Usage Based Billing for Internet Access and the Future of the Internet: Internet pricing has important repercussion beyond entertainment value

Information Technology, Publications, Roland Renner (historic), Rural, Uncategorized

EXECUTIVE SUMMARY

The paper recommends that the policy and regulatory structure should be consistent with technology advancements, allowing Canadians full access to Internet video and other new services and the opportunity to participate in new service developments.

Bell Canada proposed Usage Based Billing (UBB) as a solution to congestion in the network caused by Internet video users. There are several reasons why this implementation of UBB is inappropriate.

• Bell’s UBB proposal has no peak component. Without a pricing element, the Bell UBB pricing proposal is not an effective way to shift demand and manage congestion.

• Bell did not propose to implement the same pricing structure for its Internet Protocol TV (IPTV) service, which delivers video packages using Internet technology. Cable and satellite video are not priced this way either.

• Based on an analysis of publicly available information, the price set for usage beyond the new download cap is vastly greater than costs.

• If managing congestion were the primary issue, construction of new facilities to meet demand would be a component of the overall response.

For these reasons, it appears that Bell is using its dominant market power in the last mile to discourage customers from switching to Internet video in favour of its IPTV system, to delay replacing the old last mile technology and to maintain revenue by changing the pricing structure.

This paper explores the connections between the UBB issue and other major telecommunications questions currently being debated in regulatory and policy circles. A brief review of telecommunications network technology developments and the change from a monopoly to a competitive environment is included here to provide the background information needed to assess the core issues.

These issues are:

• how Canadians will watch video and how much they will pay,

• rebuilding the last mile of the telecommunications networks connecting households to the Internet,

• access to the next generation of telecommunications services.

Regulatory jurisdiction is appropriate in this case because the telco (telephone company) and cableco (cable company) incumbents (incumbent refers to the original monopoly service provider) still have important market power in the last mile. Also, to build the access facilities, municipalities granted critical rights of way (ROW) to these companies when they were monopoly service providers. Now that new technology enables competitive access solutions, it is suitable to revisit the terms and conditions of ROW access. This is similar to the earlier rulings that required the telephone companies to provide competitors with physical access to their switching facilities.

The replacement of obsolete facilities in the last mile of the telecom networks is needed to enable the next generation of Internet and telecom services. How will this be done, when will it be done, who will be served and who will not?

Will the incumbent cable and telephone companies maintain their dominant market power in this network segment into the next generation of services or will the last mile be rebuilt to enable competitive access, releasing the creative forces that have brought about new services and capabilities?

Telecom is a strategic enabler of economic development, making the answers to these questions important for public policy. In the United States, for example, the Federal Communications Commission wants to see 100 million homes with access to 100 Mbps service.

Telecom has the potential to enable Canadians living in rural and remote parts of the country to participate more fully in economic opportunities. What kind of rural broadband access policy is appropriate for next generation services?

The technology choices to replace the last mile include some that will continue the dominant market power of the incumbents and others that will provide for competitive service providers, completing the evolution that has been occurring for the past 30 years. Given that much of the creativity of the past few years has come from new participants such as Google, Facebook, Skype, Netflix and RIM and not from the incumbent telcos and cablecos, it is important that the replacement of the last mile be subject to debate in the public forum and not left for the incumbents to decide on their own. The paper reviews options for replacing the last mile and recommends those that favour customer choice and competition.

For customers, UBB presents a big price increase for watching Internet video. For service providers, customers who drop their video subscriptions are a major loss of revenue. For the Canadian Radio-television and Telecommunications Commission (CRTC) and the Canadian film and video production industry, customers who use Internet video bypass the elaborate system of promotion of Canadian content. While the Commission has been monitoring the growth of Internet video for many years and has already made some adjustments, the recent rapid growth of Internet video threatens the existing regulatory structure. This may tempt some segments in the production sector to support measures that hold back the trend to Internet video.

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