CNOC Comments 20100328 Final

8/7/2019 CNOC Comments 20100328 Final

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BEFORE THE CANADIAN RADIO-TELEVISION

AND TELECOMMUNICATIONS COMMISSION

IN THE MATTER OF

REVIEW OF BILLING PRACTICES FOR WHOLESALE RESIDENTIAL

HIGH-SPEED ACCESS SERVICES , TELECOM NOTICE OF

CONSULTATION CRTC 2011-77, 8 FEBRUARY 2011, AS AMENDED

COMMENTS OF

CANADIAN NETWORK OPERATORS CONSORTIUM INC.

28 MARCH 2011


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Table of Contents

Page

EXECUTIVE SUMMARY ............................................................................................................. I

1.0 INTRODUCTION ...............................................................................................................1

2.0 THE FRAGILE STATE OF COMPETITION IN THE PROVISION OF RETAIL

INTERNET AND RELATED SERVICES .........................................................................3

3.0 END-USER-BASED USAGE-BASED BILLING DOES NOT MEET COMPETITIVE

IMPERATIVES AND SHOULD BE REJECTED ..............................................................8

4.0 CNOCS PROPOSAL FOR THE RESTRUCTURING OF RATES FOR WHOLESALE

HIGH-SPEED ACCESS SERVICES ................................................................................13

4.1 Competitive Rate Principles for Wholesale High-Speed Access Services ............13 4.2 The Current Rate Structure for Wholesale High-Speed Access Services ..............14 4.3 Proposed Rate Structure for Wholesale High-Speed Services ..............................15 4.4: Advantages of the Proposed Rate Structure ...........................................................16 4.5 The Proposed Rate Structure is Lawful and Consistent with the Policy Direction17

5.0 CONCLUSION AND RELIEF REQUESTED .................................................................18


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EXECUTIVE SUMMARY

Broadband competition in Canada is fragile and must not be weakened further

Canadas status as a former leader in broadband has largely evaporated. Canada now lags behind mostOECD countries in broadband measures such as price and speed. One has to look no further than theCRTCs own 2010 Navigating Convergence report and more recent OECD data (October 2009) to see

stark evidence of Canadas poor broadband performance. At the same time, while almost all componentsrequired to deliver Internet access have gone down in cost, prices for Canadian consumers are going up.Something is very wrong with the state of broadband competition in Canada.

Under these conditions, the Commission must be very cautious in exercising its powers and performingits duties with respect to how it allows incumbents to structure their wholesale high-speed access services.Any misstep, no matter how inadvertent, could weaken competitors and unduly lessen competition in theprovision of residential Internet access service and related services and service bundles provided over IPplatforms.

Incumbent wholesale high-speed access services, including the last-mile access, constitute thebroadband platform that competitors need to offer almost all telecommunications and broadcasting

services to consumers. Although in this proceeding the Commission is only considering the competitivestate of retail Interne services, CNOC urges the Commission not to make any determinations that couldhinder the use of incumbent wholesale high-speed access services for the provision of other services toend-users by competitive service providers.

It is now time for the Commission to recognize competitive service providers as equal to incumbents froma competitive standpoint.

The UBB Decisions are anti-competitive and should be rescinded

Measures such as Telecom Decisions CRTC 2010-255, 2010-802 and 2011-41 (UBB Decisions) wouldonly serve to exacerbate the poor state of broadband competition by reinforcing telephone and cable

company duopolies, leading to declines in Canadas productivity and international competitiveness in thedigital age.

The regulatory approach in the UBB Decisions is fundamentally flawed because it:

Regulates incumbent wholesale high-speed access services that can be used for a variety of services including voice, data, video, Internet and non-Internet broadband applications as if theywere analogous solely to the incumbents retail Internet services (IS);

Treats the end-users of an incumbents wholesale customer in the same manner as theincumbent treats its own end-users, instead of treating the wholesale customer as a whole as theincumbents customer and letting that wholesale customer determine how to provide service to

its end-users based on market demand;

Creates a disincentive for incumbents to meet demand for broadband capacity and reducecongestion caused by peak traffic loads by investing in their networks in order to meet demand,encouraging them instead to constrain network capacity and maximize revenues; and

Constitutes a regulatory measure whose purpose is ostensibly to reduce the congestion createdby peak period traffic in a manner that instead reduces the volume of all traffic carried bycompetitors of the incumbents, even though the bulk of such traffic is carried in non-peak periods at much lower (if not virtually zero) cost and does not contribute to network congestion.


