The Canadian Radio-television and Telecommunications Commission late Tuesday ruled against a revised proposal from Bell that could have effectively ended flat rate Internet service across the country, but also allows the phone company to raise wholesale prices for independent Internet Service Providers (ISPs).

The Commission ruled Bell and cable companies like Rogers must sell access to third party providers at a flat rate or priced on speed and the number of users sharing the connection.  The CRTC rejected a Bell-proposed usage-based pricing scheme that would have charged independent ISPs $0.178/GB.

Ultimately, the CRTC came down closest to adopting a proposal from Manitoba-based MTS Allstream, which suggested a variant on speed-based pricing, steering clear of charging based on usage.  Under the CRTC ruling, independent ISPs can purchase unlimited wholesale access based on different speed tiers.  The new pricing formula requires independent providers to carefully gauge their usage when choosing an appropriate amount of bandwidth.  If an independent ISP misjudges how much usage their collective customer base consumes during the month, they could overpay for unused capacity or underestimate usage, leaving customers with congested-related slowdowns.  ISPs will be able to purchase regular capacity upgrades in 100Mbps increments to keep up with demand.  They can also implement network management techniques which may discourage heavy use during peak usage.

The CRTC decision underscores that Internet pricing should be based on speed, not on the volume of data consumed by customers.  That’s a model Stop the Cap! strongly approves because it does not allow providers to monetize broadband usage.

Finkenstein

But that is where the good news ends.  Nothing in the CRTC ruling changes the Internet Overcharging regime already in place at the country’s leading service providers.  Companies like Bell and Rogers are free to continue setting arbitrary limits on usage and charging overlimit fees for those who exceed them.

Konrad von Finckenstein, chair of the CRTC, says the regulator made a mistake in deciding last year to allow Bell to raise its prices for independent service providers.

“Our original decision was clearly not the best one. It was wrong and it was pointed out by a lot of people, including Minister Clement. He was right. We have today fixed it, we have made this new decision,” von Finckenstein said. “The bottom line is that you as a consumer will not face a cap or limitation of use because of anything mandated by the CRTC. Any kind of cap or limit, payment per use, that you will have to pay is because your ISP decides to charge you, not because we mandate it.”

But many independent providers are unhappy with the CRTC ruling because it also allows wholesale providers like Bell to raise prices, sometimes substantially, on the bandwidth they sell.

One independent ISP — TekSavvy, said it faced increased connectivity costs in eastern Canada.

“The CRTC decision is a step back for consumers. The rates approved by the Commission today will make it much harder for independent ISPs to compete”, said TekSavvy CEO Marc Gaudrault. “This is an unfortunate development for telecommunications competition in Canada,” he added.

“Rates are going up,” added Bill Sandiford, president of Telnet Communications and of the Canadian Network Operators Consortium, an independent ISP association.

In addition to whatever rate increases eventually make their way to consumers, some independent providers may end up adopting network management and usage cap policies that attempt to slow down the rate at which they are forced to commit to bandwidth upgrades.  That’s because providers purchase capacity based on what they believe their peak usage rate is likely to be.  Providers will be free to upgrade service in 100Mbps increments.  But with the new, higher prices, providers could overspend on capacity that goes unused or find themselves underestimating usage, creating congestion-related slowdowns for all of their customers.

Angus

Some network management techniques that could reduce peak usage — and the need for upgrades — include speed throttles for heavy users during peak usage times or usage caps that fall away during off-peak hours when network traffic is lower.

Yesterday’s decision will provide some small relief to wholesale buyers of bandwidth in Quebec, where’s Videotron’s sky-high wholesale prices are set to be reduced.  But the unusual divide in Internet pricing between eastern and western Canada will remain.  Western Canadians will continue to enjoy much larger usage allowances, and lower wholesale pricing, than their eastern neighbors in Ontario and Quebec.

