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The CRTC's Declaration of Independent ISP Independence

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Monday November 21, 2011
Last week, the Canadian Radio-television and Telecommunications Commission released its much-anticipated usage based billing decision. While the ruling only focused on the use of data caps (or UBB) as between Internet providers, the issue garnered national attention with over 500,000 Canadians signing a petition against Internet data caps and the government providing clear signals that it would overrule the Commission if it maintained its support for the practice.

My weekly technology law column (Toronto Star version, homepage version) notes the resulting decision seemed to cause considerable confusion as some headlines trumpeted a "Canadian compromise," while others insisted that the CRTC had renewed support for UBB. Those headlines were wrong. The decision does not support UBB at the wholesale level (the retail market is another story) and the CRTC did not strike a compromise. Rather, it sided with the independent Internet providers by developing the framework the independents had long claimed was absent - one based on the freedom to compete.

For many years, Canada has maintained policies theoretically designed to foster an independent ISP market.  Those policies required the large Internet providers such as Bell and Rogers to make part of their network available to independent competitors. Since the large providers were not supportive of increased competition, the CRTC established mandatory rules on access, pricing, and speed matching.

Yet despite years of tinkering with the rules, the independents only garnered a tiny percentage of the marketplace (approximately six percent). The UBB issue illustrates why the independent providers have struggled since the original proposal would have allowed Bell to charge independent ISPs based on the amount of data used.

While that sounds reasonable, the cost of running a network has little to do with the amount of data consumed.  Rather, it is linked to the capacity of the network - the fatter the pipe, the greater the cost, irrespective of how much data is actually consumed.

Independent providers rebelled against the UBB plans when they realized it would effectively remove their ability to differentiate their services from the large providers. If large providers could charge based on consumption, they could render popular unlimited data plans prohibitively expensive and squeeze the independents out of the market.

The new CRTC approach is based chiefly on opening the door to real competition by granting the independent providers the freedom to differentiate their pricing and services.

First, it adopts a capacity based model for pricing between ISPs, not the volume or consumption models preferred by the large providers. Under the new system, independent ISPs will pay a set access fee for each customer and purchase whatever capacity they think they need. For example, the CRTC set the monthly access fee for an Internet provider using Bell’s network at approximately $14.00 for a customer with speeds of up to 5 Mbps and approximately $25.00 for speeds up to 25 Mbps.

Once the Internet provider has paid those costs, they can offer differing speeds, new pricing models, and whatever service innovations they see fit. This is major change that not only revamps pricing, but it also effectively does away with an earlier speed matching decision that limited the independent ISPs to only offering speeds offered by the incumbents.

Second, the prices for capacity are based on actual costs (plus a reasonable profit), not retail pricing in the market. By sticking to actual costs, the CRTC ensures that independent costs do not swing wildly with the retail market pricing. While there is considerable concern about the actual costs themselves (there is a lack of transparency about the specific numbers and fears that prices could increase significantly), the model is designed to offer independent ISPs greater flexibility.

Third, the Commission has set mandatory deadlines for cable companies to make their networks more readily available for independent providers. For the first time, this offers the promise of competition between large providers to attract the wholesale business as some independent ISPs may abandon Bell in favour of better pricing and speeds with cable.

The CRTC decision won’t change Internet competition overnight - the overwhelming majority of Canadians are still with the large providers - but, subject to getting the numbers rights, it removes many competitive barriers by providing independent ISPs with their own declaration of independence.
Comments (13)add comment

Tony Harper said:

Absolutely agree!
Well, of course nothing can be changed over night but you when there is a will, there is a way so we shouldn't give up on our demands and we should stand behind them! Holiday
November 21, 2011

Seppo said:

FFounder, host of Streaming Guide free online TV service for Canada
Thanks for the great clear summary article.

Why did CRTC set different bandwidth prices for different major ISPs? CRTC should have instead set one maximum price for all ISPs in Canada. With current individual pricing scheme CRTC is enforcing pricing that simply does not make sense. Tenfold cost differences between ISPs for basically the same infrastructure?

In general, CRTC should enforce policy and let the marketplace decide the pricing.
November 21, 2011

Tony Harper said:

Me again!
I forgot to tell you that free market should allows competition and of course it should let independent providers be part of the market also! http://www.cheapholidays.org/p...-holidays/
November 21, 2011

Brennan said:

PR Guy
The question I have is why does the CRTC often fail to understand what would be the best rules of competition for the market? It seems like this happens often enough with the CRTC that it's only when the public outcry comes down the system that there's an actual change. I was worried about how the new rules would turn out, and by your estimation it seems like it's a better system for it, but the real question is why does the CRTC pay so much attention to the big three in the first place to determine what's best for market innovation? (Because, really, the big three in my mind offer next to no differentiation to the average consumer other than branding.)
November 21, 2011

Steve Cole said:

YOU ARE SO WRONG.
Have you looked at the pricing Bell wants? For 1Gbps, an ISP's cost just went from around $1800 for the port cost to about $25,000. That's right. So you're telling us this is the right decision? Really?

And by the way, as an individual I can buy Bell's ICS in a Band C grouping area for $9,500 a month. That's 1Gbps of dedicated *INTERNET* service. Not access to Bell's endpoint network.