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If allowed to stand, the UBB Decisions, which impose usage-based billing (UBB) on wholesale trafficbased on individual broadband end-user access connections, would have:

Increased retail prices for Internet and other broadband services and constrained the use of suchservices by Canadians very significantly thereby reducing the use of broadband services as acatalyst of innovation and economic growth in both rural/remote and urban parts of Canada;

Reduced the use of broadband as a means of distribution of Canadian content;

Made it virtually impossible for competitive services providers, such as CNOC members, toinnovate and differentiate their retail IS from those of the incumbents;

Conferred an undue advantage on the incumbents own retail telephony, video (e.g., IPTV orcable) and other services which will not be subject to UBB charges, while wholesale broadbandtraffic including the telephony, video and other service offerings would have been be subject toUBB charges for example, Bell excludes its IPTV service from the application of UBB,

while competitors would not have that option ; Increased the financial risk of competitors who would have had to charge their end-users for

usage on a post-paid basis more than a month after the usage is incurred and billed by theincumbents, compared to the present industry practice whereby competitors typically requirepre-payment of services purchased on a flat-rate basis from their end-users;

Enabled incumbents to obtain an undue preference by providing promotions and discounts totheir retail UBB fees, while wholesale broadband traffic of all types would remain subject to theincumbents tariffed UBB charges;

Generated additional revenues for incumbents at virtually no cost via the application of UBB

rates to wholesale traffic resulting in improper, anti-competitive cross-subsidies that theincumbents could use to compete with their competitors;

Resulted in an asymmetrical grandfathering of retail customers on non-UBB retail plans asbetween Bell and its wholesale customers thereby conferring an undue preference on Bell; and

Created disputes regarding how traffic is measured and billed to wholesale customers byincumbents.

The use of an end-user-based wholesale UBB regime with all of the anti-competitive consequences justdescribed does not constitute regulation that is efficient and proportionate to its purpose, is minimallyintrusive and maximizes reliance on market forces as required by the governments 2006 Policy Direction

to the CRTC. Accordingly, such a regime would not lead to rates for wholesale high-speed accessservices that are just and reasonable.

The UBB Decisions are presently stayed pursuant to paragraph 14 of TNC 2011-77. Based on all of theconsiderations just discussed, Canadian Network Operators Consortium Inc. (CNOC) urges theCommission to rescind them.


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CNOCs Proposal for a new rate structure for wholesale high-speed access services

Instead of the regime contemplated under the UBB Decisions, CNOC urges the Commission to adopt anew rate structure for wholesale high-speed access services employed by Independent ISPs in theprovision of retail IS that adheres to the following principles:

Wholesale high-speed access services should be regulated as a broadband platform that cansupport many services, including voice, data, video, Internet and non-Internet high-speedservices, instead of being regulated by comparison to (or so as to mimic) the retail IS of theincumbents;

Competitors must be granted access to the incumbents wholesale high-speed access services ina manner that affords the competitors greater flexibility to manage end-user pricing/servicesolutions by being able to choose the attributes of the services provided to end-users, such asspeed, throughput, quality of service, type of service, aggregation, bundling, etc.;

Prices for wholesale high-speed access services should be cost-based and not include othersubjective concepts, such as value of service principles (and in this respect there should be nodistinction in the use of such services for residential or business purposes or link to the retail ISrates set by incumbents based on their variable marketing considerations); and

Prices for wholesale high-speed access services should not be based on whatever the market willbear as that will only lead to prices that allow incumbents to leverage their duopolistic marketpower when providing such services to competitors, as well as retail services to end-users infact, until competitive alternatives become available, wholesale high-speed access servicesshould be priced as conditional essential services.

The fundamental problem with the existing rate structure is that as long as the usage costs are notseparated from the access and, where applicable, interface components, there will always be disagreement

over what amount of Internet usage is acceptable on a per-access basis.

