Threat to Canadian marketers: CRTC decision on Internet Metering moves Canada back into an Internet Stone Age

Canadian regulator’s new policy hurts consumers, stifles competition and innovation, and makes the Internet less open

First off, here’s a chuckle from Canada’s “Rick Mercer Report” about the issue…

I wrote about Netflix’s posssibly misguided entry into Canada back in September; misguided due to the most restrictive downloading caps and overage charges, and highest Internet access prices, in OECD countries.  A new Canadian regulatory decision to force all High Speed Internet companies to impose extremely low and restrictive usage caps on consumers effectively kills the Canadian Netflix service and cripples other Internet-based companies and entrepreneurs that use a significant amount  of bandwidth — but which is included in the consumer prices charged by broadband providers in other countries such as the US and in Europe.  Adding insult to injury, the CRTC says that anyone going over these arbitrary caps will pay $1.95 per gigabyte (and even higher in Quebec, since we all know French gigabytes cost more to produce. Yes, I’m being sarcastic).  Most websites and services Canadians use these days are designed on the “American model” that uses bandwidth-intensive graphics and video.  Canada’s regulatory agency apparently is still using dial-up services, or perhaps is more interested in lining the pockets of major Internet providers than providing competitively-priced service to Canadians on par with the rest of the world.

The crux of the decision is “usage based billing.”  All companies will now impose this, which will substantially increase prices to consumers when coupled with the caps already in place.  And, competitive services will now not be able to offer packages with 200GB caps or more, which are not available from the telcos or cable companies.

Frankly, I would love true “UBB.” If customers paid real-world “usage based charges,” each GB would cost a maximum of 4 cents while giving a 100% profit for the internet provider.  My monthly bill would then be about $1.60 for 40 gigabytes! Of course, there are fixed costs related to High Speed Internet service, such as employees, heat, electricity, maintenance, marketing, etc., but a good profit margin of 30-40% can be easily attained at a $30 price point even with all that.  I know, because I’ve done it for companies including Comcast and Suddenlink.  Even so, that does not make any overage charges for going over some arbitrary cap logical.  There’s no sense to it.  What tasks broadband delivery systems and can slow them down is the amount of traffic (i.e. number of customers using the service at one time).  Overall volume used by a particular customer has no — zero — bearing on operational costs.  Caps make no sense unless everyone downloads hundreds and hundreds of GB per month, and that just doesn’t happen; paying for overage makes even less sense.

As a home-based creative professional asked on LinkedIn yesterday: “What happens when Canadians start getting tentative with their natural Internet behaviours because they’re afraid they’ll go over their greatly reduced bandwidth limit? When will they stop watching the videos marketers make, using the apps or shopping on the e-commerce sites? How’s that going affect Canadian content online?  It seems to me it is a short trip between that and a client telling me, ‘we’re not seeing the same traffic as before, so thanks but no thanks.'”

Small businesses and freelancers eat up bandwidth like crazy in the course of doing business, but these companies would not be charged additional costs south of the border and in most other countries.

This idiotic decision automatically gives an unfair advantage to small business owners in the US and elsewhere where there are:

1. no real caps for average users, and

2. no metering whatsoever.

The only people who will see no difference under the new rules are casual Internet users who send an email every few days, play online solitaire and do little surfing (so grandma and grandpa are the only folks who are happy about all this). The Canadian Radio-Television and Telecommunications Commission has excelled at knuckle-headed, non-competitive decisions since its inception, and this is only the latest. It not only will dramatically and unfairly increase many Canadians’ Internet rates, it turns competitors like TekSavvy (which buy service in bulk from the duopolies) into nothing more than revenue collection agencies for the phone and cable companies.

As I wrote in September, Netflix and other Internet companies should not even bother marketing to Canadians, and small businesses using only a typical (well, “typical” in the rest of the world) amount of bandwidth should consider relocating out of Canada (and many will). Even downloading a map update for my Garmin GPS eats up 3 GB. Home-based businesses will very much suffer, especially those in creative design and those exchanging many files between clients and customers or using “cloud” based services such as SalesForce or Google Documents. It’s an ignorant, business-stifling decision that moves Canada and Canadians back towards an Internet Stone Age. Canadians might as well all revert to AOL dial-up.

