Bell takes aim at cablecos with discounts to wholesale Internet

Incumbent telco BCE Inc. is offering wholesale discounts to pursue a bigger slice of the $300-million wholesale Internet market and cut into competing cablecos' growing Internet market share, small ISPs and telecom experts said. Small Internet service providers (ISPs), which lease wholesale network access from the incumbents to provide their own retail Internet services, told The Wire Report in interviews that Bell offered discounted rates to small ISPs in an effort to restore a shrinking wholesale business in advance of CRTC wholesale rate adjustments. Those new rates, released by the commission last week, reduced Bell's wholesale Internet rates by 53 per cent and increased the rates for most of the incumbent cable companies that compete with Bell. With a view to fostering competition, the CRTC requires incumbent Internet providers to offer wholesale network access to small, third-party ISPs, at a cost-based rate plus a markup. Len Katz, the former vice-chair of telecom at the CRTC, said in a phone interview that he believes Bell is offering the wholesale discounts because small ISPs operating on Bell's network can help take Internet market share, either wholesale or retail, from competing incumbent cable companies like Rogers Communications Inc. and Quebecor Media Inc., which have been growing Internet customers faster than Bell. “If you're trying to attract more customers—and yes you want to get them directly because there's a bigger margin there—but if you can pick them away from the cable industry … makes the cable companies less profitable. Their fixed costs have to be spread over a smaller base of customers,” Katz said. Jean-Francois Mezei, a consultant with Montreal firm Vaxination Informatique who closely follows the wholesale Internet industry, said in an interview that Bell took steps in January to restore a shrinking wholesale business. He said the company offered discounted rates to “all ISPs in good standing” after watching customers flock to cable services over the previous year. “They offered new packages that are with the higher speeds,” he said. “Bell’s become aggressive and they’re going to try to get customers back.” Mel Cohen, founder and president of small ISP Distributel Communications Inc., said Monday that his company signed a one-year contract in January for discounted rates with Bell, but that the deal did not apply to Bell's monthly Internet capacity rates. Bell has indicated that it will continue to honour the discounts contained in the deal, he said, even as its monthly capacity rates fall by 53 per cent under the commission’s decision. “What Bell has said is that they won’t renege on the other components of ,” Cohen said in a telephone interview. “They have the right to change their minds if they want, but so far so good.” Jean-Philippe Béique, president and owner of small ISP Electronic Box Inc., said his company also signed a one-year contract in January to receive discounted wholesale services from Bell. Part of that deal, he said, waives the company’s charges relating to “dry loop” connections, a start-up fee Bell previously charged for any new Electronic Box subscriber who did not subscribe to Bell’s telephone services. Like Cohen, Béique said he could not discuss other aspects of the agreement due to a non-disclosure agreement. “We do have a deal with Bell,” Béique said. “I think they realized they were losing business to cable .” Katz said the CRTC has always structured its rates to make the wholesale Internet business profitable for the incumbents. “These companies' primary goal is to keep their retail customers and go direct, but if you're going to lose customers, then getting a wholesale margin, as long as there's a margin to make money, is the second best choice available to them,” he said. “You're reducing your operating costs by an awful lot,” Katz said, referring to cost savings the incumbents make through wholesale Internet services, such as those related to sales and marketing, building, advertising, billing and customer service. Last November, Marc Gaudrault, CEO of small ISP TekSavvy Solutions Inc., said his company had not seen “any significant growth” on its DSL services, the technology used by Bell, under the CRTC's former wholesale capacity billing rates. Those former rates priced Bell’s DSL lines at $2,213 per month per 100 Mbps of capacity, compared to $1,251 for Rogers and $1,890 for Quebecor. In a telephone interview Friday, Gaudrault said the new rates make Bell's DSL products a more “viable” solution for small ISPs. “This sort of makes it so both platforms are viable,” he said. “I see Bell putting an aggressive foot forward now.” Under the new rates approved by the CRTC, Bell can charge up to $1036.49 per each 100 Mbps of monthly capacity, compared to $1,400 for Rogers and $2,031 for Videotron. The incumbents also charge an additional fee for each of the small ISPs’ retail subscribers, which varies according to the subscribers’ service speed. Mirko Bibic, chief legal and regulatory officer at Bell, said in a phone interview last November that the company was willing to discuss discounted “off-tariff” rates with any of its wholesale customers. “As a matter of philosophy, our wholesale group views ISPs of all sizes as potential customers, as good customers, and we’re always willing to negotiate off-tariff arrangements,” he said. “We really do want to reach arrangements without regulatory intervention. If there’s a business case supporting it, we’ll do it.” Bell spokeswoman Jacqueline Michelis told The Wire Report in a statement last week that the company will continue to work with its wholesale customers to ensure “the best possible Internet experience” for retail consumers. “Bell continues to invest $3 billion a year in broadband network expansion, which benefits both Bell and wholesale Internet customers with increasing speeds and capabilities,” she wrote. Independent telecom consultant Mark Goldberg said in a phone interview this week that Bell is courting small ISPs to regain a larger share of the wholesale Internet market at the expense of competing cable companies. He referred to the CRTC's latest Communications Monitoring Report, which said the wholesale market totalled $319 million in 2011, and estimated that two-thirds of that was spent in Bell’s service territory. “Not all of that $300 million is up for grabs,” he said. “But that’s not a shabby piece of business if you’ve got half of that.” Cohen, Gaudrault and Béique all said the commission’s new wholesale rates will impact their retail Internet packages and could cause more of their customers to order DSL services instead of cable. Cohen said he expects Distributel’s retail prices for its DSL services on Bell’s infrastructure to “come down a lot” and that the company could start managing its cable customers' traffic during peak hours. Gaudrault said TekSavvy may have to roll back its “unlimited” cable Internet packages, particularly in Videotron’s service area, and will reconsider a plan to introduce unlimited packages in the service territories of cableco Cogeco Cable Inc., which has the highest approved monthly wholesale capacity rate of $2,556 per 100 Mbps. Béique said Electronic Box will start marketing its DSL products more aggressively. “We’ll have to shift the business to DSL instead of cable,” Béique said. “If we want to compete, we’re going to be forced to reintroduce and force more attractive pricing on DSL.” Mezei predicted that Bell will regain some wholesale market share that it lost to the cablecos over the past year. “We’ll see if cable starts offering as well,” he said. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and files from and editing by Simon Doyle at sdoyle@thewirereport.ca

Bell takes aim at cablecos with discounts to wholesale Internet

News | February 26, 2013

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Bell takes aim at cablecos with discounts to wholesale Internet

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