Fortunately there is a simple and elegant solution to this problem, namely, the unbundling of existingrates to recover the usage-sensitive costs through a distinct aggregation rate. This proposal, featuring threedistinct rate components (access, aggregation and interface) is illustrated in the Figure ES-1 below. Anaccess rate would capture the non-usage-based cost of the delivery technology employed for the last-mileconnection (e.g., DSLAM ports). An aggregation rate would capture all usage-driven costs and would bemeasured on the interface at the point of interconnection between the incumbent and competitornetworks. An interface rate would recover the flat-rate cost of the port facing the competitor network.

Figure ES-1: Proposed Rate Structure for Wholesale High-Speed Services


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Given the lack of availability of alternative wholesale services that reasonably efficient competitors canemploy, these service components should be priced as Conditional Essential Services.

Advantages of the CNOC Proposal

Separating aggregation into a distinct component removes any doubt that wholesale customers are payingtheir fair-share for usage and removes the need to agree on what is an acceptable usage per-access. As aresult, competitors can bring pricing discipline, innovation and consumer choice to the residential retail ISand related markets by being able to differentiate their retail services from each others and from those of the incumbents.

Under this approach there should also be no concern that ordinary consumers served by Independent ISPswould fund the bandwidth used by the heaviest retail IS consumers. Aggregation would be charged on aper wholesale customer basis. Thus, each service provider, incumbent and Independent ISP alike, will beable to manage its own end-users usage. Some service providers may choose to charge for usage, andsome may not. Caps and usage rates would be expected to vary among those service providers that dochose to adopt UBB models at the retail level.

Ultimately, this type of competition will lead to additional choices in the form of differentiated usagecaps, usage charges and flat-rate pricing, all of which will benefit consumers and the Canadian economy.Since consumers will have more choices, they will be able to buy the packages that most closely meettheir usage patterns. Any cross-subsidies that do survive at the retail level will be based on competitivefactors in justifiably forborne markets as is the case for the markets for other services where competitionis present, rather than based on incumbent marketing imperatives or regulatory fiat.

Cost-based aggregation charges will also ensure that overall, off-peak traffic that costs very little to carrywill not be charged at excessive rates, while wholesale customers will have to pay for any peak traffic thattheir users cause in the aggregate on incumbent networks and that can lead to network congestion.

Under this type of rate structure, there would be no reason for the Commission to set a minimumthreshold level for the sale of bandwidth by large incumbent carriers to the Independent ISPs. Such athreshold, if imposed, would only serve to artificially constrain competition by removing smaller nicheplayers from the market.

There are also several technical advantages of this model including ease of implementation (usingindustry-standard 95 th percentile techniques for measuring traffic), accuracy and auditing.

The proposed rating approach also does not require any physical changes to how the services aredelivered today. This approach can be adapted to new technologies and also eliminates the problem of uncorrelated usage.

Finally, because the same structure and principles could be utilized for both the telephone and cablecompany wholesale services, the proposed approach would ensure regulatory symmetry in the industry.

The rate structure proposed by CNOC for wholesale high-speed access services is fair to both incumbentsand their competitors. Incumbents will be assured recovery of all Phase II costs incurred to provide theservices to their competitors plus a mandated mark-up, competitors will pay only for the services theyconsume, and retail competition will be improved.

By focusing regulatory effort on wholesale high-speed access services in a manner that is efficient andeffective, competition at the retail level will be enhanced and retail IS rates can remain forborne. Byenhancing competition at the retail level, this approach will also improve Canadas productivity,


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international competitiveness and access to Canadian content in the digital age. All in all, the ratingapproach proposed in this submission amounts to regulation that relies on market forces to the maximumextent feasible as a means of achieving the telecommunications policy objectives, is efficient andproportionate to its purpose, is minimally intrusive and maximizes reliance on market forces. Since it canbe applied equally to ILECs and cable carriers, this approach is also technologically and competitivelyneutral, all of which is consistent with the Policy Direction. Rates developed according to thismethodology if based on sound evidence that is thoroughly tested would lead to rates for wholesale high-speed access services that are just and reasonable.

Relief Requested

For all of the reasons set out in this submission, CNOC urges the Commission:

To rescind the UBB Decisions; and

To adopt the rate restructuring proposal for incumbent wholesale high-speed access servicesproposed herein and apply it to all ILEC and cable carrier incumbents.


