Industry Committee on Feb. 10th, 2011

[Mirko Bibic, Senior Vice-President, Regulatory and Government Affairs, Bell Canada]

Thank you, Mr. Chairman and members of the committee.

I have with me Jonathan Daniels, who is vice-president, regulatory law, at BCE.

Thank you for this opportunity to present our views in person on the issue of wholesale usage-based billing. We will use this time to help set the record straight by starting with a few key points of clarification.

First, Bell has applied usage-based billing for retail Internet services we offer in our competitive footprint since December 2006. But in doing so, we make sure our customers have a wide range of options available to them, each with generous amounts of usage to ensure a high-quality Internet experience.

Now, the suggestion made by some that usage-based billing makes Internet unaffordable is plainly wrong. With Bell, customers can purchase blocks of Internet time that provide three times the average monthly usage for only $5. A block of Internet time that provides eight times the average usage can be purchased for $15. With that, a customer can watch nearly 600 hours of additional online video each month. That's over and above the hundreds of hours of online time included as part of our monthly plans.

We also have award-winning tools in place to help all of our customers avoid unwanted usage and ensure their Internet experience is what they want it to be.

The second point of clarification is that the CRTC decision that has prompted current debate over usage-based billing is only about a very small subset of the wholesale marketplace and therefore affects only about 1% of Canadian Internet subscribers.

With respect to another general misunderstanding, I also want to point out that the CRTC decision does not impact Internet services for businesses, large or small.

What is at issue and what we do not believe has been fully addressed as part of your meetings thus far are several fundamental questions related to fairness.

From a billing perspective, we believe there should be no discrimination between retail and wholesale customers. All customers should be treated in the same way, and usage-based billing is the fair way to price Internet use. Simply put, the heaviest users should pay more than those who use less.

Fairness is also a factor when we consider the fact that for over 10 years, the CRTC has authorized cable companies to apply usage-based billing to the wholesale providers who use their facilities.

All that Bell is asking from the CRTC—and we believe that this should be clear to everyone—is an opportunity to set, on the same basis as the cable companies—who are our biggest competitors—the prices billed to the wholesale Internet service providers who share the network with Bell's retail Internet clients.

Unfortunately, these issues are still receiving very little attention. Instead, people are concentrating on a certain number of myths.

Among these myths, there is the idea that usage-based billing will stifle growth, which is absolutely false. You have only to study the retail Internet market in Canada to see that growth is going on unabated. Even in the wholesale market, where certain cable companies apply usage-based billing, nothing has indicated any slowdown in growth.

Also inaccurate are suggestions that wholesale usage-based billing prevents wholesale ISPs from differentiating their products from our own. Despite our major network investments--$3 billion between 2006 and 2010 to deliver additional Internet capacity and faster speeds--wholesale ISPs continue to receive significant regulated discounts on the prices they pay to use our network facilities.

These discounts give wholesale ISPs a 50% to 60% reduction relative to our own retail offers, providing them with the flexibility to tailor their own services and pricing packages as they see fit. We must remember that the CRTC decision in question authorizes Bell to charge a third party wholesale ISPs on a usage basis.

But the CRTC decision does not require these ISPs to charge their own customers on a usage basis, even though, as you have learned from others who have appeared before you, some wholesale ISPs already applied usage-based billing well before Bell had the ability to charge them on this basis. This should not come as a surprise. It's consistent with an approach previously supported by OpenMedia.ca, the organization running the current “stop the meter” campaign.

In February 2009 OpenMedia.ca, then known as the Campaign for Democratic Media, voiced its support to the CRTC for usage-based billing as an appropriate means to address traffic congestion.

In fact, Mr. Wallace, you asked the previous panel why their views hadn't been heard by the CRTC. They have been heard by the CRTC.

What is true, however, is that the average wholesale ISP customer uses twice the bandwidth of our own Bell retail Internet customers while using the same network. These heavy users, on the same network as our users, clearly affect everyone's Internet experience.

I want to be clear here. The third-party ISPs do not buy a pipe from us for their own channel, or their own channel from us. Their customers' traffic travels over the same network as our customers' traffic. This leaves us in a serious bind with the wholesale ISPs' heaviest users, representing only a minuscule fraction of Internet customers in Canada consuming absolutely the most bandwidth and at no additional charge.

Mr. Chairman, members of the committee, the disparity is striking. We must ask this. At what point should the vast majority of Internet customers stop subsidizing the activities of a relative few?

We urge you to take fairness in terms of pricing and regulatory symmetry with the cable companies into account as this process moves forward.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much.

Now we'll move on to Mr. Ken Stein, for five minutes.

[Ken Stein, Senior Vice-President, Corporate and Regulatory Affairs, Shaw Communications Inc.]

Thank you, Mr. Chairman.

Good afternoon. Thank you, Mr. Chairman and members of the committee.

My name is Ken Stein. I am senior vice-president of corporate and regulatory affairs at Shaw. I am joined by Jean Brazeau, senior vice-president of regulatory affairs at Shaw.

