The CRTC and Usage Based Billing
Much of the public anger has been pointed toward the CRTC and its decisions involving usage based billing and wholesale Internet access (interim approval, approval for UBB, first review, second review). Anyone taking the time to read the CRTC’s decisions will likely arrive at the conclusion that it simply does not know what to do about the issue. In recent months, it has issued several decisions on essentially the same question – can (and under what conditions) Bell impose UBB on the regulated Gateway Access Service (GAS) that is used by independent ISPs? The Commission has ping-ponged back and forth with no clear idea of what it is trying to achieve. Indeed, the recent decisions have been almost completely devoid of policy analysis or linkages to the frameworks that are supposed to guide the CRTC, leaving the sense that the Commission is making it up as it goes along (the latest decision involves no analysis of why its approach is consistent with the policy direction, only a flat statement that is).
The use of UBB is not new. The CRTC approved its use by cable providers over ten years ago. The original reasoning – that cable Internet is shared by hundreds of people and that measures may be needed to address network congestion – may have been reasonable in light of the particular time and technology. However, the current UBB regulatory fight involves a much different set of circumstances.
First, the regulated GAS is not an Internet service but rather a connection between end users and the independent ISP. The actual provision of Internet services comes from the independent ISP, not from Bell. Independent ISPs need the GAS in order to reach the end users themselves, since only telco and cable companies have the “last mile” connection to the customer. Many countries require some form of open access to this last mile in order to enhance competition among Internet providers.
Second, while the independent ISPs are independent operators, the recent regulatory history makes it clear that Bell would like to turn them into little more than resellers of Bell’s residential Internet services. By imposing UBB at the wholesale level, Bell ensures that independent ISPs cannot significantly distinguish their services from Bell’s – both will face identical caps, limitations, and deep packet inspection. This will greatly undermine the competitive environment among independent ISPs, who already face enormous challenges competing with companies that can offer deep discounts on Internet services by bundling a wide range of additional services (local phone, long distance, TV, and wireless).
Third, while Bell claims that network congestion is to blame for usage based billing, there is ample reason for skepticism about these claims. It should be noted that there is no particular reason for Internet congestion to occur on the Bell network due to the independent ISP’s customers, since their access to the Internet comes after they have been connected to the independent ISP. While Bell would undoubtedly respond that GAS is an aggregated service (meaning the independent ISP customers and its own customers are aggregated over part of the network), there are mechanisms to address this issue without imposing UBB. For example, Bell could offer independent ISPs a bulk wholesale service that would allow them to allocate the bandwidth as they saw fit – same overall bandwidth usage but without the UBB.
Fourth, arguments in support of UBB are frequently accompanied by the claim that the approach is like any other service – you pay for what you use. Yet Bell’s UBB plan approved by the CRTC does not function like this at all. Its plan features a 60 GB cap with an overage charge for the next 20 GB. After 80 GB, there is no further cap until the user hits 300 GB. In other words, using 80 GB and 300 GB costs the same thing. This suggests that the plan has nothing to do with pay-what-you-use but is rather designed to compete with similar cable ISP bandwidth caps. In fact, Primus has gone further, stating “It’s an economic disincentive for internet use. It’s not meant to recover costs. In fact these charges that Bell has levied are many, many, many times what it costs to actually deliver it.”
The right thing would have been for the CRTC to focus primarily on how it can foster greater competition in the ISP marketplace. Instead, its decisions will make it very difficult for independent ISPs to compete using the GAS service. Since establishing a new connection to end-users is cost-prohibitive at this stage, the competitive environment is severely harmed by wholesale UBB.
Bandwidth Caps in Canada
While the CRTC’s UBB decision provides the immediate impetus for public concern, the reality is that the bandwidth cap issue in Canada is far bigger than just this decision. The large Canadian ISPs control 96% of the market, meaning the independent ISPs are tiny players in the market. Even if the CRTC denied Bell’s application for wholesale UBB, it would still only constitute a tiny segment of the overall Canadian Internet market.
