The Chair (Mr. David Sweet (Ancaster—Dundas—Flamborough—Westdale, CPC)):
Good afternoon, ladies and gentlemen.
Good afternoon and welcome to everyone.
Welcome to the 56th meeting of the Standing Committee on Industry, Science and Technology. Before us we have the following witnesses: from the Canadian Network Operators Consortium, Bill Sandiford and Christian S. Tacit; from the Union des consommateurs, Anthony Hémond; from the Canadian Association of Internet Providers, Monica Song; from MTS Allstream, Teresa Griffin-Muir; and via video conference Steve Anderson, from OpenMedia.ca, who has not joined us yet.
We'll proceed in the order on the orders of the day, ladies and gentlemen.
Mr. Sandiford, go ahead for five minutes, please.
Mr. Bill Sandiford (President, Canadian Network Operators Consortium Inc.):
Mr. Chair and committee members, thank you for giving us the opportunity to appear before you today.
My name is Bill Sandiford. I am the president of CNOC, and also president of Telnet Communications, a mid-size competitive Internet service provider. Accompanying me is Mr. Tacit, counsel to CNOC.
The appendix to this presentation gives some background information on CNOC. We will not discuss the many problems caused by the CRTC's usage-based billing decisions that have already been adequately addressed by others, but there are some additional issues we would like to raise.
Bell has threatened many times in the regulatory and political forums that if it does not get its way, it will reduce its investment in its networks. This has never happened before, and the opposite is true.
Bell must invest to keep up with what the cable carriers are doing. Bell's recent public statements to the effect that investment in broadband networks and services is one of its strategic imperatives is sufficient proof of this.
Competition results in investment. Usage-based billing on wholesale service is the artificial tool that enables Bell to defer investing in its network by repressing competition and, in so doing, demand for bandwidth.
Regulators from other countries have not accepted Bell's approach and the CRTC should not be doing this either.
No other major incumbent telephone company has applied UBB to wholesale services. While the four major cable companies have had the ability to charge for usage for years, none but Vidéotron has actually done so historically for wholesale services.
The other point we wish to raise is that Bell's Internet traffic measurement techniques are not transparent to competitors or end-users, and are prone to errors that have led to overbilling.
So you may ask how we got to this point. The answer is that framework for regulating wholesale high-speed services is broken. There are two main reasons for this. First, the CRTC treats these services as if they are used by competitors to deliver only Internet access to their end-users. This may have been true in the past, but the situation is vastly different now. Incumbent wholesale high-speed services now constitute the broadband platform that competitors need to offer almost all telecommunications and broadcasting services to consumers today and for the foreseeable future.
The second problem is that the wholesale customers of the incumbents are not viewed by the CRTC as being of equal stature with the incumbents when it comes to competitive issues.
CNOC suggests that wholesale broadband access services should be regulated as a broadband platform that can support many types of retail services instead of being regulated by comparison with or forced to mimic the retail Internet services of the incumbents; configured in a manner that allows competitors to choose the attributes of the services provided to consumers, such as speed, throughput, quality of service, type of service, aggregation, bundling, etc.; and priced so as to allow only incumbents to recover the associated costs of providing the services, plus a reasonable and consistent mark-up that recognizes the essential nature of these services.
The CRTC should also require incumbents to provide competitors access that is fairly priced to new network capabilities and facility types as soon as these become available and are deployed by the incumbents to provide services to their own end-users. Otherwise, competitors will fall behind and competition will be unduly lessened.
If this regulatory framework is adopted by the CRTC on a going-forward basis, determinations such as the recent UBB decisions will never be made again.
The notice of consultation issued by the CRTC on Tuesday does not address the core problems with the current regulatory framework for wholesale services. In fact, the questions posed by the CRTC in the notice are unclear and raise the prospect of retail regulation of Internet services, which would be a step backwards.
We hope that the CRTC will amend the notice of consultation to deal with these broader concerns in a clear manner as quickly as possible. A principled and consistently applied wholesale regulatory regime will lead to vibrant retail competition. Canada cannot afford to continue with the status quo.
There is one final topic that I would like to address. We have heard Mr. Bibic from Bell consistently talking about their billions of dollars of investments in their network. To Mr. Bibic we say, “You're welcome”. The competitive ISPs in Canada spend hundreds of millions of dollars with Bell every year. We are sure that our expenditures are well used by Bell and the other incumbents for their capital needs.
We would like to thank the Government of Canada and this committee for addressing these important issues. We welcome any questions you may have.
Mr. Anthony Hémond (Lawyer, Analyst, policy and regulations in telecommunications, broadcasting, information highway and privacy, Union des consommateurs):
I would like to thank the committee for inviting me to testify. My name is Anthony Hémond, and I am a lawyer and analyst in telecommunications with the Union des consommateurs.
The Canadian Radio-television and Telecommunications Commission said the following about usage caps that Bell Aliant and Bell Canada want to impose on independent providers and their clients: “[...] the Bell companies' proposals would incite heavy end-users to reduce their usage, including during peak periods”.
However, the usage caps as proposed by the Bell companies would not in anyway incite users to reduce their Internet use during peak periods, since the application of these caps is not based on the usage period, but on a monthly period.
