Matching Internet speeds a fast track to nowhere

The big players still set the prices.

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On Wednesday, the CRTC finally got around to addressing the long-smoldering “matching speeds” issue, which is essentially where smaller Internet providers such as TekSavvy get to offer the same broadband services as the big guys (Bell, Rogers, etc.).

As we know from the related usage-based billing saga, small ISPs pay big ISPs to use portions of their networks in order to provide services. This regulated wholesale scheme has been in place for years as a way of ensuring there are more than just two players—the big cable company and the big phone company—for people to choose from when it comes to internet service. The little guys are supposed to provide an alternative with their own competitive services.

The same system was adopted in almost every developed country more than a decade ago as a way of transitioning from dial-up Internet access to broadband. Some of the thinking was spurred by the notion that big phone companies’ copper networks were built when those firms were still government owned utilities, so the public had something of a claim to them and they should therefore be shared. However, as those companies—virtually of all which are now shareholder-owned—added expensive new fibre to their networks in recent years, that old argument came to hold less water.

The problem in many countries now is that wholesale system has created an environment where a number of established independent ISPs are dependent on continued access to the networks, both old and new. As such, the CRTC back in 2008 ruled that small ISPs should continue to get access to the new fibre being rolled out by the likes of Bell. Since the fibre allows big ISPs to sell Internet speeds of 25 megabits per second and possibly more, it’s hardly fair to restrict indie ISPs to the seven megabits or so that the old network maxes out at, the CRTC ruled. After all, if one ISP is selling 25-megabit speeds and another can only offer seven, it’s pretty clear who’s going to win out in the end.

Naturally, the big guys didn’t like that ruling and fought it tooth and nail, taking it all the way to the cabinet. The regulators have stuck to their guns and two and a half years later, it looks like small ISPs may finally get those higher speeds. The CRTC’s interim decision means they’ll get access at a 35% discount to whatever the big guys are selling services at (15% for businesses) and the whole thing may kick in as soon as July 1.

As anyone who follows these cases can attest to, this is hardly the end of it. There may be further appeals and there will certainly be further gaming of the system. Las Vegas bookkeepers are likely placing odds on this meaning higher internet prices from the big guys sooner rather than later. Usage-based billing came along not coincidentally right after the big telecom companies lost the fight to keep new wireless providers from starting up—after all, they had to make up that lost revenue somewhere.

Now, it’s likely that many internet users will defect to the likes of TekSavvy, so big ISPs will once again be looking to make up lost dollars. Since the CRTC ruling sets the prices smaller ISPs can charge at 35% below what the big guys do, Bell and company still have the ability to determine overall prices. It wouldn’t be surprising to see the big guys eventually add a “regulatory recovery fee” to their services. So, while a small minority of internet users will switch to and/or enjoy the new higher-speed services at a lower price from smaller ISPs, the vast majority are likely to see their bills go up if the CRTC makes its interim decision final.

The problem ultimately comes down to pricing power, which this ruling doesn’t change in the least. Pricing power is still in the hands of the big players, so the sort of competition the wholesale access scheme was intended to bring about does not actually exist (nor did it ever). In theory, smaller ISPs are supposed to have some power with which they can hold their big rivals in check, but as it stands they must follow along with any increases.

If there was one thing the Canadian Business magazine editorial on usage-based billing a few months ago was spot on about, it’s that this wholesale business model is completely messed up. It may have worked 10 years ago, and even that’s arguable, but it’s clear that when it takes nearly three years to implement a regulatory decision—and this one is certainly not out of the woods yet —there is something wrong with the system in place.

Many countries have realized this, which is why they’re moving toward structural or operational separation of telecom companies. I’ve written about this idea, of splitting companies’ networks from their retail operations, before and it’s looking more and more like it’s time to start discussing it in Canada. Far from being a crazy, left-wing attempt at property appropriation—as some are sure to spin it—infrastructure sharing is a clearly logical and efficient way forward that even large telecom companies have realized, which is why Bell and Telus jointly built their new wireless network a few years ago.

There are only two ways to eliminate the sort of regulatory headaches caused by this wholesale mess. One is to do away with it entirely, which Bell and others have tried unsuccessfully to do, while the other is to jointly build infrastructure that all competitors can then access on an equitable basis. Of course, neither will happen any time soon, so the never-ending regulatory football game is bound to continue. Sigh.

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