GB of data costs 17 cents to transmit; charge UBB as ‘cost plus profit margin’: Sandvine

The CRTC’s wholesale usage-based billing regime should charge independent Internet service providers (ISPs) on a “cost plus profit margin” basis with the cost of delivering a gigabyte of data set at about 17 cents, Sandvine Inc. says. “Incumbent network providers should charge Small ISPs for their traffic in aggregate, not an individual user basis,” Sandvine, a network equipment and applications developer, wrote in a submission for the CRTC’s review of its wholesale usage-based billing policy. “The UBB rate charged by the incumbent network provider should be based on a ‘cost plus profit margin’ basis, as with other regulated wholesale services, such as for electricity.” Sandvine offers a “usage management” service to help ISPs implement usage-based billing plans for retail and wholesale customers. The company submitted its proposal to the CRTC late March. The cost of transmitting data on the Internet is becoming a hot-button issue in the review as Bell Canada proposed in March a new “aggregate volume pricing” system of wholesale usage-based billing, in which it would charge small, reseller Internet service providers (ISPs) according to their total data volume usage. Under Bell’s proposal, small ISPs would pre-purchase monthly blocks of terabytes at $200 each. If they surpass their pre-purchased monthly amounts, they would pay higher rates of $0.295 per gigabyte for excess usage. The Canadian Network Operators Consortium Inc. (CNOC), a coalition of small ISPs, says Bell’s proposal is based on the right concept but is charged at the wrong price. The coalition says the pricing should be based on transmission costs plus a 15 per cent markup. Sandvine said it arrived at the 17-cent calculation based on a number of assumptions about underlying network costs. The company said its calculations included transit costs; sharing the costs of routers and links; “long haul network” costs, such as laying and maintaining fibre lines; central office operating costs; maintaining and operating backhaul networks; and the “depreciation of networking equipment” costs such as network replacement cycles. Sandvine said its calculations exclude “the cost of labour, capital, fees, (e.g. the dry-copper rental fee, right of way access, landscaping fees, etc.).” The company wrote that the CRTC should set the profit margins to be charged on top of the basic transmission cost. It suggested that wholesale pricing should offer data “in tranches with volume discounts.” Sandvine suggested rates of 17 cents per gigabyte plus a 12 per cent profit markup for the purchase of a 1-5 TB tranche. A 100 GB to 1 TB tranche would have a profit markup of 15 per cent and a zero to 100 GB tranche would have 20 per cent. “Wholesale rates in other regulated markets, such as electricity, are typically based on cost-plus pricing which allows the downstream service provider a guaranteed, fair rate of return on usage of their network assets,” Sandvine wrote. “In this model, the incumbent provider and downstream provider are on equal footing to design competitive plans that they believe will earn greater market share or to target segments of the market untapped by others.” As the usage-based billing review hones in on an “aggregated volume” wholesale pricing scheme, the real cost of transmitting a gigabyte of data is likely to emerge as the most contested point for debate. University of Ottawa law professor Michael Geist, in a research paper commission by Netflix Inc. and released this spring, calculated that the cost of transmitting one gigabyte of data for incumbent ISPs is about eight cents. In comments to the CRTC, Netflix cited another study it commissioned, conducted by Lemay-Yates Associates Inc., that said the average incremental cost of Internet traffic by heavy users is “likely 1 cent or less per GB.” The online streaming company said the cost shows that “Bell’s wholesale UBB rates provide margins in excess of 99%.” Netflix added: “The Lemay-Yates Report further establishes that greater traffic does not necessarily have any incremental effect on congestion.” Lobby group OpenMedia.ca has stepped up its pressure in recent days as the CRTC’s deadline for public comments comes Thursday. “The best way to ensure Canadians maintain access to the unlimited Internet is to overwhelm the CRTC with submissions for its July Internet Metering public hearing,” a blog post on the OpenMedia website said Wednesday. “We have 2 days left to get submissions on the public record.” As of Wednesday afternoon, 2,650 comments had been posted. Mirko Bibic, Bell’s senior vice-president of regulatory and government affairs, has disputed the eight cents-per-gigabyte figure, saying that the CRTC has extensive information about how Bell arrived at its proposed pricing—information that was provided in confidence for competitive reasons. He wrote in April that the issue of usage-based billing has “shifted into an attempt to pre-empt the legitimate role of the CRTC in setting pricing for wholesale access.” In a joint proposal to the commission, cable carriers Rogers Communications Inc., Cogeco Cable Inc., and Quebecor Media Inc., wrote that there “is merit to the general concept” of Bell’s aggregated volume proposal, but said cable and telco carriers have different costs, networks, and “elements in the wholesale access tariffs.” “Regulatory symmetry requires that the wholesale access services be equitable, not identical,” the cable companies wrote in a submission dated April 29. Public hearings are scheduled to start July 11 in Gatineau, Que. news@thewirereport.ca

GB of data costs 17 cents to transmit; charge UBB as ‘cost plus profit margin’: Sandvine

News | May 11, 2011

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