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Competition, Not Cost, the Real Story Behind TekSavvy's Pricing Changes

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Thursday January 05, 2012
TekSavvy announced a series of new pricing plans for its Internet services yesterday in the wake of the CRTC usage based billing decision. The focal point of most media coverage (National Post, CBC, Globe) is that costs are increasing by $3 - 4 per month, a move attributed to the CRTC decision which implements a capacity-based model for pricing of wholesale Internet services. While Peter Nowak says this portends a "dystopian future", I remain far more optimistic.

The TekSavvy plans offer both cable and DSL services at different price points, speeds, and usage rates. For example, its fastest cable service offers 24 Mbps with 300 GB per month for $46.95 or an unlimited amount of data for $61.95. The DSL service offers even greater variety with higher price points for its fastest service and a very basic, cheap service of 3 Mbps with a 25 GB cap for $24.95 per month. The DSL service also introduces off-peak usage for the 300 GB plan with usage during off-peak periods not counting against the usage cap. 

These plans are far superior to those offered by Rogers or Bell. The most comparable Rogers plan offers the same speed (24 Mbps) but imposes a 100 GB cap for $60/month. In other words, same speed, same price but 100 GB vs. unlimited data. The Rogers basic lite plan of 3 Mbps has a 15 GB cap for $35.95 per month (less data and significantly higher price). The Bell pricing is similar - its 25 Mbps service is $59.95/month ($27.48 for the first 12 months to get customers to switch) but comes with 100 GB cap. Its basic service costs $33.95 per month for 2 Mbps and just 2 GB of data.

Meanwhile, Montreal-based ISP Electronic Box has also announced new rates in Quebec that feature similar differences between cable (cheaper) and DSL services. In fact, the Electronic Box pricing is coming down for its cable package as consumers will be able to purchase a 60 Mbps service with a 250 GB cap for $54.95. The same speed service previously came with a 150 GB cap priced at $79.95. The DSL pricing is going up but the ISP also offers an off-peak plan that does not count against the cap and is longer than TekSavvy's as it runs from 2:00 am until noon (TekSavvy until 8:00 am). By comparison, Videotron charges $82.95 for its 60 Mbps service with a 150 GB cap.

So what is the real story here?

I don't think it is that TekSavvy is increasing prices by a few dollars per month. First, the TekSavvy increases pale in comparison to what the company announced last year when implementation of UBB appeared imminent. At that time, it promised usage caps starting at 25 GB in Ontario. Second, the TekSavvy price increases are also smaller than those imposed by incumbents like Rogers. One need only search for Rogers Internet price increases to see increases or limitations of service (that effectively meant paying the same for less) on at least an annual basis - 2009, 2010 and 2011. Third, the Electronic Box pricing demonstrates that prices may come down in some places.

Rather than focusing on cost, the real story is competition. This announcement is precisely what the CRTC had in mind when it released its decision. TekSavvy is offering far better plans than the incumbents. For those consumers in Ontario frustrated with small caps or high prices, you have an alternative. TekSavvy's ability to offer unlimited plans and 300 GB for the same or less than the incumbents highlights just how uncompetitive the Canadian marketplace has been and debunks claims that low usage caps are directly linked to provider costs.

TekSavvy is doing more than offering better value plans, however. The greater variability in speeds and the inclusion of off-peak data usage from both TekSavvy and Electronic Box demonstrates how independent providers can begin to differentiate their services from the incumbents. As I argued after the CRTC's decision in November, expect to see more of this as the independent ISPs grapple with the new regulatory framework.

The differences between cable and DSL pricing point to another form of competition. A consumer looking to switch to TekSavvy or Electronic Box is very likely to switch to their cable product, which is significantly cheaper for the same speeds and data usage. If this trend continues, Bell will begin to lose serious wholesale market share as users leave the Bell network for cable via the independent ISPs. This may generate new wholesale competition as Bell lowers wholesale pricing so that it is more competitive with the independent ISP cable offerings.

