Internet regulation may be template for future of wholesale wireless

As the CRTC prepares for a week of hearings beginning Monday on the future of wholesale wireless in Canada, the rules regarding wholesale Internet access may be a predictor of how the regulator will shape the future of the wireless market. In its 2013 decision finalizing the rules after a series of proceedings on wholesale Internet access, the CRTC cited supporting competition and protecting consumers in affirming its decisions from 1998 and 1999 that gave small ISPs such as Teksavvy Solutions Inc. the right to access the networks of incumbents such as Rogers Communications Inc. and BCE Inc. The regulator has returned to similar themes in the run-up to the wholesale wireless hearing, with the CRTC referencing “unjust discrimination” that harms consumers in the findings of a separate review of wholesale wireless pricing that wrapped up in July. Many of the same companies involved in the Internet proceedings, including Rogers, Bell, and Telus Corp., will testify at the wholesale wireless review. Telus and Rogers say the Internet regime shows how wholesale access stifles competition, but Teksavvy and Wind Mobile, two buyers in the wholesale telecom space, say just the opposite. Bell declined to comment for this story. Ted Woodhead, senior vice-president regulatory affairs at Telus, said his company understands the need for regulation in both Internet and wireless to prevent discrimination between carriers and networks. “The key thing is that there needs to be and there always will be regulation of interconnection arrangements; that just makes the system work,” he said in a phone interview. Yet Woodhead said there is little evidence that wholesale provisions have improved Internet access for Canadians. He said in British Columbia and Alberta, where Telus competes with Shaw Communications Inc. for Internet customers, smaller players operating on bigger companies' networks aren’t an attractive alternative. “The reason for that is the West is possibly the hottest competitive market in the country,” he said, noting that Telus and Shaw compete with each other by providing most consumer services in bundling deals. “That has made the retail market so competitive that these little guys can't actually compete.” Because service providers who buy access to Telus' network haven’t invested in their own infrastructure, Woodhead said, they can’t differentiate their services from the incumbents. “In the short run, you get some price competition but those carriers never climb what some of them will call the ladder of investment to become full-fledged facilities-based providers,” he said. In the wireless market, Woodhead said, the same thing is likely to occur if the CRTC opens the door to even cheaper roaming rates. “When you allow resale and/or radically low roaming prices, carriers will not actually build networks beyond the minimum required pursuant to their licence for the deployment conditions,” he said. “It also makes them reliant on established carriers’ network functionality, which doesn't actually feed any kind of competition and innovation.” Woodhead said Canada could lose its lead in the adoption of advanced networking technology if carriers are forced to provide access to their expensive networks at prices that don’t take into account the cost of the infrastructure. “We shouldn't lose sight of the fact that this industry has performed very well for Canadians, for businesses and for Canada's productivity,” he said. “The concern is that investment lags and we fall behind. You don't want Canada to become a laggard.” With cheap access to the copper wires that drive cable and DSL Internet service, Rogers' senior vice-president of regulatory affairs Ken Engelhart said companies that buy wholesale access have no incentive to invest. “They said, ‘We will start with resale and then we will build our own facilities and eventually we will become facilities-based carriers, we will climb the ladder of investment,’” he said. “The CRTC thought that these guys on the wireline side would bring innovation and investment and they have brought no innovation or investment.” Engelhart said the result was “regulatory arbitrage,” or an imposed price differential between retail and wholesale from which small ISPs profit. “In wireless, we should go into it with our eyes open realizing they are never going to invest and it is really just a form of regulatory arbitrage that diminishes the incentive of network builders to build networks,” he said. Bram Abramson, chief legal and regulatory officer at Teksavvy, said his company has invested millions in building Internet infrastructure, such as hosting and back-end interconnections in order to provide better service to its more than 250,000 customers. "We invest where there is a good economic case for it," he said. What Teksavvy hasn't done, Abramson said, is lay new last-mile connections to Canadian homes. These connections are redundant, he said, and it makes little sense for each new Internet provider to build new