Industry Committee on Feb. 3rd, 2011

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

You mentioned that one of things you're going to ensure occurs as part of your review is that consumers will be protected. How are you going to do that?

[Konrad W. von Finckenstein]

As always, we want to know what the effect is on consumers. Is it going to be reasonable? As I mentioned, we want to make sure that heavy users pay for the heavy use and that it's not the innocent average user who has to suddenly pay more, etc. That's one way to protect consumers.

The other thing is I want to make sure the small ISPs stay alive. They are the effective competition, they are the alternative, and they are also the drivers of innovation because they can't survive unless they innovate.

[The Chair, Conservative, David Sweet]

Thank you very much.

Sorry, Mr. Braid, your time is up.

Now we're on to Mr. Masse for five minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

At the time of the 2006 decision, Minister Bernier issued a statement saying, “Our plan will increase competition in the marketplace, which ultimately will have a positive effect on the consumer who will benefit from greater choices and improved products and services.” Obviously this didn't turn out to be the case.

Is the result of your decision here today, or what's led to it, that we move towards market forces?

The issue you're pushing here is to restrict consumers to the residential as a way of discouraging people from using the Internet because it's a penalty-based system by the types of volume you then bring down. Isn't that the wrong way to go about it, as opposed to trying to push for greater competition? It seems to reward the companies to bring in this type of a system to get more money without actually having to provide more innovation and capacity.

[Konrad W. von Finckenstein]

There are two things.

First of all, my colleague, Mr. Katz, was here when the 2006 decision was made. Do we have a more competitive market now than then?

Len, why don't you answer that question.

[Len Katz, Vice-Chairman, Telecommunications, Canadian Radio-television and Telecommunications Commission]

We have a much more competitive marketplace. The fact that these smaller ISPs are in Canada is a tribute to that as well.

We said last year in one of the decisions we rendered that without smaller ISPs in Canada it's unlikely that we would have a competitive marketplace for Internet services because we would be down to two large players in each of the markets. Then the question is, would two players be sufficient to protect the interest of users? So the CRTC did create, through regulation, market forces to do just that and allow these new players to come in.

[Brian Masse, NDP, Windsor West, ON]

I would argue that consumers haven't necessarily benefited that much from that. Yes, we have more players in the system, but still we have high prices and we now have a limiting system.

I don't understand where the logic is, where it seems that on the residential side, the consumer side, high users pay there. Why is that not applied to businesses?

Here's a scenario. We have digital streaming now for lessons. A university student can be doing digital lessons and end up subsiding a business for their usage. How is that fair?

[Konrad W. von Finckenstein]

I will answer your first question.

You say that this is a disciplining and a choking off. It isn't. It is making people pay for what they use, thereby allowing the ISPs to have a greater income and invest it and produce more capacity. It's a simple principle of economics--

[Brian Masse, NDP, Windsor West, ON]

With that logic you're saying that's not going to be the case and you're just going to pay a premium. If you're saying that the logic is not to remove people from getting off the Internet, and lessening it, then they're just paying more, period. It's an extra tax on those users. You're not increasing the capacity. That problem is not going away, under your own logic.

[Konrad W. von Finckenstein]

You're making all sorts of assumptions to say the logic is that there's not increased capacity. If the ISP makes more income because of usage-based billing, how will it use that income? It's going to use that income to create more capacity. That's the whole idea.

[Brian Masse, NDP, Windsor West, ON]

It hasn't lowered prices for consumers, and now they're actually having to throttle some more. I'm not sure it's working. I don't know why a residential person, or a student, would have to subsidize a business.

[Konrad W. von Finckenstein]

The business market does not have caps. It is on a one-to-one basis with each business. They negotiate how much a business would need and negotiate the price for it. For consumers you don't do it on a one-to-one basis. Basically there are different menus and you ask them to choose from it because of the sheer numbers.

[Brian Masse, NDP, Windsor West, ON]

Wouldn't a large company like IBM, for example, have a lot more usage than, for example, a small restaurant that is operating?

[Len Katz]

The likelihood is that IBM would have a managed network and would buy a dedicated system from the carriers rather than a small one. That's just how the smaller ISPs actually sell to the small and medium-sized businesses. It's through managed networks to dedicated networks, which is a totally different ballgame.

[Brian Masse, NDP, Windsor West, ON]

So because they have massive volume they'll get a benefit, a reduction in fee. Meanwhile, if the consumer out there uses massive volume, they'll get an extra tax.

[Len Katz]

I'm quite sure that every single ISP in Canada has multiple packages for light, medium, and heavy users over and above the charges, over and above the per gigahertz cap, as we call it, as well. So as consumers notice their level increasing, they're free to buy up to the next level, which has a higher cap to it.

[Brian Masse, NDP, Windsor West, ON]

It also could be perceived as a tax, in my opinion, because if you're saying that the space is there, it's not to dissuade them from getting off the Internet and that space is available, then it's an extra tax for usage. And once again you have streaming done by all kinds. It's not just for entertainment and gaming. It's done for educational purposes and so forth. I just don't understand how the usage logic applies somehow to consumers and not businesses. Why doesn't it apply to businesses on the surface anyway?

[The Chair, Conservative, David Sweet]

Time has expired, Mr. Masse.

But if you have a response to that, I'll let you go ahead.

[Konrad W. von Finckenstein]

Let's start off with the basic principles. We are under direction from the government not to regulate unless there is a market failure. Mr. Masse wants me to regulate the business market. There is no market failure. No businesses have said, “Come in and regulate”, etc., so therefore we're not doing it. It's as simple as that.

[The Chair, Conservative, David Sweet]

Thank you.

We'll now move on to Mr. Lake for five minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

Thank you, Mr. von Finckenstein, and the other witnesses today.

I want to get at the methodology here a little bit, if I can, because I'm really trying to understand this. In May 2010, the first decision was made, of the three decisions. What was the discount rate originally in the May 2010 decision?

[Lynne Fancy]

Bell had first come in and proposed a 25% discount on usage-based billing.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

So Bell proposed the 25% discount.

What was the methodology behind that discount rate? Why was it specifically 25% and not 22% or 28%?

[Lynne Fancy]

It was their proposal. When they come in to us with a proposed set of rates, they come in with a set and that was their proposal that they put on the table.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

So Bell proposed it.

On the second decision, what discussion happened around the discount rate at that time?