The controversy over usage-based billing has shifted from public frustration and demands for change to several public consultations. This week, the CRTC posted its consultation notice, which gives Canadians until April 28, 2011, to provide their views. Since the CRTC asks whether oral hearings are needed, it seems likely the issue will not be resolved until the summer or early fall at the earliest. In addition to the CRTC consultation, the Standing Committee on Industry continues its investigation into the issue with hearings this week (independent ISPs appeared this week, Open Media, Bell, and Shaw were up Thursday) and Shaw Communications announced that it is freezing the implementation of usage-based billing pending a customer consultation on the issue.

As the issue continues to attract attention and public comment, there has been no shortage of discussion about what the CRTC and federal government should do, how foreign investment fits into the equation, and whether action is needed on retail usage-based billing practices that affect millions of Canadians with incumbent providers such as Rogers and Bell. Last week, I had several long posts about the issue and why there was reason for concern in the aftermath of the CRTC’s appearance before the Industry Committee (here, here, and here).

This post attempts to unpack some of the UBB issues by discussing potential solutions including how to address the narrow issue of wholesale UBB, foreign investment, fostering greater competition, and next steps on current retail UBB practices.

Wholesale usage-based billing

The immediate issue before the CRTC is limited to wholesale UBB — the effort by Bell to impose usage-based billing on independent ISPs who rely on Bell for “last mile” access to residential customers (but do not necessarily use Bell to connect those customers to the internet). The CRTC continues to paint the issue as being about “subsidizing” heavy users. Evidence before the Industry Committee this week demonstrated again why this is the wrong approach. I’ve already discussed concerns about definitions of “heavy” usage and the faulty analogies of internet access to utilities such as electricity and gas.

Leaving aside the definition of a heavy user (which will eventually be the majority of users), the supposed fairness concerns (ie. fairness of unlimited pricing practices to light users) only arises if heavy users somehow harm light users. This could arise in two ways — either light users pay more for their service (the “subsidy” of heavy usage) or they receive poorer quality of service as heavy users congest the network.

The prospect of paying more for services seems unlikely since the actual costs for network providers for the additional data required to satisfy heavy users costs only a few pennies per GB. In fact, at this week’s hearing, Primus indicated that the UBB rates applied on customers “are not based on cost.” Moreover, Bell’s own wholesale UBB plan does not distinguish between someone who uses 80 GB per month and someone who uses 300 GB per month. This suggests that there is not a sufficient difference in actual costs between a heavy and light user to merit a dramatic increase in pricing.

The prospect of heavy users congesting the network was discussed during the 2009 Internet traffic management hearings, with providers expressing concern that the network was congested due to peer-to-peer traffic during peak periods in the day. Skeptics argued that P2P was a diminishing concern and that streaming video would soon emerge as a bigger network issue. It appears the skeptics were right. Congestion might be a problem during peak periods (e.g. on Friday nights when many users are downloading HD movies from Netflix), yet UBB does not address this at all. Providers could set a cap on data consumed during peak periods since that contributes to network congestion, but they don’t. Instead, all data use is counted equally, thereby undermining claims that the caps bear a direct relationship to network congestion. Instead, as was noted during the hearing, UBB rates appear to primarily be about stifling new services, not addressing congestion.

Rather than focusing on the heavy vs. light usage, the CRTC should be driven by a single priority — fostering a competitive market by establishing rules that allow independent ISPs to compete. In the context of wholesale UBB, there are five steps that should be taken to address the competition concerns:

1. The UBB decisions to date should be rescinded.

2. The CRTC should ensure that the speed matching decision is implemented and vigorously enforced. Independent providers cannot compete with incumbents if they are offering inferior speeds. Effective competition requires the ability to offer equivalent speeds to consumers.

3. The CRTC should reverse its decision on ADSL-CO, a proposal that would have allowed independent ISPs to locate closer to the end customer. It is puzzling that the CRTC denied the application to allow for this service (the decision spurred the Denton dissent I quoted last week). The approach would promote more facilities-based competition as independent ISPs would expand their networks, lessen their use of the Bell network, and position themselves to offer greater customer choice.

4. For those independent ISPs that do not use ADSL-CO, the CRTC should require the incumbents to offer independent ISPs a bulk wholesale service that would allow them to allocate the data usage as they see fit — same overall usage but without the UBB.

5. The CRTC should turn its attention to cable providers with respect to wholesale services. While wholesale access is available using TPIA, it has not proven popular. Catherine Middleton and Annemijn van Gorp discussed the reasons in a 2009 paper, citing “high costs and technical limitations (the service is described as being ‘rife with problems’), cableco wholesale divisions that are difficult to deal with, and low margins if service is actually provided.” This must change, otherwise there is a risk of creating a single dominant cable provider with the telco (DSL) provider market share chipped away by the independent ISPs. A more competitive environment necessitates wholesale access to both cable and DSL and the CRTC should prioritize making the cable TPIA service a viable alternative for independent ISPs.

Foreign ownership restrictions

Given last week’s federal court decision involving Globalive, there is unsurprisingly considerable emphasis on relaxing telecom foreign ownership restrictions as a solution to the competition concerns. For example, Peter Nowak (here and here) has been a vocal supporter of relaxing the foreign ownership restrictions and provides a good briefing on the developments to date (the National Post covers why the government may be hesitant to change).

I should start by noting that I too am supportive of the removal of foreign ownership restrictions. I wrote about the issue in 2009 in the context of Globalive, arguing:

The days of retaining Canadian control over physical telecommunications infrastructure connected to millions of homes are over. Wireless networks involve significant investments in cellphone towers, but not direct connectedness into individual homes. Further, the notion that Canadian control guarantees Canadian jobs is also part of a by-gone era. Canadian carriers regularly outsource some of their customer service jobs out of the country. Meanwhile, other parts of the organization — retail and business sales as well as network building — involve jobs that will remain in Canada regardless of a company’s country-of-origin. While some head office jobs may be at risk, new companies operating in Canada could potentially create more jobs, not fewer.

