Analysis: Government faced with difficult decision on access to ILEC facilities

The fate of broadband competition in the Canada is now in the hands of the federal government. Its job comes after Cabinet was handed three appeals: one from MTS Allstream Inc. contesting the appropriateness of a CRTC decision not to mandate Ethernet as an essential service, and two others from Bell Canada and Telus Corp. arguing the CRTC erred in ordering the ILECs to give ISP resellers access to the same high-speed Internet services (speed matching) as they offer their own retail customers. While the appeals are distinct and question the merits of two separate CRTC decisions, they are related. One is focused entirely on the business market and the others (Bell and Telus) look at the residential broadband segment. In both cases, Cabinet is faced with one overriding question: should the incumbent telephone companies be required to give competitors access to their ubiquitous local high-speed access networks at cost-based rates? At a high level, both groups say competition and innovation in the telecom sector will be harmed if the government doesn’t acquiesce to their demands. Bell and Telus argue investment in facilities-based competition will suffer if the government forces them to open their next-generation networks to competitors at cost-based rates. Bell claims its planned residential broadband investments in cities such as Quebec City, Ottawa and Hamilton are in jeopardy if it has to give inexpensive access to ISP resellers. MTS Allstream argues that competition in the business segment, which it says has already been hit by higher prices, will get worse if access to Ethernet isn’t guaranteed at cost-based rates. Giving competitors access to Ethernet will give businesses more choice, thus improving the competitive landscape, the company says. Looking beyond the numbers Both sides have presented copious amounts of information, supported by third-party analyses, and all parties have presented compelling cases to the federal government. So, where does the government go from here? Well before it can answer its main question, it must also look at some of the numbers presented by parties who have submitted comments to the Cabinet appeals. It also needs to look beyond. On the business side, the CRTC said in its original essential services ruling (Telecom Decision 2008-17), that it was satisfied that there was enough self-supply or third-party supply of Ethernet to determine it was non-essential service to phase out. MTS Allstream has presented evidence that the commission looked at the Ethernet supply issue in the wrong way, while Bell and Telus say the CRTC’s method was appropriate and came to right conclusion. Cabinet must explore the third-party supply of Ethernet issue further. The utility telecom providers (utelcos), for example, say they are inking more wholesale agreements with the established telcos. How much fibre do they have and how far does it reach? Atria Networks and Cogeco Data Services are expanding their networks to reach more customers. Atria is building out its network as part of a contract with the federal government to reach about 200 federal government sites in Ottawa. Cogeco is doubling its footprint in Toronto as part of a contract with the Toronto District School Board. As well, both are selling more to wholesale customers. On the residential side, the smaller ISP resellers – largely those that lease DSL capacity from the ILECs – say they need to match ILEC speeds or their business case goes out the window. If they are stuck leasing older and slower facilities from the ILECs, a differentiated service will no longer exist for them. This issue may be easier for Cabinet though. It only has to decide whether a duopoly – DSL versus cable – will be sufficient for a competitive broadband market to survive. If so, then the ISP resellers will have to be content with serving customers that don’t want the fastest speeds. As Cabinet begins weighing the pros and cons of each case, the fate of competition in Canada’s broadband markets hangs in the balance. A wrong decision could be disastrous. But in the political realm, there are always winners and losers.

Analysis: Government faced with difficult decision on access to ILEC facilities

News | May 14, 2009

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