While the CRTC pricing remains a concern (forthcoming according to a new filing by the independent providers), it seems that we will see real product differentiation. This doesn't mean scrimping on data with middle of the night Netflix viewing (as Nowak suggests) since 300 GB caps allow subscribers to watch three movies a day every day and still have about 120 GB left over each month (or more than the entire Rogers cap). Rather, it means the very real fears of 25 GB caps with no practical competitive alternatives - which was the future many in Ontario were facing less than one year ago - are over. That's the real story from yesterday's TekSavvy announcement, not the price increase that still leaves the company with a better value proposition than the incumbents.
Comments (20)add comment

Wammy70 said:

Not Entirely True
I live just a few hours away from Chatham Ontario in a major city and Teksavvy is not available here so as a consumer in Ontario, I'm still frustrated with the incumbents.

If there is a huge swell of defectors from the incumbents to Teksavvy where the service is available, perhaps the market will force Rogers/Bell to be more competetive.

To say that Ontario as a whole has an alternative though is a little misleading.
January 05, 2012

Bob E. said:

Not bad at all really.
I'm glad to see they even have 25/7 mbps at all. $77.99 for that speed with unlimited bandwidth? I would have considered that impossible in this country had I not seen it for myself. Even the 300 GB cap for $52.99 is a good deal. Others may have other opinions but after years of dealing with Bell's crap and switching to TS with a 5M/800k speed for over half the cost of the previously mentioned, this has a lot more pros than cons for me. I hope it works out.
January 05, 2012

Don J said:

Sorry for you Easterners
My apologies for the hassles you need to go through for high-speed internet. Try http://www.shaw.ca/Internet/ and select Edmonton as your location for what you could be getting. Yes, the prices are higher, but so is the speed. I currently have the Broadband 50 plan (bundled as a package so it costs me $58) so I get 50 MBps download and a 450 GB limit. And, yes, I do get 50 Mbps although, depending upon what I am doing, 30 Mbps is more likely.

To be honest, prior to the UBB hubbub last year the plans were not nearly this nice. I think Shaw listened. In the space of 2 months I went from a 7.5 Mbps connection with a 60 GB limit to a 50 Mbps connection with a 400 GB limit at an upgrade cost of $9.
January 05, 2012

ThatGuy said:

...
@Wammy70 - If you cannot receive TekSavvy, then you live in an area like I do where you cannot get DSL from Bell or Telus, as well as cannot get cable from Shaw, Cogeco, or Rogers. My phone lines are so bad the fastest my dialup connection ever saw (& rarely) was 22Kbps!

My only options are "rocket sticks" on Bell, Rogers or Telus cell networks at ridiculous pricing, or using over-subscribed congested point-to-multipoint via Xplornet, or again paying ridiculous pricing for satellite service. I have tried to get service through other point-to-multipoint ISPs locallyhowever one let me pay but didn't provide working service while the other is too busy to set up service for me!

Currently I use internet at home via my cell phone, drastically limiting what I can do online. Rural consumers have no real options... however if you can get DSL you can get TekSavvy, which from my experience is far more reliable than the cable service most want.
January 05, 2012

Dan said:

...
@ Don J

Man... you do have it pretty well over there in terms of internet. Then again, southern Ontario is the business area of Canada so we're bound to deal with a lot of bull regardless of what the subject is.
January 05, 2012

Jean-Francois Mezi said:

...
I agree with Mr Geist's assesment. The billing structure will fostee differentiation and competition, exactly what everyone (except incumbets) had wanted.

There are technical implementation issues (as raised in the CNOC filing) and the bigger issue of costing.

The cost per 100mbps is extremely high. Ot is possible the CRTC added an unreasonable markup. Hopefully this can be worked on later.

Or perhaps the CRTC hopes to see Bell begging to lower the prices on its own once Bell starts to lose too many wholesale customers.
January 05, 2012

Alex T. said:

Measuring data used is still wrong...
If people are paying for an allowance of transmitted data, then the system is still broken.

The only thing we should be paying for is a rate of transfer. Nothing else.
January 05, 2012

Rob McNicol said:

...
Wow, that's less than my xplornet of 30gigs with a daily 2gig cap.

January 05, 2012

maebnoom said:

This is OK, but
how do all these packages/price points stack up against similar deals, in other nations? That's what I'd really like to know right now.

tnx.
January 05, 2012

Gregg said:

@ Don J
I switched to Shaw and never looked back. DSL is a joke and to see TekSavvy do this with pathetic DSL lines is amusing... 1) they aren't big enough and 2) the technology just isn't worth it.

