Parties file submissions on speed matching, hope next CRTC hearing will finally resolve it

Bell Canada and Telus Corp. say they hope the upcoming CRTC hearing on speed matching will finally settle the divisive issue. “I do think this is the definitive decision because I am expecting a positive decision,” Bell Canada vice-president of regulatory affairs, Jonathan Daniels, said in an interview. “You’ll see that the market will become even more competitive with wireless.” While the incumbents say mandating speed matching will ultimately affect their ability to roll out their networks, competitors say it is key to enhancing competition in Canada’s broadband market. On March 3, 2009, the CRTC issued a decision requiring incumbents to offer speed matching, or service parity, to retail Internet service providers. The decision means companies like Bell and Telus would have to offer wholesale Internet service to competitors at speeds matching their own retail Internet services. The decision is based on a related notion that high-speed Internet is an essential service, and that mandating speed matching would increase competition in the broadband market. But on Dec. 10, 2009, the federal Cabinet ordered the CRTC to revisit the issue of speed matching. A hearing on the matter is scheduled for May 31, 2010. Several companies filed their views with the CRTC before the deadline to submit on Feb. 8. The CRTC will consider whether speed matching requirements “diminish the incentives to invest in new network infrastructure” and whether “in the absence of the speed matching requirements, there would be sufficient competition to protect the interests of users,” among other issues. The crux of the argument between the telecom companies, or incumbent local exchange carriers (ILECs), and the smaller independent Internet Service Providers (ISPs), is whether mandating speed matching would threaten future network investments instead of promoting competition. Michael Hennessy, senior vice-president of regulatory and government affairs at Telus, said he “absolutely” hopes the CRTC will finally settle the matter, but he fears it may not be resolved by this decision, to be issued by September. “The one thing I’ve noticed in the last few years is that nothing seems to be settled, all we ever seem to do is face more uncertainty, which is in itself really bad for investors,” he said in an interview. MTS Allstream chief corporate officer Chris Peirce said that although speed matching has been a recurring issue with the CRTC, this is the first time the commission is explicitly looking at how to encourage broadband network investment. “I hope it will lead to a more fulsome assessment of the circumstances that will encourage that type of investment,” he said. “We would think conclusion would be the same.” “This is another chapter in the struggle to reconcile the primary way telecommunications products and services are to be delivered,” Public Interest Advocacy Centre (PIAC) executive director and general counsel Michael Janigan added by email. “From the consumer standpoint, it offers the possibility that the very mediocre performance of the broadband market may be enhanced by measures intended to promote entry, through terms imposed on incumbent providers. It is somewhat galling to consumers that the networks that are resistant to wholesale regulation have been paid for by rates paid by consumers in a largely risk free environment for the incumbents.” Bell and Telus have said they would reconsider their fibre roll-out plans if the previous CRTC decision is upheld. They argue that allowing competitors to use their networks decreases the incentive to invest. “It actually does affect our decision-making. There are certain communities where the investment decision, whether to build broadband or not, is somewhat of a slightly positive position, but if you actually require speed matching it can affect the economics and push it into position where it doesn’t make economic sense to invest,” Daniels said. “I can’t definitely tell you where, when, how, but I can tell you it will have an impact on our decision-making.” Hennessy said it comes down to a matter of risk, one too large to take should the CRTC maintain its position on speed matching. “Anytime you have to make billion dollar investments in next-generation facilities and you are required to share those facilities with competitors at incremental costs before you’ve even had a chance to recover your investment, you will simply not invest in areas where you face very high risk,” he said. “People say, ‘You are going to build anyway.’ That’s not true.” In its submission filed with the CRTC, PIAC wrote that the ILECs’ “threats” to stop network build-out are without substance. “The ILECs need more powerful networks if they are to successfully compete with the cable companies. The threats they have made before the commission and before the Governor-in-Council are inconsistent with what they have been telling their shareholders and, in any event, are groundless,” PIAC’s submission said. In its submission, ISP TekSavvy Solutions Inc. argued that reversing the CRTC decision would seriously compromise broadband competition. MTS Allstream, which supports the CRTC decision, says a lack of competition in the broadband market will threaten investment. “It is worth remembering that the commission has already rendered decisions categorizing an ADSL access service as conditional essential, and deeming that speed matching, if not required, would substantially lessen or prevent competition. This commission’s decisions in this proceeding should uphold both of those previous determinations,” MTS’ submission says. But Peirce said he is content with the CRTC’s review of its previous decision. “Competition is your best recipe for investment. Open access for competitors is a key component of competition. We hope this will come out in this proceeding,” he said. Also at issue is whether high speed Internet constitutes an “essential service,” and whether it should fall under the CRTC’s scope of regulation. “The commission should refrain from mandating wholesale access to next-generation networks (NGNs) and, thus, allow the deployment of facilities-based competition as quickly and as extensively as possible across Canada,” Bell’s CRTC submission says. “Where multiple facilities-based operators coexist, competition will flourish, both between network operators directly and between service providers who have secured network access through negotiated agreements.” An essential service is considered one that competitors cannot duplicate. Daniels said this is not the case with fibre networks. “Building out fibre is something that competitors can and are duplicating,” he said, noting the ability to duplicate cable and HSPA network technology. “The whole notion of saying that one particular technology can’t be duplicated is really an antiquated notion.” In its submission, telecommunication company Execulink Telecom argues high-speed Internet access is essential in today’s market. “The demand and requirements of end customers for increased speeds is incessant. What was acceptable and sufficient just two or three years ago is not today. What is acceptable and sufficient today will not be ‘tomorrow.’ To imply access to dial-up supplies sufficient competition today is not credible. Similarly, access restricted to today’s wholesale speeds will not provide sufficient competition ‘tomorrow,’” the company says in its submission. “In the absence of the speed-matching requirement and the mandated provision of the high-speed access services under consideration, broadband competition in Canada would quickly disappear. There would be a duopoly in urban areas where there is cable TV and a monopoly where cable TV does not provide service (most of Canada). Canada needs and deserves a healthy and competitive broadband market. A duopoly is neither healthy nor very competitive, nor is it driven by market forces.” But Hennessy disagreed. “In the case of broadband today you can’t say we are the leader. Cable is. So you can’t say we have a monopoly,” he said. kfournier@thewirereport.ca

Parties file submissions on speed matching, hope next CRTC hearing will finally resolve it

News | February 23, 2010

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