OTTAWA and GATINEAU – The CRTC appears have to struck a balance between competitors’ requests to access incumbent and cableco facilities, and the large providers’ need to invest with return on investment certainty.
The two big changes to come from Wednesday’s decision on wholesale wireline services is that access to the ILECs’ last mile fibre facilities by competitors is now mandated, and that there will be a transition to a disaggregated wholesale High Speed Access (HSA) model.
Telecom Regulatory Policy 2015-326 also greatly simplifies the wholesale services market. There is now a three point test (input, competition and duplicability) to determine whether a service is essential or not. Gone are the mandated essential, conditional essential, or any of those other designations the Commission previously used. A service is now either essential or it’s not.
With this model, the CRTC has said that wholesale HSA services, including fibre to the premise (FTTP), are essential. It noted in the decision that there is limited wholesale service competition between the cable companies and the telcos, and “what competition does exist today is largely, if not entirely, a result of regulatory intervention.” In essence, there is no barrier to upstream market power.
In addition, because there aren’t any real substitutes for retail Internet over wireline networks – mobile, fixed wireless and satellite don’t offer the speeds and capacity people are looking for, mandated access to wholesale wireline facilities is required so that competitors can offer service to their own retail customers.
The CRTC didn’t buy arguments from the large providers that mandating access to fibre would act as a disincentive to further network investment. It also noted that the disaggregated model would still incent incumbents to invest in their broadband facilities.
“First the Commission expects that the incumbent carriers will generally continue to invest in FTTP access facilities in order to provide enhanced retail Internet access services in response to consumer demand, as well as to compete effectively and efficiently with the cablecos”, reads the decision. “In addition, mandating the provision of disaggregated wholesale HSA services over FTTP access facilities would be predicated on wholesale rates that are compensatory and that provide a reasonable rate of return, resulting in profit on the associated investment.”
The CRTC adds that if wholesale HSA services were no longer mandated, most of the competitors’ subscribers would migrate to the incumbents because they would phase out wholesale services or increase their rates so as to squeeze out the independents.
The decision added that “there would be a substantial lessening or prevention of competition in the downstream retail internet services market, in all incumbent carrier serving regions, by denying access to wholesale HSA services, including those over FTTP access facilities.”
While last mile access for wholesale services has been mandated, transport facilities will no longer be. The CRTC determined that this is a readily duplicable service. It would encourage competitors to invest in their own networks and it would also allow the independent ISPs to control more of their costs. It’s cheaper to self-supply transport than it is to buy it from the larger providers.
This is where the disaggregated wholesale HSA model comes into play. Under an aggregated model, a competitive ISP can access an incumbent’s network from transport to last mile access throughout its entire territory. Disaggregated wholesale HSA is where a competitor can only get access to the central office of an ILEC or the head end for cable operators so that it can ride on the last mile facilities to serve retail customers.
“To provide service to their own end-customers, competitors would have to (i) invest in transmissions facilities to central offices to each central office or head-end where they have end-customers, or (ii) lease these facilities from another carrier,” the decision continues.
There will be a phase-in approach for the disaggregated wholesale HSA framework, starting in Ontario and Quebec, where the largest number of independent ISPs exist, and then roll out in other regions later on. The transition is expected to take about 18 months with a follow-up proceeding on the configuration of the model and then another on the rates. Cable and telecom providers are to file their proposed configurations within 30 days.
The shift to a disaggregated model may be a bit of a sore spot for the cable companies. It’s also a bit of a ‘back to the future’ situation. The Commission ordered the cablecos to implement an aggregated model a number of years ago, and now it’s telling them to move back to a disaggregated framework.
The decision also dealt with unbundled local loops (ULL) and other high speed services. Access to ULL will no longer be mandated and there will be a three-year phase out period for this. As well, the Commission determined that there is no need to mandate access to high speed CDN and Ethernet services.
