Guest Post on Regulating ISP’s

Blog, Disruption, Les Routledge

My colleague Roland Renner has put together a commentary on the issues surrounding the recently announce decision of the Supreme Court to rule on role of ISP’s in Broadcasting.

Supreme Court to rule on ISP’s role in broadcasting

The Supreme Court announced that it will rule if Internet Service Providers (ISP’s) distributing video services should be subject to the same laws as traditional broadcasters.  The decision is connected to other issues of importance in the world of telecom, Internet and entertainment content and how they will develop in Canada.

The decision will be central to the answers to all of the following questions:

  • As a disruptive technology will Internet video be allowed to generate new service models or will it be locked into the straight jacket of the existing regulatory model?
  • Will consumers be permitted to take advantage of lower costs and more choice offered by Internet video?
  • Will Canada be a leader or laggard in development of innovative new services?
  • How and when will the next generation technologies be implemented in telecom networks generally and the “last mile” in particular?

If the court rules that the answer is yes, this would bring ISP’s under the wing of the complicated structure of the Canadian broadcasting system where every component pays into the Canadian content pot in exchange for a slice of the revenue pie.  One result could be that they would pay a percentage of gross revenue to a Canadian production fund just like like Broadcasting Distribution Undertakings (BDU’s – regulatory jargon for cable and satellite video providers) are required to do.  All ISP’s will oppose this, saying that it will increase prices for their Internet access customers and hurt their revenue growth.

As the quality of Internet video has improved more people have opted to take only Internet access service and drop their cable subscriptions.  Potentially, this means that an integrated service provider like Rogers could see its revenue from a subscriber who drops both cable and home phone cut by more than half.  (e.g. Home phone + long distance package $45, video $100, Internet $45, mobile $80 = $320 to Internet $45, mobile $80 = $125.)  There is a huge chunk of revenue at risk.

Three defensive responses to Internet video have emerged:

  1. Groups representing Canadian content producers and artists want Internet video to join the system.  This can take the form of a contribution based on percent of revenue and a host of other restrictions on packaging so that it would be required to look and feel and cost the same as existing cable services.
  2. The incumbent cable, telco and satellite video suppliers have been trying to hobble the growth of Internet video by introducing a form of Usage Based Billing (UBB) to make up revenue they are losing to the new technology and slow down the growth of the competing service.
  3. The incumbent cable, telco and satellite video suppliers, in their role as ISP’s have a major say in how the next generation of Internet infrastructure will be built.  This particularly important for the “last mile” to the household where the cablecos and telcos have a de facto duopoly.  The next generation can be built in different ways that will either facilitate the growth of competitive Internet video or help maintain control of both the network and the services in current hands.



Let’s look at each one in turn.

1.  Support for Canadian Content Production

Bringing Internet video under the wing of the existing system flies in the face of all the advantages of Internet video.  When a new technology emerges that delivers a service better cheaper and packaged in a way that many people prefer, why hobble it with rules designed for the previous technology.  There may be a continuing rationale for support and protection for Canadian artists even though they have come a long way in the past twenty years.  This is a big topic of its own.   Locking ourselves into a service and regulatory structure that the rest of the world is leaving behind, however, isn’t going to help anyone.

2.  Usage Based Billing

As Internet video becomes more popular, more Internet access subscribers are starting to approach or exceed the monthly download limits (measured in GigaBytes or GB).  The response by incumbent ISP’s has been to reduce the download limits or caps substantially and implement surcharges for additional GB[L1] .  The justification is congestion in the network caused by increased usage by these customers.  This is after they have already requested and been given permission to manage the demand, known as throttling, of their larger customers at the Peer to Peer (P2P) level of the network.

The UBB proposals, however, have not included a congestion charge such as time of day or peak components that would normally be a feature in a network based service attempting to manage congestion.  There has been little transparency of where in the network the congestion takes place or the cost of increasing capacity in that portion of the network instead of attempting to limit or shift demand.  UBB hobbles the growth of Internet video and keeps room in the market for the incumbent telcos’ to sell their own IPTV packages which will more closely resemble existing video service.

3. Next Generation Technology and the “last mile”

There may be 500 ISP’s in Canada but the incumbent cable and telephone companies own the last mile into subscriber households – a de facto duopoly.  These facilities are based on copper wires installed originally for telephones and coaxial cable installed for conventional video services.  Both are becoming obsolete stranded assets, even with the addition of the technologies that enabled them to carry broadband Internet as well as their original functions.  How should next generation of household access facilities be built and who should build it?

Will cablecos and telcos build it slowly to get more return out of existing plant?  Will they use technology and architectures to maintain single operator control or will alternative models be developed that allow for open interconnected networks and more consumer choice of service providers?  Interesting alternatives are being implemented in other countries such as for example Australia and Denmark.


All of these issues are connected.  The Supreme Court will hear the case as late as 2012.  The timing is right for review of a Broadcasting Act based on increasingly obsolete assumptions, so we can be ready to take advantage of new opportunities that will help to determine our place, not only in the world of broadcasting entertainment but in the next generation of broadband services globally.