Internet usage debate, Part 1: The real myths – Financial Post

Internet usage debate, Part 1: The real myths

TekSavvy: Don’t stifle exponential growth in Web use

By Rocky Gaudrault

Last week in the Financial Post, Bell’s Mirko Bibic suggested that a number of myths in the usage-based billing (UBB) debate need busting. We agree, but the ones that require busting are those of Mr. Bibic’s making, because the simple fact is that UBB is an anti-competitive and innovation-squashing cash grab.

Here are some of the real myths that need busting.

Light users subsidize heavy users. If this were the case, you would think there would be a similar response around the world, not just in Canada. Yet only Canada seeks to impose a usage-based billing system on the wholesale Internet market to combat this supposed inequity. The CRTC itself acknowledged that all costs associated with the provision of Internet services are recouped by the flat-rate component of the service. This myth is equivalent to arguing that apartment rents should be based on the number of people living in a unit, because the rent of the person living alone subsidizes the cost of an apartment occupied by two people. UBB is a punitive measure because the marginal cost of higher use is miniscule once the network is in place.  It has been acknowledged as such. This makes Canada seem like one of the few countries in the world that want to discourage access to the Internet.

Internet service is a utility like gas and electricity. Internet service is indeed an essential service, deserving of regulation to protect consumers, but that is where the analogy stops. Gas and electricity are resources that have an inherent value in and of themselves. A consumer pays not just for the delivery of those resources to the door, but for the substance of what is being delivered. The Bell system, on the other hand, is fundamentally just a pipe that carries bits of other people’s data, which incidentally is an inexhaustible resource. If we must adhere to the gas and electricity analogy, policymakers should seriously consider unbundling the Bell assets, separate the actual pipes from Bell’s other businesses (which otherwise stand to benefit greatly from anti-competitive measures like UBB), and let everyone access them based on the same, fairly determined tariff.

Bell seeks a fair and level playing field. This is not the case. In fact, Bell has much to gain from UBB, as it has a three-fold agenda: (1) it wants to make as much as it can on its existing infrastructure, deferring upgrades for as long as possible. (2) It wants to protect its ever-expanding content businesses, which are threatened by over-the-top services like Netflix. (3) It does not want to lose business to innovative and competitive companies like TekSavvy.

Wholesale operators ride on the Bell network. This is a strange way to treat a valuable customer. TekSavvy has paid tens of millions of dollars to Bell, based on tariffs determined by the CRTC in a regulated framework no different from those applicable to gas or long distance services. TekSavvy “rides” on Bell’s system no more than do independent long distance providers. And that is frankly a comparison worth remembering. When the incumbent telcos controlled long distance, customers paid $1.50 per minute. With the entrance of competitors, customers now pay mere pennies.  What Bell is trying to do with UBB is the equivalent to charging $1.50 per minute for long distance. Instead of caps and artificially high fees, the incumbent telcos should establish the real cost for bits, if material, and negotiate a fair “cost plus” tariff for those bits.

Not many people are heavy users of bandwidth. And with UBB as proposed, not many will be. That would be a shame because Canada will lag the world in that regard, and become a communications backwater. In any event, Mr. Bibic presents questionable, backward-looking data as the basis on which to form forward-looking public policy. Virtually every study from Sandvine to Berkman to the OECD predicts exponential growth in Internet-based video consumption, whether by movie lovers, students, businesses or grandmothers enjoying their grandchildren from afar. The answer to future growth is not to stifle it by imposing punitive pricing but to encourage it, accommodate it, and make more money on greater volume consumed at lower prices with more efficient infrastructure. That is how it is done elsewhere in the world and how it ought to be done here. And if it takes regulation of Canada’s telecommunications regional duopolies to achieve it, the CRTC and the government should do so, with an emphasis on the interests of Canadian consumers, not the duopoly.

Rocky Gaudrault is president and chief executive of TekSavvy Solutions Inc.

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