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not to make any determinations that could hinder the use of incumbent wholesale high-speed

access services for the provision of other services to end-users by competitive service providers

(such as the Independent ISPs).

7. CNOC is also concerned that the Commission continues to treat Independent ISPs as

resellers, rather than telecommunications service providers of equal stature to the incumbents

when it comes to competitive issues. For example, the Commissions press release

accompanying TNC 2011-77 was entitled CRTC to review billing practices for wholesale

Internet services. The implication of this title is that the incumbents provide wholesale Internet

services that Independent ISPs resell. The reality is starkly different.

8. As Figure 1 below shows, Independent ISPs obtain wholesale high-speed access services

from the incumbents, which they combine with other facilities, network elements and access to

the Internet to provide broadband services to their end-users. On the other hand, platforms for

services such as voice over Internet Protocol (IP) and video on demand services provided by

Independent ISPs using incumbent wholesale high-speed access services do not necessarily need

to touch the Internet.

1 In TNC 2011-77, the Commission used the term Small ISPs to refer to ISPs other than the large incumbenttelephone and cable companies. However, since some of these alternative ISPs can actually be larger than someof the smaller incumbents, in this proceeding CNOC will refer to these ISPs as Independent ISPs.


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Figure 1: Incumbent and Competitor Networks

9. It is now time for the Commission to recognize competitive service providers as equal to

incumbents from a competitive standpoint. This means that incumbents would not be allowed to

confer undue preferences upon themselves with respect to the manner in which they use their last

mile broadband connections, or transport and aggregate traffic within their networks to deliver

services to consumers relative to the manner in which they deliver wholesale services to their

competitors so that those competitors can provide their own retail services.

2.0 THE FRAGILE STATE OF COMPETITION IN THE PROVISION OF RETAILINTERNET AND RELATED SERVICES

10. At paragraph 7 of TNC 2011-77, the Commission indicated that it is in the best interest of

consumers that Independent ISPs, which offer competitive alternatives to the incumbents, should

continue to do so. However, as the Commission is well aware, competition in the provision of

high-speed Internet access services is still very fragile. In 2009, incumbent local exchange


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carriers (ILECs) (excluding their out of territory operations) and cable carriers accounted

collectively for 93.8% of residential Internet access revenues. 2 Therefore, all other ISPs

accounted for the remaining 6.2% of residential Internet access revenues.

11. The fragile nature of competition in the provision of retail IS was also acknowledged by

the Commission at paragraph 55 of in Telecom Regulatory Policy 2010-632: 3

The Commission concludes that, without a speed-matching requirement for wirelineaggregated ADSL access and TPIA services, it is likely that competition in retailInternet service markets would be unduly impaired. In the Commissions view, anILEC and cable carrier duopoly would likely occur in the retail residential Internetservice market, and competition might be reduced substantially insmall-to-medium-sized retail business Internet service markets. The Commissionconsiders that, in such circumstances, retail Internet service competition would notcontinue to be sufficient to protect consumers interests.

12. It is also widely known that only the dominant carriers are typically able to provide

service bundles of telephony, retail Internet and video services on their Internet Protocol (IP)

platforms and networks. 4 The market for such triple-play bundles is a virtual duopoly.

13. As CNOC has also noted on previous occasions, the Commissions Navigating

Convergence Report 5 has made a number of important observations that are germane to this

proceeding:

Access to content and services is intermediated in Canada by two key industrygroups, cable companies and ILECs offering fixed-line data, voice andsubscription television. Across the country, any given residential market is servedby one or both and only rarely by a third wired-facilities-based provider.

. . .

2 CRTC 2010 Communications Monitoring Report, p. 138.3 Wholesale high-speed access services proceeding, Telecom Regulatory Policy CRTC 2010-632, 30 August

2010.4 It is important to note that the use of IP technology does not always mean that traffic flows over the Internet.

While the Internet employs IP technology, that technology can and is also be used to provide other services thatnever touch the Internet.

5 Navigating Convergence: Charting Canadian Communications Change and Regulatory Implications,Convergence Policy , Policy Development and Research, Canadian Telecommunications and Radio-televisionCommission, February 2010, at paragraphs 113, 116, 120 through 122, 126 and 129.


