/ Cory Doctorow / 8:03 am Tue Mar 29, 2011

Canadian ISPs admit that their pricing is structured to discourage Internet use

Canada's cable-based ISPs have filed regulatory comments on their "Usage-Based Billing" model that caps bandwidth use and then charges high rates for overage. In these comments, they admit that the rates they charge have nothing to do with what it costs them to provide their service, and are instead aimed at punishing their customers for "overusing" the Internet. In other words, they've set out to limit the growth of networked based business and new kinds of services, and to prevent Canadians experimentation that enables them to use the Internet to its fullest.
In order to be effective as an economic ITMP, the usage based price component needs to be established so as to discourage use above the set limit. The price should incent use in excess of the limit only to the extent that the consumer would gain significant value from that usage. If the price is set substantially below the consumer's value, it will have little influence on usage. It follows that the price does not necessarily reflect the cost of supplying the network capacity.

[Michael Geist's commentary:] In other words, UBB is behaviour based billing, not usage based billing. Notwithstanding the claims about fairness, paying what you use, or costs to the network, overage pricing is not connected to cost or even value - it is designed to price above the real value to stop Canadians from "overusing" the Internet.

Cable Companies on UBB: No Link Between Cost and Price

(Image: Girlfriend's aunt network diagram, a Creative Commons Attribution Share-Alike (2.0) image from pitel's photostream)

 

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    1. No, they are afraid of competition from Netflix and what it means to their broadcasting sectors. Netflix just scored an exclusive deal with Paramount for movies in the pay-tv window. That is what they’re afraid of the most, actually having to compete. They’ve have monopolies for decades and times are changing, it scares the crap out of them.

    2. Well, not saying it’s not stupid (because it is), but their justification is most likely that less overall internet use means that peak traffic won’t be as high and thus you get faster peak times. In practice it probably doesn’t make much of a difference but the cable companies get to feel clever about charging people more for less.

  2. This is certainly infuriating as a consumer. I have awareness of the Canadian UBB issue, but didn’t research it in depth. Are there any Canadian ISP reps that went on record stating why UBB was necessary that would appear hypocritical and dishonest in light of this revelation?

  3. Why would they discourage using something that’s essentially limitless? Oh, right, they know they can’t milk more taxpayer subsidies out of it unless they make it seem like it’s running out. Once the wires are in place, and you’ve got a device on either end, there’s no cost to push bits through. I can’t believe they’ve been able to get away with charging as much as they have, and they still want more. Greedy bastards.

  4. What a bunch of jerks. Here’s a road !BUT! you’re not allowed to drive on it. Are they comical, stereotypical Jews in some sort of sitcom? They want to squeeze every penny out of you AND don’t think you’re good enough for nice things? I’m not amused.

    1. Here’s a road !BUT! you’re not allowed to drive on it.

      When this is done with roads, it’s called “congestion pricing.”

  5. Quelle surprise. I’d list all of my gripes and grumps about Canadian internet access but I doubt that I’d gain substantial value from that usage.

    Wankers.

  6. Funny I was just talking to a colleague about this only minutes ago. As long as the two large ISPs (Bell and Rogers) are also in the business of creating and distributing content via their networks, this type of behaviour will continue. Basically Bell and Rogers need to have their TV studios/channels, and their distribution networks (Cable and Satelite TV), and their ISP business split. But when the regulator, the CRTC, is run by industry execs there is little to no chance of this ever happening.

  7. As an American, I’m in favor of this.

    Or rather, I would be if our ‘providers’ weren’t doing the same.

  8. @ Anon #6 It’s amazing what they’ve been able to get away with. I’m a hockey fan, and pay a good amount to be able to watch Vancouver as well as Ottawa games. I pay for Sportsnet Pacific, but Rogers blacks out the games for non-Pacific regions. Then I have to pay for Center Ice to watch the Sportsnet Pacific feed I should already be getting. It’s incredible that the CRTC sees no problems with these companies controlling every aspect of the delivery of content as separate entities.

  9. “The price should incent use in excess of the limit only to the extent that the consumer would gain significant value from that usage.”

    Reads as

    “But if we provided a better service, our customers would receive a better service, a concept from which ourselves we need distance!”

