There is More at Stake in Internet Pricing than Watching Movies: A perspective on internet Usage Based Billing

Commentary, Disruption, Roland Renner

Bell Canada’s Usage Based Billing (UBB) proposal for internet access created a storm of protest from consumers and independent Internet Service Providers (ISPs). Behind the angry reaction lie substantive questions of policy that Canadians ought to consider:  How will they be watching video in the future?  Will they have access to the latest Internet technology and new services being created around the globe?  How should the policy and regulatory framework adapt to fast changes?

The policy and regulatory structure should be consistent with technology advancements, allowing Canadians full access to Internet video and the opportunity to participate in new service developments. This is most likely to happen in a market structure that favours competition and consumer choice.  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 telephone (telcos) and cable (cablecos) companies– it is important that public debate on these issues has greater input than just telco and cableco incumbents. 

The growth of internet video threatens the revenue for the traditional cable and satellite video packages, and the more recent Internet Protocol TV (IPTV) service offered by telephone companies.  Bell Canada proposed UBB for internet access as a solution to network congestion caused by the growth of internet video.  This meant that frequent users of over the top internet video would have to pay a larger price increase, but the measure slows internet growth and protects the satellite and IPTV formats.  It also protects the video distribution package structure that the CRTC mandates as to promote Canadian content against the pick and pay business model available on the internet.

The UBB pricing proposal is also related to the need to replace what connects households to telecom networks typically called “the last mile.”  The next generation of internet services will require the higher capacity of Fibre to the Home (FTTH), replacing the copper and coaxial cables originally built by the telcos and cablecos when they were geographic monopolies.  If the incumbents can establish and expand their own content and distribution services in a congested network, they will be in a better position to dominate these markets after the last mile is rebuilt.

Regulatory jurisdiction is appropriate here because the telephone and cable companies still have important market power in the last mile.  They are ISPs and video distributors; they can favour their own video offerings in relation to others.  Since many of the telephone and cable companies have been buying up Canadian broadcasters and other sources of video content, their existing market power has been extended into a new sector.

For the CRTC and the Canadian film and video production industry, customers who use internet video bypass the elaborate promotion of Canadian content.  While the Commission has been monitoring the growth of internet video for many years and has made some adjustments, the recent rapid growth of internet video threatens the existing regulatory structure.  This structure must adapt to the new technology that favours pick-and-pay over large packages. It should allow the cable, satellite, and IPTV providers to have greater packaging flexibility to compete with internet video.  It should not allow the incumbents to discriminate against competing service offerings by pricing or slowing down their delivery speeds to manage traffic

This isn’t just about watching movies and TV shows.  This is also about using the internet to telecommute and reduce road congestion; it is about enabling people in rural and remote areas to participate more fully in economic opportunities; it is about building capacity to provide much faster speeds enabling the creation and delivery of new services.  In the United States, for example, the Federal Communications Commission wants 100 million homes with access to fast service (100 Mbps).  The Australian government effectively nationalized the last mile to build FTTH. 

Telecommunications policy for the past 30 years has promoted introducing competition into more and more segments of the market.  The choices to replace the last mile include market structures and technologies that will continue this policy and provide for competitive service providers and others that will maintain the control of the last mile incumbents.  The policy environment needs to support competitive initiatives such as the extension of customer owned fibre, installations by third parties, condominium ownership, and auctioning rights of way of last mile reconstruction.  Third party service providers must be able to interconnect as close as possible to the customer, extending the range of competitive options.

For many years, the telecommunications industry has been moving in a direction of more competition and more consumer choice.  The CRTC decisions related to this set of issues should continue in that direction over the next few months.