’s cost.

Small ISPs might be able to count on gaining more customers with lower prices and higher usage buckets than the big guys, but that growth is probably going to be considerably slower than internet traffic.

As a few people pointed out, this is wrong-headed since it makes heavier usage more expensive, which was the whole point of usage-based billing in the first place. As I’ve said before, the people in charge of this stuff – whether it’s the CRTC or the government – should be encouraging Canadians to use the internet more, not less. While it is true that network owners must recoup their infrastructure investments, most of that outlay comes from the sunken costs of stringing fiber to homes. Once that’s done, it’s just a matter of upgrading the equipment attached to the end, which is continually getting more efficient and cheaper, which is why the price of bandwidth continues to drop globally.

The hope is that the block prices set by the CRTC will also drop and therefore offset the necessary increased capacity, but who knows if that’ll happen or how fast. The big ISPs will obviously try everything in their power to keep those prices as high as possible and the CRTC has obviously been snookered by them before.

Ultimately, network investment is not a cost that is continually going to go up, yet the way the CRTC’s ruling is structured, it looks like the prices consumers can expect to pay will.

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9 Comments

Posted by on November 16, 2011 in crtc, internet

 

9 responses to “CRTC goes REM on UBB: everybody hurts, sometimes

  1. Jonathan

    November 16, 2011 at 11:05 am

    This is the best analysis of the decision I’ve read so far. My understanding is that Bell and co. shared their costs with the CRTC in confidence. Something is really rotten if you can have such a large cost divergence between Bell and MTS, for example. Maybe someone with more technical knowledge than me could explain what might account for the large cost gap between the two companies.

     
    • petenowak2000

      November 16, 2011 at 11:19 am

      Part of the reason is the difference in size, both geographically and customer base. I was also told that the companies that ended up with higher rates were simply better at inflating them and getting the CRTC to believe it, hence the big difference between Bell and Rogers.

       
  2. Cory Charron

    November 16, 2011 at 12:55 pm

    Love that someone else gets it.

    $1251 for 100 mpbs service from Rogers bought by the Ind. ISP for resale.
    $100 for 50 mpbs service bought directly from Rogers by the consumer.

    Where is the justice?

     
  3. Cory Charron

    November 16, 2011 at 1:13 pm

    I also don’t see how a new upstart Ind. ISPs will have a chance under this new system since the only way to benefit from it is to oversell. It seems to me it would be hard to oversell when you have no volume (fewer clients). In the end, this system will create less competitiveness, not more.

     
  4. Steve Cole

    November 16, 2011 at 2:28 pm

    Actually this isn’t even right at this point. Right now and *FOR THE LAST 12 FEEPING YEARS* Bell’s price has been entirely flat-rate. And they didn’t have a problem with that at all until someone at Bell decided that the wholesalers had it too good and that future growth in revenue would be well served to come from their “competitors”. It’s clear that they don’t see the independents as partners, despite long-winded kvetching to the contrary.

    So anyway you look at this, Bell and other incumbents have set themselves up to make considerably more for a service that 12 years ago was a profitable venture for them – despite the fact that the commodity pricing of both connectivity and data have come down dramatically worldwide. And despite the fact that all their aging equipment will be replaced (at no huge cost, unlike the fiber itself) with new standards that have 10 to 100 times the capacity of the network backbone equipment they will replace.

    That’s right… they are doing all of this because their “capacity is being used up” and no matter what happens, they will be increasing that capacity by at least tenfold in the near future since their aging equipment will need replacement.

    It’s a giant helping of B.S. and the CRTC has put it between two slices of bread and is gulping it straight down.

     
  5. Chris

    November 16, 2011 at 2:55 pm

    Jonathan: The technical term is “greed, and anti-competitive maneuvering.”

    ” Maybe someone with more technical knowledge than me could explain what might account for the large cost gap between the two companies.”

    Its a well established fact that Bell wants to be the only DSL ISP in their coverage areas. This pricing basically means that the cost of a Gig-E connection from Bell to any IISP goes from about $1700 a month to 10 x 100 Mb/s = 10 x $2200 ($22,000) – according to the CRTC a price increase of 1290% is “fair” for all concerned. Good thing they don’t handle property tax or rental rates.

     
  6. Dave

    November 16, 2011 at 5:05 pm

    Since indie ISPs must purchase for their peaks to avoid unhappy customers, we’ll all be charged as if all our data was transmitted at peak times. At off-peak times, when data is essentially free and most of the capacity is unused, well, tough. There’s no incentive whatsoever to move our data usage to off-peak times. My online backup program lets me schedule usage to certain times of day, but why should I bother when I pay the same when I let it run at peak hours?

    Not having read the decision, was there anything in there about how often these rates are up for review? The cost of data transmission is plummeting so what seems ridiculously high now will be unbelievable six months from now. In a year or two we’ll all be walking funny while Bell and Rogers look on with glee.

    How is it possible for there to be such a divergence in rates between carriers in Canada? How is it possible for costs to be that much higher than the rest of the world where their prices are already significantly lower than Canada, and we’re looking at a $15/month increase now?

    Just how does Bell justify $2200 month after month for a measly 0.1 Gbps link? I simply can’t believe it costs them $27,000 per year to install and maintain that low a capacity link. Thank goodness I don’t buy my home networking gear from them, otherwise I’d have to take out a second mortgage on my house.

     
  7. Steve Cole

    November 16, 2011 at 6:43 pm

    Remember, Bell is not even *offering* Internet on the service that the ISPs are buying. The ISP has to add that, plus customer service, to the user accounts.

     
 
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