OTTAWA – The time has come to eliminate wholesale regulation of retail Internet services, two of the countries largest communications companies tell Cartt.ca. They say intermodal competition – cable versus DSL versus wireless – has rendered the need for a wholesale access regime unnecessary.
The comments come as the CRTC prepares to hear oral arguments in a very broad hearing dealing with wholesale access to certain broadband facilities. The proceeding, launched with Telecom Notice of Consultation 2009-261 begins on Monday.
“I don’t think wholesale is going to help the future of broadband in Canada. I think it could hurt it. But I’m hopeful that the CRTC will not impose any radical new unbundling requirements that would hurt Canada’s broadband industry,” says Ken Engelhart, senior vice-president of regulatory affairs at Rogers.
To Michael Hennessy, senior VP of regulatory affairs with Telus, the most important thing to be dealt with during the proceeding is whether the Commission is going to continue to intervene in the wholesale business to create arbitrage opportunities at the expense of incentives to invest in broadband. “Where you try to force an arbitrage environment to artificially create or sustain additional competitors, you are going to reduce investment in facilities,” he says.
Chris Peirce, chief corporate officer at MTS Allstream, isn’t yet ready to say wholesale regulation in the consumer market should be eliminated, but he acknowledges that the return on investment decision is different now as a result of widespread cable competition and with fibre to the home deployments from the telcos. In the past, telcos could also count on getting wholesale revenue because competitors had to lease telco lines, but that’s not the case anymore, he adds.
“It is a different risk now for an incumbent in a residential market investing in its infrastructure because it can no longer bet that it’s going to have 80% or 90% of the customers and even if it loses a customer it’s still going to get revenue,” he says.
Small ISPs have long argued that their future is in doubt if they aren’t given access to incumbent facilities at cost-based rates. And they’re not satisfied with access to the lower end of high-speed services (as set by the essential services proceeding) they want to be able to use next-generation fibre networks, too.
Engelhart says one only has to look at the local telephony market to see that resale competition wasn’t successful. The impact was virtually nil with little enhancement to local telephone services competition, he adds.
“Facilities-based competition came along in the form of the cable companies and we have taken huge market share away from the phone companies by operating our own facilities. So facilities-based competition works, resale competition doesn’t work. (Third party) ISPs have done nothing for Canada’s broadband market and they can’t. It’s only facilities-based competition that can make a difference,” the Rogers executive says.
For the telcos, the outcome of the proceeding could have a negative impact on their TV offerings. They say that they need all their bandwidth to be able to compete with the cable companies and being forced to share their infrastructure with resellers will hobble their competitive TV offerings.
“To the extent that the Commission deems that a reseller should have access to that facility, we not only lose the ability to offer broadband, we lose the ability to offer TV,” Hennessy says, asking “is it more important to promote competition in the wholesale Internet market versus promoting competition in the cable TV market because one is going to drain the other?”
With respect to business services, Peirce says there is little doubt that the market isn’t competitive. Whereas in the residential space, there is intermodal competition from DSL and cable, this doesn’t exist in the enterprise space.
A wholesale regime in the enterprise market can be constructed in a way that will encourage investment, he says. “You’ve got to give the competitor access or it’s not going to be able to get a customer so it’s not going to be able to invest.”
Peirce believes that this proceeding will be a first step towards the creation of a new wholesale services framework for the enterprise market. If, as a result of this hearing, the Commission determines that intermodal competition isn’t going to happen or at least not in the foreseeable future, it will then have to revisit the essential services framework to incorporate that, he adds.
“That’s probably a next proceeding. This would be a forerunner of that for the business market,” Peirce says.
Monday’s hearing was initially sparked more than a year ago when the CRTC merged a proceeding that was looking at the feasibility of mandating access to central office ADSL (CO-ADSL) and another studying cable head-end network access.
The proceeding has since been expanded to include speed matching (a previous CRTC decision returned to the commission by Cabinet for reconsideration) and matters relating to wholesale services in the enterprise market. More recently, the Commission asked for comments on whether cable companies third party Internet access (TPIA) services should be managed in the same manner as telcos’ wholesale services with respect to usage-based billing (UBB). This came in the wake of the CRTC’s May 6 decision (Telecom Decision 2010-255) to allow Bell Canada and Bell Aliant to implement UBB on their wholesale customers only after they’ve transitioned all retail customers to a UBB regime.
