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.”

Canadians will learn at 4PM whether their Internet future will be unlimited or rationed with usage-based-billing (UBB) plans that could potentially charge consumers for every website they visit.

The much-anticipated decision from the Canadian Radio-television and Telecommunications Commission (CRTC) comes months after last winter’s hearings on how Internet service is priced in Canada.  It pits the largest phone company in the country — Bell — against small independent providers that are fighting to stay in business offering customers unlimited usage plans.

Most independent Internet Service Providers in Canada ironically buy wholesale access directly from Bell.  These upstart competitors like Primus and TekSavvy deliver unlimited DSL service at attractive prices.  In fact, some Bell customers have found them attractive enough to switch providers.  Bell’s wholesale division indirectly competing with its own retail business has proved unsatisfactory to Bell management, who proposed repricing wholesale access to resemble what Bell charges its retail customers.  But more importantly, Bell would demand that their competitors impose usage-based billing themselves, which would make unlimited Internet service in Canada a thing of the past.  The CRTC initially agreed with Bell, which sparked outrage among independent providers and consumers who faced the prospect of paying inflated prices for Internet service with no unlimited usage options in sight.

The backlash brought a half-million Canadians together to demand an end to unfair Internet pricing through a petition from Openmedia.ca.  That in turn attracted the attention of Canadian politicians, including Prime Minister Stephen Harper and his government’s Industry Minister Tony Clement.  Clement told reporters on Feb. 3 if the CRTC didn’t reverse its approval, and fast, the government would probably overrule the commission.

A day later, outgoing CRTC chairman Konrad von Finckenstein said the commission would review its decision, the first in a series of backpedals in response to government pressure.

Even Bell, accustomed to having its way with the CRTC, has backtracked, now offering a compromise proposal that would charge independent ISPs 17.8c per gigabyte.  Many providers consider that excessive, too.

The CBC explains how Internet access is sold by independent providers in Canada.

Since the hearings, several marketplace changes have deflated some of Bell’s arguments that UBB was necessary to control over-eager users congesting their network.  Providers in western Canada — Shaw Cable and Telus, have dramatically boosted their respective usage caps, which call into question just how much of a congestion problem exists on Canada’s Internet networks.  The Canadian Network Operators Consortium, the voice of independent service providers, has offered its own proposal to charge wholesale customers based on peak network traffic.  MTS Allstream, itself a smaller player in Canadian telecom, proposed wholesale service be sold much like retail Internet in the United States — based on the speed/capacity of the service level selected.  If an ISP underpredicted usage, traffic would slow for everyone until the line was upgraded.

What ultimately gets approved by the CRTC may still be subject to government review, especially if the decision proves unpopular with consumers.  In a CBC online poll being conducted this afternoon, consumer sentiment is clear.  More than 91 percent of voters want the option of unlimited Internet access.

Whatever the CRTC decides will be reviewed by new Industry Minister Christian Paradis, who has managed to keep his head down and views to himself since he replaced Clement.  He may be hoping more than most that the CRTC will ultimately placate everyone, just so he doesn’t have to weigh in on the thorny issue.  But the CRTC’s track record representing consumers has been pretty dismal over the last few years, so we will not be surprised if the commission ultimately acquiesces to Bell’s substitute plan unaffectionately dubbed ‘GougeLite’ by Bell critics.

[flv width=”640″ height=”388″]http://www.phillipdampier.com/video/CBC Internet pricing ruling expected from CRTC 11-14-11.flv[/flv]

The CBC reports on today’s expected ruling from the CRTC and what it means for Canadian Internet consumers.  (3 minutes)

Time Warner Cable experienced another challenging quarter, continuing to lose cable TV customers who either drop or pare back their television service, often in favor of broadband.

The company reported losses of an additional 128,000 video subscribers during the third quarter, but is partly winning that revenue back with new broadband customers — 89,000 of them in the last three months.

“Broadband is a powerful service for which there appears to be unquestionable consumer thirst,” Time Warner Cable CEO Glenn Britt said on the investor call. “Over time, we will contribute more of our plant’s capacity to broadband.”

The company is also poised to expand its marketing to win new broadband customers away from their primary competition — telephone company DSL service.  Company officials remain confounded by customers who subscribe to Time Warner’s cable TV service and take broadband from “inferior” phone company-delivered DSL.  Time Warner will continue to target these customers with win-over promotions offering a year of Road Runner Standard Service at the $29.95 promotional price point.

For the company as a whole, this is the tenth consecutive quarter of year-over-year residential broadband revenue improvement, coming from a combination of higher-priced, faster speed tiers, price increases, and subscriber additions.  The company’s DOCSIS 3 upgrade has proven itself a winner for customers and the company, with 18 percent of Time Warner subscribers now choosing 30 or 50Mbps broadband services.

Wall Street expressed some concern about statements from CEO Glenn Britt that the company was going to expand capital spending on broadband to handle increasing demand, especially from online video.  That concern comes despite the fact the company’s “capital intensity” (spending) from January-September was the lowest in the history of the company.  The full year’s capital spending is on track to reach up to $3 billion, which is consistent with what the company spent last year.

