TORONTO – The CRTC’s 2015 decision to move from an aggregated to disaggregated wholesale high-speed access service (HSA) model has ended up placing enormous cost increases on independent ISPs and will further limit competitiveness with a coming cap on Internet speeds, said Matt Stein, president of the Canadian Network Operators Consortium.
“Without changes to the disaggregated regime, our industry will be prevented from keeping prices sane, innovating, and delivering the improved customer relationship we’re known for,” Stein said in a keynote on Tuesday at the 2018 Canadian ISP Summit in Toronto. (He's pictured in a snap borrowed from Distributel's Twitter feed.)
While conceding the barrier to entry was perhaps on the low side initially, Stein argued, “If it was a little low before, it’s way too high now.” The following day, Stein announced that CNOC has filed an application with the CRTC in an attempt to “repair the regulatory environment, which directly affects how many Canadians have access to affordable high-speed Internet at the increasingly high speeds they are demanding.”
CNOC’s 112-page filing urges the CRTC to re-assess its 2015 decision based on the “path the industry is taking and make key corrections to prevent limiting choice, adding unnecessary complexity, and increasing consumer prices.”
During his keynote, Stein highlighted when the market was more open to competition independent ISP market share between 2010 and 2015 increased by more than 12% annually, and incumbent subscriber growth was held to less than 2%. The increase, said Stein, was driven by independent ISPs offering consumers better prices, more options, packages and innovations such as unlimited Internet. “Canadians realized they had choice, and increasingly, they seized it,” said Stein.
“The CRTC’s decision in 2015 stated very clearly competitors should have access to fibre to the home technologies, but in order to do so an independent had to reconfigure their network and connect closer to the home of the customer,” said Stein.
Until that time, a competitor could connect to each large phone or cable company in one place. But in the disaggregated model, competitors now must connect at numerous points of interconnection (POIs), either supplying their own transport services to these many geographically dispersed POIs, or contracting those transport services from a third party.
“Faced with a hard decision between accepting an impossibly high CBB [capacity-based billing] cost and avoiding it altogether, we had no choice but to accept this new configuration, and connecting to the phone and cable networks in many places.” Stein noted that the introduction of CBB, up until the CRTC adjustment in October 2016, resulted in independent ISPs being overbilled more than $300 million.
In a separate ISP panel on Regulatory Reform the following day, panellist Leonard Eichel, senior director, regulatory affairs, telecom, for Cogeco Connexion took issue with Stein’s claims of being overbilled.
“It makes for a great headline but at the same time I think everyone knows that the CRTC approved those rates. So if they had found anything wrong with our assumptions we used they could have come back to use and challenged them.” Eichel also contended that Cogeco did proactively assess the rates at a later date and eventually lowered them.
“Yes, the Commission approved certain rates, but it was based on faulty information that flagrantly disregraded previous Commission requirements.” – Christian Tacit, Tacit Law
Christian Tacit, with Tacit Law, who is CNOC’s legal counsel, shot back that “Yes, the Commission approved certain rates, but it was based on faulty information that flagrantly disregraded previous Commission requirements.”
The CRTC also ruled that once the new configuration and rates become finalized, independents which have not moved over to the new disaggregated configuration would no longer be able to sell services at speeds above 100Mbps. That may not have been a big market disadvantage in 2015, but today, one-third of Canadians are now buying broadband speeds over 100Mbps say carriers.
“In as little as six months, the CRTC will finalize the tariffs for the disaggregated solution, closing the door on independents’ ability to sell the speeds that one-third of Canadians seek. Furthermore, 40% of Canadians know that the fastest speed available at their home is provided by something that independents can’t provide, as those homes are passed by FTTP (fibre to the premises). Gone are the days of those small deployments and meager penetration of fibre. This speed cap just closes the door on competition even more,” explained Stein.
The level of disaggregation being forced on independents is also a major issue. In the past, independents could connect to the incumbent’s network at a single point, but now have to connect to every neighborhood in the region. “I won’t even get started telling you the costs each independent would be billed by the incumbent to connect to each, but suffice to say it’s in the hundreds of thousands of dollars – or hundreds of millions of dollars if you wanted to connect to them all.”
Stein added that even if independents could find the capital to connect to them all, they are limited to the ones they can reach. “Many of these points are only accessible by the incumbent themselves, and there is no rule saying they have to sell you access to it. So we have to connect to it to offer service, but they don’t have to offer us the service to connect to it? That doesn’t seem right.”
Aggregation also will impose huge costs related to the time it will take for independent ISPs to connect to every neighborhood. “If you started a build every two weeks, you’d finish in 43 years, and at times have 30 of them in flight at once. I don’t know about you, but my kids can’t wait five minutes when the Internet is down. Canadians won’t wait 43 years for the return of competition.”
Stein pointed out that the CRTC’s previous ruling for long distance competition years ago also created an uncompetitive marketplace, as providers were required to connect to thousands of points across the network.
“They selected 29 points for the whole country, and long distance competition is aggregated there to this day. In local phone networks, the CRTC had to quickly revise their strategy to create Local Interconnect Regions, rather than having competitors connect in each and every point. In both of these two examples competitors were still free to connect everywhere they wanted, typically done when their scale in a certain area warranted it, and just as typically because it was economically advantageous to do so.”
He also noted that in 2010 the CRTC ruled that cablecos had to aggregate their networks in order for competitors to make the service viable. “As soon as the CRTC rule required aggregation, cable Internet took off. In fact, from 2010 to 2016, Independent ISP accesses grew on the phone company networks by 30%, while those on cable grew 1,692%. Clearly, some level of aggregation is a key ingredient to success.”
The CRTC’s policy has led to a competitive divide in Canada, where population density determines the level of service you can expect. “People in the top 10 or 15 of the densest neighborhoods in the country get competition. And I’m not talking about top cities – just neighborhoods. Toronto is split up into about 30, and only a handful are big enough to warrant a build,” Stein continued.
He places part of the blame on moving to a disaggregated regime on Bell, or, as he calls them, the “investment boogeyman.”
“He came out to scare us back in 2010, when the largest phone company in the country warned that if they were forced to open up their network to competitors, they wouldn’t build it (fibre to the home). Surprise, they did.” – Matt Stein, Distributel
“He came out to scare us back in 2010, when the largest phone company in the country warned that if they were forced to open up their network to competitors, they wouldn’t build it (fibre to the home). Surprise, they did. And it came out again in 2014 ,when the CRTC was considering this fibre to the home decision. By the way, he also comes out every time Canadians talk about the fact that we pay more for wireless than anyone else, but that’s another story.”
He said the investments by the incumbents should come as no surprise, since the “CRTC builds repayment of those investments into the rates. Competitors literally pay off that investment at a speed deemed appropriate by the CRTC. That’s right. Let’s bust that myth right now. Competitors pay back the investment of the incumbents under the watchful eye of the CRTC.”
The good news, said Stein, is that challenges like the disaggregated regime are the very reason the CNOC was created to address. “CNOC was formed when a few independent ISPs realized they were better together than they could be on their own. Helping the CRTC see that their original vision has been twisted to suit an agenda that reduces competitive choice is what we do.”