As members of the committee know, Shaw is totally committed to innovation, competition, and consumer choice. Shaw serves over 3.4 million customers across Canada. We provide broadband cable television, high-speed Internet, telephony, direct-to-home satellite, and other telecommunications services. Through our acquisition of Shaw Media, we now operate the Global Television Network and 19 specialty services.

All these services are provided, despite what you may have heard, in highly competitive markets where we compete with Zoom, BCE-CTV, Rogers/CITY, Telus, MTS Allstream, and SaskTel. We compete by providing the best possible customer experience. That requires investment. Shaw has spent over $7.3 billion in capital expenditures since 2000, and we continue to make significant network investments.

Let me move to the issues before this committee. We are all aware that Internet use is changing and increasing dramatically. Canada has the highest consumption rate of online video content in the world. Last year, demand on Shaw's network increased by 100%. That's huge. We have never seen anything like this.

Using the Internet for video content and gaming is becoming the mainstream application. In this rapidly evolving marketplace, it is critical that regulators and the industry look carefully at consumers' evolving use of the Internet. In fact, to ensure that we deliver choice, quality, and value, Shaw announced on Monday of this week that we will establish an Internet usage consultation with all our customers.

Attached to our remarks is a chart showing how independent ISPs use our network. I hope it's not too complicated. I can explain it. It also illustrates the shared nature of that network. As third-party Internet access users and our retail customers consume more and more capacity, network congestion slows speeds for all customers on the network. To address this, we must invest in advanced technology, not just expand bandwidth. We have to invest in advanced technology in our head ends, deploy fibre optic facilities deeper into our network, and expand the number of fibre nodes in our service areas. These are costly solutions, which not only require capital but also involve digging up streets, obtaining municipal approvals to lay fibre, and negotiating with telecommunications and hydro companies that control support structures.

At Shaw, our aim is to maximize the Internet experience for all our customers. To do this, we have to adapt and provide service options that best address their changing and diverse usage.

Shaw currently offers several options with a wide range of prices, speeds, and monthly usage allowances. We will ensure that these options are transparent, and that our customers have timely information about how their usage may be changing. If a customer's use changes, we will make sure they have the chance to make cost-effective adjustments.

Jean.

[Jean Brazeau, Senior Vice-President, Regulatory Affairs, Shaw Communications Inc.]

Maximizing our customers' experience also requires us to commit close to $1 billion every year for network investments. Those who say that bandwidth expansion comes at zero cost do not live in our world.

Shaw's network investments have helped Canada become one of the most dynamic, competitive broadband markets in the world, with a unique mix of cable, telecommunications, wireless, and alternative service providers. Approximately 95% of households have access to broadband using two competing land line facilities, and over 90% of households have access to multiple wireless broadband companies.

Contrary to the suggestions of others, Canada's Internet penetration, prices, and speeds compare very well with other countries' despite the challenges of our geography and population distribution. Canada's broadband leadership has been driven by competition between facilities-based providers, who typically invest $8 billion to $10 billion in capital expenditure per year. This fuels a positive cycle of declining prices and faster speeds with no government subsidies.

At Shaw, when we first launched our high-speed Internet service, it included 1.5-megabyte download speed at under $55 per month. Today, that same Internet product has 7.5-megabyte download speed for under $40.

In light of the above, we believe that the CRTC's approach to usage-based charges has appropriately balanced the needs of small ISPs and the telecommunications and cable ISPs. We require the market-based tools necessary to manage our network for the benefit of all consumers and to sustain broadband investment, which is really the foundation and the future of the industry.

We agree with the CRTC chairman that usage-based billing is a legitimate principle for pricing Internet services, and that fairness demands that certain Internet users should not be forced to subsidize others.

At Shaw, we have no interest in telling our customers how they can or cannot use the Internet. Our goal is to bring the best and fullest Internet experience to our customers through competing, innovating, investing in our networks, and bringing consumer choice through tailored and flexible service packages.

Thank you, Mr. Chairman.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Brazeau.

Mr. McTeague, for five minutes.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Chair, thank you very much.

I'm sorry you couldn't get an agreement here on accelerated time.

To the witnesses, both of you have come here to suggest that there is a serious problem with growing use on the Internet.

Mr. Bibic, we received an e-mail from your organization the other day suggesting the following:

The CRTC's UBB decisions would affect no more than 2% of Canadian Internet subscribers, only the very heaviest bandwidth users that are also subscribers of third party ISPs.

You now suggest it's 1%. Are you consistent on your numbers, or is this just picking numbers out of the air? I really want to get clarity from you.

The concern I have is that we are looking at more like a 5% to 10% situation. In two years, that number could be more like 50%, and 100% within five years.

What's the correct number, Mr. Bibic? You can't throw these numbers around as if they're irrelevant.

[Mirko Bibic]

Well, Mr. McTeague, I'm not throwing numbers around. The range is very, very small, the 1% to 2%, and here's why.

