Phillip Dampier: The Blizzard of BS from Canadian ISPs is getting salted and plowed by Canadian media and outraged citizens.

A major ongoing Internet Overcharging campaign by Canadian Internet Service Providers to extract more revenue from consumers has sailed under the radar for more than two years now in most of the Canadian press.  Although some newspapers have occasionally covered various telecommunications atrocities related to cell phone pricing, lagging broadband speeds, and an overall lack of competition in the country, specifics about efforts to curtail broadband usage (or monetize its claimed “overuse”) has been a topic mostly discussed on online forums.

No more.

As Stop the Cap! turns more attention to Canadian Internet Overcharging schemes, let this be an object lesson to our American readers about how the game is being played.  What starts in Canada could finish American flat rate broadband as well.

CRTC Ruling Lights the Flame

This week, the Canadian Radio-television and Telecommunications Commission (CRTC) finalized rules that will effectively end unlimited broadband service in the country.  Remarkably, the Commission’s ruling completely ignores the one group such “usage-based billing (UBB)” impacts the most: individual customers.

The game-changing rules, found in the obliquely-named “Telecom Decision CRTC 2011-44,” effectively establish false usage-based pricing on both the wholesale and retail levels.  No provider will actually sell broadband packages that charge only for what a consumer actually uses.  Instead, each provider will set arbitrary usage allowances — usage limits — on their broadband accounts.  Any remaining unused allowance is forfeit at the end of the month, but “overuse,” at the discretion of the provider, will be penalized with overlimit penalty fees running several dollars per gigabyte.

The CRTC acknowledges, and big providers admit, these Internet Overcharging schemes are all about getting consumers to change their online activities.

[Providers] submitted that UBB rates shape end-user behaviour and that different UBB rates would lead to different behaviours by carriers’ and competitors’ end-customers.

Perish the thought.  Without such pricing, Canadian broadband could ultimately offer an alternative to overpriced cable-TV and telephone packages sold by the very providers that advocate limited use plans.  Providers insist on predictable, uniform usage.  The Commission apparently agrees.

The Commission even acknowledges today’s unlimited use plans in Canada almost always recover the actual costs incurred to provide them, and then some:

The Commission also notes that the flat-rate component of the carriers’ retail Internet service rates recovers most, if not all, of the associated retail UBB costs. In the Commission’s view, this situation provides carriers with the flexibility to adjust or waive retail UBB rates on a promotional basis.

With this in mind, why the CRTC felt radical changes were warranted is only a mystery until you realize most of the commissioners were former employees of the various telecommunications companies themselves.

Birds of a feather….

The only audience the CRTC listens to.

All of the falderal about the merits of UBB aside, in the end the CRTC threw a small bone to independent service providers not affiliated with super-sized players like Bell, Rogers, Shaw, and Videotron — the Commission ordered they be given a “whopping” 15 percent price break off wholesale rates.

Major carriers were outraged even by this token amount, arguing that providers forced to charge correspondingly higher prices (higher than major carriers charge) could still eke out a place in the market by offering other services or better support.  They didn’t need, or deserve a discount.

But independent competitors warned without discounts approaching 50 percent, many will be gone within five years.  Many providers argued the major companies, some who received taxpayer subsidies to construct national telecommunications networks, would be able to set wholesale prices artificially high to drive them out of business.

Canada’s Media Reacts

The effective end of flat rate service across Canada finally sparked significant national media coverage of the imminent death of Canada’s broadband revolution, soon to be relegated to a nickle-and-dime metered pricing scheme that will give providers the monetary power to control usage, limit innovation, and have their hands into picking marketplace winners and losers.  Don’t like Netflix?  Slash usage allowances.  Want to protect your cable-TV revenue?  Exempt your own online content from the meter as long as you keep your subscription.  Want to drive down Canada’s broadband standing in the world?  Turn the marketplace over to a handful of companies dreaming of revenue opportunities afforded by monetizing broadband usage.