It has been established that usage caps such as the ones that have been proposed do not in any way serve as an incentive to encourage users to reduce their usage of bandwidth, as indicated in the Bell companies' proposals in their tariff applications approved by the commission. Moreover, this tariff application pertained to the Internet service that is most popular with consumers.
When you look at the graph that I provided in my presentation, you can see that the users whose bandwidth usage is between 80 and 300 gigabytes have no incentive to reduce usage and, incidentally, low users are billed excessively high amounts.
We would also like to draw the committee's attention to the cost billed for bandwidth. It was set at $1.125 per gigabyte for service which was at that time a 5-megabyte service per second, whereas the market price was 3¢ per gigabyte. The Bell companies were asking up to $1.875 per gigabyte, which is 60 times greater than the market price. Accordingly, the lowest resale price imposed by Bell represents seven times the cost of purchasing a gigabyte.
According to the chair of the CRTC, who repeated this during his testimony before the committee “[...] less than 14% of users are responsible for more than 83% of Internet traffic”. Understand that this data pertains to traffic and not network capacity. In other words, it is possible, on this basis, to conclude that small users are subsidizing heavy users who are already being charged seven times the actual cost.
Despite what is being said, there was never any explosion of average bandwidth use on the Bell network from 2002 to 2008. Indeed, growth was linear and extremely predictable, as shown by the graphs in my presentation.
The chairman of the CRTC, in testifying before this committee, spoke about the “over-the-top” services on the Internet. He was referring in particular to services such as Netflix, or TOU.TV, namely the provision of broadcast services over the Internet. These services are in direct competition with those provided by Bell, whether it would be satellite Bell TV services or IP television services for which the Bell companies are offering unlimited Internet use monthly packages.
I would respectfully submit that it is because of technological development and innovation that these Internet usages are now commonplace and desirable.
The usage caps imposed by Bell companies, that they want to force their competitors, namely the independent ISPs to adopt, would hinder the development of IPTV services by independent providers, and it would also hamper the development of other innovative services that may be part of tomorrow's Internet landscape. Bell's proposals are, in many respects, anti-competitive and likely to limit innovation.
Today it is obvious that the Bell companies are in a position of conflict of interest because of their vertical integration, making them both a retail Internet service provider and a wholesale provider to broadcast distribution undertakings. This phenomenon will be even more in evidence with Bell's purchase of CTV.
The order in council that provided the CRTC with instructions on the implementation of Canada's telecommunications policy is, amongst other things, the reason behind the CRTC decision regarding usage-based billing.
Under this order in council, the CRTC, when making regulations, must take measures that are symmetrical and neutral as far as competition is concerned. The commission is justifying its decision to authorize Bell to force Internet service resellers that use its network to impose usage limits on their clients because the cable companies use the same practices. However, this justification fails to consider the technological differences that exist between these two networks, which to a certain extent could justify cable companies' imposition of usage caps.
We will reiterate how surprised we were by this CRTC decision to impose Bell commercial practices on resellers without any regard for the competition rules that the CRTC is supposed to be protecting, and which regulate the relationship between competitors and their clientele. The CRTC has decided to abstain from regulating this aspect of telecommunications.
Given the desire of the Bell companies to impose their business model, namely to limit usage, and the support that the CRTC appears to be giving to Bell's proposal, we would urge the committee to study solutions that may resolve part of the problem, namely, the functional separation of the Bell companies.
This is a solution that both Great Britain and New Zealand agreed to adopt, and that the European Union integrated in its directive pertaining to telecommunications services:
||The purpose of functional separation, whereby the vertically integrated operator is required to establish operationally separate business entities, is to ensure the provision of fully equivalent access products to all downstream operators, including the operator's own vertically integrated downstream divisions. Functional separation has the capacity to improve competition in several relevant markets by significantly reducing the incentive for discrimination and by making it easier to verify and enforce compliance with non-discrimination obligations.
The results of functional separation in the United Kingdom and in New Zealand must be underscored:
Functional separation was followed by a flurry of investment activity by entrants, resulting in the strengthening of competitors Carphone Warehouse, Tiscali UK, and BSkyB, and their shift to competing over more flexible unbundled loops instead of almost solely through wholesale offerings. Prices fell by over 16% each year between 2006-2008. Between the last quarter of 2006 and that of 2008 New Zealand saw its penetration per 100 rates jump, surpassing those of Austria, Italy, Spain, and Portugal; it saw speeds increase more than in any other OECD country, and the primary competitor to Telecom New Zealand, TelstraClear, invested in its own fiber ring connecting all of South Island's towns.
During this time in Canada:
As of September 2008, the monthly price of an unbundled local loop in Canada, excluding prices for remote areas or the densest downtown areas in terms of PPP, purchasing power parity, was roughly 70% higher than in South Korea and Denmark; almost 50% higher than in Italy; 30% higher than in Japan, France, or Norway; and 25% higher than in Finland or the U.K. Indeed, Canada has the highest monthly charge for access to an unbundled local loop of any OECD country.
Ms. Monica Song (Counsel, Fraser Milner Casgrain LLP, Canadian Association of Internet Providers):
My name is Monica Song. I am counsel to the Canadian Association of Internet Providers, or CAIP.
CAIP thanks the committee for this opportunity to appear before you today.
The chairman of CAIP, Mr. Tom Copeland, has been called away on a personal matter and asked me to express his sincere regrets for not being able to appear before you personally today.
