OTTAWA – The CRTC says it will begin regulating Northwestel’s backbone connectivity V-Connect IP VPN service, and has ordered it to file a revised pricing model for what it charges competing internet service providers, along with a cost study justifying that price by year’s end.
The CRTC first directed Northwestel to file competitive rates nearly a year ago, but the company appealed the decision. The regulator this week responded by rejecting all of the carrier’s arguments in its decision.
“Commission concludes that Northwestel has market power in its operating territory with respect to the provision of WAN services, including its V-Connect service. The Commission therefore denies Northwestel’s request for forbearance from the regulation of V-Connect service. Northwestel is to file tariffs for V-Connect service, with associated cost studies, within 30 days of the date of this decision,” wrote the Commission.
V-Connect IP VPN service is a fully managed Wide Area Network (WAN) solution delivered over Multi-Protocol Label Switching (MPLS) network. V-Connect provides both small, medium and enterprise businesses with a IP networking solution that offers an increased value proposition says Northwestel. It claims that it provides substantial cost advantages, enhanced performance, scalability, flexibility and the ability to prioritize latency sensitive traffic. It adds that many Frame Relay customers are migrating to V-Connect as a cost effective solution for this legacy technology. V-Connect IP VPN service is built over Northwestel and Canadian telephone companies’ carrier-grade private networks, which are separate from the public Internet network.
The Commission said it received comments from Bell Aliant Regional Communications, Limited Partnership and Bell Canada, Government of the Northwest Territories, SaskTel, SSi Micro Ltd., Telus, the Utilities Consumers’ Group, the Yukon Government, and several businesses and individuals.
The Bell companies, SaskTel, and TCC agreed that class of service capability is not sufficient to differentiate V-Connect service from the other data services that were forborne in Telecom Order 97-572.
The Commission agreed and ruled that the V-Connect service is not simply a packet data service, but “in fact has the characteristics of a wide area network (WAN) service.”
“For example, Northwestel indicated in its evidence that V-Connect service is used to create WANs by providing site-to-site connections that can cover large geographic areas. The Commission notes that Northwestel’s description of V-Connect service is consistent with how the Commission has defined WAN services in past decisions. As a result, the Commission is of the view that V-Connect service differs from the other data services not only in terms of its class of service capability, but also because it belongs to a different product market – namely, the WAN services product market,” it wrote in its decision.
Northwestel argued that it faces competition from alternative suppliers using various technologies, including satellite providers, and cited its loss of a major government contract in Nunavut to a competitor as an example of the market’s competitiveness. Northwestel also maintained that end-users are able to arrange for similar network functionality, in certain cases using other facilities leased from Northwestel.
But the Commission noted that Northwestel has a high share of the market for WAN services across its operating territory, particularly in communities served by terrestrial facilities. It added that Northwestel has an extensive network of terrestrial facilities with access to dozens of communities across its operating territory, and there is no evidence that any other service providers possess a comparable terrestrial network.
The Commission conceded that there is evidence of a competitor providing a V-Connect-like service using satellite facilities, but that the rates for satellite V-Connect service are much higher than the rates for terrestrial V-Connect service, for comparable speeds. As a result of the lack of substitutes, the Commission concluded that supply alternatives for V-Connect service are limited for the majority of customers.
The Commission ruled the likelihood of entry by competitors in the market for WAN services in Northwestel’s operating territory, particularly in terrestrial communities, is “extremely low due to significant barriers to entry such as high capital costs, low population density, vast geographic area, and difficult terrain.”