The Globe and Mail — A metered Internet is a regulatory failure: The CRTC has decided to allow Bell and other big telecom companies to change the way Canadians are billed for Internet access. Metering, or usage-based billing (UBB), will mean that service providers can charge per byte in addition to their basic access charges. The move is sure to stifle digital creativity in Canada while the rest of the world looks on and snickers.  […] So there you have it. Just as the world is ready to feast on what Canadians might cook up in the way of multimedia 3.0, Canada decides to meter the Internet, tilting the table sharply towards old-school TV networks and big corporations that can absorb the higher cost of doing business.

Canadian newspapers have covered the story in the greatest detail, but now — finally — Canada’s television news has discovered the story, which for many media critics mean the story is actually “real.”

“If you don’t see it on television, it didn’t really happen,” writes Jim from Halifax, Nova Scotia.  “A lot of Canadians don’t read newspapers, and the magazines certainly are not covering this story, so it has been an online-only event  until CBC, CTV, and Global put it on their newscasts.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CBC News Extra Billing for Internet 1-18-11.flv[/flv]

CBC Television reports on the Internet Overcharging controversy.  (2 minutes)

Some critics say much of Canada’s commercial media is already in the hands of a tightly controlled, vertically integrated empire.  Most of the cable and phone companies have ownership in many major commercial broadcasters, cable networks, and even newspapers and magazines.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Vertical Integration.mp4[/flv]

30 Rock’s Liz Lemon and Jack Donaghy explore the concept of “vertical integration.”  Then see how it relates to Canada’s media.  (3 minutes)

But even a controlled media environment cannot stop outrage over UBB going viral, as ordinary Canadians realize they are about to pay much higher prices for a service they depend on more and more.

Outrage Commences

Charlie Angus (NDP) -- "This pricing is a ripoff."

While these pricing schemes have been around awhile, now that they are getting well-publicized exposure, consumers have realized the implications of counting how many YouTube videos they watch.

Tens of thousands have signed Openmedia.ca’s online petition, others are complaining to the media and writing their members of Parliament, demanding action.

That will only get louder when consumers start receiving bills for double, triple, or even higher for the exact same quality of service they used to pay less to receive.

“There will be a huge wake-up call for many customers,” said Jared Miller, president of Youmano, a provider based in the Town of Mount Royal.

Charlie Angus, the NDP member of Parliament who speaks about digital issues, said he he thinks the entire pricing scheme is a ripoff that will lead to huge increases in customers’ bills.

“What we need to have is clear and transparent rules so it’s being used in a measured capacity, and it’s not just instituting the principle that every time you turn on the Internet, they can ding you for fees like they do with cell-phones,” Angus said. “We’ve seen this before; when we were told that deregulating cable rates would give customers a big benefit. We were paying 60-to 100-per-cent more in no time.”

“Canada is already falling behind other countries in terms of choice, accessibility and pricing for the Internet,” Angus added.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/CTV British Columbia – Canadians rank among most enthusiastic web users 12-28-10.flv[/flv]

CTV British Columbia explores Canada’s love affair with technology and how its integration has dramatically changed the social lives of many families.  That’s no surprise, considering Canadians are North America’s most enthusiastic net users.  (2 minutes)

The Canadian Radio-television and Telecommunications Commission

Thanks to quick work from the Canadian Radio-television and Telecommunications Commission (CRTC), Canadian broadband providers have wasted no time announcing new usage limits and penalties for those who exceed them.

The principal culprit for the Internet Overcharging: Bell (Canada), the nation’s largest telecommunications company.

Bell’s newly won right to charge wholesale customers usage-based billing rates has caused a collective groan from independent providers from Vancouver to Charlottetown. Primus, the second-largest alternative communications company in Canada, threw up its hands and announced it was going to pass Bell’s costs along to their customers.  Some other providers have already raised rates, shocking customers who received December bills with $100 in overlimit penalties.

“It’s an economic disincentive for Internet use,” said Matt Stein, vice-president of network services for Primus. “It’s not meant to recover costs. In fact these charges that Bell has levied are many, many, many times what it costs to actually deliver it.”

That is a hallmark example of what happens under Internet Overcharging schemes like “usage-based pricing,” usage caps, or other limited use plans.  Customers don’t pay for their actual broadband use — they overpay, especially when stiff penalties are imposed when they exceed their usage allowance.