The Canadian Association of Internet Providers was formed in 1996 to provide effective advocacy and leadership respecting public policy and regulatory and judicial proceedings affecting the ISP industry. Subject to any questions you may have, CAIP would like to focus on three specific points, with a view to re-establishing the trust of Canadians in the industry and the regulatory process.
First, the true measure of telecommunications services is the network's peak-period bandwidth requirement, expressed in kilobits per second, megabits per second, or gigabits per second. Competitors already pay their proportionate share of the costs of provisioning to the network's peak-period bandwidth requirement.
Second, given that all costs associated with the provision of wholesale gateway access services access costs are already fully recovered, along with very healthy markups, there is no principled basis to authorize wholesale UBB. We want a rational tariff based on wholesale pricing principles that the CRTC has always followed, until now.
Third, we hope that the commission has resolved to go back to the drawing board and rethink the appropriateness of wholesale UBB charges. The commission's so-called “retail equivalence principle” is anti-competitive and arbitrary, and must be shelved in favour of established wholesale costing principles.
Bandwidth constraints are the true measure of network value. It's important to understand what usage means and how it relates, if at all, to the true costs of designing and building a telecommunications network, and therefore whether anyone is heavy or light or getting a free ride.
All IP-based services are defined in terms of bandwidth, or the rate of data transfer, measured in kilobits per second, megabits per second, or gigabits per second. When a retail customer orders an Internet access service or a private network service, or any number of other IP-based services, the customer will be asked to select from the available speed restriction of the service. In the case of Internet services, for example, the retail customer will be asked to select a speed of between say 500 kilobits per second or 25 megabits per second.
Thus, a person who has already migrated to the Internet as his or her preferred video content delivery mechanism, a scientist who wants to exchange huge scientific data sets with a graduate student or fellow scientist across the country or on the other side of the world, or a grandparent in a far-flung area of Canada who wants to video-Skype his or her grandchild in Ottawa will definitely find a 500 kilobit per second connection painfully slow and will order higher-speed services. However, no matter how hard the customer tries, he or she will never be able to exceed the preordained bandwidth of the service ordered. The service is therefore constrained or capped at its preordained speed. And the price of the service increases in proportion to the speed ordered. The higher the speed; the higher the price. In this sense, every IP-based service is already priced to reflect bandwidth intensity.
Carriers and network operators the world over design and invest in their networks based on projected total bandwidth requirement at peak periods—the peak-period bandwidth requirement. This is the true measure of telecommunications services and of the way in which telecommunications networks are planned and built. In contrast, and not to be confused, is usage in association with usage-based billing. Usage in this context refers to the number of bits of data that are transferred over a given end-user connection, usually over the course of a month. Usage is expressed in bytes, as opposed to bits.
As concerns wholesale access services, such as Bell's GAS, in addition to the foregoing bandwidth cap, competitive ISPs are doubly constrained by a further aggregated bandwidth restriction, which is also preordained and paid for in bits per second. Bell’s own responses to commission interrogatories make it abundantly clear that the only way that costs associated with the wholesale GAS access service may be derived is on the basis of peak-period bandwidth, expressed in this case in kilobits per second.
The commission found that Bell already recovers all costs, plus prescribed markups, that are associated with the provision of GAS from the pre-existing rates for the wholesale GAS access service. Wholesale UBB charges are therefore pure gravy.
In the interests of time, I will summarize my second point, which is that we want a rational tariff based on wholesale pricing principles that the CRTC has always followed, until now. They've abandoned that in the case of wholesale UBB. And we’d like a return to established wholesale pricing principles.
CAIP's third point: the commission's equivalence of treatment principle must be shelved. The commission abandoned wholesale pricing principles and instead based its approval of wholesale UBB charges on its so-called “equivalence of treatment" principle for wholesale services and retail services.
The problems with this approach are manifold. They have all been touched on by previous witnesses but were not necessarily related back to this misplaced equivalence principle.
I have five points, which I will quickly summarize.
Ms. Teresa Griffin-Muir (Vice-President, Regulatory Affairs, MTS Allstream Inc.):
Good afternoon. I am the vice-president of regulatory affairs at MTS Allstream.
MTS is the incumbent telephone company in Manitoba. We offer an array of telecommunications services, including high-speed Internet and IPTV services. Outside of Manitoba we are the leading competitor to Bell and Telus, offering state-of-the-art business services throughout the country.
I'd like to thank the committee for this opportunity to appear before you today to discuss the CRTC's UBB decision.
The CRTC's approval of Bell's proposed usage-based billing for wholesale DSL services further erodes the mandated availability and pricing of wholesale services. As the availability of economically priced wholesale services erodes, so too does consumer choice and the innovation that robust competition delivers.
The CRTC has allowed what amounts to regulator-sanctioned retail price fixing with the UBB decision. The CRTC has done so on the basis of misinformation and misconceptions.
The first misconception is that wholesale UBB is necessary to protect the integrity of the Bell network. The second is that UBB is competitively neutral and transparent because Bell allegedly applies a usage cap on its retail customers' traffic and charges these customers for usage in excess of a cap.
Bell has offered no evidence demonstrating that its network is congested and would fail if steps were not taken, economic or otherwise, to control traffic on its network. Nor did Bell offer any evidence that demonstrated that the traffic of competing ISPs' customers was the cause of any congestion problems. Indeed, the CRTC has acknowledged that there is no cost-based rationale for the manner in which it is allowing Bell to implement wholesale UBB charges.
