Deciphering the CRTC’s internet ruling

21 Feb

scalesThe CRTC decision on usage/capacity-based internet billing is out and, true to form, it’s a complex one with lots of digesting to be done. There have been quick reactions from various parties about how the sky is falling or conversely about how the ruling is great for consumers, but the reality, as usual, falls somewhere in the middle.

The decision can be boiled down to two headline issues: the moderation of cable and DSL wholesale rates, and the elimination of any distinction between business and residential services for wholesale purposes. The first part is contentious, while the second one is definitely good for consumers, businesses and independent internet providers.

It’s probably wise to first set straight how this whole system works. Big network owners such as Bell, Rogers and Videotron are required to allow indie ISPs to access their infrastructure in order to sell their own internet services. This has been a long-held regulation meant to foster competition.

The Canadian Radio-television and Telecommunications Commission’s decision in 2011 implemented a new pricing structure on how these smaller ISPs would pay the network owners. The capacity-based-billing scheme charges them in two ways: once, a set rate for every one of their customers that connects, and twice for the total monthly capacity used by the indie provider.

This system was generally welcomed by the independents, since it allowed them to pay for the actual traffic they generated on the networks, rather than for every gigabyte their customers racked up, as some of the incumbents had wanted.

The problem with the CRTC’s plan, however, is that the prices it approved for each network owner were wildly different from each other. These prices were based on cost numbers provided by each incumbent, and it was pretty clear that some had, ahem, exaggerated more than others. Cable companies such as Rogers, for example, were upset at how much the CRTC was allowing Bell to charge, which was considerably more. Naturally, everybody and their mother appealed.

To any sane betting person, the only realistic solution to expect was a moderation of those prices - some, like Bell’s, would come down, while others, perhaps Rogers’, would go up. Which is exactly what the CRTC did, much to the chagrin of people who were perhaps unrealistically expecting a cut in everyone’s prices.

The regulator found a number of errors in Bell’s costing estimates and thus slashed the amount it is charging for capacity by more than 50 per cent. So, if an indie ISP wants to sell service via Bell with a speed of say, 25 megabits per second, it will have to pay $25.62 per customer. Then, it will also pay Bell $1,036.49 for every 100 Megabits per second of capacity used by all customers. That’s much cheaper than the $2,213 for capacity under the CRTC’s previous ruling. (Note: capacity is not the same as usage, so that’s not 100 megabytes that’s being talked about, it’s a throughout of 100 megabits per second, which is a big difference.)

On the other hand, the CRTC has raised capacity costs somewhat for most cable providers. Rogers, for example, is seeing the price it can charge go up by about 12 per cent to $1,400 per 100 Mbps, from $1,251. For a full spreadsheet of incumbent’s before-and-after prices, concerned citizen and broadband advocate Teresa Murphy has posted one here.

This is both a plus and minus for indie ISPs. Many had been signing up all new customers to cable services because the capacity rates were generally better, but that’s now reversed - DSL is often cheaper.

Will rates for indie cable go up? It’s possible, but not necessarily. Many indie ISPs still have a lot of customers, if not the majority, on DSL, which is getting cheaper. Lower costs there will offset higher wholesale capacity costs on cable, which is still cheaper when it comes to initial access. Rogers’ access charge for 25 Mbps service, for example, is $21.50, or $4 less than a similar connection on Bell.

It’s up to each indie ISP to now juggle those cheaper cable access charges with more expensive capacity prices. The end result could be cost neutral, in which case the CRTC would have successfully made cable and DSL competitive with each other on a wholesale level.

For ISPs that have the majority of customers on cable, such as best-known indie Teksavvy, this means one of two things: they may have to raise rates on cable or re-push DSL services. CEO Marc Gaudrault tells me it’s too early to tell which way he’ll go.

Getting back to the second headline issue, there’s no question that the CRTC’s decision to eliminate wholesale price discrepancies between business and residential services was a good one. The move effectively makes it much cheaper for indie ISPs to offer business service, which opens doors for them and gives businesses more options to choose from. And if those ISPs can make some more hay by servicing companies, that could have a positive spillover effect into residential services too.

So is the decision ultimately good or bad for consumers? It’s tough to say at this point, but it certainly does make wholesale cable and DSL services more competitive with each other. If one had stayed significantly cheaper than the other, the result would likely have ended up in a wholesale monopoly. And monopolies of any sort are generally a bad thing.

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Posted by on February 21, 2013 in crtc, internet, ubb


2 responses to “Deciphering the CRTC’s internet ruling

  1. Kevin

    February 21, 2013 at 5:30 pm

    I think the premise of making Cable and DSL competitive with each other are flawed. Many Canadians don’t know the difference between the two, let alone that there are multiple ways to deliver Internet to their residence. Canadians wants affordable and accessible Internet. Is DSL (and more importantly in the long-term FTTN) more accessible? Yes. Is Cable? If Bell/Telus are not able to continue to roll-out their fiber networks at the expense of copper , this will greatly impact Canadian’s access to affordable services at higher-speeds.

    For Indy ISPs, many of whom have more Cable subs, this will likely mean an increase in prices. The biggest ISPs, like Distributel, will have to push DSL more but wholesale margins are thin as is. Adding costs only makes it worse for them and many Canadian customers.

  2. Marc Venot

    February 22, 2013 at 3:28 am

    In principle in a capitalist society a price shouldn’t be fixed by a bureaucracy but the market. After the CRTC has the right to subsidize some people using the political lever.
    I can testify that with my subscription I have a fat internet, basic tv and crappy phone line.


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