ISPs will benefit by year end–Retail market opening for cable Internet access; cablecos worry rates are too low

It’s been a long time coming, but the CRTC has finally cleared the way for the retail sale of cable Internet, and at rates low enough to help ensure cable modems remain the dominant access technology for high speed Internet, at least for the foreseeable future. On August 21, the commission approved the terms and rates for third party access to cable modem service for Canada’s four largest cable operators, Rogers Communications Inc, Shaw Communications Inc, Cogeco Cable Canada Inc and Vidéotron ltée – Order CRTC 2000-789. The wholesale rates, which range between $19 to $21.50/end-user/month, are far lower than what the major cablecos had proposed. Janet Yale, president/CEO of the Canadian Cable Television Association, says the industry would have preferred to see a monthly wholesale rate of about $25. "On the terms and conditions, we think the CRTC did a good job," she says. "But when you get to the rates, it’s like they rushed to get a ruling… There were two adjustments that took us by surprise: the cost reductions to all our capital costs, and the productivity increase. Our understanding of Phase 2 (costing) is that the first service that causes the capital costs to be incurred, you can allocate all the capital costs to that service. And the first service that required those capital costs to be incurred is high-speed Internet. The fact that things may come along later that use that same infrastructure, so be it." The commission cut the cable industry’s allowable capital costs in half, saying the balance could be applied to other services that would benefit from broadband interactivity, such as digital video. The CRTC then shaved a further 15 per cent off the cablecos’ cost estimates for efficiencies the regulator believes they can attain over time. "If they hadn’t made those two adjustments, the rate would have been in the neighbourhood of $25, which are more in line with the price points that are out there in the marketplace, both from the telephone company tariffs and the rates the commission approved for Regional Cable’s wholesale offer," says Yale. The cablecos’ took a further financial hit when the CRTC reduced their proposed cost of equity from about 18 per cent to 13 per cent. "Given the continued consolidation of the cable industry, with the anticipated attendant benefit of lower cost access to financial markets, the Commission expects the cable carriers’ cost of capital to be closer to the telephone companies’ cost of capital (11 per cent) than to 17 percent and 18 per cent," the decision states. Preparing for a 2001 retail launch Despite the delays, the Canadian Association of Internet Providers (CAIP) is generally pleased with the new rates and conditions. CAIP president Jay Thomson says the CRTC’s decision to keep wholesale rates relatively low will ensure a competitive retail market for cable Internet. "If the cable industry maintains its current retail price, it’s doable," Thomson told Network Letter. "We’ll be able to offer our services at a profitable retail rate." Having the tariffs in place was the last major regulatory hurdle to clear before retail cable Internet can hit the market, but there are a few other operational issues that need to be resolved before then. Trials are currently underway for Data Over Cable Service Interface Specification (DOCSIS), which defines interface requirements for cable modems involved in high-speed data distribution over cable networks. The trial participants hope to have their report filed publicly by the end of October. Other technical and operational issues will be handled over the coming weeks by the CRTC Interconnection Steering Committee. "Assuming that’s done in late fall, we’ll be able to announce commercial availability by the end of the year," says Yale. "ISPs and cable companies can be doing agreements, figuring out where the points of entry are going to be and so on, so that we can have customers online for these ISPs by the end of the first quarter of next year." CAIP knows well that the road between a CRTC directive and the actual implementation can be a rocky one, but Thomson is optimistic that the main hurdles are now behind them. "There are still aspects that need to be worked out. But the finishing up should not impact on the decisions regarding the rates. Our larger members have already said they can work with the rates." The CRTC also announced two follow on proceedings to deal with winback guidelines, and outstanding rating issues, including point of interconnection and service charges.

ISPs will benefit by year end–Retail market opening for cable Internet access; cablecos worry rates are too low

News | 08/28/2000 4:00 am EDT

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