“Canada’s broadband market is a racket, period,” says our reader Andy, who lives near Petawawa, in northern Ontario.  “If you are in a major city in the south, you can choose Bell or one of their lackeys or the cable company, which almost always means Shaw or Rogers in English-speaking Canada.”

Andy doesn’t have access to cable, so his broadband comes courtesy of DSL from the phone company.  He counts himself lucky he has that, even though it only delivers around 512kbps and is down at least once a week, especially when the weather is bad.  Other communities have no broadband at all, and some areas are so desperate for access, they have provided financial incentives to attract a provider to town.  It rarely succeeds.  Zeropaid reports a handful on unscrupulous would-be providers have taken the incentives and left town with no broadband service to show for it.

“These guys only want the easy customers and they’ve got them in Toronto or Ottawa,” Andy says. “The rest of us can live with dial-up.”

The Canadian government occasionally launches highly publicized demonstration projects to deliver rural broadband in northern Canada, often over wireless, something Andy scoffs at.

“When the TV cameras are shut off and [Prime Minister] Stephen Harper’s political bandwagon goes home, the networks last for about a month until something goes wrong and the whole thing shuts down, sometimes for weeks before someone repairs it,” Andy says.

There oughta be a law.

Katz

In fact Canada, a country with a reputation for keeping a regulatory eye on essential services, has an agency that is supposed to protect consumers and monitor telecommunications services. Unfortunately for Canadians, it was that agency that gave Bell the go-ahead to kill unlimited, flat rate broadband — the service that has kept most independent service providers in business.

Critics charge the Commission has been acting more like a Big Telecom industry trade group than an independent oversight body, and many independent providers openly wonder how long they’ll survive with Bell’s predatory pricing.

Reviewing who serves on the Commission may provide some answers about why they seem to be closely aligned with Canada’s largest telecom companies.  Many of the commissioners used to work for the very companies they are now asked to regulate, and some are likely to return to them after their stint at the CRTC.  The agency’s supposedly independent commissioners know if they want future employment in the telecommunications industry, it’s best not to antagonize your next boss.

Take Commissioner Leonard Katz.  He joined the CRTC in 2005 and was appointed vice chairman of telecommunications in 2007.  For 30 years before joining the Commission, Katz was employed by Canada’s largest telecom firm, moving up through Bell’s management ranks from 1974-1985.  His last big job at Bell was as the assistant director of Bell’s regulatory lobbying department, where he spent his energy and time dealing with federal politicians and the CRTC.  Katz also loves Canada’s wireless industry, dominated by Rogers Communications.  He was founder and chairman of the Cellular Telecommunications Industry Association Clearinghouse for wireless carriers.

Arpin

Or there was Michel Arpin, a consummate former insider at some of Canada’s largest corporately-owned broadcast station groups like Astral Broadcasting, Mutual Broadcasting, and Radiomutuel.  He also had a side relationship with Telus, a western Canadian telecom company that also belongs to the Canadian Association of Broadcasters (CAB).  Arpin served CAB as vice-chair and chair. Arpin, the corporate media man, also served as the vice-chairman of the CRTC’s broadcast division until late last year.

Other examples:

• Rita Cugini — A regional commissioner for the province of Ontario, her professional background has been working for some of the province’s biggest media interests, including Alliance Atlantis, Telelatino, and CFMT/OMNI.  She also is integrally involved with the Canadian Association of Broadcasters, which bends the ears of regulators regularly on a variety of matters;
• Tim Denton — About as close to the broadband industry as you can get, Denton’s role as a commissioner began in 2008, but his money was made working for the broadband industry, including the Canadian Association of Internet Providers, which lobbies for big broadband provider interests.
• Candice Molnar — Serves today as regional commissioner for Manitoba and Saskatchewan, but she knows most of the prairie provinces’ movers and shakers by name, having spent more than 20 years at SaskTel, Saskatchewan’s biggest phone company.  She helped guide SaskTel from provincial to federal regulation when she worked there and her voting record shows her heart is still with her former employer.

Cugini

With a Commission stacked against ordinary Canadian consumers, it’s no wonder Internet Overcharging schemes and stifled broadband competition rule the day in Canada.

“Rural Canada always pays the biggest price,” says Andy.  “If it didn’t happen in Toronto or Ottawa, it didn’t happen at all.”

