In December of last year, Canadian Business Online published a story about Netflix entering the Canadian market. The subhead warned Canadian telcos to “gird for war.” Well, it appears that with CRTC approval on January 25 of a new billing system called “usage-based billing,” they have officially girded. But in this case the counter-offensive extends to all competing small ISPs so it might be better described as total war.
What UBB, as it’s called, does is allow the incumbent local exchange carriers (like Bell) and cable carriers (like Rogers) to charge wholesalers (competitors like TekSavvy or Primus who effectively “rent” the transmission lines and then resell to consumers) an additional, higher rate for bandwidth use above a given level. The contentious part is whether or not that wholesale rate should be set equal to, or lower than, the rate companies like Bell charge their retail customers (you and me).
Led by Bell, the incumbents argued there should be no discount. The wholesalers argued that not only should there be a discount but it should be large enough that it would allow them to compete with the incumbents. The CRTC handed down a decision in the vein of a King Solomon neither side is entirely happy.
UBB has passed and Bell is mandated to implement it on March 1 of this year. But on the other hand, the CRTC has mandated a discount to wholesalers of 15%. Bell says it “completely disagrees” with the discount rate and the CRTC’s rationale, “which clearly shows it is more interested in giving particular ISPs wholesale discounts rather than ensuring there is a vibrant competitive process.”
Rogers VP Public Affairs, Jan Innes, says the carrier doesn’t really have a dog in this hunt because its wholesaler footprint is quite small (Rogers declined to say how many it has), but that it will implement UBB on July 1.
The Canadian Network Operators Consortium (CNOC), which represents wholesalers and led the fight against UBB, is mightily displeased. It wanted a minimum discount of 50% and got 15%. “This is an untenable situation,” says Matt Stein, VP corporate communications for CNOC. (He’s also VP network services, Primus Telecommunications Canada.)
“The 15% discount doesnt leave room for wholesalers to add the aspects of the service that make the service complete,” he explains. “It doesn’t let us recoup our costs of billing, or customer care, or technical support or even just connecting you to the Internet.”
Beyond that, UBB is a powerful shot across the bow of “non-traditional media” e.g. Internet TV and video. Guess who plays in non-traditional media? Netflix. UBB could make streaming and downloading costly enough to the end-user to drive people back to set-top TV where the carriers are also players but generate far more of their revenue. And with wholesalers brought to heel via the equalizing effect of UBB, consumers won’t be able to run to them for better deals.
In a January 26 note to shareholders, Netflix CEO Reed Hastings expressed concern with “pay-per-gigabyte models” and said, “We hope this doesnt happen, and will do what we can to promote the unlimited-up-to-a-large-cap model.”
However, the reality is you have to download or stream massive amounts of data (one hour of Netflix video streaming uses up about 1 GB of bandwidth) to hit typical caps and the overage charges. So for now UBB won’t be an issue for average consumers so much as it is for the business model of wholesalers.
But consider the big picture: data-over-Internet use (especially as games and entire apps like MS Office are added to traffic) is only going up and caps will eventually become a problem. Even some big-name folks at Davos are saying an ” explosion of video is the next big innovation.” When and if all of this happens, a landscape where small ISPs have been marginalized into irrelevancy and where content provision is once again solely in the hands of the traditional media, isn’t a future to which anyone should look forward.