Also, if the prices were based in reality, first of all, why did they come out with that original pricing 12 years ago and suddenly it needs to be over 10 times more expensive for a commodity that has consistently come *down* in price? Second, why does a company like MTSS have pricing of $280 per 100Mbps chunk while Bell wants over $2600 and others like Shaw want $1500? How does that make any sense? Has there been an actual audit of these companies to verify the costs? If not...
November 21, 2011

Steve Cole said:

And while I'm Kvetching
In Shaw territory, they are selling a 250Mbps unlimited cable service to residences for $119 per month (bundled.) That's end-customer pricing. So Bell wants $8000 for the same thing, to ISPs - without any Internet access. How does this make any sense?
November 21, 2011

unknown said:

M.
@Steve Cole with regard to prices: My first internet connection in 1996 cost 13$ for a mid-range connection. At the time, I was using a 28.8kbps modem, typical of the time. That 13$ should be around 18$ now with inflation.

It seems that the cost of Internet has gone up a lot of those years. Finding an 18$ connection that's more than an entry-level one seems impossible these days. Hell, Bell can charge 14$ to an ISP for the connection. That doesn't leave much space for profit if you aim for 18$.
November 21, 2011

IamME said:

@Steve Cole
"Have you looked at the pricing Bell wants? For 1Gbps, an ISP's cost just went from around $1800 for the port cost to about $25,000. That's right. So you're telling us this is the right decision? Really?"

This is not sustainable and if it comes to pass will quickly be labeled as anti-competitive behavior and, one would think, be dealt with by the competition board.
November 21, 2011

Hub said:

...
@Steve Cole: I don't think Michael Geist is wrong. He even outline the lack of transparency in the pricing, which is what Bell (as a biggest offender) is abusing.

But it surely in the short term, won't be beneficial to the price. Now if in Quebec or Ontario, Teksavvy can offer a cheaper service on cable (Videotron and Rogers respectively), on would hope that Bell would just eat it and lower their price.

I do believe that the only policy mistake is in setting the actual tariff by accepting as gospel a cost detail in confidence. This tariff being public policy, the cost from telcos should be public. If they don't want to have it public then they shouldn't have a say in it.
November 21, 2011

Jason said:

Good points brought up in replies
I do agree with @Steve Cole and the reason why a lot of people are saying it's more a compromise than a win on either side.

I will admit that the decision does foster better competition and that the pricing model being used is very fair for independent ISP. So yes, that is a big step forward for finally getting reasonable consumer prices.

What really 'soured' the taste to the win is the actual tiered prices being used. As pointed above, why do different providers have such huge price variety? I would have expected a lot of the prices to be closer together... in some cases there's a 10 fold difference. Again, that's a transparency issue, and this is what the indie ISP are griping about. Some have said the new wholesale prices will force an increase in rates (that is still to be seen though).

As for letting the market forces dictate the wholesale market... can we really say that? Is there enough wholesale market competition in Canada where wholesalers will try to undercut each other to get a sale? Or is the wholesale market very much like consumer and there is very limited choice? If it's the latter, then the CRTC needs to set the price because, as we know, market forces do not work with limited choice.

However, that said, at least the decision is still a step in the right direction. We, as a people, need to keep the pressure up and force more changes until we finally get an ISP market that rivals the rest of the world.
November 21, 2011

Joah Moat said:

...
I think once again this is lateral strategy (coming at us from the side). This is why we have had such a controversial opinion from all sides on the decision, because it is not head on and we cannot estimate the effects using conventional measures.

The way I understand it, the CRTC has given permission for bigwig media to "sell" their bandwidth to independents according to "their" profile. And the only concrete measure provided by the CRTC was that it could/should be sold in 100 mbs intervals (?)

So Mr.Geist suggests that there is a fair market clause attached by the CRTC as well. From what I understand the customers must pay an access fee based on capacity and then pay for the capacity. Isn't this the same as Usage? (Maybe even worse? From what I understand it, this is set up like a membership. Now instead of paying at the pump, you must buy your *card and payscale all at once. Is this right?)

So what is stopping bigwig media from stating the cost of capacity higher than what they can provide themselves? Or their pseudo kiosks? If it's just fair market equity then that's bs. Cause when it comes down to meetings behind closed doors between the CRTC and the bigwigs, it'll be the side with 100+ lawyers that determine fair market value.

Cheers,
November 21, 2011

Chad English said:

Alternate approach
I wonder what are the benefits to alternate approaches to "tinkering with the rules". For example, what if we forced the separation of interests (as good economics dictate) by mandating the separation of the "pipe ownership" from the content. This might mean creating separate companies that own the cable and the telephone lines, which would be "natural monopolies" in economic terms and so perhaps a public non-profit would be the best means for ownership. Bell, Rogers, Shaw, and anyone else then has the same terms to buy capacity without the need for CRTC oversight or tweaking of the rules. This also avoids regulatory capture issues.

The business case then for selling and upgrading capacity is then based on market forces, including expansion and true costs of operation. Smaller ISPs could compete based on level playing field with the big incumbents in the retail market. No more hidden levels of traffic usage. No more conflict of interest in making Netflix cost more via UBB to keep cable TV and satellite sides of the businesses more attractive.

Nationalizing network infrastructure doesn't really sound like Conservative type policies, but this is well-grounded in every economics course, and the idea of letting the market forces work properly and more freely (with less central CRTC tweaking) fits exactly with free market economics that Conservative rhetoric at least superficially references. I suspect the spin from reducing CTRC centralized control would win the Conservatives more support than nationalizing the infrastructure would lose them points.
November 22, 2011

Christian said:

No access in my area
Hi there, Is there a way that i can demand service in my area? Currently the only internet available is dial up or usurious cell data connections. I live approx. 20 mins north of Vaughn in Ontario. Alternatively if that is not available could someone direct me to some sources on how to get access for my subdivision and become my own provider?

Any help would be much appreciated
November 23, 2011

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