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they might otherwise be. This is borne out in cross-OECD comparisons of broadband pricing. Among the most dramatic of the various comparisons is thatof average broadband monthly price per advertised Mbps as measured in U.S.dollars, adjusted to purchasing power parity (see figure 8).

Figure 8. Average broadband monthly price per advertised Mbps, Oct 2008,U.S.$ PPP

Source: OECD (Emphasis added.)

14. More recent data OECD data reveals that Canada is still near the bottom of the pack in

terms of average broadband monthly price per advertised Mbit/s. 6

6 http://www.oecd.org/document/54/0,3746,en_2649_33703_38690102_1_1_1_1,00.html , Table 4f, Averagebroadband monthly price per advertised Mbit/s, by country, USD PPP (Oct. 2009).


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Figure 2: OECD Country Broadband Price Comparison

15. Under these conditions, 7 the Commission must be very cautious in exercising its powers

and performing its duties with respect to how it allows incumbents to structure their wholesale

high-speed access services. Any misstep, no matter how inadvertent, could weaken competitors

and unduly lessen competition in the provision of residential Internet access service and related

services and service bundles provided over IP platforms.

7 Sections 2.1 to 2.6 of the Final Submissions of TekSavvy Solutions Inc. dated 21 June 2010 in Proceeding toconsider the appropriateness of mandating certain wholesale high-speed access services , Telecom Notice of Consultation CRTC 2009-261-7, 23 December 2009 provide considerably more detailed evidence of Canadaspoor broadband performance in the current largely duopolistic environment for the provision of broadbandservices and service bundles.


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3.0 END-USER-BASED USAGE-BASED BILLING DOES NOT MEETCOMPETITIVE IMPERATIVES AND SHOULD BE REJECTED

16. CNOC is extremely concerned about Telecom Decisions CRTC 2010-255, 8 2010-802 9

and 2011-44 10 (collectively UBB Decisions). If these decisions had been allowed to stand, they

would have significantly altered the rate structure for incumbent wholesale high-speed access

services in a manner that would unduly reduce competition in the provision of retail services and

harm Canadian consumers, culture and the economy, while greatly and unjustly enriching the

incumbents.

17. In the UBB Decisions, the Commission approved a plan for Bell Aliant and Bell Canada

(collectively Bell) to place caps on the amount of traffic flowing through each individualincumbent last mile broadband connection employed by another service provider that purchases

a wholesale high-speed access service from the incumbent to deliver its own services to a

Canadian household. Usage above the caps would be measured and billed as incurred. This

wholesale usage-based billing (UBB) rate structure is the same as the UBB rate structure that

Bell has chosen to implement for its own individual residential retail Internet customers, subject

only to a modest 15% discount mandated for wholesale UBB rates relative to Bells own retail

UBB rates. In addition, the UBB Decisions also confirmed that this type of UBB framework for

wholesale high-speed access services would have been acceptable if applied by other incumbents

if they so choose.

8 Bell Aliant Regional Communications, Limited Partnership and Bell Canada Applications to introduce usage-based billing and other changes to Gateway Access Services , Telecom Decision CRTC 2010-255, 6 May 2010.

9 Bell Aliant Regional Communications, Limited Partnership and Bell Canada Applications to review and varyTelecom Decision 2010-255 concerning usage-based billing for Gateway Access Services , Telecom DecisionCRTC 2010-802, 28 October 2010.

10 Usage-based billing for Gateway Access Services and third-party Internet services , Telecom Decision CRTC2011-44, 25 January 2011.


