By Ahmad Hathout
Wholesale-based internet service providers are asking the CRTC to revisit rates it set for access to the last-mile fibre networks of the largest telcos, claiming they’re too high to compete against those same telcos that are simultaneously undercutting them in the market.
In April, the regulator finalized the rates for access to the fibre networks of Bell, Telus and SaskTel (cable companies are exempt from this regime). The final rates for that access are similar to the interim rates the CRTC established in November 2023, which drew statements from wholesale-based competitors that warned this could spell the end of independent internet competition in Canada.
Late Thursday, competitors consisting of TekSavvy, Fibernetics, ISP Telecom, Novus Entertainment, Purple Cow Internet, National Capital FreeNet, the BC Broadband Association, and the Canada-Wide Internet Service Providers Association formed a coalition to elaborate on their grievances in a review and vary application.
“The rates impose a cost structure on competitors that prevents them from bringing competitive and affordable FTTP based service offerings to market,” the application says. “Even merely matching incumbent retail offerings alone would force competitors to incur unsustainable losses. Wholesale rates should be low enough to enable competitors to competitively discipline incumbent exercises of market power, not serve as little more than an elevated price ceiling for incumbent retail pricing.”
The coalition said it developed a cost model that determines the per-subscriber monthly cost of providing fibre-to-the-premises service to retail customers, which it says accounts for all regulated charges, telecom costs and customer equipment-related costs.
When the costs are compared to retail incumbent pricing for equivalent services the coalition claims competitors “have no viable business model” on wholesale with the final rates – made worse by the incumbents’ promotional offers. The theoretical monthly losses that would be sustained by the competitors are redacted from the application.
“Competitors are thus left with the impossible dilemma of either pricing below cost to match incumbent offers or pricing above cost and abandoning any reasonable prospect of attracting subscribers,” the application says. “In the latter scenario, competitor pricing would be so substantially undercut by incumbent offerings that no consumer could be expected to choose a competitor’s retail FTTP offer – irrespective of any non-price value added benefits that competitor might also offer, and that consumers otherwise value.”
The application argues its cost model proves that the CRTC’s final access rates are “profoundly distorted and therefore not just and reasonable, contrary to the requirements of Subsection 27(1) of the Telecommunications Act.”
The coalition argues that the CRTC should not have applied an adjustment factor that it says are not incremental causal costs and that inflates the rate by at least 25 to 30 per cent. It also argues that the regulator erred by determining that competitors did not present sufficient evidence against a 30-per-cent incumbent markup when they didn’t have a fair opportunity to do so because incumbent fixed common costs are confidential, which left them using prior CRTC determinations that those costs should decline over time and that the incumbents are seeing operation efficiencies through artificial intelligence. At the same time, the coalition claims that none of the three telcos presented quantitative evidence supporting such a markup, and the CRTC allegedly did not address how a 30-per-cent markup would advance competition.
“Failing to apply competition as a guiding policy consideration in setting an appropriate markup at a time when the few remaining competitors are so vulnerable is a clear error that raises substantial doubt as to the correctness of a 30% markup,” the coalition application argues, adding the CRTC should half the markup to 15 per cent.
“This level of markup: (1) remains in a range that is consistent with the Commission’s historical markup decisions; (2) reflects increases in operational efficiency over the two-decade-long period since 30% markups were introduced; and (3) will, in conjunction with the elimination of the Adjustment Factor, result in just and reasonable rates that are capable of stimulating competition, which is a guiding policy consideration in setting the markup.”
The coalition also believes the CRTC erred by failing to take into consideration incumbent retail pricing, claiming the final rates “give rise to cost structures that greatly exceed incumbent retail pricing for equivalent services even without accounting for additional [selling, general and administrative expenses] costs borne by competitors.”
The coalition is asking for the rate adjustments to be applied retroactively.
“Competitors are back to a familiar trajectory of year-over-year market share decline due to an AWHSA-FTTP framework that is undermined by rates that are disconnected from the market reality,” the coalition says.
“Canadians were promised greater competition for fibre internet services, but these rates make competition impossible,” Andy Kaplan-Myrth, TekSavvy’s vice president of regulatory and carrier affairs, said in a press release. “The CRTC must correct these errors to ensure its wholesale rates promote broadband competition that challenges the market power of monopoly incumbents, lowers prices, and increases consumer choice.”
The issue of incumbent pricing in the market is already before the commission after two small internet service providers, Bravo Telecom and Transat Telecom, argued last year that a price war between larger telecoms in Ontario and Quebec is compromising the sustainability of their businesses.
Incumbent retail pricing is also the focus of a separate review and vary application of the Competitive Network Operators of Canada (CNOC), a rep for independent telecoms.
“What has happened is that the wholesale costing model is completely misaligned with market reality in that the Commission’s decision completely ignored the prices the incumbent providers were (are) actually offering (and charging) to consumers,” CNOC says in its Thursday application.
“The dominant incumbents’ retail prices for fixed internet services on fibre are priced at or below their regulated wholesale costs,” CNOC argues (emphasis CNOC’s). “This means one of two things. Either the wholesale rates inaccurately reflect costs or the incumbents are engaged in below-cost pricing, which acts as a barrier to entry and expansion by service-based/wholesale competitors. Either way, the errors Telecom Order CRTC 2026-77 require correction.”
CNOC is asking the CRTC to implement retail pricing safeguards to prevent below cost retail pricing strategies while the Commission “reexamines the wholesale costing model to ensure that it reflects actual pricing in the marketplace.”
“The math is stark,” an example on the CNOC website begins. “In Toronto, Bell’s flanker brand EBOX sells 150 Mbps fibre for $50/month — while an independent competitor pays $103.56 in regulated wholesale costs just to deliver the same plan. In Ottawa, TELUS is offering 1.5 Gbps fibre at $80/month with a five-year price guarantee, barely above what an independent pays in wholesale inputs alone. The same pattern holds in British Columbia, Saskatchewan, Manitoba and Atlantic Canada.”
CNOC is asking the CRTC to make the final rates interim; direct incumbents to provide retail pricing data, including flanker brand and white-label pricing, in-market offers, special (off-market promotions) and actual prices charged to consumers, as part of its market monitoring; and include CNOC members in any data-gathering exercises which ensures all up-to-date regional and local information is presented.
“When the incumbent’s retail price is lower than what we’re forced to pay them at wholesale just to compete, that’s not a market — that’s an error in the design of the regulatory framework,” CNOC President and CEO Paul Andersen said in a statement. “The CRTC was ordered to eradicate barriers to entry and competition for smaller independent providers. Instead its framework is threatening to eradicate them.”
Bell and Telus did not respond to a request for comment.
