Sunday, January 30, 2011

Usage Based Billing raising the cost of Internet in Canada

Internet pricing in Canada is about to get a whole lot different starting March 1st. And none of it's good. The general idea is that the days of competitive Internet pricing and service in Canada have come to an end. Bell Canada wants to charge you for everything you do on the Internet and force all other ISPs to do the same. The CRTC, a government body charged with representing the industry and consumer interests agrees. The real problem though is how it's being implemented, and what the cost to the end consumer will be.

How it currently works

Cable and Telephone Internet work slightly differently so I’m going to focus on what I am more familiar with, specifically Bell. Several years ago, the CRTC mandated that the large Telcos, whose network was largely built with government grants, lease their Internet service at a wholesale rate. A lot of people in Canada get their Internet from ISPs who lease a portion of these networks. These 3rd party ISPs are one of the major reasons that incumbent’s prices aren't higher than they already are. The portion of the Bell network being leased is mostly dedicated to the subscriber and is leased at a fixed rate. Remember those Bell ads flaunting how Bell Sympatico wasn't "shared"? That's not far from the truth. Once your connection gets to the Bell Head office, the traffic for the 3rd party ISP gets sent to that ISP. At this point the traffic is shared, and the responsibility of the 3rd party ISP. That ISP has to handle the overall network traffic of their install base and pay for all transit costs to the backbone of the internet. The more their install base uses, the more it costs the 3rd party ISP. Bell's wholesale rate is only a few dollars less then what you are being charged. Yet this small margin is enough to cover the 3rd party ISPs bandwidth costs. The wholesale rate is intended to cover Bell's capital investment plus profit. Their operating costs for the portion of their network is very small.

Net Neutrality and Traffic Shaping

Initially Bell offered unlimited Internet access, and then slowly started capping usage and slowing it down when you performed tasks on their network that they didn't like. Other incumbent Internet providers started doing the same not to long after. The 3rd party ISPs were not affected by this for years. As the incumbents continued raising prices, lowering caps and throttling people’s connections more and more, they saw more of their business move to 3rd party ISPs. So one day, without notice, Bell starts throttling the connections of the 3rd party ISPs. At this point the CRTC gets involved. The whole purpose of opening up the incumbents networks for competition was for choice of service and price. Now Bell was eliminating one of those points of differentiation. Bell successfully argued that the part of the network that converts the copper lines into the modern fibre network couldn't take the excessive usage it was seeing on the Internet. They needed to throttle users who used P2P and other applications as to maintain equal access to all the users in the area. Keep in mind that Bell throttles you regardless of the presence of congestion. Simply using applications which they deem inappropriate will drop your connection speed to something close to dial-up. Not only this, but when asked to show proof of this congestion, their own documents showed that congestion was possibly a problem on a fraction of a percent in a few nodes in downtown Toronto. The CRTC slapped Bell on the wrist for not informing the 3rd party ISPs with 30 days notice and told Bell they should use economic measures to discourage high usage and not traffic shaping.

Matching Speeds

On a slightly related but important point, the 3rd party ISPs went to the CRTC asking why they were stuck providing no more than 5Mb/s Internet access while Bell was offering up to 25Mb/s access at this point. Bell tried to argue that they shouldn't have to as the original ruling to share Internet access happened when they only had the ability to offer 5Mb/s service, so that's all they should have to share. On this the CRTC disagreed. They ordered Bell to propose wholesale rates. Bell delayed and then filed the UBB request.

Usage Based Billing

Instead of filing proposed rates for their faster speeds, Bell filed for a change to their wholesale structure. They wanted it moved from a flat rate to a usage based rate. They said they had to do this because of "bandwidth hogs". It took over a year, but the CRTC finally agreed.
Before I continue though, I want to talk about some fiction. In relation to metered Internet usage, I keep hearing the following two statements:

"Why should I have to pay for someone else's high usage?"

"You pay for how much electricity you use, why shouldn’t you have to pay for how much Internet you use?"

These two statements repeated over and over in comments and by some media are mostly misguided. I’ll try to outline why below.

