Cable / Telecom News

TPIA: Cabinet won’t force Commission’s hand, but signals government is unhappy with wholesale rates (updated)

By Denis Carmel

OTTAWA – At 9 a.m. Saturday, the federal government released its ruling on the cabinet appeal of the CRTC’s August 15, 2019 decision on new wholesale rates third party internet access ISPs must pay incumbent network operators.

It required a few readings to understand.

A year ago today, the CRTC issued an order setting the final rates for wholesale internet access (including over $300 million in retroactive payments) and the large ISPs did not like it one bit. They appealed it to cabinet, consistent with section 12 of the Telecommunications Act. The Act also says that Cabinet must respond within one year of the order. The large ISPs also asked the CRTC to Review and Vary the decision, as per section 62 of the Act, and appealed it to the Federal Court of Canada – where the sides faced the judges virtually in June.

“The Governor in Council considers that the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high-quality networks, particularly in rural and remote areas,” said ISED Minister Navdeep Bains in a statement this morning.

We’re not sure what “in most instances” means and we have asked ISED for clarification and will provide more information if and when we get it.

Plus, “retroactive payments to affected wholesale clients are appropriate in principle and can foster cooperation in regulatory proceedings. However, these payments, which reflect the rates, must be balanced so as not to stifle network investments. Incentives for ongoing investment, particularly to foster enhanced connectivity for those who are unserved or underserved, are a critical objective of the overall policies governing telecommunications, including these wholesale rates,” the statement continues.

So far, the cabinet announcement reads like a victory for the large ISPs.

However, because the CRTC has already been asked by large ISP to Review and Vary the same decision, Cabinet decided to let the Regulator deal with it at this time and not strike down the decision nor order a review. Of course, the CRTC decision on the R&V (hopefully coming soon) could be petitioned to cabinet if the Commission does not respond adequately.

Make no mistake though. Today’s Order-in-Council is a strong message to the CRTC by Cabinet, which, in effect, says: We are not exercising our powers under the Act but get your act together. We don’t like these rates.

The CRTC is independent, however, and could stick to its decision.

The Commission issued the following statement to by email: “We acknowledge the government’s response to the petition regarding wholesale rates for aggregated high-speed access services. Given that the Commission is currently considering the applications to review and vary the final wholesale rates, we cannot provide further comments at this time.”

They did not provide a timeline for a decision on the R&V.

The incumbents like the government’s direction.

“Shaw shares Minister Bains’ view that Canada’s future and the prosperity of every family and community depend on investment in telecommunications networks to deliver affordable, high-quality high-speed broadband access. We look forward to continuing to work constructively with the CRTC to achieve a wholesale framework that more appropriately balances the complementary objectives of facilities-based network investment, innovation, consume choice and affordability,” said Chethan Lakshman, vice-president, external affairs, Shaw Communications.

“In its decision, the Government recognizes the critical importance of investments in high-quality networks in its public policy, which we believe is key to ensuring connectivity for all Canadians and prosperity for our communities. Cogeco looks forward to collaborating with the CRTC as they review their decision on wholesale rates and to continue playing an important role in providing Canadians with high-speed Internet connectivity,” said spokesperson Gabriel Beauséjour.

“Wholesale broadband is a proven regulatory tool for enabling retail competition in the Internet service market. Setting the wholesale rates correctly is critical to ensuring these competitive options for Canadians while maintaining continued investment in high-quality networks and expanded access for Canadians in rural and remote areas.” – ISED Minister Navdeep Bains

“It’s welcome recognition by the government that the CRTC’s original decision threatened the leading network investments that have made Canada a global communications leader,” reads the Bell official emailed response. “As Minister Bains noted, Covid-19 has further demonstrated the critical importance of broadband connectivity for urban, rural and remote regions alike. Ensuring Canadians everywhere have access to reliable broadband requires a regulatory framework that supports significant and ongoing investment in network infrastructure and innovation.

“We trust the CRTC’s review will reflect the government’s objective to drive network investment, especially in rural and remote regions, with wholesale rates that are fair and reasonable. The original CRTC decision actually set wholesale rates below cost, which would certainly have impacted future investment by facilities-based carriers like Bell,” the company concluded.

“We’re pleased the government has recognized the critical role facilities-based carriers have played in keeping Canadians and businesses connected during the Covid-19 pandemic and will play in driving growth during Canada’s recovery,” reads the official response from Rogers Communications. “The CRTC rates do not reflect the true cost of building and expanding Canada’s world-class broadband networks and will impact network investments, especially in rural and remote areas where costs are significantly higher. We look forward to continuing to partner with the government and regulator to expand connectivity and bridge the digital divide – investments that are critical to our country’s ability to grow the economy and compete internationally.”

“We are encouraged that the federal government supports a more balanced regulatory environment,” added Eastlink in an emailed response on Monday. “We appreciate the Minister’s recognition of the value and importance of facilities-based investment and the role network builders like Eastlink play in ensuring strong, reliable and accessible networks across Canada, particularly in rural and remote communities. We will continue to work with government and our regulator to ensure the unique challenges of smaller providers are understood and balanced appropriately to reflect the true costs of building and expanding broadband networks (which are not covered at the current rates) and meet the federal government’s objective of expanding network connectivity into more rural Canadian communities.”

The competitors have a different viewpoint. “While we’re pleased that the order did not vary, rescind or refer things back to the Commission, some of the wording in there seems ambiguous, especially around balancing the needs of Canadians to get their Internet Services at a fair price versus investor returns,” said Matt Stein chair of the Competitive Network Operators of Canada and CEO of independent ISP Distributel on Saturday.

“In that sense, the ambiguity this could create would make this a bad day for Internet consumers in Canada – both those who buy from competitive ISPs, and those who buy from the big cable and phone companies. Whether you look at the fact that the government took a full year to announce this decision, or the possible new twists and turns to the process this could create, this introduces delay and uncertainty – which are the two tried and true weapons used by the big phone and cable companies in their quest to stop competitive ISPs from driving Internet prices down for Canadians,” he concluded.

In a press release Monday morning, while saying “Canadian consumers have been robbed of millions — approximately $300,000 per day — because competitive ISPs have been unable to return the well-deserved savings while the incumbents continue to charge exorbitant fees,” Stein said CNOC members still hope the CRTC will stick by the rates set last August. “We believe that the CRTC struck the right balance last August – a balance between an investment in Canadian consumers and service-based competition,” he continued. “We fully support the CRTC’s rate correction and look forward to the Commission upholding its original decision following its review. Affordability, consumer choice and a competitive industry hang in the balance, three elements that are essential to building a vibrant Canadian economy and a strong middle class.”

“Cabinet’s decision is bad news for consumers and for competition”, added Andy Kaplan-Myrth, vice-president of regulatory and carrier affairs for TekSavvy, in a release Monday morning. “The government bowed to pressure from the large carriers who used their investment threat to keep prices high and competition low. This is about a government protecting huge profits of already extremely profitable companies at a time when fair pricing for internet is needed by consumers more than ever.”

We’ll leave the final word to Minister Bains, whose statement also said: “Our government has made significant investments to support the building of Internet infrastructure in rural and remote areas so these communities can succeed in the digital age. We are committed to increasing higher speed broadband coverage and supporting competition, choice and the availability of services for Canadian consumers and business users,” he said.

“Wholesale broadband is a proven regulatory tool for enabling retail competition in the Internet service market. Setting the wholesale rates correctly is critical to ensuring these competitive options for Canadians while maintaining continued investment in high-quality networks and expanded access for Canadians in rural and remote areas.”

Please click here for the full Order-in-Council.