    ಠ_ಠ

  10. You can hit them in the wallet and support smaller businesses by switching to smaller ISP’s that do NOT have bandwidth caps, such as teksavvy and acanac. Not only is this about penalizing the consumer, it’s about killing competition, since these smaller ISP’s still offer unlimited bandwidth in some packages whereas Bell and Rogers refuse to. By implementing UBB, they were basically making it impossible for *any* ISP to have unlimited bandwidth packages, because the ISP’s all lease lines from Rogers & Bell. Signing up with a smaller ISP means unlimited bandwidth (for now at least), less profit for Bell & Rogers and more clout for consumers when they try to ram UBB down our throats once again, which they surely will. (FYI I am not affiliated with any ISP.)

  11. Lest anyone misunderstand, this is a reference to wholesale, not retail, rates. Wholesale rates are what these cablecos charges to third-party ISPs, like the ones identified above, to bring traffic from the user’s premises to the ISP’s single point of interconnection. The CRTC requires this of Canadian telcos and cablecos, unlike the U.S. where it is not required, and so there is no business model for third-party ISPs to set up by plugging the incumbent’s infrastructure into a commodity Internet transit connection. The fight is about the price, and pricing model, that the telcos and cablecos should be ordered to charge the third-party ISPs.

  12. ITMP is apparently Internet Traffic Management Plan.

    So one might imagine the issue is at least in part not the cost of providing more, but of shaping and leveling demand such that the infrastructure can meet that demand. They can’t just lay fiber on demand, in an afternoon.

    But if they’re not also expanding to meet increasing demand, then they’re just being greedy bastards.

  13. Unfortunately, in the US, I don’t think there are small ISP’s anymore. There aren’t in my area and most people treat the discussion as it is, “crapcast vs At&Terrible service”. Thank you deregulation and frivolous subsidization.

    Inb4 a merger between AT&T and Comcast. Seriously, I wouldn’t be surprised if the regulators let it go through. What, effective monopoly on internet service in most places in the US? Nope, no way that is something we should prevent.

  14. It’s pretty simple. The intention is to monitize bandwidth and to discourage the use of services that are competitive to their own TV offerings.

    It does not matter if price is not related to cost. In fact, from a corporate perspective it’s BETTER if price is unrelated to cost, that way they can charge whatever they like and their costs remain the same.

    Bell specifically stated in a recent earnings call with stockholders that they intend to generate new revenue by exploiting the demand for high-bandwidth services like online video by charging usage fees. These fees are basically pure profit, and serve the added bonus of encouraging people to keep their cable/satellite/IP TV.

    The only solutions to this are an aggressively open wholesale sector regulated in the interests of the consumer, or a nationalized last mile. Since nationalizing anything is pretty unlikely, effective wholesale is the only way to go.

    That means pricing wholesale at the incumbents cost + markup, not retail – margin; ensuring net neutrality for wholesale; and ensuring that the wholesalers have access to speeds equal to those of the incumbents.

    Anything else and you’ll see the telco’s slowly squeeze the life out of the internet by abusing their duopoly.

  16. This is pretty normal for corporations that have monopolies. You squeeze the customer base for as much money as they’ll be willing to pay and still keep the service and discourage any customer practices which will cause the corporation to need to invest in more infrastucture or expensive upgrades. Just look at the changes in iPhone data plan billings lately for an example.

    1. “This is pretty normal for corporations that have monopolies…”

      I’m trying to look at this from their point of view to see if I can understand it.. I get that in the short run revenue maximization and cost cutting are the obvious answers, but let’s say that hypothetically bandwidth is ‘getting more expensive’ – i.e. that infrastructure costs are increasing in real dollars.

      I figure that the marginal cost curve looks sort of like a giant staircase, but where the aggregate demand curve sits I can’t get my head around.

      Assuming a benevolent net-dictator whose sole intention is to maximize long-term satisfaction (say, perhaps, a not for profit bought up all the ISP’s in Canada), what would you suggest to him/her as a pricing scheme?

      1. Ideally, if the net was run by a benevolent net-dictator, my suggestion would be to price the internet approximately like this:

        A monthly fee for continuing access to the internet. This pays for line repair, upgrade, new fibre rollouts, tech support, etc. I’m not sure exactly how much this fee should cost as I’m not 100% sure what the costs are. However, my best guess is that 20 dollars a month should cover this.

