Bell Canada demanded yesterday that the Canadian government drop its plan to offer competing ISPs regulated access to Bell's new fiber-to-the-node network. Like most incumbent providers, Bell isn't thrilled about the line-sharing rules that currently govern its "last mile" copper wiring, and it wants to prevent them from being extended to next-generation networks.

The debate is a long-standing one. Telcos complain that wholesale price regulation discourages investment, so while it may open up immediate DSL competition (as it did in the US when line-sharing rules were enforced by the FCC), it might also prevent the underlying network from getting much faster. What company wants to sink billions into a new fiber rollout if it is required to offer access to its own competitors?

Bell's tough-talking statement yesterday came right out and promised that Bell would pull its investment dollars during a time of economic uncertainty unless it could retain total pricing control over its "next-generation network services" (whether fiber-to-the-node actually qualifies as "next-generation" is a question for another day).

"The alternative of regulated access will have significant implications for our network and other investments going forward," said CEO George Cope. "Despite current economic conditions, BCE has committed to investing more than $2.5 billion in the Canadian economy in 2009 alone."

It was left to Kevin Crull, head of Bell Residential Services, to spell out the implied threat. "By regulating who can sell our next-generation network services and how, the [Canadian telecoms regulator's] decision alters the financial case for the $700 million we are investing in accelerating the deployment of our next-generation fibre over the next three years and puts further investment at risk," added Kevin Crull.

The government's current insistence on line-sharing regulation has given rise to numerous small ISPs, such as Wireless Nomad, which rely largely on Bell Canada's copper wiring for last-mile access to customers. Bell has for some time made life more difficult for these wholesale buyers, doing things like throttling P2P traffic on wholesale lines without giving the small ISPs advance notice. Such moves make it increasingly difficult for the ISPs to differentiate themselves from Bell's own residential ISP service.

Europe says yes to line-sharing

In Europe, where cable never made the same headway, line-sharing rules looked like the only feasible way to generate ISP competition, and they remain in place to this day in most countries. BT, the incumbent carrier in the UK, even agreed (under pressure from regulator Ofcom) to split its phone business in two. One unit, called Openreach, would handle the maintenance and sale of last-mile circuits, while another (and financially separate) unit would have to buy access from Openreach just like any other competitor. Openreach now has more than 400 phone companies and ISPs accessing its lines.

Because BT is now just another Openreach customer, Openreach has (in theory) no worries that upgrading to fiber would simply help its competitors. But the investment issue remains a real one. As Openreach starts work on a fiber project of its own known as "Next Generation Access," it is demanding greater price flexibility from the government to make sure it can pay for the scheme.

Earlier this month, Ofcom announced the rules: Openreach would have "pricing freedom" over the service so that investors can make an "appropriate return." In other words, no price controls. But Openreach is required to offer the same wholesale price to anyone who wants it.

Ofcom is convinced that simply requiring the UK setup has little effect on investment. An Ofcom presentation from 2008 collected data from across Europe to make its grammatically mangled point that "functional separation has not impacted negatively on investment current nor next generation."

In Denmark, regulators are going even further, this week requiring the country's main cable company to open its broadband network to competitors. The European Commission indicated yesterday that it supported the plan. Denmark is in a unique situation, though, since the incumbent telecoms operator, TDC, is also the owner of the largest cable network, and the two networks don't compete in places where they otherwise might.

And France has gone whole-hog for line-sharing, creating a host of different DSL competitors that made enough money to start laying their own fiber networks through Parisian sewers and Metro tunnels (which the government makes quite easy).

The US context

Line-sharing rules were also in place in the US—at least for the phone companies—during the 1990s. Access to the "last mile" had to be offered at "nondiscriminatory" rates, though an attempt to extend the plan to cable systems was shot down by the Supreme Court in the Brand X case. The FCC eventually ruled that neither telcos nor cable companies would have to abide by the line-sharing rules; the thinking was that the two would compete against each other and that would be competition enough.

So duopoly is largely the name of the game now. Companies like AT&T do still sell their lines at wholesale to competing ISPs, but they are no longer under price constraints and few ISPs make much use of the system. Fortunately, the surge in wireless Internet access, the speed boost coming to cable from DOCSIS 3.0, and Verizon's FiOS system are all strengthening US broadband options.

There's no serious political debate at the moment about returning to line-sharing rules here, just as there's little debate about the basic principle of loop unbundling over in Europe. But in Canada, the debate is alive and well, and the conflict between Bell Canada and the government may govern the shape of next-gen network access in the Great White North.