The CRTC’s ruling did not go far enough for NDP Digital Issues critic Charlie Angus. Angus notes only 6 percent of Canadians purchase Internet service from independent providers.  The rest will still be stuck with what he calls “unfair billing practices and bandwidth caps.”

Angus is convinced the CRTC just gave the green light to force rate hikes for the minority of consumers who found a way around companies like Bell, Shaw, Videotron, and Rogers.

“Allowing big telecom companies to reach into the pockets of struggling families and ask for even more money is just plain wrong,” Angus said.

Bell’s senior vice-president for regulatory and government affairs, Mirko Bibic, still believes the company’s proposal to charge just under 20c per gigabyte to wholesale users was appropriate, but the CRTC’s permission to allow Bell to increase wholesale rates was a nice consolation prize.  Bibic tried to frame the decision as forcing ‘independent ISPs to pay their fair share.’

Independent ISPs “are going to have to lease more traffic lanes,” he told CTV News. “I think the philosophy is [to] put the independent ISP in a position of responsibility. If usage goes up, you’re going to have to buy more lanes – it’s the same decision that we have to make.”

A class action lawsuit accusing AT&T of methodically over-measuring wireless customers’ usage and subjecting them to overlimit fees has been re-assigned to arbitration because AT&T wrote terms into contracts denying customers the right to pursue grievances any other way.

Plaintiff Patrick Hendricks claimed AT&T was systematically overstating customer usage by 7-14 percent with a rigged usage meter.  Hendricks claims some customers were overbilled by as much as 300 percent for phantom data usage that he claims never took place.  The measuring errors found in a two-month study cited by Hendricks were in AT&T’s favor, potentially exposing customers to surprise overlimit fees or, more recently, speed throttles.

But U.S. District Judge Charles Breyer shut down the court case, heard in a San Francisco federal courtroom.  Breyer ruled that since AT&T’s contracts bar lawsuits by customers, Hendricks must pursue his case in the venue required by AT&T — arbitration.

“[AT&T’s contract] requires the use of arbitration on an individual basis to resolve disputes, rather than jury trials or class actions, and also limits the remedies available … in the event of a suit,” Breyer ruled.

Ironically, Breyer is the same judge that dissented from an earlier case — AT&T v. Concepcion, that ultimately set the stage allowing AT&T to force consumers to pursue arbitration and practically speaking, remove their right to pursue class action relief.

“What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?,” Breyer wrote. “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30’.”

Brandi M. Bennett, a California attorney who specializes in intellectual property law, considers arbitration clauses to be a major threat to class action cases:

“Class actions make it possible to find recourse for individuals with damages that make traditional litigation impractical. AT&T Mobility v. Concepcion appears to leave the average consumer at risk of being defrauded by corporations for $10, $20, $50 without any practical remedy. If one million customers are damaged for $20 each, a corporation can improperly realize a $20 million gain. Class actions serve to prevent that.”

Arbitration can offer a poor substitute, because most arbitration firms are beholden to their corporate clients for repeat business.  An arbitrator perceived to be exceptionally pro-consumer stands little chance of being retained when corporate defendants pay the arbitration firm for its services.  Some arbitration policies require consumers and the company to split the costs of arbitration, but those costs often easily exceed the value of the original claim, discouraging customers from pursuing a refund settlement.

Companies understand that reality, which is why clauses requiring arbitration to settle disputes are increasingly common in service contracts.

Hendricks’ original suit sought restitution for the entire class of consumers and damages for breach of contract, unjust enrichment, unfair and fraudulent business practices, unfair competition, and violations of the federal Communications Act.  Most arbitration clauses require consumers to file individual complaints, which few may ultimately do considering arbitration proceedings may occur in another city and often requires the complainant to appear in person to provide testimony.

One of the principal components of Internet Overcharging is the so-called “usage meter,” a measurement tool designed to help customers keep track of their usage so they don’t exceed arbitrary usage allowances and face overlimit penalties or speed throttles.