        Then, you charge a fee for the speed of connection you want. Something like .25 per megabit of connection(total up and down), so a 100 Mbit down/5 Mbit up connection would cost 26.25 per month extra. This helps pay for new modems and headends in order to support higher speeds. As time goes on, the amount per megabit should drop.

        Then, bandwidth should be charged on a usage basis at actual cost. So, about 2 cents per gigabyte.

        Using my pricing scheme, this would mean that someone who payed for Shaw’s cheapest plan(7.5 Mbit down/512k up) and barely used the internet (Let’s say a 10th of their current cap, or 6 GB per month) would pay 24.12 per month.

        While a person who pays for Shaw’s most expensive plan (100 Mbits down, 5 Mbits up) and uses their entire cap as it exists today(350 GB) pays 53.25 per month.

        It should be noted that the current prices for these 2 plans are 47.00 and 160.00 per month respectively.

        It would also provide incentive to offer the full speed of DOCSIS 3.0 cable service(150 Mbits down and 150 Mbits up) to really heavy users who might use a TB of data a month for 115.00 per month(using my pricing).

  17. The CRTC – not standing up for the consumer rights they’re supposed to be protecting since before the internet was even born.

  18. So can someone put together a chart showing the sharp drop in internet activity occurring in Canada like the one we had for Egypt before?

  19. This is a pricing system that could be foisted upon us if net neutrality is the law of the land.

  20. All cable ISP’s will limit bandwidth, because coax broadband cable is old technology shared pipe. It’s impossible for them to provide all their customers with their “advertised” throughput simultaneously. I’m waiting for the day when the network peer providers, in which the cable companies rely on for their internet connections, decide to throttle the cable companies.

  21. Ya know, if it wasn’t for Corner Gas and Strange Brew and regular prime-minister recalls, I’d think Canada is a funny, strange country.

  22. How is this legal? Seriously what the hell are your regulators/competition commission doing?

  23. We need to scrap the CRTC or remove the internet from their jurisdiction. I’m completely in favour of torpedoing the organization; it’s nothing but a bunch of retired lobbyists from the communications giants that are lining their pockets. They do not serve the interests of Canadians.

  25. What a novel business concept…..have a service that people want to use in ever increasing amounts and then discourage its use by pricing it so that people will use it less. Maybe changing the pricing structure to make more money while people’s usage increases would be a better strategy. Who are these corporate giants and their strategy developers? Are their shareholders and banks who should call a meeting to replace the CEO and the Board of Directors?

  26. In fairness to the incumbent ISPs (and you’ll very rarely hear me say those words!), they’re operating in line with the CRTC’s guidelines on Internet Traffic Management Practices (ITMP), which in turn originates from the Conservative Government – hrm, I mean, the Harper Government: http://www.crtc.gc.ca/eng/archive/2009/2009-657.htm

    Specifically:


    1. Transparency

    Where any ITMPs are employed, ISPs must be transparent about their use. Consumers need this information to make informed decisions about the Internet services they purchase and use.

    Economic practices are the most transparent ITMPs. They match consumer usage with willingness to pay, thus putting users in control and allowing market forces to work.

    While undoubtedly well-intended (hrm), this means that instead of severely limiting the use of ISP’s ITMPs (i.e. deep packet inspection throttling, etc) the CRTC is allowing – in fact, endorsing – an form of ITMP in the form of creating artificial bit scarcity, thus monetizing data in a similar way cell phone data has been monetized.

    Without this endorsement, ISPs would’ve been forced to come up with technical solutions to manage congestion, such as improving their infrastructure at choke points (i.e. last-mile), buying more wholesale bandwidth, selling overall slower services instead of overselling their capacity, or selling services that are time-dependent (10Mbps during night and weekends, 5Mbps during the day, or whatever). With this endorsement, it’s clear where the value to the shareholder lies: the less money spent on infrastructure improvements, the more congestion you create, and the more congestion you create, the stronger your case will be for increasing your overage charges or lowering the amount of “free” bandwidth provided; then, as demand grows, your profits will grow from two directions (usage + overage charges). And when speed improves, so will the usage; since customers buy their connectivity based on the speed they get rather than how much data they can transport, you have a third growth factor.

    The notion of legitimizing economic-based ITMPs on a national level is the culprit here, I’m afraid; not so much the ISPs themselves, who are just doing what they’re told.

    1. The Harper government is contemptible precisely because it does what industry, not the public, wants. This doesn’t necessarily absolve industry of responsibility.

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