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Speech by Konrad von Finckenstein, Chairman, Canadian Radio-television and Telecommunications Commission


To the Standing Committee on Industry, Science and Technology

Ottawa, Ontario
February 3, 2011

CHECK AGAINST DELIVERY

 

Thank you, Mr. Chairman. I’d like to introduce my colleagues from the CRTC. Len Katz in the Vice-Chair of Telecommunications and Lynne Fancy is the Acting Executive Director of Telecommunications.

I recognize that the members of this Committee, as well as Canadians, are concerned about our decisions regarding usage-based billing for Internet services. I’m pleased to have this opportunity clarify the CRTC’s position in the very public debate over Internet services and to clear up a few misconceptions.

Canadian Internet market

The Internet is a driver of innovation and the backbone of a modern economy. It is vital that Canadians have access to it, and most of them can choose between different Internet service providers.

The market is dominated by what many have called a duopoly: large telephone companies such as Bell Canada and Telus on the one hand, and cable companies such as Rogers, Shaw and Videotron on the other. These Large Distributors have built extensive networks and continue to invest in them. For example, during the recession of 2008 and 2009, Bell and Telus invested $8.7 billion to extend and upgrade their wireline networks.

There is also a number of Small Internet service providers (Small ISPs) that serve approximately 6% of the market, which represents about 550,000 subscribers, of which 76% are residential customers. Despite offering innovative services and real competition, the Small ISPs mostly rely on the Large Distributors’ networks to reach their residential customers.

The Internet market has evolved primarily through the efforts of a competitive and dynamic industry. This has been achieved by relying as much as possible on market forces. The Commission only intervenes if there is clear evidence of market failure.

Let me emphasize that we do not regulate the prices of Internet services, whether they are offered to residential or business customers. We also do not set download limits, which are commonly referred to as caps.

We have, however, established rules to ensure that Small ISPs are not squeezed out of the market. Large Distributors must:

  1. Provide wholesale Internet access services to Small ISPs at cost plus a prescribed markup, effectively allowing them to price their offerings competitively.
  2. Provide this access at the same speeds as those offered to the Large Distributors’ residential customers.

Without these rules, the Large Distributors could limit their wholesale services to the slowest speeds, or make them unattractive to Small ISPs in other ways. The Commission stepped in to make certain that they could present comparable or even different features to consumers.

Earlier this week, Mr. George Burger, a representative for the Small ISP, TekSavvy Solutions Inc., appeared on CBC News and stated clearly:

“If you did away with all the CRTC regulations, then frankly, you would be left with the duopoly […] of the cable companies and the telecom [companies].”

Network congestion

In recent years, convergence has become a reality and the way Canadians use the Internet has changed tremendously. More bandwidth is being eaten up by consumers who are accessing information, downloading or streaming music and video content, or playing online games.

This demand causes congestion on networks, which can push the available bandwidth to its limit.

The Commission looked at this situation and, in 2009, developed a comprehensive regulatory approach for Internet traffic management. Let me remind you briefly of its key elements:

  1. When congestion occurs, an ISP’s first response should always be to invest in more network capacity. In a competitive marketplace where consumers have choice, it is in the ISP’s best interests to have a robust network.
  2. Realizing that network upgrades are not always the most practical solution, we indicated that if it is necessary to manage Internet traffic, it should be done through transparent, economic means.
  3. Traffic shaping and other technical means should only be employed as a measure of last resort, and in which case customers should be made aware of them ahead of time.

Nearly all the Large Distributors have introduced usage-based billing for their residential customers. Bell Canada, for example, adopted this billing practice in 2006. I would like to point out that usage-based billing applies only to residential customers. It does not apply to business customers.

As a result, large users, such as those who watch a lot of high-definition movies and television shows online, pay higher rates than those who simply send emails and visit social networking websites. Customers who exceed their monthly limits are usually subject to an extra charge, though many providers allow users to buy additional capacity for a small fee.

All ISPs advertise their rates, bandwidth caps and the additional usage charges that apply. Consumers can shop around for the plan that best meet their needs. Internet services are now sold like other public utilities, such as water, gas and electricity.

As we reported in our most recent Communications Monitoring Report, Canadians used on average 15.4 gigabits per month in 2009. Most users therefore fall well within the caps currently set by the Large Distributors and would not be charged more unless their monthly usage increased dramatically.

It is also worth noting that a very small percentage of consumers are heavy Internet users. According to information provided by Bell Canada, less than 14% of users are responsible for more than 83% of Internet traffic.

CRTC decisions on usage-based billing

Let me now address our usage-based billing decisions. I would ask you to keep in mind that this billing practice applies only to residential customers and not to businesses.

In March 2009, Bell Aliant and Bell Canada asked for permission to impose usage-based billing to their wholesale customers—the Small ISPs. Bell wanted to create economic incentives for users to stay within their bandwidth caps and ensure that those who use more bandwidth pay their appropriate share.

Following a lengthy process that resulted in a series of decisions, the Commission:

  • Granted Large Distributors permission to adopt usage-based billing for their wholesale customers.
  • Imposed as a condition that before they could move their wholesale customers to usage-based billing, Large Distributors would have to adopt the same billing practice for most of their own residential customers, with the exception of certain grandfathered subscribers.
  • And lastly, the Commission examined the rates that Large Distributors charge their residential customers when they exceed bandwidth caps and determined that they can only impose 85% of that rate to their wholesale customers.

In short, our decisions were based on two fundamental principles:

  1. Ordinary Internet users should not be made to pay for the bandwidth consumed by heavy users.
  2. Small ISPs offer competitive alternatives to the Large Distributors, and it is in the best interests of consumers that they continue to do so.

Review of decision

As you know, our decisions were set to take effect on March 1, 2011. We have since received from Bell Canada a request that we delay the implementation date by 60 days. A party from our last proceeding, Vaxination Informatique, has also filed a request for a delay.

In light of these requests and the evident concerns expressed by Canadians, the Commission has decided to:

  1. Delay the implementation of usage-based billing for wholesale customers by at least 60 days.
  2. Launch, of our own motion, a review of our decision to verify that:
    1. it protects consumers
    2. those who use the Internet heavily pay for their excess use, and
    3. Small ISPs retain maximum flexibility and continue to be a key source of innovation in the industry.

I would like to reiterate the Commission’s view that usage-based billing is a legitimate principle for pricing Internet services. We are convinced that Internet services are no different than other public utilities, and the vast majority of Internet users should not be asked to subsidize a small minority of heavy users. For us, it is a question of fundamental fairness. Let me restate: ordinary users should not be forced to subsidize heavy users.

In addition, we want to be absolutely certain that the modalities we have established are the most flexible under the circumstances and do not hinder innovation or harm Small ISPs.

A document outlining the terms of the review will be posted on our website this coming Monday.

We would now be pleased to answer your questions.

 

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