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18. The Commission adopted this approach on the theory that UBB is an economic Internet

traffic management practice (ITMP) that allows incumbents to reduce congestion caused by

peak traffic in their networks and puts users in control of usage by having them pay for the

amount of traffic they consume. However, this regulatory approach is fundamentally flawed

because it:

Regulates incumbent wholesale high-speed access services that can be used for a varietyof services including voice, data, video, Internet and non-Internet broadbandapplications as if they were analogous solely to the incumbents retail Internet services;

Treats the end-users of an incumbents wholesale customer in the same manner as theincumbent treats its own end-users, instead of treating the wholesale customer as awhole as the incumbents customer and letting that wholesale customer determine how

to provide service to its end-users based on market demand;

Creates a disincentive for incumbents to meet demand for broadband capacity andreduce congestion caused by peak traffic loads by investing in their networks in order tomeet demand, encouraging them instead to constrain network capacity and maximizerevenues; and

Constitutes a regulatory measure whose purpose is ostensibly to reduce the congestioncreated by peak period traffic in a manner that instead reduces the volume of all trafficcarried by competitors of the incumbents, even though the bulk of such traffic is carriedin non-peak periods at much lower (if not virtually zero) cost and does not contribute to

network congestion.

19. If allowed to stand, the UBB Decisions, which impose UBB on wholesale traffic based

on individual broadband end-user access connections, would have:

Increased retail prices for Internet and other broadband services and constrained the useof such services by Canadians very significantly thereby reducing the use of broadbandservices as a catalyst of innovation and economic growth in both rural/remote and urbanparts of Canada;

Reduced the use of broadband as a means of distribution of Canadian content;

Made it virtually impossible for competitive services providers, such as CNOCmembers, to innovate and differentiate their retail Internet services from those of theincumbents;

Conferred an undue advantage on the incumbents own retail telephony, video (e.g.,IPTV or cable) and other services which will not be subject to UBB charges, whilewholesale broadband traffic including the telephony, video and other service offerings


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would have been be subject to UBB charges for example, Bell excludes its IPTVservice from the application of UBB, while competitors would not have that option ;

Increased the financial risk of competitors who would have had to charge their end-users for usage on a post-paid basis more than a month after the usage is incurred and

billed by the incumbents, compared to the present industry practice wherebycompetitors typically require pre-payment of services purchased on a flat-rate basisfrom their end-users;

Enabled incumbents to obtain an undue preference by providing promotions anddiscounts to their retail UBB fees, while wholesale broadband traffic of all types wouldremain subject to the incumbents tariffed UBB charges;

Generated additional revenues for incumbents at virtually no cost via the application of UBB rates to wholesale traffic resulting in improper, anti-competitive cross-subsidiesthat the incumbents could use to compete with their competitors;

Resulted in an asymmetrical grandfathering of retail customers on non-UBB retail plansas between Bell and its wholesale customers thereby conferring an undue preference onBell; and

Created disputes regarding how traffic is measured and billed to wholesale customers byincumbents.

20. The average end-user of a CNOC member consumes an estimated 30 GB per month

using his/her broadband access connection. Usage is expected to increase at a minimum rate of 50% per year and reach 300 GB per month in approximately five years, barring any artificial

constraints. If Canadians start shifting more of their viewing to broadband platforms (which is

the current trend) this growth pattern could accelerate much more quickly. According to its very

recently published Project Canada Report , Credit Suisse estimates that the average user would

be consuming approximately 215 GB per month based on 2009 viewing patterns. CNOC trusts

that the Commission does not want to endorse an economic constraint that would only allow

programming offered by the incumbent telephone and cable companies to be viewed by

Canadians over incumbent last-mile broadband connections. Consumers should have the

freedom to use those connections (accessed by competitors such as Independent ISPs via

incumbent high-speed access services) to obtain alternative programming choices from other

services providers.


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21. CNOC does not object to a requirement for Independent ISPs and other incumbent

wholesale customers that also compete with the incumbents to pay for the network resources of

the incumbents utilized by the wholesale customers to provide their own retail services. In fact,

the CRTC has developed the Phase II costing mechanism that it uses for rate setting purposes to

ensure that this occurs. However, there are much more efficient and effective ways of

accomplishing this objective than the application of end-user-based UBB charges via incumbent

wholesale high-speed access services.

22. As Commissioner Molnar stated in her dissent in Decision 2010-255:

I would note that I am not convinced that the Bell companies proposal to apply

UBB charges based upon end-customer usage is the most effective Internet trafficmanagement practice (ITMP) approach. Nor am I persuaded at this time that anaggregated usage model, if properly structured, would nullify the potentialeffectiveness of UBB as a means of managing network usage. Certainly, anaggregated usage model would have provided ISPs that subscribe to theBell companies GAS (GAS ISPs) with greater flexibility to manage end-userpricing/service solutions.

