Recent data on Internet use in Canada suggests that most people reading this subscribe to broadband services and that virtually all those subscribers are with a major telecommunications or cable company. Indeed, the 2010 Canadian Radio-television and Telecommunications Commission report on communications in Canada found that the incumbent telecommunications and cable companies control 95 percent of the residential broadband market, a figure that has remained virtually unchanged for the past five years.
Injecting greater competition into that market lies at the heart of last week’s CRTC decision to require incumbent telecom companies – such as Bell, Bell Aliant, and Telus – to provide independent ISPs with speed-matched open access to their networks (speed matching enables competitors to offer Internet services to their retail customers at speeds that match the speeds provided by the incumbents to their own retail customers).
The decision is part of a continuum of hearings and decisions stretching back many years. The CRTC began requiring incumbent carriers to make their wholesale broadband access available to independent ISPs at matching speeds as far back as 2006. When the commission removed the requirement in 2008, the incumbents wasted little time in limiting the speeds available to the independent ISPs, leaving them at an enormous competitive disadvantage.
In 2009, the CRTC reinstated the speed matching requirement, only to have the incumbents petition the government to reverse the decision. Late last year, the government acquiesced, ordering the commission to reconsider its decision with a particular focus on the competitive and investment impact of the access requirements.
The arguments in the latest proceeding boiled down to competing claims about investment and competition. The incumbents argued that speed matching requirements create a disincentive to invest in faster networks. To address that concern, the CRTC required independent ISPs to pay a 10 percent premium to help defray the incumbent costs.
While the investment concerns are unquestionably important given Canada’s middling international performance on broadband speeds and pricing, the CRTC decision is fundamentally about answering three questions about competition.
The first is whether the Canadian broadband market is competitive when viewed from a consumer perspective. The incumbents maintained that it is, while the independent ISPs â€“ together with MTS Allstream â€“ argued that the practical reality for Canadian consumers is closer to a duopoly with most choosing between a telco and cableco. The CRTC sided with the independent ISPs in ruling that mandating matching speed access would enhance competition by allowing new entrants to compete more effectively with the incumbents.
Second, should the competitiveness of the market be viewed solely through the prism of wireline broadband (ie. telco or cableco services) or do wireless and satellite Internet services provide an effective alternative? Citing pricing and capacity limitations, the CRTC found that wireless and satellite are not effective substitutes, though this could change.
Third, does ordering open access with speed matching provide independent ISPs with everything they need to effectively compete? The commission was divided on this question. The majority ruled that it does, while commissioner Tim Denton dissented, concluding that competition on price alone is not good enough. Denton noted that independent ISPs will be required to pass along all the network limitations (such as traffic management practices and bandwidth caps) imposed by the incumbents.
Despite these limits, the incumbents indicated they plan to see if the government is willing to overrule the CRTC. For Industry Minister Tony Clement, the issue provides a crucial opportunity to offer his answers to the questions about the state of ISP competition in Canada.
Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at email@example.com or online at www.michaelgeist.ca.