TekSavvy doesn't attract morons, it attracts exactly what their name is tech savvy people and they are just one day going to go "hey!" and all walk away. It happened to Dowco in the west.
January 06, 2012

Wendell said:

...
I switched to Teksavvy when my annoyance with Bell became intolerable about a year ago. For me, the price change is not a big deal ... we stream a LOT of content at our house and never get close to 300 gigs a month, so with the price change I'm keeping my bill around the same, upping my speed, and submitting to a cap that I don't approve of in principle, but is high enough that it is essentially non-existent to me. Keep in mind that the cap does not apply to off-peak hours of 2 - 8 AM, so if you must download huge amounts, you are totally free to do so on a timer, which is a nice addition. 6 hours per night of up to 25 mb/s provides you with around 180 hours/ month cap free. Also, if you go above the standard 6 mb/s you will have fibre brought to your house to upgrade the old lines (at a one-time fee). I have always got the advertised 6 mb/s from Teksavvy, notice no shaping, and have had really great customer service any time that I've phoned ... all in all, these people understand how to run a service and I continue to give them more money than I need to (I've stuck with unlimited service to this point even though I don't need it) just to reward the company that actually has the right idea.
January 06, 2012

Alex T. said:

Off-peak?
Sorry Wendell, off-peak hours are an asinine byproduct of misunderstanding the state of broadband internet infrastructure. None of this is okay because it assumes that congestion is a foregone conclusion. Which couldn't be any further from the truth.

There are many uses of the internet other than simply "downloading" that cannot be done during off-peak hours but still merit data use. This is because most normal people sleep then to go to work the next day and can't do interactive use off-peak.

Regardless of that, off-peak hours are still not valid because you don't measure network resource consumption by the total amount of data transmitted in an arbitrary billing period! There's no scientific or factual basis for how usage limits are determined except how much an ISP's executive wants to bleed their customers for.

I find it infuriating how people can actually think these overreaching impositions are tolerable or even rational. We have yet to see any proof of congestion. Stop falling for the scare tactics and marketing. Canadians are being baited into fighting against their own best interests with little bore than a cynical guilt trip.
January 06, 2012

oldguy said:

...
..."off-peak hours are an asinine byproduct of misunderstanding the state of broadband internet infrastructure. None of this is okay because it assumes that congestion is a foregone conclusion"

Umm.. It stems from an understanding of internet infrastructure, specifically; regional and local loop capacity and usage patterns. Making such a statement as you have made, indicates your knowledge is lacking in certain areas. There are differences between pure theory and real world application.
This issue stems from the fact that ISP's don't provision broadband "speed and capacity" on an absolute per user basis, but on an aggregate "average". This allows them to "oversell" the capacity of links during peak times, which results in lower end user costs. While I don't agree with that approach, I understand it and it's ramifications. One of the ramifications is that there are potential peak period capacity issues, and that's the truth.

Note that in this particular case, the off-peak usage is NOT counted towards your cap usage. If the particular cap levels don't suit your usage pattern, then you can elect to choose an unlimited package.

January 06, 2012

Greg said:

...
@Alex. T
"Regardless of that, off-peak hours are still not valid because you don't measure network resource consumption by the total amount of data transmitted in an arbitrary billing period!"

Uh, yes you can. What do you think Mbps stands for? It's "total amount of data (in Mb) transmitted in an arbitrary billing period (1s)."

ISPs are in essence selling two interrelated things: speed and volume. You can see that in the new Teksavvy price list: choose a speed, choose a monthly volume to go with it. Speed and volume are clearly linked: speed * time = volume. That means in a given time period, there is a maximum volume I can download. The same principle applies at the ISP level: if I'm an ISP with a 1GB/s connection, in a month my customers can download a maximum of 2630TB.

So I know how much volume I can sell. But if my ISP capacity goes over 100% customer speed suffers. So I need a way to offer good speed to my customers. I could just subdivide my link between my customers (ISP capacity / customer capacity = number of customers). But that's hideously inefficient; most of the time my 1GB/s link will only be pulling down a fraction of that.

What I really want is a saturated link with no-one having crappy performance. For that, I need a statistical model of how much ISP capacity I need to offer my customers capacity that only degrades within certain parameters at peak time. I also want to flatten demand over the billing period.

