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ISPs ring warning bells over CRTC’s broadband pricing scheme

After a night to review the latest regulatory ruling on wholesale rates for independent Internet providers, there is increasing unease

The federal telecom regulator may have hoped it had settled the war over pricing wholesale broadband access for independent Internet service providers , but there are signs some ISPs want to fight another battle.

“A key component of our costs [under the rate plan for business access] just went up 70 per cent,” Michael Garbe, president of Accelerated Connections, a Toronto-based ISP that serves business customers, said Wednesday during a question and answer session on regulatory and legal issues facing ISPs.

“How are we going to pay for it?” he asked. We can charge our customers more, we can cut our staff, we can avoid hiring. All these things are not the outcomes we were looking for.”

Wholesale rates are paid by ISPs for buying access from large carriers and set by the Canadian Radio-television and Telecommunications Commission (CRTC). ISPs in turn charge retail rates to subscribers. Tuesday’s CRTC decision in part was supposed to give independent ISPs more freedom to set their own retail rates.

However, Garbe added, at a conference dinner Tuesday night he couldn’t convince CRTC vice-chair Leonard Katz that he’d approved a huge increase.

As for the commission’s new wholesale residential rates, “we’re really trivializing the fact the numbers are so incredibly wrong.” Some ISPs at the conference say they just need to go back to the commission and ask for some rate changes, he said. But Garbe said that “it’s going to be very hard to go back and get these prices adjusted.”

He was one of several at the conference, which wrapped up Wednesday, who after a night going over Tuesday’s decision by the CRTC were expressing worry – if not anger – that the rates of the ruling were wrong. And at least one big carrier might be with them.

They may not want the entire decision upended. Generally, there is broad agreement that the framework the commission detailed – giving carriers the ability to charge wholesale rates to ISPs based in part on throughput they buy – is good.

But there is discomfort.

The regulatory panel included Chris Tacit, a lawyer acting for the Canadian Network Operators Consortium (CNOC), a group that includes some of the country’s biggest ISPs, who acknowledged the problem.

CNOC is “extremely pleased” with the capacity-based wholesale system, he said. But, he added, is the rates seem “jarringly out of place with other similar rates for similar kinds of service in the marketplace.” The result that a residential ISP subscriber would have to pay $110 a month to watch an online movie during peak hours.

He also wondered why the commission set different wholesale rates for delivering Internet access for residential and business customers.

ISPs still need more time to examine the details of the decision, he said. But, he added, “I think we still have a fundamental problem on rates.

Meanwhile panel member Jonathan Daniels, vice-president for regulatory law at BCE Inc.’s Bell Canada (TSX: BCE ) warned that because the commission cut some of the rates ISPs pay “there are going to be consequences.”

Also on the panel was University of Ottawa Internet law professor Michael Geist, who said Tuesday’s decision may encourage ISPs to switch to buying access from cable companies because their new wholesale rates are more favourable than before. That, in turn, may push Bell Canada, the biggest wholesale access provider in the company, to bypass the CRTC rates and negotiate better terms with ISPs, Geist said.

In fact, Daniels repeatedly told the ISPs in the audience that the telco is eager to strike a deal with them, as long as the arrangement is mutually beneficial.

Not all ISPs are worried about the impact of the rates on their operations. Jonathan Blumberg, president of The Wire , a small Toronto ISP which mainly serves business customers, said in an interview he believes the new business rates will work. However, the new wholesale residential rates will likely mean he’ll drop the few home customers the company has.

CNOC president William Sandiford, who heads Telnet Communications of Oshawa, Ont., said in an interview that most ISPs he’s talked to feel the rates are “borderline unworkable.”

The group will have to decide if its members will either try to negotiate better rates with carriers or ask the CRTC to alter its rate schedule.

Late Wednesday, MTS Allstream , which sells connectivity to ISPs in Manitoba, issued a statement backing the CRTC decision.

“We’re pleased that the CRTC has adopted a wholesale model that allows competitors to offer real choice in the market while providing MTS Allstream with the ability to manage our network capacity,” Chris Peirce, chief corporate officer, said in the statement. “The choice of models shows that the CRTC understands that wholesale access drives competition in the market and that competition not only provides choice for consumers and businesses but is also the engine of investment and innovation. The decision will result in small cost savings for our Allstream business [outside Manitoba] and has no material impact on our MTS business [within the provice].

“We are however, reviewing the decision to ensure that prices approved fully reflect the principles established.”