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Usage Based Billing Compromise is Almost a Step in The Right Direction

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Sam Reynolds

Canada’s telecommunications regulator, the Canadian Radio-Television and Telecommunications Commission (CRTC), released its ruling on wholesale usage based billing late Tuesday taking the “middle ground” and thus rejecting most of the proposals put forward by both Bell and those opposed to the matter. This marks a near conclusion to a saga that began in May of 2010.

In May 2010 Bell filed an application with the CRTC -which the regulator approved- that requested the authority to apply a bandwidth cap on reseller ISPs like TekSavvy that rely on Bell’s “last mile” infrastructure. Bell argued that because of increased bandwidth demands from services like iTunes and Netflix, it could no longer afford to offer resellers unlimited access to its network at a flat fee.

Originally Bell wanted resellers to cap their users at 25GB per month, and charge an overage fee of $1-2 a GB. This caused a popular backlash to emerge; spearheaded by a union of likeminded individuals and funded by OpenMedia. OpenMedia started an online petition, which garnered approximately half a million signatures and national media attention.

The media attention and twitifada finally got the attention of Tony Clement, who was then the Industry Minister. Clement reviewed the decision, and after consulting with the Prime Minister, ordered the CRTC to go back to the drawing board and fully review their regulatory ruling, the results of which we saw this last Tuesday.

This all resulted in a somewhat convoluted conclusion. The CRTC will now permit a form of usage-based billing – albeit substantially de-fanged from former iterations – but will limit the amount that ISPs can charge resellers for the use of their network. The regulator’s compromise comes in the form of a two-fold approach: incumbent ISPs like Bell et all can charge resellers a flat rate, or they can charge a rate based upon capacity and the number of users on the network.

Originally Bell wanted to charge resellers based on the amount of bandwidth consumed, in a similar fashion to how other utilities charge users based on how much they consume.


“Under the CRTC's new capacity-based approach, large telephone and cable companies will sell wholesale bandwidth to independent ISPs on a monthly basis,” said the CRTC in a press release on Tuesday.

ISPs that rely on the infrastructure of incumbent providers, such as TekSavvy with Bell’s network, would have to provide infrastructure-owning ISPs with an estimate of the capacity they require for that month. If they happen to exceed the estimated capacity, they would be required to purchase more.

While this compromise is a step in the right direction, it is certainly not the ideal outcome in the interests of Internet innovation. This decision still allows a culture of government enforced corporate welfare for ISPs that base their business model around reselling bandwidth, and companies whose business revolves around delivering high bandwidth services.

It was only last year that Egyptian telecom mogul Naguib Sawiris called Canada a “telecom backwater” because of the bureaucratic bullying and regulatory roadblocks put in place by the CRTC which caused his company, Wind Mobile, to delay its launch by six months. While having the green light from Industry Canada, Sawiris was forced to spend six months navigating through the leviathan established by the CRTC – all at the expense of consumer choice.

Wholesale usage based billing can be broken down to a simple case study of market forces and price controls. If the government wants to increase the supply of bandwidth available to Canadians, they have to ensure that it remains profitable to firms to create the infrastructure and deliver this service. Reseller ISPs will be forced to innovate to ensure that they can deliver a service that some Canadians seem to demand, unlimited Internet at a flat rate, without being dependent on the infrastructure of incumbent ISPs.

Sales of fuel-efficient vehicles, such as hybrids, skyrocketed when gas went through a series of price shocks a few years ago. Interest in laneway housing – a way of optimizing existing space in land lots – increased in Vancouver when the price of housing went through the stratosphere. People will always find a way to hack market forces in order to utility optimize. By the same logic, reseller ISPs will find a way to bypass the big ISP “cartel” if market forces warrant; creating an incentive for ISPs to fight for their survival would provide the most choice for consumers.

What this CRTC ruling fails to address is the culture of corporate welfare that has been created for reseller ISPs and firms that provide a bandwidth intensive service, such as Netflix. Teksavvy managed to attract and retain customers because when buying network access at a flat rate it didn’t have to account the real costs of infrastructure into its costs: it could, and it did, regularly undercut the incumbents.

In the same vein, for some Netflix has been offered a free ride on provider’s infrastructure for far too long. The popularity of Netflix’s streaming service has increased exponentially over the last few years, as has the bandwidth required to deliver the service: while consumers were once satisfied with standard definition and stereo sound, high definition and 5.1 audio is now a must. The costs have been passed onto ISPs in the form of increased congestion, while Netflix hasn’t seen a similar rise in costs. An appropriate analogue would be a company’s products getting bigger each month, taking up more space in the transport truck, yet they insisted on paying the same amount for freight.

In order to move Canada away from being a “telecom backwater” we need innovation. Government regulation stymies innovation. History has proven that price controls don’t work, as the incentive for innovation is no longer there. Instead we need to reduce regulations and create an even freer telecom market. If the consumer demands more options to access the Internet and the current players in the market don’t offer this, someone will step in and innovate because there is money to be made.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of this site.
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