Beyond the jobs issue, concerns that a foreign competitor will not abide by Canadian law are unfounded. Foreign companies obviously operate in Canada all the time and compliance with local laws — whether privacy requirements, environmental regulations, or reporting obligations — are simply a cost of doing business. There is no reason to believe that a local telecom company is any more likely to comply with Canadian law than a foreign competitor.

While I think that foreign ownership restrictions should be dropped, there are several reasons why no one should be under the illusion that opening the doors to foreign competitors will solve the competition problems with Canadian broadband. First, the “last mile” problem — the last, critical connection to residential customers — will remain a major problem. There may be some willingness by new entrants to lay fibre in urban areas, but it is unlikely to extend much beyond that. Second, the foreign competitors may be just as likely to purchase Canadian companies (ie. Telus), rather than investing in new facilities, yielding deep pocketed competitors but less in the way of new facilities. Third, the foreign ownership issue is most relevant in the wireless context, where the forthcoming spectrum auction may provide the best hope for new competitors as consumers “cut the cord” and opt for anywhere connectivity that offers reasonable (though not fibre-like) speeds.

The prospect of wireless broadband competition is hugely important — the forthcoming spectrum auction may represent our best case for new competition — and the government policies on that auction (open access requirements, set asides for new competitors, open to foreign bidders, white spaces) are absolutely crucial. The rules for the spectrum auction are the subject of a current consultation that is open for comment until the end of the month and Canadians should speak out.

Fostering greater competition and new broadband models

Opening the door to foreign competitors is a necessary but not sufficient step to address the competition problem. My post last week talked a bit about fostering more competition, including working with provinces and municipalities on developing new competitive alternatives. This issue deserves far more attention.

At the federal level, the current Canadian broadband programs should be expanded to address both access and competition. To date, the programs have been geared primarily toward providing access to the communities that still do not have broadband. Ensuring all Canadians have access to broadband networks remains essential, but we must also begin to transition toward a second policy goal — encouraging new business models, particularly community-based fibre initiatives. Providing federal support for innovative approaches might help the business case for new ventures and lessen the risk associated with establishing new facilities. The government’s condition on financial support for new local fibre initiatives should be open access requirements — the fibre gets laid, but it is openly available to all competitors.

The federal government should ask CANARIE to identify local community networks that would benefit from connecting to its broadband backbone. The U.S. has embarked on something similar, allocating $60 million in stimulus funds toward USUCAN. That project is described as follows:

The United States Unified Community Anchor Network (U.S. UCAN) is a new national project dedicated to connecting community anchor institutions, including public libraries, schools, community colleges, research parks, public safety and health care institutions with advanced broadband capabilities. Utilizing the Internet2 Network and in collaboration with regional research and education networks across the country, U.S. UCAN will enable these anchor institutions to serve their communities with telemedicine, distance learning and other life-changing applications not possible with commercially available Internet services.

The federal government can also play a role in promoting new community fibre network initiatives by provincial and municipal governments. Indeed, some of the most competitive Internet access environments come from cities that have taken carriage of the issue and developed a strategy for fostering high speed open access networks.

For example, the City of Stockholm founded the Stokab system in 1994 after the federal government passed a law with the objective of developing a “sustainable information society for all.” The Stokab network now has thousands of km of cable that is openly available to all competitors. That has led to 90 operators and service providers along with hundreds of additional customers. It is working with building developers to link new developments to the network — it will connect each building to the network and the developer establishes a network within the building. Tenants are then able to choose from several providers. The city has announced plans to provide fibre connections to 90 per cent of all households by 2012.

Retail usage-based billing

Finally, there is the question of what, if anything, should be done about the retail usage-based billing. In an ideal world, the answer would be that there is nothing to do because a fully competitive environment would mean that UBB is just one of many pricing models available to Canadian consumers (Shaw’s decision to consult with its customers on UBB provides some insight into how different choices might be made). Yet that is not the current environment, where the overwhelming majority of Canadian broadband users face no alternative but caps and UBB.

This reality raises several issues. Reports that Bell has admitted errors in tracking customer usage raises a significant consumer concern and suggests that the Commissioner for Complaints for Telecommunications Services may need to get involved in the issue. Moreover, as I noted in a post last week, guarding against potential abuses is absolutely essential. This includes a role for the Competition Bureau, CRTC safeguards against anti-competitive uses of UBB, auditing of traffic management practices, and possible privacy investigations.

As the debate continues, it strikes me that perhaps there is a further need for a hearing on acceptable retail UBB practices. The recent UBB discussion bears a remarkable resemblance to the net neutrality debate in the years leading up to the CRTC’s Internet traffic management hearing. Indeed, substitute the words video streaming, Netflix, and heavy users for peer-to-peer, BitTorrent, and file sharers and the discussion points are virtually identical with some advocating for absolute restrictions and network operators claiming no further CRTC action is needed.

In the net neutrality context, the CRTC ultimately developed the Internet traffic management practices that confirmed that some “technical measures” were acceptable but within defined limits. The same decision set no limits on “economic measures”, which effectively gave the Commission’s blessing to UBB. That may have been a mistake as establishing appropriate UBB limits (no price gouging, proper disclosure, linking pricing with congestion periods, safeguards against overbilling) may be a necessary step to address the concerns of both consumers and ISPs.

Dr. Michael Geist is a law professor at the University of Ottawa where he holds the Canada Research Chair in Internet and E-commerce Law. This story was taken from his blog, which can be read here.