Cabinet decides this week on CRTC internet rates

A letter to the federal cabinet late last summer was blunt about the fate of small Internet service providers: “This chapter … is the death knell for competition.”

EBOX, which billed itself as the largest independent Internet service provider (ISP) in Quebec, with nearly 100,000 customers, argued that Canada’s telecom regulator made a serious mistake last year in a decision on broadband rates.

So wrong, the company said, that it was virtually impossible for EBOX to offer fast Internet services at good prices.

“[The verdict]essentially hit the nail in the coffin after years of fighting to obtain just and reasonable rates.”

By the end of this week, the government must make a decision on a trio of petitions asking it to reverse that controversial decision by the Canadian Radio-Television and Telecommunications Commission (CRTC).

It is the final step in the process that will take at least seven years as the CRTC has revised the wholesale rates that small ISPs pay to access the networks of major telecom companies such as Bell and Rogers.

Whatever the federal cabinet decides, it will be too late for EBOX. After 25 years in business, the company sold itself to Bell in February, just five months after the letter to the government.

Others still in the industry say the combination of regulatory delays and last year’s stunning CRTC reversal, which returned to higher wholesale rates, has steadily reduced or killed independent ISPs.

“If rates are not corrected, this industry cannot survive as it is. And EBOX is a case study in that,” said Andy Kaplan-Myrth, vice president of Regulatory Affairs at TekSavvy, one of the largest independent ISPs with more than 300,000 customers.

TekSavvy, as well as wholesale internet lobby group Competitive Network Operators of Canada (CNOC) and National Capital FreeNet (NCF), an Ottawa-based nonprofit ISP, have filed the petitions appealing the CRTC ruling.

“Everyone has held out as long as possible, waiting for the rates to be resolved,” said Kaplan-Myrth, pointing out that TekSavvy has lost 20 percent of its customer base since August 2020, when it had to raise prices as the process dragged on.

“It is really not sustainable and the government has to make a choice”,

(EBOX’s former CEO and co-founder Jean-Philippe Béïque said it would be inappropriate for him to comment on whether CRTC rates were a factor in selling the company.)

“Many (wholesale ISPs) will die if the decision is not favorable to the competition,” said Marc-André Campagna, CEO of Oxio, an independent ISP with 30,000 subscribers that he co-founded in 2019 after developing cloud-based operations and billing software. .

“When that happens, the big boys will win, there will be no competition and they can keep pushing their prices up.”

People who live in most urban and suburban areas have two main options for the Internet, the telephone or cable company. The wholesale broadband system aims to give consumers more service providers to choose from, while avoiding the costs and disruptions of building additional telecom networks.

Independent ISPs pay the major telecoms flat rates for network access and typically offer lower retail prices than the major players to stand out.

That usually means small profit margins, but there are hundreds of small ISPs across Canada and wholesale has grown in recent years.

Still, CRTC data shows that trend reversed between 2019 and 2020, when wholesale ISPs lost a full percentage point of market share and fell to 8.5 percent, or 1.2 million residential Internet customers.

Their total revenues held steady at $726 million and wholesale ISPs earned less per customer in 2020 than the year before — their average revenue per user fell to $47.94 per month compared to more than $61 for major phone and cable companies.

Independent ISPs predict those numbers will be worse in 2021 and blame the CRTC.

The CRTC’s review process began years ago, and in 2016 it set intermediate wholesale rates, prices the small ISPs complained were too high.

By 2019, the CRTC published much lower final rates and ordered the major telcos to pay retroactive refunds to the wholesale ISPs.

Small ISPs celebrated and some announced immediate price cuts. For example, Oxio set its prices based on the new wholesale rates, according to Campagna.

But several major telecom companies launched a wave of appeals (to the Federal Court of Appeal, the cabinet and the regulator itself) and an interim injunction put the CRTC decision on hold.

Those lower wholesale rates never took effect.

“We sold a lot of plans that weren’t profitable during that period,” Campagna said.

Oxio has raised $50 million in venture capital investments based on its own software and other innovations, he said, but without it it would have struggled to survive.

The incumbents lost most of their trades, but it was the CRTC itself that stunned the industry with its decision a year ago.

The commission said it made numerous mistakes in the 2019 ruling and, rather than starting another lengthy process, said it would largely reinstate the 2016 temporary tariffs.

“When the decision for 2021 came out, it was much worse than we could have imagined,” said Shelley Robinson, NCF executive director.

The nonprofit ISP has approximately 3,000 subscribers, 300 of whom are in Ottawa Community Housing, and also provides other digital literacy services.

“This is definitely an ongoing existential threat — prices are too high for us to go long-term without really trying to cut corners,” Robinson said, adding, “This hinders our ability to fulfill our mission.”

But the major telecoms say the CRTC was right last year.

In an appeal against the cabinet’s appeals, a group of cable companies, including Rogers and Shaw, said using the “radically lower” rates for 2019 would oblige cable companies to “subsidize resellers’ businesses”. It would also cut the money big companies have to invest in their own networks by as much as $3.7 billion over five years, they said.

Separately, Bell said the 2021 ruling has adjusted wholesale rates to slightly below 2016 levels, meaning it still owes some retroactive payments. The company also said it is investing more — an additional $500 million over two years — because of the ruling.

CRTC chairman Ian Scott told a parliamentary committee in February that he acknowledges the decision “poses challenges for some competitors”, but said he is confident the regulator has done the “responsible thing”.

“It’s true that some competitors reduced their retail rates based on that decision, but that was a business decision and a risk they took, given the appeals being filed at the time,” Scott said.

CNOC and TekSavvy argued in their cabinet appeals that Scott is biased in favor of major telecom companies. They point in part to the fact that, as the Star first reported, the CRTC chairman had a beer with the future CEO of Bell in 2019 after the company appealed the original tariff ruling.

Geoff White, CNOC executive director and general counsel, said the “long, drawn-out saga” has hurt many members of the group.

“The current model is broken,” he said. “The simple solution is for the cabinet to step in and say, ‘We are not happy with what the CRTC has done.'”

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