Bell’s New UBB Plan

Blog, Disruption, Les Routledge

In response to the CRTC’s call for comments relating to the UBB proceedings, Bell has revised their proposed approach that they name Aggregate Volume Pricing.  Instead of forcing independent ISP’s to mimic Bell’s retail pricing model, they have now proposed to implement usage-based pricing at the wholesale level.  Several news reports have reported this revised approach as Bell backing down.

“With our filing today, we are officially withdrawing our UBB proposal,” said Mirko Bibic, Bell’s head of regulatory affairs. “Let’s move on, in my view, and use the CRTC hearing as an opportunity to approve those principles and get the implementation details right.”

The proposition of Aggregate Volume Pricing AVP is less offensive than their previous UBB concept.  Under this approach, independent ISP’s would maintain the flexibility to offer capped, throttled, tiered or other methods of limiting traffic and managing congestion.  Instead of a one-size fits all approach to pricing structure and policy, AVP allows for an element of service innovation and competition in the retailing of Internet Access Services.  In 20:20 hindsight, if Bell had approached the usage based pricing using this tactic to begin with, it is unlikely they would have stirred up the swarm of hornets that they did.

If Bell is lucky, this step of public relations damage control might work in a manner that is comparable to putting on a bee suit and laying low until the angry insects settle down.  Bell and the other telco and cable companies could then get on with being the dominant service providers and extending their franchises into creating a comparable position in the media sector through their ownership of broadcast assets.

From the federal government’s perspective, it most likely is expedient to delegate this issue to the CRTC for another round of regulatory discussions, particularly given that we are now in election season.  The CRTC is used to dealing with hot potatoes and the structure of their processes tends to lose the attention of the public as they progress.  If the system works as hoped by Bell, the anger will melt away over time.

For the CRTC, the challenge is likely to figure out how to justify the concept of usage billing.  In the past, the CRTC has asserted that bandwidth hogs are offloading higher consts onto “regular customers”

“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.”

However,  Cable companies have admitted that UBB is not being driven by the cost of supplying the network capacity consumed by heavy users

In their regulatory filing, Cogeco Cable, Rogers Communications and Quebecor argued that usage-based pricing should be expensive enough to “discourage use above the set limit” in order to effectively manage traffic on the network. “It follows that the price does not necessarily reflect the cost of supplying the network capacity,” the companies wrote.

If UBB prices are not being driven by the cost of supplying the additional network capacity consumed by heavy users, the concept of a vast majority of customers subsidizing a minority argument falls apart.

Bell’s proposal of Aggregate Volume Pricing does not lend itself to being supported by another need, namely relieving congestion.  Congestion is primarily caused by the number of users attempting to access the Internet at the same time.  Monthly bandwidth caps and charges do not fix that problem anymore than raising the cost of licensing a vehicle fixes traffic jams and road congestion.  If network congestion is the problem, time-of-use charges are the economic tool that is required.  Since Bell is not employing that approach, then it is not any more logical to assume that AVP will relieve congestion than it is to assert that charging motorists $500 per month to license a vehicle will avoid traffic jams on the 401.

After losing the cost of service provisioning rationale and then the congestion management rationale for implementing usage based billing, what other fig leaves are left for the CRTC and Bell to cover their posteriors?

I imagine they will turn to one more reason, and that is the need to provide the incumbents with enough funds and motivation to invest in expanding network capacity.  Conceptually, they could turn to a marketing term called “value-based pricing”   Value-based pricing is a somewhat specialized marketing and business strategy term employed by people who have MBA’s.  As indicated by Wikipedia, Value-based pricing

“sets selling prices primarily, but not exclusively, on the perceived value to the customer, rather than on the actual cost of the product, the market price, competitors prices, or the historical price.[1]

Now this is an approach that can work work for Bell because it is not based on the cost of the product, the market price, competitors prices or the historical price.  If the CRTC buys into this one, Bell can charge what ever they want to because they can argue that the customer who is paying more is getting more value.  How much more fair and equitable can one get?  After all, we all willing pay a lot more to send text messages over our cel phones than sending the equivalent amount of text via email on the Internet.  Most customers are already “conditioned” to accept this concept.

In a competitive market, pursuing a value-based pricing strategy could be a legitimate marketing tactic.  However, as we have seen with the introduction of new competition in the wireless sector, it is one that can be under-cut by aggressive competitors if they approach the same customer with a cost-based pricing model.  Bell’s answer to this problem is aggregate volume pricing that loads costs onto resellers that are not based on cost of provision, but rather maintaining inflated prices for a nebulous concept of value.

Hopefully, the Commission thinks hard about this proposition before endorsing it.  In particular, the situation with delivering video-on-demand should be considered thoughtfully.  If the Commission steps into to regulate the cost of bandwidth required to deliver a video over the Internet based on its perceived value to the user, should they not also apply the same logic and impose the same cost structure to video-on-demand delivered via Bell’s IPTV service?  After all, the perceived value is the same to the consumer.

If customers are not charged the same cost to receive a same service, are the bandwidth usage fees anything less than a poorly disguised method to hobble new competition such as Google, Amazon and Netflix so as to protect the value of stranded assets?

At the end of the day, I suspect the CRTC is going to have to throw this entire mess back into the hands of the government to conduct a full policy review instead of tinkering with an outdated regulatory system that is falling apart.  We need a top to bottom re-think of Telecom, Broadcasting and Competition policy for information goods and service, a policy that starts with the premise that vigorous competition, diversity of alternatives, and consumer choice produces the optimum economic and social outcome in the long term.