GATINEAU – The Canadian Network Operators Consortium (CNOC) is again fighting wholesale service rates of the established telecom and cable companies. The group of independent ISPs is now telling the CRTC that it must make interim all usage sensitive rates from these companies until more fulsome analyses are done.
Bell Aliant, Bell Canada, Cogeco Cable, Rogers Communications, SaskTel, Shaw Cablesystems, Telus Communications, and Vidéotron are all party to the application.
In an application filed on April 29, CNOC argues that evidence has now come to light that demonstrates existing usage sensitive rates are too high. It points to a recent proceeding involving Cogeco (Tariff Notice 47) where the company had updated its capacity-based billing (CBB) cost studies which resulted in a price reduction from $2,556 to $1,673.63. Upon further review, the cost was reduced yet again to $1,181.79.
Cogeco says that it re-evaluated its cost studies voluntarily to “improve its competitive position in the wholesale high-speed access service market.” CNOC says this is welcomed news, but it also goes to demonstrate that cost studies for wholesale components with a usage sensitive element are out of whack.
“This kind of drastic rate reduction begs the question: how could the previous Cogeco CBB rate of $2,556.00 have been just and reasonable over the preceding year, if ever? By extension, if the other Respondent Carriers have not undergone a recent update of their own respective rates – what is the likelihood that those rates accurately represent underlying costs?” asks CNOC.
The independent ISP group wants all usage sensitive rates to be evaluated against Telecom Regulatory Policy 2012-592. The October 26, 2012 decision set rules and conditions regarding the disclosure of confidential information in wholesale service rate applications. In a nutshell, the CRTC broadened disclosure guidelines to include some information that was previously kept confidential.
CNOC argues in its submission that unless the Commission intervenes and establishes usage sensitive rates that reflect true provision costs, small Internet providers will simply be unable to compete in the market. Left untouched per subscriber CBB prices could skyrocket to $176.16 by 2019. Even a lower more conservative assessment of $90.35 is still untenable.
“Either of these projections results in absurd per subscriber CBB costs which will certainly fully eclipse the retail rates of the Respondent Carriers in the near future,” states CNOC.
The group has been pushing hard to get a review of wholesale usage rates because it wants to enter the broadcast distribution business. But without lower costs, CNOC members can’t afford to. It adds that a Nordicity study submitted in the Let’s Talk TV proceeding by CNOC member TekSavvy last fall projected that a single IPTV session per subscriber could range from approximately $23 to $45. This rate jumps to between $38 and $76 when there are multiple people watching at the same time and DVR services.
“Based on these CBB costs, an independent TSP cannot even deliver the mandated entry-level TV service, which the Commission recently capped at $25 per month, without incurring significant losses.” – CNOC
“Based on these CBB costs, an independent TSP cannot even deliver the mandated entry-level TV service, which the Commission recently capped at $25 per month, without incurring significant losses,” adds the independent ISPs.
CNOC argues in its application that there are a number of things the Commission could do to improve the rate setting process for usage sensitive components. This includes more transparency in Phase II costing, a review of markup policies, keeping wholesale service rates current and the need to set wholesale pricing that doesn’t prevent service bundling. Many of these are outlined in TRP 2012-592.
“Implementation of the above-listed measures is crucial to ensuring that Usage Sensitive Rates are just and reasonable. For example, the productivity factors included in cost studies supporting CBB rates must be updated frequently. This is necessary because the transmission equipment cost that drives capacity related rates is declining rapidly, even as bandwidth demand increases over time,” states CNOC.
Therefore, “unless cost studies are updated frequently, increases in productivity will not result in the corresponding cost reductions that ought to be expected,” it adds.
While making usage sensitive rates interim won’t provide any immediate relief for independent ISPs, CNOC says doing this opens the door for refunds to be paid to small Internet providers after full costing procedures are completed. This would then result in a more competitive retail broadband market.
“Refunds via retroactive adjustments will help to offset harm suffered from prolonged overpayments due to inappropriately high Usage Sensitive Rates,” says CNOC. “Refunds and appropriate cost-based rates would also encourage competitors to restructure the terms, including price, of retail Internet access service in order better respond to needs of the marketplace.”