Glenn Britt

So despite the plans to spend more on broadband, that spending is actually in line with previous years.

In response to an opening question from Deutsche Bank’s Doug Mitchelson, Britt delivered an extended explanation downplaying the company’s spending plans:

In a way, there’s nothing really new here. I think you’ve seen this trend for a while. Our broadband product is very strong.

As most people know, the usage of broadband is skyrocketing, as it has been for some time. And that means that we will need to spend more money on it. We have been already, both in capital and operating expenses.

The great thing about the Internet is lots of third parties dream up lots of new applications that require more speed and more bandwidth. And we anticipate that we’re going to have to devote more capacity to that over time. We will do that by gradually removing our analog signals from our — analog TV signals from our plan. We’ve been doing that over the last several years by migrating to digital using Switched Digital technology. And over the next several years, we’ll be going all digital in the TV space.

I don’t see this driving a dramatic change in our cap spending, I think, to the core of your questions. The spending has been going on for a while, and I think you’re seeing a change in mix. The video spending is going down over time. The business services is going to go up, although it didn’t this quarter. And you’re going to see the spending on broadband going up. But I don’t think the overall trajectory is mutually different.

This quarter, the company’s conference call seemed to embrace greater broadband usage, and pondering Internet Overcharging schemes like usage caps or usage-based billing never came up.  But Richard Greenfield from BTIG alluded to usage in his questions to Rob Marcus, president and chief operating officer at Time Warner Cable.

“I think we’re somewhere in the 7GB a month [range] of downstream bandwidth on a median basis,” Marcus said. “The average is much higher given the disproportionate usage by our high-end users.”

There were plenty of other facts to be gleaned from this morning’s conference call:

TV

• Whole Home DVR service has been introduced nationwide.  In the coming year, Time Warner will begin deploying “home gateways,” which reduce equipment costs;
• Time Warner is testing improved cloud-based set top boxes with home networking capabilities in parts of Syracuse, Los Angeles and Dallas.  These boxes will expand across the country in 2012.  They offer better search capability and deliver an improved user experience;
• 60% of customers reject “triple-play” offers from Time Warner and choose either “single” or “double-play” service instead;
• Much of Time Warner’s revenue growth is coming from rate increases on programming, services, and equipment;
• TV Essentials, the smaller, less expensive video package, is now available in New York City and Northeast Ohio, as well as upstate New York. It will launch nationwide by year end.  Unsurprisingly, company officials admit the less-than-attractive channel lineup has resulted in the vast majority of customers calling about the offering taking the traditional video package instead;
• Customers continue to drop ancillary services to cut their cable bill.  The increasingly expensive DVR box is a new target for cutting, and premium movie channels, adult pay-per-view, and mini-pay services all continue to suffer significant declines in business;
• The Google-Motorola deal will likely have little impact on Time Warner’s set top boxes, which primarily come from Cisco and Samsung.

Broadband

• By the end of the year, Time Warner plans to offer an Android-based TV Everywhere application similar to the existing iPad application, which will also continue to be upgraded to include on-demand offerings;
• Time Warner will make their TV Everywhere service available on game consoles, smart TVs and PCs in the near future;
• New York City customers will soon be able to select from a range of local broadcast stations on the company’s iPad app.  Other markets will start to see local channels added to this app in 2012;
• Major parts of Time Warner’s capital investments this year are: building data centers in Charlotte and Denver, conversion to all-digital in Maine to make room for enhanced broadband, and the continued rollout of DOCSIS 3.0. The company is also continuing to spend significantly on wiring commercial buildings to sell services to business customers;
• TV Essentials customers will soon be offered a “lite user” slower speed discount broadband plan to accompany their video package;
• In Los Angeles, Wideband 50Mbps customers also get 2 gigabytes of 4G/3G mobile broadband for no additional monthly charge on the company-branded Clearwire service. For Turbo Plus and Wideband 30Mbps customers, they can get the same 4G/3G capability for an additional $10 a month. Standard and Turbo customers can get it for an extra $20.  The company’s mobile broadband add-on product has not enjoyed much success with paying customers, however.  Time Warner hopes the value-added bundling of mobile broadband will attract more interest.

Phone

• Cord-cutting is now impacting Time Warner “digital phone” service, too.  Customers are increasingly reluctant to purchase phone service from any landline provider.  Now Time Warner’s regular pricing is starting to cost them business.  Executives revealed Time Warner’s “digital phone” service costs the company $9.06 to provide.  They charge consumers $30.  With that kind of profit margin, the company admits it will have to get more aggressive in pricing to attract new customers (and potentially keep existing ones);
• Time Warner lost 8,000 residential voice line customers last quarter, cushioned by net additions of 13,000 business line customers;
• The company continues to show little interest in selling cell phone products or services, either owned by themselves or others.  Mobile data remains an exception.