Canada regulator rules on wholesale Internet billing

Canada's telecommunications regulator said Tuesday that telephone and cable providers will have two options in how they charge small, independent Internet providers for wholesale access to their networks--but volume-based billing isn't in the cards.

The ruling will have the biggest impact on Bell Canada, a unit of Montreal-based BCE Inc., as it provides more resale than its peers.

Bell Canada had argued that a volume-based billing method was the best way to recover a network provider's investment costs.In a much-anticipated decision, the Canadian Radio-television and Telecommunications Commission, or CRTC, said big telephone and cable companies can adopt a capacity-based billing model, under which independent Internet-service suppliers buy in advance the capacity they believe they'll require. Should demand exceed that capacity, small Internet providers may be forced to buy more network access.

The second option is a flat-rate model, in which telecom and cable companies sell wholesale access at a cost regardless of usage.

"The commission recognizes that no billing model will satisfy all the objectives and concerns of all parties," the regulator said in its decision. The CRTC said a capacity-based charge model "is more consistent" and "appropriate" than volume-based billing.

Speaking to reporters after the ruling, the regulator's chairman, Konrad von Finckenstein, said higher volumes do not necessarily translate into higher service costs."

There is no direct correlation between the cost of providing access and usage," he said.Reaction was mixed. Some industry watchers say the ruling represented a setback for BCE.

"The decision is a clear loss for Bell--its hopes to charge based on volume are out, which keeps the door open for independent ISPs to offer unlimited plans," said Michael Geist, a law professor at the University of Ottawa who specializes in Internet law."But the bigger question is whether Canadian consumers are winners."

Mirko Bibic, Bell Canada's senior vice-president of regulatory and government affairs, said the decision "at least ensures we can now charge our ISP customers for the network capacity they consume." He added, though, the ruling required further study.

One small Canadian ISP, TekSavvy Solutions Inc., said Tuesday's decision was a "step back" for Canadian consumers."

The rates approved by the commission will make it much harder for independent ISPs to compete," said Marc Gaudrault, the company's chief executive."This is an unfortunate development for telecommunications competition in Canada."

Under Canadian law governing telecommunications, the incumbent providers--such as BCE, Telus Corp. and Rogers Communications Inc.--must make their Internet networks available to ISPs, via the wholesale market, in an effort to spur competition. Independent ISPs serve roughly 6% of the Canadian market, or 500,000 Internet users.

In addition, the CRTC said in its ruling the wholesale rates would be based on the cost to incumbents to provide the service, plus a "reasonable" markup. On top of that, telephone companies may charge an additional 10%.

"Both models allow for the setting of just and reasonable rates, and fulfill the policy ... by fostering innovative and healthy competition, while ensuring regulatory efficiency," the ruling said.

In January, the CRTC ruled that BCE and Canada's major cable firms could charge smaller third-party ISPs an additional fee to use the incumbents' network capacity once the customers of those smaller ISPs exceeded a certain bandwidth limit.

BCE's Bell Canada operating unit argued the usage-based billing, or UBB, was necessary to fund expansion of its network to meet increasing bandwidth demands.

However, smaller ISPs faced the prospect of having to charge their customers to use additional bandwidth--in turn, hurting the ability of these suppliers to compete against Bell and the country's other big incumbent operators. Historically, resellers paid incumbents a flat rate on a per-subscriber basis, not on a usage-based basis.

The federal Conservative government, while still holding a minority mandate in Canada's Parliament, raised myriad concerns about the CRTC's UBB decision, following pressure from the opposition parties that argued the ruling posed a threat to free and open access to the Internet. The Conservatives now hold a majority mandate following a May 2 election. The CRTC decided to give its ruling another look, resulting in Tuesday's judgment.

Canada's industry minister, Christian Paradis, said late Tuesday the government would study the CRTC's decision "carefully" to ensure it encourages competition and Internet network investment. The regulator is an arm's-length agency from the federal government. However, the government has the power to amend

---