Andy complains Canadian broadband will never improve with Internet Overcharging schemes in place.

“They complain about your usage and say if they can restrict it, they can improve service to more people; well, where is my better service?” Andy asks.

“At least I don’t have to worry about their usage allowances… yet,” Andy says. “Even if I left my connection running continuously, at these speeds I doubt I could do much damage.”

The Public Interest Advocacy Centre just released a report that found deregulation in Canada's telecommunications marketplace delivered most of the benefits to providers, leaving consumers holding the higher bill.

Four years after Canada deregulated its telecommunications industry with the promise it would bring competition, better service and lower prices, Canadian consumers are instead paying too much for broadband service that delivers too little.

That is the conclusion of a new report from the Public Interest Advocacy Centre, a non-profit consumer protection organization that compared provider promises with the bills ordinary Canadians ultimately pay for their Internet service.

Michael Janigan, the report’s author told CBC News that deregulation has brought “super-normal” profits for Bell, Telus and Rogers — among Canada’s largest telecom companies — while those same providers continue to increase prices and, in some cases, reduce the amount of broadband usage customers can access before overlimit fees kick in.

“We still have three big players with over 90 per cent of the market, and they’re pretty fat and happy,” Janigan said in an interview with CBC News. “We’re still seeing the incredible clout of the big telcos in relation to their ability to swing competition in their favor.”

Bell, Canada’s largest telecom company, stands to gain even more power over the broadband marketplace with a ruling from Canada’s telecommunications authority that has direct implications for Canada’s independent service provider market.  Most third party providers obtain their Internet connectivity from Bell at wholesale pricing.  Thanks to a now-approved-request from Bell to charge wholesale customers usage-based pricing, providers are now forced to pass along those artificially high prices to Canadian consumers.

“The days of unlimited Internet service are about to become extinct in Canada,” says Stop the Cap! reader Giles in Trois-Rivières, Quebec.  “How surprised can you be that the company that sells access to competitors has managed to find a way to price that competition out of business.”

For one such competitor, Primus, the effect of Bell’s usage-based pricing will have an immediate impact on their customers’ monthly bills.

The company is now notifying customers that effective Feb. 1, the unlimited service plans that appealed to those opposed to usage-limited broadband will be now limited to just 25GB of usage per month.  Primus directly implicated both Bell and the the Canadian Radio-television and Telecommunications Commission (CRTC) for the pricing changes.

Those who exceed the limit face overlimit fees of $2.00 per gigabyte, up to a maximum of $60 per month.

Here today, gone tomorrow: Primus is discontinuing its unlimited use services. Effective Feb. 1, overlimit fees of $2/GB kick in after just 25GB of usage.

Those limits could put Primus at a competitive disadvantage with larger providers delivering lower cost plans with higher usage allowances.

“Why would you still be a Primus customer after this,” asks Giles.

Primus will not be alone among third party DSL service providers — almost all will be forced to adopt similar pricing.  The result? More expensive service for Canadian broadband customers, and major troubles for third party competitors whose new pricing could turn customers away.

The price increase is a direct result of a recent decision by the Canadian Radio-television and Telecommunications Commission (CRTC) to approve Bell Canada’s request to introduce Usage Based Billing on wholesale Internet services. Over the last four years, critics charge the CRTC with abandoning its watchdog role to protect Canadian consumers from unfair and uncompetitive practices and kowtowing to the interests of large telecom companies.

“In 2006 and 2007, the government stepped in to tell the CRTC to deregulate as a priority and to deregulate local telephone service faster promising better deals for consumers. As a our report notes, this did not happen despite all the hype”, said Janigan, author of the report, Waiting for the Dream, The Consumer Brief for Telecom Reform 2010.

In fact, the report concludes that Canada’s performance in telecommunications services such as broadband and wireless has been less than impressive, and the results for customers of cable and satellite services from deregulation of basic service has been the opposite of what should be expected in competitive markets.