As virtually every Canadian Internet user knows, the Canadian market is almost uniformly subject to bandwidth caps – the OECD reports that Canada stands virtually alone with near universal use of caps. The scale of the Canadian caps are particularly noteworthy – while Comcast in the U.S. imposes a 250 GB cap, Canadian ISPs offer a fraction of that number:
- Videotron starts at 3 GB for Basic Internet, 40 GB for its next plan and tops at 200 GB for very fast speeds at $149/month
- Rogers Lite service caps at 15 GB, it fastest service stops at 175 GB
- Bell’s Essential Plus service offers a 2 GB per month cap, climbing to 75 GB for its fastest service
The caps are already having a consumer impact as Bell admits that about 10% of its subscribers exceed their monthly cap (a figure that is sure to increase over time). Moreover, the effect extends far beyond consumers paying more for Internet access. As many others have pointed out, there is a real negative effect on the Canadian digital economy, harming innovation and keeping new business models out of the country. Simply put, Canada is not competitive when compared to most other countries and the strict bandwidth caps make us less attractive for new businesses and stifle innovative services.
Addressing the bandwidth cap concern involves far more than reversing the CRTC’s poorly reasoned UBB decision, however. Independent ISPs have functioned without UBB for years, yet have struggled to make a serious dent in the overall Canadian Internet services marketplace. Moreover, the CRTC has indicated its strong preference for “economic measures” to address bandwidth congestion. In other words, it actively encouraged ISPs to use bandwidth caps and similar pricing measures, rather than using technology to throttle Internet traffic.
While it could reverse its approach, the widespread use of bandwidth caps in Canada is a function of a highly concentrated market where a handful of ISPs (literally – Bell, Rogers, Shaw, Telus, and Videotron) control so much of the market that they can impose wildly unpopular measures without much fear of losing customers. Simply put, there are no viable alternatives for most Canadians. Given that losing Internet access is also not an alternative, bandwidth caps will remain in the market for as long as the market remains uncompetitive.
So what should be done?
There are many steps that could be taken, but it all boils down to two main strategies – taking concrete steps to increase competition so that bandwidth capped service becomes one of several models available to consumers and preventing the current dominant ISPs from abusing their position.
Steps to foster greater competition could include:
- nurturing the development of a viable independent ISP market through mandated “open access” without wholesale usage based billing and with mandated speed matching. In other words, try to level the playing field between the dominant providers and the independents by rescinding the UBB decision
- open the Canadian market to greater competition by removing foreign investment barriers, particularly for wireless broadband services that play a key part of the forthcoming spectrum auction
- work with provinces and municipalities to develop community-based broadband networks that are not reliant on the dominant ISPs
- work with Canarie, Canada’s research and education high speed network, to link local communities and provide alternatives to the dominant providers (I am a Canarie board member)
- impose open access requirements in new spectrum allocation and build open access requirements into new residential developments, municipal construction, and other initiatives
New competition is essential, but it will realistically take several years before new competitors can make their mark on the market. In the meantime, it is also crucial to addressing the potential for abuse:
- The Canadian Competition Bureau has not been active on this file, despite the potential for serious anti-competitive behaviour as the dominant ISPs could use their position to favour their own content (when vertically integrated) or create economic incentives that favour services such as their own video-on-demand over Internet based alternatives (by, for example, counting bandwidth for Internet alternatives against the cap but not the same content offered by VOD). The Bureau should aggressively investigate abusive behaviour as well as questionable marketing tactics.
- Where UBB is used, there should be measures to ensure that they are not used for anti-competitive purposes. For example, there are fears that Bell’s wholesale UBB will be applied to IPTV usage by independent ISPs, but will not be similarly applied to Bell customers.
- The Internet traffic management practices issues come into play here as well. The CRTC has been active on the disclosure side, but without active audits of ISP practices, it is virtually impossible to know whether current throttling practices are needed or deployed largely to harm competitors.
- There is also a privacy dimension that may warrant investigation by the Privacy Commissioner of Canada, given the need for monitoring usage in order to levy UBB. This raises privacy questions about possible collection of personal information of independent ISP customers who have no direct relationship with Bell.
While there is great anger with the CRTC and the dominant ISPs, we should recognize that the current market is a product of years of regulatory neglect and policy choices that created one of the most converged communications markets in the world. As Canada’s global rankings slide down, we are now paying the price for those choices and it will take a concerted policy effort by governments and regulators to put us back on course.