Moreover, congestion in a telecommunications network is specific to both time and location. No properly provisioned telecommunications network is congested everywhere at all times. Yet the application of usage caps and usage-based billing by Bell on competing ISPs' customers' traffic is applied everywhere and irrespective of the time.
These caps and usage-based charges are sanctioned by the CRTC even though competitor ISPs, when purchasing wholesale DSL service from Bell, purchase not only access to a customer's premises, or the last mile, but also capacity over Bell's network to transmit the traffic generated by all of their customers, or the middle mile.
Having leased and paid for capacity, the ISP should have the right and responsibility to manage its own customers' traffic. By approving wholesale UBB, the CRTC has allowed Bell not only to decide how much capacity a competitor's customer is entitled to, but to charge that ISP for any usage by individual customers in excess of a cap that Bell arbitrarily imposes. This cap is imposed irrespective of whether the ISP has exceeded the overall network capacity it has purchased from Bell.
In effect, Bell is allowed to charge the ISP multiple times for the same capacity. In fact, we demonstrated to the CRTC that a competitive ISP could purchase far more capacity than its end-user customers use in aggregate and still end up paying substantial UBB charges because some of the competitor's customers exceed a completely arbitrary cap.
Through the imposition of a cap and usage charges, Bell will be allowed to dictate the structure and level of retail Internet pricing. In the best case, competitor ISPs will be forced to mirror Bell's pricing. However, today Bell's retail Internet pricing is no longer regulated and the CRTC has neither the oversight nor the visibility to this pricing.
Do I still have time?
Mr. Steve Anderson (Founder and National Coordinator, OpenMedia.ca):
Thanks for having me. I'm surprised that I've been beamed in for this; it's probably going to cost you in overage fees. But thanks for having me, nonetheless.
I'm here as an Internet user, and one of half a million Canadians who have signed the “stop the meter” petition. I want to start with something a little different—a personal story.
Several years ago I was living at home with my parents, and I really wanted to get involved in media-making and being a video producer. I took it upon myself, because I felt passionate about the issue, to try to learn how to produce videos. With Windows Movie Maker, a free program, and by picking up content on the Web, editing, and teaching myself the process, I produced a video that eventually went on YouTube and was viewed by 500,000 people. I subsequently got a job in the video production market, and I ended up winning a couple of awards. Later, I was able to develop my own non-profit organization.
I tell that story because if we had usage fees in place—what we're talking about, what the big telecom companies want to impose on independent ISPs—there's no way I would have been able to do that. There's no way I would have been able to innovate in that way, and there's no way I would have been able to do that from the ground up. Canadians across the country have stories like that. That's the kind of innovation that is under threat right now.
As far as I'm concerned, these new fees are basically a tax on innovation.
I'd also like to give a bit of context to the public outcry that led to this process. It's not just that there are new fees. It's not just the ridiculous idea of forcing their competitors to adopt these new fees. It's also that Canadians face some of the highest prices in the cellphone market. They pay some of the highest prices for Internet access. We're not keeping up with other industrialized countries. We're becoming a digital laggard. We face bad customer service, because that's what comes with a monopolistic industry.
I think it was just yesterday that Bell had to reveal that their metering service doesn't really work. That's a case in point, that the company would impose that billing structure without even knowing if their service worked properly. They might even be overbilling people.
It's within that context that people are really upset. They have decided to draw a line in the sand with this issue. I think that should tell everyone on this committee, and our representatives, that we need structural change in the market.
As another example of the structural problem we have, if you look at the reactions of Bell in particular to this public outcry, and other big telecom companies, they attack their own customers. In what other industry do you see that? Public relations 101 is that when you have a big problem with your customers, you admit fault.
That's not what they did. In fact they were elitist and condescending and disrespectful. That's not something you can do unless you dominate a market and you have captured the regulator. If you ask people why they're so upset and engaged, it's that context.
We're also talking about musicians, grandmothers wanting to share photos, gamers, and people connecting with their family over Skype. The reasons they're so concerned are as diverse as the country of Canada.
Beyond that, in a world that can seem precarious, both economically and ecologically, the Internet represents opportunity, free expression, and hope. Open communications hold a possibility that our own ingenuity and creativity could lead us to a better world. It allows self-determination—the best idea to win. It is this opportunity that I think people want to protect, and it's this that is under threat.
In terms of specifics of what needs to happen here, what I think and what I'm hearing from Canadians is structural change. We need to give full autonomy to independent ISPs in their billing. They should be empowered to have more control over their services through open-access policies.
UBB is really a symptom of a larger problem of market concentration, and that's really what Canadians are angry about. I didn't mean to talk about vertical integration. I hear people on the Internet saying that Internet congestion is really Netflix prevention. The reason they're saying that is that Bell and the other big telecom companies have their own TV offerings, and when they add new fees to the Internet, it pushes people back under their TV services and pushes them away from competitors online. The fact is, there shouldn't be that kind of dominance in two industries.
Mr. Anthony Rota (Nipissing—Timiskaming, Lib.):
Thank you all for being here today.