“It is one thing to try a course of action that doesn’t work out: it is another to ignore the results and simply try more of the same,” said Janigan. “It doesn’t now make sense to have a government Policy Direction in place that hampers both competition and consumer protection”:

This report concludes that the failure of the regulatory reform of the last two decades to deliver the goods for ordinary residential consumers is not one that has its roots in theory, but in practice. Here, the interests of powerful stakeholders have affected the service landscape. In the same way that incumbent players used their political and economic influence and regulatory capture to get their way in the monopoly era of regulation, the winners have used the market- based system to their advantage. Neither regulation nor deregulation will engineer a thriving telecommunications industry producing innovative and efficient products and services with resultant economic growth for Canada if the decision making processes for each are skewed by conditions and assumptions that favour some stakeholders over others.

Most importantly, the governance and regulation of the telecommunications industry in Canada must respond to results. For the most part, the restructuring of telecommunications has been guided by untested economic theories, largely provided by experts engaged by the largest stakeholders. The relatively poor performance of telecommunications service for ordinary consumers should have long ago engendered a review of the  regulatory framework and market structure that is producing the same. In the last five years, the only acknowledged measure of success has been how fast telecommunications services have been deregulated with predictable market results.

The solution is not a return to old regulation but new models. First of all, there are a variety of consumer issues associated with basic rights for information, quality of service, security of service, disconnections, privacy etc. that should be met by all carriers whether they are incumbent or not. Basic service, obligations to serve, complaints resolution, and burdens of service in uneconomic areas have to be in place for all across the board. The best way to ensure that this occurs is for mandatory licensing for all carriers, with appropriate codes of conduct and enforcement with meaningful force in the form of administrative monetary penalties. The Telecommunications Act should be amended to reflect these improvements.

Interconnection with essential telecommunications facilities should be available for competitors at rates that are fair to users and suppliers. We cannot let abstruse theories supposing innovation and duplication in the absence of access to govern this important issue.

Ontario residents enjoy less than half a serving of broadband their neighbors in Quebec enjoy from Bell, for less money

Residents of Quebec enjoy more than double the broadband usage allowance Bell provides its Ontario customers, showing once again h0w arbitrary Internet Overcharging schemes are for consumers in North America.

Broadband Reports reader Ironsight200 ponders why customers in Quebec enjoy substantially less abuse from the skimpy usage allowances Bell imposes on its customers.

The prices charged differ as well, with Quebec residents also getting an out-the-door lower monthly price because Bell does not impose charges on the modem Ontario customers rent for $3.95/month — $6.95 a month with the Fibe 25 service.

Let’s take a look (and don’t worry Ontario readers, Bell promises you can still look at least 624,999 additional web pages this month without incurring overlimit fees):

Quebec users get more than double the usage allowance of...

...their neighbors in Ontario.

Pricing for Bell broadband service at the bundled price:

*- includes $3.95 modem rental fee. ^- includes $6.95 modem rental fee.

Netflix is coming to Canada.  Sort of.

Canadians will be able to sign up for Netflix’s on-demand video streaming service beginning this fall, but will Canadians be interested in using the unlimited service on their usage-limited broadband accounts?

Netflix is not planning on bringing its rental-by-mail service to Canada, instead relying exclusively on streaming its library on-demand over the Internet. Netflix currently licenses streaming rights for over 17,000 titles in its 100,000 plus library.  How many of those titles with be licensed for Canadian subscribers is not yet known, nor is an exact price for the service.  Netflix will launch for English-speaking Canadians at the outset, with French to come later.  This is the first time Netflix is making its service available outside of the United States.

But many Canadians are questioning the value of Netflix in their heavily-usage-limited country.  Most Canadian ISPs have either chosen or been forced to limit subscribers’ broadband usage.  Even ISPs that want to offer unlimited service find flat rate wholesale pricing nearly impossible to get because of Bell’s stranglehold on the market.  Cable providers like Rogers have implemented their own usage limits to boost revenue and keep costs down.

For Canadians living under an average usage cap of 40-60 gigabytes per month, adding streaming video will only eat their allowance that much faster.

“Netflix and the Canadian press covering this story have ignored the reality of bit-capped Canada,” writes Stop the Cap! reader Jeffrey from Calgary.  “I would be paying $75 a month for a broadband account and be limited in how I could use the service.  The CRTC (Canada’s equivalent of the Federal Communications Commission) has been in the providers’ pockets for years and this is why high bandwidth services bypass Canada or risk failure if offered here.”

