OTTAWA – A number of independent ISPs are telling the CRTC that Shaw Communications’ proposed wholesale broadband rate increases are out of whack with economic reality. They say if the Commission adopts these rates, they may in fact have to choose not to compete in Shaw territory.
In its January 6 Tariff Notice 22 filing, the Calgary-based media and communications giant is seeking approval for new Third Party Internet Access (TPIA) service speeds and rates. The increases in TPIA rates range from a low of 21.8% to a high of 127.7%. For example, the 7.5 Mbps service which currently costs independent ISPs $18.79 will increase to $22.89 for a 5 Mbps. A significantly higher increase is proposed for the soon to be phased out 25 Mbps service. Its price is currently $22.45, but it would jump to $51.11 for a new 30 Mbps option.
Comments in the proceeding can be found HERE.
Juce Communications, an upstart independent ISP in British Columbia that expects to launch next month, notes that with these rates, it’s unlikely competitors would launch in Shaw territory. The rates, coupled with the withdrawal of existing services “has the real possibility of destroying the business model of TPIA and will effectively prevent independent ISPs from operating in Shaw territory.”
The costs described by Shaw in its cost study only represent part of the total costs that an independent ISP has to incur to serve customers. For example, they have to cover costs associated with back-haul data transport, IP transit costs, network equipment capital and maintenance costs, network management costs, customer service costs and others.
“When the TPIA access rates are set too high leaving us no margin to recover essential costs … even without adding our own markup, the business model of TPIA becomes obsolete. The prices being proposed in TN 22 are at such level,” argues Juce.
Independent ISPs which filed comments to the Shaw TN 22 also note that the company was very light on costing information. But as the Canadian Network Operators Consortium (CNOC) points out, this data is required under CRTC regulations. It notes as an example that incumbents are to place on the public record details regarding categories whose costs are equal or greater than 20% of the total service cost. Shaw did none of this, says CNOC.
“Shaw has provided no useful information (other than a brief description) with respect to cost elements that have not met the threshold of a key reporting category. These cost components represent nearly 65% of the costs identified in the cost study,” reads the CNOC submission. “As a result, Shaw’s omission of a description of the method that it uses to derive costs deprives interested parties of information that is essential to a meaningful review of the cost study as a whole.”
The independent ISP group also notes that at times, the proposed rate increases don’t seem to make sense and seem arbitrary. For example, the new 20 Mbps rate is a nearly 43% increase over the current same speed service.
“The only difference between this service and the nearest currently approved speed tier is an increase in upload speed from 512 Kbps to 2.5 Mbps. This increase in upload speed simply cannot account for the 42% increase in cost,” writes CNOC.
“It is worth noting that the prices increased despite REDUCTION in service speeds, which runs against common sense.” – Juce Communications
Juce weighed in on the puzzling reasoning behind the rate increases. It notes that some of the proposed services have rates that are higher than existing services even though the latter have faster download speeds. “It is worth noting that the prices increased despite REDUCTION in service speeds, which runs against common sense. For example, the proposed price for 5 Mbps is higher than the price for existing 10Mbps service, despite a 50% reduction in download speed. [The] proposed price for 15Mbps is also significantly higher than prices for both existing 20Mbps service and 25Mbps service,” it writes.
There has to be something wrong with Shaw’s proposed prices, notes Vmedia, when it can propose a wholesale rate of $73.70 for a 60 Mbps service and offer it at $90 on a retail basis.
“It is well known that ISPs get by on smaller margins, and despite having to buy bandwidth from incumbents, are still able to provide services below incumbent prices in almost every instance, and substantially lower in most cases. However, it is obvious that with a $16.30 spread between Shaw's retail and wholesale rates, there is no longer any business for ISPs in territories where they compete with Shaw,” the company says in its submission.
Complaints from the independent ISPs have caught the attention of the CRTC. It has requested Shaw provide answers to two interrogatories by February 19. In a February 3 letter, the commission asked Shaw to submit its cost model along with assumptions and changes that led to the proposed tariff rates. Secondly, Shaw is also to provide more fulsome information on capacity and capacity drivers.
Interested parties can file comments on the Shaw interrogatory responses by March 11 with Shaw having the chance to reply by March 23.
Cartt.ca asked Shaw to contribute to this story but they deferred comment until their official filing deadline of February 19th. We’ll have more then.
