Canada rethinks metered Internet, as U.S. pushes ahead

By Cecilia Kang

As U.S. Internet service providers move to metered plans with the blessing of federal regulators, the Canadian government is reconsidering its own controversial rules that allow for usage based billing instead of flat fees.

Canada's decision could determine the success of Internet video providers such as Netflix, YouTube, Hulu and Vimeo there, consumer groups say. Depending on where caps are set and how much is charged for going over, viewers may be reluctant to get their bandwidth gobbling video entertainment and news from the Internet, they say.

In the U.S., analysts say the same scenario can play out. So far, Comcast has a 250 gigabyte cap for broadband, which basically allows for unlimited video viewing. But other broadband providers have long eyed caps that may not be as generous and the Federal Communications Commission's net neutrality rules opened the door for such practices.

Verizon Wireless said last week it would periodically slow down videos for the biggest data users of its unlimted plans, those in the top 5 percent. T-Mobile does the same, slowing down service when users get near their limits. AT&T moved toward tiered pricing this year for new smart phone customers; Sprint Nextel still offers unlimited data plans.

But the movement of Internet providers toward usaged based models puts cable competitors such as Apple's iTunes, Amazon, and Netflix at a potential disadvantage, analysts say.

Opponents of the caps say the solution to costs imposed by the heaviest users is to open up the market for more competition.

"The widespread use of bandwidth caps in Canada is a function of a highly concentrated market where a handful of ISPs control so much of the market," wrote Michael Geist, a professor of law at the University of Ottawa and research chair in Internet law and e-commerce in Sunday column in the Toronto Star.

Canadian Radio-television and Telecommunications Commission, the equivant of the Federal Communications Commission in Canada, said last week it would delay a rule that would effectively allow ISPs to charge users by how much data they consume by metering wholesale costs to smaller ISPs.

The rule was supposed to go into effect on March 1, but then a firestorm of consumer protests led ISPs to reconsider. Canadian officials took to Twitter to express their views with Prime Minister Stephen Harper saying he was concerned about the rule and would ask for a review. Canadian Industry Minister Tony Clement wrote on Twitter that he would reverse the decision.

@TonyClement_MP: I remain very concerned by the #UBB decision of the CRTC & look forward to my review being completed ASAP.

Public interest group Openmedia.ca collected hundreds of thousands of signatures on an online petition called Stop the Meter. It's also raised consumer support through a Facebook page with more than 50,000 fans.

The CRTC said usage-based billing was made sense because as small portion of heavy users appeared to raise network costs for all.

But that practice could stop consumers from trying new services, according to a study by Credit Suisse. In January, a group of Credit Suisse analysts concluded Netflix use in Canada with new data caps would likely move those viewers to higher tiers, adding about $12 to those consumers bills, according to reports.

In an earnings conference call with analysts, Netflix CEO Reed Hastings said the Canada metered billing decision could have an adverse affect on the company, which is trying to grow its business there and globally.

And in a letter to shareholders last month, Netflix warned of the risk of U.S. ISPs switching from usage-based pricing models from flat fees.

"We hope this doesn’t happen, and will do what we can to promote the unlimited-up-to-a-large-cap model," Hastings wrote. "Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber. The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary."

