Usage-based billing makes sense

A lot of media attention has recently focused on the Canadian Radio-television Telecommunication Commission’s (CRTC) ruling to allow usage-based billing (UBB) in telecoms. Students are in a rage because they think they will be paying more for their Internet and with the economic pressures that come with student life that is a warranted concern. Sadly, there has been very little focus on the actual facts in a debate that has degenerated into anti-corporate hysteria. The truth is UBB is a fair economic practice. The real culprit for your higher costs is the anti-competitive regulations put in place by the CRTC.

The principle behind usage-based billing is rather simple. You pay for the good or service you use. This is standard practice in the economy, from cell phones and hydro (albeit heavily subsidized by the government) to your groceries. Where pay-per-use isn’t the driving economic model, a perverse incentive structure persists that encourages excessive consumption. This is exemplified by traffic congestion on the 401 and the absence of necessary highway tolls. When people don’t pay for the things they use, services are abused and set on an unsustainable trajectory.

Currently, the CRTC forces companies like Bell and Rogers to wholesale space on their networks to smaller Internet service providers (ISPs), such as Techsavy, for a fixed cost lower than the threshold that allows them to recoup their investment. This allows small ISPs to undercut the big telecom companies by offering unlimited bandwidth at low cost. The recent CRTC decision will allow large ISPs to charge small ISPs for the bandwidth they use with a 15 per cent discount.

Contrary to popular myth, this decision will only impact the three per cent of Canadians that buy unlimited bandwidth packages from small ISPs. With increasing demand for downloading or streaming movies with services such as Netflix, the market share of small ISPs will likely grow in the coming years as more people sign up for unlimited bandwidth plans.

With this demand will come an escalating strain on Canada’s Internet infrastructure that is in desperate need of revitalization. The necessary investment will not be provided by small ISPs, who lack sufficient capital. It will be borne by companies like Bell and Rogers. More accurately, costs will be passed on to customers of large ISPs who currently subsidize power users of small ISPs. The current trajectory is unsustainable. UBB ensures that all players in the market bear the cost of developing our broadband capacity.

I am no fan of the large ISPs. I, like many students, have been stuck with atrocious Internet bills that make me want to drop kick the nearest Rogers employee. There is essentially a duopoly in the market that does indeed drive up costs and limit quality of service. The answer, however, is not to prop up small ISPs, who are nothing more than artifacts of the current regulatory environment. The answer is to bring big players into the Canadian market to shatter the duopoly and aid in the development of our Internet infrastructure.

It is difficult to compete with Bell and Rogers on an even playing field given the enormous amount of capital that is needed to develop broadband infrastructure. This is why we are in need of access to capital outside of our country. Instead, we are saddled with archaic, nationalistic regulations by the CRTC to prevent foreign investment in the telecommunications sector. For years the CRTC has shielded Bell and Rogers from real competition. In more competitive environments around the world the current download speeds and bandwidth caps in Canada are unheard of.

It is laughable to watch the NDP and Liberals now supposedly stand up for consumers, when they have steadfastly supported CRTC protectionism for decades that has cost consumers dearly.

Usage-based billing is a tremendously complicated issue. The simple, knee-jerk reaction is to blame Rogers and Bell, widely considered to be bogeymen for the average consumer. We must not miss the bigger picture: the current situation has been caused by years of backwards regulatory policy by the CRTC. Instead of attacking pay-per-use, a basic economic principle, consumer advocates across the political spectrum should unite in favour of telecommunications deregulation. It will take a few years to break the hold of Bell and Rogers, but only then will Canada cease to be a technological backwater in a rapidly developing high-tech world.

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