23. To date the damage caused by and end-user-based wholesale UBB regime has been

limited. Although the four major cable carriers had obtained regulatory approvals in the last few

years to apply UBB charges to wholesale services, only Videotron Ltd. (Videotron) has

actually levied such charges on its competitors and Videotrons wholesale customer base is

relatively limited.

24. So far, other major telephone companies have also not made any move to introduce UBB,

proving that this kind of measure is not necessary. In fact, even among the ILECs, only Bell

Canada and Bell Aliant Regional Communications Limited Partnership (Bell Aliant) (Bell

Canada and Bell Aliant collectively, Bell) in Ontario and Quebec have pursued an end-user-based UBB regime. TELUS Communications Company has stated publicly that it does not

intend to pursue this type of pricing strategy.

25. If the Commission were to affirm the UBB Decisions as rendered or in modified form, a

number of major cable carriers would likely introduce such charges. Other telephone companies

would also be emboldened and follow suit. If the application of UBB to wholesale high-speed


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4.2 The Current Rate Structure for Wholesale High-Speed Access Services

33. Currently, incumbent wholesale high-speed access services are broken into two recurring

rate components. In the case of ILECs, the first component is a per-user access rate (access) and

the second is an aggregation interface rate (interface). Both of these rate elements implicitly

recover usage costs.

Figure 3: Current Rate Structure of ILEC Wholesale High-Speed Access Services

34. For the cable carriers, the TPIA service is similarly structured however all of the

aggregation costs are borne in a recurring access component, and cost of the interface is

recovered via a non-recurring charge.

Figure 4: Current Rate Structure of Cable Carrier Wholesale High-Speed Services


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4.3 Proposed Rate Structure for Wholesale High-Speed Services

35. The fundamental problem with the existing rate structure is that as long as the usage costs

are not separated from the access and, where applicable, interface components, there will always

be disagreement over what amount of Internet usage is acceptable on a per-access basis.

36. Fortunately there is a simple and elegant solution to this problem, namely, the unbundling

of existing rates to recover the usage-sensitive costs through a distinct aggregation rate. This

proposal, featuring three distinct rate components (access, aggregation and interface) is

illustrated in Figure 5 below. An access rate would capture the non-usage-based cost of the

delivery technology employed for the last-mile connection (e.g., DSLAM ports). An aggregation

rate would capture all usage-driven costs and would be measured on the interface at the point of interconnection between the incumbent and competitor networks. An interface rate would

recover the flat-rate cost of the port facing the competitor network.

Figure 5: Proposed Rate Structure for Wholesale High-Speed Services

37. Given the lack of availability of alternative wholesale services that reasonably efficient

competitors can employ, these service components should be priced as Conditional Essential

Services.


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4.4: Advantages of the Proposed Rate Structure

38. Separating aggregation into a distinct component removes any doubt that wholesale

customers are paying their fair-share for usage and removes the need to agree on what is an

acceptable usage per-access. As a result, competitors can bring pricing discipline, innovation and

consumer choice to the residential retail IS and related markets by being able to differentiate

their retail services from each others and from those of the incumbents.

39. Under this approach there should also be no concern that ordinary consumers served by

Independent ISPs would fund the bandwidth used by the heaviest retail IS consumers.

Aggregation would be charged on a per wholesale customer basis. Thus, each service provider,

incumbent and Independent ISP alike, will be able to manage its own end-users usage. Someservice providers may choose to charge for usage, and some may not. Caps and usage rates

would be expected to vary among those service providers that do chose to adopt UBB models at

the retail level.

40. Ultimately, this type of competition will lead to additional choices in the form of

differentiated usage caps, usage charges and flat-rate pricing, all of which will benefit consumers

and the Canadian economy. Since consumers will have more choices, they will be able to buy the

packages that most closely meet their usage patterns. Any cross-subsidies that do survive at the

retail level will be based on competitive factors in justifiably forborne markets as is the case for

the markets for other services where competition is present, rather than based on incumbent

marketing imperatives or regulatory fiat.

41. Cost-based aggregation charges will also ensure that overall, off-peak traffic that costs

very little to carry will not be charged at excessive rates, while wholesale customers will have to

pay for any peak traffic that their users cause in the aggregate on incumbent networks and that

can lead to network congestion.