People sometimes ask about competing, buying bandwidth off of a major player and then competing against that player. It seems to be a little counter-intuitive at times, and people look at it and wonder why this is allowed to happen.
The reason is, when you have a duopoly, a monopoly, or even an oligopoly where you have major players controlling a market, the only way to get competition is to have competition created. This helps consumers. I believe that's what we're hearing from many of our ISP producers.
So, really, it is a benefit to producers to have that competition. I think that's probably one of the most important things that we have to bring forward. Without the competition, you have a duopoly and basically there's no competition. That's not healthy for the market.
The 2006 policy directive seems to be squeezing small operators out of business. I understand that Bell requested a discount of 25%. You requested 50%. The CRTC ended up giving you 15%, and that was after giving Bell further concessions. The process was driven by the policy directive. The idea was that with less regulation the market would decide the most efficient outcome. Without competitors having fair access through the market, it doesn't have the chance to choose anyone but the major player. I guess that's where we are today.
I understand a Conservative minister gave that policy directive, which neglected the needs of small operators such as yourselves. Were the series of decisions that have been made and given by the CRTC detrimental, or were they beneficial? How did that lead to the situation we're in right now?
Mr. Christian Tacit (Barrister and Solicitor, Counsel, Canadian Network Operators Consortium Inc.):
I'd like to address this, because there's a lot of discussion about the policy direction and its influence. If you read the document, it's pretty neutral in its language, and it's really up to the CRTC to put flesh on the bones.
On the question of access, according to the wording, if the rules relate to access to networks, they're supposed to enable competition from new technologies and not to artificially favour either incumbents or competitors. In our opening remarks, we pointed to the two main problems leading down this path. Those pre-dated the policy direction by six to seven years.
So the problem is that the commission has been looking at wholesale regulation, at least insofar as broadband is concerned, through the wrong lens. That's really where we're at. I'm not going to repeat why, because we've said that in our remarks, but that's really the issue.
Ms. Monica Song:
The commission based its approval of wholesale UBB on this so-called equivalence of treatment principle that the commission attempted to bring between wholesale access services and retail Internet services. Other witnesses have already described to you that they are not comparable services, but I won't go back over that.
The five problems are as follows. First, the requirement that the competitors mirror the retail pricing plans of Bell or any other wholesale provider is retail price maintenance by any other name. Not only the effect, but the stated intent or purpose of wholesale UBB is to prevent competitors from reducing the price or influencing upwards the prices they are charging their customers. That's effected through the medium of Bell's control over the wholesale access service.
Our second concern is that IPTV is not irrelevant to this issue. Even though competitors and consumers have raised it time and again, the CRTC continues to stick to the myth that IPTV is somehow separate. There is no separate network for IPTV. If retail equivalence and the possibility of congestion are the justifications for requiring competitive ISPs to mirror Bell's retail pricing plans, then the fact that Bell's own bandwidth-intensive IPTV services are exempted by Bell--a vertically integrated network, distribution, and content provider--cannot be considered irrelevant.
Wholesale UBB as proposed is also not a fair and transparent Internet traffic management practice. First, it is applied to the amount of data transferred over the course of a month. Monsieur Hémond and Ms. Griffin-Muir have pointed out that metering 24 hours a day every day will do nothing to reduce congestion--if indeed congestion even exists--or peak-period traffic. Second, if the reduction in peak-period traffic were the real objective, then Bell would have applied UBB to its own IPTV services.
Mr. Brian Masse (Windsor West, NDP):
Thank you, Mr. Chair.
Thank you to the witnesses for being here today.
I think it's important to establish that there has been a series of decisions and deregulation that has allowed this current framework to emerge. It's not the fault of the people coming to the table here. It's the plan that's been laid out, and now we're reaping the results. That's really what's happened.
The first question I have, and it's to anyone who wants to answer or to all, is what I'm really concerned about is the CRTC's framework that they issued the other day. I don't think that gives the result we're looking for if they follow those types of hearings. I think we're going to have a similar decision come back or some other type of a hybrid type of a system, unless we get them to re-establish how they're going to have those hearings.
That's why I was disappointed with the minister. If we're just going to wait for the 60 days to answer the two questions in the framing that they've done, we're not going to solve the fundamental problem.
I'll turn that over to anyone who wants to talk about that.
Ms. Siobhan Coady (St. John's South—Mount Pearl, Lib.):
Thank you very much.
Thank you for taking the time to be with us today, and thank you, Mr. Anderson, for joining us via the Internet.
I have a broad-ranged.... We're talking about policy directives and.... I'd like to come back out to a vision here, for a moment.
I'm concerned. I'm hearing all about what's happening today, but what are the consequences if Canada does not have a very strong and viable broadband, does not have the capability and aptitude that we need to have in order to progress? I'm a business person; I think I've said this at this committee before. I own a company in biotechnology. We trade in data all over the world. We have to have access to the Internet. What are the consequences to our country if we don't do something better than what we're doing?
Ms. Song talked about the wholesale pricing principle as being a tactic we could employ. Mr. Anderson, you perhaps might want to lead on this one. I note that Britain has a strategy, a superfast broadband future that wants to be the best broadband in Europe by 2015. I think we could talk about the 2006 policy directive and all those things, but are we going to be where we need to be in order to be competitive and successful and have the jobs of the future that we need?
Mr. Anderson, I'll turn to you first, and then Ms. Song.