Americans get very fast Internet speeds with almost unlimited usage (unless a customer is a downloading “hog”) for very economical rates. 250 GB or more of downloads per month at very fast speeds can be enjoyed in the US for around $30 a month, with no contract. Comcast instituted the cap mainly to address an issue related to customers running file sharing services; since Canadian companies have effectively blocked most file sharing, even that reasoning is moot in Canada. Comcast has been so successful at marketing their video, Internet and telephony products that they recently purchased NBC-Universal. Introductory offers in most US cities often approach $19.95 per month for 12 months, again without any contract (Time Warner recently advertised such an offer across the border in Buffalo and other cities). As it stands now, this service is a cash cow in both Canada and the US, but Canadians are paying more than twice or three times non-discounted rates in the US, incidentally where there is no draconian “cap.” Now, with this recent CRTC decision, that reality is getting much, much worse.

OpenMedia.ca has accurately pointed out that the incumbent telecoms and cable multiple system operators (MSOs) would have everyone believe that the cost of providing services is very close to the charges being implemented under “usage based billing.” The truth is that the variable costs for transmission of data are so low as to be effectively zero. The typical cost to transmit 1GB of data across a fiber-optic network is $0.02 or less. The regional duopolies have falsely claimed the cost is $1/GB, and sometimes as high as $2/GB.  The companies claim these overage charges are for network maintenance, network expansion and so forth.  However, incumbent Canadian providers have done very little to improve their networks over the years despite huge profits, unlike many providers in the United States.  Last-mile telco networks in Canada are often using legacy technology that was first implemented in the mid-1900s; there is very little “fiber to the home,” unlike with Verizon and other providers in US metro areas where services like FiOS are available.

As it happens, Verizon announced today that it pumped $2.8 billion into it’s northeast US operations to expand fiber-to-the-home in the past year, and it has only one broadband competitor in each market, just like the situation in Canada.  Canadian telcos have invested next to nothing.   Cable broadband is newer technology, so has higher capacity than the “twisted wire pair” the telcos use.  Canadian phone companies have done little (or nothing) to upgrade last-mile networks to modern fiber-optic technology capable of meeting the future’s needs.  Furthermore, the copper infrastructure of the last mile network was mostly not paid for by the big telcos. The original facilities were often subsidized by the government or pre-competition long distance rates, or are being paid for by the construction companies in new subdivisions as part of development costs.

Canada’s Internet rates and caps were extreme even before this CRTC ruling compared to anywhere in the western world, but they will now be horrendous. Considering it costs providers a maximum of 2 cents per GB (and that rate is pushing it, as a well-managed broadband operator has that rate much below a penny), the expected markup will be effectively 10,000% (or 20,000% at their realistic costs). Such a regulatory decision in the US would be immediately hit with Congressional action, as it is truly anti-competitive and anti-consumer, and certainly not net-neutral.  Canadian broadband providers often play the “Canada is a big place” card, but most providers have huge metropolitan clusters, and have left the small and rural markets to other players, just like in the US.  There is no effective difference.

Again from my September blog: bandwidth is not like buying beans at the Bulk Barn. If bandwidth was a huge bin of beans, selling 10 kilograms of beans would not cost the company much more than selling one kilogram, and the broadband company doesn’t have to buy the beans in the first place; it’s a conduit — a pipe. The infrastructure is in place to handle this amount of traffic already. Unlike increased speeds, additional overall bandwidth costs the operator next to nothing, as most customers use very little of their allowance. So, the existing and new overage charges on Canadians’ Rogers or Bell bills are essentially pure profit.

UPDATE February 4, 2011:  400,000 Canadians (including me) have signed the petition at OpenMedia.ca to demand Minister of Industry Tony Clement force the CRTC to reverse the decision.  Obviously, gouging by Canadian broadband companies has finally hit a nerve with Canadian consumers.  I’ve also written to my member of Parliament and Minister Clement.  I hope readers of this column will do the same.

Yesterday, Minister Tony Clement instructed the CRTC to review and reverse the decision, which delays any implementation until May.  He said that if the CRTC does not reverse the decision, the Canadian government will.  Time will tell.  Even so, caps for the vast majority of Canadians subscribing to Bell, Rogers, Shaw, Videotron, etc., are likely to remain and continue to be huge profit centres for the companies.

UPDATE February 11: Obviously feeling the wind at its back, TekSavvy increased the cheaper service from 200 GB to 300 GB, and made it available to all existing customers.  Let’s hope this “disease” is catching and this is the beginning of all providers easing or eliminating caps.