Paying for Usage

So treating the Internet like a Utility doesn't make sense. You don't "use up" bits when you use the Internet. There is no well on the other side that's going dry. The reality of Internet infrastructure is that it's mostly high initial expenditure and then a much smaller operating cost. Most of that cost is support and the people needed to run the service. Neither of those things cost more or less based on how much you use. In addition to support, there is the price for transit the ISP pays to send traffic back and forth to the Internet backbone. However, in the grand scheme of things, this is a negligible piece of the final price you pay. I tried getting better figures for what this is but it's hard to pinpoint. It can be anywhere from 1 cent to 30 cents per GB. There is one other cost point which is related to usage, and that's congestion points. There are parts of the network that will choke up if too many people in that area use all of their available bandwidth at the same time. But again, a one-time upgrade of that area fixes the problem.

Lose Lose

What Bell Canada has proposed, and the CRTC has accepted goes far beyond simply paying for usage. I'd even be fine with paying for usage if when I used less, I'd pay less. But you are paying a high minimum price and getting penalized if you dare go over what Bell sets as a reasonable amount. If you don't use what you purchased, you lose. If you go over what you are allowed to use, you lose. The CRTC stated in their ruling that the price set by Bell are based on market forces. Except the only market is the Cable incumbent vs. the Telephone incumbent, because the CRTC just eliminated the rest of the competition. Furthermore, Bell goes through great effort to traffic shape your connection the moment you do anything it doesn't want you to do. What's even more astonishing is that Bell is also trying to force all other telephone and cable companies to charge the same rates to promote "fair competition". I'm really curious what Bell thinks competition means. It's not what we have in Canada now.

Paying for Nothing

The reality is that Bell does not want you using more than 25GBs/Month. You can blow through this allotment with 17 hours of Netflix usage or a single purchase on the Steam game store.  So the rates approved by the CRTC do not just cover the costs of providing you the last mile of Internet, they make sure that Bell gets paid every time you watch TV or purchase someone else's product. The rates approved by the CRTC are based on an unregulated retail price - 15%, not cost + profit. The CRTC has effectively shut out any pricing competition that could have existed between the 3rd party ISPs and Bell. All Bell has to do is raise their own retail rates, give the 3rd party ISPs 30 days notice and then raise their "wholesale" rates. This means that even though their retail rates cover things like their backbone connection, support and advertising, they are now forcing 3rd party ISPs to cover those same costs. However, 3rd party ISPs already pay for their own support staff, advertising and backbone connection. Furthermore, Bell is now trying to convince the CRTC to impose that same pricing structure on Rogers and other incumbents. Their reasoning was "fairness".

It's all about profit

If you have any doubt about Bell's motives for this, look no further than "Bandwidth Insurance" and the difference between Ontario and Quebec. This is supposed to be all about curbing traffic, yet they are offering to their own customers, and now jamming down the throats of 3rd party customers insurance. You pay a bulk rate, much cheaper then the $1.80/GB they will otherwise charge. These will be offered in bunches of 40GB. Bell has learned well from their profitable mobile division. Charges users in large blocks, so that they are forced to buy more or risk paying much more.

In Quebec, you have one more incumbent than you do in Ontario. Because of this increased competition, the wholesale cap in Quebec is 60GB not 25.

So yes, big shock, Bell, a corporation only cares about profit. This would be fine, but when you have a monopoly on infrastructure, which was largely funded with tax dollars, it’s not fine. Canadians, who increasingly rely on the internet for their work and leisure, end up paying more for less over the long run. This also has a huge impact on innovation, as every new site or service now has a huge cost associated with it.

What does it mean for you?

It doesn't matter if you're with an incumbent ISP like Bell, or a 3rd party ISP, we will all be paying more for Internet access in the future. With very little competitive pressure, the incumbents will have very little reason not to raise prices regularly, continue throttling your Internet connection and lower caps more and more.

What can you do? Write your MP and tell them that it shouldn't be the responsibility of the CRTC, a government agency to increase Bell's profits and push back the Internet to last decade. If you're with an incumbent, switch to a 3rd party ISP. Give these companies as much support as possible. They've been fighting for real fairness in Canadian Internet access for years. At the bare minimum sign the petition at

Further reading:

Feel free to post corrections. I've written most of this from memory and there could be factual errors.