Bell and Telus vs. the Coalition for Competitive Broadband   |  November 24, 2009  

The big telcos built fast fibre networks, and they want to block competitors from using them. The smaller players are crying foul, warning of a re-monopolization of the industry.

The CRTC sided with the big boys, but a new coalition is fighting back.

The cost of your Internet access may hang on what happens next.

By Lawrence Cummer

An alliance of Internet providers calling itself the Coalition for Competitive Broadband has only a few short weeks to convince the government to overturn a CRTC decision the group says will spell its doom and create skyrocketing Internet prices for small and mid-sized businesses.

Spearheaded by Winnipeg-based MTS Allstream, the coalition is lobbying to have the feds change a decision they say gives unfair advantage to incumbents Bell Canada and Telus Communications in providing high-speed Internet access.

The decision, reached Dec. 11, 2008, specified which communications technologies carriers are required to provide competitors access to at regulated wholesale prices. While a variety of lower-speed access services were deemed to require regulated tariffs, Ethernet access was not. The CRTC ruled competitors had the means to develop their own Ethernet facilities.

The coalition argues this is not so and that the big phone companies will deny them access to high-speed technology.

The group is asking for concerned Canadians to an send e-mail to their local MP, Industry Minister Tony Clement, Prime Minister Stephen Harper and Opposition Leader Michael Ignatieff—using the group’s Web site—before time runs out on a one-year deadline to have the CRTC decision overruled. According to the coalition, more than 54,000 letters had been sent as of Sept. 28.

Bell and Telus counter that they have spent large amounts of capital building the next-generation networks the coalition wants at deeply discounted rates. They say the CRTC was right in finding that such competitive high-speed networks can be built by the competition, and that they are in fact being built.

But MTS Allstream’s presence in the coalition demonstrates the inability of competitive service providers to build out such facilities, according to telecom analyst Iain Grant of SeaBoard Group. In its region, the wholly owned subsidiary of Manitoba Telecom is an incumbent with its own facilities, but even as one of the largest competitive telcos in the country, Grant says MTS Allstream could not serve its business customers across Canada without access to the fibre-based Ethernet facilities of Bell and Telus.

“[MTS Allstream] actually spent about $20 billion on their facilities in the last 20 years and more before that. That doesn’t even get them to 50 per cent of their existing customer base,” Grant said.

“The real key here is the incumbent had a monopoly for a hundred years and that’s given them the scale and power to build up a relatively ubiquitous network. You really can’t replicate that and it doesn’t make economic sense to do so.”

Grant calls the move by the CRTC a “giant step backwards” and said the decision will lead to a re-monopolization of broadband Internet access. Bell and Telus argue deregulated pricing will not lead to a lack of competitive access, and that MTS Allstream and its allies are misleading Canadians by suggesting a consumer and small- to mid-sized business link for high-speed access primarily used by large enterprise companies.

“The Coalition for Competitive Broadband is really an attempt to mislead people about the issues at stake,” said Craig McTaggart, director of broadband policy for Telus. “This is really just another in a long history of attempts by MTS Allstream to have its business subsidized by other carriers.”

Chris Peirce, chief corporate officer of MTS Allstream, and Grant both respond that Bell and Telus are better insulated against the facility investments required for Ethernet access networks by the scope of their existing business. A smaller competitive provider would need to use risk capital to, for example, drop fibre into a new building.

“To pretend that the duplicate access network can be built is also to force inefficient investment in the marketplace,” Peirce said.

McTaggart retorts it is a fallacy to assume incumbent carriers’ pockets are so deep they aren’t taking risks by building out their networks. He calls his company’s investment in high-speed networks a tremendous risk and says the ability for Telus to set reasonable pricing based on market conditions is good business. To do otherwise views Telus once again as a monopoly and an agent of the state. “They’re essentially looking to us to be their capital investment wing and to do it at our own costs,” he said. “And that’s just not how business works. Doing business is risky, and we’re taking on the same risks.”

Corporate hits
Since typical home access to the Internet is over cable or DSL, decisions affecting Ethernet access prices will mainly impact Canada’s business community, which relies heavily on the Internet as a key tool in its success. A 2007 survey of small and mid-sized business owners conducted by the Canadian Federation of Independent Business (CFIB) found that 91 per cent relied on high-speed Internet access for day-to-day operations of their business. Because of the crucial nature of high-speed Internet services to SMEs, the CFIB joined the MTS Allstream-led campaign and has directly contacted Industry Minister Tony Clement on behalf of its 105,000 members.

Broadband Internet access acts as an equalizer for small- and mid-sized businesses, said Corinne Pohlmann, vice-president of national affairs for the Canadian Federation of Independent Business.

Less than half of the small- and mid-sized businesses surveyed by CFIB felt they had enough competitive options for Internet service to achieve value for money, and Pohlmann fears that without regulated wholesale tariffs for Ethernet it will only get worse.

She said incumbents in the past haven’t treated businesses as competitively as they have consumers, especially around pricing. Pohlmann fears that if the incumbents can set the fees for wholesale Ethernet access, quality will drop and competitors will disappear.

“Service levels will deteriorate. We’ve seen service levels become less stellar over the years when it comes to the incumbents for small- and medium-sized companies. We know that it is competition which has forced them—as well as their competitors—to be better at providing quality services at prices that are competitive and to see the small business market as a burgeoning and important one,” Pohlmann said.

No change to the decision will sound the death knell for smaller ISPs, according to Tom Copeland, president of Eagle.ca and chair of the board of directors of the Canadian Association of Internet Providers (CAIP). “When you visit the coalition Web site, you see all these ISPs that have gotten behind the campaign, and Eagle.ca is probably the smallest with about 2,500 customers. We’re not asking for free access, we’re prepared to pay for fair access at cost-based rates. If we can’t get that within a very short amount of time, there won’t be any of those folks on the campaign Web site continuing to exist.

“It really is that severe.”

But McTaggart reiterates that this is neither a consumer nor SMB issue, and relates to the high-capacity fibre networks used to deliver services to large businesses. It’s not true, he said, that it will bring about the end of the ISPs involved in the coalition.

The CRTC is unable to comment on the decision currently under review by the Governor in Council, but the issue will come to a head by Dec. 11, the day the one-year review period on the ruling expires.

Access explained

Access to older network technologies, such as T-1 and DSL, is currently regulated but these do not provide the high speeds or low costs associated with fibre-based Ethernet access.

Ethernet delivers speeds of up to 10 Gbps (10,000 Mbps), while DSL services delivered over standard telephone copper wires can only provide slightly more than 10Mbps on a best-efforts basis. By comparison, cable-based service offered by Canada’s cable companies will soon offer speeds of up to 100 Mbps, according to SeaBoard Group.