Mr. Dave Van Kesteren (Chatham-Kent—Essex, CPC):
Thank you, Chair.
Thank you, witnesses, for appearing before us.
Our illustrious chair pointed out just how difficult this is for the general public, and there's no question about it. I think most of us thought we understood, but as we delve into this further, it becomes complicated.
I tried to simplify it at the last meeting. I compared the pipe, and I suggested that what you were doing was buying a segment of that pipe and what you want to do there is really your business. Bell was basically saying they wanted to change that framework. They want everyone to do what they're doing. So that's one simple illustration, and I hope that sticks with people. But I'm going to do something else at this point. I'm going to give you an opportunity, because the next panel is going to be Bell. We're going to have Bell in front of us.
I'm going to start with you, Mr. Sandiford. If at this time you had the opportunity, realizing that most people aren't operating on this plane, what questions would you want us to ask Bell? While you're thinking about that--
Mr. Mike Lake:
Thank you, Mr. Chair.
Thank you to the witnesses for coming.
Just taking a look at the actual order from 2006, it says pretty clearly that the commission, “when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives”.
It goes on to say that the commission, when relying on regulations, should use measures that satisfy the following criteria, namely that if they are of an economic nature, they neither deter economically efficient competitive entry into the market nor promote economically inefficient entry.
There's a lot of talk in there about competition. That's what this is all about today.
As we go through this process, in the end we're going to have to come up with a report and ideas. I want to focus this last round of questions on ideas moving forward.
In your view, as we look to increase competition, increase innovation, and bring prices down for Canadian consumers, what do you suggest? There's a lot of talk about the problems with the decision. What are your suggestions?
I'll start with the bigger organizations. Maybe I'll start with Kate and then go to CNOC.
Mr. Mirko Bibic (Senior Vice-President, Regulatory and Government Affairs, Bell Canada):
Thank you, Mr. Chairman and members of the committee.
I have with me Jonathan Daniels, who is vice-president, regulatory law, at BCE.
Thank you for this opportunity to present our views in person on the issue of wholesale usage-based billing. We will use this time to help set the record straight by starting with a few key points of clarification.
First, Bell has applied usage-based billing for retail Internet services we offer in our competitive footprint since December 2006. But in doing so, we make sure our customers have a wide range of options available to them, each with generous amounts of usage to ensure a high-quality Internet experience.
Now, the suggestion made by some that usage-based billing makes Internet unaffordable is plainly wrong. With Bell, customers can purchase blocks of Internet time that provide three times the average monthly usage for only $5. A block of Internet time that provides eight times the average usage can be purchased for $15. With that, a customer can watch nearly 600 hours of additional online video each month. That's over and above the hundreds of hours of online time included as part of our monthly plans.
We also have award-winning tools in place to help all of our customers avoid unwanted usage and ensure their Internet experience is what they want it to be.
The second point of clarification is that the CRTC decision that has prompted current debate over usage-based billing is only about a very small subset of the wholesale marketplace and therefore affects only about 1% of Canadian Internet subscribers.
With respect to another general misunderstanding, I also want to point out that the CRTC decision does not impact Internet services for businesses, large or small.
What is at issue and what we do not believe has been fully addressed as part of your meetings thus far are several fundamental questions related to fairness.
From a billing perspective, we believe there should be no discrimination between retail and wholesale customers. All customers should be treated in the same way, and usage-based billing is the fair way to price Internet use. Simply put, the heaviest users should pay more than those who use less.
Fairness is also a factor when we consider the fact that for over 10 years, the CRTC has authorized cable companies to apply usage-based billing to the wholesale providers who use their facilities.
All that Bell is asking from the CRTC—and we believe that this should be clear to everyone—is an opportunity to set, on the same basis as the cable companies—who are our biggest competitors—the prices billed to the wholesale Internet service providers who share the network with Bell's retail Internet clients.
Unfortunately, these issues are still receiving very little attention. Instead, people are concentrating on a certain number of myths.
Among these myths, there is the idea that usage-based billing will stifle growth, which is absolutely false. You have only to study the retail Internet market in Canada to see that growth is going on unabated. Even in the wholesale market, where certain cable companies apply usage-based billing, nothing has indicated any slowdown in growth.
Also inaccurate are suggestions that wholesale usage-based billing prevents wholesale ISPs from differentiating their products from our own. Despite our major network investments--$3 billion between 2006 and 2010 to deliver additional Internet capacity and faster speeds--wholesale ISPs continue to receive significant regulated discounts on the prices they pay to use our network facilities.
These discounts give wholesale ISPs a 50% to 60% reduction relative to our own retail offers, providing them with the flexibility to tailor their own services and pricing packages as they see fit. We must remember that the CRTC decision in question authorizes Bell to charge a third party wholesale ISPs on a usage basis.
But the CRTC decision does not require these ISPs to charge their own customers on a usage basis, even though, as you have learned from others who have appeared before you, some wholesale ISPs already applied usage-based billing well before Bell had the ability to charge them on this basis. This should not come as a surprise. It's consistent with an approach previously supported by OpenMedia.ca, the organization running the current “stop the meter” campaign.
In February 2009 OpenMedia.ca, then known as the Campaign for Democratic Media, voiced its support to the CRTC for usage-based billing as an appropriate means to address traffic congestion.
