Small ISPs say Clement’s decision could put them out of businsess

Small independent Internet Service Providers (ISPs) may have a tougher time competing against incumbent carriers Telus Corp. and Bell Canada after Minister of Industry, Tony Clement, overturned a Canadian Radio-television and Telecommunications Commission (CRTC) decision last week.

In altering a trio of CRTC decisions on Friday, Clement asked the regulatory body to reconsider a decision it had made last December.

CRTC had ruled that wholesale purchasers at incumbent carriers had to right to access high-speed fibre optic networks in the same manner they can access regulated copper infrastructure.

This would have allowed these smaller ISPs to offer broadband speed of up to 15 mbps instead of the current 5 mbps cap.

The CRTC made its original ruling last December to increase Internet competition, says Tom Copeland, chair of the Canadian Association of Internet Providers (CAIP).

“We’ve suffered a bit of a set back,” he says. Enough of a set back that some smaller ISPs could even go out of business before the CRTC is finished reviewing the case Sept. 1, 2010.

“It’s a possibility,” Copeland says. “Nothing happens quickly with the CRTC and there’s a risk that some (companies) won’t be able to hold on.”

More likely is that small ISPs will get frustrated with the regulatory structure and move on to other ventures, he adds.

Bell and Telus appealed to cabinet in March to have the CRTC decision reversed. The carriers argue that if fibre optic networks are also regulated, there would be less of an incentive to invest money.

Telus built its fibre-to-the-node network so it could offer residential broadband speeds of up to 15 mbps and Internet TV services, says Shawn Hall, senior communications manager at Telus.

“The decision is going to encourage ongoing investment,” he says. “We have no issue with selling bandwidth to competitors – our issue is with selling it below market rates.”

The CRTC failed to consider the disincentive on network investment and the ability to offer TV service via the Internet when it made its 2008 ruling, Clement wrote in his decision. There could also be sufficient competition without speed matching from smaller ISPs.

“Our position is to ensure government regulatory frameworks provide incentives to encourage investment, taking into consideration impact on consumers,” says Lauren Ehrenworth, media relations with Industry Canada. “The private sector needs to have regulatory frameworks that reward the significant investment required.”

It’s not an argument that impresses Markham, Ont.-based SwitchWorks Technologies Inc.

The firm buys wholesale bandwidth from Bell as part of its Internet infrastructure. It has also built its own infrastructure up since the early 1990s by laying fibre and setting up microwave transmission towers.

But even with its own regional infrastructure, Clement’s decision could still impeded SwitchWorks’ ability to compete, says president Rick Ross.

“It hurts our ability to reach the broader marketplace,” he says. “Our networks are very localized. To provide a broader set of services, we still need access to that infrastructure.”

A broadband cap of 5 mbps may not seem like a big obstacle right now. Typical residential users might not care about the difference between 5 mbps and 15 mbps, but a bandwidth cap could affect the types of services smaller ISPs are able to offer to consumers and businesses in the future.

Clement’s decision doesn’t spell doom for independent ISPs, says Roberta Fox, senior partner at Fox Consulting, a telecommunications consultancy based in Mount Albert, Ont. But it will have those companies re-thinking their business strategy.

ISPs could look for infrastructure sharing with other companies, build out their own, or re-invent the way they offer services, Fox says.

“We’ve now got a lot more choices for wired and wireless services than we did just a few years ago,” she says. “There’s other fibre in town, it’s not just Bell or Telus. Don’t’ just look at DSL as the only way you can do it.”

Another choice is to be a channel operator, Fox adds. An ISP could gain access to wholesale pricing at Bell and Telus by becoming a reseller for the companies.

Meanwhile, CAIP hasn’t given up on its quest for access to the fibre optic network on its own terms. The CRTC will now review the issue again and could also consider whether broadband Ethernet and ADSL are to be considered essential services.

Clement also asked the CRTC to reconsider a decision that had classified those services as essential.

 “They’ve become the plain old telephone system of old,” Copeland says. “They are essential to people’s everyday life and business.”

Clement also overturned a CRTC decision that denied Globalive Wireless Management Corp. a licence to operate Wind Mobile in Canada. The CRTC had said there was too much foreign influence from Cairo-based Orascom Telecom, Globalive’s main financial backer.

But Clement said Globalive met legal requirements.

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