I mean, I don't have the precise figure, but we know the number of wholesale ISPs customers we have and the number of end users they have. We make an extrapolation based on our own Internet users' consumption of bandwidth, how many of their customers would likely trigger the caps, and therefore have usage-based billing apply to them according to the CRTC decision. It is so small.

The point is that 98%--call it 98%, call it 99%--of subscribers in Bell's competitive footprint are already billed on a usage-based billing basis, yet that small group of the heaviest users are not. And that's the fundamental unfairness.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Bibic, I don't know how long your company has been involved with playing catch-up with the Googles and the Yahoos and others of this world, but I'm wondering if, in some of your calculations here, what you're really doing is complaining over the fact that a new business has been created on your platform--competition—and as a result of their lead in these areas, you are now playing catch-up.

To do that, you have a plaint here with the CRTC and you have a policy direction that basically stopped any competition by leaving the incumbents, both cable and telephone, where they are; I think you can speak just to telephone for now. Now we find ourselves in a situation where you're crying blue that you need more money and that you want to make greater investments by simply throttling off and choking off effective competitors who are providing service at the exact time when the Minister of Industry has said that we have to transform ourselves into the digital world.

If you understand the levels of increase in the number of connectivities and people using the Internet, and the quality and richness of that Internet, how is it possible that you can come here today and defend a charge over 25 gigabytes when it has no bearing on the actual cost that your company has to incur in order to provide that service?

Coming from a company that's had a 120-year advantage, I find it a little rich for you to be here to claim that somehow you need to have these kinds of changes that not only are onerous to consumers; they also will ultimately stifle innovation.

That's the charge, Mr. Bibic. I want you to answer it.

[Mirko Bibic]

Mr. McTeague, there are about six components to your charge, so it will take me about half an hour to respond.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

You have about a minute and a half.

[Mirko Bibic]

First, the idea that Bell is dominating in the Internet market is an absolute fallacy. Any independent market share studies you look at will show you that Bell Canada's market share in its territory for Internet services is about 35% to 38%, well behind the cable companies. So there's no dominance there, and certainly no monopoly.

Second, the networks that we've built, the next generation that we've built, that we've spent $6 billion to $7 billion over the last four or five years to build, are brand-new networks. They have nothing to do with the monopoly telephone networks you were referring to.

Third, I think we need to take a big step back, take a deep breath, and put some perspective into this debate, Mr. McTeague. We've talked about choice. We've talked about lower prices. We've talked about competition. The thing that's missing, if Canada truly wants to be a broadband leader, is that it's companies like Bell, Shaw, and Rogers that we need in this country, because it is these companies that will continue to invest billions of dollars so that we don't fall behind, so that we have an innovative digital economy and we fire on all cylinders. That's what we need.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

But Mr. Bibic, you're asking Canadians to volunteer that money. You've had money given to you in the past. What have you done with it? You've had a number of capital expenditures permitted to your company, and perhaps a handful of others, to create a dominant situation in the telephone industry, the cable companies, and cable. You, sir, have received over the past 120 years a tremendous advantage that ISPs cannot possibly catch up with in a short period of time.

I'm asking you, your $1.20 to $1.50 to $2.00 charge per gigabyte, is that in any way relevant to the capital expenditures you now need to undertake in order to catch up with a world that is becoming more and more reliant on heavy content on the Internet? Or are you overcharging?

[The Chair, Conservative, David Sweet]

I hate to do this. The time has—

[Mirko Bibic]

May I answer, Mr. Chair?

[The Chair, Conservative, David Sweet]

We're going to be over time. But as long as there's agreement for overtime, go ahead.

[Mirko Bibic]

Mr. McTeague, you focus on 25 gigabytes as if we had only one plan. We have plans that range from 2 gigabytes to 100 gigabytes. And you focus on these numbers on overcharges. As I mentioned in paragraph three, I believe, in my opening statement, you can buy for $5 about 200 hours of online viewing—$5. So the numbers you're pointing to are the rack rates. Consumers have a whole bunch of choices from us that allow them to buy more capacity very price affordably. So I disagree with you.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Bibic.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

How many gigabytes...?

[The Chair, Conservative, David Sweet]

Mr. McTeague, really.

[Mirko Bibic]

The beauty of our market is that you have choice.

[The Chair, Conservative, David Sweet]

Gentlemen, please.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thanks.

[The Chair, Conservative, David Sweet]

Thank you.

Mr. Cardin, you have five minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chair. Gentlemen, good afternoon and welcome.

Following the 2010-802 decision by the CRTC aiming to apply usage-based billing, the government reacted after receiving a petition signed by 358,000 persons. This number is still growing. The surprising thing is that the review was requested not by the government, but by Bell.

This leads me to believe that Bell was not happy with this decision by the CRTC.

[Mirko Bibic]

Mr. Cardin, as a point of clarification, Bell did not ask that the CRTC revisit the decision. We suggested that the implementation of usage-based billing be postponed by 60 days so that our clients, wholesale providers, would have time to adapt.

Because Bell asked that usage-based billing not be applied right away, the CRTC decided to take the time to review the decision, given the minister's statement.