How did the CRTC block its own wholesale internet prices?

Like a car in bad traffic, the CRTC’s wholesale internet rate has once again been halted, this time by the CRTC itself, the entity that issued it in the first place.

The new stay, announced on Sept. 28, came less than a month after the Federal Court of Appeal dismissed its stay on Sept. 11.

Why this matters

The new stay marks the latest development in the years-long bickering between independent internet service providers (ISP) and incumbent cable carriers. In Telecom Order 2019-288, the CRTC set a lowered wholesale internet price that incumbents claim would stifle their investments into Canada’s networks. They argued that the new pricing is below their rates and unsustainable, which could impact efforts to bring high-speed internet and 5G into rural areas.

Due to a cohort of factors–mostly heavy resistance by the incumbents–the CRTC’s new rates were never instantiated. The cost determination is complex and, if cemented, greatly cuts the fee independent ISPs pay the incumbent cable carriers to use their infrastructure. In parallel to the rates debate, heated talks encircle the order for the incumbents to refund three year’s worth of overpayment to the independents

Depending on the final rate, independent ISP subscribers could expect a price change. When the CRTC first announced the rates, providers like TekSavvy and Distributel almost immediately lowered their prices for new and existing customers. But due to the stay by the Federal Court of Appeal and increased internet usage during the pandemic, they had to retract the savings. The final rates would determine how much consumers must pay and potentially affect network development in rural areas.

A brief summary of the arguments

The CRTC evaluated the incumbent’s applications based on the RJR-MacDonald test in which three criterias must be met to be granted a stay:

  1. A serious issue to be determined
  2. Irreparable harm if the relief is not granted
  3. Balance of convenience

Since the wholesale prices have a massive impact on the industry, the application fulfilled the criteria almost immediately.

The interveners–consisting of independent ISPs including Allstream, BCBA, CNOC, Distributel, and TekSavvy–opposed any delay in implementing the new prices. The CNOC in particular claimed that the cable carriers simply referred to their applications as a whole and failed to meet the low standard of establishing a serious issue.

On the grounds of irreparable harm, the incumbents claimed that the new wholesale rate would cause permanent loss of revenue by allowing independent ISPs to significantly undercut their own pricing. This, they predicted, would erode their subscriber base, which is difficult to recover. To support their argument, they noted that Eastlink was unable to match its competitor’s retail rates despite providing service in certain areas.

The independents argued that the incumbent’s claims are invalid in that revenue losses do not equate to irreparable harm. They further argued that while the cost is a significant factor in determining a purchase, other factors, such as speed, outweigh pricing in aggregate.

Adding to the irreparable harm debate, Bell claimed that around 150 independent ISPs subscribe to its wholesale high-speed access (HSA) service, 14 of which were disconnected for non-payment and 10 were sent overdue-invoice notices in the past 12 months. The retroactive payments and new wholesale rates would make the amount owed unrecoverable. Bell also stated that companies could simply take the retroactive payments and exit the market by paying them out as dividends to the point of insolvency.

But CNOC disagreed. It said that Bell’s claims of independent ISPs dividend payment strategy was purely speculative and, even in cases of small competitors unable to repay amounts owed, the amount would be insignificant relative to the total amount of retroactive payments.

The CRTC noted that the second criterion of the RJR-MacDonald test is based on the nature of the damage, not the amount. Based on the low chances of disconnected competitors repaying the fees owed, the Commission agreed that that the retroactive payments cannot be recovered and is therefore considered irreparable harm, satisfying the second criterion.

The most critical question is how the new rates would affect investments in rural areas. In their submissions, both sides presented their own reports that reached opposite conclusions. The cable carriers once again insisted that the new rates would reduce profitability and investments, particularly in high-cost rural areas that sit at the edge of wireline networks. The independents countered that because they focus more on population centers, the impact on rural areas would be minimal, if at all.

Finally, Bell said that a delay in paying the retroactive amount owed won’t harm the independent ISPs or the consumers. Contrarily, if the stay isn’t approved, the incumbents will need to immediately adjust their infrastructure spending in remote regions. CNOC disagreed, saying that incumbents would only face minor inconveniences without a stay, but would mar competition by prolonging market distortions if it’s granted. On this subject, the CRTC found that a stay would not harm consumers, and therefore satisfies the third criterion in the RJR-MacDonald test.

And thus, the CRTC approved the request to stay the price stated in the Telecom Order 2019-288 until further notice.

Refer to our previous coverage for additional background information on the matter (in chronological order):

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Jim Love, Chief Content Officer, IT World Canada

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Tom Li
Tom Li
Telecommunication and consumer hardware are Tom's main beats at IT Business. He loves to talk about Canada's network infrastructure, semiconductor products, and of course, anything hot and new in the consumer technology space. You'll also occasionally see his name appended to articles on cloud, security, and SaaS-related news. If you're ever up for a lengthy discussion about the nuances of each of the above sectors or have an upcoming product that people will love, feel free to drop him a line at [email protected].

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