Canadian Independent ISPs Get Access to Incumbent's Fibre Networks

The CRTC ruled on Wednesday that incumbent last-mile Internet providers such as Bell and Rogers must open up their fibre-to-the-premise (FTTP) networks to independents.

Internet and IPTV providers such as Teksavvy and VMedia appeared at the hearings in Gatineau last fall to plead their case, and it appears that once again the CRTC ruled against the incumbents and in favour of consumers and smaller competitors. Read on for additional information on how this will affect Canadian Internet and TV in the future.

During last fall's hearings, the CRTC heard from a wide variety of sources, with the battle lines pretty clearly divided. Here's a brief recap of the arguments the CRTC heard.

What the opponents (incumbent telcos & cablecos) said

As seems to be the norm at any hearing where incumbents are asked to provide wholesale access to their network, the "investment" card was played. Bell, Rogers, Telus, Shaw, et al essentially threatened that a ruling against them would give them less incentive to upgrade their network facilities. They like to make the public and regulators believe that they built their networks fair & square, and everyone else should do the same if they want to be in the wireline service game.

Their investment argument however ignores the fact that in new (a.k.a. "greenfield") developments, running fibre to the home/business is cheaper than running copper these days. In fact it's the new norm because it's both better and cheaper, and any old copper that is removed is valuable enough that theft prior to recycling is a concern. It's true that retrofitting an old neighbourhood is expensive, especially if all of the lines are buried, but it's something that gets factored into cost projections regardless of technology. In other words, it may take many years, but it's just a matter of time before telecom companies are required to replace their old copper with fibre, either to stay competitive or because the copper infrastructure is failing. Capital expenditures on facility upgrades are the cost of doing business and have been since the dawn of the telephone age.

The incumbents also pointed to a handful of fibre networks installed and run by companies such as Beanfield and Novus as evidence that independent deployments can and do happen. In reality, such deployments are extremely limited in geographic scope - typically in the downtown core of cities where underground utility conduits exist between buildings. Even if it were trivial for any company to string new fibre to homes and buildings, the last thing anyone wants is a rat's nest of wiring running through our communities. We have one electrical and natural gas supply to each of our homes, yet we're still free to buy wholesale electricity/gas from independent suppliers. Why should telecom be any different now that it's more like a utility than a tech novelty?

The City of Calgary probably had the best put-down for the argument that anyone can do it:
104. The City of Calgary submitted that the incumbent carriers have a competitive advantage in building out FTTP networks because of their existing access to support structures and municipal rights-of-way. The City of Calgary submitted that FTTP networks should be deployed as efficiently as possible and with a view to minimizing costs and inconvenience born by municipalities when rights-of-way are accessed. Accordingly, the City of Calgary supported the mandated provision of FTTP access facilities to competitors.
In other words, we want as few companies as possible to supply and maintain the wires, but everyone should have access to the infrastructure.

What the proponents (independent ISPs and consumer groups) said

Everyone but the incumbents argued that without access to FTTP infrastructure, it would only be a few years before there were no more independent ISPs and we'd just have one (or maybe two) incumbent providers from which to buy Internet service.

A lot of evidence was presented to illustrate that the current regulatory framework was unsustainable, mainly because of extremely high interconnection charges. That was somewhat tangential to the subject matter, but it drove home the point that Internet connections these days are primarily used for video of some sort (Netflix, YouTube, etc.), and the cost structure of the current framework was preventing some of the independents from expanding their business to include TV service.

More on point were arguments that IISPs need access to higher speed services like FTTP in order to offer IPTV and remain competitive. In many parts of the country, DSL service tops out at 6 Mbps, which is barely enough to watch a single Netflix stream let alone offer IPTV service.

CRTC decision

The CRTC sided with the independents and stated that FTTP service must be made available at regulated wholesale rates.

In my opinion, this decision was inevitable, although we consumers should be glad that it happened this week and not three or four years from now. Given the rate at which telcos in particular are deploying new FTTP and upgrading old copper neighbourhoods, it would have just been a matter of time before most of the copper was gone and the majority of consumers were therefore unable to buy service from an independent ISP.

The CRTC shot down the investment argument by pointing out that the telcos in particular need to invest in FTTP regardless of any wholesale regulations in order to keep up with the cable companies:
141. With respect to disaggregated wholesale HSA services over FTTP access facilities, the potential disincentive that a decision to mandate the provision of such services could have on investment was the predominant reason given by the incumbent carriers that the Commission should reject such a proposal. There are several reasons, however, why the negative impact on investment is not likely to happen to any significant degree, particularly in more urban areas. First, the Commission expects that the incumbent carriers will generally continue to invest in FTTP access facilities in order to provide enhanced retail Internet access services in response to consumer demand, as well as to compete effectively and efficiently with the Cablecos. ...
Keep in mind that, despite the rhetoric from telcos and cablecos, independents don't get a "free ride" on the incumbents' networks. Wholesale rates set by the CRTC are based on cost figures filed (in confidence) by the incumbents, to which the CRTC adds a mark-up. Nobody other than the CRTC and the incumbents know for sure since the figures aren't made public, but most outsiders suspect that the incumbents pad their cost figures quite liberally. When you factor in the extra mark-up added by the CRTC, there's really no risk of the incumbents losing money on wholesale service. They may not make quite as much profit on a wholesale customer as they do on a retail customer, but they still profit.

There are many other complex issues to deal with as a result of this ruling - it wasn't as simple as the CRTC telling Bell et al to open their FTTP networks to independents. I won't go into the technical details, but suffice it to say that there will be an overhaul in the way wholesale wireline service works. Based on forum chatter, the independent ISPs seem to be happy with the ruling, but as usual, they're worried about the details - cost figures in particular. The last big ruling on wholesale access pleased the IISPs since they believed the CRTC finally arrived at the correct pricing framework, but when the actual costs were approved, in some cases the rates approached or exceeded the incumbents' retail pricing.

The full text of the ruling is available from the CRTC web site, but be warned - it's 262 paragraphs long and also contains a long but interesting dissenting opinion from Commissioner Shoan:
Review of wholesale wireline services and associated policies

When will this be in effect?

The changes take place in Ontario and Quebec first; the rest of the country will follow. The incumbents are to file proposals regarding the first phase of the technical changes within 30 days, but that will just be the beginning of the process. The CRTC will need time to review the input and consult with industry experts prior to setting timelines and rates.

I couldn't find anything in the CRTC 2015-326 document that pointed to a specific date, but Christine Dobby of the Globe And Mail reports that it's not going to happen until at least next year: Big Internet providers must open fibre networks to competitors: CRTC. That's based on comments from IISPs who've reviewed the ruling, and if anyone should know, it's the IISPs who spend considerable time and money dealing with regulatory issues.

In the coming months we'll have a better idea of when the changes will trickle down to consumers, but hopefully by this time next year the framework will be in place. Those of us who are lucky enough to have FTTP might just have more than one company from which we can buy Internet (and maybe even TV) service!
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