Understanding Internet Billing Practices and Pricing

As a residential high-speed Internet user, you are a retail customer who buys Internet services from an independent service provider or a large cable or telephone company. There are enough of these companies to ensure competition, pricing discipline, innovation, and buying options for retail Internet services in Canada. As a result, the Canadian Radio-television and Telecommunications Commission (CRTC) does not regulate the prices or the way Internet services are billed to retail customers.

To foster competition at the wholesale level, the CRTC requires that large companies sell access to their networks under specific terms and conditions. Service providers use this access, in conjunction with their own networks, to offer Internet and other services to their own retail customers. In other words, independent service providers are wholesale customers of large cable and telephone companies.

Two acceptable wholesale billing models

The CRTC has decided that there are two acceptable ways for large telephone and cable companies to charge independent service providers for the use of their networks: the flat-rate model, and the capacity-based model.

The flat-rate billing model

Historically telephone and cable companies have used the flat-rate billing model. Under this model, companies charge independent service providers a flat monthly fee per retail customer for access to the network. The independent service provider’s retail customers may then make unlimited use of the network.

The capacity-based billing model

The second, more recently approved, wholesale billing model is the capacity-based model.

With this model, independent service providers pre-purchase the amount of network capacity that they expect to need to serve their retail customers.

If demand exceeds the capacity an independent service provider has purchased, the provider must manage its network capacity until it can buy more. Independent service providers must also pay a monthly access fee for each of their retail customers.

How the CRTC sets wholesale rates

In addition to specifying acceptable billing models, the CRTC sets the rates at which telephone and cable companies may charge their wholesale clients. The rates are based on the costs that the large cable and telephone companies incur to provide the wholesale service, and include a reasonable markup.