De-regulation rattles junior Internet service providers

Every week Techvibes will be republishing an article from Business in Vancouver newspaper.

This article was originally published in issue #1039 – September 22-28, 2009.

Four B.C. companies have joined a campaign that’s petitioning the federal government to reverse a regulatory decision that they allege will allow Telus Corp. (TSX:T) and Bell Canada (TSX:BCE) to shut their smaller competitors out of the broadband market.

The Campaign for Competitive Broadband (CCB) launch is the latest volley in a long-standing battle that pits large Internet service providers (ISPs) such as Telus against junior broadband resellers.

Led by Winnipeg’s MTS Allstream Inc., the CCB wants to reverse an earlier Canadian Radio-television and Telecommunications Commission (CRTC) decision that removed a requirement for Telus and Bell to provide competitors with access at cost-based rates to their high-speed broadband for businesses.

More than 20 businesses and organizations have joined the CCB, alleging that their market share will disappear if they can’t access Telus’ and Bell’s fastest broadband offerings.

The group says that its customers will logically migrate to Telus and Bell – the sole providers of the high-speed networks for businesses – if the CRTC’s decision takes effect in December.

“If the ruling becomes law and we’re not permitted to sell the same service in terms of speed and other metrics, then eventually we will have to find some other way to profit from the Internet business or exit the business gradually,” said Bill Campbell, president of Vancouver’s Skyway West Business Internet Services.

Skyway and three other B.C. companies – Lightspeed Communications, AEBC Internet Corp. and SmarttNet, – are CCB members.

The battle dates back to the early days of the Internet in Canada, when Telus, Bell and a few other carriers held monopoly positions in the telecommunication industry.

The federal government largely supported the monopolies as necessary to develop new communications networks across Canada.

But in exchange for government support, the carriers were required to sell wholesale broadband to smaller companies at cost-based rates to allow competitors to enter the market. In turn, smaller firms such as Skyway sell the broadband coupled with value-added business services like network management and spam filtering.

In siding with Telus and Bell, the CRTC concluded that the last mile of fibre that makes up the carriers’ business networks isn’t among the essential services that fall under the regulatory regime.

The CRTC defines essential telecom services as those that competitors can’t develop themselves, are required by competitors to provide telecom services in a downstream market and are controlled by a company that, if the service was inaccessible to others, could become a monopoly.

In its decision, the CRTC concluded that Telus’ and Bell’s last-mile fibre network could be duplicated by other service providers.

But Skyway and other carriers disagree.

Campbell said Skyway and other junior ISPs don’t have the money to invest in the network infrastructure – which would include miles of fibre cabling.

“There is practical limitation to our ability to do it as well as a financial limitation because of the scale that we’re talking about,” said Campbell.

Michael Hennessy, Telus’ senior vice-president of regulatory and government affairs, said Telus no longer has the monopoly it held at the dawn of the Internet in Canada.

“Across the country, the cable companies in pretty much every market have more market share and more Internet customers than the legacy telephone companies.”

In B.C. and Alberta, for example, Shaw Communications Inc. (NYSE:SJR) has roughly 1.4 times as many Internet customers as Telus.

At least one group of broadband resellers in B.C. is taking a different approach in attempting to access Telus’ and Bell’s high-speed infrastructure.

In a submission to the CRTC, Open Source Solutions, a consortium of 10 regional Internet service providers (ISP) in B.C., said the CRTC should eliminate mandated access to broadband products.

OSS president Bob Allen told BIV that OSS members would rather negotiate with Telus and Bell – although the OSS wants an arbitration body established to resolve disputes.

“We don’t want more of the same regulatory regime that we’ve experience in the last few years,” said Allen. “We want to move to a negotiated arrangement model with our upstream providers.”