One thing I can do is move some of the traffic to the middle of the night. If I incentivize off-peak capacity use (say, by making it free), then that allows me to use the same ISP capacity to serve more customers, which reduces my costs and their bills (hopefully). That's why off-peak rates work.

And it's trivial to see the effects of congestion. If I get up first thing in the morning and run a speedtest on my cable internet, I get around 33Mb/s. I've run the same speedtest in the evening, and got around 12Mb/s. That is the effect of my packets competing with those of other people for limited bandwidth. QED.
January 06, 2012

Jerrycan said:

More to this....
While it is easy to take an optimistic view of these latest pricing changes as Mr. Geist has done, They should be tempered with the reality that they are just interim changes. Most likely this is based on usage patterns, which as of late, have been lowered by throttling from Bell (DSL...). I don't expect to see final pricing for a few months at least as Bell now races to remove the throttle on torrenting, thus adding to the total throughput used during primetime, which will indeed increase costs even more. It is these "throughput costs" (i.e.hte variable portion) that truly define how much a subscriber will pay. Costs, which were submitted by the encumbants and taken at face value by the crtc, with any oversight. I hold off on any dance in the streets till the full impact of pricing changes finishes. It ain't over yet.
January 06, 2012

Yuval Levy said:

When the expectations are low...
... it is easy to be optimistic. Fact is: the cost of producing telecommunication services is going down thanks to Moore's law and ever more powerful and cheaper equipment. Fact is: Canada is alone amongst developed nations with regular price hikes. I am not a big consumer and the extra $4/month on Teksavvy's 3Mbps/300GB cable package hurt me. I'll probably scale back to a 3Mbps/25GB, which is what I had with Rogers before switching to TekSavvy.

Agree, the new model gives more room for indipendent ISPs to differentiate themselves. But it is still fundamentally flawed. This is not competition for my business. It is competition for fantasy-excuses to justify the high price. I am all in favour of a market mechanism such as higher prices at peek hours; but within the contest of a working market, not a rigged one.

DSL has not been competitive for a long time when the $10 dry-loop tax is factored in.
January 10, 2012

Ramblin' Rose said:

Locked Up In Bundled Contracts ?
It will be interesting to see how many Bell and Rogers Customers will not switch because they are locked up emotionally and or legally in long term Bundled Contracts for Home Phone, Cell, TV and Internet.
January 11, 2012

sbgott said:

...
"Rather, it means the very real fears of 25 GB caps with no practical competitive alternatives - which was the future many in Ontario were facing less than one year ago - are over."

Unfortunat­ely not.

I'm currently a TekSavvy DSL High Speed Lite customer. The new plan which will replace this includes a speed increase but also means going from unlimited to a 25GB cap. Low-usage customers are getting massively downgraded with no practical competitiv­e alternativ­e.
January 16, 2012

Quicklette said:

unconstitutionally: violation
This is a big issue: firstly, the dignal world is not coded properly therefore anyone using a dignal apparatus is in violation by use of product that is not amended to canadian codes! Secondly, jurisdiction begins with the Feds as a new product which has to be ameneded under and by canadian codes and standards. In addition, that includes all use and production of cell phones and technology apparatuses. Fourthly, presently, the use of all these instruments are illegal and an invasion of privacy laws of an individual rights. Fifthly, copyrights are the ownership of patened productes under federal jurisdiction and only then, and after the standarization of legal amendments of codes can a product can become a secondary product as incorporated to sell on the market! So,up until now, none of these products are legal to use!

And this supreme court has no idea what laws are or mean in the contents of Laws, suppoe that would include commers and trade. Commers and trade only exist after the first hurdle then, its another ball-of-wax! and one that is just as big or bigger!

January 20, 2012

confused said:

so why won't Tekksavyy transfer my home phone line?
I, too, was getting tired with Bell and decided to switch my services to Tekksavy. When it came time to switching my home phone line, they tell me they can't transfer my exisiting Bell telephone number because they are already paying Bell $100,000s in overgages costs from transferring numbers. They can transfer it for VOIP but not for a ground line. I wanted both services with the same provider and now I'm stuck with 2.
Can someone explain why there are overage costs for switching phone number, which has nothing to do with internet data usage?

Thank you.
May 24, 2012

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