In fact, Mr. Wallace, you asked the previous panel why their views hadn't been heard by the CRTC. They have been heard by the CRTC.
What is true, however, is that the average wholesale ISP customer uses twice the bandwidth of our own Bell retail Internet customers while using the same network. These heavy users, on the same network as our users, clearly affect everyone's Internet experience.
I want to be clear here. The third-party ISPs do not buy a pipe from us for their own channel, or their own channel from us. Their customers' traffic travels over the same network as our customers' traffic. This leaves us in a serious bind with the wholesale ISPs' heaviest users, representing only a minuscule fraction of Internet customers in Canada consuming absolutely the most bandwidth and at no additional charge.
Mr. Chairman, members of the committee, the disparity is striking. We must ask this. At what point should the vast majority of Internet customers stop subsidizing the activities of a relative few?
We urge you to take fairness in terms of pricing and regulatory symmetry with the cable companies into account as this process moves forward.
Mr. Ken Stein (Senior Vice-President, Corporate and Regulatory Affairs, Shaw Communications Inc.):
Thank you, Mr. Chairman.
Good afternoon. Thank you, Mr. Chairman and members of the committee.
My name is Ken Stein. I am senior vice-president of corporate and regulatory affairs at Shaw. I am joined by Jean Brazeau, senior vice-president of regulatory affairs at Shaw.
As members of the committee know, Shaw is totally committed to innovation, competition, and consumer choice. Shaw serves over 3.4 million customers across Canada. We provide broadband cable television, high-speed Internet, telephony, direct-to-home satellite, and other telecommunications services. Through our acquisition of Shaw Media, we now operate the Global Television Network and 19 specialty services.
All these services are provided, despite what you may have heard, in highly competitive markets where we compete with Zoom, BCE-CTV, Rogers/CITY, Telus, MTS Allstream, and SaskTel. We compete by providing the best possible customer experience. That requires investment. Shaw has spent over $7.3 billion in capital expenditures since 2000, and we continue to make significant network investments.
Let me move to the issues before this committee. We are all aware that Internet use is changing and increasing dramatically. Canada has the highest consumption rate of online video content in the world. Last year, demand on Shaw's network increased by 100%. That's huge. We have never seen anything like this.
Using the Internet for video content and gaming is becoming the mainstream application. In this rapidly evolving marketplace, it is critical that regulators and the industry look carefully at consumers' evolving use of the Internet. In fact, to ensure that we deliver choice, quality, and value, Shaw announced on Monday of this week that we will establish an Internet usage consultation with all our customers.
Attached to our remarks is a chart showing how independent ISPs use our network. I hope it's not too complicated. I can explain it. It also illustrates the shared nature of that network. As third-party Internet access users and our retail customers consume more and more capacity, network congestion slows speeds for all customers on the network. To address this, we must invest in advanced technology, not just expand bandwidth. We have to invest in advanced technology in our head ends, deploy fibre optic facilities deeper into our network, and expand the number of fibre nodes in our service areas. These are costly solutions, which not only require capital but also involve digging up streets, obtaining municipal approvals to lay fibre, and negotiating with telecommunications and hydro companies that control support structures.
At Shaw, our aim is to maximize the Internet experience for all our customers. To do this, we have to adapt and provide service options that best address their changing and diverse usage.
Shaw currently offers several options with a wide range of prices, speeds, and monthly usage allowances. We will ensure that these options are transparent, and that our customers have timely information about how their usage may be changing. If a customer's use changes, we will make sure they have the chance to make cost-effective adjustments.
Mr. Jean Brazeau (Senior Vice-President, Regulatory Affairs, Shaw Communications Inc.):
Maximizing our customers' experience also requires us to commit close to $1 billion every year for network investments. Those who say that bandwidth expansion comes at zero cost do not live in our world.
Shaw's network investments have helped Canada become one of the most dynamic, competitive broadband markets in the world, with a unique mix of cable, telecommunications, wireless, and alternative service providers. Approximately 95% of households have access to broadband using two competing land line facilities, and over 90% of households have access to multiple wireless broadband companies.
Contrary to the suggestions of others, Canada's Internet penetration, prices, and speeds compare very well with other countries' despite the challenges of our geography and population distribution. Canada's broadband leadership has been driven by competition between facilities-based providers, who typically invest $8 billion to $10 billion in capital expenditure per year. This fuels a positive cycle of declining prices and faster speeds with no government subsidies.
At Shaw, when we first launched our high-speed Internet service, it included 1.5-megabyte download speed at under $55 per month. Today, that same Internet product has 7.5-megabyte download speed for under $40.
In light of the above, we believe that the CRTC's approach to usage-based charges has appropriately balanced the needs of small ISPs and the telecommunications and cable ISPs. We require the market-based tools necessary to manage our network for the benefit of all consumers and to sustain broadband investment, which is really the foundation and the future of the industry.
We agree with the CRTC chairman that usage-based billing is a legitimate principle for pricing Internet services, and that fairness demands that certain Internet users should not be forced to subsidize others.
At Shaw, we have no interest in telling our customers how they can or cannot use the Internet. Our goal is to bring the best and fullest Internet experience to our customers through competing, innovating, investing in our networks, and bringing consumer choice through tailored and flexible service packages.
Thank you, Mr. Chairman.