But with no government agency or independent watchdog monitoring the accuracy of the meter, providers can claim any amount of usage they wish, and stick customers with the bill.

Telecom New Zealand is the latest ISP forced to admit its usage meter was wildly inaccurate, with nearly 100,000 accounts impacted by faulty meter measurements between November 2010 and June 2011.  At least 47,000 faced punitive measures including substantial overlimit fees or throttled speeds for exceeding usage limits, even though they actually didn’t.  Now Telecom has admitted the meter was wrong, it violated the Fair Trading Act in the process, and is refunding $2.7NZ million dollars in overcharges. It was either that or face substantial fines from the Commerce Commission.

Telecom called the error that forced some customers into more expensive plans to avoid additional overlimit fees “an incorrect perception about […] data usage.”

“We’re pleased to have reached a settlement with Telecom and that they have made prompt refunds directly back to the customers who have lost out,” said Stuart Wallace, Commerce Commission Competition Manager. “Telecom brought this issue to our attention as soon as they were made aware by their customers and have co-operated fully with the Commission. Due to Telecom’s immediate admission of a breach of the Fair Trading Act, followed by appropriate compensation to customers, the settlement is the best possible outcome for those customers and avoids potentially lengthy and costly court hearings paid for by taxpayers.”

It’s the second usage measurement failure announced by the company this month.  In a separate move, Telecom agreed to pay $31.6 million to five of its competitors overcharged for wholesale broadband service.

When technically-savvy customers realize they are being billed for non-existent usage and the media takes an interest, providers eventually disclose their mistaken measurement tools.

“Customers are expected to keep these ISP’s honest,” says Stuart Littlejohn, a Stop the Cap! reader in Wellington. “ISP’s never suggest their meters are anything except accurate until they are caught with their fingers on the scale, and always in their favor.”

Littlejohn has already received a refund from Telecom for illegitimate overcharges he incurred earlier this year.

“It was an absolute nightmare,” he shares. “We thought someone hacked our wireless network or someone in the home was lying about their usage, all theories encouraged by Telecom employees who pointed the finger at everyone but themselves.”

Littlejohn says after Telecom granted one credit as a “goodwill gesture,” subsequent overcharges that went unexplained were his problem, not theirs.

“After the first credit, everything else is your fault,” he says.

Littlejohn caught the company red-handed when storm damage disrupted his service for nearly a week, and Telecom’s usage meter recorded 22GB of usage on his down-and-out service anyway.

“They ultimately couldn’t argue with themselves, but they tried at first,” he says. “Then I told them to call the department responsible for repairing my service and they quickly learned the line they said used 22GB was out of service at the time the usage was supposed to occur.”

“Without that, they would have probably insisted I still owed them for that ‘usage.'”

Littlejohn wasn’t alone.  Other overbilled customers appealed their case to the New Zealand Herald last June, and two weeks later, Telecom admitted their usage measurement tool was faulty.  But by then, customers were already paying for the erroneous charges:

The Herald has received detailed internet usage logs from two Telecom customers – one in Dunedin and the other in New Plymouth – which show over-counting broadband downloads, in one period by as much as 139 per cent. Both have raised the matter repeatedly with Telecom, but have yet to get an explanation.

“We showed Telecom five days of data as early as February 14,” says director Mark Peisker of Dunedin’s CueClub. “There was massive variance between our data and that reported by the Telecom usage meter. I said to them: ‘Your counting has very little to do with what comes down my line to me’.”

CueClub’s data taken from its two internet routers shows an average of 62 per cent over-counting during a three month period – the worst month being May when Telecom counted an extra 118.24 gigabytes (GB) of usage amounting to $203.97 in overcharging.

“They’re crooks, plain and simple, and only when they were caught did they admit their mistakes, and the only ‘penalty’ they are paying is refunding their ill-gotten gains,” Littlejohn says. “Where is the substantial fine to send a message stealing from your customers is wrong?  A strong fine would tell Telecom they made a costly mistake not worth repeating.”