42. Under this type of rate structure, there would be no reason for the Commission to set a

minimum threshold level for the sale of bandwidth by large incumbent carriers to the


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Independent ISPs. Such a threshold, if imposed, would only serve to artificially constrain

competition by removing smaller niche players from the market.

43. There are also several technical advantages of this model including ease of

implementation, accuracy and auditing. From an implementation standpoint, there is an industry

standard method of measuring bandwidth at a common interface known as 95 th percentile

billing. In fact, this is the chosen technique that has been in use by the incumbents for decades

for other retail services they offer, and therefore does not require any new measurement or

billing processes. This method also does not impose complex and error-prone per-user

correlation and reconciliation processes thereby dramatically increasing the accuracy of

measurement data. In addition, since the interface can be measured by both the wholesale

provider and customer at any time, the proposed method provides an auditable method of

measurement rather than having to trust incumbent black box usage data otherwise not

available to Independent ISPs for months after collection by the incumbents.

44. The proposed rating approach also does not require any physical changes to how the

services are delivered today. By simply splitting the aggregation costs into a separately billable

component, a tariff rate structure can be established that is timeless, adaptable to growth and new

technologies. Such a tariff structure also eliminates other challenges introduced by the modelintroduced by the UBB Decisions, such as arbitrarily determined caps and wholesale per-end-

user discount rates, and how uncorrelated usage and per-user measurement discrepancies can be

addressed.

45. Finally, because the same structure and principles could be utilized for both the telephone

and cable company wholesale services, the proposed approach would ensure regulatory

symmetry in the industry.

4.5 The Proposed Rate Structure is Lawful and Consistent with the Policy Direction

46. The rate structure proposed by CNOC for wholesale high-speed access services is fair to

both incumbents and their competitors. Incumbents will be assured recovery of all Phase II costs

incurred to provide the services to their competitors plus a mandated mark-up, competitors will

pay only for the services they consume, and retail competition will be improved.


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47. By focusing regulatory effort on wholesale high-speed access services in a manner that is

efficient and effective, competition at the retail level will be enhanced and retail IS rates can

remain forborne. 12 By enhancing competition at the retail level, this approach will also improve

Canadas productivity, international competitiveness and access to Canadian content in the

digital age. 13 All in all, the rating approach proposed in this submission amounts to regulation

that relies on market forces to the maximum extent feasible as a means of achieving the

telecommunications policy objectives, is efficient and proportionate to its purpose, is minimally

intrusive and maximizes reliance on market forces. Since it can be applied equally to ILECs and

cable carriers, this approach is also technologically and competitively neutral, all of which is

consistent with the Policy Direction. 14 Rates developed according to this methodology if based

on sound evidence that is thoroughly tested would lead to rates for wholesale high-speed access

services that are just and reasonable. 15

5.0 CONCLUSION AND RELIEF REQUESTED

48. Wholesale pricing for access, aggregation and interface components of incumbent

wholesale high-speed access services based on Phase II costs with a reasonable and consistent

mark-up on those costs protects telephone company and cable carrier incumbents' investments

while still enabling vibrant competition that yields significant benefits for consumers and the

Canadian economy.

49. Any other model of end-user-based usage-based billing only serves the last-mile

providers (i.e., incumbents) by allowing them to control the downstream retail markets through

the arbitrary application of service speeds, as well as usage thresholds and rates imposed on

wholesale customers end-users.

12 Which is consistent with subsection 7(f) of the Telecommunications Act , S.C. 1993, c. 38, as amended (theAct ).

13 These impacts are consistent with subsections 7(a) and 7(c) of the Act .14 See, especially paragraphs 1(a)(i), 1(a)(ii), 1(b)(ii) and 1(b)(iv) of the Policy Direction.15 As required by subsection 27(1) of the Act .


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50. For all of the reasons set out in this submission, CNOC urges the Commission:

To rescind the UBB Decisions; and

To adopt the rate restructuring proposal for incumbent wholesale high-speed access

services proposed herein and apply it to all ILEC and cable carrier incumbents .

*** END OF DOCUMENT ***

Documents

CNOC Comments 20100328 Final