The federal government has taken a pair of shots at rules that give smaller internet service providers regulated access to the networks of big phone companies such as Bell and Telus.

In the first of two internet-related decisions quietly released on Friday, the government rejected an earlier order by the Canadian Radio-television and Telecommunications Commission that would have given smaller ISPs the right to sell the same speeds as Bell and Telus.

The CRTC's "matching speeds" decision, made in December last year, would have required the large companies to offer the same speed services they themselves sell to smaller regional ISPs, such as Teksavvy or Execulink, at reasonable rates.

These smaller ISPs rent portions of the big companies' networks to provide their own services. They are currently limited to selling internet speeds up to around five megabits per second, while Bell and Telus offer up to 15 or 16 megabits.

Challenged by phone companies

Bell and Telus appealed the CRTC decision to the cabinet in March and said that allowing smaller ISPs regulated access to these speeds, which are offered over newer fibre infrastructure, would be a disincentive to invest in such networks.

On Friday, the government agreed and said the CRTC failed to address a number of issues during its decision-making process, including:

How the matching speeds would diminish the phone companies' incentives to invest in new infrastructure.

Whether there is sufficient competition to protect consumers without the requirement of matching speeds.

Whether the regulatory requirements on phone and cable companies are equal.

How the matching-speeds requirement would affect phone companies' abilities to offer services such as television over an internet connection.

The government has ordered the CRTC to review its decision and to report back by Sept. 1, 2010.

The government also rejected an appeal from Winnipeg-based MTS Allstream on another CRTC decision, also made in December last year. That decision exempted certain types of the big phone companies' internet access — Ethernet and ADSL — from being considered "essential services," which means they are unregulated and competitors will have to negotiate to get them.

MTS, which is a large national competitor to Bell and Telus in selling internet access to businesses, also rents portions of those companies' networks and services, including Ethernet and ADSL. MTS argued in its appeal that by removing regulation of those services, Bell and Telus will be free to raise rates on them to the point where the company won't be able to compete.

Telus welcomes decisions

Telus was pleased with both rulings and said they will encourage investment and innovation in the broadband market, which will benefit all Canadians. Spokesman Shawn Hall said MTS's position was just an attempt to get discounted access to its network. There is nothing preventing MTS from building its own infrastructure or negotiating access with Telus at fair market rates.

"It's about time that MTS stop treating us as their [capital expenditure] wing," he said. "It's time to stop playing the subsidy card and the populist card and get down to business."

Bell could not be reached for comment.

The decisions announced by the Office of the Privy Council came the same day the government announced it was overturning the CRTC on Globalive, the fledgling fourth national cellphone carrier.

The regulator in October stated that Globalive, which is backed by Egypt's Orascom, did not meet Canadian ownership and control requirements and could therefore not set up shop.

Industry Minister Tony Clement on Friday overruled the CRTC and said the government has wanted more competition in wireless for several years now. He said Globalive did indeed meet ownership requirements and gave the company his blessing to begin business. Globalive said it would launch service in Toronto and Calgary before Christmas, and other cities in 2010.

Consumer groups concerned

Consumer advocates said the various rulings contradict each other, and that while the government was giving with one hand, it was taking with the other.

Michael Janigan, director of the Public Interest Advocacy Centre in Ottawa, said the government was being hypocritical by insisting Canadians need to have more than three wireless choices but with wired internet, only two — a cable provider and a phone company — are necessary.

The rejection of the same-speeds decision and Allstream's appeal will only further sink Canada's declining international standing in broadband internet comparisons by eliminating competition from third parties, he said.

"It will have to be fixed at some point in the future as the broadband incumbents become less attuned to world developments," Janigan said. "Inevitably there will have to be a fix to this problem. Duopolies do not work."

With access to advanced broadband services denied, MTS and small ISPs are now under pressure to invest more in their own infrastructure. Tom Copeland, head of the Canadian Association of Internet Providers — a group of more than 50 small ISPs — said this is not easy as the sort of backbone networks controlled by Bell and Telus are extraordinarily expensive to replicate.

He insisted, however, that smaller ISPs would still be able to compete with the big companies despite having a disadvantage in speeds.

"Speed is a descriptor that doesn't have a huge bearing on quality of service for a lot of internet users," he said. "The reality is that most Canadians still do email, web surfing, banking... they haven't embraced these higher bandwidth services or applications yet."

MTS chief regulatory officer Chris Peirce said the company will make its case again at new hearings the CRTC plans to have in the new year regarding access to next-generation infrastructure. He said he was unsure why Canada is moving away from open-access internet rules when the rest of the world, including the United States, is going in the opposite direction.

"We're setting Canada back," he said. "They're missing what is clearly obvious. It's difficult to see why they're missing it."