Usage based billing: Canada’s regulatory failure

Recently, the CRTC, Canada’s communications regulator, announced their decision to allow Bell to charge their wholesale customers usage-based fees, similar to how they bill mobile services. This means that Bell can now impose usage limits (“caps”) on third party independent service providers, and steep penalties for those who go over the cap. In turn, the third party ISPs are forced to pass on Bell’s ridiculous caps and fees to their own customers.

What’s the big deal, anyway? Shouldn’t Bell be allowed to charge whatever they want for third party providers to rent their network? In fact, third-party internet access doesn’t share capacity with Bell’s retail network at all. Although Bell has claimed that third-party access is provided on what is basically a wholesale version of their own retail network, in fact the networks are entirely separate and rely on different technology. The network that Bell wants to impose usage-based billing on is the physical network that connects the ISP’s facility to the end-user, which the ISP pays Bell for based on capacity, not usage. That means that if an ISP’s network becomes congested, it is up to the ISP to purchase additional capacity, and Bell’s retail network is not affected. How this actually works is more complicated than I’m describing, but you can read more about the technology in the petition to rescind the CRTC’s decision.

The point of all this is that the independent ISPs already pay Bell for the services they use. It doesn’t cost Bell anything more when users of other ISPs use additional bandwidth, and it doesn’t cause congestion on Bell’s network. Bell’s plan to bill independent ISPs based on usage amounts to billing for a service they don’t provide, since the technology is capacity-based, not usage-based. Under Bell’s proposed new pricing, wholesale providers would pay the exact same rates as Bell’s residential customers, eliminating the concept of wholesale entirely. This would end competitive internet service in Canada, at least for DSL services, since all providers would be required by regulation to follow Bell’s pricing and service offerings.

So who benefits from Bell’s pricing plan? The answer is nobody. Bell isn’t proposing to use the increase in their revenues to improve their services or lower rates for their own customers. In fact, Bell isn’t changing their DSL plans at all. Customers of third-party ISP’s certainly won’t benefit: Bell’s rates are some of the highest for internet access in the world. Bell’s usage-based billing is quite simply a way to penalize internet users who use more than an arbitrary threshold of data. And by giving Bell complete control over market pricing, the market becomes extremely non-competitive. So why did the CRTC approve it?

This past Thursday, CRTC Chair Konrad von Finckenstein was asked to defend the usage-based billing decision before the Canadian Parliament. Industry Minister Tony Clement went on record saying that the CRTC was being asked to reverse the decision, or Cabinet would overrule the commission. It seems that Bell’s usage based billing scheme is dead in the water, at least for now. But von Finckenstein had some good points.

Finckenstein and the CRTC believe that internet consumers should pay for the bandwidth they use, just like any other utility. It makes sense that someone who only browses a few webpages and writes a few e-mails each month shouldn’t pay as much as a power user who watches hours of high-definition movies and listens to streaming radio as primary media delivery tools. With more and more services moving online, these active users are becoming more and more the norm rather than the exception. This should be encouraged, not penalized, but everyone should pay a fair price for the data they use.

But how much does data cost? With most utilities, the cost of the utility is well known, or easily determined from readily available information. When the price of crude oil goes up, we know that the price of gas will follow. With internet data, the cost is not only not well known, providers are known to actively hide their cost of data. Depending on who you believe, estimates range from about 10¢ to 25¢ per gigabyte, with some experts suggesting that data costs less than a penny, and the large providers always claiming higher. Even at the high end of that range, it’s hard to see how Bell justifies charging nearly $2.00/GB for “excess” use.

The other factor muddling the cost of data equation is that the network technology that Bell wants to regulate is not a usage-based technology. Almost the entire cost of an end-user’s service depends on the capacity or speed of their service, and very little on how much of it they use. So the speed offered to users should be a far greater consideration in price.

In fact, this is pretty much how the DSL market has evolved over the last decade. Each provider offers packages with a certain speed and a certain amount of included data, and consumers can decide how much data is worth to them, and buy accordingly. Market forces dictate which plans are better and which companies are more innovative, not regulations crafted by the market’s largest players to penalize their competition. Usage based billing is a big step backward for the Canadian internet.

About Greg Burrell

Greg is an accountant, cyclist and political observer living in Toronto, Canada with too many cats.
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