Rogers, one of Canada's biggest cable companies, also happens to own one of the largest chains of video rental stores: Rogers Plus

Jeffrey believes Canada’s largest broadband providers, including Bell, Rogers, Shaw, Telus, and Vidéotron will never allow Netflix.ca to gain the kind of foothold it has in the United States.

“These companies all own or control Canada’s cable, IPTV, and satellite TV services, all of which are threatened by an American company like Netflix,” Jeffrey notes. “They’ve already got universal usage limits on their accounts, but these guys will also run to the CRTC and Canadian government to throw up roadblocks over everything from copyright and licensing issues to Canadian content rules and the initially ignored Québécois.”

Jeffrey believes more than anything else, Internet Overcharging schemes will serve their role in keeping would-be competitors under control.

“In Canada, we already had the debate about who gets to use our pipes for free,” he says. “Thanks to the CRTC, only the providers get to use them for free.  Everyone else pays a usage tax to them which fattens their bottom lines while stunting the growth of Canadian broadband.”

In Quebec, it’s much the same story.  Asperger notes Zip.ca, a Canadian rent-by-mail service, can get him 20 new DVD releases a month for around $25.  If he signed up for Netflix, anything beyond five DVD’s a month would put him over his limit forcing him to “pay and pay, and then pay some more.”  With Canadian ISP’s increasing their penalty rates for exceeding usage allowances, the overlimit fee could easily exceed the cost of just sticking with Zip.ca’s by-mail service.

Or, for many Quebecers, the next best alternative is Bibliothèque et Archives nationales du Québec, which offers an enormous collection of DVD’s that can be checked out for free.

Canadian press accounts of Netflix’s imminent entry into Canada have largely ignored the limits Canadian Internet providers impose on their subscribers, something readily noted by readers who comment on those stories.  Canadian consumers are well aware of their usage limits, and they avoid services that could expose them to even higher broadband bills.

Those who use their Internet service heavily, unaware of overlimit fees up to $5 per gigabyte, will be educated by bill shock when their next bill arrives in the mail.  After that, no more Netflix.ca for them.

Still, Netflix.ca will probably deliver a challenge to the already-stressed Canadian video rental market where Blockbuster and Rogers Plus duke it out for a dwindling number of renters.  Price cuts have not stopped the erosion of interest in DVD rentals, and Blockbuster is mired in more than $900 million in debt, trying to avoid bankruptcy.

The Canadian Radio-television Telecommunications Commission's support of industry-promoted Internet Overcharging schemes may limit Netflix's success in Canada.

If Netflix’s streaming library, mostly of titles two or more years old, is deemed sufficient by many Canadians, it could also cause a wave of cancellations of premium movie channels and other cable services.

The Ottawa Citizen reports some analysts believe Netflix.ca will cause an earthquake in the Canadian entertainment marketplace.

Carmi Levy, an independent technology analyst based in London, Ont., believes Canadians can expect a major entertainment industry shakeup this fall.

Levy says Netflix will sound the death knell for movie-rental services such as Blockbuster and Rogers Video and will force a pricing war among traditional cable and satellite TV providers who will be forced to scramble to keep customers.

“Netflix is not some Johnny-Come-Lately to the market. Even though they are new to Canada, they have been so successful in the U.S. that only a Canadian living underneath a rock wouldn’t be aware of their brand,” Levy said. “It’s the most seismic change to the content distribution system landscape that we have seen. It forces the incumbents to change their business model.”

Levy said the arrival of Netflix will allow casual TV watchers to cut their satellite and cable TV bills in favour of Netflix’s all-you-can-eat monthly offering. He said the $9 U.S. a month charged by the company was carefully thought out and he expects to see a similar price on the service later this year.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/CBC News Netflix Comes to Canada 7-19-10.flv[/flv]

CBC News discussed the introduction of Netflix Canada and how it will work with Netflix vice president Steve Swasey.  (5 minutes)

[flv width=”512″ height=”388″]http://www.phillipdampier.com/video/CTV News Netflix Canada 7-19-10.flv[/flv]

CTV News and its Business News Network ran four reports on the impact usage caps might have on the service, what kinds of titles will be available, and what it means for Canada’s entertainment businesses.  (12 minutes)