Peak pricing wholesale system does not solve congestion issue: Bell

GATINEAU, QUE.—Charging for Internet usage based on peak pricing does not provide incentives to reduce congestion and leaves the door open to gaming by Internet service providers (ISPs), BCE Inc. told the CRTC Monday. Opening the commission’s hearings to review residential wholesale usage-based billing, Bell defended its proposal for “aggregated volume pricing.” Bell told CRTC commissioners at a hearing in Gatineau that its capital expenditures on Internet services in 2010 exceeded its Internet revenues while subscribers have remained flat and traffic growth has “exploded.” The company said the model for recovering its network investment costs is broken. Small, reseller ISPs serve 17 per cent of end users on Bell’s network in Ontario and Quebec, driving 29 per cent of total traffic, the company said. “This is significant,” Mirko Bibic, Bell’s senior vice-president for regulatory affairs, said in his opening remarks. “No single user or wholesale customer is the cause of congestion. But, clearly, wholesale users contribute a disproportionate share of total traffic, and by extension, congestion.” Bell sought to convince the commission that its aggregate volume pricing model—which it submitted last winter after a public furor over the CRTC approval of its initial wholesale usage-based billing plan—was a better method than a “peak pricing,” or 95th percentile, formula submitted by the Canadian Network Operators Consortium (CNOC), a group of small ISPs. Under Bell’s aggregated volume scheme, usage is measured across the shared network and tracked with pricing. Peak pricing would charge other ISPs according to the 95th percentile of their peak usage. “With 95th percentile, an ISP may have the incentive to reduce its peak usage, but once it reduces that to a level it finds acceptable, it has no incentive to reduce its overall usage below that level at any other time of day—even though that ISP may be contributing to congestion on our network at those other times,” Bibic said, adding that it the proposal is not a fair or effective deterrent for congestion. Under Bell’s proposal, small ISPs could pre-purchase monthly blocks of data packages for 19.5 cents per gigabyte; if an ISP surpassed its pre-purchased amount, it would buy more data at a premium rate of 29.5 cents per gigabyte. “If you’ve bought in advance a certain block of traffic at a lower rate, now you have an incentive to manage to the amount you bought,” Bibic said. “If you can make up the shortfall after at the same price, you have no incentive, no greater incentive to manage usage because what you want to do is take advantage of the lower rates. You’re going to buy and then try to manage overall usage to what you bought.” CRTC vice-chair of telecom Leonard Katz asked whether the premium fee would lead to “extraordinary profits” and become punitive like a monetary penalty. Bibic responded that the rationale behind the higher overage cost is to manage congestion. “Is there science in the 29 ? No. It’s kind of a market-based judgment that it should be higher, and in this case we said 50 per cent. You get to make the decision, not us,” he said in reference to the commission’s power to choose a precise figure. Jonathan Daniels, Bell’s vice-president for regulatory law, said the ISPs would know their business needs and that he didn’t expect Bell to make a lot of money from the markup. He said the plan is not about extra revenue but about creating incentives to lower congestion. Katz said if an overage charge is used, there would have to be some “blending” of the two fees to lower the original cost. “We either blend it if we follow that proposal, or we allow you to make extraordinary profits, it’s one or the other,” Katz said. Tom Little, president of Bell’s wholesale services, said the 95th percentile system could be gamed because ISPs would have an incentive to manage their peak traffic. “I believe that an independent ISP would have quite a motivation to manage their peak and not total usage, and we would end up with low peaks and massive total usage,” he said. Commissioner Denton asked whether Bell’s objection to peak pricing had to do with where it measured congestion or with the method of measuring. “You’re saying it measures the wrong thing, or it measures the right thing but at the wrong place? It measures congestion but at the wrong place?” he asked. In response, Bell representatives consulted among themselves and said they would address the question when they reappear before the commission next week. Daniels said the argument of some ISPs—that Bell’s IPTV service is creating congestion—is wrong, and that IPTV traffic isn’t on the same network until the last mile of copper wire. CRTC chair Konrad von Finckenstein also expressed interest in knowing why Bell Aliant does not charge wholesale usage-based billing in Atlantic Canada. He said one company not doing it presents the notion that there’s no underlying economic reason for it. Bibic said that, while Bell Aliant supports the concept, it doesn’t have the same issues as Ontario and Quebec, where there are highest proportion of reseller ISP customers in the country. Telus Corp., which also does not employ wholesale usage-based billing, said it agrees with the economic principle but, citing fierce competition that led to network investments in its serving areas in Western Canada, the company hasn’t had to resort to it. Michael Hennessy, Telus’ senior vice-president of regulatory affairs, told reporters Monday that the original uproar over usage-based billing arose because the wholesale customer “would have been in a situation where they would have really had to replicate Bell’s retail model.” “That was what was considered most contentious and why Bell changed their plan,” Hennessy said. “Even if you adopt volume-based pricing, you shouldn’t adopt it in a way that forces the reseller to behave in the retail market in the same way you behave. That was what I think really drove the debate, not so much the principle of usage-based billing.” Due to Bell’s lengthy appearance before the commission Monday, public interest groups OpenMedia.ca and the Canadian Internet Policy and Public Interest Clinic (CIPPIC), which were scheduled to appear Monday, were postponed until Tuesday. The commission heard from web development companies Built By Giants and Interstitial Entertainment, as well as the British Colombia Broadband Association (BCBA). Built By Giants’ Mark Coatsworth spoke of the negative effects that usage-based billing would have on Canadian businesses trying to complete internationally. He said Canadians are being “heinously marked up” on Internet services compared to Americans. BCBA president Bob Allen said the association is opposed to Bell’s proposal. “I think it’s a cash grab by the incumbent, if you ask me,” he said, suggesting that it is like serving those sitting on the top of a hill while they try to push others off. mburgess@thewirereport.ca

Peak pricing wholesale system does not solve congestion issue: Bell

News | July 11, 2011

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