connections for individuals. "When some incumbents make the argument about not investing in facilities, they restrict their argument to network access facilities," he said. "We just don't think there's a good case for having many network access lines to the home, most of which remain fallow." The CRTC agrees, Abramson said, and that's why the regulator stepped in to mandate access. "The only things that the CRTC requires to be available on a wholesale basis are network elements that just wouldn't be feasible to reproduce," he said. "The CRTC guarantees the people who provide those bottleneck elements with a guaranteed rate of return. They're making money off of this. Wherever we can, where we can reproduce those and pay less money per subscriber, we absolutely do so. Pure resell at a large scale never makes sense." He said Teksavvy is far from just a reseller of incumbents' Internet access under a different name. "What we do is purchase wholesale access to incumbent's networks and hook that up to our network," he said. "We have a pretty extensive network of backbones, backbone lines, routers, servers and all the rest of it. We configure that network pretty carefully, and we have a lot of people that we employ to do that. We have to make all kinds of choices every day on how to operate our network. An Internet reseller doesn't do any of those things." The question is not, Abramson said, whether they invest in facilities, but in which facilities they invest. "There are essential facilities, there are bottleneck facilities, that it just doesn't make sense for everyone to build in parallel," he said. "Are we incentivized to do nothing more than act as a marketing department for the facilities of the incumbents? No. We've continuously built out what we do, and along the way, we think we've innovated on price and services and helped make a much more competitive market for Canadians in Internet access than, for instance, wireless services." Both Woodhead and Engelhart said the CRTC will hold a fair hearing on wholesale wireless services, and it does not seem to have made up its mind on any of the issues. The cap on roaming fees instituted by the government earlier this year “took the pressure” off the regulator for the short term, Engelhart said, and gives it time to get it right. “We actually want them to use the kind of analysis used in the wireline proceedings for the wireless proceedings,” he said. “We're actually saying the test there, in which you first look at whether there's competition in the retail market, is the correct test for the wireless market at well.” By that measure, Engelhart said, Canada’s wireless market is among the most competitive in the world. Simon Lockie, chief regulatory officer at Wind Mobile, which roams on Rogers’ network outside the areas in which it has built infrastructure, said the criticism that wholesale access to the incumbents’ wireless networks deters investment is “tired and hackneyed.” “This is nothing more than fear-mongering using what I think is becoming a pretty tired bag of tricks,” he said. “Facing true competition is not something that they've embraced, and they've done what they could in the last five years to combat it with what the CRTC has recently identified as unjustly discriminatory roaming rates.” In July, the regulator issued a decision in its more review of wholesale wireless rates that found Rogers committed “unjust discrimination” in its domestic roaming agreements. Lockie said his company has “enormous incentives to build,” having already spent nearly $2 billion on infrastructure and spectrum, with every intention to continue spending as it builds wireless capacity. “We are firm believers in facilities-based competition,” he said. “We think that when you have a 30-year head-start, you need proactive regulatory measures to ensure that we get underway. We're not asking for perpetual resale of our competitors' networks. We're asking for fair, regulated access to networks for a limited period of time to give us the time we need to build out our business.” Unlike the Internet providers, Lockie said, Wind intends to be a true competitor to the incumbent wireless providers. “This government was absolutely spot-on in identifying a need for additional competition in Canada, and Wind is that competition in B.C., Alberta and Ontario,” he said. “We're going to be that competition for a long, long time, but we need to have fair, cost-based rates that enable us to provide a seamless experience for our customer while we spend billions of dollars building out our network over the next decade.” The CRTC’s wholesale wireline rules are also subject to a review, with a hearing scheduled for Oct. 27. — With reporting by Peter Henderson phenderson@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Internet regulation may be template for future of wholesale wireless

News | September 26, 2014

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Internet regulation may be template for future of wholesale wireless

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