Hon. Dan McTeague:
Chair, thank you very much.
I'm sorry you couldn't get an agreement here on accelerated time.
To the witnesses, both of you have come here to suggest that there is a serious problem with growing use on the Internet.
Mr. Bibic, we received an e-mail from your organization the other day suggesting the following:
||The CRTC's UBB decisions would affect no more than 2% of Canadian Internet subscribers, only the very heaviest bandwidth users that are also subscribers of third party ISPs.
You now suggest it's 1%. Are you consistent on your numbers, or is this just picking numbers out of the air? I really want to get clarity from you.
The concern I have is that we are looking at more like a 5% to 10% situation. In two years, that number could be more like 50%, and 100% within five years.
What's the correct number, Mr. Bibic? You can't throw these numbers around as if they're irrelevant.
Hon. Dan McTeague:
Mr. Bibic, I don't know how long your company has been involved with playing catch-up with the Googles and the Yahoos and others of this world, but I'm wondering if, in some of your calculations here, what you're really doing is complaining over the fact that a new business has been created on your platform--competition—and as a result of their lead in these areas, you are now playing catch-up.
To do that, you have a plaint here with the CRTC and you have a policy direction that basically stopped any competition by leaving the incumbents, both cable and telephone, where they are; I think you can speak just to telephone for now. Now we find ourselves in a situation where you're crying blue that you need more money and that you want to make greater investments by simply throttling off and choking off effective competitors who are providing service at the exact time when the Minister of Industry has said that we have to transform ourselves into the digital world.
If you understand the levels of increase in the number of connectivities and people using the Internet, and the quality and richness of that Internet, how is it possible that you can come here today and defend a charge over 25 gigabytes when it has no bearing on the actual cost that your company has to incur in order to provide that service?
Coming from a company that's had a 120-year advantage, I find it a little rich for you to be here to claim that somehow you need to have these kinds of changes that not only are onerous to consumers; they also will ultimately stifle innovation.
That's the charge, Mr. Bibic. I want you to answer it.
Mr. Mirko Bibic:
First, the idea that Bell is dominating in the Internet market is an absolute fallacy. Any independent market share studies you look at will show you that Bell Canada's market share in its territory for Internet services is about 35% to 38%, well behind the cable companies. So there's no dominance there, and certainly no monopoly.
Second, the networks that we've built, the next generation that we've built, that we've spent $6 billion to $7 billion over the last four or five years to build, are brand-new networks. They have nothing to do with the monopoly telephone networks you were referring to.
Third, I think we need to take a big step back, take a deep breath, and put some perspective into this debate, Mr. McTeague. We've talked about choice. We've talked about lower prices. We've talked about competition. The thing that's missing, if Canada truly wants to be a broadband leader, is that it's companies like Bell, Shaw, and Rogers that we need in this country, because it is these companies that will continue to invest billions of dollars so that we don't fall behind, so that we have an innovative digital economy and we fire on all cylinders. That's what we need.
Mr. Mirko Bibic:
At a high level, what's going on is that obviously Internet users like to use the Internet and there's significant growth, as my Shaw colleagues pointed out in their opening statement, so we have to keep ahead of that growth.
As it happens, this morning we released our fourth quarter 2010 financial results. In there we indicated that we had capital investment of $860 million, which is up 34% year-over-year, to expand wireless and wireline broadband Internet capacity.
So the point is, Internet usage is growing. We have to keep up with that increased demand. We have to spend close to a billion dollars in three months alone in order to keep up with that demand. So now we take a step back and say that obviously we have to recover those costs, generate a return on that investment, and enough of a return that there's an incentive to keep investing, so that we can keep growing that capacity and go to new areas, build fibre networks, and give customers what they want.
The best way to do that, the most fair way to do that, is a usage-based billing model. We have a number of packages that cater to the light users, the medium users, and the heavy users, and those who are the really heavy users will pay more. That's only fair, and I think that's what the 97% or 98% of Canadians would judge as being fair.
Mr. Anthony Rota:
Thank you, Mr. Chair.
Thank you for being here.
I have just one quick question. I guess it's more to Mr. Bibic.
I found interesting the comment you made, that those who use the most bandwidth pay the most. That would be the logical step. It's interesting, because a lot of the complaints I got in my community had to do with IPTV. People are saying they like to download Netflix. They've started using it. It's something they're interested in. It's something like iTunes. Now, IPTV doesn't seem to have the same caps on individuals that the open pipe does.
Maybe I'm being paranoid here, but I understand Bell owns the broadcasting, the production, and the pipe. All of a sudden we're saying that consumers who are on regular Internet have caps, but if you buy our product, which is Bell's product, you have unlimited usage or unlimited viewing. Is this anti-competition, or am I missing something here?
Ms. Siobhan Coady:
Thank you very much.
Thank you to Bell for the mental health day the other day. It was very well done.
And thank you all, gentlemen, for being here.
Mr. Bibic, in an article you published in the Financial Post in early February, you stated that “Canada has increasingly become a world leader when it comes to broadband”, both in speed and low cost. Yet time and time again we hear that's not exactly the case.
Let me tell you about TekSavvy, which was before us the other day. They showed us a chart that showed that among the 30 OECD countries, Canada ranks 25th for download speeds and 23rd for the cost of broadband.
So my question to you is which is it. Are we a leader or a laggard?